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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1999
REGISTRATION NO. 333-63789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTERA ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8742 95-4700410
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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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:
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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, CA 92101 125 HIGH STREET
(619) 236-1234 BOSTON, MA 02110
(617) 248-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
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Class A Common Stock, $.001 par value............... $176,812,500 $50,633
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(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) The Registrant has previously paid the amount of $25,665. The previous
filing fee was based on the fee in effect prior to October 22, 1998.
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.
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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 FEBRUARY 24, 1999
PROSPECTUS
, 1999
10,250,000 SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
All of the 10,250,000 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"), through its
wholly-owned subsidiary, Nextera Enterprises Holdings, Inc. ("Nextera
Holdings"), will control approximately 66.1% 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 $13.00 and $15.00 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.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share....................... $ $ $
Total(3)........................ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters, a
description of the use of a portion of the net proceeds to repay
indebtedness to an affiliate of one of the Underwriters and the payment of
certain other compensation to certain Underwriters.
(2) Before deducting expenses estimated at $880,000, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 1,537,500 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 , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE> 3
[NEXTERA'S VALUE PROPOSITION CHART]
Graphic entitled "Nextera's Value Proposition" depicts four overlapping
circles in the center of the graphic with three inward pointing arrows
surrounding the circles in the upper right, upper left and lower center portions
of the graphic. The upper-most circle contains the words "Research and
Strategy." The right-most circle contains the words "Process Transformation."
The lower-most circle contains the words "Human Capital." The left-most circle
contains the words "Information Technology." The inward-pointing arrow in the
upper left corner of the graphic has superimposed upon it the heading
"Multi-Disciplinary Consulting Expertise." The inward-pointing arrow in the
upper right corner of the graphic has superimposed upon it the heading
"Client-Focused Results Delivery." The inward-pointing arrow at the lower center
of the graphic has superimposed upon it the heading "Collaborative Businesses."
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 bullet points listed
underneath: "Leverage Human Capital," "Measure Business Performance" and
"Develop Enterprise-wide Solutions." The inward-pointing arrow in the upper left
corner of the graphic has superimposed upon it the heading "Comprehensive
Consulting Expertise." The inward-pointing arrow in the upper right corner of
the graphic has superimposed upon it the heading "Client-Focused Results
Delivery." The inward-pointing arrow at the lower center of the graphic has
superimposed upon it the heading "Synergistic Business Models."
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 regulatory and market conditions, (ii)
transform business processes to achieve higher levels of operational
performance, (iii) capitalize on the capabilities of their internal resources,
and (iv) apply technology to support innovative approaches to conducting
business. Nextera brings together complementary services drawn from its four
practice areas and delivers these services through client-focused teams that
consist of individuals with the competencies needed to address all aspects of a
client's consulting needs. Nextera employs a business model in which business
units independently manage their operations while participating in Nextera's
programs for cross-company joint marketing and opportunity management, sharing
best practices, locating needed expertise, and capitalizing on the Company's
knowledge base.
2
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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.
------------------------
Lexecon is a registered service mark and Nextera, Sibson, Pyramid Imaging,
Nextera Business Performance Solutions Group, Symmetrix, SiGMA, The Planning
Technologies Group and Alexander 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
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[THIS PAGE INTENTIONALLY LEFT BLANK]
4
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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 8. Unless
otherwise indicated, (i) all references in this Prospectus to Nextera or the
Company mean Nextera Enterprises, Inc., and its direct and indirect
subsidiaries, including the operations of, or the successors to, Nextera
Business Performance Solutions Group, Inc. (formerly Symmetrix, Inc.), SiGMA
Consulting, LLC, The Planning Technologies Group, Inc., Pyramid Imaging, Inc.,
Sibson & Company, L.P., Sibson Canada, Inc., Lexecon Inc. and The Alexander
Corporation Limited (each an "Acquired Company" and collectively the "Acquired
Companies") prior to their acquisition by the Company, and the operations of
Nextera Enterprises, L.L.C. ("Nextera LLC"), a predecessor to Nextera
Enterprises, Inc., prior to Nextera LLC's liquidation and dissolution; (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 the Company and the exchange of all exchangeable shares of a
Canadian subsidiary of the Company (the "Exchangeable Shares") for Class A
Common Stock (see "The Company--Exchangeable Shares"); and (iii) 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, economic analysis, operations improvement, organizational
design and information technology ("IT") primarily to Fortune 500 and other
multinational companies and government agencies. 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 analyzing underlying strategic and
economic issues affecting business performance, 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, regulatory changes,
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
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 Research and Strategy
Services, Process Transformation Services, Human Capital Services, and
Information Technology Consulting Services. The Research and Strategy Services
practice provides in-depth business and economic analyses of business
conditions, relevant business frameworks and business practices. Through the
Research and Strategy Services practice area, Nextera assists senior management
in proactively developing, refining and managing business strategies, action
plans and core competencies, provides litigation support, including expert
testimony, principally in antitrust and securities matters, and also furnishes
focused research on a number of issues of client concern. The Process
Transformation Services practice helps organizations solve complex operational
issues through major business transformation programs, redesigned business
processes, and best practices adaptation. The Human Capital Services practice
assists clients in implementing organizational and strategic changes established
by senior management through all levels of the organization. The Information
Technology Consulting Services practice applies emerging technologies such as
web-based technologies and electronic commerce to design and develop high impact
business process support systems and knowledge management systems.
Nextera's flexible delivery model, which is designed to bring together
required expertise in business strategy and research, operations improvement,
organizational design and IT consulting, 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, diversified services, energy,
5
<PAGE> 7
entertainment, financial services, government, health care, insurance,
manufacturing, media, retail and technology. Representative clients include
America Online, Inc., The Chubb Corporation, Duke Energy Corporation,
International Business Machines Corporation, MCI WorldCom, Inc., Mead Johnson &
Company, National Broadcasting Company, Inc., SmithKline Beecham, PLC and the
United States Department of Justice.
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 comprehensive 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
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Class A Common Stock offered by the Company............ 10,250,000 shares
Common Stock to be outstanding after the Offering:(1)
Class A Common Stock.............................. 28,791,661 shares(2)(3)
Class B Common Stock.............................. 4,274,630 shares
Total Common Stock........................... 33,066,291 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, Inc. ("Knowledge Universe"),
an affiliate of the Company; to pay
certain other fees; and for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................. NXRA
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(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 Universe or
its Affiliates" and "Description of Capital Stock."
(2) Excludes (i) 5,000,000 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 3,163,652 shares
will be outstanding upon the closing of the Offering, see
"Management--Employee Benefit Plans," (ii) 135,480 shares of Class A Common
Stock issuable upon exercise of options reserved for issuance to certain
non-stockholder key executives of Lexecon Inc. ("Lexecon") assuming the
price per share of the Class A Common Stock in the Offering is $14.00 (the
number of shares subject to such options will range from a minimum of 31,560
shares if the price per share in the Offering is $17.50 or higher to a
maximum of 197,760 shares if the price per share in the Offering is $12.50
or less), see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations," (iii) 2,558,330 shares of
Class A Common Stock (assuming the price per share of Class A Common Stock
in the Offering is $14.00) issuable upon exercise of options which the
Company has agreed to issue to certain personnel of Lexecon under the
Nextera/Lexecon Limited Purpose Stock Option Plan (the "Limited Purpose
Plan"), see "Management--Employee Benefit Plans," (iv) 250,000 shares of
Class A Common Stock issuable upon exercise of certain warrants issued in
connection with the acquisition of Lexecon (the "Lexecon Acquisition"), see
"Certain Transactions--Guaranty and Warrants to Purchase Class A Common
Stock," and (v) 4,274,630 shares of Class A Common Stock issuable upon
conversion of the 4,274,630 outstanding shares of the Company's Class B
Common Stock. See "Description of Capital Stock."
(3) Assumes (i) the exchange of all Exchangeable Shares for 197,813 shares of
Class A Common Stock, see "The Company--Exchangeable Shares," and (ii) the
issuance of 993,520 shares of Class A Common Stock to the former
stockholders of Lexecon in connection with the Lexecon Acquisition (the
"Lexecon Contingent Shares") (assuming the price per share of the Class A
Common Stock in the Offering is $14.00). The number of Lexecon Contingent
Shares to be issued will range from a minimum of 231,440 shares if the price
per share in the Offering is $17.50 or higher to a maximum of 1,450,240
shares if the price per share in the Offering is $12.50 or less. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."
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SUMMARY CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
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ACTUAL PRO FORMA(1)
---------------------------------------- -----------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net revenues.................................. $ 7,998 $ 67,590 $135,167
Gross profit.................................. 3,280 22,605 58,853
Income (loss) from operations(2).............. (2,281) (10,189) 1,713
Net loss...................................... (3,015) (17,155) (12,044)
Net loss per share, basic and diluted(3)...... $ (0.74) $ (1.14) $ (0.61)
Weighted average shares outstanding, basic and
diluted..................................... 4,061 14,997 19,891
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,496 $ 5,328
Working capital (deficit)................................... (65,761) 14,024
Total assets................................................ 176,691 193,576
Total short-term debt and capital lease obligations......... 82,487 6,638
Total long-term debt and capital lease obligations.......... 55,749 2,600
Total stockholders' equity.................................. 11,490 158,333
</TABLE>
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(1) The summary pro forma combined statement of operations data for the year
ended December 31, 1998 is presented as if the acquisitions of the Acquired
Companies other than The Alexander Corporation Limited ("Alexander") had
been consummated as of January 1, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions" and
Unaudited Pro Forma Combined Financial Statements. Alexander was acquired by
the Company in January 1999 and is not material to the Company's results of
operations or financial position.
(2) Income (loss) from operations for the year ended December 31, 1998 includes
$1,298,000 of restructuring costs related to Nextera Business Performance
Solutions Group, Inc. ("Business Performance Solutions") and a compensation
expense charge of $6,671,000 resulting from cash payments and fully-vested
stock options granted to certain non-stockholder key executives of Lexecon.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(4) Pro forma as adjusted to give effect to (i) the sale of 10,250,000 shares of
Class A Common Stock at an assumed initial public offering price of $14.00
per share, after deducting estimated underwriting discounts and commissions
and Offering expenses payable by the Company, (ii) the application of the
estimated net proceeds of the Offering, see "Use of Proceeds" and
"Capitalization," and (iii) the issuance of 993,520 Lexecon Contingent
Shares (assuming the price per share of the Class A Common Stock in the
Offering is $14.00). The number of Lexecon Contingent Shares to be issued
will range from a minimum of 231,440 shares if the price per share in the
Offering is $17.50 or higher to a maximum of 1,450,240 shares if the price
per share in the Offering is $12.50 or less. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Acquisitions."
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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. 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 year ended December 31, 1998, Nextera experienced net losses of
$3.0 million and $17.2 million, respectively. On a pro forma basis, Nextera
experienced a net loss of $12.0 million for the year ended December 31, 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
December 31, 1998, the number of consultants employed by the Company has
increased to 429 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 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
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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. For the foreseeable future, 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 and Other Intangible Assets," "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 UNIVERSE OR ITS AFFILIATES. After the Offering,
Knowledge Enterprises will own, through Nextera Holdings, 8,810,000 shares of
Class A Common Stock and 3,844,200 shares of Class B Common Stock, which
together will represent approximately 66.1% 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 two directors to be elected in accordance with the terms
of a stockholders agreement entered into in connection with the acquisitions
(the "Sibson Acquisitions") of Sibson & Company, L.P. and Sibson Canada, Inc.
(collectively, "Sibson"), as amended in connection with the Lexecon Acquisition
(the "Stockholders Agreement"), and determine the
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disposition of all matters submitted to a vote of 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." The former stockholders of Lexecon have
not yet exercised their right to nominate a director under the 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 Enterprises is controlled by Knowledge Universe which, in turn,
is controlled by Knowledge Universe, L.L.C. ("KU, LLC"). Knowledge Enterprises
was formed to conduct certain of Knowledge Universe's businesses whose primary
customers are other businesses. Knowledge Enterprises controls businesses which
presently operate in the following three sectors: (i) career workforce
management (including staffing, employee training and testing and assessment);
(ii) business consulting through Nextera; and (iii) informational meetings and
conferences (including seminars). 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 Universe has
focused on acquiring and building education-oriented companies with activities
in areas such as youth education, continuing education, corporate training (both
classroom-based and computer-delivered), educational content creation and
distribution, and information technology and management consulting. 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 Universe or Knowledge
Enterprises independently of Nextera. There can be no assurance that conflicts
of interest between Knowledge Universe, 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 Nextera Holdings 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 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 Nextera
Holdings. KU, LLC indirectly controls Knowledge Enterprises. Lawrence J.
Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have the
power to control KU, LLC. As a result, 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 Nextera Holdings. 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, Knowledge
Universe or KU, LLC could materially adversely affect the Company's business,
operating results and financial condition. See "The
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Company--Transfer to Nextera Holdings," "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 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 AND OTHER INTANGIBLE ASSETS. As of December
31, 1998, the Company's intangible assets, net of accumulated amortization, were
approximately $125.1 million, of which approximately $39.5 million and $47.8
million were attributable to the Sibson Acquisitions and the Lexecon
Acquisition, respectively. As a result of the acquisitions of the Acquired
Companies, intangible assets are being amortized by Nextera on a straight-line
basis over five 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 will periodically evaluate the
recoverability of goodwill when indications of possible impairment are present
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 "--Operational, Financial and Accounting Risks of 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
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limited number of clients. For example, for the years ended December 31, 1997
and 1998, on a pro forma basis, the Company's ten largest clients accounted for
approximately 24%, and 29% of its net revenues, respectively. For the years
ended December 31, 1997 and 1998, on a pro forma basis, the Company's largest
client during such periods accounted for approximately 6% and 5% 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 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, diversified
services, insurance and health care industries accounted for approximately 16%,
13%, 12% and 10%, respectively, of Nextera's pro forma net revenues for the year
ended December 31, 1998. 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."
POTENTIAL CONFLICTS OF INTERESTS. The Company provides economic and
litigation consulting services primarily in connection with significant or
complex transactions, disputes or other matters that are usually adversarial or
that involve sensitive client information. Nextera's engagement by a client to
provide such services frequently precludes the Company from accepting
engagements with entities which may have interests which are adverse to the
subject matter of such engagements. In addition, the Company may be precluded
from accepting engagements due to clients' expectations of loyalty, perceived
conflicts of interests or other reasons. Accordingly, the number of both
potential clients and potential engagements is limited, particularly in the
economic consulting and litigation services markets. Moreover, in many of the
industries in which Nextera provides economic and litigation consulting
services, there has been a continuing trend toward business consolidations and
strategic alliances. These consolidations and alliances reduce the number of
potential clients for the Company's services and increase the likelihood that
the Company will be unable to continue certain ongoing engagements or accept
certain new engagements as a result of conflicts of interests. Any such result
could materially adversely affect Nextera's business, operating results and
financial condition.
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. Most of the Company's senior consultants are
not bound by non-competition agreements with the Company. Further 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--Directors, Executive Officers and Other Senior
Managers."
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.
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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 8% and 12%
of Nextera's net revenues for the years ended December 31, 1997 and 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."
EFFECT OF CHANGING LAWS AND REGULATIONS. For the years ended December 31,
1997 and 1998, Nextera derived approximately 28% and 24%, respectively, of its
pro forma net revenues from economic and litigation consulting services related
to antitrust matters, mergers and acquisitions and other securities matters. A
substantial portion of these net revenues were derived from engagements relating
to United States antitrust and securities laws. Changes in these laws, changes
in judicial interpretations of these laws or less vigorous enforcement of these
laws by the United States Department of Justice, the United States Federal Trade
Commission or other federal agencies as a result of changes in philosophy,
political decisions, priorities or other reasons could materially reduce the
magnitude, scope, number or duration of engagements available to the Company in
this area. In addition, adverse changes in general economic conditions or
conditions influencing merger and acquisition activity could have an adverse
impact on engagements in which Nextera assists clients in connection with
proposed mergers and acquisitions. Any reductions in the number of the Company's
securities, antitrust and mergers and acquisitions consulting engagements could
materially adversely affect Nextera's business, operating results and financial
condition.
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 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, economic consulting firms,
technical and economic advisory firms, individual academics, 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
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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 7% and 6% of its net
revenues on a pro forma basis from clients outside of the United States for the
years ended December 31, 1997 and 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 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,
including the systems of the Acquired Companies, for Year 2000 compliance. The
Company relies upon microprocessor-based personal computers and commercially
available applications software. Nextera is in the process of upgrading the
existing computer software and IT systems of the Company, including the Acquired
Companies. 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, including any of the
Acquired Companies, 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.
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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 December 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
$200,000. 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 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
15
<PAGE> 17
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 Nextera
Holdings, Knowledge Enterprises or their affiliates should be considered
interested stockholders subject to the provisions of Section 203. See "--Control
by Knowledge Universe or its Affiliates" and "Description of Capital Stock."
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
16
<PAGE> 18
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. The Company believes,
based on publicly available historical data, that 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 $13.41 per share in the pro forma net
tangible book value per share of Class A Common Stock after the Offering. To the
extent additional shares are issued or outstanding options and warrants to
purchase Class A Common Stock are exercised, there may 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 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 10,250,000 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 22,816,291 shares of Common Stock (including (i) 197,813
shares of Class A Common Stock issuable upon exchange of the Exchangeable Shares
and (ii) 993,520 Lexecon Contingent Shares, assuming the price per share of the
Class A Common Stock in the Offering is $14.00, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions") 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 16,133,140 shares of Class A
Common Stock and 4,257,430 shares of Class B Common Stock
17
<PAGE> 19
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 "DLJ Lock-up Agreements"). In connection with the
Lexecon Acquisition, the former stockholders of Lexecon entered into lock-up
agreements which provide that they may not sell or otherwise dispose of their
shares of Class A Common Stock for a six-month period following the Offering,
and that subsequent to such six-month period, those stockholders will not sell
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 (the "Lexecon
Lock-up Agreements" and collectively with the DLJ Lock-up Agreements, the
"Lock-up Agreements"). A total of 3,809,520 shares of Class A Common Stock are
subject to the Lexecon Lock-up Agreements (assuming the issuance of 993,520
Lexecon Contingent Shares, which number may vary based upon the price per share
of the Class A Common Stock in the Offering, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions"). 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. Giving effect to these
Lock-up Agreements and the foregoing provisions of the Company's Certificate of
Incorporation and without giving effect to the registration rights under the
Stockholders Agreement, additional shares of Class A Common Stock (including
shares issuable upon conversion of Class B Common Stock, upon the exchange of
the Exchangeable Shares and as Lexecon Contingent Shares assuming the price per
share of the Class A Common Stock in the Offering is $14.00) 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) 4,588
shares will be eligible for sale 180 days after the date of this Prospectus; and
(ii) 22,811,703 shares will become eligible for sale under Rule 144 commencing
December 31, 1999, upon the expiration of the restrictions imposed by the
Stockholders Agreement and the Lexecon Lock-up Agreements.
Following the date of this Prospectus, Nextera intends to register on one
or more registration statements on Form S-8 5,000,000 shares of Class A Common
Stock issuable under the 1998 Equity Participation Plan. The Company has also
agreed to issue options under the Limited Purpose Plan and intends to file one
or more registration statements on Form S-8 to register the shares of Class A
Common Stock that are issuable upon the exercise of such options. Of the
5,000,000 shares of Class A Common Stock issuable under the 1998 Equity
Participation Plan, 3,163,652 shares were subject to outstanding options as of
February 1, 1999, of which approximately 364,283 will be exercisable at the time
of the Offering. Assuming the price per share of Class A Common Stock in the
Offering is $14.00, the Company will grant options to purchase an aggregate of
the 2,558,330 shares of Class A Common Stock under the Limited Purpose Plan.
None of such options will be exercisable at the time of the Offering. See
"Management--Employee Benefit Plans."
Upon completion of the Offering, the holders of 18,541,661 shares of Class
A Common Stock and 4,274,630 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 (assuming the issuance of 993,520 Lexecon Contingent
Shares, which number may vary based upon the price per share of the Class A
Common Stock in the Offering, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions."). 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."
18
<PAGE> 20
THE COMPANY
The organizational structure of the Company and its subsidiaries is as
follows:
[COMPANY CHART]
Chart indicating the organizational structure of the Company depicts five
boxes. The top box contains the words "Nextera Enterprises, Inc." 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 "Timaeus, Inc." and "Critias, Inc." Below the
second box is a line leading to a third box with the number "14.3%" next to the
line. Below the top box is a line leading to the third box with the number
"85.7%" next to the line. The third box contains five bullet points: "Nextera
Business Performance Solutions Group, Inc.", "Pyramid Imaging, Inc.", "The
Planning Technologies Group, L.L.C.", "Sibson & Company, LLC" and "Sibson Canada
Co." Below the top box is a line leading to the fourth box with the number 100%
next to the line. The fourth box contains the words "Lexacon Inc." Also below
the top box is a line leading to the fifth box with the number 100% next to the
line. The fifth box contains the words "The Alexandar Corporation Limited."
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. Nextera LLC was liquidated and dissolved on December 31, 1998, at
which time the Company commenced operating 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 KU, LLC. 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."
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 $24.9 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 KU, LLC, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine,
one other employee and one former employee of Nextera LLC. The March Debenture
is subordinate 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 Note 9 of Notes to the Company's Consolidated Financial Statements. The
Debentures were amended in connection with the Lexecon Acquisition with respect
to future interest rate provisions and conversion into preferred stock on
substantially equivalent terms. See "Certain Transactions--Amendment of the
Debentures."
Transfer to Nextera Holdings. Effective August 5, 1998, KU, LLC contributed
all of its Class A Common Units and Class B Common Units of Nextera LLC and all
of its other interests in Nextera LLC, including its interest in the Debentures
and its rights under a management agreement with Nextera LLC, to
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<PAGE> 21
Knowledge Universe in exchange for shares of its capital stock. Effective August
7, 1998, Knowledge Universe 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"). In
February 1999, Knowledge Enterprises contributed all of its interest in the
Common Stock of the Company to its wholly-owned subsidiary, Nextera Holdings.
See "Certain Transactions--Management Agreement" and "Principal Stockholders."
Exchangeable 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 197,813 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. On December 31, 1998 and in connection with the
Lexecon Acquisition, all of the members of Nextera LLC (the "Members") other
than Timaeus, Inc. and Critias, Inc., the two entities that owned Sibson &
Company, L.P. prior to its acquisition by Nextera LLC (together, the "Sibson
Entities"), contributed 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)
corresponded to the percentage interests and classes of the Nextera LLC
membership interests held by such Member. Each Member that contributed Class A
Common Units of Nextera LLC received shares of Class A Common Stock and each
member that contributed Class B Common Units of Nextera LLC received 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
contributed all of the issued and outstanding common stock of the Sibson
Entities to the Company in exchange for shares of Class A Common Stock. The
aggregate percentage interests of Class A Common Stock received by the
shareholders of the Sibson Entities corresponded 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 the Company and the Lexecon Acquisition are referred to as
the "Exchange Transaction"). Subsequent to the Exchange Transaction, Nextera LLC
was liquidated and dissolved and as a result thereof distributed its assets and
liabilities to the Company and the Sibson Entities in proportion to the
membership interests held by each of them.
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<PAGE> 22
USE OF PROCEEDS
The net proceeds to Nextera from the sale of the 10,250,000 shares offered
by the Company pursuant to the Offering are estimated to be approximately $132.9
million ($153.0 million if the Underwriters' over-allotment option is exercised
in full), at an assumed offering price of $14.00 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 $78.3 million to repay outstanding principal and
interest under a $77.5 million credit facility entered into effective
August 31, 1998 and amended on December 31, 1998 (the "Bridge Loan") which
bears interest at 12% per annum, and matures on April 30, 1999. Under the
Bridge Loan, the Company borrowed $38.0 million to finance the Sibson
Acquisitions, $31.1 million to finance the Lexecon Acquisition, $4.2
million to finance the payment of bonuses to certain non-stockholder key
executives of Lexecon, $2.0 million to finance the acquisition of Alexander
and $2.2 million for general corporate purposes, including working capital.
See "Certain Transactions--Bridge Loan Amendment." Knowledge Universe holds
a note from the Company with a principal amount of $37.5 million and an
entity not affiliated with the Company holds the remaining interests under
the Bridge Loan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Underwriting."
(ii) approximately $54.3 million to repay outstanding principal and
interest on the March and January Debentures. Each of the Debentures bears
interest at 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 one other employee of the Company, who
will receive payments of approximately $53,402,000, $636,000, $55,000,
$79,000, $79,000, and $79,000, respectively upon repayment of the
Debentures. The indebtedness associated with the Debentures was incurred to
finance acquisitions and for general working capital purposes. See "The
Company--Recapitalization," "Certain Transactions--Investments in the
Company" and "--Amendment of the Debentures." Upon the repayment of the
Debentures, Messrs. Brebach and Muldowney, Ms. Bergevine and one other
employee of the Company will repay $636,000, $79,000, $74,000 and $79,000,
respectively, pursuant to promissory notes executed by them and held by the
Company. See "Certain Transactions--Loans to Certain Officers."
(iii) approximately $360,000 to pay accrued management fees to
Knowledge Universe. See "Certain Transactions--Management Agreement."
(iv) approximately $750,000 will be paid to an entity not affiliated
with the Company in consideration for certain consents and amendments given
in connection with the amendment to the Bridge Loan. See "Underwriting."
(v) 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.
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<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of Nextera as of December
31, 1998 on (i) an actual basis and (ii) a pro forma as adjusted basis to give
effect to (a) the exchange of all Exchangeable Shares for 197,813 shares of
Class A Common Stock, (b) the issuance of 993,520 Lexecon Contingent Shares
(assuming the price per share of the Class A Common Stock in the Offering is
$14.00), and (c) the sale of 10,250,000 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 $14.00 per share, after deducting
estimated underwriting discounts and commissions and Offering expenses payable
by the Company. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisitions." 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 DECEMBER 31, 1998
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt and capital lease obligations......... $ 82,487 $ 6,638
Total long-term debt and capital lease obligations.......... 55,749 2,600
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding, actual
and pro forma as adjusted.............................. -- --
Exchangeable Shares, no par value, 2,500,000 shares
authorized, 197,813 shares issued and outstanding,
actual, and zero shares issued and outstanding, pro
forma as adjusted...................................... 495 --
Class A Common Stock, $0.001 par value; 50,000,000 shares
authorized, 16,811,740 shares issued and outstanding,
actual, and 28,253,073 shares issued and outstanding,
pro forma as adjusted(1)............................... 17 28
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 4,274,630 shares issued and outstanding,
actual and pro forma as adjusted....................... 4 4
Additional paid-in capital................................ 31,144 178,471
Accumulated deficit....................................... (20,170) (20,170)
-------- --------
Total stockholders' equity (deficit)................... $ 11,490 $158,333
-------- --------
Total capitalization.............................. $149,726 $167,571
======== ========
</TABLE>
- ------------------------------
(1) Excludes (i) 5,000,000 shares of Class A Common Stock reserved for issuance
under the 1998 Equity Participation Plan pursuant to which options to
purchase 3,163,652 shares will be outstanding upon the closing of the
Offering, see "Management--Employee Benefit Plans," (ii) 384,000 shares of
Class A Common Stock issuable upon exercise of options granted to certain
non-stockholder key executives of Lexecon, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations," (iii) 135,480 shares of Class A Common Stock issuable upon
exercise of options reserved for issuance to certain non-stockholder key
executives of Lexecon assuming the price per share of the Class A Common
Stock in the Offering is $14.00 (the number of shares subject to such
options will range from a minimum of 31,560 shares if the price per share in
the Offering is $17.50 or higher to a maximum of 197,760 shares if the price
per share in the Offering is $12.50 or less), see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations," (iv) 2,558,330 shares of Class A Common Stock (assuming the
price per share of Class A Common Stock in the Offering is $14.00) issuable
upon exercise of options which the Company has agreed to issue to certain
personnel of Lexecon under the Limited Purpose Plan, see
"Management--Employee Benefit Plans," (v) 250,000 shares of Class A Common
Stock issuable upon exercise of certain warrants issued in connection with
the Lexecon Acquisition, see "Certain Transactions--Guaranty and Warrants to
Purchase Class A Common Stock," and (vi) 4,274,630 shares of Class A Common
Stock issuable upon conversion of the 4,274,630 shares of the Company's
Class B Common Stock. See "Description of Capital Stock."
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<PAGE> 24
DILUTION
As of December 31, 1998, the pro forma net tangible book deficit of Nextera
was $(113.6) million, or $(5.10) per share of Common Stock. Pro forma net
tangible book value per share is equal to the amount of total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding after giving effect to the issuance of 993,520 Lexecon Contingent
Shares (assuming the price per share of the Class A Common Stock in the Offering
is $14.00) and the exchange of the Exchangeable Shares for 197,813 shares of
Class A Common Stock. After giving effect to the sale of the 10,250,000 shares
of Class A Common Stock offered hereby at an assumed initial public offering
price of $14.00 per share, and after deducting the estimated underwriting
discounts and commissions and Offering expenses payable by the Company, the net
tangible book value of Nextera as of December 31, 1998 would have been $19.3
million, or $0.59 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $5.69 per share of Common Stock
to existing stockholders and an immediate dilution of $13.41 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............. $14.00
Pro forma net tangible book value per share before the
Offering............................................... $(5.10)
Increase per share attributable to new investors.......... 5.69
------
Pro forma net tangible book value per share after the
Offering.................................................. 0.59
------
Dilution per share to new investors......................... $13.41
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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............. 22,277,703 68.5% $ 45,569,000 24.1% $ 2.05
New stockholders.................. 10,250,000 31.5 143,500,000 75.9 14.00
---------- ----- ------------ ------ ------
Total................... 32,527,703 100.0% $189,069,000 100.0% $ 5.81
========== ===== ============ ====== ======
</TABLE>
The foregoing tables and calculations assume (i) no exercise of the
Underwriters' over-allotment option, (ii) no exercise of options to purchase
2,480,240 shares of Class A Common Stock at a weighted average exercise price of
$6.50 per share granted under the 1998 Equity Participation Plan outstanding as
of December 31, 1998, (iii) no exercise of options to purchase 384,000 shares of
Class A Common Stock granted to certain non-stockholder key executives of
Lexecon, (iv) no exercise of options to purchase 135,840 shares of Class A
Common Stock issuable upon exercise of options reserved for issuance to certain
non-stockholder key executives of Lexecon at an exercise price of $1.50 per
share assuming the price per share of the Class A Common Stock in the Offering
is $14.00 (the number of shares subject to such options will range from minimum
of 31,560 shares if the price per share in the Offering is $17.50 or higher to a
maximum of 197,760 if the price per share in the Offering is $12.50 or less),
(v) no issuance of 2,558,330 shares of Class A Common Stock (assuming the price
per share in the Offering is $14.00) issuable upon exercise of options which the
Company has agreed to issue to certain personnel of Lexecon under the Limited
Purpose Plan, and (v) no exercise of warrants to purchase 250,000 shares of
Class A Common Stock issuable upon exercise of certain warrants issued in
connection with the Lexecon Acquisition at an exercise price of $11.20 per share
(assuming the price per share in the Offering is $14.00). The exercise of
options and warrants to purchase Class A Common Stock will result in further
dilution to new investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions," and "--Results of
Operations," "Management--Employee Benefit Plans," "Description of Capital
Stock--Warrants," "Certain Transactions--Guaranty and Warrants to Purchase Class
A Common Stock," and "Shares Eligible for Future Sale."
23
<PAGE> 25
SELECTED CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
The following selected financial data 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 year ended December 31, 1998 and the Balance
Sheet Data as of December 31, 1997 and 1998 have been derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Ernst & Young LLP, independent auditors, whose report with
respect thereto is included elsewhere in this Prospectus. 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, 1998 combine the historical statements of operations of Nextera and
the Acquired Companies other than Alexander as if such acquisitions had been
completed on January 1, 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
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues................................................ $ 7,998 $ 67,590 $135,167
Cost of revenues............................................ 4,718 44,985 76,314
------- -------- --------
Gross profit................................................ 3,280 22,605 58,853
Selling, general and administrative expenses................ 5,306 23,103 44,005
Amortization expense........................................ 255 1,722 4,326
Restructuring costs(2)...................................... -- 1,298 1,298
Compensation expense--other(3).............................. -- 6,671 7,511
------- -------- --------
Income (loss) from operations............................... (2,281) (10,189) 1,713
Interest income (expense), net.............................. (32) (6,723) (13,521)
------- -------- --------
Loss before provision for income taxes...................... (2,313) (16,912) (11,808)
Provision for income taxes.................................. 702 243 236
------- -------- --------
Net loss.................................................... $(3,015) $(17,155) $(12,044)
======= ======== ========
Net loss per common share, basic and diluted(4)............. $ (0.74) $ (1.14) $ (0.61)
Weighted average common shares outstanding, basic and
diluted................................................... 4,061 14,997 19,891
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 554 $ 1,496
Working capital (deficit)................................. (335) (65,761)
Total assets.............................................. 22,655 176,691
Total short-term debt and capital lease obligations....... 1,833 82,487
Total long-term debt and capital lease obligations........ 969 55,749
Total stockholders' equity................................ 16,732 11,490
</TABLE>
- ------------------------------
(1) The pro forma selected combined statement of operations data for the year
ended December 31, 1998 are presented as if the acquisitions of the Acquired
Companies other than Alexander had been consummated as of January 1, 1998.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Acquisitions" and Unaudited Pro Forma Combined Financial
Statements. Alexander was acquired by the Company in January 1999 and is not
material to the Company's results of operations or financial position.
(2) Restructuring costs related to Business Performance Solutions.
(3) Results from cash payments and fully-vested stock options granted to certain
non-stockholder key executives of Lexecon. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
24
<PAGE> 26
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 leading-edge consulting services focused
on business strategy, economic analysis, operations improvement, organizational
design and IT primarily to Fortune 500 and other multinational companies and
government agencies. 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 analyzing underlying strategic and economic issues
affecting business performance, 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 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.
For the foreseeable future, Nextera will be unable to account for future
acquisitions under the pooling-of-interests method of accounting because, among
other reasons, the Company is a controlled subsidiary. 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 Enterprises and Knowledge Universe 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 (i)
career workforce management (including staffing, employee training and testing
and assessment), (ii) business consulting through Nextera, and (iii)
informational meetings and conferences (including seminars). Knowledge Universe
has focused on acquiring and building education-oriented companies with
activities in areas such as youth education, corporate training (both
classroom-based and computer-delivered), educational content creation and
distribution, and information technology and management consulting. 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
25
<PAGE> 27
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 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 8% and 12% of Nextera's net
revenues for the years ended December 31, 1997 and 1998, respectively. See "Risk
Factors--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 24% and 29%
of pro forma net revenues for the years ended December 31, 1997 and 1998,
respectively. For the years ended December 31, 1997 and 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 Net Revenues Within a
Relatively Limited Number of Clients and Industries."
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.
Through December 31, 1998, the Company and certain of its subsidiaries were
treated as partnerships for federal and state income tax purposes and all items
of income, expense and tax credits were passed through to their respective
equity holders. Business Performance Solutions (formerly named Symmetrix, Inc.
("Symmetrix")) and Pyramid Imaging, Inc. ("Pyramid"), two of the Company's
wholly owned subsidiaries, were subject to income taxes for periods ended prior
to January 1, 1999. The Company's provision for income taxes for periods ended
through December 31, 1998 reflect the accrued tax liabilities of these two
subsidiaries and certain items of income and loss from the ownership of Lexecon.
As of December 31, 1998, Business Performance Solutions had pre-acquisition net
operating loss carryforwards of approximately $5.8 million which arose
principally as a result of disqualifying dispositions of Business Performance
Solutions' previously outstanding stock options. As a result of the ownership
change of Business Performance Solutions upon its acquisition by the Company,
these net operating loss carryforwards are subject to limitations under the
Internal Revenue Code. See Note 6 of Notes to the Company's Consolidated
Financial Statements. Effective December 31, 1998, as a result of the Exchange
Transaction, the Company changed its form of incorporation and became subject to
income taxes. The Company's tax provisions, both historically and for periods
ending after December 31, 1998, did and are expected to vary from the federal
statutory rate of 34% predominately due to nondeductible goodwill amortization,
utilization of post-acquisition net operating losses, state and local taxes and
nondeductible meal expenses.
26
<PAGE> 28
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, which has been renamed
Nextera Business Performance Solutions Group, Inc. Through Business Performance
Solutions, the Company offers enhanced services in acquisition due diligence,
customer profitability, IT strategy assessment and design, construction, and
deployment of complete business systems. Business Performance Solutions was
acquired for $15.5 million in cash.
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 offered
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 December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions. SiGMA subsequently liquidated and dissolved and
distributed all of its assets to Business Performance Solutions.
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, 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 2,613,087 shares of Class A Common Stock and the Exchangeable Shares
which may be exchanged at the option of the holders into 197,813 shares of Class
A Common Stock.
Effective December 31, 1998, the Company acquired Lexecon, an
Illinois-based economic consulting firm. Through Lexecon, Nextera provides a
full range of economic consulting services, including economic, financial and
statistical analysis and expert testimony, which are predominately used in
matters relating to complex litigation and regulatory proceedings. Lexecon was
acquired for $31.1 million in cash, 2,816,000 shares of Class A Common Stock and
the Lexecon Contingent Shares to be determined based on the price per share of
the Class A Common Stock in the Offering. The number of Lexecon Contingent
Shares to be issued will range from a minimum of 231,440 shares if the price per
share in the Offering is $17.50 or higher to a maximum of 1,450,240 shares if
the price per share in the Offering is $12.50 or less. Assuming the price per
27
<PAGE> 29
share of the Class A Common Stock in the Offering is $14.00, 993,520 Lexecon
Contingent Shares will be issued. However, if the Offering does not occur on or
prior to February 29, 2000, all 1,450,240 Lexecon Contingent Shares will be
deemed issued and simultaneously redeemed by the Company at a price of $7.65 per
share, which will require the Company to pay approximately $11.1 million in cash
to the former stockholders of Lexecon. The value of the Lexecon Contingent
Shares actually issued will increase the amount of goodwill the Company records
in connection with the Lexecon Acquisition. Nextera's obligation to effect the
foregoing redemption of the Lexecon Contingent Shares was guaranteed by
Knowledge Universe in consideration for the issuance of warrants to purchase
250,000 shares of Class A Common Stock. See "Certain Transactions--Guaranty and
Warrants to Purchase Class A Common Stock."
Effective January 29, 1999, the Company acquired Alexander, a United
Kingdom-based human resources consulting firm. Through Alexander, Nextera
provides human capital consulting services including leadership development,
culture change, team performance and individual coaching. Alexander was acquired
for L300,000 (approximately $490,000 as of January 29, 1999) and 150,000 shares
of Class A Common Stock, subject to post-closing adjustments. In addition, the
Company will pay an earn-out of up to an additional L700,000 over a three-year
period depending upon Alexander's satisfaction of certain performance criteria.
Effective February 21, 1999, the Company executed a nonbinding term sheet
to acquire The Economics Resource Group, Inc. ("ERG"), a Massachusetts-based
consulting firm that provides economic and strategic services primarily to
energy and other regulated industries. The transaction consideration is expected
to be up to $12 million in cash, subject to post-closing adjustment based upon
specified financial performance criteria for ERG, and the assumption of
specified liabilities. The Company proposes to enter into service agreements
with the principal stockholders of ERG and may enter into employment agreements
with other key ERG employees. The service agreements are expected to provide,
among other things, for the issuance of options to purchase Class A Common Stock
to the principal stockholders of ERG based on prior cash compensation paid to
such individuals. The transaction is subject to the Company's due diligence
review of ERG and other customary closing conditions. No assurance can be made
that the Company will consummate this acquisition or that the terms of such
acquisition will not vary from those anticipated at this time.
Effective February 23, 1999, the Company executed a nonbinding term sheet
to acquire NeoEnterprises, Inc. ("NeoEnterprises"), a Connecticut-based
electronic commerce, or "e-commerce," consulting and development company. If
this acquisition is completed, the Company will develop and provide e-commerce
services to clients. The transaction consideration is expected to be 86,000
shares of Class A Common Stock. NeoEnterprises is expected to be merged into
Pyramid as a part of the acquisition. James K. Burns, the sole stockholder of
NeoEnterprises, became an employee of the Company effective February 1, 1999.
See "Management -- Directors, Executive Officers, and Other Senior Managers." It
is anticipated that Mr. Burns will receive an earn-out of up to an additional
84,000 shares of Class A Common Stock over a five-year period depending upon
Pyramid's satisfaction of certain performance criteria. No assurance can be made
that the Company will consummate this acquisition or that the terms of such
acquisition will not vary from those anticipated at this time.
28
<PAGE> 30
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 FOR THE THREE MONTHS ENDED
THROUGH YEAR ENDED --------------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1998 1997(1) 1997 1997 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $ 7,998 $ 67,590 $ -- $ 3,039 $4,959 $ 8,186 $13,909
Cost of revenues..... 4,718 44,985 -- 1,851 2,867 5,623 9,315
------- -------- ----- ------- ------ ------- -------
Gross profit....... 3,280 22,605 -- 1,188 2,092 2,563 4,594
Selling, general and
administrative
expenses........... 5,306 23,103 987 1,848 2,471 2,886 4,410
Amortization
expense............ 255 1,722 -- 101 154 224 344
Restructuring
costs(2)........... -- 1,298 -- -- -- -- --
Compensation
expense--
other(3)........... -- 6,671 -- -- -- -- --
------- -------- ----- ------- ------ ------- -------
Loss from
operations....... (2,281) (10,189) (987) (761) (533) (547) (160)
Interest income
(expense), net..... (32) (6,723) 3 8 (43) (1,567) (1,104)
------- -------- ----- ------- ------ ------- -------
Loss before
provision for
income taxes..... (2,313) (16,912) (984) (753) (576) (2,114) (1,264)
Provision for income
taxes.............. 702 243 -- 280 422 125 75
------- -------- ----- ------- ------ ------- -------
Net loss........... $(3,015) $(17,155) $(984) $(1,033) $ (998) $(2,239) $(1,339)
======= ======== ===== ======= ====== ======= =======
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1998
(IN THOUSANDS)
<S> <C> <C>
Net revenues......... $17,486 $28,009
Cost of revenues..... 12,641 17,406
------- -------
Gross profit....... 4,845 10,603
Selling, general and
administrative
expenses........... 7,279 8,528
Amortization
expense............ 466 688
Restructuring
costs(2)........... 967 331
Compensation
expense--
other(3)........... -- 6,671
------- -------
Loss from
operations....... (3,867) (5,615)
Interest income
(expense), net..... (1,648) (2,404)
------- -------
Loss before
provision for
income taxes..... (5,515) (8,019)
Provision for income
taxes.............. -- 43
------- -------
Net loss........... $(5,515) $(8,062)
======= =======
</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.
(2) Restructuring costs are related to Business Performance Solutions.
(3) Results from cash payments and fully-vested stock options granted to certain
non-stockholder key executives of Lexecon.
29
<PAGE> 31
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
(DATE OF INCEPTION) FOR THE FOR THE THREE MONTHS ENDED
THROUGH YEAR ENDED --------------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1998 1997 1997 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... 100% 100% -- 100% 100% 100% 100%
Cost of revenues..... 59 67 -- 61 58 69 67
---- --- ---- ---- ---- ---- ---
Gross profit....... 41 33 39 42 31 33
Selling, general and
administrative
expenses........... 66 34 61 50 35 32
Amortization
expense............ 3 3 3 3 3 2
Restructuring
costs.............. -- 2 -- -- -- --
Compensation
expense--other..... -- 10 -- -- -- -- --
---- --- ---- ---- ---- ---- ---
Loss from
operations....... (29) (15) (25) (11) (7) (1)
Interest income
(expense),
net................ 0 (10) 0 (1) (19) (8)
---- --- ---- ---- ---- ---- ---
Loss before
provision for
income taxes..... (29) (25) (25) (12) (26) (9)
Provision for income
taxes.............. 9 -- 9 8 1 1
---- --- ---- ---- ---- ---- ---
Net loss........... (38%) (25%) (34%) (20%) (27%) (10%)
==== === ==== ==== ==== ==== ===
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1998
<S> <C> <C>
Net revenues......... 100% 100%
Cost of revenues..... 72 62
--- ---
Gross profit....... 28 38
Selling, general and
administrative
expenses........... 42 30
Amortization
expense............ 3 2
Restructuring
costs.............. 6 1
Compensation
expense--other..... -- 24
--- ---
Loss from
operations....... (22) (20)
Interest income
(expense),
net................ (9) (9)
--- ---
Loss before
provision for
income taxes..... (32) (29)
Provision for income
taxes.............. -- --
--- ---
Net loss........... (32%) (29%)
=== ===
</TABLE>
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 (i) the
three months ended December 31, 1998 versus the three months ended September 30,
1998, (ii) the three months ended September 30, 1998 versus the three months
ended June 30, 1998, (iii) the three months ended June 30, 1998 versus the three
months ended March 31, 1998, and (iv) 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 Lexecon Acquisition was consummated on December 31, 1998 and
Alexander was acquired by the Company in January 1999, the following
period-to-period comparisons do not reflect the results of Lexecon or Alexander.
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COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net Revenues. Net revenues increased 60.2% to $28.0 million for the three
months ended December 31, 1998 from $17.5 million for the three months ended
September 30, 1998. This increase was due primarily to the inclusion of Sibson's
net revenues for the three months ended December 31, 1998 as compared to only
one month of such net revenues in the three months ended September 30, 1998. The
increase in revenues was also attributable to a reduction reflected during the
three months ended September 30, 1998 in the estimated percentage of completion
of a fixed-price contract. No such reduction was reflected in the three months
ended December 31, 1998. See "Business -- Legal Proceedings" for a discussion of
other issues related to this contract.
Gross Profit. Gross profit increased 118.8% to $10.6 million for the three
months ended December 31, 1998 from $4.8 million for the three months ended
September 30, 1998. Gross margin increased to 37.9% for the three months ended
December 31, 1998 from 27.7% for the three months ended September 30, 1998. The
increase in gross profit and gross margin was due primarily to the Sibson
Acquisitions. Gross profit and gross margin also increased due, to a lesser
extent, to a reduction reflected during the three months ended September 30,
1998 in the estimated percentage of completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.2% to $8.5 million for the three months
ended December 31, 1998 from $7.3 million for the three months ended September
30, 1998. As a percentage of net revenues, such expenses decreased to 30.5% for
the three months ended December 31, 1998 from 41.6% for the three months ended
September 30, 1998. The dollar increase was due primarily to the inclusion of
the Sibson Acquisitions for the entire three months ended December 31, 1998 and
the inclusion in the three months ended December 31, 1998 of $0.4 million of a
supplemental management fee charge by Knowledge Universe, offset in part by the
inclusion during the three months ended September 30, 1998 of $1.1 million of a
supplemental management fee charge by Knowledge Universe for 1998, and the
inclusion of $0.3 million of compensation expense related to the purchase of
Common Stock by certain of the Company's executive officers. See "Certain
Transactions--Management Agreement."
Interest Income (Expense), Net. Interest expense, net increased 45.9% to
$2.4 million for the three months ended December 31, 1998 from $1.6 million for
the three months ended September 30, 1998. This increase was due primarily to
the borrowings to fund the Sibson Acquisitions on August 31, 1998. See
"Liquidity and Capital Resources," "Use of Proceeds" and Note 9 of Notes to the
Company's Consolidated Financial Statements.
Restructuring. During the three months ended December 31, 1998 and
September 30, 1998, the Company recorded restructuring costs of $0.3 million and
$1.0 million, respectively, related to Business Performance Solutions. The
restructuring charge recorded during the three months ended December 31, 1998
consisted of severance and termination costs. The restructuring charges recorded
during the three months ended September 30, 1998 consisted principally of $0.3
million for severance payments and termination costs and $0.6 million for
unutilized leased office space, net of estimated sub-lease income. The
accounting for the Company's restructuring plan and its related exit costs is in
compliance with EITF 94-3.
Compensation Expense--Other. In December 1998, the Company entered into
agreements with certain non-stockholder key executives of Lexecon under which
payments totaling $4.2 million in cash were made and fully-vested options (the
"Vested Options") to purchase 384,000 shares of Class A Common Stock at an
exercise price of $1.50 per share were granted. In addition, the Company
reserved for issuance to these key executives options to purchase Class A Common
Stock at an exercise price of $1.50 per share (the "Reserved Options"). The
number of shares of Class A Common Stock subject to the Reserved Options will be
determined based on the initial public offering price per share of the Class A
Common Stock, ranging from a minimum of 31,560 shares if the initial public
offering price per share is $17.50 or higher, to a maximum of 197,760 shares if
the initial public offering price per share is $12.50 or less. However, if the
Offering does not occur on or prior to February 29, 2000, all 197,760 Reserved
Options will be deemed issued and exercised, and the Class A Common Stock
acquired upon such exercise will be redeemed by the Company at a price of $7.65
per share, which will require the Company to pay approximately $1.2 million in
cash to such non-stockholder
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key executives of Lexecon, net of the proceeds for the exercise of such options.
The Company recorded $6.6 million in the three months ended December 31, 1998,
which represented the cash paid plus the difference between the fair market
value of the Class A Common Stock on the date of grant and the exercise price of
the Vested Options. The Company will incur additional compensation expense
related to the Reserved Options at the time the number of shares of Class A
Common Stock subject to the Reserved Options is determined.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED JUNE
30, 1998
Net Revenues. Net revenues increased 25.7% to $17.5 million for the three
months ended September 30, 1998 from $13.9 million for the three months ended
June 30, 1998. This increase was due primarily to the net revenues generated by
Sibson which was acquired effective August 31, 1998, partially offset by a
decrease in revenues resulting principally from a reduction in the estimated
percentage completion of an ongoing fixed-price contract.
Gross Profit. Gross profit increased 5.5% to $4.8 million for the three
months ended September 30, 1998 from $4.6 million for the three months ended
June 30, 1998. Gross margin decreased to 27.7% for the three months ended
September 30, 1998 from 33.0% for the three months ended June 30, 1998. The
increase in gross profit was due primarily to the Sibson Acquisitions. The
decrease in gross margin was primarily attributable to a reduction in the
estimated percentage completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 65.1% to $7.3 million for the three months
ended September 30, 1998 from $4.4 million for the three months ended June 30,
1998. As a percentage of net revenues, such expenses increased to 41.6% for the
three months ended September 30, 1998 from 31.7% for the three months ended June
30, 1998. The dollar increase was due primarily to the increase in the number of
employees attributable to the Sibson Acquisitions and the inclusion in the three
months ended September 30, 1998 of $1.1 million of the $1.5 million supplemental
management fee charged by Knowledge Universe for 1998 and approximately $0.3
million of compensation expense related to the purchase of Common Stock by
certain of the Company's executive officers during the three months ended
September 30, 1998, as well as additional hirings. Excluding the foregoing $1.1
million supplemental management fee and $0.3 million compensation expense,
selling, general and administrative expenses for the three months ended
September 30, 1998 were $5.8 million, or 33% of net revenues. See "Certain
Transactions--Management Agreement," and "--Investments in the Company."
Interest Income (Expense), Net. Interest expense increased 49.3% to $1.6
million for the three months ended September 30, 1998 from $1.1 million for the
three months ended June 30, 1998. This increase was due primarily to borrowings
under the Bridge Loan to finance the Sibson Acquisitions. See "Liquidity and
Capital Resources," "Use of Proceeds" and Note 9 of Notes to the Company's
Consolidated Financial Statements.
Restructuring. During the three months ended September 30, 1998, the
Company recorded restructuring costs of $1.0 million related to Business
Performance Solutions. These restructuring costs consisted principally of $0.3
million for severance payments and termination costs and $0.6 million for
vacated leased office space, net of estimated sub-lease income.
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
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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 52.8% 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 $1.1
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-price 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-price contract taken in the three months ended March 31, 1998,
partially offset by increased gross profit generated from SiGMA. 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 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 December 31, 1998 was $53.1 million. The
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Debentures were amended in connection with the Lexecon Acquisition with respect
to future interest rate provisions and conversion into preferred stock on
substantially equivalent terms and to provide that, in the event the Bridge Loan
remains unpaid following its maturity, the interest rate will increase to 200
basis points over the interest rate on the Bridge Loan. See "Certain
Transactions--Investments in the Company," "--Amendment of the Debentures," and
Note 12 of Notes to the Company's Consolidated Financial Statements.
On August 31, 1998, the Company entered into the Bridge Loan, which was
amended on December 31, 1998 in connection with the Lexecon Acquisition. 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 $77.5 million, of which $38.0 million was used to finance the Sibson
Acquisitions, $31.1 million was used to finance the Lexecon Acquisition, $4.2
million was used to finance the payment of bonuses to certain non-stockholder
key executives of Lexecon and $2.2 million was used for general corporate
purposes, including working capital. The Bridge Loan bears interest at 12% per
annum and matures on April 30, 1999. Prior to December 31, 1998, the Bridge Loan
bore interest at the rate of LIBOR plus 450 basis points. As of December 31,
1998, $75.8 million of principal and interest was outstanding under the Bridge
Loan, which will be repaid with a portion of the net proceeds of the Offering.
See "Use of Proceeds," "Certain Transactions--Bridge Loan Amendment" and
"Underwriting." Principally as a result of the Bridge Loan, as of December 31,
1998, the Company had a working capital deficit of $65.8 million. Subsequent to
December 31, 1998, the Company drew down an additional $2.0 million under the
Bridge Loan to finance the acquisition of Alexander and for other general
corporate purposes.
Net cash used in operating activities was $5.5 million for the year ended
December 31, 1998. The primary component of the net cash used in operations was
a net loss of $17.2 million, which was partially offset by depreciation and
amortization of $2.8 million, an increase in accounts payable and accrued
liabilities of $4.3 million, and an increase in accrued interest related to the
Debentures of $5.2 million.
Net cash used in investing activities was $97.4 million for the year ended
December 31, 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 in March 1998, the acquisition of Pyramid in March 1998, the Sibson
Acquisitions in August 1998 and the Lexecon Acquisition in December 1998,
totalling $96.1 million, exclusive of $0.9 million of cash acquired and (ii)
expenditures of $2.2 million for 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 $12.0 million
under credit facilities (collectively, the "Credit Facilities") as of December
31, 1998. Interest rates on the Credit Facilities are based on prime or
commercial paper interest rates plus margins varying from prime plus 25 basis
points to prime plus 100 basis points. The Credit Facilities are secured by
substantially all of the assets of the applicable borrower. Collectively, $6.2
million was outstanding under the Company's Credit Facilities at December 31,
1998 and bore interest at a weighted average rate of 8.5%. 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.
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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,
including the systems of the Acquired Companies, for Year 2000 compliance. The
Company relies upon microprocessor-based personal computers and commercially
available applications software. Nextera is in the process of upgrading the
existing computer software and IT systems of the Company, including the Acquired
Companies. 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, including any of the
Acquired Companies, 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 December 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
$200,000. 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
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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
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires companies to record derivatives on the bivalence sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualified for hedge accounting. SFAS 133 is
effective beginning in 2000. The adoption of SFAS 133 is not expected to have a
material impact on the financial position or results of operations of the
Company.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires companies to
capitalize qualifying computer software costs that are incurred during the
application development stage and amortize them over the software's estimated
useful life. The Company adopted the provisions of SOP 98-1 effective January 1,
1998 and capitalized costs totaling $349,000 in accordance with its provisions.
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BUSINESS
THE COMPANY
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, economic analysis, operations improvement, organizational
design and IT primarily to Fortune 500 and other multinational companies and
government agencies. 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 analyzing underlying strategic and economic issues
affecting business performance, 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 new strategic approaches.
The Company's portfolio of practice areas includes Research and Strategy
Services, Process Transformation Services, Human Capital Services, and
Information Technology Consulting Services. The Research and Strategy Services
practice provides in-depth business and economic analyses of business
conditions, relevant business frameworks and business practices. Through the
Research and Strategy Services practice area, Nextera assists senior management
in proactively developing, refining and managing business strategies, action
plans and core competencies, provides litigation support, including expert
testimony, principally in antitrust and securities matters, and also furnishes
focused research on a number of issues of client concern. The Process
Transformation Services practice helps organizations solve complex operational
issues through major business transformation programs, redesigned business
processes, and best practices adaptation. The Human Capital Services practice
assists clients in implementing organizational and strategic changes established
by senior management through all levels of the organization. The Information
Technology Consulting Services practice applies emerging technologies such as
web-based technologies and electronic commerce to design and develop high impact
business process support systems and knowledge management systems.
Nextera's flexible delivery model, which is designed to bring together
required expertise in business strategy and research, operations improvement,
organizational design and IT consulting, 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, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. Representative clients include America Online, Inc., The
Chubb Corporation, Duke Energy Corporation, International Business Machines
Corporation, MCI WorldCom, Inc., Mead Johnson & Company, National Broadcasting
Company, Inc., SmithKline Beecham, PLC and the United States Department of
Justice.
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 December 31, 1998, Nextera had 600 employees, including 429
consultants.
INDUSTRY BACKGROUND
Change is one of the most important factors driving demand for professional
consulting services. Increased competition, regulatory changes, 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-
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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, business and IT strategies continue to converge as organizations
recognize that technology can create new business opportunities as well as
support existing business. The increasingly complex and dynamic business
environment is also forcing government agencies to frequently adjust their
regulatory strategies, leading to an increased need for businesses to understand
the underlying economic issues affecting business strategies and performance. 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 comprehensive 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 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 and research, operations improvement, organizational design,
and IT consulting, enables Nextera to solve its
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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--Research and Strategy Services, Process Transformation Services,
Human Capital Services, and Information Technology Consulting Services--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 perspective to help clients identify and examine business
problems and to develop and implement the strategic, operational, and
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, 51% 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. NextNet, the foundation of the Company's IT
infrastructure, 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
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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.
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.
Pursue 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.
For example, Nextera recently acquired Alexander, thereby enhancing its ability
to offer human capital consulting services to the European market. The Company
believes that clients will increasingly demand a global presence from consulting
service providers and Nextera intends to continue 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.
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SERVICE OFFERINGS
The Company's portfolio of practice areas enables it to provide a breadth
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 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 Research and Strategy Services practice area provides
analyses which often demonstrate the need for organizations to develop a
business strategy to proactively respond to new competitive challenges and
assists organizations in developing such business strategy that can be
interactively managed throughout the organization. The Process Transformation
Services practice area develops the creative business processes that are
designed to yield the desired results. In order to successfully implement such
business strategy, the Human Capital Services practice area provides innovative
services to address the need for flexible organizational structures capable of
capitalizing on internal resources. Finally, the Information Technology
Consulting Services practice area develops IT infrastructure and applications
that enable clients to conduct business in new ways, support the redesigned
business processes and aid employee decision making.
The Company's four practice areas are as follows:
Research and Strategy Services. The Company provides in-depth business and
economic analyses of business conditions, relevant business frameworks, and
business practices. Nextera combines the expertise of its consultants with that
of clients, independent practitioners, and academics to provide focused research
on issues of client concern, including strategic management, merger analysis,
employment practices, corporate finance, product development, and knowledge
management. Through the Research and Strategy Services practice area, Nextera
provides litigation support, including expert testimony, principally in
antitrust and securities matters. The Company also assists organizations in
developing, refining, and implementing successful business strategies. Nextera
works with the senior management of a client to develop multiple probability
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, the Company's client has strengthened its leading
regional market position.
Process Transformation Services. Nextera helps organizations solve complex
operational issues through major business transformation programs, redesigned
business processes, and best practices adaptation. Business transformation
programs typically involve refinement of the client's operations strategy,
examination of the existing processes and procedures, redesign of critical
processes, and identification of the cultural and organizational issues to be
addressed to successfully implement change. For example, Nextera assisted a high
technology company in re-engineering its software services business. After
analyzing the differences between existing delivery methods and best practices,
Nextera designed a new service model, then assisted the client in working with
its engineering, service, finance and marketing organizations to implement
service center consolidations, establish a new customer call handling system and
revise its service delivery and engineering management practices.
Human Capital Services. Nextera helps clients invest in and gain business
advantages 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
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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.
Information Technology Consulting Services. Nextera helps clients use
emerging technologies to create 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, through the development of an electronic commerce application
infrastructure that supports the creation, publication and distribution of
time-sensitive information, Nextera helped a publishing company transition from
distributing financial analysts' research reports to its customers via facsimile
to providing on-line, on-demand electronic access to research. The Company also
helps clients define, manage and implement packaged solutions in finance,
customer relationship, supply chain and operations management.
The following chart illustrates the Company's portfolio of practice areas:
[PRACTICE AREAS CHART]
The chart consists of five columns and six rows. In the first column, the
following words appear in the rows, descending from the top: "Lexecon Inc.,"
"The Planning Technologies Group, L.L.C.", "Nextera Business Performance
Solutions Group, Inc.", "Sibson & Company, LLC Sibson Canada Co. The Alexander
Corporation Limited" and "Pyramid Imaging, Inc." The words "Practice Areas"
appear above columns two through five. Column two is entitled "Research and
Strategy Services." Beneath this title, a bullet point appears in rows one and
two. Column three is entitled "Process Transformation Services." Beneath this
title, a bullet point appears in the third row and a shaded diamond appears in
rows four and five. Column four is entitled "Human Capital Services". Beneath
this title is a shaded diamond in row three; a bullet point in row four, and a
shaded diamond in row five. The fifth column is entitled "Information Technology
Consulting Services". Beneath this title is a shaded diamond in row two, a
bullet point in row three, a shaded diamond in row four and a bullet point in
row five. Beneath the chart is a legend that indicates that a bullet point
symbolizes "Primary Business Focus" and a shaded diamond symbolizes "Secondary
Business Focus".
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 and subsequently renamed Nextera Business
Performance Solutions Group, Inc. Through Business Performance Solutions, the
Company offers enhanced services in acquisition due diligence, customer
profitability, IT strategy assessment, and the design, construction, and
deployment of complete business systems. Business Performance Solutions
primarily offers its services to the financial services, health care, insurance,
and utilities industries. Business Performance Solutions 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 employ a
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"virtual office" concept for its consultants, maintains an office in Rochester,
New York and a development center in Hudson, Massachusetts. Effective December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions. SiGMA was subsequently liquidated and dissolved
and distributed all of its assets to Business Performance Solutions.
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.
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.
Lexecon Inc. Lexecon was founded in 1977 and acquired by the Company
effective December 31, 1998. Through Lexecon, the Company provides a full range
of economic consulting services, including economic, financial and statistical
analysis and expert testimony, which are predominantly used in matters relating
to complex litigation and regulatory proceedings. Lexecon provides expertise in
the areas of antitrust, contracts, regulatory issues, corporate finance,
intellectual property, international trade, securities, taxation and employment
practices. Lexecon serves clients across a broad range of industries, including
telecommunications, high technology and government, and is located in Chicago,
Illinois.
The Alexander Corporation Limited. Alexander was founded in 1987 and was
acquired by the Company effective January 29, 1999. Through Alexander, the
Company provides human capital consulting services including leadership
development, culture change, team performance and individual coaching. Alexander
serves clients across a broad range of industries including the pharmaceutical,
financial services, professional services, retail and consumer products and
leisure industries. Alexander is located in London, England.
NeoEnterprises, Inc. The Company has executed a nonbinding term sheet to
acquire NeoEnterprises, which was founded in 1998. NeoEnterprises is a
Connecticut-based e-commerce consulting and development company. As a part of
the acquisition, it is expected that NeoEnterprises will be merged with and into
Pyramid. James K. Burns, the sole stockholder of NeoEnterprises, became an
employee of the Company effective February 1, 1999. See "Management--Directors,
Executive Officers, and Other Senior Managers." Through Pyramid, the Company may
develop and provide the e-commerce services previously provided by
NeoEnterprises. No assurance can be made that the Company will consummate this
acquisition or that the terms of such acquisition will not vary from those
anticipated at this time.
The Economic Resources Group, Inc. The Company has executed a
nonbinding term sheet to acquire ERG, a Massachusetts-based consulting firm that
provides economic and strategic services primarily to energy and other regulated
industries. The transaction is subject to the Company's due diligence review of
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ERG and other customary closing conditions. No assurance can be made that the
Company will consummate this acquisition or that the terms of such acquisition
will not vary from those anticipated at this time.
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 24% and 29% of its net revenues for the years ended
December 31, 1997 and 1998, respectively, and no client in either such period
accounted for 10% or more of the Company's pro forma net revenues. See "Risk
Factors--Absence of Written Contracts." Nextera has served a broad range of
clients, including those in the table below. This table includes the names of
clients which were the ultimate beneficiary of Lexecon's services, although
Lexecon was actually retained by law firms representing such clients.
<TABLE>
<S> <C> <C>
MEDIA/ENTERTAINMENT FINANCIAL SERVICES MANUFACTURING
National Broadcasting BancBoston Robertson Stephens Inc. American Business Products
Company, Inc. Fleet Financial Group, Inc. BE Aerospace
Nelson Information, Inc. ING Capital Corporation Rockwell International
NationsBanc Montgomery Securities LLC Corporation
TECHNOLOGY/COMMUNICATIONS PaineWebber Group Inc.
America Online, Inc. Wells Fargo & Company HEALTH CARE
BellSouth Corporation Olsten Corporation
GTE Corporation DIVERSIFIED SERVICES Pfizer Inc
International Business Ernst & Young LLP SmithKline Beecham, PLC
Machines Corporation PricewaterhouseCoopers LLP
MCI WorldCom, Inc. Qualex, Inc. GOVERNMENT
SBC Communications Inc. Internal Revenue Service
Scientific-Atlanta, Inc. INSURANCE U.S. Department of Justice
The Chubb Corporation
CONSUMER PRODUCTS/RETAIL Massachusetts Mutual Life Insurance ENERGY
Mead Johnson & Company Metropolitan Life Insurance Company Duke Energy Corporation
Polo Ralph Lauren Southern California Edison
</TABLE>
Examples of services provided to clients in each of Nextera's practice
areas include the following:
Research and Strategy 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.
Process Transformation Services. 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
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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.
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-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 impact on 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.
Information Technology Consulting Services. The Equity Research division
of a leading investment banking firm retained Nextera to assist it in improving
its internal publication process and creating a new, efficient mechanism for
distributing research to its sales desk and clients. Building on the client's
existing database of its earnings estimates on hundreds of companies, Nextera
worked with the client on a requirements definition, functional specification
and project plan for a repository capable of storing all of the client's
electronic research documents so that such documents could be accessed either
through the client's intranet or home page. Nextera then helped the client
design and develop a new, scaleable IT system capable of preserving the existing
data model while supporting potential future expansion. Once developed, the
solution was integrated, tested, and installed. The entire project, from the
requirements definition to installation and integration, was executed in four
months. This system currently supports over 2,000 internal and external users
and is designed to support an annual flow of thousands of documents through the
system and to archive more than 10,000 documents. Nextera believes this system
will improve the client's service capabilities by providing faster delivery,
enabling personalized distributions to customers and generating increased
feedback on customer preferences.
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
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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.
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
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services. Application logic is built using the latest web-development tools, and
the applications are delivered through an integrated browser interface.
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 December 31, 1998, the Company had 600 employees, including 429
consultants.
Consulting Personnel. Nextera's senior consulting executives average more
than 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. Eleven of the
Company's senior consulting executives have founded and managed successful
management and IT consulting firms. Of Nextera's consultants, 51% 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 academic
institutions, 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.
Outside Consultants and Independent Contractors. Through Lexecon, the
Company maintains affiliate relationships with distinguished academics. These
individuals are engaged by Nextera to give expert testimony or to participate in
client engagements. 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.
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, economic consulting firms, technical and
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economic advisory firms, individual academics, 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.
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;
Hudson, 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
In January 1999, a client sent a letter to Business Performance Solutions
purporting to terminate a fixed-price engagement with Business Performance
Solutions and asserting that, pursuant to the terms of the engagement, the
client was entitled to a refund of approximately $5.6 million of payments
previously made. Business Performance Solutions has disputed the client's right
to terminate the engagement and asserted a claim for payment for work done
through January 1999. Business Performance Solutions has errors and omissions
coverage of up to $3.0 million, less a $250,000 deductible. This matter will be
submitted to the insurance carrier for a determination of coverage. Business
Performance Solutions intends to vigorously assert its rights and defend itself
in any litigation which may develop out of this situation.
Lexecon is a plaintiff in certain litigation with Milberg Weiss Bershad
Hynes & Lerach LLP ("Milberg Weiss") alleging damage to Lexecon's reputation
arising out of certain actions by Milberg Weiss and certain
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of its current and former partners. Milberg Weiss is a national law firm which
represents plaintiffs in class actions, including securities litigation. In
connection with the Lexecon Acquisition, all rights, interest and liabilities
with respect to this litigation were transferred to Lexecon Enterprises, Inc., a
corporation owned by three of the former stockholders of Lexecon. Lexecon
remains a named party in the proceedings. Such former stockholders of Lexecon
have agreed to indemnify Lexecon and the Company from any losses or expenses in
connection with the litigation. The trial is expected to begin in March 1999.
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.
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<PAGE> 51
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 February 1, 1999, 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................................ 47 Chief Operating Officer and Director
Michael P. Muldowney............................ 35 Chief Financial Officer
Debra I. Bergevine.............................. 48 Vice President, Marketing
Roger Brossy.................................... 39 Director and Managing Director, Sibson
Ralph Finerman.................................. 63 Director
Steven B. Fink(1)(2)............................ 48 Director
Stanley E. Maron(2)............................. 50 Director
Michael D. Rose(1).............................. 56 Director
Richard V. Sandler(2)........................... 50 Director
Other Senior Managers
Martin G. Glavin................................ 41 Managing Director, Business Performance
Solutions
James K. Burns.................................. 51 Managing Director, E-Business, Pyramid
Mason S. Tenaglia............................... 42 Managing Director, PTG
Andrew M. Rosenfield............................ 47 Chairman, Lexecon
Dennis W. Carlton............................... 47 President, Lexecon
Daniel R. Fischel............................... 47 Principal, Lexecon
</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, from 1981 to 1992, held various management and consulting
positions, including Principal, with McKinsey & Co.
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
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of Mercer Management Consulting, Inc., ("Mercer"), from 1992 to May 1997, and
held various other 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.
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, a business consulting
firm. Mr. Fink was President of East West Capital, an investment 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.
Martin G. Glavin currently serves as Managing Director, Business
Performance Solutions and has held various management positions with SiGMA (now
part of Business Performance Solutions) since 1991. Prior to co-founding SiGMA,
Mr. Glavin held various management and consulting positions with KPMG Peat
Marwick from 1987 to 1991 and Price Waterhouse from 1979 to 1987.
James K. Burns currently serves as Managing Director, E-Business, Pyramid,
a position he has held since February 1999. Mr. Burns is also President and
Chairman of the Board of NeoEnterprises. From 1997 to 1998, Mr. Burns served as
Co-Chief Executive Officer and as a director of CIS, Inc., a strategic change
and
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information technology solutions firm. From 1994 to 1997, Mr. Burns was
associated with Swiss Bank--Warburg, an investment bank, as Chief Operating
Officer of North America, a Managing Director and a member of the United States
Management Committee, among other positions. From 1992 to 1994, Mr. Burns was
Vice Chairman, Chief Operating Officer and Chief Executive Officer--United
States and Latin America of SHL Systemhouse, now MCI Systemhouse. From 1988 to
1992, Mr. Burns was Vice President and Head of Global Information Technology at
Goldman Sachs.
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.
Andrew M. Rosenfield currently serves as Chairman, Lexecon and has held
various management positions with Lexecon since he co-founded it in 1977. Mr.
Rosenfield also serves as a Senior Lecturer in Law at The University of Chicago
Law School. Mr. Rosenfield is also a director of UNEXT.com, LLC, an educational
services company.
Dennis W. Carlton currently serves as President, Lexecon, a position he has
held since November 1997. Mr. Carlton has held various executive positions with
Lexecon since 1977. Mr. Carlton also serves as Professor of Economics at The
University of Chicago's Graduate School of Business, a position he has held
since 1984.
Daniel R. Fischel currently serves as Principal, Lexecon, and has held
various management positions with Lexecon since 1981. Mr. Fischel also serves as
Dean of The University of Chicago Law School and has served as the Lee and Brena
Freeman Professor of Law and Business at The University of Chicago Law School
since 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 eight 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 Universe or its Affiliates" and "Description of Capital
Stock." Pursuant to the Stockholders Agreement, the stockholders of the Company
agreed to vote their shares of Common Stock to elect Sibson's manager or senior
managing principal to the Board of Directors and to elect a nominee of the
former stockholders of Lexecon. Mr. Brossy was elected to the Board of Directors
as the Sibson representative pursuant to the Stockholders Agreement. The former
stockholders of Lexecon have not yet exercised their right to nominate a
director.
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.
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<PAGE> 54
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. In February 1999, pursuant
to the 1998 Equity Participation Plan, the Company granted to each of Messrs.
Finerman, Fink, Maron, Rose and Sandler in their capacity as independent
directors, options to purchase 15,000 shares of Class A Common Stock at an
exercise price of $11.00 per share. 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.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued for the
period from February 26, 1997 through December 31, 1997 and for the year ended
December 31, 1998 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
FISCAL --------------------- OPTIONS
NAME AND POSITION YEAR SALARY BONUS (# OF SHARES)
<S> <C> <C> <C> <C>
Gresham T. Brebach, Jr.......................... 1998 $716,000(1) $ (2) --
Chief Executive Officer 1997 611,837(3) 100,000 --
Ronald K. Bohlin................................ 1998 450,004(4) 101,250 --
Chief Operating Officer 1997 362,509(5) 65,000 --
Michael P. Muldowney............................ 1998 181,417 40,950 --
Chief Financial Officer 1997 116,666 24,000 --
Debra I. Bergevine.............................. 1998 175,958 39,713 --
Vice President, Marketing 1997 133,333 18,000 --
</TABLE>
- ------------------------------
(1) Includes $150,000 consisting of guaranteed bonus amount earned in 1998.
(2) Discretionary bonus for the year ended December 31, 1998 has not yet been
determined.
(3) Includes $125,000 consisting of guaranteed bonus amount earned in 1997.
(4) Includes $100,000 consisting of guaranteed bonus amount earned in 1998.
(5) Includes $75,000 consisting of guaranteed bonus amount 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 Lexecon) 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.
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Lexecon maintains a bonus plan for its employees which provides for the
payment of discretionary bonuses based on individual performance and Lexecon's
operating results. This plan is administered by Lexecon's management, subject to
the Company's approval with respect to certain matters.
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.
OPTION GRANTS
None of the Named Executive Officers has been granted options by the
Company.
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 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 200,000 shares of Class A Common Stock and 86,000 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
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Agreement, Mr. Bohlin purchased Class A Common Units of NEH at an aggregate
purchase price of $20,000 (which units were ultimately converted into 100,000
shares of Class A Common Stock and 43,000 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 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 25,000 shares of Class A Common
Stock and 10,750 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 25,000 shares of Class A Common Stock and
10,750 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.
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
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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
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 5,000,000 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 100,000. As of February 1, 1999,
options to purchase 3,163,652 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 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
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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 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.
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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.
The Nextera/Lexecon Limited Purpose Stock Option Plan. Nextera has agreed
to adopt the Limited Purpose Plan to provide incentives for key personnel of
Lexecon by granting such key personnel options to purchase shares of Nextera's
Class A Common Stock. Assuming the price per share of the Class A Common Stock
in the Offering is $14.00, the Company will grant options to purchase 2,558,330
shares of Class A Common Stock under the Limited Purpose Plan. The number of
shares to be granted under the Limited Purpose Plan will vary based upon the
price per share in the Offering.
Prior to the closing of the Offering, the Board of Directors will
administer the Limited Purpose Plan. After the closing of the Offering, the
Committee will administer the Limited Purpose Plan. The Committee will consist
of at least two members of the Board, each of whom is a "non-employee director"
for purposes of Rule 16b-3 and an "outside director" for the purposes of Section
162(m) of the Code. Subject to the terms and conditions of the Limited Purpose
Plan, the Board of Directors or Committee has the authority to select the
persons to whom options will be granted, 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 Limited Purpose Plan. The Committee (and the Board of
Directors) may delegate to certain officers of the Company its authority to
select the persons to whom options will be granted, to determine the number of
shares to be subject thereto and the terms and conditions thereof. The Committee
(and the Board of Directors) is also authorized to adopt, amend and rescind
rules relating to the administration of the Limited Purpose Plan.
Under the terms of the Limited Purpose Plan, options may be granted only to
individuals who are then key employees of Lexecon or who are consultants of
Lexecon selected by the Board of Directors or Committee for participation in the
Limited Purpose Plan. Options granted under the Limited Purpose Plan shall not
be "incentive stock options" within the meaning of Section 422 of the Code, but
rather all such options shall be "nonqualified stock options." Each such option
will be evidenced by a separate written agreement with the person receiving the
option and will indicate the type, terms and conditions of the option.
Options granted under the Limited Purpose Plan will provide for the right
to purchase Class A Common Stock at the price per share of the Class A Common
Stock in the Offering and will become exercisable (at the discretion of the
Board of Directors or the Committee) in one or more installments after the grant
date, subject to the participant's continued employment with Lexecon. Options
may be granted for a term of up to ten (10) years, as specified by the Committee
(or the Board of Directors). All options to be granted pursuant to the Limited
Purpose Plan immediately prior to the Offering will become exercisable in three
equal annual installments on December 31 of each of 1999, 2000 and 2001;
provided, however, that no such option shall become exercisable prior to the
closing of this Offering.
The Limited Purpose Plan prohibits any participant in the Limited Purpose
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
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employees of PTG, Pyramid, and the Company's Executive Officers and
administrative personnel. The Company has agreed to match 25% of total
contributions (subject to the limitations of the Code) for individuals who were
active employees of Business Performance Solutions 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 $406,804 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.
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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.
Bridge Loan Amendment. The Company, Knowledge Universe and the other party
to the Bridge Loan entered into a Consent and Amendment (the "Bridge Loan
Amendment") to the Bridge Loan on December 31, 1998. Pursuant to the Bridge Loan
Amendment, Knowledge Universe loaned the Company $37.5 million and became a
participant under the Bridge Loan. In connection with the Bridge Loan Amendment,
the Company, Lexecon, Sibson LLC, Pyramid, Business Performance Solutions and
PTG granted Knowledge Universe a security interest ("Security Interest") in
substantially all of their respective assets and properties, including the stock
or membership interests of all of the Acquired Companies. The Security Interest
is pari passu with the security interest granted to the other party to the
Bridge Loan. The Acquired Companies also guaranteed the obligations of the
Company under the Bridge Loan. The Bridge Loan Amendment provides for an
interest rate of 12% per annum and extended the maturity of the Bridge Loan to
April 30, 1999. The Company used $31.1 million of the proceeds of the loan from
Knowledge Universe to finance the Lexecon Acquisition, $4.2 million to finance
the payment of bonuses to certain non-stockholder key executives of Lexecon,
$2.0 million to finance the acquisition of Alexander and $2.2 million for
general corporate purposes, including working capital.
Management Agreement. Effective March 1, 1997, Nextera entered into an oral
agreement with KU, LLC whereby KU, LLC 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 KU, LLC. Such agreement was subsequently transferred to
Knowledge Universe in August 1998. The $10,000 monthly fee was increased to
$50,000 per month effective January 1, 1999. In December 1998, the Company
entered into an agreement to pay an additional management fee of $1.5 million to
Knowledge Universe for additional services rendered by Knowledge Universe and
KU, LLC to the Company in 1998. This fee was paid in January 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." Accrued management fees of approximately
$360,000 will be paid from the proceeds of the Offering. See "Use of Proceeds."
Said monthly management fee 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 KU, LLC to perform certain reviews and render advice in
connection with potential acquisitions of third-parties by KU, LLC. The total
amount billed to KU, LLC by the Company in connection with this engagement
amounted to approximately $207,000 in 1998. In addition, the Company was engaged
by KU, LLC at various times to provide advice relating to general business
strategy and human resources. The amount billed to KU, LLC by the Company in
connection with these engagements amounted to approximately $693,000 in 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
$642,000 in 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
$90,000 in 1998.
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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 March 7, 1997 through April 30, 1998, KU,
LLC purchased Class A Common Units of NEH for aggregate consideration of
$47,047,417 (net of a subsequent redemption), which were ultimately converted
into 8,805,000 shares of Class A Common Stock and 3,842,050 shares of Class B
Common Stock. Also during this period, EDU purchased Class A Common Units of NEH
for aggregate consideration of $1,000, which were ultimately converted into
5,000 shares of Class A Common Stock and 2,150 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 Nextera Holdings." During
the same period, KU, LLC 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.
In November 1997, 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
$40,000, which units were ultimately converted into 200,000 shares of Class A
Common Stock and 86,000 shares of Class B Common Stock. Mr. Bohlin purchased
Class A Common Units of NEH for aggregate consideration of $10,000, which units
were ultimately converted into 50,000 shares of Class A Common Stock and 21,500
shares of Class B Common Stock. Mr. Muldowney purchased Class A Common Units of
NEH for aggregate consideration of $5,000, which units were ultimately converted
into 25,000 shares of Class A Common Stock and 10,750 shares of Class B Common
Stock. Ms. Bergevine purchased Class A Common Units of NEH for aggregate
consideration of $5,000, which units were ultimately converted into 25,000
shares of Class A Common Stock and 10,750 shares of Class B Common Stock.
From March 20, 1997 to July 23, 1997, EDU contributed $25,000 to Nextera
LLC in exchange for 10,000 Class A Common Units of Nextera LLC, which were
subsequently redeemed for $25,000.
In April 1997, Nextera LLC issued a warrant to NEH (the "Warrant") to
purchase 5,000,000 Class A Common Units at an exercise price of $2.50 per unit.
Effective April 30, 1998, the Warrant was amended to provide for the issuance of
5,000,000 Class B Common Units. The Warrant was exchanged for 4,300,000 Class B
Common Units which were ultimately converted into 4,300,000 shares of Class B
Common Stock.
Effective as of April 30, 1998, approximately $48.0 million of Nextera
LLC's contributed capital was redesignated as debt in the form of the
Debentures. As a result of the liquidation and dissolution of NEH, interests in
the Debentures were distributed to KU, LLC, Messrs. Brebach, Bohlin and
Muldowney, Ms. Bergevine, one other employee and one former employee of Nextera
LLC. See "The Company--Recapitalization."
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 $9,900,
which units were ultimately converted into 49,500 shares of Class A Common Stock
and 21,285 shares of Class B Common Stock. Mr. Bohlin purchased units for
aggregate consideration of $9,900, which units were ultimately converted into
49,500 shares of Class A Common Stock and 21,285 shares of Class B Common Stock.
Mr. Muldowney purchased units for aggregate consideration of $1,800, which units
were ultimately converted into 9,000 shares of Class A Common Stock and 3,870
shares of Class B Common Stock. Ms. Bergevine purchased units for aggregate
consideration of $1,800, which units were ultimately converted into 9,000 shares
of Class A Common Stock and 3,870 shares of Class B Common Stock.
On December 31, 1998 and in connection with the Lexecon Acquisition, all of
the members of Nextera LLC other than the Sibson Entities contributed all of
their membership interests in Nextera LLC to Nextera in exchange for Common
Stock. See "The Company--Exchange Transaction."
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On December 31, 1998 and in connection with the Exchange Transaction, Mr.
Brossy received 194,203 shares of Class A Common Stock in exchange for his
equity interest in the Sibson Entities.
Amendment of the Debentures. Effective December 31, 1998, the Company,
Knowledge Universe, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine and one
other employee of the Company amended the Debentures in connection with the
Lexecon Acquisition (the "Debenture Amendment"). The Debenture Amendment
provides that in the event the Bridge Loan remains unpaid following its
maturity, the interest rate will increase to two points over the interest rate
on the Bridge Loan. In addition, as required by the terms of the Bridge Loan, if
an event of default occurs under the Bridge Loan, the Debentures must either be
(i) moved up in the Company's capital structure to a holding company level or
(ii) at Knowledge Universe's election, exchanged for preferred stock of Nextera
on terms substantially equivalent to the existing terms of the Debentures with
the addition of a liquidation preference until all amounts owed under the Bridge
Loan are paid in full. Three months after the full repayment of all amounts due
under the Bridge Loan, the holders of the Debentures (or preferred stock, if
converted) will have the ability to modify the terms of the Debentures (or
preferred stock, if converted) to provide for current cash interest (or
dividend) payments.
Guaranty and Warrants to Purchase Class A Common Stock. Effective December
31, 1998, Knowledge Universe agreed to guaranty (the "Guaranty") the Company's
obligations to the former stockholders of Lexecon to repurchase 1,450,240 shares
of Class A Common Stock which will be issued if Nextera does not complete an
initial public offering by February 29, 2000 to such persons in connection with
the Lexecon Acquisition at a price of $7.65 per share. This repurchase
obligation will arise if Nextera has not completed an initial public offering of
the Class A Common Stock prior to February 29, 2000. As compensation to
Knowledge Universe to provide the Guaranty, the Company issued Knowledge
Universe warrants (the "Guaranty Warrants") to purchase 250,000 shares of Class
A Common Stock at an exercise price equal to 80% of the initial public offering
price of the Class A Common Stock (assuming the price per share in the Offering
is $14.00 the exercise price would be $11.20), provided, however, if such
initial public offering does not occur by August 31, 2000, the exercise price
will be $7.65 per share, as adjusted for stock splits, stock dividends and
similar transactions. The Guaranty Warrants expire on December 31, 2003. See
"Description of Capital Stock--Warrants."
Stockholders Agreement. In connection with the Sibson Acquisitions and the
Lexecon Acquisition the Company, Nextera LLC and the stockholders of the Company
prior to the Offering entered into the Stockholders Agreement, including an
amendment thereto, 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
stockholders are required to vote their shares of Common Stock to elect one
designee of the former stockholders of Lexecon until December 31, 2000. The
former stockholders of Lexecon have not yet exercised their right pursuant to
this provision.
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 Nextera Holdings, 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. 12,654,200,
642,785, 285,285, 84,370, and 84,370 shares of Common Stock held by Nextera
Holdings, Messrs. Brebach, Bohlin, and Muldowney
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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."
The Stockholders Agreement may be amended only by the affirmative vote of
(i) Nextera, (ii) stockholders of Nextera holding a majority of the shares of
Common Stock subject to the Stockholders Agreement and (iii) stockholders of
Nextera holding a majority of the shares of Common Stock held by the former
stockholders of the Sibson Entities and which are subject to the Stockholders
Agreement. Subject to certain exceptions, pursuant to the Stockholders Agreement
as amended and the terms of a certain letter agreement between Nextera and the
former stockholders of the Sibson Entities dated December 15, 1998, upon the
vote of a majority of Nextera's Board of Directors, the Stockholders Agreement
may be amended by Nextera to add additional parties with the consent of a
majority of the shares of Common Stock held by the former stockholders of the
Sibson Entities and which are subject to the Stockholders Agreement.
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. In 1998, Maron & Sandler billed Nextera $473,471 for legal services
rendered to the Company. In addition, Messrs. Maron and Sandler and other
attorneys of Maron & Sandler hold interests in an entity which holds non-voting
units of a limited liability company which holds membership interests in KU,
LLC. These non-voting units amount to a less than 0.18% interest in KU, LLC.
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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 1, 1999 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... 449,500 2.4% 1.6% 193,285 4.5% 3.3% 1.9%
Ronald K Bohlin.......... 199,500 1.1 * 85,785 2.0 1.5 *
Michael P. Muldowney(4).. 59,000 * * 25,370 * * *
Debra I. Bergevine....... 59,000 * * 25,370 * * *
Roger Brossy............. 194,203 1.0 * -- -- * *
Ralph Finerman........... -- -- -- -- -- -- --
Steven B. Fink........... -- -- -- -- -- -- --
Stanley E. Maron......... -- -- -- -- -- -- --
Michael D. Rose.......... -- -- -- -- -- -- --
Richard V. Sandler....... -- -- -- -- -- -- --
Dennis W. Carlton(5)..... 1,068,936 5.8 3.7 -- -- 1.5 3.2
Daniel R. Fischel(5)..... 1,174,536 6.3 4.1 -- -- 1.6 3.6
Andrew M. Rosenfield(5).. 1,174,536 6.3 4.1 -- -- 1.6 3.6
Nextera Enterprises
Holdings, Inc.(6)...... 8,810,000 47.5 30.6 3,844,200 89.9 66.1 38.3
All directors and
executive officers as a
group (10 persons)..... 961,203 5.2% 3.3% 329,810 7.7% 6.0% 3.9%
</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) 18,541,661 shares of Class A Common Stock outstanding prior to
the Offering and 28,791,661 shares of Class A Common Stock outstanding after
the Offering, (ii) 4,274,630 shares of Class B Common Stock outstanding both
prior to and after the Offering, and (iii) in each case, includes 197,813
shares of Class A Common Stock issuable upon the exchange of the
Exchangeable Shares, see "The Company--Exchangeable Shares," and 993,520
Lexecon Contingent Shares to be issued assuming the price per share of the
Class A Common Stock in the Offering is $14.00 (the number of Lexecon
Contingent Shares to be issued will range from a minimum of 231,400 shares
if the price per share in the Offering is $17.50 or higher to a maximum of
1,450,240 shares if the price per share in the Offering is
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<PAGE> 66
$12.50 or less). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisitions.".
(4) Includes 5,000 shares of Class A Common Stock held by the Muldowney Children
Irrevocable Trust. Mr. Muldowney has disclaimed all beneficial ownership of
such shares.
(5) Includes 298,056 Lexecon Contingent Shares to each of Messrs. Carlton,
Fischel and Rosenfield in the form of Lexecon Contingent Shares assuming the
price per share of the Class A Common Stock in the Offering is $14.00. The
number of Lexecon Contingent Shares to be issued to each of Messrs. Carlton,
Fischel and Rosenfield will vary from a minimum of 69,432 shares if the
price per share in the Offering is $17.50 or higher to a maximum of 435,072
if the price per share in the Offering is $12.50 or less. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."
(6) 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 indirectly
by Knowledge Enterprises through Nextera Holdings. 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 Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Lawrence J. Ellison is Chairman and Chief
Executive Officer of Oracle Corporation and a director of KU, LLC, Knowledge
Universe and Knowledge Enterprises. Michael R. Milken is Chairman of the
Board of Directors of KU, LLC, Knowledge Universe and 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
Vice-Chairman of the Board of Directors of KU, LLC and Knowledge Universe, a
member of the board of directors of Knowledge Enterprises and the brother of
Michael R. Milken.
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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 February 1, 1999, there were 17,350,328 shares of Class A Common Stock issued
and outstanding (excluding the Exchangeable Shares and the Lexecon Contingent
Shares) which were held by 103 stockholders, 4,274,630 of Class B Common Stock
issued and outstanding which were held by 17 stockholders and no shares of
Preferred Stock issued and outstanding. The Company has also agreed to issue (i)
197,813 shares of Class A Common Stock upon the exchange of the Exchangeable
Shares, see "The Company--Exchangeable Shares," and (ii) the Lexecon Contingent
Shares which, assuming the price per share of the Class A Common Stock in the
Offering is $14.00, will consist of 993,520 shares of Class A Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."
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
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or a domestic limited liability company if there are no partners or members of
such limited partnership or 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.
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In addition, during such period, each holder of shares of Common Stock, other
than shares of Common Stock 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.
WARRANTS
In connection with the Guaranty, the Company issued the Guaranty Warrants
to purchase 250,000 shares of Class A Common Stock to Knowledge Universe. The
Guaranty Warrants expire on December 31, 2003. See "Certain
Transactions--Guaranty and Warrants to Purchase Class A Common Stock."
EXCHANGEABLE SHARES
In connection with the Sibson Acquisitions, Nextera LLC formed Sibson
Canada 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
197,813 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
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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 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 does not believe that any of Nextera Holdings, (which will hold 66.1% of
the combined voting power of the outstanding Common Stock upon consummation of
the Offering,) Knowledge Enterprises or their affiliates is 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 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
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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
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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 28,791,661 shares
of Class A Common Stock and 4,274,630 shares of Class B Common Stock
outstanding, assuming (i) no exercise of the Underwriters' over-allotment
option, (ii) no exercise of outstanding options to purchase Class A Common
Stock, (iii) the exchange of all Exchangeable Shares for 197,813 shares of Class
A Common Stock, see "The Company--Exchangeable Shares," and (iv) the issuance of
993,520 Lexecon Contingent Shares (assuming the price per share of the Class A
Common Stock in the Offering is $14.00). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions." Of
these shares, the 10,250,000 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, and without giving effect to the
registration rights described below, additional shares of Class A Common Stock
(including shares issuable upon conversion of Class B Common Stock, upon the
exchange of the Exchangeable Shares and as Lexecon Contingent Shares assuming
the price per share of the Class A Common Stock in the Offering is $14.00) 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) 4,588 shares will be eligible for sale 180 days after the date of
this Prospectus; and (ii) 22,811,703 shares will become eligible for sale under
Rule 144 commencing December 31, 1999 upon the expiration of the restrictions
imposed by the Stockholders Agreement and the Lexecon Lock-up Agreements.
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 287,917 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
may be 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 AND WARRANTS
Upon consummation of the Offering, the Company will have outstanding
options and warrants to purchase shares of Class A Common Stock, of which
596,283 will be exercisable. Following the Offering, the
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<PAGE> 73
Company intends to file a Registration Statement on Form S-8 under the
Securities Act to register the 5,000,000 shares of Class A Common Stock that are
issuable upon the exercise of stock options either outstanding or available for
grant pursuant to the 1998 Equity Participation Plan. The Company has also
agreed to issue options under the Limited Purpose Plan, and intends to file one
or more registration statements on Form S-8 to register the shares of Class A
Common Stock that are issuable upon the exercise of such options. Such
Registration Statements will become effective immediately upon filing; however,
consistent with the terms of the 1998 Equity Participation Plan and the Limited
Purpose 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 22,816,291 shares of Class A Common
Stock (including shares issuable upon conversion of Class B Common Stock, upon
exchange of the Exchangeable Shares and as Lexecon Contingent 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
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<PAGE> 74
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.
LOCK-UP AGREEMENTS
Directors, officers and certain stockholders of the Company holding an
aggregate of 16,133,140 shares of Class A Common Stock and 4,257,430 shares of
Class B Common Stock 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 the Limited Purpose 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 the DLJ Lock-Up Agreements at any
time or from time to time without notice.
In connection with the Lexecon Acquisition, the former stockholders of
Lexecon entered into lock-up agreements which provide that they may not sell or
otherwise dispose of their shares of Class A Common Stock for a six-month period
following the Offering, and that subsequent to such six-month period, those
stockholders will not sell 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. A total of 3,809,520 shares of Class A Common Stock are subject
to the Lexecon Lock-up Agreements (assuming the issuance of 993,520 Lexecon
Contingent Shares, which number may vary based upon the price per share of the
Class A Common Stock in the Offering, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Acquisitions").
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<PAGE> 75
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., BT Alex. Brown Incorporated, NationsBanc
Montgomery Securities LLC, and Thomas Weisel Partners 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.......................
Thomas Weisel Partners LLC..................................
Total............................................. 10,250,000
==========
</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.
DLJdirect Inc., an affiliate of Donaldson, Lufkin and Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the Offering over the Internet. The Underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
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 1,537,500 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 provided for a $40 million
credit facility bearing interest at the rate of LIBOR plus 450 basis points per
annum and maturing on March 1, 1999. Effective December 31, 1998, the Bridge
Loan was amended to change the interest rate to 12% per annum commencing on
December 31, 1998 and extend the maturity date to April 30, 1999. The Company
borrowed $38.0 million from Nextera Funding, Inc. under the Bridge Loan to
finance the Sibson Acquisitions and paid Nextera Funding, Inc. a commitment fee
of $400,000
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<PAGE> 76
and a takedown fee of $380,000. The Company also agreed to reimburse Nextera
Funding, Inc. for all reasonable out-of-pocket costs, expenses and other
payments, including but not limited to reasonable legal fees and disbursements,
incurred or made in connection with the Bridge Loan. 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 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, as supplemented on December 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. In addition, in connection with the Bridge Loan Amendment and in payment
for certain consent and extension fees, DLJ will receive a cash fee of $750,000
at the earlier of the closing of the Offering or April 30, 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
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<PAGE> 77
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.
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,
Inc. at December 31, 1997 and 1998 and for the period from February 26, 1997 to
December 31, 1997 and the year ended December 31, 1998, 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 report 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 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 report 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, 1996 and 1997 and August 31, 1998 and for each of
the two years in the period ended December 31, 1997 and the eight month period
ended August 31, 1998 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 report 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 report with respect thereto, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Pyramid Imaging, Inc. at December 31, 1997 and
for the year then ended 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 report given upon
the authority of such firm as experts in accounting and auditing.
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<PAGE> 78
The Financial Statements of Lexecon Inc. at December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 appearing in
this Prospectus and Registration Statement have been audited by Ernst Young LLP,
independent auditors, as set forth in their report thereon, and are included in
reliance upon such report 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 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.
77
<PAGE> 79
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS:
Consolidated Financial Statements of Nextera Enterprises,
Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-3
Consolidated Balance Sheets -- December 31, 1997 and
1998.................................................. F-4
Consolidated Statements of Operations -- For the period
February 26, 1997 (date of inception) through December
31, 1997 and for the year ended December 31, 1998..... F-5
Consolidated Statements of Stockholders' Equity -- For
the period February 26, 1997 (date of inception)
through December 31, 1997 and for the year ended
December 31, 1998..................................... F-6
Consolidated Statements of Cash Flows -- For the period
February 26, 1997 (date of inception) through December
31, 1997 and for the year ended December 31, 1998..... 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-19
Consolidated Balance Sheets -- May 31, 1997 and July
30, 1997.............................................. F-20
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-21
Consolidated Statements of Cash Flows -- For the year
ended May 31, 1997 and for the period June 1, 1997
through July 30, 1997................................. F-22
Notes to Consolidated Financial Statements............. F-23
Consolidated Financial Statements of Symmetrix, Inc.
Independent Auditors' Report........................... F-29
Consolidated Balance Sheet -- May 31, 1996............. F-30
Consolidated Statement of Operations -- For the year
ended May 31, 1996.................................... F-31
Consolidated Statement of Changes in Stockholders'
Equity -- For the year ended May 31, 1996............. F-32
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1996.................................... F-33
Notes to Consolidated Financial Statements............. F-34
Financial Statements of SiGMA Consulting, LLC
Report of Ernst & Young LLP, Independent Auditors...... F-41
Balance Sheets -- December 31, 1996 and 1997........... F-42
Statements of Income -- For the years ended December
31, 1996 and 1997..................................... F-43
Statements of Members' Equity -- For the years ended
December 31, 1996 and 1997............................ F-44
Statements of Cash Flows -- For the years ended
December 31, 1996 and 1997............................ F-45
Notes to Financial Statements.......................... F-46
Financial Statements of The Planning Technologies Group,
Inc.
Report of Independent Auditors......................... F-49
Balance Sheets -- December 31, 1996 and 1997 and March
31, 1998 (unaudited).................................. F-50
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-51
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-52
Notes to Financial Statements.......................... F-53
Financial Statements of Pyramid Imaging, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-56
Balance Sheets -- December 31, 1997 and March 31, 1998
(unaudited)........................................... F-57
</TABLE>
F-1
<PAGE> 80
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES
(CONTINUED):
Statements of Operations -- For the year ended December
31, 1997 and for the three months ended March 31, 1998
(unaudited)........................................... F-58
Statements of Shareholders' Equity -- For the year
ended December 31, 1997 and for the three months ended
March 31, 1998 (unaudited)............................ F-59
Statements of Cash Flows -- For the year ended December
31, 1997 and for the three months ended March 31, 1998
(unaudited)........................................... F-60
Notes to Financial Statements.......................... F-61
Financial Statements of Sibson & Company, L.P. and
Subsidiaries
Independent Auditor's Report........................... F-67
Consolidated Balance Sheets -- December 31, 1996 and
1997 and August 31, 1998.............................. F-68
Consolidated Statements of Operations and Partners'
Capital -- For the years ended December 31, 1996 and
1997 and for the eight months ended August 31, 1998... F-69
Consolidated Statements of Cash Flows -- For the years
ended December 31, 1996 and 1997 and for the eight
months ended August 31, 1998.......................... F-70
Notes to Consolidated Financial Statements............. F-71
Financial Statements of Sibson Canada, Inc.
Auditors' Report....................................... F-77
Balance Sheets -- December 31, 1997 and August 31, 1998
(unaudited)........................................... F-78
Statements of Operations and Retained Earnings -- For
the year ended December 31, 1997 and for the eight
months ended August 31, 1997 and 1998 (unaudited)..... F-79
Statements of Changes in Financial Position -- For the
year ended December 31, 1997 and for the eight months
ended August 31, 1997 and 1998 (unaudited)............ F-80
Notes to Financial Statements.......................... F-81
Financial Statements of Lexecon Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-85
Balance Sheets -- December 31, 1997 and 1998........... F-86
Statements of Operations -- For the years ended
December 31, 1996, 1997 and 1998...................... F-87
Statements of Shareholders' Equity -- For the years
ended December 31, 1996, 1997 and 1998................ F-88
Statements of Cash Flows -- For the years ended
December 31, 1996, 1997, and 1998..................... F-89
Notes to Financial Statements.......................... F-90
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Basis of Presentation.................................. PF-1
Unaudited Pro Forma Combined Balance Sheet -- December
31, 1998.............................................. PF-2
Unaudited Pro Forma Combined Statement of
Operations -- For the year ended December 31, 1998.... PF-3
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ PF-4
</TABLE>
F-2
<PAGE> 81
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nextera Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Nextera
Enterprises, Inc. (the Company) (formerly Nextera Enterprises, L.L.C.) as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from February 26,
1997 (date of inception) through December 31, 1997 and for the year ended
December 31, 1998. 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 Nextera
Enterprises, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from February 26, 1997 (date of
inception) through December 31, 1997 and for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
F-3
<PAGE> 82
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 554 $ 1,496
Accounts receivable, net of allowance for doubtful
accounts of $100 at December 31, 1997 and $1,267 at
December 31, 1998...................................... 2,202 31,094
Costs and estimated earnings in excess of billings........ 856 2,962
Due from affiliates....................................... 225 400
Due from officers......................................... -- 856
Prepaid expenses and other current assets................. 368 5,709
Income tax receivable..................................... 414 --
------- --------
Total current assets................................. 4,619 42,517
Long-term receivable........................................ 532 --
Property and equipment, net................................. 1,181 8,056
Intangible assets, net of accumulated amortization of $255
at December 31, 1997 and $1,977 at December 31, 1998...... 15,762 125,082
Other assets................................................ 561 1,036
------- --------
Total assets......................................... $22,655 $176,691
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,284 $ 23,530
Notes payable to bank..................................... 1,687 6,156
Bridge loan payable (including $37,500 payable to related
party at December 31, 1998)............................ -- 75,849
Deferred revenue.......................................... 747 1,193
Due to affiliates......................................... 90 1,068
Current portion of long-term debt and capital lease
obligations............................................ 146 482
------- --------
Total current liabilities............................ 4,954 108,278
Long-term debt and capital lease obligations................ 969 2,600
Debentures due to affiliates, including accrued interest
thereon................................................... -- 53,149
Other long-term liabilities................................. -- 1,174
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Exchangeable shares, no par value, 2,500,000 shares
authorized, zero and 197,813 shares issued and
outstanding at December 31, 1997 and December 31, 1998,
respectively........................................... -- 495
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 7,898,800 and 16,811,740 shares issued and
outstanding at December 31, 1997 and December 31, 1998,
respectively........................................... 8 17
Class B Common Stock, $0.001 par value, zero and 4,274,630
shares authorized, issued and outstanding at December
31, 1997 and December 31, 1998, respectively........... -- 4
Additional paid-in capital................................ 19,739 31,144
Retained earnings (deficit)............................... (3,015) (20,170)
------- --------
Total stockholders' equity........................... 16,732 11,490
------- --------
Total liabilities and stockholders' equity........... $22,655 $176,691
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 83
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net revenues.............................................. $ 7,998 $ 67,590
Cost of revenues.......................................... 4,718 44,985
------- --------
Gross profit......................................... 3,280 22,605
Selling, general and administrative expenses.............. 5,306 23,103
Amortization expense...................................... 255 1,722
Restructuring costs....................................... -- 1,298
Compensation expense--other............................... -- 6,671
------- --------
Loss from operations................................. (2,281) (10,189)
Interest income........................................... 37 160
Interest expense.......................................... (69) (6,883)
------- --------
Loss before provision for income taxes............... (2,313) (16,912)
Provision for income taxes................................ 702 243
------- --------
Net loss............................................. $(3,015) $(17,155)
======= ========
Net loss per common share, basic and diluted.............. $ (0.74) $ (1.14)
======= ========
Weighted average common shares outstanding, basic and
diluted................................................. 4,061 14,997
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 84
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B EXCHANGEABLE
COMMON STOCK COMMON STOCK PREFERRED STOCK SHARES
------------------- ------------------ ---------------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A Common
Stock..................... 7,898,800 $ 8 -- $-- -- $ -- -- $ --
Net loss.................... -- -- -- -- -- -- -- --
---------- --- --------- --- ----------- -------- ------- ----
Balance at December 31,
1997...................... 7,898,800 8 -- -- -- -- -- --
Issuance of Class A Common
Stock..................... 2,111,200 2 -- -- -- -- -- --
Issuance of Class A Common
Stock in connection with
acquired businesses....... 6,947,114 7 -- -- -- -- 197,813 495
Recapitalization of
Shares.................... -- -- -- -- 22,977,000 22,977 -- --
Exchange of warrant for
Class B Common Stock...... -- -- 4,300,000 4 -- -- -- --
Issuance of Class B
Preferred Stock........... -- -- -- -- 24,993,000 24,993 -- --
Redemption of Class B
Preferred Stock in
exchange for 10%
Debentures................ -- -- -- -- (47,970,000) (47,970) -- --
Repurchases and cancellation
of Class A and Class B
Common Stock.............. (280,374) -- (83,420) -- -- -- -- --
Issuances of Class A and
Class B Common Stock...... 135,000 -- 58,050 -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
---------- --- --------- --- ----------- -------- ------- ----
Balance at December 31,
1998...................... 16,811,740 $17 4,274,630 $ 4 -- $ -- 197,813 $495
========== === ========= === =========== ======== ======= ====
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCK-
PAID-IN EARNINGS HOLDERS'
CAPITAL (DEFICIT) EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Issuance of Class A Common
Stock..................... $ 19,739 $ -- $ 19,747
Net loss.................... -- (3,015) (3,015)
-------- -------- --------
Balance at December 31,
1997...................... 19,739 (3,015) 16,732
Issuance of Class A Common
Stock..................... 5,276 -- 5,278
Issuance of Class A Common
Stock in connection with
acquired businesses....... 28,846 -- 29,348
Recapitalization of
Shares.................... (22,977) -- --
Exchange of warrant for
Class B Common Stock...... (4) -- --
Issuance of Class B
Preferred Stock........... -- -- 24,993
Redemption of Class B
Preferred Stock in
exchange for 10%
Debentures................ -- -- (47,970)
Repurchases and cancellation
of Class A and Class B
Common Stock.............. (70) -- (70)
Issuances of Class A and
Class B Common Stock...... 334 -- 334
Net loss.................... -- (17,155) (17,155)
-------- -------- --------
Balance at December 31,
1998...................... $ 31,144 $(20,170) $ 11,490
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 85
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (3,015) $(17,155)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 417 2,813
Deferred income taxes.................................. 702 --
Non-cash compensation charges.......................... -- 2,670
Change in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable.................................. 425 1,923
Due from affiliate................................... (225) (175)
Due to affiliate..................................... 90 978
Prepaid expenses and other current assets............ (272) (3,747)
Income tax receivable................................ -- 414
Accounts payable and accrued expenses................ 517 9,461
Costs and estimated earnings in excess of billings... (761) (2,212)
Deferred revenue..................................... (2,403) (747)
Other................................................ 45 273
-------- --------
Net cash used in operating activities........... (4,480) (5,504)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (955) (2,209)
Acquisition of businesses, net of cash acquired........... (15,321) (95,168)
-------- --------
Net cash used in investing activities........... (16,276) (97,377)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A and Class B Common
Stock.................................................. 19,747 5,304
Proceeds from issuance of Class B Preferred Stock......... -- 24,993
Repurchases of Class A and B Common Stock................. -- (70)
Due from officers......................................... -- (856)
Borrowings (repayments) under note payable to bank........ 1,606 (324)
Borrowings under Bridge Loan.............................. -- 75,500
Repayments of long-term debt and capital lease
obligations............................................ (43) (724)
-------- --------
Net cash provided by financing activities....... 21,310 103,823
-------- --------
Net increase in cash and cash equivalents................. 554 942
Cash and cash equivalents at beginning of period.......... -- 554
-------- --------
Cash and cash equivalents at end of period................ $ 554 $ 1,496
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 113 $ 1,240
======== ========
Cash paid during the period for taxes..................... $ -- $ 76
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 86
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Nextera Enterprises, Inc. ("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 as Education Technology Consulting
LLC and renamed Nextera Enterprises L.L.C. on April 11, 1997. Effective December
31, 1998, Nextera Enterprises L.L.C. was dissolved, at which time the company
commenced operating as Nextera Enterprises, Inc. Accordingly, the consolidated
financial statements reflect the operations of the predecessor, Nextera
Enterprises, L.L.C., for all periods through December 31, 1998. Stockholders'
equity has been restated to give retroactive recognition to the establishment of
Nextera Enterprises, Inc. for all periods presented by reclassifying from common
stock to additional paid-in capital the proceeds from the issuance of units in
excess of the par value of the common stock. In addition, all references in the
financial statements and notes to number of shares, per share amounts and stock
option data have been restated to reflect the formation of Nextera Enterprises,
Inc.
The majority stockholder of the Company is Nextera Enterprises Holdings,
Inc., a wholly-owned subsidiary of Knowledge Enterprises, Inc. Knowledge
Enterprises, Inc. is controlled by Knowledge Universe, Inc. which, in turn, is
controlled by Knowledge Universe, L.L.C.
Acquisitions
Effective July 30, 1997, the Nextera 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. Symmetrix was subsequently
renamed Business Performance Solutions Group, Inc. ("Business Performance
Solutions").
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 offered
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 December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions.
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 Nextera 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 pretax profit targets related to the
performance of Pyramid during the twelve months ending March 31, 1999.
F-8
<PAGE> 87
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., (collectively "Sibson") 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, 2,613,087 shares of Class A Common Stock and
197,813 Exchangeable Shares which may be exchanged at the option of the holders
into 197,813 shares of Class A Common Stock.
Effective December 31, 1998, the Company acquired Lexecon Inc. ("Lexecon"),
an Illinois-based economic consulting firm. Through Lexecon, Nextera provides a
full range of economic consulting services, including economic, financial and
statistical analysis and expert testimony, which are predominately used in
matters relating to complex litigation and regulatory proceedings. Lexecon was
acquired for $31.1 million in cash, 2,816,000 shares of Class A Common Stock and
certain additional shares of Class A Common Stock to be determined based on the
price per share in the Offering of the Class A Common Stock (the "Reserved
Shares"). The number of Reserved Shares to be issued will range from a minimum
of 231,440 shares if the price per share in an initial public offering ("the
Offering") is $17.50 or higher to a maximum of 1,450,240 shares if the price per
share in the Offering is $12.50 or less. However, if the Offering does not occur
on or prior to February 29, 2000, all 1,450,240 Reserved Shares will be deemed
issued and simultaneously redeemed by the Company at a price of $7.65 per share,
which will require the Company to pay approximately $11.1 million in cash to the
former stockholders of Lexecon.
The following information presents the unaudited pro forma condensed
results of operations as if the acquisitions of Symmetrix, SiGMA, PTG, Pyramid,
Sibson and Lexecon had occurred on January 1, 1997. 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 acquisitions occurred on January 1, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(IN THOUSANDS,
EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net revenues................................... $105,275 $135,167
Net loss....................................... (3,567) (12,044)
Net loss per common share, basic and diluted... $ (0.36) $ (0.61)
</TABLE>
Subsequent to December 31, 1998, the Company acquired the stock of The
Alexander Corporation Limited ("Alexander"). Alexander was acquired for L300,000
(approximately $490,000) and 150,000 shares of Class A Common Stock. The
acquisition of Alexander has 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.
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.
F-9
<PAGE> 88
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Amortization of assets under capital leases is
included in depreciation.
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.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................ $14,917 $121,751
Intangibles related to personnel........ 1,100 5,308
------- --------
16,017 127,059
Less: accumulated amortization.......... 255 1,977
------- --------
Intangible assets, net.................. $15,762 $125,082
======= ========
</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
F-10
<PAGE> 89
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expectations. During 1998, no customer accounted for more than 10% of net
revenues. Sales to three significant customers accounted for 36%, 20% and 10% of
net revenues during 1997.
Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates in accordance with SFAS No. 52, "Foreign Currency
Translation." Foreign currency transaction gains and losses are included in the
accompanying statement of operations and are not material for all periods
presented.
Basic and Diluted Earnings Per Common Share
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 share and diluted
earnings per common share. Earnings per common share excludes any dilutive
effects of options, warrants and convertible securities. For the period ended
December 31, 1997 and 1998, basic and diluted earnings per common share are the
same due to the antidilutive effect of potential common shares outstanding.
Income Taxes
Nextera was treated as a partnership for federal and state income tax
purposes through December 31, 1998. 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 and Pyramid,
wholly owned subsidiaries of the Company, are subject to income taxes and report
their 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. Effective December 31, 1998, as a result of the incorporation of
Nextera Enterprises, Inc., the Company became subject to income taxes.
Recently Issued Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
SFAS 133 requires companies to record derivatives on the bivalence sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 is effective beginning in 2000. The adoption of SFAS 133 is not expected to
have a material impact on the financial position or results of operations of the
Company.
In March, 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1") SOP 98-1 requires companies to capitalize
qualifying computer software costs that are incurred during the application
development stage and amortize them over the software's estimated useful life.
The Company adopted the provisions of SOP 98-1 effective January 1, 1998 and
capitalized costs totaling $349,000 in accordance with its provisions.
F-11
<PAGE> 90
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Equipment.......................................... $ 663 $3,409
Software........................................... 55 923
Furniture and fixtures............................. 371 3,380
Leasehold improvements............................. 222 1,620
------ ------
1,311 9,332
Less: accumulated depreciation..................... 130 1,276
------ ------
Property and equipment, net........................ $1,181 $8,056
====== ======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable............................ $ 720 $ 6,086
Accrued payroll and compensation.................. 837 12,103
Other............................................. 727 5,341
------ -------
$2,284 $23,530
====== =======
</TABLE>
5. FINANCING ARRANGEMENTS
Bridge Loan
In August 1998, the Company secured a $40,000,000 revolving credit facility
(the "Bridge Loan"), which bore interest during 1998 at the rate of LIBOR plus
450 basis points per annum (10.2% at December 31, 1998). The Bridge Loan is
secured by substantially all of the Company's assets and contains certain
restrictive covenants. Effective December 31, 1998, the Bridge Loan was amended
to increase the credit facility to $77,500,000, to add Knowledge Universe, Inc.
as a lender under the credit facility and to extend the maturity to April 30,
1999. Borrowings under the amended Bridge Loan bear interest at a rate of 12%.
As of December 31, 1998, $75,849,000 was outstanding under the Bridge Loan,
including $349,000 of accrued interest.
Notes Payable to Bank
The Company and its subsidiaries have lines of credit with banks which
provide for an aggregate maximum borrowing capacity of $12.0 million. Lines of
credit with an aggregate maximum borrowing capacity of $11 million bear interest
at rates ranging from prime (7.75% at December 31, 1998) plus 0.25% to prime
plus 1%. The balance of the lines bear interest at the commercial paper rate
(approximately 4.8% at December 31, 1998) plus 3.15%. As of December 31, 1998,
borrowings outstanding under the lines of credit totaled $6,156,000 and bore
interest at a weighted average rate of 8.49%. The lines contain restrictive
covenants relating to maintenance of financial ratios, operating restrictions
and restrictions on the payment of dividends.
F-12
<PAGE> 91
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term Debt
Long-term debt excluding certain debentures arising in connection with a
recapitalization occurring in April 1998 (see Note 9 -- Recapitalization)
consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <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 (7.75% at December
31, 1998), payable in bi-annual installments with
principal ranging from $1,152 to $7,560, through July
2002..................................................... $ 172 $ 71
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%................................. 915 873
Other...................................................... 28 30
------ ------
1,115 974
Less: current portion...................................... 146 101
------ ------
Long-term debt............................................. $ 969 $ 873
====== ======
</TABLE>
Annual maturities of long-term debt for the years ending after December 31,
1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................. $101
2000.................................................. 77
2001.................................................. 64
2002.................................................. 59
2003.................................................. 62
2004 and thereafter................................... 611
----
$974
====
</TABLE>
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal.................................... $ -- $200
State...................................... -- 43
---- ----
Total current tax provision........ -- 243
---- ----
Deferred:
Federal.................................... 596 --
State...................................... 106 --
---- ----
Total deferred tax provision....... 702 --
---- ----
Total tax provision................ $702 $243
==== ====
</TABLE>
F-13
<PAGE> 92
NEXTERA ENTERPRISES, INC.
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 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Reserves................................................ $ 60 $ 525
Other accrued liabilities............................... 363 1,377
Net operating loss carryforwards........................ 2,327 4,680
------ -------
Deferred tax asset................................... 2,750 6,582
Valuation allowance..................................... 2,716 3,628
------ -------
Net deferred tax asset.................................. 34 2,954
Deferred tax liability:
Depreciation............................................ (34) (21)
Deductible goodwill amortization........................ -- (457)
Cash-to-accrual adjustments............................. -- (2,476)
------ -------
Total deferred tax asset........................ $ 0 $ 0
====== =======
</TABLE>
In December 31, 1997, Symmetrix had approximately $5,819,000 of
pre-acquisition tax net operating loss carryforwards which expire through the
year 2012. At December 31, 1998, Symmetrix, Pyramid and Lexecon have tax net
operating loss carryforwards of approximately $9,102,000, $351,000 and
$2,246,000, respectively, which will expire through the year 2018. As a result
of ownership changes, 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) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
<S> <C> <C>
Tax (benefit) at statutory rate.............. (34)% (34)%
State taxes (benefit), net of federal
benefit.................................... (6) 0
Permanent differences........................ 3 2
Loss treated as partnership flow-through for
tax purposes............................... 54 11
Corporate losses not benefited............... 0 20
Other........................................ 13 2
--- ---
Income tax provision......................... 30% 1%
=== ===
</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, Inc. ("Knowledge Universe") Revenues from PPI were $225,000 in 1997
and $642,000 in 1998. The Company also performed additional services for
Knowledge Universe and TEC Worldwide, Inc., an affiliate of Knowledge Universe,
during 1998 and recorded revenues totaling $900,000 and $90,000, respectively.
At December 31, 1998, a total of $400,000 was due from PPI, Knowledge Universe
and TEC Worldwide, Inc.
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,
F-14
<PAGE> 93
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At December 31, 1998, the carrying amount was $144,000 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). In connection with the amendment of
the Bridge Loan, Knowledge Universe, Inc. provided a $37.5 million credit
facility to the Company (see Note 5).
Knowledge Universe, Inc. has guaranteed the Company's contingent obligation
to repurchase certain Reserved Shares arising in connection with the Company's
acquisition of Lexecon (see Note 1--Acquisitions). In consideration for the
issuance of this guaranty, the Company granted to Knowledge Universe, Inc.
warrants to purchase 250,000 shares of Class A Common Stock at an exercise price
of 80% of the initial public offering price per share of the Company's Class A
Common Stock, provided, however, if such public offering does not occur by
August 31, 2000, the exercise price will be $7.65 per share, as adjusted for
stock splits, stock dividends and similar transactions. The warrants expire on
December 31, 2003. The Company has included approximately $1,000,000, the
estimated fair value of the warrants, calculated using the Black-Scholes model,
as a component of its purchase price incurred in connection with the Lexecon
acquisition.
Management fees of $90,000 in 1997 and $120,000 in 1998 due to Knowledge
Universe, Inc. were incurred. In addition, the Company also incurred a
supplemental management fee of $1,500,000 to Knowledge Universe, Inc. for
additional services rendered to the Company during 1998. As of December 31,
1998, $210,000 of such fees were unpaid.
8. LEASES
The Company leases its office facilities under operating leases which
expire from 2001 to 2007. The majority of the leases require payments for
additional expenses such as taxes, maintenance and utilities. Certain of the
leases contain renewal options. The Company also has operating leases for
certain equipment. Total rent expense for the period from February 26, 1997
(date of inception) through December 31, 1997 and for 1998 was approximately
$449,000 and $2,223,000, respectively. The Company also leases certain equipment
under capital leases.
Future minimum lease payments under capital leases and noncancelable
operating leases for the years ending after December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1999........................................... $ 605 $ 4,545
2000........................................... 1,265 4,368
2001........................................... 468 3,868
2002........................................... 15 3,441
2003........................................... 5 2,314
2004 and thereafter............................ 6,399
------ -------
Total minimum lease payments........... 2,358 $24,935
=======
Less amounts representing interest............. (250)
------
Present value of minimum capitalized lease
payments.................................... 2,108
Current portion................................ (381)
------
Long-term capitalized lease obligation......... $1,727
======
</TABLE>
F-15
<PAGE> 94
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY
The Company's historical equity structure is described below. As of April
30, 1998, the Company amended and restated its capital structure (see
Recapitalization below). As of December 31, 1998, the Company converted from a
limited liability company to a "C" corporation.
Historical
As of December 31, 1997, the Company was authorized to issue two classes of
stock: Class A Common Stock and Class B Preferred Stock. Each Class A Common
stockholder had one vote per share of Class A Common Stock. The Class B
Preferred Stock was non-voting. At December 31, 1997, the Company had a warrant
outstanding to purchase 5,000,000 shares of Class A Common Stock at an exercise
price of $2.50 per share, 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 stockholders have the right to require the Company to
redeem all of their Class B Preferred Stock for an amount equal to their
adjusted capital balances. The Class B Preferred Stock also had a liquidation
preference equal to their Undistributed Return, as defined in the amended and
restated operating agreement of the limited liability company. The Company had a
right to approve or disapprove any proposed transfer of stock.
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 the stockholders 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 year ended December 31, 1998, the Company incurred
approximately $793,000 of interest expense pursuant to the recapitalization
related to the period ended December 31, 1997. As of December 31, 1998,
$53,149,000 of principal and interest was due under the debentures.
Also, as part of the recapitalization, the stated value of the 10,000,000
Class A Common Stock was reduced to $0.20 per share from $2.50 per share.
Effective December 31, 1998, a par value of $0.001 per share was established for
Class A and Class B Common Stock.
In addition, pursuant to the recapitalization, the Warrant to acquire
5,000,000 shares of Class A Common Stock was amended to provide that the shares
subject to the Warrant were changed to a new class of authorized Class B Common
Stock. The Class B Common Stock has the same economic characteristics as the
Class A Common Stock, except that each Class B Common stockholder has ten votes
per share of Class B Common Stock. The warrant was contributed to the Company in
exchange for 4,300,000 shares of Class B Common Stock 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 Stock equal to the amount of the underlying appreciated
value of the Company's Class A Common Stock 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.
F-16
<PAGE> 95
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
A summary of stock options held by Company employees as of December 31,
1998 and the related transactions for the year ended December 31, 1998,
excluding those related to Lexecon employees as discussed below, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE REMAINING LIFE
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding options at December
31, 1997....................... 450,000 $5.00 8.5 years
Granted........................ 2,170,233 6.78 9.7 years
Forfeited...................... (139,993) 6.06 9.2 years
--------- ----- ---------
Outstanding options at December
31, 1998....................... 2,480,240 $6.50 9.4 years
========= ===== =========
</TABLE>
All options detailed above have a 10 year life and vest over a four year
period. As of December 31, 1998, 100,760 options were vested.
In December 1998, the Company entered into agreements with certain
non-stockholder key executives of Lexecon under which payments totaling
$4,248,000 in cash were made and fully-vested options (the "Vested Options") to
purchase 384,000 shares of Class A Common Stock at an exercise price of $1.50
per share were granted. Additionally, the Company reserved for issuance to these
key executives options (the "Reserved Options") to purchase Class A Common Stock
at an exercise price of $1.50 per share. The number of shares of Class A Common
Stock subject to the Reserved Options will be determined based on the price per
share in the Offering of the Class A Common Stock, ranging from a minimum of
31,560 shares if the price per share in the Offering is $17.50 or higher, to a
maximum of 197,760 shares if the price per share in the Offering is $12.50 or
less. However, if the Offering does not occur on or prior to February 29, 2000,
all 197,760 Reserved Options will be deemed issued and exercised, and the Class
A Common Stock acquired upon such exercise will be redeemed by the Company at a
price of $7.65 per share, which will require the Company to pay approximately
$1,216,000 in cash to such non-stockholder key executives of Lexecon, net of the
proceeds from the exercise of such options. The Company recorded as
"Compensation expense--other" $6,617,000 in 1998, which represented the cash
paid plus the difference between the fair market value of the Class A Common
Stock on the date of grant and the exercise price of the Vested Options. The
Company will incur additional compensation expense related to the Reserved
Options at the time the number of shares of Class A Common Stock subject to the
Reserved Options is determined.
The Company has adopted the disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS 123,
applies Accounting Principles Board Opinion ("APB") No. 25 and related
interpretations in accounting for its plans. If the Company had adopted the
optional recognition provisions of SFAS 123 for its stock option plans, net loss
and net loss per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Net loss
As reported................................ $(17,155,000)
Pro forma.................................. (17,627,000)
Net loss per common share
As reported................................ $ (1.14)
Pro forma.................................. $ (1.18)
</TABLE>
F-17
<PAGE> 96
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of stock options used to compute pro forma net loss and net
loss per common share disclosure is the estimated fair value at grant date using
the Black-Scholes option pricing model assuming expected volatility of 55% and a
risk free interest rate of 5%.
Adoption of the optional recognition provisions of SFAS 123 during 1997
would have had no effect on reported net loss and net loss per common share.
At December 31, 1998, the Company had reserved 9,707,386 unissued shares of
its Class A Common Stock for possible issuances under stock-based compensation
plans, for possible issuances of contingent shares in connection with
acquisitions (see Note 1), for possible issuances in connection with outstanding
warrants, and for possible conversions of exchangeable shares.
10. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The following table sets forth the reconciliation of the numerator and
denominator of the net loss per common share computation:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net loss.................................. $(3,015) $(17,155)
Weighted average common shares
outstanding............................. 4,061 14,997
Net loss per common share................. $ (0.74) $ (1.14)
======= ========
</TABLE>
11. RETIREMENT SAVINGS PLANS
The Company and certain of its subsidiaries sponsor retirement savings
plans under Section 401(k) of the Internal Revenue Code for the benefit all of
their employees meeting certain minimum service requirements. Eligible employees
may elect to contribute to the retirement plans subject to limitations
established by the Internal Revenue Code. The trustees of the plans select
investment opportunities from which participants may choose to contribute.
Matching contributions are made at the discretion of the Company and, for
certain plans, as a percentage of employee contributions. Total discretionary
and matching contribution expense under the plans for 1998 was $1,839,000. There
were no contributions for the period from February 26, 1997 (date of inception)
through December 31, 1997.
12. RESTRUCTURING COSTS
During 1998, the Company recorded restructuring costs of $1,298,000 related
to the combination of Symmetrix and SiGMA resulting in the formation of Business
Performance Solutions. These restructuring costs consisted principally of
$603,000 of severance payments and terminating costs and $616,000 for vacated
leased office space, net of estimated sublease income. The Company's
restructuring plan and its related exit costs have been accounted for pursuant
to EITF 94-3. As of December 31, 1998, $947,000 was included in accounts payable
and accrued expensed related to unpaid restructuring costs.
13. CONTINGENCIES
The Company is subject to certain asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and
defend itself in any litigation which may arise from such claims. While the
ultimate outcome of these matters could affect the results of operations of any
one quarter or year when resolved in future periods, and while there can be no
assurance with respect thereto, management believes that after final
disposition, any financial impact to the Company would not be material to the
Company's financial position.
F-18
<PAGE> 97
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-19
<PAGE> 98
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-20
<PAGE> 99
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)
Retained earnings (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-21
<PAGE> 100
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-22
<PAGE> 101
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-23
<PAGE> 102
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-24
<PAGE> 103
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-25
<PAGE> 104
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-26
<PAGE> 105
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-27
<PAGE> 106
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-28
<PAGE> 107
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-29
<PAGE> 108
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-30
<PAGE> 109
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-31
<PAGE> 110
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
(DOLLAR AMOUNTS 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
stockholder............. (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-32
<PAGE> 111
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-33
<PAGE> 112
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-34
<PAGE> 113
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-35
<PAGE> 114
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-36
<PAGE> 115
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-37
<PAGE> 116
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-38
<PAGE> 117
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-39
<PAGE> 118
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-40
<PAGE> 119
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 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 SiGMA Consulting, LLC at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 31, 1998
F-41
<PAGE> 120
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-42
<PAGE> 121
SIGMA CONSULTING, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $7,455 $10,051
Cost of revenues............................................ 5,431 7,552
------ -------
Gross profit.............................................. 2,024 2,499
Selling, general and administrative expenses................ 1,092 1,151
------ -------
Income from operations.................................... 932 1,348
Interest income............................................. 4 7
Interest expense............................................ (37) (34)
------ -------
Net income................................................ $ 899 $ 1,321
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 122
SIGMA CONSULTING, LLC
STATEMENTS OF MEMBERS' 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, 1995....... 9,500 $ 1 -- $ -- $ 205 $ 206
Reorganization as an LLC......... (9,500) (1) 100,503 206 (205) --
Distributions.................... -- -- -- -- (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)
Distributions.................... -- -- -- -- (790) (790)
Net income....................... -- -- -- -- 1,321 1,321
------ --- ------- ---- ------ ------
Balance at December 31, 1997....... -- $-- 88,137 $204 $1,062 $1,266
====== === ======= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 123
SIGMA CONSULTING, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 899 $ 1,321
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................... 21 43
Change in operating assets and liabilities:
Accounts receivable.................................. (607) (1,100)
Costs and estimated earnings in excess of billings... 48 (17)
Overdraft liability.................................. 102 55
Accounts payable and accrued expenses................ (149) 899
Due from affiliate................................... 14 (14)
Deferred revenue..................................... (368) 389
Other................................................ 7 (27)
----- -------
Net cash provided by (used in) operating
activities....................................... (33) 1,549
----- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (15) (53)
----- -------
Net cash used in investing activities............. (15) (53)
----- -------
Cash flows from financing activities:
Redemption of members' units.............................. -- (315)
Due to affiliates......................................... 130 (130)
Repayments of note payable................................ (26) (375)
Distributions............................................. (56) (676)
----- -------
Net cash provided by (used in) financing
activities....................................... 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-45
<PAGE> 124
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
SiGMA Consulting, LLC ("SiGMA" or the "Company"), formed effective January
1, 1996 as a successor company to SiGMA Consulting, Inc., 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.
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.
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 49% of net revenues for each of the
F-46
<PAGE> 125
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
years ended December 31, 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.
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 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 provides 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%.
F-47
<PAGE> 126
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996
and 1997 amounted to approximately $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 affiliates.
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 due to affiliates. 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-48
<PAGE> 127
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-49
<PAGE> 128
THE PLANNING TECHNOLOGIES GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- 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-50
<PAGE> 129
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-51
<PAGE> 130
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-52
<PAGE> 131
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-53
<PAGE> 132
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,
F-54
<PAGE> 133
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Also, the Company has an operating lease for certain equipment.
Lease expense for this 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 fiscal years
ending after December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................. $ 194
1999.............................................. 191
2000.............................................. 183
2001.............................................. 148
2002.............................................. --
--------
$ 716
========
</TABLE>
6. STOCKHOLDERS' 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-55
<PAGE> 134
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Pyramid Imaging, Inc.
We have audited the accompanying balance sheet of Pyramid Imaging, Inc. as
of December 31, 1997 and the related statement of operations, shareholders'
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 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 Pyramid Imaging, Inc. at
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Francisco, California
September 25, 1998
F-56
<PAGE> 135
PYRAMID IMAGING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
ASSETS (IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2 $ 2
Trade accounts receivable, net of $50 allowance for
doubtful accounts...................................... 1,926 2,498
Prepaid taxes............................................. 234 226
Inventory................................................. 28 7
Prepaid expenses and other current assets................. 38 37
Deferred income taxes -- current.......................... 42 42
------ ------
Total current assets........................................ 2,270 2,812
Property and equipment, net................................. 361 389
Deferred income taxes -- noncurrent......................... 36 44
Other....................................................... 11 --
------ ------
Total assets...................................... $2,678 $3,245
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 789 $ 856
Accrued expenses.......................................... 117 334
Line of credit............................................ 203 342
Distributions payable to shareholders..................... 150 --
Customer deposits......................................... 26 --
Advances from affiliate................................... -- 840
------ ------
Total current liabilities................................... 1,285 2,372
Shareholders' equity:
Voting common stock, no par value; 10,000 shares
authorized, 3,000 shares issued and outstanding........ 530 530
Retained earnings......................................... 863 343
------ ------
Total shareholders' equity.................................. 1,393 873
------ ------
Total liabilities and shareholders' equity........ $2,678 $3,245
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 136
PYRAMID IMAGING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net revenues.............................. $6,925 $2,471
Cost of revenues.......................... 4,360 1,350
------ ------
Gross profit............................ 2,565 1,121
Selling, general and administrative....... 2,714 796
Compensation expense--repurchase of stock
options................................. -- 840
------ ------
Loss from operations.................... (149) (515)
Interest income........................... 23 --
Interest expense.......................... (15) (5)
Other expenses............................ (20) --
------ ------
Loss before taxes....................... (161) (520)
Income tax benefit........................ 60 --
------ ------
Net loss................................ $ (101) $ (520)
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 137
PYRAMID IMAGING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK TOTAL
------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------ -------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 31, 1996....................... 3,000,000 $530 $1,114 $1,644
Distributions to shareholders.................. -- -- (150) (150)
Net loss....................................... -- -- (101) (101)
--------- ---- ------ ------
Balance, December 31, 1997....................... 3,000,000 530 863 1,393
--------- ---- ------ ------
Net loss (unaudited)........................... -- -- (520) (520)
--------- ---- ------ ------
Balance, March 31, 1998 (unaudited).............. 3,000,000 $530 $ 343 $ 873
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 138
PYRAMID IMAGING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (101) $(520)
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 206 78
Deferred income taxes............................... (64) (8)
Loss on disposal of equipment....................... 21 --
Changes in operating assets and liabilities:
Accounts receivable............................... 223 (572)
Prepaid taxes..................................... (234) 8
Inventories....................................... 45 21
Prepaid expenses and other assets................. (24) 12
Accounts payable.................................. (15) 67
Accrued expenses.................................. 100 217
Accrued income taxes payable...................... (409) --
Interest payable.................................. (15) --
Sales tax payable................................. (61) --
Customer deposits................................. 21 (26)
------- -----
Net cash used in operating activities.................... (307) (723)
Investing activities:
Purchases of property and equipment................. (300) (106)
Repayments on receivables from shareholders......... 20 --
------- -----
Net cash used in investing activities............. (280) (106)
Financing activities:
Proceeds from borrowings under line of credit....... 2,779 139
Repayments on borrowings under line of credit....... (2,576) --
Repayments of loans to shareholders................. (250) (150)
Borrowings from affiliate........................... -- 840
------- -----
Net cash used in financing activities............. (47) 829
------- -----
Net decrease in cash and cash equivalents................ (634) --
Cash at beginning of period.............................. 636 2
------- -----
Cash at end of period.................................... $ 2 $ 2
======= =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes........................................ $ 625 $ --
======= =====
Interest............................................ $ 15 $ 5
======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 139
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pyramid Imaging, Inc. ("Pyramid" or the "Company") was formed in 1993 with
offices in San Francisco, California; New York, New York; and Dallas, Texas. The
Company offers consulting services focused on providing technology within the
areas of knowledge management, electronic commerce, customer management, and
human capital management. Pyramid primarily offers its services to the health
care, insurance, financial services, consumer products, manufacturing and high
tech industries.
2. ACQUISITION OF COMPANY
Pursuant to the Purchase Agreement, (the "Agreement") dated March 31, 1998
(the "closing"), Nextera Enterprises, LLC ("Nextera"), acquired all of the
outstanding capital stock of the Company (4,009,971 shares of common stock
outstanding as of the closing) from the holders of the Company's stock (the
"Holders"). At closing, all outstanding options to purchase the Company's common
stock were canceled pursuant to an Option Cancellation Agreement entered into
with each optionholder of the Company. In return for the contribution of the
Company's outstanding shares and the cancellation of the outstanding options,
the Holders received $8,091,667 in cash and 520,667 Class A Common Units issued
pursuant to the Limited Liability Company Agreement of Nextera dated April 9,
1997, as amended on January 6, 1998.
Additional consideration to the Holders of the Company's common stock have
been provided per the Agreement in the form of a Revenue Earn-Out, as defined in
the Agreement, for the twelve month period ending March 31, 1999. The additional
consideration is not to exceed $833,333 and 53,333 Class A units.
Pursuant to the Agreement, the holders have agreed to indemnify Nextera
against certain breaches of the representations, warranties and covenants made
by the Company and the holders in the Agreement. To secure payment of the
holders indemnification obligations, an additional $825,000 in cash and 66,000
Class A units are being held in escrow.
In accordance with the Agreement, a certain level of shareholders' equity
of the Company must exist as of March 31, 1998 in order for the full purchase
consideration, as discussed above, to be paid by Nextera. If threshold is not
met, Nextera will deduct any shortfall from the escrowed funds.
3. 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services primarily under
time and materials and, to a lesser extent, fixed price billing arrangements.
Under time and materials arrangements, revenues are recognized as the services
are provided.
Revenues on fixed price billing arrangements are recognized based on the
achievement of agreed upon milestones described in each contract, which
approximates percentage of completion. Contract costs include all direct labor
and expenses related to the contract performance.
Inventories
Inventories, consisting primarily of computer-related equipment are stated
at the lower of cost (determined using the specific identification method) or
market.
F-61
<PAGE> 140
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 7 years.
Advertising Costs
The Company incurs advertising costs in connection with printed material
and trade shows. All costs associated with advertising are expensed as incurred.
The Company expensed approximately $55,000 for the year ended December 31, 1997.
Research and Development
The Company incurred approximately $92,000 in software-related research and
development costs for the year ended December 31, 1997. All costs relating to
research and development have been expensed as incurred.
Concentration of Credit Risk
The Company provides its services in the United States. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. For the year ended December 31, 1997, the Company had four
customers representing approximately 67% of net revenues and 69% of total
receivables.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 9, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires the
use of option valuation models that were not developed for use in valuing
employee stock options.
Income Taxes
The Company accounts for income taxes under 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
bases of assets and liabilities.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Equipment................................................... $ 662
Software.................................................... 82
Furniture and fixtures...................................... 19
-----
763
Less: accumulated depreciation and amortization............. (402)
-----
Property and equipment, net................................. $ 361
=====
</TABLE>
F-62
<PAGE> 141
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. CREDIT FACILITY
The Company maintains a $750,000 line of credit with a financial
institution that expires on May 31, 1998. Borrowings under the line of credit
bear interest at the 30-day commercial paper rate plus 3.15%. The line of credit
is secured by the assets of the Company and is guaranteed by two shareholders.
Outstanding borrowings under the line of credit were $202,602 at December 31,
1997.
The Company is obligated to comply with certain financial and other
covenants under the terms of its credit facility.
Because the interest rate on the credit facility is variable and resets
frequently, management believes that the carrying value of the Company's credit
facility approximates fair market value.
Subsequent to December 31, 1997, the line of credit was extended through
May 31, 1999.
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Current:
Federal................................................... $ 2
State..................................................... 1
----
3
Deferred:
Federal................................................... (49)
State..................................................... (14)
----
(63)
----
Total provision (benefit) for income tax.................... $(60)
====
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the federal statutory income tax rate to the Company's income before
taxes as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Income tax provision (benefit) at federal statutory rate.... $(55)
State income tax, net of federal tax effect................. (8)
Nondeductible expenses...................................... 3
----
Provision (benefit) for income taxes........................ $(60)
====
</TABLE>
F-63
<PAGE> 142
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
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 assets:
Accruals and reserves..................................... $42
Depreciation.............................................. 36
---
Total deferred tax assets................................... 78
Deferred tax liabilities.................................... --
---
Total net deferred tax assets..................... $78
===
Recorded as:
Current deferred tax assets............................... 42
Noncurrent deferred tax assets............................ 36
---
$78
===
</TABLE>
Deferred tax assets and liabilities are classified in the balance sheet
based on the classification of the related asset or liability. Management has
concluded that no valuation allowance is required based on its assessment that
historical levels of taxable income are sufficient to realize the tax assets.
7. RELATED PARTY TRANSACTIONS
In 1993, the Company granted a five year, 6%, $250,000 note payable due to
a shareholder. The note was paid in full during 1997.
In October 1995, the Company issued a 10%, $333,000 note payable due to a
shareholder. Payments under the note were to commence October 2000. Effective
March 1996, the note was converted to 125 shares of the Company's common stock
at $2,664 per share.
In January 1996, the Company sold its wholly-owned subsidiary, Pyramid
Interactive, Inc. to two shareholders of the Company. In connection with the
sale, the Company granted a five year, 8%, $20,000 note receivable to these
shareholders. The note was paid in full in 1997.
8. LEASES
The Company leases its office facilities and certain office equipment under
operating leases. Certain office leases provide for renewal options at the
discretion of the lessee. Rental expense amounted to $171,529 for the year ended
December 31, 1997. Future minimum lease payments under noncancelable operating
leases for the years ending after December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998........................................................ $20
1999........................................................ 20
2000........................................................ 8
---
$48
===
</TABLE>
F-64
<PAGE> 143
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY
Stock Option Plan
Effective January 1997, the Company established the 1997 Equity Incentive
Plan ("the Plan"). The Plan provides employees, outside directors and
consultants eligibility for incentive stock options, nonstatutory stock options,
stock bonuses, rights to purchase restricted stock and stock appreciation
rights. The exercise price of nonstatutory stock options shall not be less than
85% of the fair market value of the stock at the date of grant. The exercise
price of the incentive stock options shall not be less than the fair market
value of the stock at the date of grant. The fair market value of the stock
appreciation rights are based on calculated fair market values outlined in the
agreement. The Company authorized 3,000,000 shares of common stock for issuance
under the Plan. The term of the option shall not exceed ten years from the date
of grant. Options vest at predetermined intervals based on the grantee's tenure
with the Company or upon the Company's meeting certain performance objectives
specified within each grantee's option agreement, but not to exceed five years.
Shares awarded under options which have not vested are subject to repurchase by
the Company at amounts equal to the exercise prices which would have been paid
by the employees upon exercise.
Stock-Based Compensation
"Pro forma" information regarding net income is required by Statement No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a minimum value option
pricing model with the following weighted-average assumptions for the year ended
December 31, 1997: risk-free interest rate of 6.29%; and a weighted-average
expected life of the option of 9.2 years.
The minimum value option valuation model was developed for use in
estimating the fair value of traded options. Option valuation models require the
input of subjective assumptions, including the expected life of the option.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of "pro forma" disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying Statement No. 123 on "pro forma" net income (loss) are not likely to be
representative of the effects on reported net income (loss) for future years.
The Company's reported and "as adjusted" information is as follows for the year
ended December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Net income (loss), as reported.............................. $(101)
Net income (loss), as adjusted.............................. (181)
</TABLE>
F-65
<PAGE> 144
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Activity
The Company's stock option activity and related information under the Plan
for the year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- ----------
<S> <C> <C>
Options outstanding -- beginning of year.................... -- $ --
Granted................................................... 2,991,000 .51
Exercised................................................. -- --
Forfeited................................................. 624,000 .50
--------- ----------
Options outstanding -- end of year.......................... 2,367,000 $ .51
========= ==========
Options exercisable at end of year.......................... 1,738,000 $ .51
========= ==========
Weighted average fair value of options granted during the
year with exercise prices equal to market value on date of
grant..................................................... $ .23
Weighted average fair value of options granted during the
year with exercise prices in excess of market value on the
date of grant............................................. $ .10
Weighted average remaining contractual life................. 8.07 years
</TABLE>
Subsequent to December 31, 1997, 105,000 stock options were granted and
1,009,972 options were exercised.
As mentioned in note 2, effective March 30, 1998, all outstanding stock
options to purchase the Company's common stock were cancelled pursuant to the
Agreement. The Company paid $840,132, which will be charged against operations
in 1998, to all option holders as consideration for the cancellation of the
options.
10. RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution plan under section 401(K) of
the Internal Revenue Code. The plan covers all employees who have been employed
for 30 days and work more than 30 hours per week. The plan provides for up to
15% contributions of a covered employee's eligible pay with no matching
contribution by the employer.
Effective March 30, 1998, the Company's Board of Directors approved the
termination of the defined contribution plan.
11. SUBSEQUENT EVENTS
Effective March 31, 1998, a contract with a significant customer
representing 21% of 1997 revenues was terminated. In connection with the
termination, the Company received a termination fee of $635,700 which was
recorded and earned in 1998.
12. YEAR 2000 (UNAUDITED)
The Company has began an assessment of its computer systems with respect to
dates in the Year 2000 and thereafter. Currently, the Company is unable to
assess whether there will be significant adverse effects on the Company's
systems and operations.
F-66
<PAGE> 145
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 August 31,
1998 and the related consolidated statements of operations and partners' capital
and cash flows for each of the two years in the period ended December 31, 1997
and for the eight month period ended August 31, 1998. 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 August 31,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997 and for the eight month period
ended August 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, at the close of
business on August 31, 1998, the Company sold and transferred all of its assets
subject to its liabilities in exchange for cash and other consideration. The
Company ceased operations thereafter. These financial statements reflect the
financial position of the Company prior to this transaction.
/s/ FARKOUH, FURMAN & FACCIO
New York, New York
December 29, 1998
F-67
<PAGE> 146
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, AUGUST 31,
------------------ ----------
1996 1997 1998
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash..................................................... $ 1,030 $ 1,633 $ 377
Accounts receivable (less allowance for doubtful accounts
of $194 in 1996, $483 in 1997 and $298 in 1998)....... 9,166 9,610 13,811
Notes receivable from affiliates......................... 315 464 277
Prepaid expenses and other current assets................ 545 344 524
------- ------- -------
Total current assets............................. 11,056 12,051 14,989
Fixed assets, at cost (less depreciation of $790 in 1996,
$1,168 in 1997 and $1,475 in 1998)....................... 961 1,607 2,895
Notes receivable from affiliates, less current portion..... 13
Other assets (net of amortization of $359 in 1996, $413 in
1997 and $450 in 1998)................................... 268 313 345
------- ------- -------
Total............................................ $12,298 $13,971 $18,229
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Cash overdraft........................................... $ 738 $ 14 $ 1,074
Accounts payable, accrued expenses and taxes............. 306 626 973
Commissions payable...................................... 387 139 294
Fee advances payable..................................... 1,293 1,302 786
Profit sharing plan payable.............................. 1,399 1,552 1,499
Accrued compensation..................................... 2,478 3,597 4,311
Loan payable--bank....................................... -- -- 2,550
Other current liabilities................................ 222 421 616
------- ------- -------
Total current liabilities........................ 6,823 7,651 12,103
Accrued compensation and benefits.......................... 1,110 951 458
Other long-term liabilities................................ 226 288 561
------- ------- -------
Total liabilities................................ 8,159 8,890 13,122
Minority interest.......................................... -- (1) (3)
Partners' capital.......................................... 4,139 5,082 5,110
------- ------- -------
Total liabilities and partners' capital.......... $12,298 $13,971 $18,229
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 147
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
DECEMBER 31, EIGHT MONTHS ENDED
-------------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues.............................................. $29,178 $34,650 $29,192
Cost of revenues...................................... 21,674 25,629 21,637
------- ------- -------
Gross profit................................ 7,504 9,021 7,555
Selling, general and administrative expenses.......... 6,769 7,575 6,394
------- ------- -------
Income from operations...................... 735 1,446 1,161
Interest income....................................... 65 95 51
Interest expense...................................... (94) (86) (146)
Post retirement healthcare cost....................... (135) (140) (96)
Other income (expense)................................ 33 8 (5)
------- ------- -------
Net income.................................. 604 1,323 965
Partners' capital at beginning of period.............. 3,650 4,139 5,082
Partners' capital contributions....................... 118 334 27
Partners' capital withdrawals......................... (233) (714) (964)
------- ------- -------
Partners' capital end of period....................... $ 4,139 $ 5,082 $ 5,110
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-69
<PAGE> 148
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
DECEMBER 31, EIGHT MONTHS ENDED
-------------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 604 $ 1,323 $ 965
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 470 505 574
Donation of fixed assets.............................. 9
Minority interest in net (loss) of consolidated
subsidiaries....................................... (1) (2)
(Gain) or loss on sale of furniture, fixtures and
equipment.......................................... (53) (8) 13
Changes in operating assets and liabilities:
Accounts receivable................................ (2,178) (444) (4,201)
Prepaid expenses and other assets.................. 155 206 (193)
Accounts payable, accrued expenses and taxes....... 36 320 347
Commissions payable................................ 32 (628) 155
Accrued postretirement healthcare benefit.......... 128 131 96
Fee advances payable............................... 709 9 (516)
Profit sharing plan payable........................ 205 153 (53)
Accrued compensation............................... 1,013 1,212 127
Other current liabilities.......................... 4 (4) 126
------- ------- -------
Net cash provided by (used in) operating
activities..................................... 1,125 2,774 (2,553)
------- ------- -------
Cash flows from investing activities:
Purchase of fixed assets.................................. (409) (704) (1,158)
Proceeds from sale of furniture, fixtures and equipment... 53 8 69
Other..................................................... (47) (104) (56)
------- ------- -------
Net cash (used in) investing activities.......... (403) (800) (1,145)
------- ------- -------
Cash flows from financing activities:
(Decrease) or increase in cash overdraft.................. 172 (724) 1,060
Notes receivable from affiliates, net..................... 246 (36) 109
Proceeds from general partner capital contributions....... 109
Partners' capital withdrawals............................. (233) (513) (964)
Payment of capitalized lease obligations.................. (203) (207) (313)
Proceeds from revolving line of credit.................... 3,850 2,350 5,400
Repayment of revolving line of credit..................... (3,850) (2,350) (2,850)
------- ------- -------
Net cash provided by (used in) financing
activities..................................... (18) (1,371) 2,442
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 704 603 (1,256)
Cash and cash equivalents at beginning of period............ 326 1,030 1,633
------- ------- -------
Cash and cash equivalents at end of period.................. $ 1,030 $ 1,633 $ 377
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 92 $ 79 $ 135
======= ======= =======
Supplemental schedule of noncash investing and financing
activities:
Employees purchase of limited partnership interests funded
through notes receivable.................................. $ 66 $ 24 $ --
======= ======= =======
General partners' capital contributions funded through note
receivable................................................ $ 52 $ 201 $ 27
======= ======= =======
Capital lease obligations incurred for fixed assets......... $ 116 $ 393 $ 757
======= ======= =======
Note payable on redemption of general partners' partnership
interest.................................................. $ -- $ 201 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 149
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SALE AND TRANSFER OF COMPANY ASSETS
Effective at the close of business on August 31, 1998, Sibson & Company,
L.P. (the "Company") sold 85% of its assets subject to certain of its
liabilities in exchange for $34,764,000. In addition, the Company transferred
15% of its assets subject to certain of its liabilities in exchange for
2,613,087 Class A Common Units of Nextera Enterprises, LLC. The Company,
subsequently ceased operations and changed its name to Castor, L.P.
2. THE COMPANY
Prior to the sale and transfer of its assets, Sibson & Company, L.P., a
limited partnership, provided 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 served sales and marketing
organizations with sales strategy, selling process, sales channel and selling
effectiveness consulting.
3. 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.
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 derived 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 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
F-71
<PAGE> 150
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
instruments. The carrying value of long-term debt approximates its fair value
based on references to similar instruments.
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.
The partnership, however, is liable for certain state taxes as a result of
the sale transaction described in Note 1. These financial statements do not give
effect to these state taxes due by the Company or its partners as a result of
the transaction.
4. ESCROW ACCOUNT
In accordance with an employment agreement, the Company is required to
escrow unpaid commissions totaling $223,251 as of August 31, 1998. The funded
escrow amount was not available for use by the Company other than for the
payment of these commissions. As a result of the sale and transfer transaction
as described in Note 1, the employment agreement has been terminated.
5. NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates consist of:
Limited Partners
The notes receivable from limited partners ($123,000 at December 31, 1996,
$111,000 at December 31, 1997 and $11,500 at August 31, 1998) provided for
interest at rates ranging from 8.75% to 10%. The $11,500 note receivable was
repaid subsequent to August 31, 1998.
Shareholder of Sibson Canada, Inc.
The note receivable from a shareholder of Sibson Canada, Inc. ($75,000 at
December 31, 1996 and 1997 and $15,000 at August 31, 1998) provided for interest
at 10% and was repaid subsequent to August 31, 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)
was repaid in 1998.
General Partner
The notes receivable from the general partner ($130,000 at December 31,
1996, $288,000 at December 31, 1997 and $250,050 at August 31, 1998) provided
for interest at rates ranging from 8.75% to 10% and were repaid subsequent to
August 31, 1998.
F-72
<PAGE> 151
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and office equipment......................... $ 572 $1,030 $1,681
Telephone equipment.................................... 195 253 315
Computer equipment..................................... 742 1,094 1,850
Leasehold improvements................................. 227 379 482
Artwork................................................ 15 19 33
Automobile............................................. -- -- 9
------ ------ ------
1,751 2,775 4,370
Less: accumulated depreciation......................... (790) (1,168) (1,475)
------ ------ ------
Fixed assets, net...................................... $ 961 $1,607 $2,895
====== ====== ======
</TABLE>
7. NOTE PAYABLE TO BANK
As of August 31, 1998, the Company had a revolving $4,000,000 line of
credit with a bank with interest at the prime rate. 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 expired 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 $2,000,000, 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 August 31, 1998, letters of credit outstanding and lease
obligations totalled $1,164,558.
8. CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under capital leases expiring in
various years through April 2003. 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, AS OF
-------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion........................................... $178 $275 $ 447
Long-term portion......................................... 199 288 561
---- ---- ------
Total..................................................... $377 $563 $1,008
==== ==== ======
</TABLE>
F-73
<PAGE> 152
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 for the years ending after
August 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 516
2000........................................................ 432
2001........................................................ 145
2002........................................................ 16
2003........................................................ 10
------
Total future minimum lease payments......................... 1,119
Less amount representing interest........................... 111
------
Present value of future minimum lease payments.............. $1,008
======
</TABLE>
9. 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 $1,390,965, and $1,546,641 for the years
ended December 31, 1996 and 1997, respectively. For the eight months ended
August 31, 1998, the contributions to the Plan were $1,496,529. 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 Postretirement 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.
F-74
<PAGE> 153
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of net periodic post-retirement healthcare benefit cost are
as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 47 $ 46
Interest cost............................................... 54 59
Amortization of net transition liability over 20 years...... 34 35
---- ----
Net post-retirement healthcare benefit cost................. $135 $140
==== ====
</TABLE>
A reconciliation of the accumulated post-retirement healthcare benefit
obligation to the accrued postretirement 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%.
For the eight month period ended August 31, 1998, the Company has estimated
the net periodic post-retirement healthcare benefit cost as $96,000. The
estimated accrued post-retirement healthcare benefit liability as at August 31,
1998 is $489,000.
10. EMPLOYMENT AGREEMENT
The Company had an employment agreement under which an employee was
entitled to compensation based upon the collections from business specifically
generated by the employee. In addition, the employee was entitled to
compensation based upon certain other business. The employment agreement was due
to expire on April 30, 2000, however, as a result of the sale and transfer of
assets provided in Note 1, the employment agreement has been cancelled effective
after August 31, 1998.
F-75
<PAGE> 154
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OPERATING LEASES
The Company leased office space in six locations under leases expiring at
various times through August 2007. The leases provided for escalations based
upon increases in real estate taxes, operating expenses and cost of living
increases.
The future minimum annual lease payments for the fiscal years ending after
August 31, 1998 were as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $1,534
2000........................................................ 1,657
2001........................................................ 1,329
2002........................................................ 1,096
2003........................................................ 905
Thereafter.................................................. 3,368
------
$9,889
======
</TABLE>
Rent expense included in the attached statement of operations was
$1,654,229 net of sublease income of $180,123 in 1996, $1,576,053 net of
sublease income of $37,830 in 1997 and $1,205,657 net of sublease income of
$21,690 in 1998.
The Company's obligation under two of the leases is secured by letters of
credit totaling $650,000.
The Company leased various equipment on operating leases with terms through
2002. Monthly rental payments on these leases were approximately $30,000.
As a result of the sale and transfer of assets provided in Note 1, all
leases were assigned to the acquiring entity.
12. LICENSING AGREEMENTS
The Company had granted licenses to companies in South Africa, Canada,
Australia, New Zealand and the United Kingdom to use the name "Sibson &
Company". These licenses provided for royalties payable to the Company equal to
5% of their respective revenues.
13. 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
$670,000 at August 31, 1998.
F-76
<PAGE> 155
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-77
<PAGE> 156
SIBSON CANADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 AUGUST 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 44 $ 51
Receivables............................................... 800 856
Prepaids.................................................. 18 122
---- ------
Total current assets.............................. 862 1,029
Equipment, net.............................................. 32 21
---- ------
Total assets...................................... $894 $1,050
==== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ 0 $ 175
Payables and accruals..................................... 45 301
Bonus payable............................................. 354 205
License fee payable....................................... 112 10
Income taxes payable...................................... 20 0
Deferred income........................................... 35 23
---- ------
Total current liabilities......................... 566 714
Due to shareholders......................................... 65 59
Shareholders' equity:
Capital stock............................................. 93 93
Retained earnings......................................... 170 184
---- ------
Total shareholders' equity........................ 263 277
---- ------
Total liabilities and shareholders' equity........ $894 $1,050
==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 157
SIBSON CANADA, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTHS ENDED
YEAR ENDED AUGUST 31,
DECEMBER 31, --------------------------
1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................ $2,939 $1,976 $2,006
Cost of revenues........................................ 2,053 1,388 1,287
------ ------ ------
Gross profit....................................... 886 588 719
Selling, general and administrative..................... 762 511 684
------ ------ ------
Income before income taxes......................... 124 77 35
Income taxes............................................ 38 25 21
------ ------ ------
Net income......................................... $ 86 $ 52 $ 14
====== ====== ======
Retained earnings, beginning of period.................. $ 84 $ 84 $ 170
Retained earnings, end of period........................ $ 170 $ 136 $ 184
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 158
SIBSON CANADA, INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE
EIGHT MONTHS ENDED
FOR THE AUGUST 31,
YEAR ENDED --------------------------------
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 86 $ 52 $ 14
Depreciation........................... 12 8 6
Change in operating assets and
liabilities:
Trade receivables.................... (237) (289) (56)
Shareholders receivables............. (41) 0 (6)
Other receivables.................... (19) 0 0
Prepaids............................. 3 3 (104)
Payables and accruals................ (91) (78) 256
Bonus payable........................ 354 363 (149)
License fee payable.................. 56 59 (102)
Income taxes payable................. 20 21 (20)
Deferred income...................... 35 37 (12)
Payable to affiliate................. -- -- 175
----- ----- -----
Net cash provided by (used in)
operating activities............ 178 176 2
----- ----- -----
Cash flows from investing activities:
Purchase of equipment, net............. (5) (2) 5
----- ----- -----
Net cash used in investing
activities...................... (5) (2) 5
----- ----- -----
Net increase (decrease) in cash............. 173 174 7
Cash (bank indebtedness) at beginning of
period.................................... (129) (129) 44
----- ----- -----
Cash (bank indebtedness) at end of period... $ 44 $ 45 $ 51
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 159
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 United States
dollars unless noted otherwise.
Interim Financial Statements (Unaudited)
The balance sheet at August 31, 1998, and the statements of operations and
retained earnings and changes in financial position for the eight months ended
August 31, 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-81
<PAGE> 160
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)
<S> <C>
Trade....................................................... $726
Shareholders................................................ 52
Income taxes................................................ --
Other....................................................... 22
----
$800
====
</TABLE>
4. EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
(IN THOUSANDS)
<S> <C>
Furniture and fixtures...................................... $ 6
Office equipment............................................ 10
Computer hardware........................................... 62
Computer software........................................... 22
---
100
Less: accumulated depreciation.............................. 68
---
Property and equipment, net................................. $32
===
</TABLE>
5. BANK INDEBTEDNESS
As of December 31, 1997, the Company has an authorized bank line of credit
of Canadian $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
$127,183 of which $112,136 remains payable at year-end.
F-82
<PAGE> 161
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
$70,855; Class A common shares, unlimited number authorized, 230 issued for
proceeds of $22,408.
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):
<TABLE>
<S> <C>
1998........................................... $174
1999........................................... 127
2000........................................... 126
2001........................................... 104
2002........................................... 83
Thereafter..................................... 495
</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 $129,426, 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 $2,611,000
and 197,813 Exchangeable Shares. The Exchangeable Shares are exchangeable at any
time by the holders thereof for Class A Common Stock of Nextera Enterprises,
L.L.C.
F-83
<PAGE> 162
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-84
<PAGE> 163
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Lexecon Inc.
We have audited the accompanying balance sheets of Lexecon Inc. (effective
December 31, 1998, a wholly-owned subsidiary of Nextera Enterprises, Inc.) as of
December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. 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 Lexecon Inc. at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 2, 1999
F-85
<PAGE> 164
LEXECON INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1997 1998
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15 $ 68
Accounts receivable, less allowance for doubtful accounts
of $200 in 1997 and 1998............................... 10,578 9,301
Loans and advances........................................ 179 108
Prepaid expenses.......................................... 169 173
Equipment held for sale, net.............................. -- 25
------- -------
Total current assets.............................. 10,941 9,675
Fixed assets, net........................................... 1,265 2,058
Deferred income tax benefit................................. 12 18
Deposits.................................................... 70 70
Prepaid expenses............................................ 203 129
------- -------
Total assets...................................... $12,491 $11,950
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable -- Bank...................................... $ 1,600 $ 1,725
Current maturities of long-term obligations............... 200 304
Accounts payable.......................................... 487 856
Accrued expenses.......................................... 877 744
Deferred income tax liability............................. 143 121
------- -------
Total current liabilities......................... 3,307 3,750
------- -------
Long-term obligations, net of current maturities............ -- 624
Deferred rent............................................... 842 908
Lease termination fee....................................... 143 123
Security deposits........................................... 45 45
Shareholders' equity:
Common stock, no par value, $17.50 stated value, 12,000
shares authorized, 1,000 shares issued and
outstanding............................................ 18 18
Additional paid-in capital................................ 85 85
Retained earnings......................................... 8,051 6,397
------- -------
Total shareholders' equity........................ 8,154 6,500
------- -------
Total liabilities and shareholders' equity........ $12,491 $11,950
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE> 165
LEXECON INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $27,061 $31,974 $35,199
Cost of services............................................ 20,734 24,055 30,611
------- ------- -------
Gross profit.............................................. 6,327 7,919 4,588
General and administrative expenses......................... 5,247 5,660 6,337
------- ------- -------
Income (loss) from operations............................. 1,080 2,259 (1,749)
Interest expense............................................ (123) (63) (46)
Interest income............................................. 49 53 113
------- ------- -------
Income (loss) before income taxes......................... 1,006 2,249 (1,682)
Provision (benefit) for income taxes........................ 25 27 (28)
------- ------- -------
Net income (loss)......................................... $ 981 $ 2,222 $(1,654)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE> 166
LEXECON INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995..................... 1,000 $18 $85 $ 4,848 $ 4,951
Net income..................................... -- -- -- 981 981
----- --- --- ------- -------
Balance at December 31, 1996..................... 1,000 18 85 5,829 5,932
Net income..................................... -- -- -- 2,222 2,222
----- --- --- ------- -------
Balance at December 31, 1997..................... 1,000 18 85 8,051 8,154
Net loss....................................... -- -- -- (1,654) (1,654)
----- --- --- ------- -------
Balance at December 31, 1998..................... 1,000 $18 $85 $ 6,397 $ 6,500
===== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 167
LEXECON INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ 981 $ 2,222 $(1,654)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 490 489 552
Deferred rent............................................. 65 59 66
Deferred taxes............................................ 25 27 (28)
Provision for doubtful accounts........................... 73 (20) --
(Gain) loss on sale of property and equipment............. (3) -- 29
Changes in operating assets and liabilities:
Accounts receivable.................................... 727 (2,412) 1,277
Loans and advances..................................... (3) (139) 71
Prepaid expenses....................................... (405) 219 70
Accounts payable and accrued expenses.................. 144 131 236
Deferred compensation.................................. (1,998) -- --
Lease termination fee.................................. (16) (16) (20)
------- ------- -------
Net cash provided by operating activities................... 80 560 599
Cash flows from investing activities:
Capital expenditures paid in cash......................... (512) (434) (424)
Proceeds from sale of property and equipment.............. 15 -- 5
------- ------- -------
Net cash used in investing activities....................... (497) (434) (419)
Cash flows from financing activities:
Borrowings on long-term obligations....................... 600 -- --
Cash paid on long-term obligations........................ (237) (218) (252)
Borrowings on notes payable............................... 1,550 1,600 1,725
Cash paid on notes payable................................ (1,500) (1,550) (1,600)
------- ------- -------
Net cash (used) provided by financing activities............ 413 (168) (127)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (4) (42) 53
Cash and cash equivalents at beginning of year.............. 61 57 15
Cash and cash equivalents at end of year.................... $ 57 $ 15 $ 68
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 65 $ 63 $ 46
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 168
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Lexecon Inc. ("Lexecon" or the "Company") provides a full range of economic
consulting services including economic, financial and statistical analysis and
expert testimony, which are predominately used in matters relating to complex
litigation and regulatory proceedings. Lexecon provides expertise in areas of
antitrust, contracts, regulatory issues, corporate finance, intellectual
property, international trade, securities, taxation and employment practices.
Lexecon serves clients across a broad range of industries, including
telecommunications, high technology and government.
2. SALE OF COMPANY AND BASIS OF PRESENTATION
Effective December 31, 1998, the Company's stock was contributed to Nextera
Enterprises, Inc. ("Nextera") in exchange for $31.1 million of cash and
2,816,000 of Nextera Class A Common Stock (the "Contribution Agreement").
Additional equity of up to 1,450,240 shares of Nextera Class A Common Stock will
be reserved for issuance to the shareholders of the Company in the event of a
Nextera initial public offering, the amount of which is contingent upon the
timing and per share offering price of such public offering. Certain
nonshareholders released the Company concurrently with the consummation of the
Contribution Agreement of all liabilities or claims for prior compensation of
any nature including any described herein. The Company also entered into
employment agreements with certain senior executives providing for the payment
of cash and stock options to them as bonus compensation in consideration of
their entering into the employment agreements. In addition, at the time of the
acquisition, one shareholder of the Company entered into a Service Agreement, as
defined, with the Company.
These financial statements reflect the operations and financial position of
the Company immediately prior to the Contribution Agreement, which was effective
at the close of business on December 31, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Revenues from engagements are recognized as services are provided based
upon hours worked and agreed-upon hourly rates, net of estimated fee
adjustments. Lexecon's revenues also include other charges billed to clients,
which include outside consultants, travel and other out-of-pocket expenses,
charges for support staff, computer usage, and other reimbursable charges. An
allowance is provided for any amounts considered uncollectible.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-90
<PAGE> 169
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the useful life of the assets which
is generally three to seven years. Leasehold improvements are being amortized
using the straight-line method over their useful lives or the term of the lease,
whichever is shorter.
Income Taxes
Effective May 1, 1991, the shareholders of the Company elected to be
treated as an "S" Corporation under the provisions of the Internal Revenue Code.
Accordingly, each shareholder reports the taxable income or loss of the Company
on their individual tax returns. The Company continues to be subject to the
Illinois replacement tax.
The "S" Corporation election was terminated upon the sale of the Company
(see Note 2).
Deferred Income Taxes
Deferred income taxes, representing the Illinois Replacement Tax, arise
from timing differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods. The principal
sources of timing differences are the use of the accrual basis of accounting in
the accompanying financial statements and the use of the cash basis of
accounting for tax purposes, leasehold improvements being amortized over their
useful lives or the term of the lease whichever is shorter for financial
statement purposes and lives prescribed by the Internal Revenue Code for tax
purposes and rent being expensed on a straight line method for financial
statement purposes and being expensed as paid for tax purposes.
Concentration of Credit Risk
The Company's customer base consists of a broad range of clients in a
variety of industries located throughout the United States and in certain other
countries. No client comprised more than 10% of net revenues in 1996. In 1997
and 1998, one client comprised approximately 18% and 21% of net revenues,
respectively. In 1998, another client comprised 10% of net revenues. The Company
performs a credit evaluation of each of its clients to minimize its
collectibility risk.
The Company provides an allowance for doubtful accounts to provide for
potentially uncollectible amounts. Activity in the allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $148 $221 $200
Charge to cost and expenses........................... 88 41 --
Amounts written off................................... (15) (62) --
---- ---- ----
Balance at end of year................................ $221 $200 $200
==== ==== ====
</TABLE>
F-91
<PAGE> 170
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Furniture fixtures and equipment........................... $4,150 $5,324
Leasehold improvements..................................... 1,507 1,502
------ ------
5,657 6,826
Accumulated depreciation and amortization.................. 4,392 4,768
------ ------
$1,265 $2,058
====== ======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Salaries and payroll taxes................................. $ 420 $ 392
Profit-sharing contribution................................ 267 263
Current portion of lease termination fee................... 16 18
------ ------
Other...................................................... 174 71
------ ------
$ 877 $ 744
====== ======
</TABLE>
6. NOTES PAYABLE -- BANK
The Company has a line of credit which permits borrowings of up to
$2,000,000 with interest at the bank's base rate, as defined (7.75% at December
31, 1998), plus 0.25% and is secured by the Company's accounts receivable and
other sundry assets.
The Company also had an outstanding standby letter of credit at December
31, 1998, in the amount of $500,000 which was issued in lieu of a security
deposit on the Company's leased office space.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Capital lease payable in monthly installments of $30,966
including principal and interest at 8.5% due October
2001..................................................... $ -- $ 928
Note payable in monthly installments of $16,667 plus
interest at 7.94%........................................ 200 --
------ ------
200 928
Less: current maturities................................... 200 304
------ ------
$ -- $ 624
====== ======
</TABLE>
F-92
<PAGE> 171
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company conducts its operations in facilities that are leased under an
operating lease expiring February 14, 2007. The lease also requires payments of
additional amounts to cover operating expenses and real estate taxes. The
Company also has operating leases for certain equipment. Effective October 26,
1998, the Company entered into a capital lease for new computer hardware and
software, the net present value of the initial future lease payments was
$980,000.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms for the fiscal years ending after December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
1999........................................... $ 372 $ 514
2000........................................... 372 516
2001........................................... 304 655
2002........................................... -- 750
2003........................................... -- 754
Thereafter..................................... -- 2,403
------ ------
Total minimum lease payments......... $1,048 $5,592
======
Less amounts representing interest............. (120)
------
Present value of minimum capitalized lease
payments..................................... 928
Current portion................................ 304
------
Long-term capitalized lease obligations........ $ 624
======
</TABLE>
Equipment recorded under capital leases of $898,000 (net of accumulated
amortization of $82,000) is included in Property and Equipment as of December
31, 1998.
Rent expense under operating leases for the years ended December 31, 1996,
1997 and 1998, amounted to approximately $617,000, $617,000, and $648,000,
respectively. Deferred rent represents the excess of amortization of rent
expenses over the term of the lease on a straight-line basis over required
rental payments for base rents.
On October 17, 1994, the Company's existing office lease agreement was
amended in order to allow the Company to vacate certain leased space that it
held. As a result of this amendment, the Company is required to pay as
additional rent $300,000 payable in 120 equal monthly installments of $2,500.
The net present value of this obligation, discounted at 8.00%, in the amount of
$205,334 was charged to expense as of December 31, 1994. The unamortized
discount is reflected on the balance sheet as lease termination fee.
9. PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan for all eligible employees.
Contributions to the Plan are at the discretion of the Company's Board of
Directors. The Company does not maintain any interest in its contribution but
reserves the right to modify or discontinue the Plan. Contributions to the Plan
for the years ending December 31, 1996, 1997, and 1998 amounted to $251,561,
$267,804, and $263,565, respectively.
10. OTHER COMPENSATION ARRANGEMENTS
On December 31, 1993, the Company entered into a deferred compensation plan
for its shareholders for services previously rendered to the Company. Under the
terms of the Plan the officers received a total of
F-93
<PAGE> 172
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$6,000,000 payable in annual installments of $2,000,000 beginning in 1994 with
interest on the unpaid balance at a rate of 7%.
In 1996, the Company informed certain of its nonshareholder senior
executives that it was in the process of implementing, for their benefit, a
program to provide them in the event of the sale or merger of the Company, a
compensatory interest as a shareholder in a participation pool aggregating 12%
of the value of the Company in excess of book value (see Note 2).
On an annual basis, the Company pays discretionary bonuses to employees
which are authorized by the Board of Directors. In addition, pursuant to a
shareholders agreement, see Note 10, the shareholders are entitled to receive
annual bonuses based on income, as defined. Bonus expense including employees
and shareholders for the years ended December 31, 1996, 1997, and 1998 was
$9,136,600, $11,387,300, and $17,611,000, respectively, and is included in cost
of services on the statement of income.
11. COMMITMENTS AND CONTINGENCIES
The shareholders of the Company entered into a shareholder agreement and
employment termination agreements, each as amended in December 1990. Under the
terms of the agreements, in the event of the death or disability of a
shareholder or other "terminating event" as defined in the agreement, the
Company is to repurchase from the terminated shareholder or his estate all
shares held by the shareholder or estate. The purchase price for each share will
be the base purchase price per share as defined in the agreement plus or minus
the increase or decrease in the book value per share from the base date, as
defined. The purchase price shall be payable in cash; however, the Company shall
have the option to pay at least 25% of the purchase price in cash and deliver a
promissory note payable in three equal annual installments with interest payable
annually on the unpaid balance at the lowest appropriate applicable federal rate
of the Internal Revenue Code at the time of issuance. In connection with the
sale of the Company (see Note 2), the aforementioned shareholder agreement and
employment termination agreements were canceled.
During the period ended December 31, 1991, the Company entered into a Suite
License Agreement with Metro-Chicago Sports Stadium Joint Venture. No expense
has been recorded under this agreement since the Company has been reimbursed by
one of its shareholders and other unrelated parties for substantially all costs
incurred under this agreement. On September 1, 1998, the Company renewed its
Suite License Agreement. The terms of the new agreement require payments
aggregating approximately $1,000,000 payable in annual installments of
approximately $200,000 from 1999 through 2004.
The Company is involved in claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material effect on the Company's
results of operations or financial position.
12. YEAR 2000 (UNAUDITED)
The Company is in process of evaluating its information systems to
determine their compliance with the Year 2000 issue. Based on information
currently available, the Company believes that all necessary changes will occur
on a timely basis and that expenditures relating to the Year 2000 will not have
a significant impact on the Company's result of operations or financial
position.
F-94
<PAGE> 173
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Financial Statements give effect
to the Company's acquisitions of (i) Symmetrix, Inc. (renamed Nextera Business
Performance Solutions Group, Inc. ("Business Performance Solutions")) effective
July 31, 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, (v) Sibson &
Company, L.P. and Sibson Canada, Inc. (collectively, "Sibson") effective August
31, 1998 (the "Sibson Acquisitions") and (vi) Lexecon Inc. ("Lexecon") effective
December 31, 1998 (the "Lexecon Acquisition"). Business Performance Solutions,
SiGMA, PTG, Pyramid, Sibson and Lexecon 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 has a December
31 fiscal year end.
The following Unaudited Pro Forma Combined Balance Sheet of the Company at
December 31, 1998 is adjusted to reflect the initial public offering of the
Company's Class A Common Stock (the "Offering") and the application of the
estimated net proceeds therefrom, including the repayment of certain
indebtedness, as if the Offering had occurred on December 31, 1998.
The following Unaudited Pro Forma Combined Statements of Operations of the
Company for the year ended December 31, 1998 has been prepared to give effect to
(i) the acquisitions of the Acquired Companies (excluding Symmetrix, Inc. which
was acquired effective July 31, 1997) as of January 1, 1998 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, 1998. The Alexander Corporation Limited was acquired by the
Company in January 1999 and is not material to the Company's financial position
or results of operations and is excluded from the Unaudited Pro Forma Combined
Statements of Operations.
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 Enterprises,
Inc. and the Acquired Companies included elsewhere in this Prospectus.
PF-1
<PAGE> 174
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
ACTUAL OFFERING
(A) ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 1,496 $ 3,832(B) $ 5,328
Accounts receivable, net............................. 31,094 -- 31,094
Costs and estimated earnings in excess of billings... 2,962 -- 2,962
Due from affiliates.................................. 400 -- 400
Due from officers.................................... 856 (856)(B) --
Prepaid expenses and other current assets............ 5,709 -- 5,709
-------- -------- --------
Total current assets.............................. 42,517 2,976 45,493
Property and equipment, net............................ 8,056 -- 8,056
Intangible assets, net of accumulated amortization..... 125,082 13,909(B) 138,991
Other assets........................................... 1,036 -- 1,036
-------- -------- --------
Total assets...................................... $176,691 $ 16,885 $193,576
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 23,530 $ (750)(B) $ 22,780
Notes payable to bank................................ 6,156 -- 6,156
Bridge loan payable.................................. 75,849 (75,849)(B) --
Deferred revenue..................................... 1,193 -- 1,193
Due to affiliates.................................... 1,068 (210)(B) 858
Current portion of long-term debt and capital lease
obligations....................................... 482 -- 482
-------- -------- --------
Total current liabilities......................... 108,278 (76,809) 31,469
Long-term debt and capital lease obligations........... 2,600 2,600
Other long-term liabilities............................ 1,174 1,174
Debentures due to affiliates, including accrued
interest thereon..................................... 53,149 (53,149)(B) --
Stockholders' equity:
Common stock and exchangeable shares................. 31,660 146,843(B) 178,503
Retained earnings (deficit).......................... (20,170) -- (20,170)
-------- -------- --------
Total stockholders' equity........................ 11,490 146,843 158,333
-------- -------- --------
Total liabilities and stockholders' equity........ $176,691 $ 16,885 $193,576
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-2
<PAGE> 175
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------------------------------------
ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
(C) (D)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues......... $ 67,590 $67,577 $ -- $135,167 $ -- $135,167
Cost of revenues..... 44,985 46,689 (15,360)(E) 76,314 -- 76,314
-------- ------- -------- -------- ------- --------
Gross profit.... 22,605 20,888 15,360 58,853 -- 58,853
-------- ------- -------- -------- ------- --------
Selling, general and
administrative
expenses........... 23,103 20,902 -- 44,005 -- 44,005
Amortization
expense............ 1,722 -- 2,604(F) 4,326 348(B) 4,674
Restructuring
costs.............. 1,298 -- -- 1,298 -- 1,298
Compensation
expense--
other(G)........... 6,671 840 -- 7,511 1,694(H) 9,205
-------- ------- -------- -------- ------- --------
Income (loss)
from
operations.... (10,189) (854) 12,756 1,713 (2,042) (329)
-------- ------- -------- -------- ------- --------
Interest income
(expense), net..... (6,723) (21) (6,777)(I) (13,521) 13,378(J) (143)
-------- ------- -------- -------- ------- --------
Income (loss)
before income
tax expense
(benefit)..... (16,912) (875) 5,979 (11,808) 11,336 (472)
-------- ------- -------- -------- ------- --------
Income tax expense
(benefit).......... 243 (7) --(K) 236 -- 236
-------- ------- -------- -------- ------- --------
Net income
(loss)........ $(17,155) $ (868) $ 5,979 $(12,044) $11,336 $ (708)
======== ======= ======== ======== ======= ========
Net income (loss) per
common share, basic
and diluted........ $ (1.14) $ (0.61) $ (0.02)
======== ======== ========
Weighted average
common shares
outstanding, basic
and diluted........ 14,997 19,891 31,134
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-3
<PAGE> 176
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) Represents the historical consolidated balance sheet of the Company as
of December 31, 1998.
(B) 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." Also assumes the presumed issuance of an
additional 993,520 shares of Class A Common Stock in connection with the Lexecon
Acquisition based upon an estimated initial public offering price of $14.00 per
share. Such shares have been reflected in As Adjusted intangible assets and
equity at $14.00 per share, the estimated initial public offering price.
(C) Represents the historical consolidated statement of operations of the
Company for the year ended December 31, 1998. The Company's statement of
operations for the year ended December 31, 1998 reflects the results of
operations of Symmetrix and SiGMA for the entire period, of Pyramid and PTG for
periods after March 31, 1998, and of Sibson for the period after August 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.
(D) Represents the historical statements of operations of Pyramid and PTG
for the three months ended March 31, 1998, the historical consolidated
statements of operations of Sibson (including Sibson Canada, Inc.) for the eight
months ended August 31, 1998 and the historical statement of operations for
Lexecon for the year ended December 31, 1998. Certain reclassifications have
been made to the historical statements of income and operations to conform with
the Company's classifications.
(E) In connection with the Sibson Acquisitions, the Lexecon Acquisition 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, 1998 and the amount that would have been paid
based on the new formulas set forth in the respective employment agreements.
Management believes that the prospective effect of changes to pre-acquisition
bonus formulas, coupled with the post-acquisition inclusion of key employees in
the Company's equity participation plans, will not have a material adverse
effect on the future operations of the Company.
(F) 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, the Sibson Acquisitions for the eight months
ended August 31, 1998, and the Lexecon Acquisition for the year ended December
31, 1998, in each case using five years for intangibles related to personnel and
40 years for goodwill.
(G) Compensation expense -- other resulted from the cancellation and
repurchase of all of outstanding options to purchase Pyramid stock in connection
with its acquisition by the Company and from agreements executed with certain
non-stockholder key executives of Lexecon under which payments totaling
$4,248,000 in cash were made and fully-vested options to purchase 384,000 shares
of Class A Common Stock at an exercise price of $1.50 were granted.
(H) Based upon an estimated initial public offering price of $14.00 per
share, fully-vested options to purchase 135,480 shares of Class A Common Stock
at an exercise price of $1.50 per share would be granted to certain
non-stockholder key executives of Lexecon. The Offering Adjustment represents
the difference between the assumed initial public offering price and the
exercise price, multiplied by the number of options granted.
(I) Represents the adjustments to record the interest expense for the year
ended December 31, 1998, resulting from the $38,000,000 borrowing incurred in
connection with the Sibson Acquisitions and from the $31,146,000 borrowing
incurred in connection with the Lexecon Acquisition. The borrowings bear
interest at the assumed rate of 12% per annum and mature on April 30, 1999.
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<PAGE> 177
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(J) Represents the adjustments to eliminate the interest expense for the
indebtedness repaid with a portion of the estimated net proceeds from the
Offering, calculated as the actual amount of interest incurred by the Company on
an historical basis, incurred on borrowings to be repaid from the net proceeds
of the Offering, plus interest calculated on a pro forma basis arising in
connection with the acquisitions detailed in Note I above. See "Use of
Proceeds."
(K) The pro forma tax provision for the year ended December 31, 1998 is
recorded for Pyramid, which is a taxable operating unit, and is based upon pro
forma loss for the year ended December 31, 1998, applied to the effective tax
rate of Pyramid.
PF-5
<PAGE> 178
- ------------------------------------------------------------
- ------------------------------------------------------------
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................................ 19
Use of Proceeds............................ 21
Dividend Policy............................ 21
Capitalization............................. 22
Dilution................................... 23
Selected Consolidated and Pro Forma
Combined Financial Data.................. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 25
Business................................... 37
Management................................. 50
Certain Transactions....................... 60
Principal Stockholders..................... 64
Description of Capital Stock............... 66
Shares Eligible for Future Sale............ 71
Underwriting............................... 74
Legal Matters.............................. 76
Experts.................................... 76
Available Information...................... 77
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1999 (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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
10,250,000 SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEXS BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
---------------------
DLJDIRECT INC.
, 1999
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 179
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............................................. $ 880,000
==========
</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 $15
million in the aggregate, subject to retentions of up to $100,000 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, the Company issued to NEH 316,800 Class A Common
Units for consideration of $63,360 and 728,640 Class B Preferred Units for
consideration of $728,640. This transaction was
II-1
<PAGE> 180
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, the Company issued 3,200 Class A Common Units to EDU
for consideration of $8,000. 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, the Company issued a warrant to NEH (the "Warrant")
to purchase 5,000,000 Class A Common Units of the Company at an exercise price
of $2.50 per unit in connection with the initial capitalization of the Company.
The Warrant had an expiration date of August 1, 2002. On April 30, 1998, the
Company 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 4,300,000 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, the Company issued to NEH 100,000 Class A Common
Units for consideration of $20,000 and 230,000 Class B Preferred Units for
consideration of $230,000. 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, the Company issued to NEH 120,000 Class A Common Units
for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. 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, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. 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, the Company issued to NEH 6,000,000 Class A Common
Units for consideration of $1,200,000 and 13,800,000 Class B Preferred Units for
consideration of $13,800,000. 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, the Company issued 6,800 Class A Common Units to EDU
for consideration of $17,000. 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, the Company issued to NEH 400,000 Class A Common
Units for consideration of $80,000 and 920,000 Class B Preferred Units for
consideration of $920,000. 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, the Company issued to NEH 72,000 Class A Common
Units for consideration of $14,400 and 165,600 Class B Preferred Units for
consideration of $165,600. 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, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. 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, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. 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.
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<PAGE> 181
(m) On November 4, 1997, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. 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, the Company issued to NEH 400,000 Class A Common
Units for consideration of $80,000 and 920,000 Class B Preferred Units for
consideration of $920,000. 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, the Company issued to NEH 2,101,700 Class A Common
Units for consideration of $420,240 and 9,708,560 Class B Preferred Units for
consideration of $9,708,560. 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, the Company issued 669,000 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, the Company issued to NEH 150,000 Class B
Preferred Units for consideration of $150,000. 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, the Company issued to NEH 100,000 Class B
Preferred Units for consideration of $100,000. 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, the Company issued to NEH 150,000 Class B
Preferred Units for consideration of $150,000. 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, the Company issued to NEH 300,000 Class B
Preferred Units for consideration of $300,000. 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) On March 23, 1998, the Company issued to NEH 300,000 Class B Preferred
Units for consideration of $300,000. 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.
(v) Effective March 31, 1998, the Company issued 214,000 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.
(w) Effective March 31, 1998, the Company issued an aggregate of 586,667
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.
(x) On April 7, 1998, the Company issued to NEH 6,710,000 Class B Preferred
Units for consideration of $6,710,000. 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 8, 1998, the Company issued to NEH 9,750,000 Class B Preferred
Units for consideration of $9,750,000. 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.
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<PAGE> 182
(z) On April 10, 1998, the Company issued to NEH 10,000 Class A Common
Units for consideration of $2,000 and 23,000 Class B Preferred Units for
consideration of $23,000. 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) On April 30, 1998, the Company issued to NEH 2,634,200 Class B
Preferred Units for consideration of $2,634,200. 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) Effective as of April 30, 1998, approximately $48.0 million of the
Company'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.
(cc) On August 31, 1998, the Company issued to Gresham T. Brebach, Jr.
49,500 Class A Common Units and 21,285 Class B Common Units for aggregate
consideration of $9,900. 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, the Company issued to Ronald K. Bohlin 49,500
Class A Common Units and 21,285 Class B Common Units for aggregate consideration
of $9,900. 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, the Company issued to Michael P. Muldowney 9,000
Class A Common Units and 3,870 Class B Common Units for aggregate consideration
of $1,800. 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.
(ff) On August 31, 1998, the Company issued to Debra I. Bergevine 9,000
Class A Common Units and 3,870 Class B Common Units for aggregate consideration
of $1,800. 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.
(gg) On August 31, 1998, the Company issued to David Fritts 9,000 Class A
Common Units and 3,870 Class B Common Units for aggregate consideration of
$1,800. 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.
(hh) On August 31, 1998, the Company issued to Belden Menkus 9,000 Class A
Common Units and 3,870 Class B Common Units for aggregate consideration of
$1,800. 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.
(ii) Effective August 31, 1998, the Company issued an aggregate of
2,613,087 Class A Common Units to Sibson & Company, L.P. as a part of the
purchase price for the assets of Sibson & Company, L.P. 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.
(jj) Effective August 31, 1998, the Company issued an aggregate of 48,360
Class A Common Units to certain employees pursuant to employment agreements
between SC/NE, LLC, Sibson Canada Co. or Sibson UK Limited and such employees,
each dated as of August 31, 1998, for aggregate consideration of $6,770. 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.
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<PAGE> 183
(kk) Effective December 31, 1998, the Company issued 11,382,653 shares of
Class A Common Stock and 4,274,630 shares of Class B Common Stock to the former
members of Nextera LLC other than the Sibson Entities in exchange for 11,382,653
Class A Common Units of Nextera LLC and 4,274,630 Class B Common Units of
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.
(ll) Effective December 31, 1998, the Company issued 2,613,087 shares of
Class A Common Stock to the former stockholders of the Sibson Entities in
exchange for all of the outstanding capital stock of the Sibson Entities. The
Sibson Entities held 2,613,087 Class A Common Units of Nextera LLC at the time
of such exchange. 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.
(mm) Effective December 31, 1998, the Company issued 2,816,000 shares of
Class A Common Stock and agreed to issue up to 1,450,240 shares of Class A
Common Stock depending on the timing of this Offering and the price per share of
the Class A Common Stock in the Offering to the former stockholders of Lexecon
as partial consideration for the exchange of all of the capital stock of
Lexecon. 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.
(nn) Effective December 31, 1998, the Company granted to certain employees
of Lexecon fully-exercisable options to purchase 384,000 shares of Class A
Common Stock at an exercise price of $1.50 per share as a signing bonus to such
employees in connection with employment agreements entered into between such
employees and Nextera at the time of the Lexecon Transaction. Also effective
December 31, 1998, the Company agreed to grant to such employees of Lexecon
fully-exercisable options to purchase up to 197,760 shares of Class A Common
Stock at an exercise price of $1.50 per share depending on the timing of this
Offering and the price per share of the Class A Common Stock in the Offering.
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.
(oo) Effective December 31, 1998, the Company issued a warrant to purchase
250,000 shares of Class A Common Stock to Knowledge Universe in return for the
Guaranty by Knowledge Universe. The exercise price of the warrants is equal to
80% of the initial public offering price of the Class A Common Stock, provided,
however, if such initial public offering does not occur by August 31, 2000, the
exercise price will be $7.65 per share, as adjusted for stock splits, stock
dividends and similar transactions. The warrants expire on December 31, 2003.
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.
(pp) Effective April 1997, the Company granted to certain employees options
to purchase 134,400 Class A Common Units at an exercise price of $0.50 per unit
under the Amended and Restated Employee Equity Participation Plan of Nextera LLC
(the "Nextera LLC Equity Participation Plan"). Effective April 1997 through
February 1998, the Company granted to certain employees options to purchase
864,431 Class A Common Units at an exercise price of $5.00 per unit under the
Nextera LLC Equity Participation Plan. Effective January 1998 through December
1998, the Company granted to certain employees options to purchase 1,472,233
Class A Common Units at an exercise price of $7.50 per unit under the Nextera
LLC Equity Participation Plan. Each of the options vests one-fourth per 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.
(qq) Effective December 31, 1998, the Company agreed in connection with the
Lexecon transaction to grant options to purchase a total of 2,558,330 shares of
Class A Common Stock to certain personnel of Lexecon under the Limited Purpose
Plan, assuming the price per share of the Class A Common Stock in the Offering
is $14. The precise number of options to be granted by the Company will depend
on the price per share in the Offering. Each of the options will vest at the
rate of one-third each year over a three year period. The exercise price of each
option will equal the price per share of the Class A Common Stock in the
Offering. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Rule 701 under
the Securities Act or Section 4(2) of the Securities Act.
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<PAGE> 184
(rr) Effective December 31, 1998, the Company issued a total of 2,471,064
options to purchase Class A Common Stock under the 1998 Equity Participation
Plan to certain employees to replace options previously granted under the
Nextera LLC Equity Participation Plan on the same general terms and conditions
as the previously granted options. This transaction was undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Rule 701 under the Securities Act or Section 4(2) of the Securities
Act.
(ss) Effective January 26, 1999, the Company granted to employees of the
Company and its subsidiaries options to purchase an aggregate of 313,000 shares
of Class A Common Stock at an exercise price of $11.00 per share under the 1998
Equity Participation Plan. Each of the options vests one-fourth per year over a
four-year period. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Rule 701 under the Securities Act or Section 4(2) of the Securities Act.
(tt) Effective January 29, 1999, the Company issued an aggregate of 150,000
shares of Class A Common Stock to the former stockholders of Alexander as a part
of the purchase price for all of the issued and outstanding capital stock of
Alexander. 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.
(uu) Effective January 29, 1999, the Company granted to certain employees
of Alexander options to purchase an aggregate of 300,000 shares of Class A
Common Stock at an exercise price of $11.00 per share. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 701 under the Securities Act or Section 4(2)
of the Securities Act.
(vv) In January 1999, the Company granted options to purchase 15,000 shares
of Class A Common Stock at an exercise price of $11.00 per share to each of the
Company's independent directors under the 1998 Equity Participation Plan. Such
independent directors include Ralph Finerman, Steven B. Fink, Stanley E. Maron,
Michael D. Rose and Richard V. Sandler. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Rule 701 under the Securities Act or Section 4(2) of the
Securities Act.
(ww) In January 1999, the Company issued an aggregate of 384,000 shares of
Class A Common Stock to the holders of certain options to purchase Class A
Common Stock upon exercise of such options and payment of the exercise price
thereof. Such options were granted to certain employees of Lexecon on December
31, 1998. 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.
(xx) In January and February 1999, the Company issued an aggregate of 4,588
shares of Class A Common Stock to the holders of certain options to purchase
Class A Common Stock upon exercise of such options and payment of the exercise
price thereof. Such options were granted under the 1998 Equity Participation
Plan. These transactions were undertaken in reliance upon the exemption 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) Amended and Restated Certificate of Incorporation.
3.2(1) Amended and Restated Bylaws.
4.1(3) Form of Class A Common Stock Certificate.
5.1(3) Opinion of Latham & Watkins.
10.1(2) 1998 Equity Participation Plan.
</TABLE>
II-6
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.2(3) Form of Nextera/Lexecon Limited Purpose Stock Option Plan.
10.3(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.
10.4(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.
10.5(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.
10.6(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.
10.7(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.
10.8(1) 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.
10.9(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.
10.10(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.
10.11(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.
10.12(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.
10.13(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.
10.14(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.
10.15(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.
</TABLE>
II-7
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.16(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.
10.17(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.
10.18(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and the individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A (previously
filed as Exhibit 4.3 to this Registration Statement as filed
with the Commission on September 18, 1998).
10.19(1) First Amendment to Stockholders Agreement dated as of
December 15, 1998 by and among Nextera Enterprises, L.L.C.,
Nextera Enterprises, Inc. and the individuals and other
parties listed on the signature pages thereto (previously
filed as Exhibit 4.4 to Amendment No. 2 to this Registration
Statement as filed with the Commission on January 21, 1999).
10.20(1) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc.
(previously filed as Exhibit 4.5 to Amendment No. 2 to this
Registration Statement as filed with the Commission on
January 21, 1999).
10.21(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc.
10.22(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc.
10.23(1) Consent and Amendment dated as of December 31, 1998 to the
Securities Purchase Agreement dated as of August 31, 1998 by
and among Nextera Enterprises, L.L.C., Nextera Funding,
Inc., Nextera Enterprises, Inc. and Knowledge Universe, Inc.
10.24(1) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding, Inc.
10.25(1) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe, Inc.
10.26(1) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc.
10.27(2) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto.
10.28(1) Letter agreement dated as of December 31, 1998 by and among
Nextera Enterprises, Inc., Knowledge Universe, Inc. and the
individuals listed on the signature page thereto.
10.29(2) Warrant to Purchase Class A Common Stock of Nextera
Enterprises, Inc. dated as of December 31, 1998 issued to
Knowledge Universe, Inc.
10.30(2) Senior Secured Note dated January 28, 1999 of Nextera
Enterprises, Inc. in favor of Nextera Funding, Inc.
10.31(3) Amended and Restated Security and Pledge Agreement by and
between Nextera Enterprises, Inc. and Nextera Funding, Inc.
10.32(3) Amended and Restated Security and Pledge Agreement by and
between Pyramid Imaging, Inc. and Nextera Funding, Inc.
10.33(3) Amended and Restated Security and Pledge Agreement by and
between The Planning Technologies Group, L.L.C. and Nextera
Funding, Inc.
</TABLE>
II-8
<PAGE> 187
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.34(3) Amended and Restated Security and Pledge Agreement by and
between Nextera Business Performance Solutions Group, Inc.
and Nextera Funding, Inc.
10.35(3) Amended and Restated Security and Pledge Agreement by and
between Sibson & Company, LLC and Nextera Funding, Inc.
10.36(3) Amendment to Subsidiary Guaranty by each of the corporations
listed on Annex A Attached thereto
10.37(2) Agreement relating to the sale and purchase of the whole of
the issued share capital of The Alexander Corporation
Limited dated as of January 29, 1999 by and among Nextera
Enterprises, Inc. and the parties listed on Schedule I
thereto.
10.38(2) Supplemental Deferred Consideration Agreement dated as of
January 29, 1999 by and among Nextera Enterprises, Inc.,
Graham Alexander and Arthur Morgan.
10.39(2) Loan Note Instrument dated as of January 29, 1999 of Nextera
Enterprises, Inc.
10.40(2) Tax Deed of Covenant dated as of January 29, 1999 by and
among Nextera Enterprises, Inc. and the persons listed on
the Schedule thereto.
10.41(2) Charge of Shares dated as of January 29, 1999 by the persons
listed on Schedule I thereto in favor of Nextera
Enterprises, Inc.
10.42(1) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000.
10.43(1) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000.
10.44(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.45(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.46(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.47(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.48(2) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $22,966,411.50 dated as of
December 31, 1997.
10.49(2) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $24,933,543.66 dated as of
December 31, 1997.
10.50(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr.
10.51(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin.
10.52(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney.
10.53(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.
10.54(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.
10.55(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>
II-9
<PAGE> 188
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.56(2) Agreement dated as of December 31, 1998 by and between
Lexecon Inc. and Andrew M. Rosenfield.
10.57(2) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Daniel R.
Fischel.
10.58(2) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Dennis W.
Carlton.
10.59(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.
10.60(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.
10.61(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.
21.1(2) List of Subsidiaries.
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 Ernst & Young LLP, Independent Auditors.
23.1.5(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors.
23.1.6(2) Consent of Farkouh, Furman & Faccio, Independent Auditors.
23.1.7(2) Consent of Grant Thornton.
23.1.8(2) Consent of Ernst & Young LLP, Independent Auditors
23.1.9(2) Consent of Ernst & Young LLP, Independent Auditors
23.2(3) Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1(1) Power of Attorney.
24.2(1) 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 proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
II-10
<PAGE> 189
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-11
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 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 February 24, 1999.
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 Amendment
No. 3 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 February 24, 1999
- ----------------------------------------------------- Officer and Chairman of the
Gresham T. Brebach, Jr. Board of Directors (Principal
Executive Officer)
/s/ MICHAEL P. MULDOWNEY Chief Financial Officer February 24, 1999
- ----------------------------------------------------- (Principal Financial and
Michael P. Muldowney Accounting Officer)
/s/ RONALD K. BOHLIN Chief Operating Officer and February 24, 1999
- ----------------------------------------------------- Director
Ronald K. Bohlin
ROGER BROSSY* Director February 24, 1999
- -----------------------------------------------------
Roger Brossy
RALPH FINERMAN* Director February 24, 1999
- -----------------------------------------------------
Ralph Finerman
STEVEN B. FINK* Director February 24, 1999
- -----------------------------------------------------
Steven B. Fink
STANLEY E. MARON* Director February 24, 1999
- -----------------------------------------------------
Stanley E. Maron
RICHARD V. SANDLER* Director February 24, 1999
- -----------------------------------------------------
Richard V. Sandler
MICHAEL D. ROSE* Director February 24, 1999
- -----------------------------------------------------
Michael D. Rose
</TABLE>
*By: /s/ GRESHAM T. BREBACH, JR.
------------------------------
Gresham T. Brebach, Jr.
Attorney-in-Fact
II-12
<PAGE> 191
SCHEDULE II
NEXTERA ENTERPRISES, INC. L.L.C.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS ACQUISITIONS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1997
Allowance for uncollectible
accounts.................. $ -- $ -- 100,000 $ -- $ 100,000
Year ended December 31, 1998
Allowance for uncollectible
accounts.................. $100,000 304,000 863,000 -- $1,267,000
</TABLE>
S-1
<PAGE> 192
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) Amended and Restated Certificate of Incorporation.
3.2(1) Amended and Restated Bylaws.
4.1(3) Form of Class A Common Stock Certificate.
5.1(3) Opinion of Latham & Watkins.
10.1(2) 1998 Equity Participation Plan.
10.2(3) Form of Nextera/Lexecon Limited Purpose Stock Option Plan.
10.3(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.
10.4(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.
10.5(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.
10.6(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.
10.7(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.
10.8(1) 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.
10.9(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.
10.10(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.
10.11(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.
</TABLE>
<PAGE> 193
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.12(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.
10.13(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.
10.14(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.
10.15(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.
10.16(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.
10.17(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.
10.18(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and the individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A (previously
filed as Exhibit 4.3 to this Registration Statement as filed
with the Commission on September 18, 1998).
10.19(1) First Amendment to Stockholders Agreement dated as of
December 15, 1998 by and among Nextera Enterprises, L.L.C.,
Nextera Enterprises, Inc. and the individuals and other
parties listed on the signature pages thereto (previously
filed as Exhibit 4.4 to Amendment No. 2 to this Registration
Statement as filed with the Commission on January 21, 1999).
10.20(1) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc.
(previously filed as Exhibit 4.5 to Amendment No. 2 to this
Registration Statement as filed with the Commission on
January 21, 1999).
10.21(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc.
10.22(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc.
10.23(1) Consent and Amendment dated as of December 31, 1998 to the
Securities Purchase Agreement dated as of August 31, 1998 by
and among Nextera Enterprises, L.L.C., Nextera Funding,
Inc., Nextera Enterprises, Inc. and Knowledge Universe, Inc.
10.24(1) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding, Inc.
10.25(1) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe, Inc.
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.26(1) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc.
10.27(2) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto.
10.28(1) Letter agreement dated as of December 31, 1998 by and among
Nextera Enterprises, Inc., Knowledge Universe, Inc. and the
individuals listed on the signature page thereto.
10.29(2) Warrant to Purchase Class A Common Stock of Nextera
Enterprises, Inc. dated as of December 31, 1998 issued to
Knowledge Universe, Inc.
10.30(2) Senior Secured Note dated January 28, 1999 of Nextera
Enterprises, Inc. in favor of Nextera Funding, Inc.
10.31(3) Amended and Restated Security and Pledge Agreement by and
between Nextera Enterprises, Inc. and Nextera Funding, Inc.
10.32(3) Amended and Restated Security and Pledge Agreement by and
between Pyramid Imaging, Inc. and Nextera Funding, Inc.
10.33(3) Amended and Restated Security and Pledge Agreement by and
between The Planning Technologies Group, L.L.C. and Nextera
Funding, Inc.
10.34(3) Amended and Restated Security and Pledge Agreement by and
between Nextera Business Performance Solutions Group, Inc.
and Nextera Funding, Inc.
10.35(3) Amended and Restated Security and Pledge Agreement by and
between Sibson & Company, LLC and Nextera Funding, Inc.
10.36(3) Amendment to Subsidiary Guaranty by each of the corporations
listed on Annex A Attached thereto
10.37(2) Agreement relating to the sale and purchase of the whole of
the issued share capital of The Alexander Corporation
Limited dated as of January 29, 1999 by and among Nextera
Enterprises, Inc. and the parties listed on Schedule I
thereto.
10.38(2) Supplemental Deferred Consideration Agreement dated as of
January 29, 1999 by and among Nextera Enterprises, Inc.,
Graham Alexander and Arthur Morgan.
10.39(2) Loan Note Instrument dated as of January 29, 1999 of Nextera
Enterprises, Inc.
10.40(2) Tax Deed of Covenant dated as of January 29, 1999 by and
among Nextera Enterprises, Inc. and the persons listed on
the Schedule thereto.
10.41(2) Charge of Shares dated as of January 29, 1999 by the persons
listed on Schedule I thereto in favor of Nextera
Enterprises, Inc.
10.42(1) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000.
10.43(1) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000.
10.44(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.45(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.46(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.47(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.48(2) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $22,966,411.50 dated as of
December 31, 1997.
10.49(2) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $24,933,543.66 dated as of
December 31, 1997.
10.50(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr.
10.51(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin.
10.52(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney.
10.53(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.
10.54(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.
10.55(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.
10.56(2) Agreement dated as of December 31, 1998 by and between
Lexecon Inc. and Andrew M. Rosenfield.
10.57(2) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Daniel R.
Fischel.
10.58(2) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Dennis W.
Carlton.
10.59(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.
10.60(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.
10.61(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.
21.1(2) List of Subsidiaries.
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 Ernst & Young LLP, Independent Auditors.
23.1.5(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors.
23.1.6(2) Consent of Farkouh, Furman & Faccio, Independent Auditors.
23.1.7(2) Consent of Grant Thornton.
23.1.8(2) Consent of Ernst & Young LLP, Independent Auditors
23.1.9(2) Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
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PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
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23.2(3) Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1(1) Power of Attorney.
24.2(1) Power of Attorney.
27.1(2) Financial Data Schedule.
</TABLE>
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(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
THE 1998 EQUITY PARTICIPATION PLAN
OF
NEXTERA ENTERPRISES, INC.
Nextera Enterprises, Inc., a Delaware corporation, has adopted The
1998 Equity Participation Plan of Nextera Enterprises, Inc. (the "Plan"),
effective December 31, 1998, for the benefit of its eligible employees,
consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the entity that
conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award, the
term "Administrator" shall refer to the Committee (or a delegate of the
Committee under Section 10.5) unless the Board has assumed the authority for
administration of the Plan generally as provided in Section 10.1.
1.3. Award. "Award" shall mean an Option, a Restricted Stock award,
a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a
Stock Payment award or a Stock Appreciation Right which may be awarded or
granted under the Plan (collectively, "Awards").
1.4. Award Agreement. "Award Agreement" shall mean a written
agreement executed by an authorized officer of the Company and the Holder which
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.
<PAGE> 2
1.5. Award Limit. "Award Limit" shall mean 100,000 shares of
Class A Common Stock, as adjusted pursuant to Section 11.3 of the Plan.
1.6. Board. "Board" shall mean the Board of Directors of the
Company.
1.7. Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through any of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that, prior to such transaction, directly or
indirectly controls, is controlled by, or is under common control with,
the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept;
(b) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (i) have been Board
members continuously since the beginning of such period or (ii) have been
elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved by
the Board;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (or other entity),
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 66-2/3% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no person acquires more than 25% of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in
Control; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
1.8. Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
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<PAGE> 3
1.9. Committee. "Committee" shall mean the Compensation
Committee of the Board, or another committee or subcommittee of the Board,
appointed as provided in Section 10.1.
1.10. Class A Common Stock. "Class A Common Stock" shall mean the
Class A Common Stock of the Company, par value $0.001 per share, and any equity
security of the Company issued or authorized to be issued in the future, but
excluding any preferred stock and any warrants, options or other rights to
purchase Class A Common Stock.
1.11. Common Stock. "Common Stock" shall mean the Class A Common
Stock of the Company, par value $0.001 per share, and the Class B Common Stock
of the Company, par value $0.001 per share, and any equity security of the
Company issued or authorized to be issued in the future, but excluding any
preferred stock and any warrants, options or other rights to purchase Common
Stock.
1.12. Company. "Company" shall mean Nextera Enterprises, Inc., a
Delaware corporation.
1.13. Consultant. "Consultant" shall mean any consultant or adviser
if:
(a) the consultant or adviser renders bona fide services to
the Company;
(b) the services rendered by the consultant or adviser are not
in connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.
1.14. Deferred Stock. "Deferred Stock" shall mean Class A Common
Stock awarded under Article VIII of the Plan.
1.15. Director. "Director" shall mean a member of the Board.
1.16. Dividend Equivalent. "Dividend Equivalent" shall mean a right
to receive the equivalent value (in cash or Class A Common Stock) of dividends
paid on Class A Common Stock, awarded under Article VIII of the Plan.
1.17. Disability. "Disability" shall mean, with respect to any
Holder, (i) the suffering of any mental or physical illness, disability or
incapacity that shall in all material aspects preclude such Holder from
performing his or her employment or consultant duties, or (ii) the absence of
such Holder from his or her employment or consultant duties by reason of any
mental or physical illness, disability or incapacity for a period of ninety (90)
days during any one hundred twenty (120) day period; provided, however, in
either case, that such illness, disability
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<PAGE> 4
or incapacity shall be reasonably determined to be of a permanent nature by a
licensed, board certified physician.
1.18. DRO. "DRO" shall mean a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.19. Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company, or of any corporation which is a Subsidiary.
1.20. Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.21. Fair Market Value. "Fair Market Value" of a share of Class A
Common Stock as of a given date shall be (a) the average closing price of a
share of Class A Common Stock on the principal exchange on which shares of Class
A Common Stock are then trading, if any (or as reported on any composite index
which includes such principal exchange), on the ten most current trading days
immediately prior to such date, or (b) if Class A Common Stock is not traded on
an exchange but is quoted on NASDAQ or a successor quotation system, the average
mean between the closing representative bid and asked prices for the Class A
Common Stock on the ten (10) most recent trading days immediately prior to such
date as reported by NASDAQ or such successor quotation system; or (c) if Class A
Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the Fair Market Value of a share of Class A Common
Stock as established by the Administrator acting in good faith. The
Administrator shall determine the Fair Market Value at least once each calendar
quarter and such determination shall apply until the Administrator has made
another determination of Fair Market Value.
1.22. Holder. "Holder" shall mean a person who has been granted
or awarded an Award.
1.23. Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Administrator.
1.24. Independent Director. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.25. Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by
the Administrator.
1.26. Option. "Option" shall mean a stock option granted under
Article IV of the Plan. An Option granted under the Plan shall, as determined by
the Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.
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<PAGE> 5
1.27. Performance Award. "Performance Award" shall mean a cash
bonus, stock bonus or other performance or incentive award that is paid in cash,
Class A Common Stock or a combination of both, awarded under Article VIII of the
Plan.
1.28. Performance Criteria. "Performance Criteria" shall mean the
following business criteria with respect to the Company, any Subsidiary or any
division or operating unit: (a) net income, (b) pre-tax income, (c) operating
income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return
on invested capital or assets, (h) cost reductions or savings, (i) funds from
operations, (j) appreciation in the fair market value of Class A Common Stock
and (k) earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
1.29. Plan. "Plan" shall mean The 1998 Equity Participation Plan
of Nextera Enterprises, Inc.
1.30. Restricted Stock. "Restricted Stock" shall mean Class A
Common Stock awarded under Article VII of the Plan.
1.31. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.32. Section 162(m) Participant. "Section 162(m) Participant" shall
mean any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.33. Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.34. Stock Appreciation Right. "Stock Appreciation Right" shall
mean a stock appreciation right granted under Article IX of the Plan.
1.35. Stock Payment. "Stock Payment" shall mean (a) a payment in the
form of shares of Class A Common Stock, or (b) an option or other right to
purchase shares of Class A Common Stock, as part of a deferred compensation
arrangement, made in lieu of all or any portion of the compensation, including
without limitation, salary, bonuses and commissions, that would otherwise become
payable to a key Employee or Consultant in cash, awarded under Article VIII of
the Plan.
1.36. Subsidiary. "Subsidiary" shall mean (a) any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain, (b) any partnership in
which the Company is a general partner, (c) any limited liability company in
which the Company is a managing member, or (d) any partnership or limited
liability company
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<PAGE> 6
in which the Company possesses a 50% or greater interest in the total capital or
total income of such partnership.
1.37. Substitute Award. "Substitute Award" shall mean an Option
granted under this Plan upon the assumption of, or in substitution for,
outstanding equity awards previously granted by a company or other entity in
connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock; provided, however, that in no
event shall the term "Substitute Award" be construed to refer to an award made
in connection with the cancellation and repricing of an Option.
1.38. Termination for Cause. "Termination for Cause" shall mean the
time when the employee-employer or Consultant-employer relationship between
Holder and the Company or any Subsidiary is terminated for cause, as termination
for cause is defined in the Holder's employment or consultancy agreement;
provided however, that if termination for cause is not therein defined, the
following shall constitute "Cause" for the termination of the Holder's
employee-employer or Consultant-client relationship:
(a) material dishonest statements or acts of the Holder with
respect to the Company or any affiliate of the Company;
(b) indictment of the Holder for (i) a felony or (ii) any
misdemeanor involving moral turpitude, deceit, dishonesty or fraud
("indictment," for these purposes, meaning an indictment, probable cause
hearing or any other procedure pursuant to which an initial determination
of probable or reasonable cause with respect to such offense is made);
(c) willful misconduct by the Holder after three (3) days
written notice and an opportunity to cure;
(d) gross negligence, or willful failure or refusal of the
Holder to comply with explicit directions of the Board after fifteen (15)
days written notice and an opportunity to cure.
In making any determination under this Section 1.38 the Board shall
act fairly and in good faith and shall give the Holder an opportunity to appear
and be heard at a meeting of the Board or any committee thereof and present
evidence on his behalf.
1.39. Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of a Holder as a Consultant to the Company or
a Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Consultancy.
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<PAGE> 7
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.40. Termination of Directorship. "Termination of Directorship"
shall mean the time when a Holder who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.41. Termination of Employment. "Termination of Employment" shall
mean the time when the employee-employer relationship between a Holder and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding (a) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by the
Company or any Subsidiary, (b) at the discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (c) at the discretion of the Administrator, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Administrator, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that, with respect
to Incentive Stock Options, unless otherwise determined by the Administrator in
its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Awards shall be Class A
Common Stock, initially shares of the Company's Class A Common Stock, par
value $0.001 per share. The aggregate number of such shares which may be
issued upon exercise of such Options or rights or upon any such awards
under the Plan shall not exceed Five Million (5,000,000). The shares of
Class A Common Stock issuable upon exercise of such Options or rights or
upon any such awards may be either previously authorized but unissued
shares or treasury shares.
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<PAGE> 8
(b) The maximum number of shares which may be subject to
Awards, granted under the Plan to any individual in any calendar year
shall not exceed the Award Limit. To the extent required by Section 162(m)
of the Code, shares subject to Options which are canceled continue to be
counted against the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other
right to acquire shares of Class A Common Stock under any other Award under the
Plan, expires or is canceled without having been fully exercised, or is
exercised in whole or in part for cash as permitted by the Plan, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Awards which are adjusted
pursuant to Section 11.3 and become exercisable with respect to shares of stock
of another corporation shall be considered canceled and may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. Shares
of Class A Common Stock which are delivered by the Holder or withheld by the
Company upon the exercise of any Award under the Plan, in payment of the
exercise price thereof or tax withholding thereon, may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. If any
shares of Restricted Stock are surrendered by the Holder or repurchased by the
Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Notwithstanding the provisions of this Section 2.2, no shares of Class A
Common Stock may again be optioned, granted or awarded if such action would
cause an Incentive Stock Option to fail to qualify as an incentive stock option
under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
(a) The Committee, in its discretion, may determine whether an
Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable
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<PAGE> 9
upon the attainment of performance goals which are related to one or
more of the Performance Criteria.
(c) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the
Code, with respect to any Award granted under Articles VII and VIII which
may be granted to one or more Section 162(m) Participants, no later than
ninety (90) days following the commencement of any fiscal year in question
or any other designated fiscal period or period of service (or such other
time as may be required or permitted by Section 162(m) of the Code), the
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the
fiscal year or other designated fiscal period or period of service, (iii)
establish the various performance targets, in terms of an objective
formula or standard, and amounts of such Awards, as applicable, which may
be earned for such fiscal year or other designated fiscal period or period
of service and (iv) specify the relationship between Performance Criteria
and the performance targets and the amounts of such Awards, as applicable,
to be earned by each Section 162(m) Participant for such fiscal year or
other designated fiscal period or period of service. Following the
completion of each fiscal year or other designated fiscal period or period
of service, the Committee shall certify in writing whether the applicable
performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount
earned by a Section 162(m) Participant, the Committee shall have the right
to reduce (but not to increase) the amount payable at a given level of
performance to take into account additional factors that the Committee may
deem relevant to the assessment of individual or corporate performance for
the fiscal year or other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the
Plan or any Award which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code, and the Plan shall be deemed amended to the extent necessary to
conform to such requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding
any other provision of the Plan, the Plan, and any Award granted or awarded to
any individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
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<PAGE> 10
3.4. Consideration. In consideration of the granting of an Award
under the Plan, the Holder shall agree, in the Award Agreement, to render
faithful and efficient services to the Company or a Subsidiary.
3.5. At-Will Employment. Nothing in the Plan or in any Award
Agreement hereunder shall confer upon any Holder any right to continue in the
employ of, or as a Consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Holder at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility. Any Employee or Consultant selected by the
Committee pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be granted
Options at the times and in the manner set forth in Section 4.5.
4.2. Disqualification for Stock Ownership. No person may be granted
an Incentive Stock Option under the Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive
Stock Option shall be granted to any person who is not an Employee.
4.4. Granting of Options to Employees and Consultants.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and
select from among the key Employees or Consultants (including
Employees or Consultants who have previously received Awards under
the Plan) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or Consultants;
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(iii) Subject to Section 4.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to satisfy the applicable provisions of Section 162(m) of
the Code.
(b) Upon the selection of a key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Holder, to disqualify
such Option from treatment as an "incentive stock option" under Section
422 of the Code.
4.5. Granting of Options to Independent Directors.
The Board shall from time to time, in its absolute discretion,
and subject to applicable limitations of the Plan:
(a) Select from among the Independent Directors (including
Independent Directors who have previously received Options under the Plan)
such of them as in its opinion should be granted Options;
(b) Subject to the Award Limit, determine the number of shares
to be subject to such Options granted to the selected Independent
Directors;
(c) Subject to the provisions of Article 5, determine the
terms and conditions of such Options, consistent with the Plan.
All the foregoing Option grants authorized by this Section 4.5 are
subject to stockholder approval of the Plan.
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ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each
Option granted to Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than the par value of a
share of Class A Common Stock, unless otherwise permitted by applicable state
law and:
(a) in the case of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code, such price shall not be less than 100% of the Fair Market Value of a
share of Class A Common Stock on the date the Option is granted;
(b) in the case of Incentive Stock Options such price shall
not be less than 100% of the Fair Market Value of a share of Class A
Common Stock on the date the Option is granted (or the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code);
(c) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock
of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than
110% of the Fair Market Value of a share of Class A Common Stock on the
date the Option is granted (or the date the Option is modified, extended
or renewed for purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Employee
or Consultant shall be set by the Committee in its discretion; provided,
however, that:
(a) No Option may have a term that extends beyond the
expiration of ten (10) years from the date the Option was granted;
(b) In the case of Incentive Stock Options, the term shall not
be more than ten (10) years from the date the Incentive Stock Option is
granted, or five (5) years from such date if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d)
of the Code) more than ten percent (10%) of the total combined voting
power of all classes of equity of the Company or any Subsidiary;
(c) Except as limited by requirements of Section 422 of the
Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee (or the Board in the case of Options granted to
Independent Directors) may extend the term of any outstanding Option in
connection with any Termination of Directorship, Termination of Employment
or Termination of Consultancy of the Holder, or amend any other term or
condition of such Option relating to such a termination; and
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(d) Unless otherwise permitted by applicable securities laws,
in the event of an Holder's Termination of Directorship, Termination of
Employment or Termination of Consultancy for any reason except death,
Disability or Termination for Cause, the Holder shall have at least ninety
(90) days from the date of such Termination of Directorship, Termination
of Employment or Termination of Consultancy to exercise the Option, and in
the event of an Holder's Termination of Directorship, Termination of
Employment or Termination of Consultancy due to the Holder's death or
Disability, the Holder shall have at least one hundred eighty (180) days
from the date of such Termination of Directorship, Termination of
Employment or Termination of Consultancy to exercise the Option.
Notwithstanding the forgoing, if a Holder's Termination of Directorship,
Termination of Employment or Termination of Consultancy also qualifies as
a Termination for Cause, the Company, in its discretion, may terminate the
Holder's right to exercise his or her Options on the date of such
termination or such other time as the Committee (or the Board in the case
of Options granted to Independent Directors), in its discretion, shall
deem appropriate.
5.3. Option Vesting
(a) The period during which the right to exercise, in whole or
in part, an Option granted to an Employee or a Consultant vests in the
Holder shall be set by the Committee and the Committee may determine that
an Option may not be exercised in whole or in part for a specified period
after it is granted; provided, however, that, unless the Committee
otherwise provides in the terms of the Award Agreement or otherwise, no
Option shall be exercisable by any Holder who is then subject to Section
16 of the Exchange Act within the period ending six months and one day
after the date the Option is granted. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject
to whatever terms and conditions it selects, accelerate the period during
which an Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or
Consultant which is unexercisable at Termination of Employment or
Termination of Constancy, as applicable, shall thereafter become
exercisable, except as may be otherwise provided by the Committee either
in the Award Agreement or by action of the Committee following the grant
of the Option; provided, however that if an Optionee's employment, in the
case of an Employee, or provision of services, in the case of a
Consultant, terminated by reason of death or Disability, the Option shall
become exercisable with respect to one-hundred percent (100%) of the Class
A Common Units subject to such Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning
of Section 422 of the Code, but without regard to Section 422(d) of the
Code) are exercisable for the first time by a Holder during any calendar
year (under the Plan and all other incentive stock option plans of the
Company and any parent or subsidiary corporation, within the meaning of
Section 422 of the Code) of the Company, exceeds $100,000, such Options
shall be treated as Non-Qualified Options to the extent required by
Section 422 of the Code. The
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rule set forth in the preceding sentence shall be applied by taking
Options into account in the order in which they were granted. For purposes
of this Section 5.3(c), the Fair Market Value of stock shall be determined
as of the time the Option with respect to such stock is granted.
5.4. Terms of Options Granted to Independent Directors. The price
per share of the shares subject to each Option granted to an Independent
Director shall equal 100% of the Fair Market Value of a share of Class A Common
Stock on the date the Option is granted. Options granted to Independent
Directors shall become exercisable in cumulative annual installments of 25% on
each of the first, second, third and fourth anniversaries of the date of Option
grant and, subject to Section 6.6, the term of each Option granted to an
Independent Director shall be ten (10) years from the date the Option is
granted. No portion of an Option which is unexercisable at Termination of
Directorship shall thereafter become exercisable.
5.5. Substitute Awards. Notwithstanding the foregoing provisions of
this Article V to the contrary, in the case of an Option that is a Substitute
Award, the price per share of the shares subject to such Option may be less than
the Fair Market Value per share on the date of grant, provided, that the excess
of:
(a) the aggregate Fair Market Value (as of the date such
Substitute Award is granted) of the shares subject to the Substitute
Award; over
(b) the aggregate exercise price thereof; does not exceed the
excess of;
(c) the aggregate fair market value (as of the time
immediately preceding the transaction giving rise to the Substitute Award,
such fair market value to be determined by the Committee) of the shares of
the predecessor entity that were subject to the grant assumed or
substituted for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice
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shall be signed by the Holder or other person then entitled to exercise
the Option or such portion of the Option;
(b) Such representations and documents as the Administrator,
in its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Administrator
may, in its absolute discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant
to Section 11.1 by any person or persons other than the Holder,
appropriate proof of the right of such person or persons to exercise the
Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion allow a delay in payment
up to thirty (30) days from the date the Option, or portion thereof, is
exercised.
6.3. Conditions to Issuance of Stock Certificates. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to
time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
6.4. Rights as Stockholders. Holders shall not be, nor have any of
the rights or privileges of, stockholders of the Company in respect of any
shares purchasable upon the
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exercise of any part of an Option unless and until certificates representing
such shares have been issued by the Company to such Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Class A Common Stock acquired by exercise of an Incentive Stock Option
within (a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder or (b) one year after the transfer of such shares to such
Holder.
6.6. Limitations on Exercise of Options Granted to Independent
Directors. No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(a) the expiration of twelve (12) months from the date of
the Holder's death;
(b) the expiration of twelve (12) months from the date of the
Holder's Termination of Directorship by reason of his Disability;
(c) the expiration of three (3) months from the date of the
Holder's Termination of Directorship for any reason other than such
Holder's death or his Disability, unless the Holder dies within said
three-month period; or
(d) the expiration of ten (10) years from the date the Option
was granted.
6.7. Additional Limitations on Exercise of Options. Holders may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may
be awarded to any Employee who the Committee determines is a key Employee or any
Consultant who the Committee determines should receive such an Award.
7.2. Award of Restricted Stock
(a) The Committee may from time to time, in its absolute
discretion:
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(i) Determine which Employees are key Employees and
select from among the key Employees or Consultants (including
Employees or Consultants who have previously received other awards
under the Plan) such of them as in its opinion should be awarded
Restricted Stock; and
(ii) Determine the purchase price, if any, and other
terms and conditions applicable to such Restricted Stock, consistent
with the Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; provided, however, that such
purchase price shall be no less than the par value of the Class A Common
Stock to be purchased, unless otherwise permitted by applicable state law.
In all cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or Consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of
the Company to issue such Restricted Stock and may impose such conditions
on the issuance of such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery
of the shares of Restricted Stock to the escrow holder pursuant to Section 7.6,
the Holder shall have, unless otherwise provided by the Committee, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that
in the discretion of the Committee, any extraordinary distributions with respect
to the Class A Common Stock shall be subject to the restrictions set forth in
Section 7.4.
7.4. Restriction. All shares of Restricted Stock issued under the
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; provided, however,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Holder upon issuance, a Holder's rights in
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unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
however, that the Committee in its sole and absolute discretion may provide that
such rights shall not lapse in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's death or Disability; provided, further,
except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
no such lapse or surrender shall occur in the event of a Termination of
Employment, or a Termination of Consultancy, without cause or following any
Change in Control of the Company or because of the Holder's retirement, or
otherwise.
7.5. Repurchase of Restricted Stock. The Committee shall provide in
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Holder the Restricted Stock then subject to
restrictions under the Award Agreement immediately upon a Termination of
Employment or, if applicable, upon a Termination of Consultancy between the
Holder and the Company, at a cash price per share equal to the price paid by the
Holder for such Restricted Stock; provided, however, that the Committee in its
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment following a "change of
ownership or control" (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Holder's death or Disability; provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants,
the Committee in its sole and absolute discretion may provide that no such right
of repurchase shall exist in the event of a Termination of Employment or a
Termination of Consultancy without cause or following any Change in Control of
the Company or because of the Holder's retirement, or otherwise.
7.6. Escrow. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
7.7. Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Award Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election. If a Holder makes an election under
Section 83(b) of the Code, or any successor section thereto, to be taxed with
respect to the Restricted Stock as of the date of transfer of the Restricted
Stock rather than as of the date or dates upon which the Holder would otherwise
be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service.
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ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any Consultant whom the Committee determines should
receive such an Award.
8.2. Performance Awards. Any key Employee or Consultant selected by
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of the Performance Criteria
or other specific performance criteria determined appropriate by the Committee,
in each case on a specified date or dates or over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular key Employee or Consultant.
8.3. Dividend Equivalents.
(a) Any key Employee or Consultant selected by the Committee
may be granted Dividend Equivalents based on the dividends declared on
Class A Common Stock, to be credited as of dividend payment dates, during
the period between the date a Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Stock Appreciation Right,
Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted
to cash or additional shares of Class A Common Stock by such formula and
at such time and subject to such limitations as may be determined by the
Committee.
(b) Any Holder of an Option who is an Employee or Consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Class A Common Stock, to be credited as of dividend
payment dates, during the period between the date an Option is granted,
and the date such Option is exercised, vests or expires, as determined by
the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Class A Common Stock by such formula and at such time
and subject to such limitations as may be determined by the Committee.
(c) Any Holder of an Option who is an Independent Director
selected by the Board may be granted Dividend Equivalents based on the
dividends declared on Class A Common Stock, to be credited as of dividend
payment dates, during the period between the date an Option is granted,
and the date such Option is exercised, vests or expires, as determined by
the Board. Such Dividend Equivalents shall be converted to cash or
additional shares of Class A Common Stock by such formula and at such time
and subject to such limitations as may be determined by the Board.
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(d) Dividend Equivalents granted with respect to Options
intended to be qualified performance-based compensation for purposes of
Section 162(m) of the Code shall be payable, with respect to pre-exercise
periods, regardless of whether such Option is subsequently exercised.
8.4. Stock Payments. Any key Employee or Consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any key Employee or Consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Class A Common Stock underlying a Deferred
Stock award will not be issued until the Deferred Stock award has vested,
pursuant to a vesting schedule or performance criteria set by the Committee.
Unless otherwise provided by the Committee, a Holder of Deferred Stock shall
have no rights as a Company stockholder with respect to such Deferred Stock
until such time as the Award has vested and the Class A Common Stock underlying
the Award has been issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
8.7. Exercise or Purchase Price. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; provided, however, that such price shall not
be less than the par value for a share of Class A Common Stock, unless otherwise
permitted by applicable state law.
8.8. Exercise Upon Termination of Employment, Termination of
Consultancy or Termination of Directorship. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Holder is an Employee, Consultant or Independent
Director, as applicable; provided, however, that the Administrator in its sole
and absolute discretion may provide that the Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or
paid subsequent to a Termination of Employment following a "change of control or
ownership" (within the meaning of Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company; provided, further, that except with respect
to Performance Awards granted to Section 162(m) Participants, the Administrator
in its sole and absolute discretion may provide that Performance Awards may be
exercised or paid following a Termination of Employment or a Termination of
Consultancy without cause, or following a Change in Control of the Company, or
because of the Holder's retirement, death or Disability, or otherwise.
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8.9. Form of Payment. Payment of the amount determined under Section
8.2 or 8.3 above shall be in cash, in Class A Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VIII is effected in Class A Common Stock, it shall be made subject to
satisfaction of all provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right
may be granted to any key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to
the extent the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the
number of shares subject to the simultaneously or previously granted
Option to which it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled
to exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Class A Common Stock on the date of exercise of
the CSAR by the number of shares of Class A Common Stock with respect to
which the CSAR shall have been exercised, subject to any limitations the
Committee may impose.
9.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Class A Common
Stock as the Committee may determine; provided, however, that unless the
Committee otherwise provides in the terms of the ISAR or otherwise, no
ISAR granted to a person subject to Section 16 of the Exchange Act shall
be exercisable until at least six months have elapsed from (but excluding)
the date on which the Option was granted. The exercise price per share of
Class A Common Stock subject to each ISAR shall be set by the Committee.
An ISAR is exercisable only
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while the Holder is an Employee or Consultant; provided that the Committee
may determine that the ISAR may be exercised subsequent to Termination of
Employment or Termination of Consultancy without cause, or following a
Change in Control of the Company, or because of the Holder's retirement,
death or Disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled
to exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the
ISAR from the Fair Market Value of a share of Class A Common Stock on the
date of exercise of the ISAR by the number of shares of Class A Common
Stock with respect to which the ISAR shall have been exercised, subject to
any limitations the Committee may impose.
9.4. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in cash, in Class A Common Stock (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised) or
a combination of both, as determined by the Committee. To the extent such
payment is effected in Class A Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the
settlement or exercise of a Stock Appreciation Right, including a
window-period limitation, as may be imposed in the discretion of the
Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee. Prior to the Company's initial
registration of Class A Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall consist of the entire Board. Following such
registration, the Compensation Committee (or another committee or a subcommittee
of the Board assuming the functions of the Committee under the Plan) shall
consist solely of two or more Independent Directors appointed by and holding
office at the pleasure of the Board, each of whom is both a "non-employee
director" as defined by Rule 16b-3 and an "outside director" for purposes of
Section 162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for
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the administration, interpretation, and application of the Plan as are
consistent therewith, to interpret, amend or revoke any such rules and to
amend any Award Agreement provided that the rights or obligations of the
Holder of the Award that is the subject of any such Award Agreement are
not affected adversely. Any such grant or award under the Plan need not be
the same with respect to each Holder. Any such interpretations and rules
with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights
and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole
discretion of the Committee. Notwithstanding the foregoing, the full
Board, acting by a majority of its members in office, shall conduct the
general administration of the Plan with respect to Options and Dividend
Equivalents granted to Independent Directors.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
10.5. Delegation of Authority to Grant Awards. The Committee may,
but need not, delegate from time to time some or all of its authority to grant
Awards under the Plan to a committee consisting of one or more members of the
Committee or of one or more officers of the Company; provided, however, that the
Committee may not delegate its authority to grant Awards to individuals (i) who
are subject on the date of the grant to the reporting rules under Section 16(a)
of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.
23
<PAGE> 24
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable. No Award under the Plan may be sold,
pledged, assigned or transferred in any manner other than by will or the laws of
descent and distribution or, subject to the consent of the Administrator,
pursuant to a DRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable to such
shares have lapsed. No Award or interest or right therein shall be liable for
the debts, contracts or engagements of the Holder or his successors in interest
or shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the preceding
sentence.
During the lifetime of the Holder, only he may exercise an Option or
other Award (or any portion thereof) granted to him under the Plan, unless it
has been disposed of with the consent of the Administrator pursuant to a DRO.
After the death of the Holder, any exercisable portion of an Option or other
Award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Award Agreement, be exercised by his personal
representative or by any person empowered to do so under the deceased Holder's
will or under the then applicable laws of descent and distribution.
11.2. Amendment, Suspension or Termination of the Plan. Except as
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
11.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination of
the Plan shall, without the consent of the Holder alter or impair any rights or
obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Awards may be granted or awarded
during any period of suspension or after termination of the Plan, and in no
event may any Incentive Stock Option be granted under the Plan after the first
to occur of the following events:
(a) The expiration of ten (10) years from the date the
Plan is adopted by the Board; or
(b) The expiration of ten (10) years from the date the Plan is
approved by the Company's stockholders under Section 11.4.
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<PAGE> 25
11.3. Changes in Class A Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 11.3 (d), in the event that the
Administrator determines that any dividend or other distribution (whether
in the form of cash, Class A Common Stock, other securities, or other
property), recapitalization, reclassification, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets of
the Company, or exchange of Class A Common Stock or other securities of
the Company, issuance of warrants or other rights to purchase Class A
Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion,
affects the Class A Common Stock such that an adjustment is determined by
the Administrator to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to an Award, then the
Administrator shall, in such manner as it may deem equitable, adjust any
or all of
(i) the number and kind of shares of Class A Common
Stock (or other securities or property) with respect to which Awards
may be granted or awarded (including, but not limited to,
adjustments of the limitations in Section 2.1 on the maximum number
and kind of shares which may be issued and adjustments of the Award
Limit),
(ii) the number and kind of shares of Class A Common
Stock (or other securities or property) subject to outstanding
Awards, and
(iii) the grant or exercise price with respect to any
Award.
(b) Subject to Sections 11.3(d) and (e), in the event of any
transaction or event described in Section 11.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate
of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Administrator, in its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, either by the terms of
the Award or by action taken prior to the occurrence of such transaction
or event and either automatically or upon the Holder's request, is hereby
authorized to take any one or more of the following actions whenever the
Administrator determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Award
under the Plan, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been
25
<PAGE> 26
attained upon the exercise of such Award or realization of the
Holder's rights had such Award been currently exercisable or payable
or fully vested or the replacement of such Award with other rights
or property selected by the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised
or become payable after such event;
(iii) To provide that such Award shall be exercisable as
to all shares covered thereby, notwithstanding anything to the
contrary in Section 5.3 or 5.4 or the provisions of such Award;
(iv) To provide that such Award be assumed by the
successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options, rights or
awards covering the stock of the successor or survivor corporation,
or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; and
(v) To make adjustments in the number and type of shares
of Class A Common Stock (or other securities or property) subject to
outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and
conditions of (including the grant or exercise price), and the
criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) To provide that, for a specified period of time
prior to such event, the restrictions imposed under an Award
Agreement upon some or all shares of Restricted Stock or Deferred
Stock may be terminated, and, in the case of Restricted Stock, some
or all shares of such Restricted Stock may cease to be subject to
repurchase under Section 7.5 or forfeiture under Section 7.4 after
such event.
(c) Subject to Sections 11.3(d), 3.2 and 3.3, the
Administrator may, in its discretion, include such further provisions and
limitations in any Award, agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause such Award to fail
to so qualify under Section 162(m)(4)(C), or any successor provisions
thereto. No adjustment or action described in this Section 11.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no
26
<PAGE> 27
such adjustment or action shall be authorized to the extent such
adjustment or action would result in short-swing profits liability under
Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Administrator determines that the Award is not to comply with such
exemptive conditions. The number of shares of Class A Common Stock subject
to any Award shall always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the
Company becomes a party to a transaction that is intended to qualify for
"pooling of interests" accounting treatment and, but for one or more of
the provisions of this Plan or any Award Agreement would so qualify, then
this Plan and any Award Agreement shall be interpreted so as to preserve
such accounting treatment, and to the extent that any provision of the
Plan or any Award Agreement would disqualify the transaction from pooling
of interests accounting treatment (including, if applicable, an entire
Award Agreement), then such provision shall be null and void. All
determinations to be made in connection with the preceding sentence shall
be made by the independent accounting firm whose opinion with respect to
"pooling of interests" treatment is required as a condition to the
Company's consummation of such transaction.
(f) The existence of the Plan, the Award Agreement and the
Awards granted hereunder shall not affect or restrict in any way the right
or power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants
or rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Class A
Common Stock or the rights thereof or which are convertible into or
exchangeable for Class A Common Stock, or the dissolution or liquidation
of the company, or any sale or transfer of all or any part of its assets
or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
11.4. Approval of Plan by Stockholders. The Plan will be submitted
for the approval of the Company's stockholders (by a majority of the outstanding
common stock entitled to vote thereon with the voting rights set forth in the
Company's Amended and Restated Certificate of Incorporation) within twelve
months after the date of the Board's initial adoption of the Plan. Awards may be
granted or awarded prior to such stockholder approval, provided that such Awards
shall not be exercisable nor shall such Awards vest prior to the time when the
Plan is approved by the stockholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Awards
previously granted or awarded under the Plan shall thereupon be canceled and
become null and void. In addition, if the Board determines that Awards other
than Options or Stock Appreciation Rights which may be granted to Section 162(m)
Participants should continue to be eligible to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria
must be disclosed to and approved by the Company's stockholders no later than
the first stockholder meeting that occurs in the fifth year following the year
in which the Company's stockholders previously approved the Performance
Criteria.
27
<PAGE> 28
11.5. Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Holder of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting, exercise or payment of any Award. The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Class A Common Stock
otherwise issuable under such Award (or allow the return of shares of Class A
Common Stock) having a Fair Market Value equal to the sums required to be
withheld.
11.6. Loans. The Committee may, in its discretion, extend one or
more loans to key Employees in connection with the exercise or receipt of an
Award granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such loan
shall be set by the Committee.
11.7. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument, that
(a) (i) any proceeds, gains or other economic benefit actually or constructively
received by the Holder upon any receipt or exercise of the Award, or upon the
receipt or resale of any Class A Common Stock underlying the Award, must be paid
to the Company, and (ii) the Award shall terminate and any unexercised portion
of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination
of Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator.
11.8. Effect of Plan Upon Options and Compensation Plans.
(a) The adoption of the Plan shall not affect any other
compensation or incentive plans in effect for the Company or any
Subsidiary, other than superseding the Amended and Restated Employee
Equity Participation Plan of Nextera Enterprises, L.L.C., a Delaware
limited liability company ("Nextera LLC"). Nothing in the Plan shall be
construed to limit the right of the Company (i) to establish any other
forms of incentives or compensation for Employees, Directors or
Consultants of the Company or any Subsidiary or (ii) to grant or assume
options or other rights or awards otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited
liability company, firm or association.
(b) Options granted under this Plan to replace options granted
to the employees of Nextera LLC, shall have the aggregate option exercise
price, the vesting schedule and term as set forth in the Equity
Participation Agreements granted by Nextera LLC to the optionees
thereunder.
28
<PAGE> 29
11.9. Lock-Up in Connection with Initial Public Offering. Each Award
Agreement issued pursuant to this Plan prior to the initial public offering of
the Company's Common Stock shall include provisions substantially similar to the
following:
"To induce the underwriters that may participate in an initial
public offering (the "Initial Public Offering") of the Company's Common
Stock to continue their efforts in connection with the Initial Public
Offering, the undersigned, during the period commencing on the date hereof
and ending 180 days after the date of the final prospectus relating to the
Initial Public Offering:
(i) agrees not to (x) 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 (including, without limitation, shares
of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock which may be deemed to be beneficially
owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission) or (y) 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 (x) or (y) is to be settled by the delivery of
Common Stock, or such other securities, in cash or otherwise),
without prior written consent of the lead managing underwriter of
such Initial Public Offering;
(ii) agrees 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 the prior written consent of the lead
underwriter; and
(iii) authorizes the Company to cause the transfer agent to
decline to transfer and/or to note stop transfer restrictions on the
transfer books and records of the Company with respect to any shares
of Common Stock and any securities convertible into or exercisable
or exchangeable for Common Stock for which the undersigned is the
record holder and, in the case of any such shares or securities for
which the undersigned is the beneficial but not the record holder,
agrees to cause the record holder to cause the transfer agent to
decline to transfer and/or to note stop transfer restrictions on
such books and records with respect to such shares or securities.
Notwithstanding the foregoing, the restrictions set forth in clauses (i),
(ii) and (iii) above shall not apply to any transfer of Common Stock to a
"Controlled Affiliate" or pursuant to a "Qualified Transfer" (as each such
term is defined in the Company's Amended and Restated Certificate of
Incorporation); provided that prior to any such transfer the transferee
agrees in writing to be bound by the provisions of this Section ___.
29
<PAGE> 30
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into the agreements set forth in this
Section, and that, upon request, the undersigned will execute any
additional documents necessary or desirable in connection with the
enforcement hereof. All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of the undersigned and any
obligations of the undersigned shall be binding upon the heirs, personal
representatives, successors, and assigns of the undersigned."
11.10. Compliance with Laws. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Class A Common
Stock and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To the
extent permitted by applicable law, the Plan and Awards granted or
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE> 31
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
11.11. Titles. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of
the Plan.
11.12. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of Nextera Enterprises, Inc. on December 30, 1998.
Executed on this 31st day of December, 1998.
/s/ STANLEY E. MARON
-----------------------------------------
Secretary
31
<PAGE> 1
EXHIBIT 10.27
CONTRIBUTION AGREEMENT
by and among
NEXTERA ENTERPRISES, INC.
as "Nextera,"
LEXECON INC.
as "Lexecon,"
and
the Shareholders of Lexecon identified on Exhibit A hereto
as the "Shareholders"
December 31, 1998
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS............................................................................1
1.1. DEFINED TERMS....................................................................1
1.2. OTHER DEFINED TERMS..............................................................4
2. TRANSACTION............................................................................7
2.1. CONTRIBUTION OF LEXECON SHARES; CONSIDERATION....................................7
2.2. TIME AND PLACE OF CLOSING.......................................................10
2.3. FURTHER ASSURANCES..............................................................10
2.4. TRANSFER TAXES..................................................................10
2.5. ADJUSTMENTS TO TRANSACTION CONSIDERATION........................................10
2.6. DISTRIBUTION OF CERTAIN ASSETS AND CERTAIN LIABILITIES..........................13
2.7. CONVEYANCES AT CLOSING..........................................................13
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....................................14
3.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................14
3.2. ORGANIZATION AND QUALIFICATIONS OF LEXECON......................................14
3.3. SHARES OF LEXECON; BENEFICIAL OWNERSHIP.........................................15
3.4. NO SUBSIDIARIES.................................................................15
3.5. AUTHORITY OF LEXECON............................................................15
3.6. REAL AND PERSONAL PROPERTY......................................................16
3.7. FINANCIAL STATEMENTS............................................................17
3.8. TAXES...........................................................................17
3.9. ACCOUNTS RECEIVABLE.............................................................20
3.10. ABSENCE OF CERTAIN CHANGES......................................................20
3.11. BANKING RELATIONS...............................................................22
3.12. INTELLECTUAL PROPERTY...........................................................22
3.13. CONTRACTS ......................................................................23
3.14. LITIGATION .....................................................................24
3.15. COMPLIANCE WITH LAWS............................................................24
3.16. INSURANCE ......................................................................25
3.17. POWERS OF ATTORNEY..............................................................25
3.18. FINDER'S FEE ...................................................................25
3.19. PERMITS: BURDENSOME AGREEMENTS..................................................25
3.20. LEXECON RECORDS; COPIES OF DOCUMENTS............................................25
3.21. TRANSACTIONS WITH INTERESTED PERSONS............................................25
3.22. EMPLOYEE BENEFIT PROGRAMS.......................................................26
3.23. ENVIRONMENTAL MATTERS...........................................................29
3.24. DIRECTORS AND OFFICERS..........................................................30
3.25. EMPLOYEES; LABOR MATTERS........................................................30
3.26. CLIENTS ........................................................................31
3.27. CLIENT REVENUES ................................................................31
3.28. YEAR 2000 COMPLIANCE............................................................31
3.29. EQUITY REPURCHASE...............................................................32
3.30. DISTRIBUTION ...................................................................32
3.31. DISCLOSURE .....................................................................32
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....................................32
4.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................32
4.2. OWNERSHIP OF SHARES AND OPTIONS.................................................33
4.3. AUTHORITY.......................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.4. FINDER'S FEE....................................................................33
4.5. AGREEMENTS......................................................................33
4.6. EXPERIENCE; ACCREDITED INVESTOR.................................................34
4.7. INVESTMENT......................................................................34
4.8. NO PUBLIC MARKET................................................................34
4.9. ACCESS TO DATA..................................................................34
4.10. RESIDENCE ......................................................................35
4.11. PERSONAL ARTWORK. ..............................................................35
5. REPRESENTATIONS AND WARRANTIES OF NEXTERA.............................................35
5.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................35
5.2. ORGANIZATION OF NEXTERA AND SUBSIDIARIES........................................35
5.3. SHARES OF NEXTERA...............................................................36
5.4. SUBSIDIARIES; LIQUIDATION OF NEXTERA LLC........................................37
5.5. AUTHORITY.......................................................................37
5.6. LITIGATION......................................................................38
5.7. FINDER'S FEE....................................................................38
5.8. FINANCIAL STATEMENTS............................................................38
5.9. TAXES...........................................................................39
5.10. ABSENCE OF CERTAIN CHANGES......................................................40
5.11. COMPLIANCE WITH LAWS............................................................42
5.12. INTELLECTUAL PROPERTY...........................................................42
5.13. INSURANCE ......................................................................42
5.14. TRANSACTIONS WITH INTERESTED PERSONS............................................42
5.15. NEXTERA RECORDS; SHARE EXCHANGE AGREEMENT; COPIES OF DOCUMENTS..................43
5.16. ENVIRONMENTAL MATTERS...........................................................43
5.17. YEAR 2000 COMPLIANCE............................................................44
5.18. CLIENTS.........................................................................45
5.19. INITIAL PUBLIC OFFERING MATERIALS...............................................45
6. COVENANTS OF SHAREHOLDERS NOT TO COMPETE; RIGHT OF REPURCHASE.'.......................46
6.1. COVENANT OF SHAREHOLDERS........................................................46
6.2. RIGHT OF REPURCHASE.............................................................47
6.3. RIGHT OF FIRST REFUSAL..........................................................49
7. OTHER COVENANTS.......................................................................50
7.1. AUTHORIZATION AND CONSENT FROM OTHERS...........................................50
7.2. CONSUMMATION OF AGREEMENT.......................................................50
7.3. COOPERATION.....................................................................50
7.4. [INTENTIONALLY OMITTED].........................................................50
7.5. TAX RETURNS.....................................................................50
7.6. OPTION POOL.....................................................................50
7.7. BOOKS AND RECORDS; TAX MATTERS..................................................51
7.8. RELEASE OF PERSONAL GUARANTEES..................................................51
7.9. LEXECON BOARD OF DIRECTORS/OPERATING COMMITTEE..................................51
7.10. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE ...................................52
7.11. MILBERG ACTION..................................................................52
7.12. TERMINATION OF THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT................52
7.13. LEXECON INSURANCE...............................................................52
7.14. SPECIAL TAG-ALONG RIGHTS........................................................52
7.15. CERTAIN TRANSACTIONS............................................................53
8. CONDITIONS............................................................................53
8.1. CONDITIONS TO THE OBLIGATIONS OF NEXTERA........................................53
8.2. CONDITIONS TO OBLIGATIONS OF LEXECON AND THE SHAREHOLDERS.......................54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING..........................................55
9.1. SURVIVAL OF WARRANTIES.........................................................55
10. INDEMNIFICATION.......................................................................55
10.1. INDEMNIFICATION BY THE SHAREHOLDERS............................................55
10.2. LIMITATIONS ON INDEMNIFICATION BY THE SHAREHOLDERS.............................56
10.3. INDEMNIFICATION BY NEXTERA.....................................................57
10.4. LIMITATION ON INDEMNIFICATION BY NEXTERA.......................................57
10.5. NOTICE OF CLAIMS; DISPUTE OF CLAIMS; DEFENSE OF CLAIMS.........................57
10.6. SATISFACTION OF INDEMNIFICATION OBLIGATIONS; RELEASE OF HOLDBACK AMOUNT........59
11. MISCELLANEOUS.........................................................................61
11.1. FEES AND EXPENSES..............................................................61
11.2. GOVERNING LAW .................................................................61
11.3. NOTICES .......................................................................61
11.4. ENTIRE AGREEMENT...............................................................62
11.5. ASSIGNABILITY; BINDING EFFECT..................................................62
11.6. CAPTIONS AND GENDER............................................................62
11.7. EXECUTION IN COUNTERPARTS......................................................63
11.8. AMENDMENTS ....................................................................63
11.9. PUBLICITY AND DISCLOSURES......................................................63
11.10. SPECIFIC PERFORMANCE...........................................................63
11.11. AMBIGUITIES IN DRAFTING........................................................63
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT
This Contribution Agreement (the "Agreement") is entered into as of
December 31, 1998 by and among Nextera Enterprises, Inc., a Delaware corporation
("Nextera"), Lexecon Inc., an Illinois corporation ("Lexecon"), and the holders
of Lexecon's capital stock (identified on Exhibit A as and herein collectively
referred to as the "Shareholders" and individually as a "Shareholder").
WITNESSETH
WHEREAS, the Shareholders own of record and beneficially all of the
issued and outstanding capital stock of Lexecon, consisting of 1,000 shares of
Common Stock (said shares referred to herein as the "Shares");
WHEREAS, the Shareholders desire to contribute all of the Shares to
Nextera in exchange for Class A Common Stock of Nextera and cash pursuant to,
and subject to the terms and conditions of, this Agreement;
WHEREAS, certain members of Nextera Enterprises, L.L.C. ("Nextera LLC")
have agreed to contribute their membership interests to Nextera in exchange for
Class A Common Stock and Class B Common Stock of Nextera and the shareholders of
each of Sibson & Company, Inc. and SC2, Inc. (together, the "Sibson Entities")
have agreed to contribute their shares of the Sibson Entities to Nextera in
exchange for Class A Common Stock of Nextera in connection with that certain
Share Exchange Agreement dated as of August 31, 1998 by and among Nextera LLC,
Nextera, the shareholders of the Sibson Entities and certain shareholders of
Sibson Acquisition Co. (the "Share Exchange Agreement"); and
WHEREAS the contributions of the Shareholders hereunder shall be
contemporaneous with the Exchange Transaction (as such term is defined in the
Share Exchange Agreement) in a transaction intended to meet the requirements of
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto agree
as follows:
SECTION 1. DEFINITIONS.
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
<PAGE> 6
"Affiliate" shall mean, when used with reference to a specified Person,
(i) any Person who directly or indirectly controls, is controlled by or is under
common control with the specified Person, (ii) any Person who is a director,
officer, partner or trustee of, or serves in a similar capacity with respect to,
the specified Person, or for which the specified Person is a director, officer,
partner or trustee or serves in a similar capacity, (iii) any Person who,
directly or indirectly, is the beneficial owner of 10% or more of any class of
equity securities of the specified Person, or of which the specified Person,
directly or indirectly, is the owner of 10% or more of any class of equity
securities, or (iv) any relative of the specified Person.
"Contract" shall mean with respect to any Person, any agreement,
contract, note, loan, evidence of indebtedness, purchase order, letter of
credit, indenture, security or pledge agreement, franchise agreement,
undertaking, covenant not to compete, confidentiality agreement, employment
agreement, lease, license agreement, instrument, obligation or commitment to
which such Person is a party or is bound and which relates to such Person's
business or assets, whether oral or written.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"Damages" shall mean any and all damages, Liabilities, losses,
diminution in value, Taxes, fines, penalties, costs, and expenses (including,
without limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all reasonable
amounts paid in investigation, defense or settlement of the foregoing).
"Default" shall mean (1) a breach of or default under any Contract, (2)
the occurrence of an event that with the passage of time or the giving of notice
or both would constitute a breach of or default under any Contract, or (3) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"Liabilities" shall mean any direct or indirect liability, indebtedness,
obligation, expense, claim, guaranty or endorsement of or by any person of any
type, whether accrued, absolute, contingent, matured, unmatured or other.
"Lexecon Disclosure Schedule" shall mean a schedule delivered by Lexecon
and the Shareholders to Nextera as of the date hereof which sets forth the
exceptions to the representations and warranties contained in Sections 3 and 4
hereof and certain other information called for by this Agreement. Unless
otherwise specified or the context otherwise requires, each reference in this
Agreement to any numbered schedule is a reference to that numbered schedule
which is included in the Lexecon Disclosure
2
<PAGE> 7
Schedule. An item disclosed in one section of the Lexecon Disclosure Schedule
which is relevant to another section of the Lexecon Disclosure Schedule shall be
deemed disclosed in such other section, but only if a person reading such item
would reasonably conclude that such item is relevant to the other section.
"Material Adverse Effect" shall mean with respect to any entity any
material adverse effect or change in the financial condition, business, results
of operations, assets, liabilities or operations of such entity and its
Subsidiaries taken as a whole or on the ability of such entity to consummate the
transactions contemplated hereby.
"Milberg Liabilities" means all Liabilities associated with the Milberg
Actions, including without limitation, all expenses and burdens of litigation
and any judgments or settlements payable with respect thereto, any and all
lawsuits or other Liabilities that may in the future arise out of the Milberg
Actions and/or the facts which gave rise to the Milberg Actions and any Taxes
arising out of the foregoing, including the distribution of the Milberg Actions
to the Shareholders or their designees or as a result of any judgment or
settlement paid or payable or received or receivable with respect thereto.
"Net Book Value" shall mean total assets minus total liabilities.
"Nextera Disclosure Schedule" shall mean a schedule delivered by Nextera
to the Shareholders as of the date hereof which sets forth the exceptions to the
representations and warranties contained in Section 5 hereof and certain other
information called for by this Agreement. Unless otherwise specified or the
context otherwise requires, each reference in this Agreement to any numbered
schedule is a reference to that numbered schedule which is included in the
Nextera Disclosure Schedule. An item disclosed in one section of the Nextera
Disclosure Schedule which is relevant to another section of the Nextera
Disclosure Schedule shall be deemed disclosed in such other section, but only if
a person reading such item would reasonably conclude that such item is relevant
to the other section.
"Nextera Subsidiaries" shall mean the Subsidiaries of Nextera LLC.
"Permitted Encumbrances" shall mean (a) liens for current taxes or other
governmental assessments or charges not yet due and payable, and (b)
materialmen's, mechanics, workmen's, repairmen's, employees', carriers',
warehousemen's and other like liens incurred in the ordinary course of business,
so long as such liens do not individually or in the aggregate, materially impair
the value of the assets or property subject thereto.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization.
3
<PAGE> 8
"Regulations" shall mean any laws, statutes, ordinances, regulations,
rules, court decisions, agency guidelines, principles of law and orders of any
foreign, federal, state or local government and any other governmental
department or agency, including without limitation Environmental Laws, energy,
motor vehicle safety, public utility, zoning, building and health codes, and
occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Subsidiary" shall mean with respect to any entity (a) any corporation
in an unbroken chain of corporations beginning with such entity if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain, (b) any partnership in
which the entity is a general partner, (c) any limited liability company in
which the entity is a managing member, or (d) any partnership or limited
liability company in which the entity possesses, directly or indirectly, a 50%
or greater interest in the total capital or total income of such partnership or
limited liability company.
"to the knowledge of Lexecon" or a similar phrase, shall mean the actual
knowledge of the Shareholders and/or Mark Zumbach (without investigation).
"to the knowledge of Nextera" or a similar phrase, shall mean the actual
knowledge of Gresham T. Brebach, Jr., Ronald K. Bohlin, Michael P. Muldowney,
Stanley E. Maron and/or Steven B. Fink (without investigation).
"Working Capital" shall mean current assets minus current liabilities.
1.2. Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
1998 Plan....................................... 7.6
Acceptance Notice............................... 6.2
Actual Adjustment Amount........................ 2.5(c)
Adjustment Amount............................... 2.5(a)
Agreement....................................... Introduction
Appraisal Notice................................ 10.6(d)
Approvals....................................... 3.19
Arbitrator...................................... 2.5(e)
Board........................................... 10.6(d)
Claim........................................... 10.5(a)
Claim Notice.................................... 10.5(a)
Claim Response.................................. 10.5(a)
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Clients......................................... 3.26
Closing......................................... 2.2
Closing Amount.................................. 2.1(b)
Closing Date.................................... 2.2
Closing Balance Sheet........................... 2.5(c)
Closing Holdback Amount......................... 2.1(c)
Closing Working Capital......................... 2.5(a)
Code............................................ Recitals
Commission...................................... 5.19
Competitor...................................... 6.3
Competitor Notice............................... 6.3
Contingent Amount............................... 2.1(d)
Covenant Claim.................................. 10.1(e)
Covered Transaction............................. 7.14
Eligible Persons................................ 6.2
Employee Options................................ 7.6
Employee Program................................ 3.22(m)
Environmental Law............................... 3.23(e)
Excluded Liability Claim........................ 10.1(d)
ERISA........................................... 3.22(c)
ERISA Affiliate................................. 3.22(m)
Escrow Account.................................. 2.1(d)
Fair Market Value............................... 10.6(d)
Fraud Claims.................................... 10.1(a)
GAAP............................................ 2.5
General Claims.................................. 10.1(f)
Guarantee Claims................................ 10.3
Guarantees...................................... 7.8
Hazardous Material.............................. 3.23(e)
Hazardous Waste................................. 3.23(e)
Holdback Amount................................. 2.1(c)
Holdback Deficiency Amount...................... 2.1(d)
Initial Public Offering......................... 2.1(d)
Intellectual Property........................... 3.12(a)
Interim Balance Sheet........................... 2.5
IRS............................................. 3.22(b)
Leased Real Property............................ 3.6(a)
Lexecon......................................... Introduction
Lexecon Articles................................ 3.2
Lexecon Audited Financial Statements............ 3.7(a)
Lexecon Balance Sheet........................... 3.7(a)
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Lexecon Balance Sheet Date...................... 3.7(a)
Lexecon Financial Statements.................... 3.7(a)
Lexecon Indemnification Percentage.............. 10.2(c)
Lexecon Interim Financial Statements............ 3.7
Lexecon Notice.................................. 6.3
Lexecon Organizational Documents................ 3.2
LLC Operating Agreement......................... 5.2(b)
maintains (ERISA) .............................. 3.22(m)
Milberg Actions................................. 2.6(a)
Milberg Assets.................................. 2.6(a)
Milberg Liabilities............................. 2.6(a)
Multiemployer Plan.............................. 3.22(m)
NBV Adjustment Amount........................... 2.5(a)
Net Book Value.................................. 2.5(a)(ii)
Nextera......................................... Introduction
Nextera Audited Financial Statements............ 5.8(a)
Nextera Balance Sheet........................... 5.8(a)
Nextera Certificate............................. 5.2(a)
Nextera Class A Stock........................... 2.1(b)
Nextera Clients................................. 5.18
Nextera Financial Statements.................... 5.8(a)
Nextera Indemnified Party....................... 10.1
Nextera Intellectual Property................... 5.12
Nextera Interim Financial Statements............ 5.8(a)
Nextera LLC..................................... Recitals
Nextera Organizational Documents................ 5.2(a)
Ownership Claims................................ 10.1(b)
Ownership Date.................................. 5.2
PCBs............................................ 3.23(c)
Preliminary Adjustment Amount................... 2.5(b)
Preliminary Closing Balance Sheet............... 2.5(b)
Redemption Price................................ 2.1(d)
Repurchase Appraisal Notice..................... 6.2
Repurchase Notice............................... 6.2
Repurchase Option............................... 6.2
Repurchase Valuation Notice..................... 6.2
Transaction Consideration....................... 2.1(e)
Representatives................................. 7.4(a)
Retiree Welfare Benefit Plans................... 3.22(g)
S-1............................................. 5.18
Securities Act.................................. 2.1(d)
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Service Agreement............................... 6.1(d)
Shareholder..................................... Introduction
Shareholder Indemnified Party................... 10.3
Shareholder Representative...................... 11.8
Share Exchange Agreement........................ Recitals
Shares.......................................... Recitals
Sibson Entities................................. Recitals
Signing Bonuses................................. 2.5(a)
Special Tag-Along Right......................... 7.13
Stockholders Agreement.......................... 8.1(e)
Target Working Capital.......................... 2.5
Tax (Taxes)..................................... 3.8(a)
Tax Claims...................................... 10.1(c)
Tax Returns..................................... 3.8(b)
Unredeemed Shares............................... 2.1(d)
Valuation Notice................................ 10.6(d)
WC Adjustment Amount............................ 2.5(a)
</TABLE>
SECTION 2. TRANSACTION.
2.1. Contribution of Lexecon Shares; Consideration.
(a) Transfer of Shares. At the Closing (as defined below), in
return for the cash and issuance of Nextera Class A Stock in accordance with
subsections (b) and (d) below and in reliance upon the representations and
warranties of Nextera herein contained and made at the Closing and subject to
the satisfaction of all of the conditions contained herein, each Shareholder
shall deliver or cause to be delivered to Nextera certificates representing all
of the Shares owned by such Shareholder, as set forth on Exhibit A. Such
certificates shall be presented with assignments duly executed in blank (or the
equivalent), with such other documents as may reasonably be required by Nextera
to effect a valid transfer of such Shares by such Shareholder, free and clear of
any and all liens, encumbrances, charges or claims.
(b) Consideration for Shares at Closing. In return for the
contribution from the Shareholders to Nextera of the Shares and in reliance upon
the representations and warranties of Lexecon and the Shareholders herein
contained and made at the Closing and subject to the satisfaction of all of the
conditions contained herein, Nextera agrees that at the Closing, it will (i)
deliver to the Shareholders an aggregate of Thirty One Million One Hundred Forty
Five Thousand Nine Hundred Fifty Three Dollars ($31,145,953) in the form of a
demand promissory note bearing 5% interest and payable to the Shareholder
Representative (it being understood that such amount includes a Preliminary
Adjustment Amount of Six Thousand Forty Seven Dollars ($6,047) but is
7
<PAGE> 12
subject to subsequent adjustment pursuant to the other provisions of Section
2.5), and (ii) issue to the Shareholders an aggregate amount of 2,816,000 shares
of Class A Common Stock of Nextera ("Nextera Class A Stock"), which shall be
distributed in the amounts set forth opposite the name of each Shareholder on
Exhibit A. The cash and Nextera Class A Stock specified in clauses (i) and (ii)
of the previous sentence are referred to herein collectively as the "Closing
Amount."
(c) Holdback Amount. As security for the obligations of the
Shareholders under Section 10 of this Agreement, the Shareholders hereby
instruct Nextera to retain and holdback (i) 1,408,000 shares of Nextera Class A
Stock otherwise issuable as a part of the Closing Amount pursuant to Section
2.1(b) above (the "Closing Holdback Amount"), and (ii) (A) if the Contingent
Amount (as defined below) is issued on or before the first anniversary of the
Closing, then fifty percent (50%) of the Nextera Class A Stock otherwise
issuable as the Contingent Amount pursuant to Section 2.1(d) below, or (B) if
the Contingent Amount is issued after the first anniversary of the Closing Date,
then twenty-five percent (25%) of the Nextera Class A Stock otherwise issuable
as the Contingent Amount pursuant to Section 2.1(d) below (the Nextera Class A
Stock referred to in clauses (i) and (ii) above hereinafter being collectively
referred to as the "Holdback Amount").
The shares of Nextera Class A Stock to be held by Nextera
pursuant to clause (i) of the preceding paragraph shall be issued in the names
of the Shareholders according to the relevant percentages set forth opposite
each Shareholder's name on Exhibit A and the shares of Nextera Class A Stock to
be held by Nextera pursuant to clause (ii) of the preceding paragraph shall be
issued in the names and according to the percentages specified in writing by the
Shareholder Representative, but such certificates shall not be delivered to
them. Such shares of Nextera Class A Stock shall be deemed to be the property of
the Shareholders and shall not be deemed to be contingent consideration, but
rather are being held back by Nextera as security for the indemnification
obligations of the Shareholders hereunder. Any and all dividends and
distributions which are declared and/or paid following the Closing with respect
to such Nextera Class A Stock shall be included in the Holdback Amount and upon
the release of the Nextera Class A Stock from the Holdback Amount to the
Shareholders, the Shareholders shall be entitled to receive such dividends and
distributions in respect of such released Nextera Class A Stock.
(d) Contingent Amount. As additional consideration for
the contribution of the Shares, Nextera shall reserve for issuance to the
Shareholders up to 1,450,240 shares of Nextera Class A Stock (as may be
appropriately adjusted for stock splits, stock dividends and similar
transactions which may occur after the date of this Agreement) to be issued to
the Shareholders based on percentages specified in writing by the Shareholder
Representative as follows (the "Contingent Amount"):
8
<PAGE> 13
(i) In the event that an Initial Public Offering (as
defined below) occurs on or before February 29, 2000, the precise amount of
Nextera Class A Stock to be issued to the Shareholders shall be determined in
accordance with Exhibit B attached hereto. Subject to the Holdback Amount
described in Section 2.1(c) above, any issuance of Nextera Class A Stock to the
Shareholders under this subsection (i) shall be made promptly following the
Initial Public Offering.
(ii) In the event that an Initial Public Offering does
not occur by February 29, 2000, then Nextera shall (a) issue the full amount of
1,450,240 shares of Nextera Class A Stock; and (b) contemporaneously with the
issuance of such Nextera Class A Stock redeem the full amount of Nextera Class A
Stock at a per share redemption price of $7.65 (such amount being appropriately
adjusted for any adjustments made to the Contingent Amount for stock splits,
stock dividends and similar transactions, and such amount as so adjusted being
referred to herein as the "Redemption Price"). The issuance to the Shareholders
and contemporaneous redemption of Nextera Class A Stock under this subsection
(ii) shall be made no later than April 1, 2000; provided that 25% of the cash
redemption amount otherwise payable to the Shareholders shall be deemed to be
part of the Holdback Amount and shall be deposited into an escrow account with a
bank or other third party on terms mutually acceptable to the Shareholder
Representative and Nextera (the "Escrow Account"). Notwithstanding the
foregoing, if (x) at the time of a required redemption under this Section
2.1(d)(ii) there are any unresolved Claims as to which Nextera has delivered a
Claim Notice and (y) the Closing Holdback Amount then retained by Nextera is
less than the then estimated amount of the Damages associated with such
unresolved Claims as promptly agreed in good faith by Nextera and the
Shareholder Representative (the amount of the difference between the Closing
Holdback Amount and such estimated amount of Damages being referred to as the
"Holdback Deficiency Amount"), then Nextera, in its sole discretion, may elect
not to redeem that portion of the Nextera Class A Stock having a value equal to
the estimated amount of the Holdback Deficiency Amount (the "Unredeemed
Shares"); provided, however, that (i) the Unredeemed Shares shall remain in the
Holdback Amount, (ii) for purposes of (x) determining the number of Unredeemed
Shares needed to satisfy the Holdback Deficiency Amount under this Section
2.1(d)(ii) and (y) Section 10.6(a), each of the Unredeemed Shares shall be
valued at the greater of Fair Market Value or the Redemption Price, and (iii)
any Unredeemed Shares that are not used to satisfy indemnification obligations
in accordance with Section 10.6(a) shall be promptly redeemed at the Redemption
Price and the proceeds (plus interest at 5% per annum from April 1, 2000)
released to the Shareholders or deposited into the Escrow Account (as
appropriate).
As used herein, an "Initial Public Offering" shall mean Nextera's
first underwritten initial public offering of Nextera Class A Stock under the
Securities Act of 1933, as amended (the "Securities Act") after the date hereof,
that results in Nextera
9
<PAGE> 14
Class A Stock being listed for trading on a national securities exchange or
being authorized for trading on the Nasdaq National Market System at such time.
Any issuance of Nextera Class A Stock to the Shareholders
under this Section 2.1(d) shall be allocated to each Shareholder based on
percentages specified in writing by the Shareholder Representative.
(e) Transaction Consideration. As used herein the term
"Transaction Consideration" shall mean the Closing Amount and the Contingent
Amount (including that portion of the Closing Amount and the Contingent Amount
held as a part of the Holdback Amount).
2.2. Time and Place of Closing. The closing of the contribution
and exchange and other transactions provided for in this Agreement (the
"Closing") shall be held at the offices of Maron & Sandler in Los Angeles,
California on December 31, 1998 (the "Closing Date") effective as of the close
of business on the Closing Date or at such other date and location as may be
mutually agreed upon by the parties. The Closing shall be simultaneous with the
"Closing" under the Share Exchange Agreement.
2.3. Further Assurances. The Shareholders from time to time after
the Closing at the request of Nextera and without further consideration shall
execute and deliver further instruments of transfer and assignment and take such
other action as Nextera may reasonably require to more effectively transfer and
assign to, and vest in, Nextera the Shares and all rights thereto, and to fully
implement the provisions of this Agreement. Nextera from time to time after the
Closing at the request of the Shareholders and without further consideration
shall execute and deliver further instruments of transfer and assignment and
take such other action as the Shareholders may reasonably require to more
effectively transfer and assign to, and vest in, the Shareholders the shares of
Nextera Class A Stock required to be delivered hereunder, and all rights
thereto, and to fully implement the provisions of this Agreement.
2.4. Transfer Taxes. All transfer Taxes, fees and duties under
applicable law incurred in connection with the contribution and transfer of the
Shares and the issuance of the Nextera Class A Stock under this Agreement (but,
in any event, excluding income Taxes), if any, will be borne and paid equally by
Nextera, on the one hand, and the Shareholders, on the other hand.
2.5. Adjustments to Transaction Consideration. Subject to the
exceptions described below, the amount of the cash portion of the Closing Amount
to be delivered at the Closing is premised upon Lexecon having (A) $6,400,000 of
Working Capital as of the Closing (the "Target Working Capital"), and (B) a Net
Book Value as of the Closing equal to or greater than the Net Book Value set
forth on the Balance Sheet of Lexecon as
10
<PAGE> 15
of September 30, 1998 (the "Interim Balance Sheet") attached hereto as a part of
the Lexecon Interim Financial Statements in Schedule 3.7.
(a) Adjustment Amount. The "Adjustment Amount" shall be
calculated as set forth below:
(i) As used herein, "NBV Adjustment Amount" shall mean Net
Book Value of Lexecon as of the Closing minus Net Book Value of Lexecon as set
forth on the Interim Balance Sheet (but in no event shall the NBV Adjustment
Amount be greater than zero); provided, however, that there shall be excluded
from the calculation of the NBV Adjustment Amount any reduction in Net Book
Value from the date of the Lexecon Interim Financial Statements through the
Closing Date arising from normal changes as a result of operations in the
ordinary course of Lexecon's business, none of which changes as a result of
operations may be materially adverse to Lexecon. For purposes of this Section
2.5(a)(i), the following shall be deemed to be in the ordinary course of
Lexecon's business (and not materially adverse): (A) the payment of bonuses to
employees of Lexecon which are in accordance with past practice; (B) the
incurrence of debt to pay such bonuses to employees and Shareholders; and (C)
the payment of bonuses to the Shareholders; provided, however, that the payment
of such bonuses and incurrence of debt in the preceding clauses (A), (B) and (C)
may not cause the Closing Working Capital (as defined below) to fall below the
Target Working Capital); and
(ii) As used herein, "WC Adjustment Amount" means the
amount of the Working Capital of Lexecon as of the Closing (the "Closing Working
Capital") minus the Target Working Capital.
The Adjustment Amount shall equal the sum of the NBV Adjustment
Amount and the WC Adjustment Amount; provided that if the NBV Adjustment Amount
and the WC Adjustment Amount are both negative numbers, the Adjustment Amount
shall be the greater of such amounts (in absolute value terms) as opposed to the
sum of such amounts.
If the Adjustment Amount is a negative number, then the
Shareholders shall pay to Nextera the Adjustment Amount. If the Adjustment
Amount is a positive number, then Nextera shall pay to the Shareholders the
Adjustment Amount.
All calculations under, and financial statements prepared for,
this Section 2.5 shall be in accordance with generally accepted accounting
principles ("GAAP") and using the same accounting principles and interpretations
used to prepare the Interim Balance Sheet (to the extent such principles and
interpretations are consistent with GAAP). In making such calculations and
preparing such financial statements , (a) Lexecon shall be deemed to be an "S
Corporation" and (b) the following shall be deemed to be fully-accrued as
current liabilities of Lexecon to the extent not actually paid prior to
11
<PAGE> 16
the Closing: (x) all amounts payable by Lexecon with respect to legal,
accounting and other fees and expenses in connection with this Agreement and the
transactions contemplated hereby on behalf of itself and the Shareholders and
(y) all bonus amounts payable to the Shareholders or non-Shareholder senior
executives of Lexecon, other than the "signing bonuses" (including cash and
stock options) payable to the non-Shareholder executives and professional staff
of Lexecon pursuant to the terms of their new employment or service agreements
being entered into in connection with the Closing (the "Signing Bonuses").
(b) Preliminary Determination by Lexecon. Not less than two (2)
business days prior to the Closing, Lexecon shall prepare and deliver to Nextera
a forecasted balance sheet of Lexecon as of the Closing reflecting Lexecon's
forecast of (i) the Net Book Value as of the Closing, (ii) the Closing Working
Capital, and (iii) a reasonably detailed written estimate of the Adjustment
Amount (such estimate being the "Preliminary Adjustment Amount"). Without
limiting the rights of the parties in connection with the final determination of
the Adjustment Amount under this Section 2.5, the cash portion of the Closing
Amount shall be reduced or increased (as the case may be) by the Preliminary
Adjustment Amount, if any, as determined by Lexecon.
(c) Post-Closing Determination by Nextera. Within sixty (60) days
after the Closing, Nextera shall prepare and deliver to the Shareholder
Representative a balance sheet of Lexecon as of the Closing (the "Closing
Balance Sheet") reflecting Nextera's determination of (i) the Net Book Value as
of the Closing, (ii) the Closing Working Capital, and (iii) a reasonably
detailed calculation of the Adjustment Amount. The Adjustment Amount calculated
by Nextera (if agreed to by the Shareholder Representative) or the Adjustment
Amount determined by the Arbitrator under subsection (e) below is referred to
herein as the "Actual Adjustment Amount."
(d) Settlement. Any amount owed by the Shareholders to Nextera as
a result of the Actual Adjustment Amount (taking into account payments made in
respect of the Preliminary Adjustment Amount) shall promptly be paid to Nextera,
together with interest at the rate of five percent (5%) per annum from the
Closing Date. Any amount owed by Nextera to the Shareholders as a result of the
Actual Adjustment Amount (taking into account payments made in respect of the
Preliminary Adjustment Amount) shall promptly be paid to the Shareholders (to a
bank account specified in writing by the Shareholder Representative), together
with interest at the rate of five percent (5%) per annum from the Closing Date.
(e) Disputed Adjustment Amount. If the Shareholders disagree with
the amount determined by Nextera to be the Adjustment Amount, the Shareholder
Representative shall notify Nextera in writing of such disagreement within
twenty (20) business days of his receipt of the Closing Balance Sheet. Nextera
and the Shareholder Representative shall use their commercially reasonable
efforts for a period of ten (10)
12
<PAGE> 17
business days following the notice of disagreement to resolve any disagreement.
If at the end of such period, Nextera and the Shareholder Representative are
unable to resolve the disagreement, a mutually agreed upon independent public
accounting firm (the "Arbitrator") shall be retained to make a final and binding
determination of the Adjustment Amount, at which time any amounts payable by
Nextera or the Shareholders shall promptly be paid to the other in the manner
set forth in subsection (d) and according to the Arbitrator's determination. The
determination of the Arbitrator shall be final, binding and conclusive on the
parties. The fees and expenses of the Arbitrator shall be borne equally by
Nextera, on the one hand, and the Shareholders, on the other hand.
(f) Other Matters. Notwithstanding anything contained in this
Agreement to the contrary, the Shareholders shall not have any liability to
Nextera, Lexecon or any other Person or entity (whether as a purchase price
adjustment, indemnity obligation or otherwise) arising from, or relating to,
Lexecon's conversion from the cash to accrual method of tax accounting in
connection with the transactions contemplated by this Agreement.
2.6.2.6. Distribution of Certain Assets and Certain Liabilities.
Lexecon and/or its Shareholders prior to the date hereof has engaged in certain
lawsuits as a plaintiff and/or a defendant involving the law firm of Milberg
Weiss Bershad Hynes & Lerach LLP (the "Milberg Actions"). On December 30, 1998,
Lexecon Enterprises, Inc. and Lexecon entered into and made effective the
transactions set forth in the letter agreement attached hereto as Exhibit C.
2.7. Conveyances at Closing.
(a) Instruments and Possession. Subject to the terms and
conditions contained herein, to effect the contribution and transfer referred to
in Section 2.1 hereof, the Shareholders will, at the Closing, execute and
deliver to Nextera or cause to be executed and delivered to Nextera:
(i) certificates representing all of the Shares
accompanied by assignments duly executed in blank; and
(ii) such other instruments as shall be reasonably
requested by Nextera to vest in Nextera title in and to the Shares in accordance
with the provisions hereof.
(b) Form of Instruments. To the extent that a form of any
document to be delivered thereunder to Nextera is not attached as an Exhibit
hereto, such documents shall be in form and substance, and shall be executed and
delivered in a manner, reasonably satisfactory to Nextera. To the extent that a
form of any document to be delivered thereunder to the Shareholders is not
attached as an Exhibit hereto, such
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documents shall be in form and substance, and shall be executed and delivered in
a manner, reasonably satisfactory to the Shareholders.
(c) Issuance and Payment of Closing Amount. Subject to the
terms of this Agreement, Nextera shall deliver to the Shareholders the Closing
Amount as described above.
(d) Certificates; Opinions. The Shareholders and Nextera
shall deliver or cause to be delivered the certificates, opinions of counsel and
other matters described in Section 8.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
3.1. Making of Representations and Warranties. As a material inducement
to Nextera to enter into this Agreement and consummate the transactions
contemplated hereby and except as set forth on the Lexecon Disclosure Schedule,
each of the Shareholders severally, but not jointly, hereby makes to Nextera the
representations and warranties contained in this Section 3; provided, however,
that no Shareholder shall have any right of indemnity or contribution from
Lexecon with respect to any breach of representation or warranty thereunder.
Nextera is relying on the truth and accuracy of the representations and
warranties made by the Shareholders in this Agreement, and the Shareholders
shall be liable for breach of such representations and warranties to the extent
set forth in Section 10 notwithstanding any due diligence investigation
conducted by Nextera or any knowledge or information which Nextera may have as
of the date of this Agreement.
3.2. Organization and Qualifications of Lexecon. Lexecon is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois with corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of Lexecon's Articles of Incorporation, as
amended to date, certified by the Illinois Secretary of State (the "Lexecon
Articles"), and except as set forth on Schedule 3.2, the copies of Lexecon's
By-Laws, as amended to date, certified by Lexecon's Secretary (together with
Lexecon Articles, the "Lexecon Organizational Documents"), and heretofore
delivered to Nextera's counsel, are complete and correct, and no amendments
thereto are pending. Lexecon is not in violation of any term of the Lexecon
Organizational Documents. Except as set forth on Schedule 3.2, Lexecon is duly
qualified or authorized to do business as a corporation and is in good standing
under the laws of each jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification or authorization, except
where the failure to be so qualified or authorized would not have a Material
Adverse Effect.
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3.3. Shares of Lexecon; Beneficial Ownership. The authorized capital
stock of Lexecon consists of 12,000 shares of Common Stock, of which 1,000
shares are duly and validly issued, outstanding, fully paid and non-assessable.
Each Shareholder owns of record and beneficially the number of the Shares set
forth opposite each Shareholder's name in Exhibit A. Other than as set forth on
Schedule 3.3, there are no outstanding options, warrants, rights, commitments,
preemptive rights or agreements of any kind for the issuance or sale of, or
outstanding securities convertible into, any additional shares of capital stock
of any class of Lexecon. None of Lexecon's capital stock has been issued in
violation of any federal or state law. Other than as set forth on Schedule 3.3,
there are no voting trusts, voting agreements, proxies or other agreements,
instruments or undertakings with respect to the voting of the Shares to which
Lexecon or any of the Shareholders is a party.
3.4 No Subsidiaries. Lexecon has no Subsidiaries or investments in any
other corporation or business organization.
3.5. Authority of Lexecon. Lexecon has full right, authority and
corporate power to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by Lexecon pursuant to this Agreement
and to carry out the transactions contemplated hereby or thereby. The execution,
delivery and performance by Lexecon of this Agreement and each such other
agreement, document and instrument to which Lexecon is a party have been duly
authorized by all necessary action of Lexecon and no other action on the part of
Lexecon or the Shareholders is required in connection therewith.
This Agreement and each agreement, document and instrument executed and
delivered by Lexecon pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Lexecon
enforceable against Lexecon in accordance with their terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject to the effect of
general principles of equity, including, without limitation, the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law. The execution, delivery
and performance by Lexecon of this Agreement and each such agreement, document
and instrument:
(i) does not and will not violate any provision of the
Lexecon Organizational Documents;
(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to Lexecon or require
Lexecon to obtain any approval, consent or waiver of, or make any filing with,
any governmental entity that has not been obtained or made; and
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(iii) except as set forth in Schedule 3.5, does not and
will not result in a breach of, constitute a default under, accelerate any
obligation under, require any approval, consent or waiver under, or give rise to
a right of termination of any indenture or loan or credit agreement or any other
material Contract, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which Lexecon is a party or by
which the property of Lexecon is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of Lexecon's assets or the Shares, except where such breach
default, acceleration or exercise of right of termination would not have a
Material Adverse Effect.
3.6. Real and Personal Property.
(a) Real Property. Lexecon does not own any real property. All of
the real property leased by Lexecon is identified on Schedule 3.6(a) (herein
referred to as the "Leased Real Property").
(i) Leases. All leases of Leased Real Property are
identified on Schedule 3.6(a), and true and complete copies thereof have been
delivered or made available to Nextera. Each of said leases has been duly
authorized and executed by Lexecon and is in full force and effect and binding
and enforceable against Lexecon and, to the knowledge of Lexecon, the other
parties thereto. Lexecon is not in default under any material provision of any
of said leases, nor has any event occurred which, with notice or the passage of
time, or both, would give rise to such a default. To the knowledge of Lexecon,
the other party to each of said leases is not in default under any material
provision of any of said leases and there is no event which, with notice or the
passage of time, or both, would give rise to such a default.
(ii) Condition of Leased Real Property. Except as set
forth in Schedule 3.6(a) or 3.23, to the knowledge of Lexecon, (1) there are no
material defects in the physical condition of any of the Leased Real Property
and (2) all such Leased Real Property is in good operating condition and repair
(ordinary wear and tear excepted).
(iii) Compliance with the Law. Lexecon has not received
any notice from any governmental authority of any material violation of any
Regulations, license, permit or authorization issued with respect to the Leased
Real Property that has not been heretofore corrected. Lexecon has not received
any notice of any real estate tax deficiency or assessment and is not aware of
any proposed deficiency, claim or assessment with respect to any of the Leased
Real Property, or any pending or threatened condemnation thereof.
(b) Personal Property. Schedule 3.6(b) contains lists of certain
quarterly additions of depreciable property, including all material machinery
and
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equipment of Lexecon. Except as specifically disclosed in said Schedule or in
the Lexecon Balance Sheet (as defined below), and except for Permitted
Encumbrances, Lexecon owns (or has a valid right to use under a written lease or
rental agreement) all of its personal property free of any mortgage, pledge,
lien, conditional sale agreement, security title, encumbrance or other charge.
Except as otherwise specified in Schedule 3.6(b) hereto, all leasehold
improvements, furnishings, machinery and equipment of Lexecon presently
necessary to the conduct of the business of Lexecon as such business is
currently being conducted are in good operating condition and repair (ordinary
wear and tear excepted).
3.7. Financial Statements.
(a) Lexecon has delivered to Nextera the following financial
statements, copies of which are attached hereto as Schedule 3.7: (i) the balance
sheet of Lexecon for its fiscal year ended December 31, 1997, and statements of
income and retained earnings for the year then ended each as audited by Ernst &
Young LLP (the "Lexecon Audited Financial Statements"), and (ii) unaudited
balance sheet of Lexecon as of September 30, 1998 (the "Lexecon Interim Balance
Sheet") and unaudited statements of profit and loss of Lexecon for the nine
months ended September 30, 1998 (the "Lexecon Interim Financial Statements" and
together with the Lexecon Audited Financial Statements, the "Lexecon Financial
Statements"). The December 31, 1997 balance sheet is hereinafter referred to as
the "Lexecon Balance Sheet." To the knowledge of Lexecon, the Lexecon Financial
Statements have been prepared in accordance with GAAP (provided that the Lexecon
Interim Financial Statements (i) are subject to normal year-end adjustments and
(ii) lack footnotes and other presentation items) applied consistently during
the period covered thereby, and present fairly in all material respects the
consolidated financial condition of Lexecon at the date of said statements and
the consolidated results of its operations for the periods covered thereby.
(b) To the knowledge of Lexecon, except as set forth on Schedule
3.7, as of the Closing, Lexecon does not have any material Liabilities which
would be required by GAAP to be stated or adequately reserved against on a
balance sheet or the notes thereto, except Liabilities (i) stated or adequately
reserved against on the Lexecon Interim Balance Sheet or the Lexecon Balance
Sheet (or referenced in the notes thereto), (ii) incurred in the ordinary course
of business of Lexecon, (iii) disclosed in the Lexecon Disclosure Schedule, or
(iv) future performance obligations under Contracts, none of which relates to
any default, breach of warranty, tort infringement, or violation of any
Regulations or Court Orders.
3.8. Taxes.
(a) As used in this Agreement, the terms "Tax" and "Taxes" mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net
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income, gross income, gross receipts, sales, use, VAT, service, service use, ad
valorem, transfer, franchise, profits, license, lease, withholding, social
security, payroll, employment, excise, estimated, severance, stamp, recording,
occupation, real and personal property, gift, windfall profits or other taxes,
customs duties, fees, assessments or charges of any kind whatsoever, whether
computed on a separate, consolidated, unitary, combined or other basis, together
with any interest, fines, penalties, additions to tax or other additional
amounts imposed thereon or with respect thereto imposed by any taxing authority
(domestic or foreign). The terms "Tax" and "Taxes" include any liability of
Lexecon or any current or former Subsidiary of Lexecon for the payment of any
amounts of any of the foregoing types as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of Lexecon or any current or former
Subsidiary of Lexecon for payment of such amounts was determined or taken into
account with reference to the liability of any other person.
(b) All returns, declarations, reports, estimates,
statements, schedules or other information or documents with respect to Taxes
(collectively, "Tax Returns") required to be filed by or with respect to Lexecon
or any current or former Subsidiary of Lexecon have been timely filed (giving
effect to extensions granted with respect thereto), and all such Tax Returns are
true, correct, and complete in all material respects.
(c) Each of Lexecon and any current or former Subsidiary
of Lexecon has timely paid all Taxes due from it or claimed to be due from it by
any federal, state, local, foreign or other taxing authority, other than Taxes
being contested in good faith and set forth on Schedule 3.8.
(d) There are no liens for Taxes upon any of the assets
of, or interests in Lexecon, except liens for taxes not yet due and payable.
(e) No Tax Returns of Lexecon have been audited by the
relevant taxing authority. No deficiency for any Taxes has been proposed,
asserted or assessed against Lexecon that has not been resolved and paid in
full. There are no outstanding waivers, extensions, or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns that have been given by Lexecon (including the time for
filing of Tax Returns or paying Taxes), and Lexecon has no pending written
requests for any such waivers, extensions, or comparable consents.
(f) No audit or other proceeding by any federal, state,
local or foreign court, governmental, regulatory, administrative or similar
authority is presently pending with respect to any Taxes or Tax Return Lexecon,
and Lexecon has not received written notice of any pending audits or
proceedings.
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(g) Lexecon has established adequate reserves in
accordance with generally accepted accounting principles for all Taxes not yet
due and payable, which reserves are set forth in the Lexecon Audited Financial
Statements.
(h) Lexecon has not received a ruling from any taxing
authority or signed an agreement with any taxing authority that could reasonably
be expected to have a Material Adverse Effect on Lexecon or the assets of
Lexecon.
(i) Lexecon has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441, 1442, 1445 and 1446 of the Code or similar provisions under any
applicable state and foreign laws) and has, within the time and the manner
prescribed by law, paid over to the proper governmental authorities all amounts
so withheld.
(j) Neither Lexecon nor any Subsidiary of Lexecon is a
party to, bound by or has any obligation under any Tax sharing allocation or
indemnity agreement or similar contract or arrangement.
(k) Lexecon is, and has been at all times since May 1,
1991, properly characterized as an "S Corporation" for federal and applicable
state and local income tax purposes. As of the Effective Date of Lexecon's
election to be characterized as an "S Corporation" for federal and applicable
state and local income tax purposes, the amount of gain, if any, inherent in
Lexecon's assets sold, distributed or otherwise transferred since the effective
date of the election subject to income tax as a result of such sale(s),
distribution(s) or transfer(s) pursuant to Code Section 1374 and the applicable
state counterparts thereof is set forth on Schedule 3.8.
(l) No power of attorney granted by Lexecon with respect
to any Taxes is currently in force.
(m) Lexecon is not subject to any joint venture,
partnership or other arrangement or contract that is treated as a partnership
for U.S. federal income tax purposes.
(n) To the knowledge of Lexecon, there is no expectation
that any taxing authority may claim or assess any material amount of Taxes
payable by Lexecon for any period ending prior to the Closing Date and there are
no facts of which Lexecon or the Shareholders are aware which would constitute
grounds for the assessment of any material amount of Taxes payable by Lexecon
for any period ending prior to the Closing Date.
(o) Lexecon and each Shareholder is a "United States
person" within the meaning of Section 7701 of the Code.
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(p) Schedule 3.8 sets forth each state, local and foreign
jurisdiction in which Lexecon is required, or has within the six year period
ending on the Closing Date been required, to file or be included in a Tax
Return. No written claim has ever been received by Lexecon or any current or
former Subsidiary of Lexecon from a taxing authority in a jurisdiction where
Lexecon or any current or former Subsidiary of Lexecon does not pay Taxes or
file Tax Returns that Lexecon or any current or former Subsidiary of Lexecon is
or may be subject to Taxes assessed by such jurisdiction, and, to the knowledge
of Lexecon, no such claim has been threatened by a taxing authority.
(q) Except as set forth on Schedule 3.8, Lexecon has not
agreed, nor is it (or will it be immediately following the Closing as a result
of any of the transactions contemplated by this Agreement) required, to make any
adjustment under Section 481 of the Code by reason of a change in accounting
method or otherwise.
(r) Lexecon has not entered into any installment sale
contract pursuant to Section 453 of the Code whereby the installments have not
been fully collected, nor has Lexecon entered into an interest rate swap,
currency swap, or similar transaction.
(s) Neither Lexecon nor any Shareholder has received a
written notice of tax lien with respect to the Shares.
(t) Lexecon will not incur any Taxes as a result of the
distributions of the Milberg Actions to the Shareholders nor will Lexecon incur
any Taxes as a result of any judgments or settlements paid or payable or
received or receivable with respect thereto or with respect to any and all
lawsuits or other claims that may arise in the future out of the Milberg Actions
and/or facts which gave rise to the Milberg Actions.
3.9.Accounts Receivable. To the knowledge of Lexecon, and except as set
forth on Schedule 3.9 attached hereto, the accounts receivable of Lexecon shown
or reflected on the Lexecon Interim Balance Sheet or existing at the date of
this Agreement (less the reserve for bad debts set forth on the Lexecon Interim
Balance Sheet or existing at the date hereof) are valid and enforceable claims,
fully collectible and subject to no set off or counterclaim and reflect amounts
due or owing to Lexecon for services performed prior to such date in the
ordinary course of business. Except as set forth on Schedule 3.9 or, Lexecon has
no accounts or loans receivable from any Affiliate of Lexecon or from any
Shareholder, director, officer or employee of Lexecon other than obligations of
such Persons to reimburse personal expenses incurred in the ordinary course of
business.
3.10. Absence of Certain Changes. Except as disclosed in Schedule 3.10
attached hereto or as contemplated by this Agreement, since September 30, 1998,
there has not been:
(a) Any change in the business, properties, assets,
results of operations, financial condition, or liabilities of Lexecon, which
change by itself or in
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conjunction with all other such changes, whether or not arising in the ordinary
course of business, has been materially adverse with respect to Lexecon;
(b) Any contingent liability incurred by Lexecon as
guarantor or surety with respect to the obligations of others, or any compromise
or forgiveness of any material debt owing to Lexecon, or any written waiver of
any material claim or right of Lexecon;
(c) Any mortgage, encumbrance or lien (other than
Permitted Encumbrances) placed on any of the properties of Lexecon which remains
in existence on the date hereof or will remain on the Closing Date;
(d) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any of the properties or assets of Lexecon other than in the ordinary course of
business;
(e) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties, assets
or business of Lexecon;
(f) Any declaration, setting aside or payment of any
dividend by Lexecon, or the making of any other distribution in respect of the
equity interests of Lexecon, or any direct or indirect redemption, purchase or
other acquisition by Lexecon of its equity interests;
(g) Any claim of unfair labor practices involving Lexecon;
any change in the compensation payable or to become payable by Lexecon to any of
its officers, employees, agents or independent contractors other than normal
merit increases in accordance with its usual practices; or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors other than bonuses in accordance with Lexecon's usual
practices and other than the Signing Bonuses;
(h) Any change in the officers or senior management of
Lexecon;
(i) Any payment or discharge of a material lien or
liability of Lexecon which was not shown on the Lexecon Balance Sheet or
incurred in the ordinary course of business thereafter;
(j) Any change in accounting methods or practices, credit
practices or collection policies used by Lexecon;
(k) Any other transaction entered into by Lexecon other
than transactions in the ordinary course of business; or
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(l) Any agreement or understanding whether in writing or
otherwise, for Lexecon to take any of the actions specified in paragraphs (a)
through (k) above.
3.11. Banking Relations. All of the banking arrangements which Lexecon
has with any banking institution are described in Schedule 3.11 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.) and the person or persons authorized in respect thereof.
3.12. Intellectual Property.
(a) Except as described in Schedule 3.12, Lexecon has
ownership of, or license to use, all material patent, copyright, trade secret,
trademark, or other proprietary rights used or to be used in the business of
Lexecon as presently conducted (collectively, "Intellectual Property"). To the
knowledge of Lexecon, there are no claims or demands of any other person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of Lexecon
in respect thereof.
(b) All material patents, patent applications, trademarks,
trademark applications and registrations and registered copyrights which are
used or to be used by Lexecon in its business as presently conducted are listed
in Schedule 3.12.
(c) All material licenses or other agreements under which
Lexecon is granted rights in Intellectual Property are listed in Schedule 3.12,
other than licenses of generally commercially available third party software
that has not been materially modified by Lexecon. Except as indicated in
Schedule 3.12, all such material licenses or other agreements listed are in full
force and effect, there is no material default by Lexecon or, to the knowledge
of Lexecon, any other party thereto. True and complete copies of all such
material licenses or other agreements, and any amendments thereto, have been
provided to Nextera.
(d) All material licenses or other material agreements
under which Lexecon has granted rights to others in Intellectual Property owned
or licensed by Lexecon are listed in Schedule 3.12. Except as indicated in
Schedule 3.12, all such licenses or other agreements are in full force and
effect, there is no material default by Lexecon or, to the knowledge of Lexecon,
any other party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Nextera.
(e) To the knowledge of Lexecon, the present business,
activities and products of Lexecon do not infringe any intellectual property
rights of any other person. To the knowledge of Lexecon, no proceeding charging
Lexecon with infringement of any adversely held intellectual property has been
filed or is threatened to be filed. To the
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knowledge of Lexecon, there exists no unexpired patent or patent application
which includes claims that would be infringed by or otherwise adversely affect
the activities or business of Lexecon. To the knowledge of Lexecon, Lexecon is
not making unauthorized use of any confidential information or trade secrets of
any person, including without limitation, any former employer of any past or
present employee of Lexecon.
3.13. Contracts.
(a) Contracts. Except for Contracts, commitments, plans,
agreements and licenses described in Schedule 3.13 or contemplated by this
Agreement, Lexecon is not a party to or subject to:
(i) Contracts not made in the ordinary course of business;
(ii) Employment contracts and severance agreements,
including without limitation Contracts (A) to employ or terminate executive
officers or other personnel and other contracts with present or former officers,
directors or shareholders of Lexecon or (B) that will result in the payment by,
or the creation of any Liability to pay on behalf of Nextera or Lexecon any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel following termination of employment or otherwise as
a result of the consummation of the transactions contemplated by this Agreement;
(iii) Written Contracts with customers or clients of
Lexecon entered into since January 1, 1996;
(iv) Labor or union contracts;
(v) Distribution, franchise, license (other than "off the
shelf" software licenses), technical assistance, sales, consulting, agency or
advertising contracts involving Lexecon involving payments or receivables in
excess of $100,000 in 1997 or the first nine months of 1998 (other than client
contracts);
(vi) Options with respect to any property, real or
personal, whether Lexecon shall be the grantor or grantee thereunder;
(vii) Contracts which by their terms require payments by
Lexecon in 1999 in excess of $100,000;
(viii) Contracts or commitments relating to commission
arrangements with others;
(ix) Promissory notes, loans, agreements, indentures,
evidences of indebtedness, letters of credit, guarantees, or other instruments
relating to borrowed
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money, whether Lexecon shall be the borrower, lender or guarantor thereunder or
whereby any assets are pledged (excluding credit provided by Lexecon in the
ordinary course of business to its customers);
(x) Confidentiality agreements and Contracts containing
covenants limiting the freedom of Lexecon or, to the knowledge of Lexecon, any
officer, director, or shareholder of Lexecon, to engage in any line of business
or compete with any Person, other than Contracts or engagements between Lexecon
and its clients entered into in the ordinary course of business which may
contain provisions intended to prevent Lexecon from being subject to potential
conflicts of interest;
(xi) Any material Contract to supply services to the
United States, state or local government or any agency or department thereof
since January 1, 1996, other than client Contracts described in clause (iii)
above or oral client engagements;
(xii) Leases of real property;
(xiii) Leases of personal property involving future
payments in excess of $20,000 or not cancelable (without Liability) within 45
calendar days.
Lexecon has delivered to Nextera, or upon Nextera's
request provided Nextera with access to, accurate and complete copies of all of
the Contracts listed on Schedule 3.13, including all amendments and supplements
thereto. Schedule 3.13 contains an accurate description of the material
obligations of Lexecon under all material oral Contracts of the type described
above (other than oral client engagements).
(b) Absence of Defaults. Lexecon has fulfilled all of its
material obligations under such Contracts. To the knowledge of Lexecon, all
other parties to such Contracts are currently in compliance in all material
respects with the provisions thereof, no party is in Default thereunder and no
notice of any claim of Default has been given to Lexecon or the Shareholders.
3.14.Litigation. Except as set forth on Schedule 3.14, there is no
litigation or governmental or administrative proceeding or investigation pending
or, to the knowledge of Lexecon, threatened against Lexecon or its Affiliates.
Except as set forth on Schedule 3.14, there are no material written claims
pending or, to the knowledge of Lexecon, material oral claims pending or
material claims threatened (whether oral or in writing), against Lexecon for
malpractice, adjustment of pricing or billing, or breach of the terms of any
client engagement.
3.15. Compliance with Laws. Lexecon is in compliance with all applicable
Regulations and Court Orders promulgated by any federal, state, municipal
entity, agency, court or other governmental authority which apply to Lexecon or
to the conduct
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of its business, except where noncompliance with such Regulations or Court
Orders would not have a Material Adverse Effect. During the three (3) years
prior to the Closing Date, Lexecon has not received notice of a violation or
alleged material violation of any such Regulations or Court Orders.
3.16. Insurance. The physical properties, assets and business of Lexecon
are insured to the extent disclosed in Schedule 3.16 attached hereto and all
such insurance policies and arrangements are disclosed in said Schedule. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and Lexecon is in compliance in all
material respects with the terms thereof. To the knowledge of Lexecon, said
insurance is adequate and customary for the business engaged in by Lexecon and
is sufficient for compliance by Lexecon with all requirements of law and all
agreements and leases to which Lexecon is a party.
3.17. Powers of Attorney. Neither Lexecon or any of the Shareholders has
any outstanding power of attorney with respect to or affecting any transaction
contemplated by this Agreement.
3.18. Finder's Fee. Lexecon has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
3.19. Permits: Burdensome Agreements. Schedule 3.19 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for Lexecon to conduct its business. Lexecon has obtained
all such Approvals, which are valid and in full force and effect, and is
operating in compliance therewith, other than where such failure to obtain
Approvals or operating in compliance therewith would not have a Material Adverse
Effect. Except as disclosed in Schedule 3.19 or in any other Schedule hereto,
Lexecon is not subject to or bound by any agreement with a regulatory body or
court, judgment, decree or order which may materially and adversely affect its
business or prospects, its condition, financial or otherwise, or any of its
assets or properties.
3.20. Lexecon Records; Copies of Documents. The copies of the corporate
records of Lexecon, as made available to Nextera or its counsel for review, are
true and complete copies of the originals of such documents. Lexecon has made
available for inspection by Nextera and its counsel true and correct copies of
all documents referred to in this Section or in the Schedules delivered to
Nextera pursuant to this Agreement.
3.21. Transactions with Interested Persons. None of Lexecon, any
Shareholder, or any director of Lexecon or, to the knowledge of Lexecon, any
officer or supervisory employee of Lexecon, owns directly or indirectly on an
individual or joint basis any
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material interest in, or serves as an officer or director or in another similar
capacity of, any competitor or supplier of Lexecon, or any organization which
has a material Contract or arrangement with Lexecon.
3.22.Employee Benefit Programs.
(a) Schedule 3.22(a) lists each material Employee Program (as
defined below) that is maintained (as defined below) by Lexecon as of the
Closing Date.
(b) Each Employee Program which has ever been maintained by
Lexecon and which has at any time been intended to qualify under Section 401(a)
of the Code, and each associated trust which at any time has been intended to be
exempt from taxation pursuant to Section 501(a) of the Code is the subject of a
favorable determination, opinion or approval letter from the Internal Revenue
Service ("IRS") regarding its qualification or exemption from taxation, as
applicable, under such section and has, in fact, been qualified or tax exempt,
as applicable, under the applicable section of the Code through and including
the Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). To the knowledge of Lexecon, no event or omission has
occurred which will cause any such Employee Program to lose its qualification
under the applicable Code section.
(c) Lexecon does not know and has no reason to know of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by Lexecon. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any Employee Program. With respect to any Employee
Program ever maintained by Lexecon, for all periods for which the applicable
statute of limitations has not expired, to the knowledge of Lexecon, there has
occurred no "prohibited transaction," as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of
the Code, or any material violation of, or material breach of any duty under,
ERISA or other applicable law (including, without limitation, any health care
continuation requirements (under part 6 of subtitle B of Title I or ERISA, or
otherwise) or any other tax law requirements, or conditions to favorable tax
treatment, applicable to such plan), which could result, directly or indirectly,
in any taxes, penalties or other material liability to Lexecon or Nextera.
(d) Neither Lexecon nor any ERISA Affiliate (as defined below)
has ever (i) maintained any Employee Program which has been subject to Title IV
of ERISA; (ii) maintained any Multiemployer Plan (as defined below); or (iii)
except as set forth on Schedule 3.22(d), provided health care or any other
non-pension benefits to any employees after their employment is terminated
(other than as required by part 6 of subtitle B of title I of ERISA or benefits
that continue for a brief period of time after
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termination of employment, for example for the balance of the month in which an
employee terminates), or has promised to provide such post-termination benefits.
(e) With respect to each Employee Program maintained by Lexecon
within the three years preceding the Closing, complete and correct copies of the
following documents (if applicable to such Employee Program) have previously
been delivered or made available to Nextera: (i) all documents embodying or
governing such Employee Program (including, without limitation, documents
relating to any health care continuation requirements), and any funding medium
for the Employee Program (including, without limitation, trust agreements) as
they may have been amended; (ii) the most recent IRS determination, opinion or
approval letter with respect to such Employee Program under Code Sections 401
and 501(a), and any applications for determination or approval subsequently
filed with the IRS; (iii) the three most recently filed IRS Forms 5500, with all
applicable schedules and accountants' opinions attached thereto; (iv) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (v)
any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program; and (vi) any documents evidencing any loan to
an Employee Program that is a leveraged employee stock ownership plan.
(f) Neither Lexecon nor any ERISA Affiliate has any announced
plan or legally binding commitment to create any additional Employee Program
which is intended to cover employees or former employees of Lexecon or any ERISA
Affiliate (with respect to their relationship with such entities) or to amend or
modify any existing Employee Program which covers or has covered employees or
former employees of Lexecon or any ERISA Affiliate (with respect to their
relationship with such entities).
(g) Schedule 3.22(g) sets forth all plans, policies, contracts,
agreements or similar arrangements that impose any obligation on Lexecon or any
ERISA Affiliate to provide any retiree medical benefits or any other "welfare
plan" (as defined in Section 3(1) of ERISA) benefits for retirees (collectively,
"Retiree Welfare Benefit Plans"). Except as set forth on Schedule 3.22(g), no
representative of Lexecon or any ERISA Affiliate has made any commitment
(whether written or oral) to any employee or former employee of Lexecon or any
ERISA Affiliate to maintain any such Retiree Welfare Benefit Plan or any
benefits thereunder.
(h) No event has occurred in connection with which Lexecon or
any Employee Program, directly or indirectly, could be subject to any material
liability (A) under any Regulations or Court Orders order relating to any
Employee Programs or (B) pursuant to any obligation of Lexecon to indemnify any
person against liability incurred under any such Regulations or Court Orders as
they relate to the Employee Programs.
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(i) Except as set forth on Schedule 3.22(i), neither the
execution and delivery of this Agreement by Lexecon nor the consummation of the
transactions contemplated hereby will result in the acceleration or creation of
any rights of any person to benefits under any Employee Program (including,
without limitation, the acceleration of the vesting or exercisability of any
stock options, the acceleration of the vesting of any restricted stock, or the
acceleration or creation of any rights under any severance, parachute or change
in control agreement).
(j) Each Employee Program and related trust agreement or other
funding instrument, as applicable, which covers or has covered employees or
former employees is legally valid and binding and in full force and effect.
(k) There is no contract, agreement, plan or arrangement
covering any employee or former employee of Lexecon that, individually or
collectively, provides for the payment by Lexecon of any amount that is not
deductible under Section 162(a)(1) or 404 of the Code.
(l) All contributions required to be made by Lexecon or any
ERISA Affiliate with respect to any Employee Program due as of any date through
and including the Closing Date have been made when due.
(m) For purposes of this Section:
(i) "Employee Program" means (A) any employee benefit plan
within the meaning of ERISA Section 3(3), including, but not limited to, any
multiple employer welfare arrangement (within the meaning of ERISA Section
3(4)), plan to which more than one unaffiliated employer contributes and any
employee benefit plan (such as a foreign or excess benefit plan) which is not
subject to ERISA; and (B) any employment, consulting, severance or other similar
contract, arrangement or policy, any stock option plan, bonus or incentive award
plan, deferred compensation agreement, supplemental income arrangement, vacation
plan, any employee benefit arrangement described in Code Section 501(c)(9), and
any other employee benefit plan, agreement, and arrangement not described in (A)
above. In the case of an Employee Program funded through a trust described in
Code Section 501(a), each reference to such Employee Program shall include a
reference to such trust.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement or
under applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity, or their spouses, dependents, or beneficiaries.
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(iii) An entity is an "ERISA Affiliate" of Lexecon if it
would have ever been considered a single employer with Lexecon under ERISA
Section 4001(b) or part of the same "controlled group" as Lexecon or any of its
Subsidiaries for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements as defined
in Section 4001(a)(3) or Section 3(37) of ERISA.
3.23. Environmental Matters. Except as set forth on Schedule 3.23:
(a) (i) Lexecon has never generated, transported, used, stored,
treated, disposed of, or managed any Hazardous Waste (as defined below), other
than that which is used in an ordinary office environment; (ii) to the knowledge
of Lexecon, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by Lexecon, or has ever been located
in the soil or groundwater at any such site; (iii) to the knowledge of Lexecon,
no Hazardous Material has ever been transported from any site presently or
formerly owned, operated, leased, or used by Lexecon for treatment, storage, or
disposal at any other place; (iv) to the knowledge of Lexecon, Lexecon does not
presently own, operate, lease, or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) to the knowledge of Lexecon, no lien has ever been imposed by any
governmental agency on any property, facility, machinery, or equipment owned,
operated, leased, or used by Lexecon in connection with the presence of any
Hazardous Material.
(b) (i) Lexecon has no material liability under, nor has it ever
violated in any material respect, any Environmental Law (as defined below); (ii)
Lexecon and, to Lexecon's knowledge, any property owned, operated, leased, or
used by it, and any facilities and operations thereon, are presently in material
compliance with all applicable Environmental Laws; (iii) Lexecon has never
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) Lexecon has no reason to believe that any of the
items enumerated in clause (iii) of this subsection will be forthcoming.
(c) To the knowledge of Lexecon, no site owned, operated, leased,
or used by Lexecon contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls ("PCBs") or equipment containing PCBs; or any urea
formaldehyde foam insulation.
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(d) Lexecon has provided to Nextera copies of all
documents, records, and information in Lexecon's possession concerning any
material environmental or health and safety matter relevant to Lexecon, whether
generated by Lexecon or others, including without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 3.23, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted; and (iv)
"Lexecon" shall mean and include Lexecon and all other entities for whose
conduct Lexecon is or may be held responsible under any Environmental Law.
3.24. Directors and Officers. Schedule 3.24 hereto contains a true and
complete list of all current members of the board of directors and each of the
officers of Lexecon. In addition, Schedule 3.24 hereto contains a list of all
managers, employees and consultants of Lexecon who, individually, have received
or are scheduled to receive compensation from Lexecon for the fiscal years
ending December 31, 1997 and December 31, 1998, in excess of $200,000. In each
case such Schedule includes the current job title and aggregate annual
compensation of each such individual.
3.25. Employees; Labor Matters. As of December 1, 1998, Lexecon employed
a total of approximately 107 full-time employees and 7 part-time employees. To
the knowledge of Lexecon, neither Lexecon nor any Shareholder has received any
direct and overt threat or notice that any officer or other person who renders
services for Lexecon in a professional or administrative capacity intends to
terminate his or her employment with Lexecon following the Closing. Except as
set forth on Schedule 3.25, Lexecon is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, neither Lexecon nor Nextera will by reason of the
transactions contemplated under this Agreement or anything done prior to the
Closing be liable to any of said employees for so-called "severance pay" or any
other similar payments. Lexecon has no policy, practice, plan or program of
paying severance pay or any form of severance compensation in connection with
the termination of employment,
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except as set forth in Schedule 3.25. Lexecon is in compliance with all
applicable Regulations respecting labor, employment, fair employment practices,
work place safety and health, terms and conditions of employment, and wages and
hours, except where failure to comply would not have a Material Adverse Effect
on Lexecon. Except as set forth on Schedule 3.25, there are no charges of
employment discrimination or unfair labor practices, nor are there any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations which are existing, pending or, to the knowledge of Lexecon,
threatened against or involving Lexecon. To the knowledge of Lexecon, no
question concerning union representation exists respecting any employees of
Lexecon. Except as set forth on Schedule 3.25, there are no material grievances,
complaints or charges that have been filed against Lexecon under any dispute
resolution procedure (including, but not limited to, any proceedings under any
dispute resolution procedure under any collective bargaining agreement), and
there is no arbitration or similar proceeding pending and, to the knowledge of
Lexecon, no claim therefor has been asserted. No collective bargaining agreement
is in effect or is currently being or is about to be negotiated by Lexecon.
Lexecon has not received any information indicating that any of its employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency.
3.26. Clients. Schedule 3.26 sets forth any client or customer which
accounted for more than $500,000 in revenue for Lexecon for the twelve months
ending December 31, 1997 and more than $500,000 in revenue for the nine months
ended September 30, 1998 (collectively, the "Clients"). None of the Shareholders
or Mark Zumbach has received written notice, or direct and overt oral notice,
from any Client that such Client intends to terminate or materially reduce its
business relationship with Lexecon after the Closing for any reason including as
a result of the Closing of the transactions contemplated by this Agreement (it
being understood however that none of the Shareholders or Mark Zumbach have made
inquiries of the Clients in this regard).
3.27. Client Revenues. Schedule 3.27 sets forth, as of the date hereof,
a summary of billings by client project for September, October and November of
1998.
3.28. Year 2000 Compliance. Except as set forth on Schedule 3.28 or as
would not have a Material Adverse Effect, Lexecon has all systems and software
solutions necessary or appropriate to address and accommodate Year 2000 computer
systems issues, and Lexecon's software programs, systems and applications used
in the operation of its business have been tested and are fully capable of
providing accurate results using data having date ranges spanning the years 1999
and 2000. Without limiting the generality of the foregoing, except as set forth
on Schedule 3.28 or as would not have a Material Adverse Effect, all of
Lexecon's software programs, systems and applications are able to:
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(a) Consistently handle date information before, during and
after January 1, 2000, including but not limited to accepting date input,
providing date output, and performing calculations on dates or portions of
dates;
(b) Function accurately and without interruption before, during
and after January 1, 2000 (including leap year computations), without any change
in operations associated with the advent of the new century;
(c) Respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed defined and predetermined manner; and
(d) Store and provide output of date information in ways that
are unambiguous as to century.
3.29. Equity Repurchase. Except as set forth on Schedule 3.29, Lexecon
has not redeemed or repurchased any of its shares of capital stock since
December 31, 1997. Lexecon has no obligations or liabilities, whether absolute,
contingent or otherwise, related to or arising out of any redemption or
repurchase of its shares of capital stock.
3.30. Distribution. Lexecon has entered into and made effective the
transactions set forth in the letter agreement attached as Exhibit C hereto on
December 30, 1998.
3.31. Disclosure. The representations, warranties and statements
contained in this Agreement and in the exhibits and schedules hereto do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
4.1. Making of Representations and Warranties. As a material inducement
to Nextera to enter into this Agreement and consummate the transactions
contemplated hereby, each Shareholder hereby severally, but not jointly, makes
to Nextera each of the representations and warranties set forth in this Section
4 with respect to such Shareholder. No Shareholder shall have any right of
indemnity or contribution from Lexecon with respect to the breach of any
representation or warranty hereunder. Nextera is relying on the truth and
accuracy of the representations and warranties made by the Shareholders in this
Agreement, and the Shareholders shall be liable for breach of such
representations and warranties to the extent set forth in Section 10
notwithstanding any due diligence investigation conducted by Nextera or any
knowledge or information which Nextera may have as of the date of this
Agreement.
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4.2. Ownership of Shares and Options. Such Shareholder owns of record
and beneficially the number of the Shares set forth opposite such Shareholder's
name in Exhibit A. Such Shares are, and when delivered by such Shareholder to
Nextera pursuant to this Agreement will be, free and clear of any and all liens,
encumbrances, charges or claims.
4.3. Authority. Such Shareholder has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Shareholder
pursuant to this Agreement and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument executed
and delivered by such Shareholder pursuant to this Agreement constitutes a valid
and binding obligation of such Shareholder, enforceable in accordance with their
respective terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject to the effect of general principles of equity,
including, without limitation, the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law, and such Shareholder has full power and
authority to transfer, sell and deliver the Shares to Nextera pursuant to this
Agreement. The execution, delivery and performance of this Agreement and each
such agreement, document and instrument:
(i) does not and will not violate any provision of any laws of
the United States or any state or other jurisdiction applicable to such
Shareholder, or require such Shareholder to obtain any approval, consent or
waiver from, or make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of, any indenture or loan or credit agreement or any other material
agreement, Contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Shareholder is a party or by which the property of such Shareholder
is bound or affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any assets of
Lexecon or on Shares owned by such Shareholder.
4.4. Finder's Fee. Such Shareholder has not incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement.
4.5. Agreements. Other than as set forth on Schedule 4.5 and except for
agreements unrelated to the business of Lexecon (so long as any such agreements
could not be deemed to have an adverse effect on Lexecon, except as a result of
time
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commitments to other endeavors referred to in such Shareholder's Service
Agreement or Confidentiality and Proprietary Rights Agreement), each such
Shareholder is not a party to any non-competition, trade secret or
confidentiality agreement with any party other than Lexecon, other than any such
agreement that may be entered into in connection with such Shareholder's
affiliation with Lexecon. There are no agreements or arrangements not contained
herein or disclosed in a Schedule hereto, to which such Shareholder is a party
relating to the business of Lexecon or to such Shareholder's rights and
obligations as a shareholder, director or officer of Lexecon. Except as set
forth on Schedule 4.5, such Shareholder does not own, directly or indirectly, on
an individual or joint basis, any material interest in, or serve as an officer
or director of, any customer, competitor or supplier of Lexecon, or any
organization which has a contract or arrangement with Lexecon.
4.6. Experience; Accredited Investor. Each Shareholder has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to Nextera so that he is capable of evaluating
the merits and risks of acquiring the Nextera Class A Stock as partial
consideration for the Shares and has the capacity to protect his own interests.
Each Shareholder must bear the economic risk of holding the Nextera Class A
Stock indefinitely unless such securities are registered pursuant to the
Securities Act, or an exemption from registration is available for the
disposition thereof. Each Shareholder understands that there is no assurance
that any exemption from registration under the Securities Act will be available.
Each Shareholder is an "accredited investor" as defined in Rule 501 under the
Securities Act.
4.7. Investment. Such Shareholder is acquiring the Nextera Class A Stock
for such Shareholder's own account for investment only, and not with the view
Ito, or for resale in connection with, any distribution thereof. It understands
that the Nextera Class A Stock acquired have not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Shareholder's representations as express herein.
4.8. No Public Market. Such Shareholder understands that no public
market now exists for any of the securities issued by Nextera and Nextera has
not made any assurances that a public market will ever exist for such
securities.
4.9. Access to Data. Such Shareholder has received and read the Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws of
Nextera, Nextera's financial statements and all other documents that the
Shareholders reasonably have requested of Nextera, and has had an opportunity to
discuss Nextera's business, management and financial affairs with its
management. Such Shareholder has also had an opportunity to ask questions of and
receive answers from officers of Nextera regarding the terms and conditions of
acquiring the Nextera Class A Stock, which questions were
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answered to such Shareholder's satisfaction. Notwithstanding the foregoing, the
Shareholders are not relying on any representation, warranty or statement made
by Nextera or any officer or Affiliate thereof, except as expressly set forth in
Section 5 hereof.
4.10. Residence. The residence of the Shareholder in which its
investment decision was made is located at the address of the Shareholder set
forth on the signature page hereto.
4.11. Personal Artwork. Each Shareholder has paid for any artwork he
claims to own on Lexecon's premises. Lexecon has not paid for any such artwork
on behalf of any Shareholder.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF NEXTERA.
5.1. Making of Representations and Warranties. As a material inducement
to the Shareholders to enter into this Agreement and consummate the transactions
contemplated hereby, and except as set forth on the Nextera Disclosure Schedule,
Nextera hereby makes the representations and warranties to the Shareholders
contained in this Section 5. The Shareholders are relying on the truth and
accuracy of the representations and warranties made by Nextera in this Agreement
and Nextera shall be liable for breach of such representations and warranties to
the extent set forth in Section 10 notwithstanding any due diligence
investigation conducted by Lexecon or the Shareholders or any knowledge or
information which Lexecon or the Shareholders may have as of the date of this
Agreement. Anything contained in this Section 5 to the contrary notwithstanding,
any representation or warranty made in this Section 5 with respect to any
Nextera Subsidiary insofar as it relates to (i) any period prior to the date
that such Nextera Subsidiary became owned by Nextera LLC (the "Ownership Date")
or (ii) any acts, omissions, facts or circumstances which occurred or existed
prior to the Ownership Date, shall be deemed to be made "to the knowledge of
Nextera."
5.2. Organization of Nextera and Subsidiaries.
(a) Nextera is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is currently conducted or proposed to be conducted. The copies of
Nextera's Amended and Restated Certificate of Incorporation (the "Nextera
Certificate"), and of the Nextera's Amended and Restated Bylaws, as amended to
date, certified by Nextera's Secretary (together with the Nextera Certificate,
the "Nextera Organizational Documents"), and attached hereto as Exhibit D, are
complete and correct, and no amendments thereto are pending. Nextera is
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not in violation of any term of the Nextera Organizational Documents. Nextera is
not qualified to do business as a foreign corporation in any jurisdiction.
(b) Nextera LLC is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of Delaware
with power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is currently conducted or proposed to be conducted. The
copies of Nextera LLC's Amended and Restated Limited Liability Company
Agreement, as amended to date (the "LLC Operating Agreement"), certified by
Nextera's Secretary, and heretofore delivered to Lexecon's counsel, are complete
and correct, and no amendments thereto are pending. Nextera LLC is not in
violation of any term of Nextera LLC Operating Agreement. Nextera LLC is duly
qualified to do business as a foreign corporation and in good standing to do
business in each jurisdiction in which the nature or leasing of its properties
makes such qualification necessary, other than where the failure to be duly
qualified or have such good standing, as the case maybe, would not have a
Material Adverse Effect on Nextera, Nextera LLC and the Nextera Subsidiaries
taken together as a whole.
(c) Each of the Nextera Subsidiaries is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with corporate or limited
liability company (as applicable) power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. Except as set forth on Schedule 5.2, each of the
Nextera Subsidiaries is duly qualified to do business as a foreign corporation
or limited liability company (as applicable) and in good standing to do business
in each jurisdiction in which the nature or leasing of its properties makes such
qualification necessary, other than where the failure to be duly qualified or
have such good standing, as the case may be, would not have a Material Adverse
Effect on Nextera, Nextera LLC and the Nextera Subsidiaries taken together as a
whole.
5.3. Shares of Nextera. As of the Closing Date, the authorized capital
stock of Nextera consists of 50,000,000 shares of Nextera Class A Stock, of
which 16,811,740 shares upon consummation of the transactions contemplated by
this Agreement (excluding shares of Nextera Class A Stock issuable as the
Contingent Amount) and the Share Exchange Agreement will be duly and validly
issued, outstanding, fully paid and non-assessable and 4,300,000 shares of Class
B Common Stock, of which 4,274,630 shares upon consummation of the transactions
contemplated by this Agreement and the Share Exchange Agreement will be duly and
validly issued, outstanding, fully paid and non-assessable and 10,000,000 shares
of Preferred Stock, of which no shares upon consummation of the transactions
contemplated by this Agreement and the Share Exchange Agreement will be duly and
validly issued, outstanding, fully paid and non-assessable. Other than as set
forth on Schedule 5.3, there are no outstanding options,
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warrants, rights, commitments, preemptive rights or agreements of any kind for
the issuance or sale of, or outstanding securities convertible into, any
additional shares of capital stock of any class of Nextera. None of Nextera's
capital stock has been issued in violation of any federal or state law. Other
than the Stockholder's Agreement or as set forth on Schedule 5.3, there are no
voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Shares to which Nextera is a
party. All of the shares of Nextera Class A Stock issued and to be issued as
part of the Transaction Consideration are and will be duly and validly issued,
fully paid, and non-assessable as of the date of issuance pursuant to this
Agreement and not subject to any preemptive rights of other persons, whether
statutory, contractual or otherwise.
5.4. Subsidiaries; Liquidation of Nextera LLC.
(a) Other than as described on Schedule 5.4, Nextera LLC has no
Subsidiaries and does not own an equity interest in any other corporation or
business organization. Other than as described on Schedule 5.4, Nextera LLC
owns, directly or indirectly, 100% of each of the Nextera Subsidiaries.
(b) Nextera has no Subsidiaries and does not own an equity
interest in any other corporation or business organization. After the closing of
the transactions contemplated by this Agreement and the Share Exchange
Agreement, Nextera will own, directly or indirectly, 100% of Nextera LLC and,
except as disclosed on Schedule 5.4, 100% of each of the Nextera Subsidiaries.
(c) Nextera LLC will be liquidated on or promptly after the
Closing Date.
5.5. Authority. Nextera has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by Nextera pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Nextera of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Nextera and no
other action on the part of Nextera is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Nextera pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Nextera, as
applicable, enforceable in accordance with their terms, subject to the effect of
any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject to the effect of general
principles of equity, including, without limitation, the possible unavailability
of specific performance or injunctive relief, regardless of whether considered
in a proceeding in equity or at law. The execution, delivery and performance by
Nextera of this Agreement and each such agreement, document and instrument:
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(i) does not and will not violate any provision of the
Nextera Organizational Documents;
(ii) does not and will not violate any laws of the United
States or of any state or any other jurisdiction applicable to Nextera or
Nextera LLC or require Nextera, Nextera LLC or the Nextera Subsidiaries to
obtain any approval, consent or waiver of, or make any filing with, any
governmental entity which has not been obtained or made; and
(iii) except as set forth on Schedule 5.5, does not and
will not result in a breach of, constitute a default under, require any approval
consent or waiver under, accelerate any obligation under, or give rise to a
right of termination of any indenture, loan or credit agreement, or other
material Contract permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which Nextera, Nextera LLC or the
Nextera Subsidiaries is a party, except where such breach default, acceleration
or exercise of right of termination would not have a Material Adverse Effect.
5.6. Litigation. Except as set forth on Schedule 5.6, there is no
litigation or governmental or administrative proceeding or investigation pending
or, to the knowledge of Nextera, threatened against Nextera, Nextera LLC or the
Nextera Subsidiaries.
5.7. Finder's Fee. None of Nextera, Nextera LLC or the Nextera
Subsidiaries has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
5.8. Financial Statements.
(a) Nextera has delivered to the Shareholders the following
financial statements, copies of which are attached hereto as Schedule 5.8: a
consolidated balance sheet of Nextera LLC and the Nextera Subsidiaries and a
consolidated statement of profit and loss of Nextera LLC as of December 31, 1997
as audited by Ernst & Young LLP (the "Nextera Audited Financial Statements"), an
unaudited balance sheet of Nextera LLC and the Nextera Subsidiaries as of
September 30, 1998 (the "Nextera Interim Balance Sheet") and an unaudited
statement of profit and loss of Nextera LLC for the nine months ended September
30, 1998 (the "Nextera Interim Financial Statements") and together with the
Nextera Audited Financial Statements, the "Nextera Financial Statements"). The
December 31, 1997 balance sheet is hereinafter referred to as the "Nextera
Balance Sheet." To the knowledge of Nextera, the Nextera Financial Statements
have been prepared in accordance with GAAP (provided that the Nextera Interim
Financial Statement (i) are subject to normal year-end adjustments and (ii) lack
footnotes and other presentation items) applied consistently during the period
covered thereby, and present fairly in all material respects the consolidated
financial condition of Nextera at the date of
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said statements and the consolidated results of its operations for the period
covered thereby.
(b) To the knowledge of Nextera, except as set forth on Schedule
5.8, as of the Closing, none of Nextera, Nextera LLC or the Nextera Subsidiaries
has any material Liabilities which would be required by GAAP to be stated or
adequately reserved against on a balance sheet or the notes thereto, except
Liabilities (i) stated or adequately reserved against on the Nextera Interim
Balance Sheet or the Nextera Balance Sheet (or referenced in the notes thereto),
(ii) incurred in the ordinary course of business of Nextera, Nextera LLC or the
Nextera Subsidiaries, (iii) disclosed in the Nextera Disclosure Schedule, or
(iv) future performance obligations under Contracts, none of which relates to
any default, breach of warranty, tort infringement, or violation of any
Regulations or Court Orders.
(c) To the knowledge of Nextera, and except as set forth on
Schedule 5.8(c) attached hereto, the accounts receivable of Nextera shown or
reflected on the Nextera Interim Balance Sheet or existing at the date of this
Agreement (less the reserve for bad debts set forth on the Nextera Interim
Balance Sheet or existing at the date hereof) are valid and enforceable claims,
fully collectible and subject to no set off or counterclaim and reflect amounts
due or owing to Nextera for services performed prior to such date in the
ordinary course of business. Except as set forth on Schedule 5.8(c), Nextera has
no accounts or loans receivable from any Affiliate of Nextera or from any
Shareholder, director, officer or employee of Nextera other than obligations of
such Persons to reimburse personal expenses incurred in the ordinary course of
business.
5.9. Taxes.
(a) Except as set forth in Schedule 5.9, all Tax Returns filed
or required to be filed by Nextera, Nextera LLC or any of the Nextera
Subsidiaries have been timely filed (giving effect to extensions granted with
respect thereto), and all such Tax Returns are true, correct, and complete in
all material respects.
(b) Except as set forth in Schedule 5.9, Nextera, Nextera LLC
and the Nextera Subsidiaries have timely paid all Taxes due from them or claimed
to be due from them by any federal, state, local, foreign or other taxing
authority.
(c) There are no liens for Taxes upon any of the assets of
Nextera, Nextera LLC or any of the Subsidiaries of Nextera, or interests in
Nextera, Nextera LLC or any of the Nextera Subsidiaries, except liens for taxes
not yet due and payable.
(d) No deficiency for any Taxes has been proposed, asserted or
assessed against Nextera, Nextera LLC or any of the Nextera Subsidiaries that
has not been resolved and paid in full.
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(e) Nextera, Nextera LLC and each of the Nextera Subsidiaries
have complied in all respects with all applicable Regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding of
Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar
provisions under any applicable state and foreign laws) and have, within the
time and the manner prescribed by law, paid over to the proper governmental
authorities all amounts so withheld.
(f) Except as set forth in Schedule 5.9, no Tax Returns of
Nextera, Nextera LLC or any of the Nextera Subsidiaries have been audited by the
relevant taxing authority. No deficiency for any Taxes has been proposed,
asserted or assessed against Nextera, Nextera LLC or any of the Nextera
Subsidiaries that has not been resolved and paid in full. There are no
outstanding waivers, extensions, or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns of Nextera, Nextera LLC or any of the Nextera Subsidiaries (including
the time for filing of Tax Returns or paying Taxes), and neither Nextera,
Nextera LLC, nor any of the Subsidiaries has pending written requests for any
such waivers, extensions, or comparable consents.
(g) Except as set forth in Schedule 5.9, no audit or other
proceeding by any federal, state, local or foreign court, governmental
regulatory, administrative or similar authority is presently pending with
respect to any Taxes or Tax Returns of Nextera, Nextera LLC or any of the
Nextera Subsidiaries and neither Nextera, Nextera LLC nor any of the Nextera
Subsidiaries has received written notice of any pending audits or proceedings.
(h) Except as set forth in Schedule 5.9, neither Nextera,
Nextera LLC nor any of the Nextera Subsidiaries has received a ruling from any
taxing authority or signed an agreement with any taxing authority that could
reasonably be expected to have a Material Adverse Effect on Nextera, Nextera
LLC, or any of the Nextera Subsidiaries or the assets of Nextera, Nextera LLC or
any of the Nextera Subsidiaries.
5.10. Absence of Certain Changes. Except as disclosed in Schedule 5.10
attached hereto or as contemplated by this Agreement and except for matters that
would not have a Material Adverse Effect on Nextera, Nextera LLC and the Nextera
Subsidiaries taken together as a whole, since [September 30, 1998], there has
not been:
(a) Any change in the business, properties, assets, results of
operations, financial condition or liabilities of Nextera, Nextera LLC or the
Nextera Subsidiaries;
(b) Any contingent liability incurred by Nextera, Nextera LLC or
the Nextera Subsidiaries as guarantor or otherwise with respect to the
obligations of others or
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any compromise or forgiveness of any material claim owing to, or written waiver
of any material claim or right of, Nextera, Nextera LLC or the Nextera
Subsidiaries;
(c) Any mortgage, encumbrance or lien placed on any of the
properties of Nextera, Nextera LLC or the Nextera Subsidiaries which remains in
existence on the date hereof or will remain on the Closing Date;
(d) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Nextera, Nextera LLC or the Nextera Subsidiaries other
than in the ordinary course of business;
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Nextera;
(f) Any declaration, setting aside or payment of any dividend by
Nextera, Nextera LLC or the Nextera Subsidiaries or the making of any other
distribution in respect of the equity interests of Nextera, or any direct or
indirect redemption, purchase or other acquisition by Nextera of its respective
membership interests;
(g) Any claim of unfair labor practices involving Nextera,
Nextera LLC or the Nextera Subsidiaries; any change in the compensation payable
or to become payable by Nextera to any of their officers, employees, agents or
independent contractors other than normal merit increases in accordance with its
usual practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors other than bonuses in
accordance with their usual practices;
(h) Any change in the officers or senior management of Nextera,
Nextera LLC or the Nextera Subsidiaries;
(i) Any payment or discharge of a material lien or liability of
Nextera, Nextera LLC or the Nextera Subsidiaries which was not shown on the
Nextera Balance Sheet or incurred in the ordinary course of business thereafter;
(j) Any change in accounting methods or practices, credit
practices or collection policies used by Nextera, Nextera LLC or the Nextera
Subsidiaries;
(k) Any other transaction entered into by Nextera, Nextera LLC
or the Nextera Subsidiaries other than transactions in the ordinary course of
business; or
(l) Any agreement or understanding whether in writing or
otherwise, for Nextera, Nextera LLC or the Nextera Subsidiaries to take any of
the actions specified in paragraphs (a) through (k) above.
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5.11. Compliance with Laws. Each of Nextera, Nextera LLC and the Nextera
Subsidiaries is in compliance with all applicable Regulations and Court Orders
promulgated by any federal, state, municipal entity, agency, court or other
governmental authority which apply to Nextera, Nextera LLC or the Nextera
Subsidiaries or to the conduct of their businesses, except where noncompliance
with such Regulations or Court Orders would not have a Material Adverse Effect
on Nextera, Nextera LLC and the Nextera Subsidiaries taken together as a whole.
None of Nextera, Nextera LLC or the Nextera Subsidiaries has not received notice
of a violation or alleged violation of any such Regulations or Court Orders.
5.12. Intellectual Property.
(a) Each of Nextera, Nextera LLC and the Nextera Subsidiaries use
intellectual property in their businesses ("Nextera Intellectual Property"). To
the knowledge of Nextera, there are no claims or demands of any other person
pertaining to any material Nextera Intellectual Property and no proceedings have
been instituted, or are pending or threatened, which challenge the rights of
Nextera, Nextera LLC or the Nextera Subsidiaries to any material Nextera
Intellectual Property.
(b) To the knowledge of Nextera, the present business,
activities of Nextera, Nextera LLC and the Nextera Subsidiaries do not infringe
any intellectual property rights of any other person. To the knowledge of
Nextera, no proceeding charging Nextera, Nextera LLC or the Nextera Subsidiaries
with infringement of any adversely held intellectual property has been filed or
is threatened to be filed. To the knowledge of Nextera, there exists no
unexpired patent or patent application which includes claims that would be
infringed by or otherwise adversely affect the activities or business of
Nextera, Nextera LLC or the Nextera Subsidiaries. To the knowledge of Nextera,
none of Nextera, Nextera LLC or the Nextera Subsidiaries is making unauthorized
use of any confidential information or trade secrets of any person, including
without limitation, any former employer of any past or present employee of
Nextera, Nextera LLC or the Nextera Subsidiaries.
5.13. Insurance. The physical properties, assets and business of
Nextera, Nextera LLC and the Nextera Subsidiaries are insured under insurance
that is adequate and customary for the business engaged in by Nextera, Nextera
LLC and the Nextera Subsidiaries and sufficient for compliance by them with all
requirements of law and all agreements and leases to which they are parties.
Such insurance policies and arrangements are in full force and effect, all
premiums with respect thereto are currently paid, and Nextera, Nextera LLC and
the Nextera Subsidiaries are in compliance in all material respects with the
terms thereof.
5.14. Transactions with Interested Persons. Other than as set forth on
Schedule 5.14, none of Nextera, Nextera LLC, any Nextera Subsidiary, or to the
knowledge of
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Nextera, any shareholder of Nextera, member of Nextera LLC, officer, supervisory
employee or director of Nextera, Nextera LLC or the Nextera Subsidiaries owns
directly or indirectly on an individual or joint basis any material interest in,
or serves as an officer or director or in another similar capacity of, any
competitor or supplier of Nextera, Nextera LLC or the Nextera Subsidiaries, or
any organization which has a material Contract or arrangement with Nextera,
Nextera LLC or any Nextera Subsidiary.
5.15. Nextera Records; Share Exchange Agreement; Copies of Documents.
The copies of the corporate records of Nextera and the organizational documents
of Nextera LLC, as made available to Lexecon or its counsel for review, are
correct and complete copies of the originals of such documents. The Share
Exchange Agreement, a copy of which has been provided to Lexecon and its
counsel, has not been amended or modified. Nextera has made available for
inspection by Lexecon and its counsel correct and complete copies of all
documents referred to in this Section or in the Schedules delivered to Lexecon
pursuant to this Agreement.
5.16. Environmental Matters.
(a) (i) None of Nextera, Nextera LLC nor any Nextera Subsidiary
has ever generated, transported, used, stored, treated, disposed of, or managed
any Hazardous Waste (as defined below), other than that which is used in an
ordinary office environment; (ii) to the knowledge of Nextera, no Hazardous
Material has ever been or is threatened to be spilled, released, or disposed of
at any site presently or formerly owned, operated, leased, or used by Nextera,
Nextera LLC or any Nextera Subsidiary, or has ever been located in the soil or
groundwater at any such site; (iii) to the knowledge of Nextera, no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary for
treatment, storage, or disposal at any other place; (iv) to the knowledge of
Nextera, none of Nextera, Nextera LLC or any Nextera Subsidiary presently owns,
operates, leases, or uses, nor has it previously owned, operated, leased, or
used any site on which underground storage tanks are or were located; and (v) to
the knowledge of Nextera, no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary in connection
with the presence of any Hazardous Material.
(b) (i) Nextera has no material liability under, nor has it ever
violated in any material respect, any Environmental Law; (ii) Nextera, Nextera
LLC and each Nextera Subsidiary and, to Nextera's knowledge, any property owned,
operated, leased, or used by any of them, and any facilities and operations
thereon, are presently in material compliance with all applicable Environmental
Laws; (iii) none of Nextera, Nextera LLC or any Nextera Subsidiary has ever
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice,
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demand letter, administrative inquiry, or formal or informal complaint or claim
with respect to any environmental or health and safety matter or the enforcement
of any Environmental Law; and (iv) Nextera has no reason to believe that any of
the items enumerated in clause (iii) of this subsection will be forthcoming.
(c) To the knowledge of Nextera, no site owned, operated,
leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary contains any
asbestos or asbestos-containing material, any PCBs or equipment containing PCBs;
or any urea formaldehyde foam insulation.
(d) Nextera has provided to Lexecon copies of all documents,
records, and information in the possession of Nextera or Nextera LLC concerning
any material environmental or health and safety matter relevant to Nextera,
Nextera LLC or Nextera Subsidiaries, whether generated by Nextera, Nextera LLC
or others, including without limitation, environmental audits, environmental
risk assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
(e) For purposes of this Section 5.16, (i) "Nextera" shall mean
and include Nextera and all other entities for whose conduct Nextera is or may
be held responsible under any Environmental Law; (ii) "Nextera LLC" shall mean
and include Nextera and all other entities for whose conduct Nextera LLC is or
may be held responsible under any Environmental Law; and (iii) "Nextera
Subsidiary" shall mean and include each Nextera Subsidiary and all other
entities for whose conduct the Nextera Subsidiaries are or may be held
responsible under any Environmental Law.
5.17. Year 2000 Compliance. Except as set forth on Schedule 5.17 or as
would not have a Material Adverse Effect, Nextera, Nextera LLC and the Nextera
Subsidiaries have all systems and software solutions necessary or appropriate to
address and accommodate Year 2000 computer systems issues, and their software
programs, systems and applications used in the operation of their businesses
have been tested and are fully capable of providing accurate results using data
having date ranges spanning the years 1999 and 2000. Without limiting the
generality of the foregoing, except as set forth on Schedule 5.17 or as would
not have a Material Adverse Effect, all of such software programs, systems and
applications are able to:
(a) Consistently handle date information before, during and after
January 1, 2000, including but not limited to accepting date input, providing
date output, and performing calculations on dates or portions of dates;
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(b) Function accurately and without interruption before, during
and after January 1, 2000 (including leap year computations), without any change
in operations associated with the advent of the new century;
(c) Respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed defined and predetermined manner; and
(d) Store and provide output of date information in ways that
are unambiguous as to century.
5.18. Clients. Schedule 5.18 sets forth any client or customer which
accounted for more than $500,000 in revenue for Nextera LLC and the Nextera
Subsidiaries for the twelve months ending December 31, 1997 and more than
$500,000 in revenue for the nine months ended September 30, 1998 (collectively,
the "Nextera Clients"). To the knowledge of Nextera, Nextera has not received
written notice, or direct and overt oral notice, from any Client that such
Client intends to terminate or materially reduce its business relationship with
Nextera, Nextera LLC or the Nextera Subsidiaries after the Closing for any
reason including as a result of the Closing of the transaction contemplated by
this Agreement (it being understood that Nextera has not made any inquiries in
this regard).
5.19 Initial Public Offering Materials. Nextera is currently pursuing an
initial public offering of its Class A Common Stock. Nextera has provided to
Lexecon (i) all documents filed with the Securities and Exchange Commission (the
"Commission") (including, without limitation, a Form S-1 Registration Statement
and Pre-Effective Amendment No. 1 thereof) (collectively, the "S-1"), and (ii)
all written correspondence or other written communications to or from the
Commission (including all supplemental materials attached thereto). The
Shareholders acknowledge that Nextera is not representing that an initial public
offering will occur. The Shareholders further acknowledge that the S-1 is an
incomplete work in process that was not prepared for purposes of this
transaction, and except with respect to the specific sections of the S-1
referenced below, Nextera is not making any representation or warranty with
respect to the accuracy or completeness of the S-1. With respect to the sections
of the Pre-Effective Amendment No. 1 to the S-1 entitled The Company (pages 18 -
19), Selected Consolidated and Proforma Combined Financial Data (page 23),
Certain Transactions (pages 53 - 55), Principal Stockholders (pages 56 - 57),
and Financial Statements (pages F1 - F80), Nextera represents and warrants that
to the knowledge of Nextera the information contained in such sections was a
correct and accurate summary in all material respects of the matters covered
thereby as of the date of filing of the Pre-Effective Amendment No. 1 to the
S-1, subject to the following qualifications: (a) such sections do not
contemplate any of the transactions governed by or entered into in connection
with this Agreement, (b) there are "blanks" in various sections where factual
information has not been completed, and (c) all financial statements and
information are
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subject to revision in response to comments made by the Commission as part of
the registration process.
SECTION 6. COVENANTS OF SHAREHOLDERS NOT TO COMPETE; RIGHT OF REPURCHASE.
6.1. Covenant of Shareholders. As a material inducement to Nextera to
acquire the Shares in accordance with the terms and conditions of this Agreement
and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, each Shareholder hereby agrees as follows:
(a) Such Shareholder acknowledges and agrees that he has
technical expertise associated with the business of Lexecon and is well known in
the industry. In addition, such Shareholder has valuable business contacts with
clients and potential clients of Lexecon and with professionals in the industry.
If such Shareholder breaches the covenants contained in this Section, Nextera
will be deprived of the benefits it has bargained for pursuant to this
Agreement. Since such Shareholder has the ability to compete with Nextera and
Lexecon in the operation of Lexecon's business, Nextera would not have entered
into this Agreement unless such Shareholder agreed to the provisions of this
Section 6.
(b) Such Shareholder will not directly or indirectly on such
Shareholder's own behalf or on behalf of any other person, firm or entity (i)
engage in; (ii) own or control any interest in (except as a passive investor of
less than 5% of the publicly traded stock of a publicly held company); (iii) act
as a director, officer, manager, employee, trustee, agent, partner, joint
venturer, participant, consultant of or be obligated to, or be connected in any
advisory, business or ownership capacity (except as a passive investor of less
than 5% of the publicly traded stock of a publicly held company) with; (iv) lend
credit or money for the purpose of the establishing or operating; or (v) allow
such Shareholder's name or reputation to be used by any firm, corporation,
partnership, trust or other business enterprise directly or indirectly engaged
in, any business that is competitive with the business of Lexecon in any
geographic territory within which the business of Lexecon has been conducted.
(c) Such Shareholder shall not directly or indirectly,
individually, or together with, or through any other person, firm, corporation,
or entity: (i) in any manner disparage Lexecon or its employees or Affiliates so
as to discourage any person or entity which is or has been a customer or
supplier of Lexecon from continuing its business relationship with Lexecon, (ii)
approach, counsel, or attempt to induce any person who is then in the employ of
or an independent contractor of Lexecon, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
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(d) In the case of each Shareholder signing a Service Agreement
with Lexecon in the form attached hereto as Exhibit E hereto (the "Service
Agreement"), the covenants and agreements of such Shareholder set forth in
subsections (b) and (c) above shall apply for so long as such Shareholder serves
Lexecon according to the terms of such Service Agreement and for a period of one
year thereafter, unless such Shareholder voluntarily terminates his Service
Agreement or Nextera terminates such Shareholder's Service Agreement for "Cause"
or "Disability" (as such terms are defined in such Service Agreement), in which
case the covenants and agreements of such Shareholder in subsections (b) and (c)
above shall terminate upon the later of (i) the date that is four years from the
Closing Date or (ii) the date that is one year from the termination of such
Service Agreement. In the case of each Shareholder who is signing a
Confidentiality and Proprietary Rights Agreement attached as Exhibit I hereto,
the covenants and agreements of such Shareholder set forth in subsections (b)
and (c) above shall terminate on the date that is four years from the Closing
Date.
(e) Notwithstanding anything in this Section 6.1 to the contrary,
the Shareholders may contact or solicit clients or customers of Lexecon
following the lapse of the applicable time periods specified in Sections 6.1(d)
above.
6.2. Right of Repurchase. Prior to an Initial Public Offering, Nextera
shall have the right, but not an obligation, to repurchase all or any portion of
the Nextera Class A Stock (and/or options to purchase Nextera Class A Stock) of
each Shareholder for Fair Market Value (as determined in accordance with Section
10.6(d) except with respect to the notice provisions thereof) according to the
following terms and conditions (the "Repurchase Option"):
(a) With respect to any Shareholder, Nextera may exercise the
Repurchase Option if (i) such Shareholder breaches the covenants contained in
Section 6.1 hereof and (ii) Nextera delivers a Repurchase Notice (as defined
below) within six months after obtaining knowledge of such breach.
(b) With respect to any Shareholder, Nextera may exercise the
Repurchase Option if (i) such Shareholder becomes an employee of, or consultant
to, a competitor of Nextera or its Subsidiaries and (ii) Nextera delivers a
Repurchase Notice within six months after obtaining knowledge of such fact.
(c) With respect to any Shareholder who is required to execute a
Service Agreement in connection with this Agreement, Nextera may exercise the
Repurchase Option if (i) such Shareholder has breached any of the covenants of
Appendix A to his Service Agreement, (ii) Nextera delivers a Repurchase Notice
within six months after obtaining knowledge of such breach and (iii) such
Shareholder does not cure to Nextera's satisfaction the alleged breach within 30
days after the receipt of Nextera's notice.
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(d) With respect to any Shareholder who is required to execute a
Confidentiality and Proprietary Rights Agreement in connection with this
Agreement, Nextera may exercise the Repurchase Option if such Shareholder has
breached any of the covenants of his Confidentiality and Proprietary Rights
Agreement, (ii) Nextera delivers a Repurchase Notice within six months after
obtaining knowledge of such breach and (iii) such Shareholder does not cure to
Nextera's satisfaction the alleged breach within 30 days after the receipt of
Nextera's notice.
If Nextera so elects to exercise the Repurchase Option in whole
or in part with respect to any Shareholder, it shall give written notice of such
exercise (the "Repurchase Notice") to such Shareholder (or his estate or legal
representative, as the case may be). The Board shall give notice (the
"Repurchase Valuation Notice") of the Fair Market Value to such Shareholder (or
his estate or legal representative, as the case may be) within thirty (30) days
of the Repurchase Notice. If (i) the Fair Market Value is determined under
clauses (i) or (ii) of Sections 10.6(d) or (ii) such Shareholder (or his estate
or legal representative, as the case may be) does not dispute the Board's
determination of Fair Market Value under clause (iii) of Section 10.6(d) within
the time period specified below for giving the Repurchase Appraisal Notice, then
Nextera shall pay to such Shareholder (or his estate or legal representative, as
the case may be), in cash and within (30) thirty days of the date of the
Repurchase Valuation Notice, the Fair Market Value of the shares of Nextera
Class A Stock being repurchased and such Shareholder (or his estate or legal
representative) shall deliver to Nextera the certificates representing such
shares duly endorsed for transfer, free and clear of any and all liens,
encumbrances, charges or claims. If the Fair Market Value is determined under
clause (iii) of Section 10.6(d) and such Shareholder (or his estate or legal
representative, as the case may be) disputes the Board's determination of Fair
Market Value as set forth in the Repurchase Valuation Notice, then such
Shareholder (or his estate or legal representative, as the case may be) shall so
notify the Board in writing (the "Repurchase Appraisal Notice") within five (5)
business days of receipt of the Repurchase Valuation Notice. Any dispute by such
Shareholder under this Section 6.2 shall be resolved according to Section
10.6(d), provided that each reference in Section 10.6(d) to the "Shareholder
Representative" or the "Shareholders" shall be deemed to be the disputing
Shareholder under this Section.
In the event that Nextera exercises the Repurchase Option under
Section 6.2(b) above, Nextera shall, within ten (10) days after such repurchase,
offer in writing to sell to the Eligible Persons (as defined below) all of the
repurchased shares of Nextera Class A Stock at the same price paid by Nextera to
the applicable Shareholder (or his estate or legal representative, as the case
may be). Each Eligible Person shall have the right (but not the obligation) to
purchase his percentage of such Nextera Class A Stock set forth below; provided
that the other Eligible Persons shall have the right to acquire (on a pro rata
basis) any portion of such Nextera Class A Stock which an Eligible Person elects
not to purchase. In order to exercise the purchase rights of the Eligible
Persons, the
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Shareholder Representative shall deliver a written notice to the Company (the
"Acceptance Notice"), specifying the number, if any, of shares of such Nextera
Class A Stock which the Eligible Persons have elected to purchase, within thirty
(30) days after his receipt of Nextera's written offer and, in the event that
one or more Eligible Persons has elected to purchase a portion of the Option,
the closing of such re-sale shall occur within thirty (30) days after delivery
of the Acceptance Notice. "Eligible Persons" shall mean those of the
Shareholders who hold Nextera Class A Stock on the date of the Repurchase
Notice. The number of shares of Nextera Class A Stock which any Eligible Person
is entitled to purchase shall be calculated pro rata based on the following
weighting system: Rosenfield (30%) Carlton (30%), Fischel (30%) and Landes
(10%). Any of the foregoing individuals who are not Eligible Persons on the
determination date shall be eliminated from the pool, with the result that the
pro rata portions of the remaining Eligible Persons shall be increased
proportionately to total 100%.
The Repurchase Option, and the purchase rights of Eligible Persons,
shall also apply to shares of Nextera Class A Stock (and options to purchase
Nextera Class A Stock) which any Shareholder acquires from any other person.
The Repurchase Option shall terminate upon an Initial Public Offering.
Nextera covenants and agrees that the repurchase rights and other
provisions of this Section 6.2 override the provisions of Section 4.4 of the
Stockholders Agreement (which are not applicable to the Shareholders).
6.3. Right of First Refusal. Each Shareholder that is signing a
Confidentiality and Proprietary Rights Agreement agrees that if he finalizes the
material terms of employment or engagement with any commercial enterprise that
engages in business that is competitive with Lexecon (a "Competitor") at any
time within four years after the Closing Date, such Shareholder shall give a
written notice (the "Competitor Notice") to Lexecon describing fully the
proposed terms of such arrangement, and the name and address of the Competitor.
Lexecon shall have the right to employ or engage such Shareholder on
substantially equivalent terms as set forth in the Competitor Notice by delivery
of a notice of exercise of its right of first refusal (the "Lexecon Notice")
within forty-five days after the date the Competitor Notice is delivered to
Lexecon. Upon receipt of the Lexecon Notice, such Shareholder agrees to cease
all discussions and negotiations with the Competitor and any other Competitors.
Nothing in this Section 6.1 shall permit any Shareholder to negotiate with
Competitors during any period in which the covenants and agreements of such
Shareholder set forth in Sections 6.1(b) and 6.1(c) above are in effect.
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SECTION 7. OTHER COVENANTS.
7.1. Authorization and Consent from Others. Prior to the Closing Date,
the Shareholders and Lexecon will attempt to obtain the authorizations, consents
and permits of others set forth on Exhibit F required to permit the consummation
by the Shareholders and Lexecon of the transactions contemplated by this
Agreement.
7.2. Consummation of Agreement. Nextera, Lexecon and each of the
Shareholders shall use their commercially reasonable efforts to perform and
fulfill all conditions and obligations on their parts to be performed and
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
7.3. Cooperation. Lexecon and each of the Shareholders shall cooperate
with all reasonable requests of Nextera and Nextera's counsel in connection with
the consummation of the transactions contemplated hereby. Nextera shall
cooperate with all reasonable requests of Lexecon's and the Shareholders'
counsel in connection with the consummation of the transactions contemplated
hereby.
7.4. [Intentionally Omitted]
7.5. Tax Returns. The Shareholders shall be responsible for Tax Returns
of Lexecon for the period from January 1, 1998 through the end of the day which
is the day prior to the Closing Date. Lexecon shall be responsible for all of
its Tax Returns for all periods beginning on the Closing Date and thereafter.
The parties shall cooperate in all reasonable respects with each other to permit
Lexecon and its Subsidiaries in accordance with applicable law to promptly
prepare and file on or before the due date or any extension thereof all federal,
state and local Tax Returns relating to Lexecon and/or its Subsidiaries and
shall cooperate with respect to all tax matters, including, but not limited to,
any federal or state tax audit. The parties shall treat the transactions
contemplated under this Agreement and the Share Exchange Agreement as a single,
integrated transaction which is intended to satisfy the requirements of Code
Section 351 (and any corresponding provisions of state, local or foreign tax
law) in which no gain or loss is intended to be recognized for Tax purposes by
the Shareholders as a result of the receipt of the Nextera Class A Stock
pursuant hereto, and shall file all Tax Returns and other filings in a manner
consistent with such treatment.
7.6. Option Pool. Nextera agrees to grant to employees of Lexecon and
new hires options to purchase shares of Nextera Class A Stock (the "Employee
Options") in accordance with the term sheet attached as Exhibit G hereto. Such
options will be issued under the Nextera/Lexecon Limited Purpose Stock Option
Plan, a copy of which is attached hereto as Exhibit H. Each of Rosenfield,
Fischel and Carlton shall be granted Employee Options having a Black-Scholes
value (computed in accordance with such
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term sheet) of $366,666. The allocation of the other Employee Options shall be
mutually agreed by Nextera and the Shareholder Representative.
7.7. Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will cooperate
with and make available to the other parties, during normal business hours, all
books and records, information and employees (without substantial disruption of
employment) which are necessary or useful in connection with any tax inquiry,
audit, investigation or dispute, any litigation or investigation or any other
matter requiring any such books and records, information or employees for any
reasonable business purpose. The party requesting any such books and records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such books and records, information or employees. All
information received pursuant to this Section 7.10(a) shall be subject to the
terms of the Confidentiality and Nondisclosure Agreement previously entered into
between the parties.
(b) Cooperation and Records Retention. The Shareholders and
Nextera shall (i) each provide the other with such assistance as may reasonably
be requested in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the others with
any records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the others with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the others for any period. Without limiting the generality of the foregoing, the
Shareholders and Nextera shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing and shall not destroy or otherwise dispose of any such records without
first providing the other parties with a reasonable opportunity to review and
copy the same.
7.8. Release of Personal Guarantees. Nextera agrees to use its
commercially reasonable efforts (a) to have the Shareholders released from
personal guarantees of the obligations of Lexecon (the "Guarantees"), (b) to
provide for a replacement Letter of Credit with respect to Lexecon's office
lease and (c) to cause to be returned to Lexecon the existing Letter of Credit
with respect to Lexecon's office lease.
7.9. Lexecon Board of Directors/Operating Committee. Nextera agrees that
Lexecon's business affairs will be managed, subject to the determinations of
Nextera's
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Board of Directors, by Lexecon's Board of Directors/Operating Committee to be
formed effective with the Closing. Lexecon's Board of Directors/Operating
Committee shall consist of Andrew M. Rosenfield, Daniel R. Fischel, Dennis W.
Carlton (all of whom shall be entitled to remain in such position as long as
they are fulfilling their obligations under their Service Agreements or
Confidentiality and Proprietary Rights Agreements), Gresham T. Brebach, Jr. and
Steven Fink.
7.10. Directors' and Officers' Liability Insurance. Nextera has provided
Lexecon with a copy of the directors' and executive officers' liability
insurance policy currently maintained by Nextera. Nextera agrees that it or an
Affiliate will maintain such directors' and executive officers' liability
insurance, or such substitute coverage as approved by the Board of Directors of
Nextera, in the event that (and for so long as) any Shareholder or Gary Becker
is a director of Nextera. For so long as any of the Shareholders serves as a
director or officer of Lexecon, Nextera shall (i) use all commercially
reasonable efforts to afford them coverage under the directors' and officers'
liability insurance policy of Nextera (or an Affiliate) then in effect and (ii)
provide (or cause Lexecon to provide) indemnification rights at least as
favorable as those currently in effect at Lexecon. Nextera's obligation to
provide the above-referenced insurance coverage shall be subject to the
Shareholders providing any cooperation as reasonably requested by the insurance
carriers.
7.11. Milberg Action. As an accommodation to the Shareholders, Lexecon
will remain a party to the Milberg Action until Lexecon's involvement as a party
to the Milberg Action is no longer necessary as mutually determined in good
faith by the Shareholders and the Board of Directors of Lexecon.
7.12. Termination of Third Amended and Restated Shareholders Agreement.
As of the Closing, Lexecon and the Shareholders agree that the Third Amended and
Restated Shareholders Agreement dated December 21, 1990 by and among Lexecon and
the Shareholders shall be terminated and be of no further force or effect.
7.13. Lexecon Insurance. Subject to obtaining any cooperation of the
Shareholders as reasonably required by the insurance carrier, for so long as any
Shareholder is an employee, consultant or service provider to Lexecon, Nextera
shall use commercially reasonable efforts to either (a) continue Lexecon's
existing malpractice, errors and omissions insurance or (b) replace such
insurance with other policies (including tail coverage) offering coverage
substantially similar to (or greater than) that currently in effect.
7.14. Special Tag-Along Rights. Promptly following the Closing, Nextera
shall take all actions necessary to allow the Shareholders to participate in the
"Special Tag-Along Right" in Section 6.2 of the Stockholders Agreement (and, in
the event that Nextera is unable to obtain any necessary stockholder consents to
such action, Nextera
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and the Shareholders shall develop and enter into a reasonably satisfactory
alternative arrangements).
7.15. Certain Transactions. Prior to completing an Initial Public
Offering, Nextera shall not enter into any "Covered Transaction" (as hereinafter
defined) with any Affiliate without the prior approval of the Shareholder
Representative. A "Covered Transaction" shall mean (i) any transaction or
related series of transactions between Nextera or any subsidiary of Nextera and
an Affiliate (including Affiliates of such Affiliate) which involves, in the
aggregate, a transaction sum in excess of $2,000,000 or (ii) any transaction
between Nextera or any subsidiary of Nextera and an Affiliate (including
Affiliates of such Affiliate) if such transaction, when taken together with all
other transactions between Nextera and such Affiliate (including all Affiliates
of such Affiliate) during any period of 24 consecutive months, involves, in the
aggregate, a total transaction sum or value in excess of $2,000,000.
SECTION 8. CONDITIONS.
8.1. Conditions to the Obligations of Nextera. The obligation of Nextera
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Service Agreements. Andrew M. Rosenfield shall have executed
and delivered to Nextera a Service Agreement, substantially in the form attached
hereto as Exhibit E.
(b) Confidentiality and Proprietary Rights Agreement. Each of
Daniel R. Fischel, Dennis W. Carlton and William M. Landes shall have executed
and delivered to Nextera a Confidentiality and Proprietary Rights Agreement,
substantially in the form attached hereto as Exhibit I.
(c) Opinion of Counsel. On the Closing Date, Nextera shall have
received from Kirkland & Ellis, as counsel for Lexecon and the Shareholders, an
opinion as of said date, in the form attached hereto as Exhibit J.
(d) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(e) Stockholders Agreement. Each of the Shareholders shall have
executed the Supplement to Stockholders Agreement in the form attached hereto as
Exhibit K whereby each Shareholder shall agree to be bound by the terms of that
certain Stockholders Agreement dated as of August 31, 1998, as amended, by and
among Nextera LLC, Nextera and the other individuals and entities listed on the
signature pages thereto (the "Stockholders Agreement"), a copy of which is
attached hereto as Exhibit L.
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(f) Release. Each of the Shareholders shall have executed a
Release in the form attached hereto as Exhibit M and each of the persons listed
on Schedule 8.1 shall have executed a Release in the form attached hereto as
Exhibit N.
(g) Lock Up. Each of the Shareholders shall have executed a
Lock-Up Agreement in the form attached hereto as Exhibit O.
(h) Supplemental Letter Agreements. Each of the individuals
listed on Schedule 8.1 shall have entered into a Supplemental Letter Agreement
with Lexecon in the form attached hereto as Exhibit P, including the annexes
attached thereto.
(i) Execution of Agreements. The Shareholders and Lexecon shall
have executed and delivered this Agreement and the other agreements and
documents to be delivered in connection with the transactions contemplated by
this Agreement.
(j) Simultaneous Contributions. The closing of the transactions
contemplated by the Share Exchange Agreement shall occur simultaneously with the
Closing.
8.2. Conditions to Obligations of Lexecon and the Shareholders. The
obligation of the Shareholders to consummate this Agreement and the transactions
contemplated hereby is subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
(a) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(b) Opinion of Counsel. On the Closing Date, the Shareholders
shall have received from Maron & Sandler, counsel for Nextera, an opinion as of
said date, in form attached hereto as Exhibit Q.
(c) Execution of Agreements. Nextera shall have executed and
delivered this Agreement and the other agreements and documents (including,
without limitation, stock certificates and option grants) to be delivered in
connection with the transactions contemplated to this Agreement.
(d) Simultaneous Contributions. The closing of the transactions
contemplated by the Share Exchange Agreement shall occur simultaneously with the
Closing.
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SECTION 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
9.1. Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein are material, shall be deemed to
have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations
and warranties shall expire on the same dates as and to the extent that the
rights to indemnification with respect thereto under Section 10 shall expire.
SECTION 10. INDEMNIFICATION.
10.1. Indemnification by the Shareholders. The Shareholders severally,
but not jointly, agree subsequent to the Closing to indemnify and hold Lexecon,
Nextera and their respective subsidiaries and Affiliates and persons serving as
officers, directors, partners, managers, stockholders, members, employees and
agents thereof (other than the Shareholders) (individually a "Nextera
Indemnified Party" and collectively the "Nextera Indemnified Parties") harmless
from and against any Damages which may be sustained or suffered by any of them
arising out of or based upon any of the following matters:
(a) fraud, intentional misrepresentation or deliberate and
willful breach of any representations or warranties of Lexecon or the
Shareholders under this Agreement or in any certificate, schedule or exhibit
delivered pursuant hereto (collectively, "Fraud Claims");
(b) any breach of any representation or warranty set forth in
Sections 3.3 or 4.2 of this Agreement (collectively, "Ownership Claims");
(c) any Liability of Lexecon or the Shareholders for Taxes
arising from the activities of Lexecon and all events and transactions prior to
the Closing or breach of the representations and warranties set forth in
Sections 3.8 or 3.22 hereof or breach of covenant with respect to Taxes or tax
related matters (collectively, "Tax Claims");
(d) the Milberg Liabilities and any breach of Sections 3.8(t) or
3.30 (claims for which are referred to herein as "Excluded Liability Claims");
(e) any breach of the covenants of the Shareholders contained in
this Agreement ("Covenant Claims"); and
(f) other than Fraud Claims, Ownership Claims, Tax Claims,
Covenant Claims or Excluded Liability Claims, any other breach of any
representation or warranty of the Shareholders under this Agreement or in any
schedule or exhibit delivered pursuant hereto, or by reason of any claim, action
or proceeding asserted or
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instituted growing out of any matter or thing constituting a breach of such
representations, warranties or covenants (collectively, "General Claims").
10.2. Limitations on Indemnification by the Shareholders. Anything
contained in this Agreement to the contrary notwithstanding, the liability of
the Shareholders to provide any indemnification to any Nextera Indemnified Party
and right of Nextera Indemnified Parties to indemnification under Section 10.1
shall be subject to the following provisions:
(a) Other than Fraud Claims, Ownership Claims, Tax Claims,
Covenant Claims and Excluded Liability Claims, no claims for indemnification
shall be made under this Agreement against any Shareholder after the date which
is eighteen (18) months following the Closing.
(b) No claims for indemnification shall be made under this
Agreement against any Shareholder, and no indemnification shall be payable to
any Nextera Indemnified Party, with respect to any Tax Claim after expiration of
all applicable statutes of limitation with respect to the Tax that is the
subject of the indemnification claim taking into account any extensions thereof
with respect to collection of the Tax.
(c) The aggregate amount to be payable to all Nextera
Indemnified Parties by each Shareholder for claims for indemnification hereunder
shall in no event exceed such Shareholder's Lexecon Indemnification Percentage
(as defined below) of $40,000,000, provided that no Shareholder shall be
required to pay to any Nextera Indemnified Party cash in an amount greater than
the sum of (i) the cash consideration paid to such Shareholder under this
Agreement (including the cash portions of the Closing Amount and Holdback Amount
as adjusted pursuant to Section 2.5) and (ii) the cash consideration received,
directly or indirectly, by such Shareholder upon the sale, transfer or other
disposition of the Nextera Class A Units received by Shareholder under this
Agreement. The "Lexecon Indemnification Percentage" of each Shareholder for this
purpose shall be the percentage labeled "Lexecon Indemnification Percentage" set
forth opposite each Shareholder's name on Exhibit A.
(d) The Shareholders shall have no obligation for claims for
indemnification hereunder until aggregate claims for indemnification hereunder
exceed $625,000, in which case the Shareholders shall be obligated for
indemnification of claims in excess of a $250,000 deductible; provided, however,
that this clause (d) shall not apply in connection with the calculation or the
payment of the Adjustment Amount.
(e) Notwithstanding the foregoing, claims for indemnification
with respect to Fraud Claims, Ownership Claims, Tax Claims (except with respect
to subsection (b) above), Covenant Claims and Excluded Liability Claims shall
not be subject to any of the limitations or restrictions contained in this
Section 10.2.
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10.3. Indemnification by Nextera. Nextera agrees to indemnify and hold
the Shareholders (individually a "Shareholder Indemnified Party" and
collectively the "Shareholder Indemnified Parties") harmless from and against
any Damages which may be sustained or suffered by any of them arising out of or
based upon (a) any breach of any representation, warranty or covenant made by
Nextera in this Agreement or in any certificate delivered by Nextera hereunder,
(b) by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing constituting such a breach or (c) any Liabilities
(including reasonable attorney's fees) resulting from any of the obligations of
the Shareholders under the Guarantees after the Closing ("Guarantee Claims").
10.4. Limitation on Indemnification by Nextera. Notwithstanding the
foregoing, (a) no indemnification claims shall be made under this Agreement
against Nextera with respect to claims asserted pursuant to Section 10.3 above
after the date which is eighteen (18) months after the Closing, (b) the
aggregate amount to be payable by Nextera pursuant to Section 10.3 shall not
exceed $40,000,000, and (c) Nextera shall have no obligation for indemnification
hereunder until aggregate claims for indemnification hereunder exceed $625,000,
in which case Nextera shall be obligated for indemnification of claims in excess
of a $250,000 deductible. The foregoing notwithstanding, the following claims
for indemnification shall not be subject to any of the limitations set forth in
this Section 10.4: (i) Guarantee Claims; (ii) claims with respect to any breach
by Nextera of any covenant contained in this Agreement and (iii) claims with
respect to fraud, intentional misrepresentation or the deliberate and willful
breach of any representations or warranties of Nextera under this Agreement or
in any certificate, schedule or exhibit delivered pursuant hereto made under
this Agreement.
10.5. Notice of Claims; Dispute of Claims; Defense of Claims.
(a) If any claim for indemnification hereunder (a "Claim) is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the indemnified party shall give written notice (a "Claim
Notice") to the indemnifying party as soon as reasonably practicable after the
indemnified party becomes aware of any fact, condition or event which may give
rise to a Claim, including a claim or liability asserted by a third party, but
the failure to do so shall not relieve the indemnifying party from any liability
except to the extent that it is prejudiced by the failure or delay in giving
such notice. The Claim Notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within twenty (20) days after receiving the Claim Notice the indemnifying party
shall give written notice (a "Claim Response") to the indemnified party stating
whether it disputes the Claim and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice in a Claim Response that it disputes the Claim within twenty (20)
days after receipt of the Claim Notice, it shall be deemed to have accepted and
agreed to the Claim, which shall become immediately due and payable.
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(b) If the indemnifying party gives notice in a Claim Response
that it disputes the Claim within twenty (20) days after receipt of the Claim
Notice and the subject Claim is with respect to a third party claim or
liability, the indemnifying party shall be entitled to direct the defense
against a third party claim or liability as set forth in subsection (c) below.
If the Claim is not with respect to a third party claim or liability, the
parties shall negotiate in good faith a settlement of such Claim for a period of
twenty (20) days. If no such settlement is reached within sixty (20) days after
the indemnified party's receipt of the Claim Response, the Claim shall be
referred to the American Arbitration Association, to be settled by binding
arbitration in Los Angeles, California, in accordance with the commercial
arbitration rules of the Association. The fees and expenses of the arbitrator
shall be borne equally by the Shareholders and Nextera. The determination of the
arbitrator as to the amount, if any, of the Claim which is properly allowable
shall be conclusive and binding upon the parties hereto and judgment may be
entered thereon in any court having jurisdiction thereof, including, without
limitation, any Superior Court in the State of California. The arbitrator shall
have the authority to award to the prevailing party reasonable costs and
expenses including attorney's fees and the cost of arbitration.
(c) Provided the indemnifying party provides a timely Claim
Response in accordance with subsection (a) above, the indemnifying party shall
be entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised in writing by counsel that representation of both parties by the same
counsel would violate applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no such notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party in a timely Claim Response, or if
such good faith and diligent defense is not being or ceases to be conducted by
the indemnifying party, the indemnified party shall have the right, at the
expense of the indemnifying party, to undertake the defense of such claim or
liability (with counsel selected by the indemnified party), and to compromise or
settle it with the indemnifying party's consent, such consent not to be
unreasonably withheld or delayed. The indemnifying party shall be liable for any
settlement (subject to any right of appeal), and the indemnifying party agrees
to indemnify and hold harmless an indemnified party from and against any Damages
by reason of such settlement or judgment.
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10.6. Satisfaction of Indemnification Obligations; Release of Holdback
Amount.
(a) Any indemnification obligations of the Shareholders under
this Section 10 shall be satisfied in the form of 35% cash and 65% Nextera Class
A Stock, with such stock valued at its Fair Market Value on the date of payment
as set forth in subsection (d) below. Subject to the limitations of Sections
10.5 and 10.2 above, to the extent any indemnifying party is unable to tender
Nextera Class A Stock in accordance with the foregoing percentage formula, the
deficit shall be paid in the form of cash. In order to satisfy the
indemnification obligations of the Shareholders due in the form of Nextera Class
A Stock, Nextera shall proceed first directly against the Holdback Amount, if
any, and then directly against the Shareholders.
(b) Nextera agrees to deliver to the Shareholders no later than
the day which is twelve (12) months after the Closing one-half of the number of
shares of Nextera Class A Stock from the Holdback Amount, unless there remains
unresolved any Claims as to which Nextera has delivered a Claim Notice, in which
event that portion of the Holdback Amount that is equal to 100% of the estimated
Damages associated with such unresolved Claims (as promptly agreed in good faith
by Nextera and the Shareholder Representative) shall continue to be held by
Nextera until all such Claims have been satisfied or otherwise resolved pursuant
to Section 10 hereof. Nextera agrees to deliver to the Shareholders no later
than the day which is eighteen (18) months after the Closing the remaining
Holdback Amount, unless there exist unresolved any Claims as to which Nextera
has delivered a Claim Notice in which event that portion of the Holdback Amount
that is equal to 100% of the estimated Damages associated with such unresolved
Claims (as promptly agreed in good faith by Nextera and the Shareholders
Representative) shall continue to be held by Nextera until all such Claims have
been satisfied or otherwise resolved pursuant to Section 10 hereof.
(c) Each of the Shareholders acknowledges and agrees that
Nextera's claims for indemnification shall not be limited to the Holdback Amount
and that the Holdback Amount shall not be Nextera's exclusive source of
indemnification from the Shareholders pursuant to Section 10. Each of the
Shareholders agree that Nextera may take any and all action or exercise any
remedy available to it by appropriate legal proceedings to collect any Damages
to which it is entitled under this Section 10.
(d) The "Fair Market Value" of a share of Nextera Class A Stock
as of a given date shall be (i) the average closing price of a share of Nextera
Class A Stock on the principal exchange on which shares of Nextera Class A Stock
are then trading, if any (or as reported on any composite index which includes
such principal exchange), on the ten most current trading days immediately prior
to such date, or (ii) if Nextera Class A Stock is not traded on an exchange but
is quoted on NASDAQ or a successor quotation system, the average mean between
59
<PAGE> 64
the closing representative bid and asked prices for the Nextera Class A Stock on
the ten (10) most recent trading days immediately prior to such date as reported
by NASDAQ or such successor quotation system; or (iii) if Nextera Class A Stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the Fair Market Value of a share of Nextera Class A Stock as
established by the Board of Directors of Nextera (the "Board") acting in good
faith and the Board shall notify the Shareholder Representative in writing of
its determination (the "Valuation Notice"). If the Shareholder Representative
disputes the Fair Market Value as determined by the Board, then the Shareholder
Representative shall so notify the Board in writing (the "Appraisal Notice")
within five (5) business days of delivery of the Valuation Notice. Within
fifteen (15) business days of the delivery of the Appraisal Notice, the Board
and the Shareholder Representative shall each appoint a professional appraiser
to determine the Fair Market Value. Each appraiser shall have at least five (5)
years experience in appraising companies similar to Nextera. The two appraisers
shall within the succeeding twenty (20) day period after their selection,
attempt to reach agreement on the Fair Market Value. If the appraisers reach
such agreement, their agreement shall be final and binding on the parties. If
the appraisers fail to agree to agree, they shall within ten (10) days
thereafter select a third appraiser with the same qualification requirements,
and the three (3) appraisers shall establish the Fair Market Value by majority
vote within the succeeding twenty (20) day period and such determination of the
Fair Market Value shall be final and binding on the parties. In all events, the
appraisers selected shall be unaffiliated with and otherwise independent of
Nextera, Lexecon, the Shareholders, and their Affiliates. If the Fair Market
Value as determined by the appraisers is not at least five percent (5%) greater
than the value as determined by the Board, then the Shareholders shall pay all
costs associated with the appraisers. If the Fair Market Value as determined by
the appraisers is at least five percent (5%) greater than the value as
determined by the Board, then Nextera shall pay for all costs associated with
the appraisers. The "Fair Market Value" of an option to purchase a share of
Nextera Class A Stock shall be equal to the Fair Market Value of the share less
the option exercise price.
60
<PAGE> 65
SECTION 11. MISCELLANEOUS.
11.1. Fees and Expenses. Each party shall bear its own fees, commissions
and expenses incurred in connection with the negotiation and the consummation of
the transactions contemplated by this Agreement; provided that Lexecon will pay
the reasonable fees and out-of-pocket expenses of the Shareholders incurred in
connection with the transactions contemplated herein.
11.2. Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of California without regard to its
conflict of laws provisions.
11.3. Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
TO NEXTERA: Nextera Enterprises, Inc.
One Cranberry Hill
Lexington, MA 02173
Attention: Gresham T. Brebach, Jr.
Fax: (781) 778-4500
With a copy to: Latham & Watkins
701 "B" Street, Suite 2100
San Diego, CA 92101
Attention: David A. Hahn, Esq.
Fax: (619) 696-7419
With an additional copy to: Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
Attention: Stanley E. Maron, Esq.
Fax: (310) 440-3690
TO LEXECON: Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attention: Andrew Rosenfield
Fax: (312) 322-0218
61
<PAGE> 66
With a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Jeffrey T. Sheffield, Esq.
Fax: (312) 861-2200
TO ANY SHAREHOLDER: c/o Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attention: [Name of Shareholder]
Fax: (312) 322-0218
With a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Jeffrey T. Sheffield, Esq.
Fax: (312) 861-2200
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.4. Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, reflects the entire agreement of the parties with respect to
its subject matter, and supersedes all previous written or oral negotiations,
commitments and writings. No promises, representations, understandings,
warranties and agreements have been made by any of the parties hereto except as
referred to herein or in such Schedules and Exhibits; and all inducements to the
making of this Agreement relied upon by either party hereto have been expressed
herein or in such Schedules or Exhibits.
11.5. Assignability; Binding Effect. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned by any party without the
prior written consent of the other parties; provided, however, that (i) the
Shareholder Representative may consent on behalf of each of the Shareholders and
(ii) although Nextera represents that it has no intention to do so as of the
date hereof, Nextera may, without the consent of the other parties, assign all
such rights to a Subsidiary, to any Affiliate of Nextera or to a successor in
interest to Nextera (including any Person that acquires Lexecon) which shall
assume all obligations and liabilities of Nextera under this Agreement so long
as Nextera remains primarily liable under this Agreement. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other Person shall have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
11.6. Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision
62
<PAGE> 67
hereof. The use in this Agreement of the masculine pronoun in reference to a
party hereto shall be deemed to include the feminine or neuter, as the context
may require.
11.7. Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.8. Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance; provided that the Shareholder
Representative (as defined below) may consent to any such amendment or
modification or waiver on behalf of the Shareholders; provided further that the
Shareholder Representative may not enter into any such amendment or modification
or waive any condition or covenant that materially and adversely affects any
Shareholder differently than all other Shareholders affected thereby without the
consent of such Shareholder. Each of the Shareholders hereby designate Andrew M.
Rosenfield (the "Shareholder Representative") to act for and represent them in
those matters with respect to which this Agreement specifies that the
Shareholder Representative shall so act, including, without limitation, entering
into any amendment to this Agreement, and Andrew M. Rosenfield hereby accepts
such designation. Anything herein to the contrary notwithstanding, any
amendment, modification or waiver to be given by the Shareholders under this
Agreement may be given by the Shareholder Representative.
11.9. Publicity and Disclosures. No press releases or public disclosure,
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Nextera and Lexecon, except as required by law.
11.10. Specific Performance. The parties agree that it would be
difficult to measure Damages which might result from a breach of this Agreement
by the Shareholders and that money damages would be an inadequate remedy for
such a breach. Accordingly, if there is a breach or proposed breach of any
provision of this Agreement by the Shareholders, Nextera shall be entitled, in
addition to any other remedies which it may have, to an injunction or other
appropriate equitable relief to restrain such breach without having to show or
prove actual damage to Nextera.
11.11. Ambiguities in Drafting. Any presumption that an ambiguity in
this Agreement should be construed against the document drafter or author is
hereby waived and shall not apply with respect to any document interpretation.
63
<PAGE> 68
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
64
<PAGE> 69
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives, as of the date first written
above.
NEXTERA:
NEXTERA ENTERPRISES, INC., a
Delaware corporation
By: /s/ Stanley E. Maron
--------------------------------------
Name: Stanley E. Maron
Title: Secretary
LEXECON:
LEXECON INC., an Illinois corporation
By: /s/ Andrew M. Rosenfield
--------------------------------------
Name: Andrew M. Rosenfield
Title: Treasurer
SHAREHOLDERS:
/s/ Dennis W. Carlton
- -----------------------------
Dennis W. Carlton
Residence: Illinois
/s/ Daniel R. Fischel
- -----------------------------
Daniel R. Fischel
Residence: Illinois
/s/ William M. Landes
- -----------------------------
William M. Landes
Residence: Illinois
/s/ Andrew M. Rosenfield
- -----------------------------
Andrew M. Rosenfield
Residence: Illinois
65
<PAGE> 1
EXHIBIT 10.29
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER
ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, THE SALE IS MADE
PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS OBTAINED FROM
COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
WARRANT TO PURCHASE CLASS A COMMON STOCK
OF
NEXTERA ENTERPRISES, INC.
December 31, 1998
This certifies that KNOWLEDGE UNIVERSE, INC., a Delaware Corporation
(the "Holder"), for value received, is entitled, subject to the adjustments and
to the other terms set forth below, to acquire from NEXTERA ENTERPRISES, INC., a
Delaware corporation (the "Company"), having a place of business at One
Cranberry Hill, Lexington, MA 02173, at any time from the date hereof until 5:00
P.M. (California time) on December 31, 2003 (the "Expiration Date"), at which
time this Warrant shall expire and become void, Two Hundred Fifty Thousand
(250,000) shares (the "Warrant Shares") of the Company's Class A Common Stock
(the "Class A Common Stock"), at an exercise price (the "Exercise Price") equal
to eighty percent (80%) of the price per share that shares of Class A Common
Stock are offered to the public in the Company's first underwritten public
offering of Class A Common Stock (the "IPO"); provided, however, that if the IPO
has not been completed by August 31, 2000, the Exercise Price shall be Seven
Dollars and Sixty Five Cents ($7.65).
This Warrant Certificate is subject to the following terms and
conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 DURATION OF EXERCISE OF WARRANT. This Warrant is
exercisable at the option of the Holder at any time after the Exercise Price has
been determined and until 5:00 P.M. (California time) on the Expiration Date for
all or a portion of the Warrant Shares that may be acquired hereunder. This
Warrant shall be exercised upon surrender to the Company of this Warrant
properly endorsed with a completed and executed Subscription Agreement in the
form attached hereto as Exhibit A, and upon payment of the aggregate
<PAGE> 2
Exercise Price for the number of Warrant Shares for which this Warrant is being
exercised. At the option of the Holder, the Exercise Price may be paid in any
one or a combination of the following forms: (a) by the Holder's check or wire
transfer of funds to the Company in the amount of the Exercise Price, (b) by the
surrender to the Company of shares of Class A Common Stock or other securities
or instruments of the Company and/or its subsidiaries having a Fair Value equal
to the amount of the Exercise Price, and/or (c) by the surrender to the Company
of that portion of this Warrant having a Fair Value equal to the amount of the
Exercise Price. In lieu of exercising this Warrant as provided above, the Holder
may from time to time at the Holder's option convert this Warrant, in whole or
in part, into a number of shares of Class A Common Stock determined by dividing
(A) the aggregate Fair Value of such shares otherwise issuable upon exercise of
this Warrant minus the aggregate Exercise Price of such shares by (B) the Fair
Value of one such share. The Company agrees that any Warrant Shares acquired
pursuant to this Warrant shall be deemed to be issued to Holder as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such Warrant Shares in
a manner permitted by the terms of this Warrant. Certificates for the Warrant
Shares so acquired, together with any other securities or property to which
Holder is entitled upon such exercise, conversion or exchange, shall be
delivered to Holder by the Company or its transfer agent at the Company's
expense within a reasonable time after the rights represented by this Warrant
have been exercised. Each stock certificate so delivered shall be in such
denominations of Class A Common Stock as may be requested by Holder and shall be
registered in the name of Holder or such other name as shall be designated by
Holder. If, upon exercise, conversion or exchange of this Warrant, fewer than
all of the Warrant Shares subject to this Warrant are acquired prior to the
Expiration Date of this Warrant, one or more new warrants substantially in the
form of, and on the terms in, this Warrant will be issued for the remaining
number of Warrant Shares not acquired upon such exercise, conversion or
exchange.
For purposes of this Warrant, (x) the Fair Value of shares of
Class A Common Stock as of a given date shall mean: (i) the average closing
price of such shares on the principal exchange (or NASDAQ NMS) on which such
shares are then trading, if any (or as reported on any composite index which
includes such principal exchange), on the ten most recent trading days
immediately prior to such date; or (ii) if such shares are not traded on an
exchange (or NASDAQ NMS) but are quoted on NASDAQ Small Cap or a successor
quotation system, the average mean between the closing bid and asked prices for
such shares, on the ten most recent trading days immediately prior to such date
as reported by NASDAQ Small Cap or such successor quotation system; or (iii) if
such shares are not publicly traded on an exchange (or NASDAQ NMS) or quoted on
NASDAQ Small Cap or a successor quotation system, the Fair Value shall mean such
amount as determined by the Board of Directors of the Company, and (y) the Fair
Value of this Warrant (or portion hereof) and any other securities or
instruments as of a given date shall mean such amount as determined by the Board
of Directors of the Company.
<PAGE> 3
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all Warrant Shares that may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable. The Company covenants
that it will reserve and keep available a sufficient number of shares of its
authorized but unissued Class A Common Stock for such exercise. The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time upon the occurrence of certain events described in this
Section 3.
3.1 SUBDIVISION OR COMBINATION OF CLASS A COMMON STOCK AND
STOCK DIVIDEND. In the event that, after the date of this Warrant, the Company
subdivides its outstanding shares of Class A Common Stock into a greater number
of shares or declares a dividend upon its Class A Common Stock payable solely in
shares of Class A Common Stock, the Exercise Price in effect immediately prior
to such subdivision or declaration shall automatically be proportionately
reduced and the number of Warrant Shares shall automatically be proportionately
increased. Conversely, in case the outstanding shares of Class A Common Stock of
the Company shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased, and the number of Warrant Shares shall be proportionately reduced.
3.2 NOTICE OF ADJUSTMENT. Promptly after any adjustment of the
Exercise Price or any increase or decrease in the number of Warrant Shares, the
Company shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address of such holder
as shown on the books of the Company. The notice shall be signed by the
Company's chief financial officer and shall state the effective date of the
adjustment and the Exercise Price resulting from such adjustment and the
increase or decrease, if any, in the number of Warrant Shares, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
3.3 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon
its Class A Common Stock or Class B Common Stock;
(b) the Company shall declare any dividend upon its
Class A Common Stock or Class B Common Stock payable in stock (other than a
dividend payable solely in shares of Class A Common Stock or Class B Common
Stock) or make any special dividend or other distribution to the holders of its
Class A Common Stock or Class B Common Stock;
<PAGE> 4
(c) the Company shall offer for subscription pro rata
to the holders of its Class A Common Stock or Class B Common Stock any
additional shares of stock of any class or other rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of
Company securities;
then, in any one or more of said cases, the Company shall give to the registered
holder of this Warrant, by the means specified in Section 8 herein, (i) at least
twenty (20) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, at least twenty (20) days' prior written notice
of the date when the same shall take place. Any notice given in accordance with
the foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Class A
Common Stock or Class B Common Stock shall be entitled thereto. Any notice given
in accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Class A Common Stock or Class B Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up, conversion or public offering, as
the case may be. If the Holder of the Warrant does not exercise this Warrant
prior to the occurrence of an event described above, except as provided in
Sections 3.1 and 3.4, the Holder shall not be entitled to receive the benefits
accruing to existing holders of the Class A Common Stock in such event.
3.4 CHANGES IN CLASS A COMMON STOCK. In case at any time
following the date of this Warrant, the Company shall be a party to any
transaction (including, without limitation, a merger, consolidation, public
offering of shares of the Company's Common Stock, or sale of all or
substantially all of the Company's assets or recapitalization of the Class A
Common Stock or Class B Common Stock) in which the previously outstanding Class
A Common Stock shall be changed into, converted or exchanged for Common Stock or
other securities of the Company or common stock or other securities of another
corporation or interests in a non-corporate entity or other property (including
cash) or any combination of any of the foregoing (each such transaction being
herein called a "Transaction" and the date of consummation of a Transaction
being herein called a "Consummation Date"), then, as a condition of the
consummation of such Transaction, lawful and adequate provisions shall be made
so that the Holder, upon the exercise hereof at any time on or after the
Consummation Date of such Transaction, shall be entitled to receive, and this
Warrant shall thereafter
<PAGE> 5
represent the right to receive, in lieu of the Class A Common Stock issuable
upon such exercise prior to such Consummation Date, the highest amount of
securities or other property to which the Holder would actually have been
entitled as a shareholder if the Holder had exercised this Warrant immediately
prior to the consummation of such Transaction. The provisions of this Section
3.4 shall similarly apply to successive Transactions.
4. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of the Warrant shall be made without charge to the holder of the
Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company,
until, and only to the extent that, this Warrant shall have been exercised.
Except for the adjustment to the Exercise Price pursuant to Section 3.1 in the
event of a dividend on the Class A Common Stock payable in shares of Class A
Common Stock, no dividends or interest shall be payable or accrued in respect of
this Warrant or the Warrant Shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised. No provisions hereof, in
the absence of affirmative action by the Holder to purchase Warrant Shares, and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company whether such liability is asserted by the Company or
by its creditors.
6. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES.
6.1 INVESTMENT REPRESENTATIONS. By accepting this Warrant
Certificate, Holder (or any entity for which it is acting as nominee) represents
that it is acquiring the Warrant (and will be acquiring any Warrant Shares
acquired upon exercise or conversion of this Warrant) for its own account, not
as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof in violation of the
Securities Act of 1933, as amended (the "Act").
6.2 RESTRICTIONS ON TRANSFERABILITY. This Warrant and the
Warrant Shares have not been registered under the Act and shall not be
transferable in the absence of registration under the Act, or an exemption
therefrom under said Act.
6.3 RESTRICTIVE LEGEND. Each certificate representing the
Warrant Shares or any other securities issued in respect of the Warrant Shares
shall be stamped or otherwise imprinted with a legend in substantially the
following form (in addition to any legend required under applicable state
securities laws):
<PAGE> 6
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), NOR UNDER ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, THE SALE IS MADE PURSUANT
TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS
OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY
TO COUNSEL TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION
IS AVAILABLE UNDER THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
8. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to the Holder
at its address as shown on the books of the Company or if to the Company at the
address indicated therefor in the first paragraph of this Warrant. If the
Holder's address is outside of the United States, Holder shall first be given
notice by telecopy, in addition to being provided with notice as set forth in
the preceding sentence.
9. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Class A Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
10. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware.
11. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate deliverable upon the exercise hereof and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity and, if requested,
bond reasonably satisfactory to the Company, or in the case of
<PAGE> 7
any such mutilation, upon surrender and cancellation of this Warrant or such
stock certificate, the Company at its expense will make and deliver a new
Warrant or stock certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
12. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon exercise of this Warrant. The Company may, in lieu of
issuing any fractional share, pay the Holder entitled to such fraction a sum in
cash equal to the fair market value of any such fractional interest as it shall
appear on the public market, or if there is no public market for such shares,
then as shall be reasonably determined by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer effective as of December 31, 1998.
NEXTERA ENTERPRISES, INC.
By: /s/ STANLEY E. MARON
-------------------------------
Stanley E. Maron,
Secretary
<PAGE> 8
EXHIBIT A
NEXTERA ENTERPRISES, INC.
CLASS A COMMON STOCK WARRANT
FORM OF SUBSCRIPTION AGREEMENT
(To be signed and delivered
upon exercise of Warrant)
NEXTERA ENTERPRISES, INC.
One Cranberry Hill
Lexington, MA 02173
Attention: President
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the [purchase/conversion] right represented by such Warrant
for, and to acquire thereunder, ________________________________ shares of Class
A Common Stock (the "Stock"), of Nextera Enterprises, Inc. (the "Company"), and
herewith makes payment of ___________________________ Dollars ($____________)
therefor in the form of:
_______________________________________________________________________________
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to, ____________________________, whose address is:
________________________________________________________________________.
If the exercise of this Warrant is not covered by a registration
statement effective under the Securities Act of 1933, as amended (the "Act"),
the undersigned represents that:
(i) the undersigned is acquiring such Stock for investment for
his, her or its own account, not as nominee or agent, and not with a view to the
distribution thereof in violation of the Act and the undersigned has not signed
or otherwise arranged for the selling, granting any participation in, or
otherwise distributing the same in violation of the Act;
A-1
<PAGE> 9
(ii) the undersigned has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the undersigned's investment in the Stock;
(iii) the undersigned has received all of the information the
undersigned has requested from the Company and considers necessary or
appropriate for deciding whether to acquire the shares of Stock;
(iv) the undersigned has the ability to bear the economic risks
of his, her or its prospective investment;
(v) the undersigned is able, without materially impairing its
financial condition, to hold the shares of Stock for an indefinite period of
time and to suffer complete loss on his, her or its investment;
(vi) the undersigned understands and agrees that (A) he may be
unable to readily liquidate his, her or its investment in the shares of Stock
and that the shares must be held indefinitely unless a subsequent disposition
thereof is registered or qualified under the Act and applicable state securities
or Blue Sky laws or is exempt from such registration or qualification, and that
the Company is not required to register the same or to take any action or make
such an exemption available except to the extent provided in the within Warrant
or other applicable agreement to which the Company and the undersigned are
parties, and (B) the exemption from registration under the Act afforded by Rule
144 promulgated by the Securities and Exchange Commission ("Rule 144") depends
upon the satisfaction of various conditions by the undersigned and the Company
and that, if applicable, Rule 144 affords the basis for sales under certain
circumstances in limited amounts, and that if such exemption is utilized by the
undersigned, such conditions must be fully complied with by the undersigned and
the Company, as required by Rule 144; and
(vii) the undersigned either (A) is familiar with the definition
of and the undersigned is an "accredited investor" within the meaning of such
term under Rule 501 of Regulation D promulgated under the Act, or (B) is
providing representations and warranties reasonably satisfactory to the Company
and its counsel, to the effect that the sale and issuance of Stock upon exercise
of such Warrant may be made without registration under the Act or any applicable
state securities and Blue Sky laws.
A-2
<PAGE> 10
If said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
DATED: ______________________
________________________________________
(Name of holder must conform in all
respects to name of holder as specified
on the face of the Warrant or with the
name of the assignee appearing on the
assignment form attached hereto.)
________________________________________
(signature)
________________________________________
(print name)
________________________________________
(print title)
A-3
<PAGE> 1
Exhibit 10.30
NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD, UNLESS
IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE
WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
DATED AS OF AUGUST 31, 1998, AS AMENDED, A COPY OF WHICH MAY BE OBTAINED FROM
NEXTERA ENTERPRISES, INC. AT ITS PRINCIPAL EXECUTIVE OFFICE.
No. 2 $2,000,000
NEXTERA ENTERPRISES, INC.
Senior Secured Note
NEXTERA ENTERPRISES, INC. (the "Company"), for value received hereby
promises to pay to NEXTERA FUNDING, INC., a Delaware corporation (the
"Holder"), the principal sum of two million dollars ($2,000,000), in lawful
money of the United States of America and in immediately available funds, on
April 30, 1999 and to pay interest on the unpaid principal amount, in like
money and funds, for the period commencing on the date of this Note until
payment in full of the principal sum hereof has been made, at the rates per
annum and on the dates provided in the Agreement (as defined below).
This Senior Secured Note is one of a duly authorized issue of Senior
Secured Notes of the Company (the "Notes") referred to in the Securities
Purchase Agreement dated as of August 31, 1998 between the Company and the
Holder (as the same may be amended, restated or otherwise modified from time to
time in accordance with its terms, the "Agreement"). Capitalized terms used in
this Note have the respective meanings assigned to them in the Agreement.
<PAGE> 2
This Note is entitled to the benefit and security of the Security
Documents.
The Notes are transferable and assignable to one or more purchasers in
accordance with the limitations set forth in the Agreement. The Company agrees
to issue from time to time replacement Notes in the form hereof to facilitate
such transfers and assignments.
The Company shall keep at its principal office a register (the "Register")
in which shall be entered the names and addresses of the registered holders of
the Notes and particulars of the respective Notes held by them and of all
transfers of such Notes. References to the "Holder" or "Holders" shall mean the
Person listed in the Register as the payee of any Note. The ownership of the
Notes shall be proven by the Register.
Upon the occurrence of an Event of Default, the principal hereof and
accrued interest hereon shall become, or may be declared to be, forthwith due
and payable in the manner, upon the conditions and with the effect provided in
the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW). THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: January 28, 1999
NEXTERA ENTERPRISES, INC.
By: /s/ MICHAEL P. MULDOWNEY
---------------------------
Name: Michael P. Muldowney
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.37
Dated 29 January 1999
NEXTERA ENTERPRISES, INC.
and
THE VENDORS
AGREEMENT
RELATING TO THE SALE AND PURCHASE
OF THE WHOLE OF THE ISSUED SHARE CAPITAL OF
THE ALEXANDER CORPORATION LIMITED
LINKLATERS & PAINES
ONE SILK STREET
LONDON EC2Y 8HQ
TEL:(+44) 171 456 2000
REF: MSM/AXXL
<PAGE> 2
AGREEMENT FOR PURCHASE OF SHARES
THIS AGREEMENT is made on 29 January 1999
BETWEEN:
(1) THE SEVERAL PERSONS named in Part 1 of Schedule 1 and whose
addresses are set out in Part 4 of Schedule 1 (the "VENDORS" which
expression shall include the legal personal representatives of any
such persons); and
(2) NEXTERA ENTERPRISES, INC., a Delaware corporation, whose registered
office is at One Cranberry Hill, Lexington, MA, United States of
America (NEXTERA or the PURCHASER).
IT IS AGREED as follows:
1 INTERPRETATION
In this Agreement, including its Schedules, the headings shall not affect
its interpretation and, unless the context otherwise requires, the
provisions in this Clause 1 apply:
1.1 DEFINITIONS
AGREED TERMS or AGREED FORM means in relation to any document such
document in the terms or form agreed between the parties and signed by or
on behalf of the Purchaser's Solicitors and the Vendors' Solicitors for
the purposes of identification;
AUDITED ACCOUNTS means the audited accounts of the Company for the
financial period ended on the Balance Sheet Date;
BALANCE SHEET DATE means the balance sheet of the Company for the period
ended 31 December 1998;
BUSINESS DAY means a day on which banks are open for business in England
(excluding Saturdays, Sundays and public holidays);
CHARGE AGREEMENT means the Charge of Shares Agreement in the agreed form
to be entered into between the Purchaser and the Vendors;
COMPANY or Alexander means The Alexander Corporation Limited details of
which are contained in Part 3 of Schedule 1;
COMPANY'S CUMULATIVE PROFIT BEFORE TAX means the profit on ordinary
activities of the Company before taxation over the Earn-Out Period in
accordance with Clause 4;
COMPANY'S CUMULATIVE REVENUE means all revenue earned by the Company over
the Earn-Out Period as calculated in accordance with Clause 4;
COMPLETION ACCOUNTS means the accounts prepared in accordance with 7.2
COMPLETION DATE means the date hereof;
CONSIDERATION SHARES means 150,000 Nextera Shares credited as fully paid
as consideration pursuant to Clause 3;
COMPLETION means the completion of the sale and purchase of the Shares
pursuant to Clause 4;
COMPLETION ACCOUNTS means the accounts prepared in accordance with Clause
7;
1
<PAGE> 3
DISCLOSURE LETTER means the letter of even date herewith from the Vendors to the
Purchaser disclosing:
(i) information constituting exceptions to the Warranties; and
(ii) details of other matters referred to in this Agreement;
DISCLOSURE BUNDLE means the bundle of documents provided with the Disclosure
Letter;
EARN-OUT PERIOD means the period commencing on Completion and ending three years
later;
EARN-OUT STATEMENT means the statement to be delivered pursuant to Clause 4.8.1
setting forth the Company's Cumulative Revenue, the Company's Cumulative Profit
Before Tax and the Vendors Deferred Consideration, if any, payable to the
Vendors;
ENCUMBRANCE means any claim, charge, mortgage, security, lien, option, equity,
power of sale or hypothecation;
GAAP means generally accepted accounting principles in the UK on the date of
this Agreement;
INITIAL CASH CONSIDERATION means L300,000;
LOAN NOTES means the loan notes to be issued by Nextera to the Vendors as
Vendors Deferred Consideration pursuant to Clause 4.8, the aggregate value of
which will be calculated in accordance with Clause 4.8 and Schedule 7 and which
will be constituted by the Loan Note Instrument;
LOAN NOTE INSTRUMENT means the instrument constituting the Loan Notes in the
agreed terms;
NET WORKING CAPITAL means current assets less current liabilities;
NEXTERA STOCKHOLDERS AGREEMENT means the agreement entitled "Stockholders
Agreement" dated 31 August 1998 between Nextera Enterprises L.L.C., Nextera
Enterprises, INC and the individuals and other parties listed in Schedule A to
that agreement;
NEXTERA SHARES means units of class A common stock of US$0.001 each in the
capital of the Purchaser;
PENSION SCHEME means the Alexco Pension Plan being the pension scheme to which
Alexander currently makes contributions for and on behalf of certain of its
employees;
PROFIT AND LOSS STATEMENTS means the profit and loss statement for the Company
for the period ending 31 December 1998;
PROPERTY means the property brief details of which are set out in of Schedule 4
and Property means any one of them;
PURCHASER'S GROUP means the Purchaser, any subsidiary of the Purchaser, any
holding company of the Purchaser and any subsidiary of any such holding company;
PURCHASER'S SOLICITORS means Linklaters & Paines of One Silk Street, London EC2Y
8HQ;
REPORTING ACCOUNTANTS means a firm of Chartered Accountants independent of the
Vendors and of the Purchaser to be agreed by the Vendors' Representative on
behalf of the Vendors and the Purchaser within 7 days of a notice by one to the
other requiring such agreement or, failing such agreement, to be nominated on
the application of either of them by or on behalf of the President for the time
being of the Institute of Chartered Accountants in England and Wales;
SECURITY ACCOUNT has the meaning given in the Charge Agreement;
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2
<PAGE> 4
SERVICE AGREEMENTS means the service agreements to be entered into in
accordance with Clause 4.3 in the agreed terms;
SHARES means 1000 Ordinary Shares of L1 each in the capital of the
Company, being the whole of the issued share capital of the Company;
SIBSON means Sibson International LLC, a Delaware limited liability
company;
SUPPLEMENT TO THE STOCKHOLDERS AGREEMENT means the agreement in the
agreed form to be signed by the Vendors by which the Vendors will become
parties to the Stockholders Agreement;
TAX DEED OF COVENANT means the deed of covenant against Taxation in the
agreed terms to be entered into at Completion;
TAXATION and TRANSACTION bear the meanings respectively given to them in
the Tax Deed of Covenant;
VENDORS' ACCOUNTANTS means BDO Stoy Hayward of B Baker Street London W1M
1DA;
VENDORS DEFERRED CONSIDERATION means that number of Loan Notes as is
calculated in accordance with Schedule 6 hereof and paid in accordance
with Clause 4.8 hereof;
VENDORS' REPRESENTATIVE means Graham Alexander or such other person with
an address in the United Kingdom as Vendors selling between them
thereunder a majority of the Shares shall for this purpose notify to the
parties hereto by not less than 10 business days' prior written notice
with express reference to this Agreement;
VENDORS' SOLICITORS means Gouldens of 22 Tudor Street, London EC4Y 0JJ;
WARRANTIES means, in respect of the Vendors, the warranties set out in
Schedule 2 and WARRANTY means any one of them and, in respect of the
Purchaser, the warranties set out in Schedule 3 and means any of them.
1.2 SUBORDINATE LEGISLATION
Any reference to a statutory provision shall include any subordinate
legislation made from time to time under that provision.
1.3 MODIFICATION ETC. OF STATUTES
Any reference to a statutory provision shall include such provision as
from time to time modified or re-enacted or consolidated whether before
or after the date of this Agreement so far as such modification,
re-enactment or consolidation applies or is capable of applying to any
transactions entered into under this Agreement prior to Completion and
(so far as liability thereunder may exist or can arise) shall also
include any past statutory provision (as from time to time modified,
re-enacted or consolidated) which such provision has directly or
indirectly replaced.
1.4 CONNECTED PERSONS
A person shall be deemed to be connected with another if that person is
connected with such other within the meaning of Section 839 of the
Income and Corporation Taxes Act 1988 as in force at the date hereof.
1.5 ACCOUNTS
Any reference to ACCOUNTS shall include the directors' and auditors'
reports, relevant balance sheets and profit and loss accounts and
related notes together with all documents which are or would be
required by law to be annexed to the accounts of the company concerned
to be laid before that company in general meeting in respect of the
accounting reference period in question.
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3
<PAGE> 5
1.6 COMPANIES ACT 1985
The words SUBSIDIARY and HOLDING COMPANY shall have the same meaning in
this Agreement as their definitions in the Companies Act 1985 as in force
at the date hereof.
1.7 INTERPRETATION ACT 1978
The Interpretation Act 1978 shall apply to this Agreement in the same way
as it applies to an enactment.
1.8 SSAPS ETC.
A reference to SSAP means a statement of standard accounting practice as
adopted by the Accounting Standards Board and published by the Institute
of Chartered Accountants of England and Wales.
1.9 SCHEDULES ETC.
References to this Agreement shall include any Schedules to it and
references to Clauses and Schedules are to Clauses of and Schedules to
this Agreement.
1.10 INFORMATION
Any reference to books, records or other information means books, records
or other information in any form including paper, electronically stored
data, magnetic media, film and microfilm.
1.11 HEADINGS
Headings shall be ignored in construing this Agreement.
2 AGREEMENT TO SELL THE SHARES
2.1 SALE OF SHARES
The Vendors, relying (on amongst other things) the Warranties,
representation and undertaking on the part of the Purchaser contained in
this Agreement, (each as to those of the Shares specified against his
name in Part 1 of Schedule 1) shall sell and the Purchaser, relying on
(amongst other things) the Warranties, representations and undertakings
on the part of the Vendors contained in this Agreement, shall purchase
the Shares free from all Encumbrances and together with all rights and
privileges now and hereafter attaching thereto.
2.2 RIGHTS OF PRE-EMPTION
The Vendors hereby waive irrevocably any and all rights of pre-emption
over the Shares conferred either by the Articles of Association or other
equivalent document of the Company or in any other way.
3 CONSIDERATION
3.1 AMOUNT
The consideration for the purchase of the Shares shall be:
3.1.1 the Initial Cash Consideration (subject to adjustment in
accordance with Clause 7);
3.1.2 the Vendors Deferred Consideration; and
3.1.3 the allotment and issue of the Consideration Shares.
which shall be paid or issued in accordance with the provisions of Clause
4.
3.2 RANKING OF CONSIDERATION SHARES
The Consideration Shares shall rank in all respects pari passu with the
existing issued fully paid shares in the capital of the Purchaser.
- --------------------------------------------------------------------------------
4
<PAGE> 6
4 COMPLETION
4.1 DATE AND PLACE
4.1.1 Completion shall take place on the date hereof at the offices
of the Purchaser's Solicitors, or at such other place or on
such other date as may be agreed between the Purchaser and on
behalf of the Vendors.
4.1.2 If the Vendors comply with all of their obligations under
this Clause 4 which must be complied with at or before
Completion, then after Completion the Purchaser shall have no
right to rescind this Agreement.
4.2 VENDORS' OBLIGATIONS ON COMPLETION
On Completion the Vendors shall deliver or make available to the
Purchaser:
4.2.1 duly executed transfers of the Shares in favour of the
Purchaser or as it may direct accompanied by the relative
share certificates (or an express indemnity in a form
satisfactory to the Purchaser in the case of any certificate
found to be missing);
4.2.2 the written resignations of each of the directors and
secretary of the Company from his office as a director or
secretary to take effect on the date of Completion with
acknowledgments signed by each of them in agreed terms to the
effect (subject as therein mentioned) that he has no claim
against the Company for compensation for loss of office or
termination of employment (whether contractual, statutory or
otherwise), redundancy or otherwise in respect of the
resignation from such offices;
4.2.3 the written resignations of the auditors of the Company to
take effect on the date of Completion, with acknowledgments
signed by each of them in a form satisfactory to the
Purchaser to the effect that they have no claim against the
Company and containing the statement referred to in Section
394 of the Companies Act 1985 to the effect that there are no
circumstances connected with their resignation which they
consider should be brought to the notice of the members or
creditors of the Company;
4.2.4 the Supplement to the Stockholders Agreement duly executed;
4.2.5 the certificates of incorporation, corporate seals (if any),
and statutory books of the Company (duly written up-to-date);
4.2.6 the Tax Deed of Covenant duly executed by the Covenantors
named in it;
4.2.7 possession of all the financial and accounting books and
records of the Company and all documents of title relating to
the Properties;
4.2.8 evidence satisfactory to the Purchaser that the provisions of
paragraph 5.2 of Schedule 2 ("Arrangements with Connected
Persons etc.") have been duly complied with insofar as they
require certain matters to be dealt with prior to Completion.
4.2.9 bank statements of all bank accounts of the Company as at the
close of business on a Business Day not more than two days
prior to the date of Completion.
4.3 SERVICE AGREEMENTS
On Completion the Vendors shall procure that the key employees party
thereto shall enter into the Service Agreements with the Company.
4.4 BOARD RESOLUTIONS OF THE COMPANY
On Completion the Vendors shall procure the passing of Board Resolutions
of the Company inter alia:
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5
<PAGE> 7
4.4.1 amending existing authorities to bankers in respect of the
operation of its bank accounts as requested by the Purchaser and
giving authority in favour of such persons as the Purchaser may
nominate in relation to such accounts;
4.4.2 accepting the resignations referred to in Clause 4.2.2 and
appointing Mr. Vincent C. Perro and Mr. Douglas J. Tonney as
directors and Mr. Douglas J. Tonney as secretary;
4.4.3 approving the registration of the share transfers referred to in
Clause 4.2.1 subject only to their being duly stamped;
4.4.4 accepting the resignations referred to in Clause 4.2.3 and
appointing Ernst & Young as auditors of the Company;
4.4.5 approving the Service Agreements,
and shall hand to the Purchaser duly certified copies of such
Resolutions.
4.5 INITIAL CASH CONSIDERATION
4.5.1 The Initial Cash Consideration, being the sum of 300,000 pounds
(subject to adjustment in accordance with Clause 7), will be paid
on Completion against compliance by the Vendors with the foregoing
provisions of this Clause 4 in cash by the Purchaser to the
Vendors' Solicitors.
4.5.2 Any sum payable to the Vendors either on Completion or out of the
Charged Assets under the Charge Agreement shall be paid to the
Vendors' Solicitors who are authorised to receive the same on
behalf of the Vendors and whose receipt shall be a good discharge
to the Purchaser provided that if any amount by way of
compensation or indemnity shall become payable to the Purchaser
out of the Charged Assets in accordance with the provisions of the
Charge Agreement, the amount which would otherwise have been due
to the Vendors shall be reduced by the amount so payable and any
right of the Purchaser to such compensation or indemnity shall
also be reduced by such amount but without prejudice to the right
of the Purchaser to recover the excess of any compensation or
indemnity or any costs or expenses from the Vendors.
4.6 CONSIDERATION SHARES
Against compliance by the Vendors with the foregoing provisions of this
Clause 4, on Completion the Purchaser shall:
4.6.1 allot and issue to certain Vendors the number of shares listed in
column (3) of Part 1 of Schedule 1, being a total of 150,000 of
the Consideration Shares; and deliver certificates in respect of
those of them not to be charged under the Charge Agreement to the
Vendors' Solicitors;
4.6.2 issue but itself retain certificates for the balance of the
Consideration Shares pursuant to and in accordance with the Charge
Agreement;
4.6.3 deliver to the Vendors' Solicitors an engrossment of each of the
Charge Agreement and Tax Deed of Covenant duly executed by the
Purchaser together with evidence that the Security Account
referred to in the Charge Agreement has been duly opened in
accordance with the instruction letter in agreed terms;
4.6.4 deliver to the Vendors' Solicitors an engrossment of the
Supplement to the Stockholders Agreement duly executed by Nextera;
and
4.6.5 deliver to the Vendors' Solicitors a certified true copy of
resolutions of the Board of the Purchaser authorising its entry
into and implementation of this Agreement, the issue of
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6
<PAGE> 8
the options and consideration shares are referred by this
agreement and the constitution of the Loan Notes.
4.7 VENDORS COMPETENT TO ACQUIRE SHARES
4.7.1 Each Vendor who is receiving Consideration Shares has substantial
experience in evaluating and investing in private placement
transactions of securities in companies similar to the Purchaser
so that he is capable of evaluating the merits and risks of
acquiring the Consideration Shares as partial consideration for
sale of the Shares and has the capacity to protect his own
interests. Each Vendor must bear the economic risk of holding the
Consideration Shares indefinitely unless such securities are
registered pursuant to the US Securities Act of 1933 (the
SECURITIES ACT), or an exemption from registration is available
for the disposition thereof. The relevant Vendor understands that
there is no assurance that any exemption from registration under
the Securities Act will be available. The relevant Vendor is an
"accredited investor" as defined in Rule 501 under the Securities
Act.
4.7.2 Each Vendor receiving Consideration Shares is acquiring the
Consideration Shares for such Vendor's own account for investment
only, and not with the view to, or for resale in connection with,
any distribution thereof. The Vendor understands that the
Consideration Shares acquired have not been, and will not be,
registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act,
the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the
statements made in this Clause 4.7.
4.8 VENDORS DEFERRED CONSIDERATION
4.8.1 The Vendors' Deferred Consideration shall be calculated by Sibson,
in accordance with Schedule 6 and Clause 10 and applying GAAP on a
basis consistent with the Audited Accounts, who will deliver to
the Vendors, within three months of the end of the Earn-Out Period
the Earn-Out Statement showing calculations of the Earn
Out amounts.
4.8.2 Subject to Clause 4.8 and Clause 10 the amount of any Vendors
Deferred Consideration shall be paid to the Vendors in Loan Notes
within 5 Business Days of delivery of the Earn-Out Statement.
4.8.3 Any objections to the calculation of the Vendors Deferred
Consideration shall be resolved in accordance with the following
provisions of this Clause.
4.8.4 If the Vendors disagree with the amount determined by Sibson to be
the Vendors Deferred Consideration, the Company's Cumulative
Revenue or the Company's Cumulative Profit Before Tax, they or the
Vendors' Representative shall notify the Purchaser in writing of
such disagreement within ten business days of their receipt of the
Earn-Out Statement.
4.8.5 The Purchaser shall pay any undisputed amount of the Vendors
Deferred Consideration, in accordance with Clause 4.8.2. The
Purchaser and the Vendors shall use their best efforts for a
period of thirty (30) days following the notice of disagreement to
resolve any disagreement. If at the end of such period, the
Purchaser and the Vendors are unable to resolve the disagreement,
the Reporting Accountants shall be retained to make a final and
binding determination of the relevant part of the Vendors Deferred
Consideration, if any. For this purpose, the provisions of Clauses
7.3.1 to 7.3.12 (inclusive) (as far as relevant) shall apply to
such appointment.
4.8.6 The Purchaser agrees and undertakes that throughout the Earn-Out
Period unless otherwise agreed with the Vendors' Representative,
the Purchaser's Group will act in
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7
<PAGE> 9
good faith with respect to the operation of the Company and
shall not take any actions with the aim of diminishing or which
could reasonably be expected unfairly to reduce the Company's
Cumulative Profit Before Tax or the Company's Cumulative
Revenue.
4.8.7 The Vendors Deferred Consideration shall be divided amongst
the Vendors in proportion to the number of Shares to be sold by
them as set out in column (2) of Part 1 of Schedule 1.
4.8.8 If any of the Vendors who are also employees of the Company
work on projects within the Nextera Group but outside Alexander,
an amount for the work of that person as agreed between that
member of the Nextera Group and Alexander will be added to the
Company's Cumulative Revenue and will contribute to the
Company's Cumulative Profit Before Tax for the purposes of
calculating the Vendors Deferred Consideration.
4.8.9 Other than in respect of the Company's share of the Sibson
Group overhead charge (a charge shared by members of the Sibson
Group), if the Company pays any management fee to any company in
the Nextera Group, that amount will not be taken into account in
determining the Company's Cumulative Revenue or the Company's
Cumulative Profit Before Tax. It is, however, envisaged that the
Company will share and purchase some goods or services from
members of the Nextera Group. If the Company pays any amounts to
any member of the Nextera Group for goods or services the
Company has ordered, those amounts shall be included to the
extent fair and reasonable in determining the Company's
Cumulative Revenue or the Company's Cumulative Profit Before
Tax.
4.8.10 In the calculation of the Company's Cumulative Revenue and
Cumulative Profit Before Tax, any dividend paid by the Company
to another member of the Nextera Group shall not be taken into
account and the Company's Cumulative Revenue and Cumulative
Profit Before Tax shall be calculated as if those amounts had
not been paid.
4.8.11 If the Company or the business undertaken at Completion by
the Company is sold or transferred by the Purchaser (whether to
a purchaser who is not a member of the Nextera Group or
otherwise), the Purchaser must, without prejudice to its primary
obligations in respect thereof, ensure that the purchaser is
bound by the provisions of this Agreement relating to the
Vendors Deferred Consideration throughout the remaining Earn-Out
Period.
4.9 If before the end of the Earn Out Period Nextera is wound up or goes
into receivership or administration or is dissolved or becomes the
subject of analogous proceedings in any jurisdiction, the maximum
Vendors Deferred Consideration shall be deemed to have become
immediately due and payable and the Purchaser shall be obliged to
satisfy the same by the issue of Loan Notes to the Vendors accordingly.
4.10 NO FINANCIAL ASSISTANCE
Nothing in this Clause 4 shall require the Purchaser or any member of
the Purchaser's Group to incur any liability or provide any finance or
financial support by way of guarantee, indemnity, security or otherwise
for or to the Company.
4.11 EMPLOYEE OPTION PLAN
4.11.1 Nextera shall procure that 40,000 options for Nextera Shares are
granted during 1999 to employees of the Company in accordance
with and subject to the 1998 Equity Participation Plan.
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8
<PAGE> 10
4.11.2 At Completion Nextera shall grant options for 300,000 Nextera
Shares to the Vendors in the proportions agreed between the
Parties. These options shall be granted pursuant to the 1998
Equity Participation Plan of Nextera.
4.11.3 Following any IPO of Nextera, Nextera shall file an S-8
Registration Statement in relation to any Nextera shares to
be issued under the above options.
4.12 DELIVERY OF DOCUMENTS OF TITLE
Delivery of share certificates and loan stock certificates for the
Consideration Shares or Vendors Deferred Consideration shall be made to
the Vendors' Solicitors who are authorized to receive the same on behalf
of the Vendors and delivery to whom shall be a good discharge to the
Purchaser.
4.13 CHARGE AGREEMENT
On Completion the Vendors and the Purchaser shall enter into the Charge
Agreement.
5 WARRANTIES
5.1 INCORPORATION OF SCHEDULE 2
5.1.1 The Vendors jointly and severally (except in the case of the
Warranties set out at paragraphs 1.5 or 1.6 of Schedule 2, which
warranties will be given by each Vendor severally and in respect
of himself only) warrant to the Purchaser and its successors in
title in the terms set out in Schedule 2 subject only to:
(i) any matter which is fairly disclosed in the Disclosure
Letter: and
(ii) any matter expressly provided for under the terms of this
Agreement,
including, without prejudice to the generality of the foregoing,
the limitations and qualifications contained in Clause 5.2 and
any matter or thing hereafter done or omitted to be done
pursuant to this Agreement or otherwise at the request in
writing or with the approval in writing of the Purchaser.
5.1.2 The Vendors acknowledge that the Purchaser has entered into this
Agreement in reliance upon, amongst other things, the Warranties
and on the undertakings contained in Clause 9. Save as expressly
provided, the Warranties shall be separate and independent and
shall not be limited by reference to any other paragraph of
Schedule 2 or by anything in this Agreement or the Tax Deed of
Covenant.
Subject to Clause 5.1.1. claims may be made whether or not the
Purchaser, prior to signing this Agreement, could have
discovered (whether by any investigation into the affairs of the
Company or otherwise) that any Warranty has not been complied
with or carried out or is otherwise untrue or misleading.
5.1.3 The Vendors agree that if any claim, which could otherwise be
made by the Purchaser under any Warranty, is precluded or
debarred on the ground of the Purchaser having knowledge or
deemed knowledge of the matter to which such claim relates and
details of that matter are not contained in the Disclosure
Letter and/or its accompanying documents, then there shall be a
reduction in the consideration of an amount equal to the amount
which the Purchaser would have been able to claim under such
Warranty if such claim had not been precluded or debarred on the
grounds set out above, and the Vendors shall be obliged
immediately after such amount is agreed or determined to pay
such amount to the Purchaser.
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5.2 LIMITATION OF LIABILITY
5.2.1 Notwithstanding the provisions of Clause 5.1 the Vendors shall not
be liable, under the Warranties:
(i) in respect of any claim, unless notice of such claim is given
in writing by the Purchaser to the Vendors specifying in
reasonable detail (so far as known to the Purchaser) the
matters in respect of which the claim is made, in the case of
the Warranties, within 18 months of the date hereof and, in
the case of the Tax Deed of Covenant the period specified in
the Tax Deed;
(ii) if in respect of any claim, notice of which has been given
under Clause 5.2.1(i) which has not been previously settled,
satisfied or withdrawn, within twelve months of that notice
proceedings in respect thereof have not been issued and
served on the Vendors;
(iii) to the extent of any matter which would not have occurred but
for a voluntary act, omission, transaction or arrangement
after Completion by the Company or any member of the
Purchaser's Group which is outside the ordinary course of
business of the Company;
(iv) to the extent that the Company or the Purchaser is entitled
to claim indemnity against any loss or damage suffered by
the Company or the Purchaser and actually receives
compensation in respect of such loss or damage arising out of
any such claim under the terms of any insurance policy of the
Company;
(v) in respect of any claim unless the aggregate amount of all
claims for which the Vendors would otherwise be liable under
this Agreement exceeds L50,000 but if the aggregate liability
in respect of all such claims exceeds that figure then,
subject as provided elsewhere in this Clause 5, all claims,
including claims previously notified, shall accrue against
and be recoverable from the Vendors;
(vi) to the extent that any breach or claim in respect thereof
arises from any act, matter or thing done or omitted to be
done by the Vendors or any of them at the written request of
or with the written approval of the Purchaser, its authorized
representatives or professional advisers;
(vii) to the extent that a provision or reserve is made in the
Completion Accounts in respect of the matter to which such
liability relates save, for the avoidance of doubt, to the
extent that such provision or reserve was insufficient or to
the extent that even if it was provided for in the Completion
Accounts the Net Working Capital would still have exceeded
L365,000;
(viii) to the extent that a liability arose due to a change of the
accounting reference date of the Company or any change in the
accounting policies and principles used by the Company after
Completion, except insofar as the change was made in order
properly to comply with a mandatory legal or accounting
standard; and
(ix) to the extent that the Vendors' liability is increased by
reason of any breach by the Purchaser of its obligations
under this Agreement or the Tax Deed of Covenant.
5.2.2 Except to the extent that the liability of the Vendors is expressed
to be personal and several under any particular Warranties or under
any specific provision of the Tax Deed of Covenant, the Vendors
shall be jointly and severally liable for amounts falling due under
the Warranties or the Tax Deed of Covenant, PROVIDED THAT as between
themselves and without affecting the rights of the Purchasers, the
Vendors hereby mutually agree with each other that where they are
jointly and severally liable aforesaid
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each Vendor shall bear only his appropriate part of any liability
which may arise in relation to the claim concerned and any related
fees and expenses to be borne or suffered by the Vendors in
connection therewith, where for this purpose the appropriate part
shall mean:-
(i) the case of any liability which is fairly attributable to or
which arises by reason of income or benefits received by that
Vendor or a particular number of Vendors or his or their act or
default, the whole of such liability; and
(ii) in any other case, that proportion of the total liability
specified beside the names of the respective Vendors in column
(5) of Part 1 of Schedule 1
and each of the Vendors shall indemnify and contribute to each other
accordingly.
5.2.3 None of the limitations contained in this Clause 5.2 shall apply to
any Vendor in respect of any claim (i) which arises or is increased,
or to the extent to which it arises or is increased, as the
consequence of, or which is delayed as a result of, fraud, wilful
misconduct or wilful concealment by that Vendor; or (ii) which
concerns the failure, or alleged failure, of that Vendor to
transfer good title to his Shares to the Purchaser.
5.2.4 If a liability of the Purchaser or Company which gives rise to a
claim under the Warranties or under the Tax Deed of Covenant is
contingent, then the Vendors shall not be liable in respect thereof
unless and until such time as the contingent liability ceases to be
contingent and becomes actual PROVIDED THAT the foregoing provisions
of this paragraph shall not operate to avoid a claim made in respect
of a contingent liability within the time limits set out in Clause
5.2.1 above or Clause 3.1.9 of the Tax Deed of Covenant (as
appropriate) even if such liability does not become an actual
liability until after expiry of the relevant period and, in the case
of such a claim duly notified within the relevant period referred to
above, the period of twelve months referred to in Clause 5.2.1 above
or Clause 3.1.9 of the Tax Deed of Covenant shall commence on the
date such liability becomes actual liable.
5.3 MITIGATION OF LOSS
The Purchaser or the Vendors, as the case may be, shall procure that all
reasonable steps are taken and all reasonable assistance is given to avoid
or mitigate their loss which in the absence of mitigation might give rise
to a liability in respect of any claim arising under this Agreement or the
Tax Deed of Covenant.
5.4 EFFECT OF COMPLETION
The Warranties and all other provisions of this Agreement and the Tax Deed
of Covenant, insofar as the same shall not have been performed at
Completion, shall not be extinguished or affected by Completion, or by any
other event or matter whatsoever, except by a specific and duly authorized
written waiver or lease by the Purchaser and Vendors respectively.
5.5 INDEMNIFICATION
Subject to the limitations contained in Clause 5.2, the Vendors jointly
and severally agree to indemnify and hold the Purchaser and each company
in the Purchaser's Group, harmless from and against any damages,
liabilities, losses, taxes, fines, penalties, reasonable costs and legal
expenses (including, without limitation, reasonable fees of counsel) which
may be sustained or suffered by any of them arising out of or based upon
any breach of Warranty set out in Schedule 2.
5.6 LIMITATION OF LIABILITY
Subject to clause 5.2.3, the maximum aggregate liability of all Vendors
for claims against the Warranties is half of the total purchase
consideration. The maximum liability of each Vendor
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under the Warranties is limited to his pro rata proportion of the total
purchase consideration previously paid to him. For these purposes the
Shares shall be valued at the fair market value at the time an amount
becomes due and payable, or where the shares have been sold, that value.
5.7 CLAIMS TO BE NOTIFIED
Without prejudice to the right of the Purchaser to claim for breach of
Warranty, within a reasonable time after it becomes aware of any claim made
or threatened by any third party or other circumstances which give or are
likely to give rise to a claim under the Warranties (being such time, so
far as is practicable, as will allow the Vendors a reasonable opportunity
to exercise their rights under this Clause 5.6) the Purchaser shall notify
the Vendors of the relevant third party claim or circumstances (indicating,
to the extent then within the knowledge of the Purchaser, the nature of the
allegations being made or circumstances concerned) and shall thereafter:
5.7.1 use its best endeavours to ensure that no binding admission of
liability or agreement or compromise in relation to such claim is
made without prior written approval of the Vendors' Representative
(such approval not to be unreasonably withheld or delayed) and the
Vendors having the opportunity to request information and make
requests and seek to influence events as provided below;
5.7.2 keep the Vendors informed of the progress of and developments
relating to the claim or circumstances concerned;
5.7.3 provide the Vendors, at the Vendors' expense, with copies of such
documentation relating to the claim or circumstances as the Vendors
may reasonably request and provide the Vendors and their
professional advisers such access to the Properties and personnel of
the Purchaser as they may reasonably request (provided that such
access is on reasonable notice and does not unreasonably disrupt the
conduct of the business of the Purchaser or the Company) and offer
them such opportunity as they may reasonably request to examine any
relevant documents and records in the possession of the Company
provided that the Vendors shall treat, and shall procure that their
professional advisers shall treat, all information and documents to
which they have access hereunder as confidential and shall not
disclose it to any third party (other than professional advisers or
as required by law) without the prior written consent of the
Purchaser and shall use it only for the purposes of dealing with the
relevant claim or circumstances;
5.7.4 subject to being indemnified to its reasonable satisfaction by the
Vendors on an after tax basis against all costs, charges, losses,
expenses and other liabilities which may as a result be reasonably
incurred by the Purchaser and subject always to the requirements of
any relevant insurer, take and procure the Company to take such
action as the Vendors may reasonably request to resist the claim
and/or deal with the relevant circumstances and/or pursue any
related rights of recovery of the Company against any third party
provided that the Purchaser shall not be obliged to take or omit to
take any action which, in its reasonable opinion, would damage the
goodwill, reputation or business of the Company and provided that
the Purchaser shall be free to take such action as it may reasonably
think fit, in relation to any claim unless it receives timely
instructions from the Vendors as to the action which they require to
be taken in accordance with this sub-Clause;
provided that nothing in this Clause 5.7 shall require the Purchaser to
provide the Vendors with a copy of any document which it in good faith
considers to be privileged in the context of any litigation connected with
the claim.
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5.8 DOUBLE CLAIMS
The Purchaser shall not be entitled to recover from the Vendors under
this Agreement or the Tax Deed of Covenant more than once in respect of
the same damage suffered, and accordingly the Vendors shall not be
liable in respect of any breach of the Agreement if and to the extent
that the losses are or have been included in a claim under the Tax Deed
of Covenant which has been satisfied, nor shall the Vendors be liable in
respect of a claim under the Tax Deed of Covenant if and to the extent
that the losses are or have been included in a claim for breach of the
Agreement which has been satisfied.
5.9 SATISFACTION OF CLAIMS
Any valid claim by the Purchaser against any Vendor for breach of any of
the Warranties, or under the Tax Deed of Covenant shall, be satisfied as
follows:
5.9.1 first, against the Cash and then the Consideration Shares charged
under the Charge Agreement by that Vendor, such Shares being
valued, for such purpose, at fair market value at the time of
satisfaction of the relevant claim; and
5.9.2 secondly, by that Vendor.
5.10 ELECTION BY VENDORS
Notwithstanding the provisions of Clause 5.9, a Vendor may elect to
satisfy a claim for breach of Warranty and/or under the Tax Deed of
Covenant which would otherwise be satisfied by realisation of Shares
belonging to him pursuant to the Charge Agreement by making a cash
payment to the Purchaser equivalent to the sum for which those of his
Shares that would have been otherwise so realised, in which event the
Shares concerned shall forthwith be released from the provisions of the
Charge Agreement and redelivered to the Vendor concerned.
5.11 SUBSEQUENT RECOVERY
If the Vendors or any of them make payment in respect of a claim under
the Warranties and the Company or any member of the Purchaser's Group or
any agent on its or their behalf subsequently recovers or receives from
a third party a sum or benefit which is directly referable to the
subject matter of such claim, the Purchaser shall within ten business
days after the receipt of such sum or benefit pay to the Vendors
originally settling the claim a sum equal to the net amount received
(after deducting any costs and expenses reasonably and properly incurred
by the recipient(s) in recovering such sum or benefit from the third
party and any taxation liability referable to such receipt, to the
extent in any such case not already reimbursed by the Vendors) but not
in any event exceeding the amount originally paid by the Vendors in
respect of the claim concerned.
5.12 EXCLUSION OF OTHER WARRANTIES
Except in the case of a fraudulent misrepresentation, no Vendor shall be
liable in respect of any representations, warranties, covenants,
agreements, undertakings or other obligations express, implied,
statutory or otherwise, which are made or assumed or deemed to have been
made or assumed by him in relation to or in connection with the subject
matter hereof which are not contained and expressly given or assumed by
him in this Agreement or any document in agreed terms entered into
pursuant hereto and the Purchaser hereby confirms that it has not
entered into this Agreement or assumed any other obligation in
connection herewith in reliance on any such representation, warranty,
covenant, agreement, undertaking or other obligation.
5.13 Each Vendor selling Shares hereunder that he acquired on exercise of
options either granted under the Alexander Corporation Executive Share
Option Scheme or grant by Graham Alexander or granted by Charles Sherno
shall within 14 days of Completion pay to the Company or to the
Purchaser's Solicitors the sum specified alongside his name in column
(6) of Part 1 of Schedule
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on account of the PAYE tax liability referable to the grant and/or
exercise of his option(s). To the extent such sums are so paid:
(i) the Purchaser shall procure that they are applied in meeting
the tax liability to which they relate as promptly after
payment as is required to ensure that no penalties or fines
arise on such tax liability as a result of the Purchaser's or
the Company's delay;
(ii) no provision for that tax liability shall be made when
determining the Net Working Capital; and
(iii) the Vendors shall not be liable for such tax liability under
the Warranties and/or Tax Deed of Covenant.
6 WARRANTIES FROM THE PURCHASER
6.1 The Purchaser hereby warrants and represents to the Vendors and their
successors in title in the terms set our in Schedule 3 subject only to:
(i) any matter which is fairly disclosed in the Purchaser
Disclosure Letter; and
(ii) any matter expressly provided for under the terms of this
Agreement.
6.2 INDEMNIFICATION
Subject to the limitations contained in Clause 6.3, the Purchaser agrees
to indemnify and hold the Vendors harmless from and against any damages,
liabilities, losses, taxes, fines, penalties, reasonable costs, legal
expenses (including, without limitation, reasonable fees of counsel) which
may be sustained or suffered by any of them arising out of or based upon
any breach of Warranty set out in Schedule 3.
6.3 LIMITATION OF LIABILITY
6.3.1 Notwithstanding the provisions of Clause 6.1 the Purchaser shall not
be liable, under the Warranties set out in Schedule 3:
(i) in respect of any claim, unless notice of such claim is given
in writing by the Vendors to the Purchaser specifying in
reasonable detail (so far as known to the Vendors) the matters
in respect of which the claim is made, within 18 months of the
date hereof;
(ii) If in respect of any claim, notice of which has been given
under Clause 6.3.1(i) which has not been previously settled,
satisfied or withdrawn, within twelve months of that notice
proceedings in respect thereof have not been issued and served
in the Purchaser;
(iii) to the extent that the Vendors or the relevant member(s) of
the Purchasers Group are entitled to claim indemnity against
any loss or damage suffered by the Vendors or the relevant
member(s) of the Purchasers Group and actually receive
compensation in respect of such loss or damage arising out of
any such claim under the terms of any insurance policy;
(iv) in respect of any claim unless the aggregate amount of all
claims for which the Purchaser would otherwise be liable under
this Agreement exceeds L50,000 but if the aggregate liability
in respect of all such claims exceeds that figure then,
subject as provided elsewhere in this Clause 6, all claims,
including claims previously notified, shall accrue against and
be recoverable from the Purchaser;
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(v) to the extent that any breach or claim in respect thereof
arises from any act, matter or thing done or omitted to be
done by the Purchaser at the written request of or with the
written approval of the Vendors Representative or their
professional advisers acting on behalf of all the Vendors;
6.4 MITIGATION OF LOSS
The Purchaser or the Vendors, as the case may be, shall procure that all
reasonable steps are taken and all reasonable assistance is given to
avoid or mitigate loss to the Purchaser or any member of the Purchaser's
Group which in the absence of mitigation might give rise to a liability
in respect of any claim arising under this Agreement.
6.5 LIMITATION OF LIABILITY
The maximum aggregate liability of the Purchaser for claims against the
Warranties is half of the total purchase consideration. For these
purposes the Shares shall be valued at the fair market value at the time
an amount becomes due and payable, or where the shares have been sold,
that value.
6.6 CLAIMS TO BE NOTIFIED
Without prejudice to the right of the Vendors to claim for breach of
Warranty, within a reasonable time after they become aware of any claim
made or threatened by any third party or other circumstances which give
or are likely to give rise to a claim under the Warranties (being such
time, so far as is practicable, as will allow the Purchaser a reasonable
opportunity to exercise their rights under this Clause 6.4) the Vendors
shall notify the Purchaser of the relevant third party claim or
circumstances (indicating, to the extent then within the knowledge of the
Vendors, the nature of the allegations being made or circumstances
concerned) and shall thereafter:
6.6.1 use their best endeavours to ensure that no binding admission of
liability or agreement or compromise in relation to such claim is
made without prior written approval of the Purchaser (such
approval not to be unreasonably withheld or delayed) and the
Purchaser having the opportunity to request information and make
requests and seek to influence events as provided below;
6.6.2 keep the Purchaser informed of the progress of and developments
relating to the claim or circumstances concerned;
6.6.3 provide the Purchaser, at the Purchaser's expense, with copies of
such documentation relating to the claim or circumstances as the
Purchaser may reasonably request;
provided that nothing in this Clause 6.6 shall require the Vendors to
provide the Purchaser with a copy of any document which it in good faith
considers to be privileged in the context of any litigation connected
with the claim.
7 COMPLETION ACCOUNTS/ADJUSTMENT TO CONSIDERATION
7.1 ESTIMATED WORKING CAPITAL
The amount of the Initial Cash Consideration to be paid by the Purchaser
to the Vendors at Completion is premised upon the Company having at least
L365,000 of Net Working Capital, determined in accordance with GAAP, at
Completion (such amount being referred to as the MINIMUM WORKING
CAPITAL).
7.2 THE COMPLETION ACCOUNTS
The Vendors shall procure that as soon as practicable following
Completion there shall be drawn up a balance sheet and a profit and loss
statement of the Company as at Completion (the COMPLETION ACCOUNTS) and that
the same are reviewed by the Vendors' Accountants. The Completion Accounts
shall be drawn up in accordance with GAAP and (so far as not inconsistent
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therewith) in accordance with the principles, methods and bases adopted
in drawing up the Audited Accounts and so as to comply with the
Companies Act 1985.
7.3 PREPARATION
7.3.1 The Completion Accounts shall be delivered to the Purchaser by the
Vendors as soon as is practicable following Completion and, in any
event, not later than 60 days after Completion. Prior to such
delivery, the Vendors shall so far as is practicable consult with
the Purchaser with a view to reducing the potential areas of
future disagreement.
7.3.2 If the Purchaser does not within 30 days of presentation to it of
the Completion Accounts give notice to the Purchaser that it
disagrees with the Completion Accounts or any item thereof such
notice stating the reasons for the disagreement in reasonable
detail (the PURCHASER'S DISAGREEMENT NOTICE), the Completion
Accounts shall be final and binding on the parties for all
purposes. If the Purchaser gives a valid Purchaser's Disagreement
Notice within such 30 days, the parties shall attempt in good
faith to reach agreement in respect thereof and, if they are
unable to do so within 21 days of such notification, either party
may by notice to the other (or, in the case of the Vendors, the
Vendors' Representative acting on behalf of the Vendors) require
that the Completion Account be referred to the Reporting
Accountants (an APPOINTMENT NOTICE).
7.3.3 Within 21 days of the giving of an Appointment Notice, the Vendors
may by notice to the Purchaser indicate that, in the light of the
fact that the Purchaser has not accepted the Completion Accounts
in its entirety, they wish the Reporting Accountants to consider
matters relating to the Completion Accounts in addition to those
specified in the Purchaser Disagreement Notice, such notice
stating in reasonable detail the reasons why and in what respects
the Vendors believe that the Completion Accounts should be altered
(the VENDOR DISAGREEMENT NOTICE).
7.3.4 The Reporting Accountants shall be engaged jointly by the parties
on the terms set out in this Clause 7.3 and otherwise on such
terms as shall be agreed; provided that neither party shall
unreasonably (having regard, inter alia, to the provisions of this
Clause 7.3) refuse its agreement to terms proposed by the
Reporting Accountants or by the other party. If the terms of
engagement of the Reporting Accountants have not been settled
within 45 days of their identity having been determined (or such
longer period as the parties may agree) then, unless one party is
unreasonably refusing its agreement to those terms, those
accountants shall be deemed never to have become the Reporting
Accountants and new Reporting Accountants shall be selected in
accordance with the provisions of this Agreement.
7.3.5 Except to the extent that the parties agree otherwise, the
Reporting Accountants shall determine their own procedure but:
(i) apart from procedural matters and as otherwise set out in
this Agreement, shall determine only:
(a) whether any of the arguments for an alteration to
the Completion Accounts put forward in the
Purchaser's Disagreement Notice or the Vendors'
Disagreement Notice is correct in whole or in part;
and
(b) if so, what alterations should be made to the
Completion Accounts in order to correct the relevant
inaccuracy in it;
(ii) shall make their determination pursuant to Clause 7.3.5(i)
above as soon as is reasonably practicable;
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(iii) the procedure of the Reporting Accountants shall:
(a) give the parties a reasonable opportunity to make
written and oral representations to them;
(b) require that the parties supply each other with a copy
of any written representations at the same time as they
are made to the Reporting Accountants;
(c) permit each party to be present while oral submissions
are being made by any other party; and
(d) for the avoidance of doubt, the Reporting Accountants
shall not be entitled to determine the scope of their
own jurisdiction.
7.3.6 The determination of the Reporting Accountants pursuant to Clause
7.3.5(i) shall (i) be made in writing and made available for
collection by the parties at the offices of the Reporting
Accountants at such time as they shall determine and notify the
parties hereto in writing and (ii) unless otherwise agreed by the
parties include reasons for each relevant determination.
7.3.7 The Reporting Accountants shall act as experts and not as
arbitrators and their determination of any matter falling within
their jurisdiction shall be final and binding on the parties save
in the event of manifest error (when the relevant part of their
determination shall be void and the matter shall be remitted to the
Reporting Accountants for correction). In particular, without
limitation:
(i) their determination shall be deemed to be incorporated into
the Completion Accounts, which shall then be final and
binding on the parties save as aforesaid;
(ii) their determination of any fact which they have found it
necessary to determine for their determination pursuant to
Clause 7.3.5(i) shall be final and binding on the parties for
the purposes of finalisation of the Completion Accounts.
7.3.8 The expenses of the Reporting Accountants shall be borne as they
shall direct at the time they make any determination under Clause
7.3.5(i) or, failing such direction, equally between the Purchaser,
on the one hand, and the Vendors, on the other.
7.3.9 The parties shall co-operate with the Reporting Accountants and
comply with their reasonable requests made in connection with the
carrying out of their duties under this Agreement. In particular,
without limitation, the Purchaser shall keep up to date and,
subject to reasonable notice, make available to the Vendors'
representatives, the Vendors' accountants and the Reporting
Accountants, its books and records relating to the businesses of
the Company during normal office hours during the period from the
appointment of the Reporting Accountants down to the making of the
relevant determination.
7.3.10 Subject to Clause 7.3.11, nothing in this Clause 7.3 shall entitle
a party or the Reporting Accountants access to any information or
document which is protected by legal professional privilege, or
which has been prepared by the other party or its accountants and
other professional advisers with a view to assessing the merits of
any claim or argument.
7.3.11 A party shall not be entitled by reason of Clause 7.3.10 to refuse
to supply such part or parts of documents as contain only the facts
on which the relevant claim or argument is based.
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7.3.12 Each party and the Reporting Accountants shall, and shall
procure that its accountants and other advisers shall, keep
all information and documents provided to them pursuant to
this Clause 7.3 confidential and shall not use the same for
any purpose, except for disclosure or use in connection with
the preparation of the Completion Accounts, the proceedings of
the Reporting Accountants or another matter arising out of
this Agreement or in defending any claim or argument or
alleged claim or argument relating to this Agreement or its
subject matter.
7.4 ADJUSTMENT OF CONSIDERATION
7.4.1 The Net Working Capital of the Company as at the Completion
Date and as derived from the Completion Accounts is referred
to herein as the COMPLETION WORKING CAPITAL.
7.4.2 Within 14 days of either the Completion Accounts becoming
final and binding under Clause 7.3.2 or the determination of
the Reporting Accountants being made available for collection
by the parties pursuant to Clause 7.3.6 or in the case of
(ii) below 7 April 1999 if later than these dates,
(i) if the Net Working Capital at Completion is less than
the Minimum Working Capital the Vendors shall pay to
the Purchaser the amount of the shortfall or
(ii) if the Net Working Capital at Completion is more than
the Minimum Working Capital the Purchaser will cause
the Company to pay to the Vendors' Solicitors on behalf
of the Vendors by way of dividend on the Shares an
amount equal to the excess (but net of taxes required
by law to be deducted therefrom or payable by the
Purchaser in respect thereof) PROVIDED that the Company
would not have had to borrow funds (directly or
indirectly) to pay any part of the dividend payment
immediately prior to Completion and (the money
currently on deposit by the Company on the money
market shall be treated as immediately available funds
for these purposes). If the Company would have had to
borrow funds to satisfy any such part of the dividend
payment, the payment of such amount will be delayed
until such time as the Company does not have to borrow
such funds.
8 RESTRICTIONS ON THE SALE OF THE CONSIDERATION SHARES
8.1 The Vendors agree to comply with any restrictions on the sale of the
Consideration Shares held by them following Completion as are set out in
the Nextera Stockholders Agreement.
9 RESTRICTIONS ON THE VENDORS
9.1 RESTRICTIONS
Each Vendor severally undertakes with the Purchaser and its successors in
title as trustee for the Purchaser and the Purchaser's Group that the
Vendor will not and will procure that no person, firm or company carrying
on with the consent or privity of the Vendor any business with the Vendor
in competition with the Purchaser or the Purchaser's Group will in any
Relevant Capacity during the Restricted Period:
9.1.1 canvass or solicit the custom of any person, firm or company
who has within two years prior to Completion been a Client of
Alexander; or
9.1.2 induce or seek to induce any present employee of the Nextera
Group to become employed whether as employee, consultant or
otherwise by any of the Vendors or any undertaking or company
associated with or controlled by a Vendor.
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<PAGE> 20
9.2 REASONABLENESS OF RESTRICTIONS
Each Vendor agrees that he considers that the restrictions contained in
this Clause are no greater than is reasonable and necessary for the
protection of the interest of the Purchaser and the Purchaser's Group
but if any such restriction shall be held to be void but would be valid
if deleted in part or reduced in application, such restriction shall
apply with such deletion or modification as may be necessary to make it
valid and enforceable.
9.3 INTERPRETATION
The following terms shall have the following meanings respectively in
this Clause 9:
9.3.1 RESTRICTED PERIOD means two years commencing on Completion;
9.3.2 RELEVANT CAPACITY means for his own account or for that of any
person, firm or company (other than the Company or the
Purchaser's Group) or in any other manner and whether through
the medium of any company controlled by him (for which purpose
there shall be aggregated with its or his shareholding or
ability to exercise control the shares held or control exercised
by any person connected with him) or as principal, partner,
director, employee, consultant or agent.
10 RESTRICTIONS ON THE PURCHASER
10.1 During the Earn Out Period, the Purchaser shall procure, subject to
Clauses 10.2 and 10.3 below:
10.1.1 that no member of the Purchaser's Group will solicit or
endeavour to entice away or offer employment to or offer to
engage under any contract for services any of the employees of
the Company engaged in an executive or managerial or technical
capacity (except where those employees themselves are recruited
for the Company by a member of the Purchaser's Group after the
date hereof); and
10.1.2 that no member of the Purchaser's Group will (except in the
ordinary course of its business or to the extent required by law
or where the same has come into the public domain through no
default of the Purchaser's Group) disclose to any third party
any (not being a member of the Purchaser's Group) confidential
information relating to the business of the Company or its
customers or clients.
10.2 BREACH OF THIS AGREEMENT
The provisions of Clause 10.1 above shall not prevent any member of the
Purchaser's Group from doing anything which is necessary to remedy the
effects of any breach by the Vendors of their obligations under this
Agreement and/or the Tax Deed of Covenant which the Vendors themselves
have not remedied within a reasonable period time after written notice
from the Purchaser.
10.3 WAIVER
Nothing in Clause 10.1 above shall prevent the Purchaser or any member
of the Purchaser's Group from taking any action which the Vendors'
Representative has specifically agreed to in writing on behalf of the
Vendors with express reference to this Clause.
10.4 INSPECTION
Each of the Vendors and the Vendors' Representatives shall be permitted
at all reasonable times to inspect the books, papers and financial
records of the Company (but only to the extent necessary to verify due
performance by the Purchaser with its obligations in relation to the
Earn Out Period and/or proper calculation of the Vendors Deferred
Consideration) of the Purchaser's Group and to take copies of the same
or extracts therefrom and shall also during the Earn Out period and to
the extent aforesaid be entitled to be provided with such other
financial and
19
<PAGE> 21
business information in relation to the Company as he shall from time
to time reasonably require, subject always to his maintaining any such
confidential information as confidential in accordance with the
provisions of the Agreement.
10.5 ADJUSTMENT
If the Purchaser is in breach of Clause 10.1 above then (and as the
Vendors sole remedy) any adverse effect the subject matter of the
breach has on the Company's Cumulative Revenue and/or the Company's
Cumulative Profit Before Tax shall be reversed and suitably adjusted
when determining the Vendors Deferred Consideration and any dispute of
the amount which shall be reversed or adjusted shall be referred to the
Reporting Accountant in accordance with clause 7.3.4.
11 VENDORS' REPRESENTATIVE
11.1 Any consent or agreement or direction or waiver given or made by the
Vendors' Representative or Vendors' Solicitors for the purposes of this
Agreement shall be binding upon all of the Vendors.
11.2 Delivery of any document or payment required to be made to the Vendors
or any of them hereunder may be made to the Vendor's Solicitors (REF
ACG/752614) whose receipt for such delivery or payment shall be an
absolute discharge of the Purchaser who shall not be concerned with the
application thereof.
11.3 The Vendors' Representative is hereby authorized by the Vendors to act
in the way contemplated by this Agreement and to take such decisions as
he shall at his entire discretion determine and, provided he acts in
good faith, the Vendors' Representative shall have and accepts no
liability to any of the Vendors or to any other person other than the
Purchaser in connection with or as a result of anything which such
Vendors' Representative does or refrains from doing or neglects or
omits to do in connection with any matter relating to this Agreement.
11.4 As between the Vendors, the Vendors' Representative shall not be
required to expend any of his own money on or in relation to matters
referred to in this Agreement and, without prejudice to the generality
of the foregoing, may decline to take any steps in relation to any
claim under Warranties or Tax Deed of Covenant unless he has been
indemnified or secured (if and to the extent he so requires) to his
full satisfaction by the Vendors he represents in respect of the
maximum amount of the expenses and other liabilities of any kind which
he reasonably considers that he will or may incur in connection with or
as a result of such proceedings and such indemnities or securities
shall be such as to ensure that the Vendors' Representative has
immediate access to all such funds as he may require in order to meet
all such expenses or other liabilities as they fall PROVIDED THAT the
Vendors' Representative shall be obliged to pay his appropriate
proportion of such expenses and liabilities.
12 OTHER PROVISIONS
12.1 LIABILITY
Except where provision is specifically made to the contrary, the
liability of each of the Vendors under or pursuant to any of the
provisions of this Agreement shall be several. Any liability to a party
under this Agreement may in whole or in part be released, compounded or
compromised, or time or indulgence given by the party to whom it is
owed in its absolute discretion as regards any party under such
liability without in any way prejudicing or affecting its rights
against any other or others of the parties under the same or a like
liability whether joint and several or otherwise.
12.2 ANNOUNCEMENTS
No public announcement (excluding announcements (not disclosing the
amount of the consideration paid hereunder) to employees, customers and
suppliers of the Company)
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20
<PAGE> 22
concerning the transactions contemplated by, or the terms of, this
Agreement shall (save as required by law or by the United States
securities authorities) be made by either party, unless the written
consent of the other has been obtained and the terms of the announcement
have been agreed in advance which consent shall not be unreasonably
withheld. In the case of the Vendors any such consent shall be given by
the Vendors' Representative on their behalf.
12.3 SUCCESSORS AND ASSIGNS
12.3.1 The Vendors agree that the benefit of every provision in this
Agreement is given to the Purchaser for itself and its
successors in title and assigns. Accordingly, the Purchaser (and
its successors and permitted assigns) may, without the consent
of the Vendors, assign the benefit of all or any of the Vendors'
obligations under this Agreement, and/or any benefit arising
under or out of this Agreement to any entity which is its
subsidiary, holding company or a subsidiary of any such holding
company.
12.3.2 The Vendors may not assign the benefit of all or any of the
Purchaser's obligations under this Agreement except with the
written consent of the Purchaser, however the vendors may
transfer their shares in Nextera by way of Qualified Transfer
under the Nextera Stockholders Agreement.
12.4 VARIATIONS
No variation of this Agreement shall be effective unless in writing and
signed by or on behalf of each of the parties to this Agreement.
12.5 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement
may be extended by mutual agreement between the parties but as regards
any time, date or period originally fixed or any time, date or period so
extended time shall be of the essence.
12.6 FURTHER ASSURANCE
At any time after the date of this Agreement each Vendor shall and shall
use his best endeavours to procure that any necessary third party shall
execute such documents and do such acts and things as the Purchaser may
reasonably require for the purpose of perfecting the transfer of his
shares to the Purchaser PROVIDED THAT nothing in this Agreement shall
oblige a Vendor to bear any stamp duty, or stamp duty reserve tax
attributable to the sale or transfer of his Shares hereunder.
12.7 COSTS
The Vendors shall bear all legal, accountancy and other costs and
expenses incurred by them in connection with this Agreement, the Tax
Deed of Covenant and the sale of the Shares. The Purchaser shall bear
all such costs and expenses incurred by it.
12.8 INTEREST
If the Vendors or the Purchaser default in the payment when due of any
sum payable under this Agreement or the Tax Deed of Covenant (whether
determined by agreement or pursuant to an order of a court or otherwise)
the liability of the Vendors or the Purchaser (as the case may be) shall
be increased to include interest on such sum from the date when such
payment is due until the date of actual payment (as well after as before
judgment) at a rate per annum of one per cent above the base rate from
time to time of Midland Bank PLC. Such interest shall accrue from day to
day.
12.9 SPECIFIC PERFORMANCE
The parties agree that it would be difficult to measure damages which
might result from a breach of this Agreement by the either and that
money damages would be an inadequate remedy for such a breach.
Accordingly, if there is a breach or proposed breach of any provision of
this
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21
<PAGE> 23
Agreement by any party to this agreement shall be entitled, in addition
to any other remedies which it may have, to an injunction or other
appropriate equitable relief to restrain such breach without having to
show or prove actual damage.
12.10 NOTICES
12.01.1 Any notice or other communication requiring to be given or
served under or in connection with this Agreement shall be in
writing and shall be sufficiently given or served if delivered
or sent,
In the case of any of the Vendors, to the Vendors' Solicitors
at:
Address: Gouldens
22 Tudor Street
London
EC4Y 0JJ
Fax: 44 171 583 3051
Attention: Adam Greaves (FILE 752614)
In the case of the Purchaser to Nextera Enterprises, Inc. at:
Address: Nextera Enterprises, Inc.
c/o Sibson UK Limited
338 Euston Road
Regent Place
London NW1 3BT
Fax: 08700 101113
Attention: Fred Mendelsohn
with a copy to:
Address: Nextera Enterprises, Inc.
One Cranberry Hill
Lexington
MA 02173
United States of America
Fax: +1212 421 9310
Attention: Vincent Perro
and a copy to:
Address: Maron & Sandler
844 Moraga Drive
Los Angeles
CA 90049
Fax: +1 310 440 3690
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<PAGE> 24
Attention: Jim Banks
Either party may by notice in writing under this clause change
the required address or reference to which notices must be sent.
12.10.2 Any such notice or other communication shall be delivered by
hand or sent by courier, fax or prepaid first class post
(airmail if sent to or from the United Kingdom). If sent by
courier or fax such notice or communication shall conclusively
be deemed to have been given or served at the time of dispatch,
in case of service in the United Kingdom, or on the following
Business Day in the case of international service. If sent by
post such notice or communication shall conclusively be deemed
to have been received two Business Days from the time of
posting, in the case of inland mail in the United Kingdom or
three Business Days from the time of posting in the case of
international mail.
12.11 SEVERANCE
If any term or provision in this Agreement is held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law,
such term or provision or part shall to that extent be deemed not to
form part of this Agreement but the enforceability of the remainder of
this Agreement shall not be affected.
12.12 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be deemed an original, but all the counterparts shall
together constitute one and the same instrument.
12.13 GOVERNING LAW AND SUBMISSION TO JURISDICTION
This Agreement and the documents to be entered into pursuant to it,
save as expressly referred to therein, shall be governed by and
construed in accordance with English law and all the parties
irrevocably agree that (save as expressly referred to therein) the
courts of England are to have exclusive jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and
such documents Provided that nothing in this clause shall prevent the
Vendors or any of them from enforcing any judgment or order of such
Court against the Purchaser or its assets in any jurisdiction or affect
any related rights of the Vendors.
12.14 APPOINTMENT OF PROCESS AGENT
The Purchaser irrevocably appoints Sibson UK Limited as its agent to
accept service of process in England in any legal action or proceedings
arising out of or in connection with this Agreement, service upon whom
shall be deemed completed whether or not forwarded to or received by
the Purchaser. If such process agent ceases to be able to act as such
or to have an address in England, the Purchaser irrevocably agrees to
appoint a new process agent in England acceptable to the other Parties
and to deliver to the other Parties within 14 days a copy of a written
acceptance of appointment by the process agent. Nothing in this
Agreement shall effect the right to serve process in any other manner
permitted by law.
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<PAGE> 25
SCHEDULE 1
PART 1
PARTICULARS OF VENDORS, SHARES SOLD ETC.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
NAMES AND SHARES CONSIDERATION INITIAL CASH WARRANTY/ PAYE
ADDRESSES OF SOLD SHARES CONSIDERATION TAX CLAIM LIABILITY
VENDORS ORDINARY (L) % L
<S> <C> <C> <C> <C> <C>
Graham Alexander 504 78,100 L142,921 50.4% 0
Charles Sherno 121 18,750 L34,313 12.1% 0
Arthur Morgan 73 11,311 L20,700 7.3% L4,591
Philip Goldman 121 18,750 L34,313 12.1% L20,160
Michael Manwaring 123 19,060 L34,880 12.3% L20,559
Ron Hyams 26 4,029 L7,373 2.6% L1,397
Victor Harris* 24 L19,000 2.4% L1,397
Paul Bates* 8 L6,500 0.8% L1,597
</TABLE>
* non accredited investors
PART 2
PARTICULARS OF DIRECTORS OF THE COMPANY
FULL NAMES USUAL ADDRESS
Graham Alexander 200A West End Lane
London NW5 1SG
Philip Graham Goldman 25 Baxendale
Whetstone
London N20 0EG
Michael John Manwaring 7 Highgate West Hill
London N6 4JK
Arthur William Crawford Morgan Bovingdon
Marlow Common
Buckinghamshire
SL7 2QR
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<PAGE> 26
PART 3
PARTICULARS OF THE COMPANY
<TABLE>
<S> <C>
Registered Number: 2204495
Registered Office: 32 Brook Street
London W1Y 1AG
Date and place of incorporation: 10 December, 1987, Cardiff
Secretary: Joanne Adams
Accounting Reference Date: 31 October
Auditors: BDO Stoy Hayward
Solicitors: Gouldens
Authorized Share Capital: L1,000 divided into 1,000 ordinary
shares of L1 each
Issued and fully paid-up Share 1,000 Ordinary Shares of L1 each
Capital:
</TABLE>
PART 4
ADDRESSES OF VENDORS
<TABLE>
<CAPTION>
Vendor Address
<S> <C>
Graham Alexander 200A West End Lane
London NW5 1SG
Charles Sherno 2 Lakeside
Spencer House
Hampstead
London NW3
Arthur Morgan Bovingdon
Marlow Common
Buckinghamshire SL7 2QR
Philip Goldman 25 Baxendale
Whetstone
London N20 0EB
Michael Manwaring 7 Highgate West Hill
London N6 4YE
Ron Hyams 37 Oman Road
London NW3 4QD
Victor Harris 18 Viga Road
Winchmore Hill
London N21 H1J
Paul Bates 56 Coopers Close
London E1 4BD
</TABLE>
25
<PAGE> 27
SCHEDULE 2
WARRANTIES GIVEN BY THE VENDORS UNDER CLAUSE 5
1 AUTHORITY AND CAPACITY OF THE VENDORS
1.1 The Company is a company duly incorporated and validly existing under
the laws of England and Wales.
1.2 No person has the right (whether exercisable now or in the future and
whether contingent or not) to call for the allotment, conversion, issue,
sale or transfer of any share or loan capital or any other security
giving rise to a right over the capital of the Company under any option
or other agreement (including conversion rights and rights of
pre-emption) and there are no Encumbrances on the Shares of the Company
or any arrangements or obligations to create any Encumbrances.
1.3 The execution and delivery of, and the performance by the Vendors of
their obligations under, this Agreement and the Tax Deed of Covenant and
any other documents to be executed by the Vendors pursuant to or in
connection with this Agreement will not:
1.3.1 result in a breach of any provision of the memorandum or
articles of association of or the Company; or
1.3.2 result in a material breach of or give any third party a right
to terminate or modify, or result in the creation of any
Encumbrance under any material agreement, license or other
instrument or result in a breach of any order, judgment or
decree of any Court, governmental agency or regulatory body to
which the Company is a party or by which the Company is bound.
1.4 The Shares comprise the whole of the allotted and issued share capital
of the Company, have been properly and validly allotted and issued and
are each fully paid.
1.5 The relevant Vendor is entitled to sell and transfer to the Purchaser
the full legal and beneficial ownership of the Shares set opposite his
name in Part 1 of Schedule 1 on the terms of this Agreement without the
consent of any third party and without breaching any order, judgement or
decree of any court, governmental agency or regulatory body by which
that Vendor is bound.
1.6 The relevant Vendor has the legal right and full power and authority to
enter into and perform this Agreement and the Tax Deed of Covenant and
any other documents to be executed by such Vendor pursuant to or in
connection with this Agreement which when duly and validly executed and
delivered by all the parties thereto will constitute valid and binding
obligations on such Vendor, in accordance with their respective terms.
2 ACCURACY AND ADEQUACY OF INFORMATION DISCLOSED TO THE PURCHASER
All information contained in this Agreement and the Disclosure Letter
and Disclosure Bundle has been supplied by the Vendors in good faith in
the honest belief that the information contained in it is correct in all
material respects.
None of the Vendors is aware of any fact or matter or circumstances not
disclosed in writing to the Purchaser which renders any such information
untrue, inaccurate or misleading in any material respect.
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<PAGE> 28
3 ACCOUNTS AND RECORDS
3.1 LATEST ACCOUNTS
The Audited Accounts and the financial statements of the Company for the
year ended 31 October 1996 have been prepared in accordance with
applicable law and in accordance with accounting principles, standards
and practices generally accepted at the date they were prepared in the
United Kingdom and, subject thereto, on a basis consistent with that
adopted in preparing the audited accounts for the previous two financial
periods so as to give a true and fair view of the assets, liabilities and
state of affairs of the Company at the Balance Sheet Date and 31 October
1996 respectively and of the profits or losses for the period concerned
and as at that date make:
3.1.1 full provision for all actual liabilities;
3.1.2 proper provision (or note in accordance with good accountancy
practice) for all contingent liabilities which would normally be
provided for or noted; and
3.2 EXCEPTIONAL ITEMS
The combined profits of the Company for the two years ended on the Balance
Sheet Date as shown by the Audited Accounts and by the audited accounts of
the Company for previous periods delivered to the Purchaser and the trend
of profits thereby shown have not (except as fairly disclosed in such
accounts) been materially affected by changes or inconsistencies in
accounting practices, by the inclusion of non-recurring items of income or
expenditure, by transactions of an abnormal or unusual nature or entered
into otherwise that on normal commercial terms or by any other factors
rendering such profits for all or any of such periods exceptionally high or
low.
3.3 DEBTS
No debts aggregating more than L15,000 and shown in the Audited Accounts as
receivable or due to the Company have been outstanding for more than three
months from their due date for payment and the Vendors are not aware of any
reason why the debts owing to the Company as shown in the Audited Accounts
will not realise in the normal course of collection 95% or greater their
value as included in the Audited Accounts.
3.5 ACCOUNTING AND OTHER RECORDS
The statutory books, books of account and other records of whatsoever kind
of the Company are up-to-date and maintained in accordance with all
applicable legal requirements on a proper and consistent basis and reflect
all matters required to be dealt with in such books and all such books and
records and all other documents (including documents of title and copies
of all subsisting agreements to which the Company is a party) which are
the property of the Company or ought to be in its possession are in its
possession (or under its control) and no notice or allegation that any is
incorrect or should be rectified has been received. All accounts and other
material, documents and returns required by law to be delivered or made to
the Registrar of Companies or any other authority have been duly and
correctly delivered or made.
3.6 CHANGES SINCE BALANCE SHEET DATE
Since the Balance Sheet Date as regards the Company:
3.6.1 there has been no material adverse change in its business or
trading results or, financial conditions;
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27
<PAGE> 29
3.6.2 its business has been carried on in the ordinary course, without
any material interruption or alteration in its nature, scope or
manner, and so as to maintain the same as a going concern;
3.6.3 it has not entered into any material transaction or assumed or
incurred any material liabilities (including contingent
liabilities) or made any material payment not provided for in the
Audited Accounts otherwise than in the ordinary course of carrying
on its business;
3.6.4 its profits have not been materially affected by changes or
inconsistencies in accounting treatment, by any non-recurring items
of income or expenditure, by transactions of an abnormal or
unusual nature or entered into otherwise than on normal commercial
terms or by any other factors rendering such profits exceptionally
high or low;
3.6.5 to the extent of knowledge of the Vendors its business has not been
materially and adversely affected by the loss of any important
customer or source of supply or by any abnormal factor not
affecting similar businesses to a like extent and there are no
facts which are likely to give rise to any such effects;
3.6.6 no dividend or other distribution has been declared, made or paid
to its members except as provided for in the relevant balance sheet;
3.6.7 no share or loan capital or any other security giving rise to a
right over the capital has been allotted or issued or agreed to be
allotted or issued;
3.6.8 it has not redeemed or purchased or agreed to redeem or purchase
any of its share capital;
3.6.9 it has not made or received any surrender relating to group relief
or the benefit of advance corporation tax;
3.6.10 no insurance claims have been refused or settled below the amount
claimed;
3.6.11 all trade creditors have been paid in the ordinary course of
business and in accordance with the Company's usual practice and
credit terms and such terms have not been substantially varied; and
3.6.12 all debts owed to the Company in the ordinary course of business
have been subject to the Company's usual collection practice and
credit terms and the Company has not extended the terms on which
any trade debtor would normally be required to pay debts due to the
Company.
3.7 1998/1999 RESULTS
The projected operating results for the Company for the years ended 31
October 1998 and 1999 provided to the Purchaser by the Company were
prepaid in good faith and on the basis of assumptions of the Company
which the Vendors believe were reasonable at the time of the preparation
of such projected results and believe still reasonable at the date hereof.
4 LEGAL MATTERS
4.1 COMPLIANCE WITH LAWS
The Company has carried on and is carrying on its business and operations
so that there have been no material breaches of applicable laws,
regulations and bye laws in each country in which they are carried on and
there have not been and are not any material breaches by the Company of
its constitutional documents and there has not been and is no
investigation or enquiry by, or
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28
<PAGE> 30
order, decree, decision or judgment of, any court, tribunal, arbitrator,
governmental agency or regulatory body outstanding or anticipated by the
Vendors against the Company or any person for whose acts or defaults it
may be vicariously liable, nor any notice or other communication (official
or otherwise) from any court, tribunal, arbitrator, governmental agency or
regulatory body with respect to an alleged actual or potential violation
and/or failure to comply with any such applicable law, regulation, bye law
or constitutional document, or requiring it/them to take or omit any
action.
4.2 LICENCES, CONSENTS ETC.
All licences, consents, authorisations, orders, warrants, confirmations,
permissions, certificates, approvals and authorities (LICENCES) necessary
or desirable for the carrying on of the businesses and operations of each
of the Company have been obtained, are not limited in duration, nor
subject to onerous conditions, are in full force and effect and have been
and are being complied with in all material respects. There is no
investigation, enquiry or proceeding outstanding or anticipated by the
Vendors which they believe is likely to result in the suspension,
cancellation, modification or revocation of any of such Licences. So far
as the Vendors are aware, none of such Licences has been breached or is
likely to be suspended, cancelled, refused, modified or revoked (whether
as a result of the entry into or completion of this Agreement or
otherwise).
4.3 LITIGATION
4.3.1 Since the Balance Sheet Date no claim for damages has been made
against the Company.
4.3.2 The Company (or any person for whose acts or defaults the Company
may be vicariously liable) is not involved whether as plaintiff or
defendant or other party in any claim, legal action, proceeding,
suit, litigation, prosecution, investigation, enquiry or
arbitration (other than as plaintiff in the collection of debts
arising in the ordinary course of its business up to an aggregate
amount of L20,000) and no such claim, legal action, proceeding,
suit, litigation, prosecution, investigation, enquiry or
arbitration is pending or threatened by or against the Company (or
any person for whose acts or defaults the Company may be
vicariously liable).
4.3.3 There are no investigations, disciplinary proceedings or (so far as
the Vendors are aware) other circumstances likely to lead to any
such claim or legal action, proceeding, suit, litigation,
prosecution, investigation, enquiry or arbitration.
4.4 INSOLVENCY ETC.
4.4.1 No order has been made, petition presented, resolution passed or
meeting convened for the winding up (or other process whereby the
business is terminated and the assets of the company concerned are
distributed amongst the creditors and/or shareholders or other
contributories) of the Company and there are no cases or proceedings
under any applicable insolvency, reorganisation or similar laws in
any jurisdiction concerning the Company and (so far as the Vendors
are aware) no events have occurred which, under applicable laws,
would justify any such cases or proceedings.
4.4.2 No petition has been presented or other proceedings have been
commenced for an administration order to be made (or any other
order to be made by which during the period it is in force, the
affairs, business and assets of the company concerned are managed
by a person appointed for the purpose by a Court, governmental
agency or similar body) in relation to the Company, nor has any
such order been made.
4.4.3 No receiver (including an administrative receiver), liquidator,
trustee, administrator, custodian or similar official has been
appointed in any jurisdiction in respect of the
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29
<PAGE> 31
whole or any part of the business or assets of the Company and no
step has been taken for or with a view to the appointment of such a
person.
4.4.4 The Company is not insolvent nor unable to pay its debts as they
fall due.
5 TRADING AND CONTRACTUAL ARRANGEMENTS
5.1 CAPITAL COMMITMENTS
There are no capital commitments entered into or proposed by the Company.
5.2 ARRANGEMENTS WITH CONNECTED PERSONS ETC.
5.2.1 Except for salary and other employment benefits and reasonable
expenses incurred in the ordinary course of business, there is no
indebtedness (actual or contingent) nor any indemnity, guarantee or
security arrangement between the Company or the Vendors and any
current or former employee, current or former director or any
current or former consultant of the Company or any person known by
the Vendors to be connected with any of such persons.
5.2.2 Except for employment or consultancy agreements in the ordinary
course of this Company's business or for its Articles of
Association, the Company is not nor has it been party to any
material contract or, arrangement with any current or former
employee, current or former director or any current or former
consultant of the Company or any person known by the Vendors to be
connected with any of such persons, or in which any such person as
aforesaid is known by the Vendors to be interested (whether directly
or indirectly).
5.2.3 Except for its Articles of Association there are no existing
contracts or arrangements between or involving the Company and any
of the Vendors and/or any director of the Company and/or any person
known by the Vendors to be connected with any of them (other than
employment and/or service contracts and/or Consulting Agreements).
5.3 CONTRACTS
5.3.1 The Company is not, nor since the Balance Sheet Date has it been,
party to any unusual, long-term or materially onerous commitments,
contracts or arrangements or any such not wholly on an arm's length
basis in the ordinary course of business.
5.3.2 THE COMPANY
(i) is not party to any commitment, contract or arrangement
which is of a loss-making nature (that is, known by the
Vendors to be likely to result in a material loss on
completion of performance) or which cannot readily be
fulfilled or performed on time without undue or unusual
expenditure of money or effort;
(ii) is not party to any agency, distributorship, marketing,
purchasing, manufacturing or licensing agreement or
arrangement or any agreement or arrangement which restricts
its freedom to carry on its business in any part of the
world in such manner as it thinks fit; or
(iii) is not, and has not agreed to become, a member of any joint
venture, consortium, partnership or other unincorporated
association.
5.4 COMPLIANCE WITH AGREEMENTS
All the material contracts, leases, tenancies, licenses, concessions and
agreements of whatsoever nature to which the Company is a party are so far
as the Vendors are aware valid, binding obligations of the parties thereto
and the terms thereof have been complied with by the Company and by all the
other parties thereto in all material respects and so far as the Vendors are
- --------------------------------------------------------------------------------
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aware there are no grounds for rescission, avoidance or repudiation of
any of the contracts or such leases, tenancies, licences, concessions
or agreements and no notice of termination or of intention to terminate
has been received by the Vendors in respect of any thereof.
5.5 ANTI-TRUST
The Company is not a party to any agreement, arrangement or concerned
practice or is carrying on any practice which in whole or in part
contravenes or is invalidated by any anti-trust, fair trading, consumer
protection or similar legislation in any jurisdiction or in respect of
which any filing, registration or notification is required or is
advisable pursuant to such legislation (whether or not the same has in
fact been made).
5.6 GUARANTEES ETC.
Save as disclosed in the Audited Accounts, there is not outstanding any
guarantee, indemnity, suretyship or comfort (whether or not legally
binding) given by or for the benefit of the Company.
6 EMPLOYEES ETC.
6.1 EMPLOYEES AND TERMS OF EMPLOYMENT
6.1.1 There are no employees employed in the Company other than those
whose details are set out in the Disclosure Letter.
6.1.2 There is not in existence any written contract of employment
with any director or employee of the Company, nor any
consultancy agreements with the Company, which cannot be
terminated by three months' notice or less without giving rise
to any claim for damages or compensation (other than a
statutory redundancy payment or statutory compensation for
unfair dismissal).
6.1.3 The Disclosure Letter contains full details, in relation to the
Company, of:
(i) the total number of employees (including those who are
on maternity or paternity leave or absent on the
grounds of disability or other long-term leave of
absence, and have or may have a statutory or
contractual right to return to work in the Company);
(ii) the name, date of commencement of employment, period of
continuous employment, location, salary and other
material benefits, grade and age of each employee;
(iii) where any employee is continuously absent from work for
a period in excess of one month, the reason for the
absence;
(iv) the terms of the contract of employment of each
employee (excluding those who will enter into new
Service Agreements pursuant to Clause 4 of this
Agreement) entitled to salary at a rate in excess of
L25,000 a year;
(v) the terms of all material consultancy agreements;
(vi) the standard terms and conditions (if any) which apply
to employees of the Company; and
(vii) any written personnel policies of the Company,
including any employee handbook and any announcements
varying their contents.
6.1.4 Except for the resignation of the directors and secretary of
the Company pursuant to Clause 4.2.2 of this Agreement, there
are no proposals of the Company to terminate the employment or
consultancy of any employees or consultants of the Company or
to vary
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<PAGE> 33
or amend their terms of employment or consultancy (whether to
their detriment or benefit).
6.1.5 No employee of the Company has been given notice terminating his
contract and so far as the Vendors are aware no employee intends
to leave his employment with the Company.
6.1.6 There are no terms of employment for employees of the Company or
consultancy agreements with the Company or terms of appointment
for directors of the Company which provide that a change in
control of the Company (however change in control may be defined
in the said document, if at all) shall entitle the said employee,
consultant or director to treat the change in control as amounting
to a breach of the contract or entitling him to any payment or
benefit whatsoever or entitling him to treat himself as redundant
or dismissed or released from any obligation.
6.1.7 The Company has made no promises to increase the salary or
benefits of any of its employees or directors and (except for
those contemplated by this Agreement) no changes have been
proposed by the Company to any of the terms of employment of its
employees.
6.2 PAYMENTS ON TERMINATION
Except as disclosed in the Audited Accounts:
6.2.1 no liability has been or may be incurred by the Company for breach
of any contract of employment or consultancy with any employee or
consultant including, without limitation, redundancy payments,
protective awards, compensation for wrongful dismissal or unfair
dismissal or for failure to comply with any order for the
reinstatement or re-engagement of any employee; and
6.2.2 the Company has not made or agreed to make any payment or provided
or agreed to provide any benefit to any employee or former
employee of the Company or any dependent of any such employee or
former employee in connection with the proposed termination or
suspension of employment or variation of any contract of
employment of any such employee or former employee.
6.3 TRADE DISPUTES
The Company is not involved in, and (so far as the Vendors are aware)
there are no circumstances likely to give rise to, any industrial or
trade dispute or any dispute or negotiation regarding a claim of material
importance with any trade union or other body (in either case recognised
by the Company for collective bargaining or other negotiating purposes)
representing any of the employees.
6.4 INCENTIVE SCHEMES
There is not in existence nor is it proposed to introduce any share
incentive, share option, profit sharing, bonus or other incentive
arrangements for or affecting any employees or former employees.
6.5 PENSIONS
6.5.1 The Pension Scheme is the only scheme to which the Company makes
or could become liable to make payments for providing retirement,
death, disability or life assurance benefits. No proposal has been
announced to establish any other scheme for providing any such
benefits and the Company does not provide and has not promised to
provide any such benefits except under the Pension Scheme.
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<PAGE> 34
6.5.2 The Pension Scheme is an exempt approved scheme within the meaning
of Chapter I Part XIV of the Income and Corporation Taxes Act 1988
(ICTA 1988). Members of the Pension Scheme are not contracted-out of
the State Earnings Related Pension Scheme. The Pension Scheme
complies, and has been managed in accordance, with all applicable
laws, regulations and requirements.
6.5.3 There are attached to the Disclosure Letter copies of:
(i) all the trust deeds and rules of the Pension Scheme
(including any draft amendments);
(ii) all explanatory booklets and announcements relating to the
Pension Scheme; and
(iii) all benefit projections for any members of the Pension Scheme.
These documents contain full details of all benefits payable under
the Pension Scheme. No power to increase those benefits or to
provide different benefits has been exercised, and there are no
circumstances in which there is a practice of exercising such a
power under the Pension Scheme. In particular, the Company has
never undertaken and there is no obligation under the Pension
Scheme to provide a minimum level of benefits in respect of any
person.
6.5.4 The Vendors have notified the Purchaser in the Disclosure Letter of
the rate at which contributions to the Pension Scheme are being
paid and the basis on which they are calculated, and whether they
are paid in advance or in arrear. All amounts due to the Pension
Scheme have been paid.
7 TAXATION MATTERS
7.1 RETURNS AND INFORMATION
7.1.1 All returns, computations, notices and information which are or
have been required to be made or given by the Company for any
Taxation purpose (i) have been made or given within the requisite
periods and on a proper basis and are up-to-date and correct in
all material respects and (ii) none of them is, or is believed by
the Vendors to be likely to be, the subject of any dispute with the
Inland Revenue or other Taxation authorities.
7.1.2 The Company is in possession of sufficient information or has
reasonable access to such information to enable it to compute its
liability to Taxation insofar as it depends on any Transaction
occurring on or before Completion.
7.2 TAXATION CLAIMS, LIABILITIES AND RELIEFS
7.2.1 There are set out in the Disclosure Letter, with express reference
to this paragraph, particulars of all matters relating to Taxation
in respect of which the Company (either alone or jointly with any
other person) has, or at Completion will have, an outstanding
entitlement to make:
(i) any claim (including a supplementary claim) for relief;
(ii) any election, including an election for one type of relief,
or one basis, system or method of Taxation, as opposed to
another;
(iii) any appeal or further appeal against an assessment to
Taxation;
(iv) any application for the postponement of, or payment by
instalments of, Taxation; or
(v) or to disclaim or require the postponement of any allowance
or relief.
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<PAGE> 35
Such particulars are sufficient to enable the Purchaser to procure
that any time limit to such entitlement expiring after Completion
can be met.
Neither the Company nor any director or officer of the Company has in the
period of three (3) years prior to Completion paid, or become liable to
pay, any fine, penalty or interest charged by virtue of the Taxes
Management Act 1970 or the Value Added Tax Act 1994 or any other
statutory provision relating to Taxation.
8 ASSETS (OTHER THAN THE PROPERTIES)
8.1 SUBSIDIARIES
The Company has no subsidiaries or investments in any other corporation
or business organisation.
8.2 TITLE TO ASSETS
All assets (other than the Properties) of the Company including all debts
due to the Company which are included in the Audited Accounts or have
otherwise been represented as being the property of or due to the Company
or at the Balance Sheet Date used or held for the purposes of its business
were at the Balance Sheet Date the absolute property of the Company and
(save for those subsequently disposed of or realised in the ordinary
course of trading) all such assets and all assets and debts which have
subsequently been acquired or arisen are the absolute property of the
Company and none is the subject of any assignment or Encumbrance
(excepting only liens arising by operation of law in the normal course of
trading) or the subject of any factoring arrangement, hire-purchase,
conditional sale or credit sale agreement.
8.3 SUFFICIENCY OF ASSETS
The property, rights and assets owned or leased by the Company comprise
all the property, rights and assets which the Vendors reasonably believe
are necessary for the carrying on of the business of the Company in the
manner and to the extent to which it is presently conducted.
8.4 INSURANCE
All material details of the present insurances of the Company are set out
in the Disclosure Letter and in respect of all such insurances:
8.4.1 all premiums have been duly paid to date;
8.4.2 so far as the Vendors are aware all the policies are in full force
and effect and no act, omission, misrepresentation or non-disclosure
by or on behalf of the Company has occurred which makes any of these
policies voidable, nor so far as the Vendors are aware have any
circumstances arisen which would render any of these policies void
or unenforceable for illegality or otherwise, nor so far as the
Vendors are aware has there been any breach of the terms, conditions
and warranties of any of the policies that would entitle insurers to
decline to pay all or any part of any claim made under the policies;
8.4.3 there are no special or unusual limits, terms, exclusions or
restrictions in any of the policies and the premiums payable are not
in excess of the normal rates and no circumstances exist which are
likely to give rise to any increase in premiums; and
8.4.4 details of all claims made during the period of three years
preceding the date of this Agreement are contained in the Disclosure
Letter and so far as the Vendors are aware no circumstances exist
which are likely to give rise to any
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<PAGE> 36
8.5 PLANT AND MACHINERY ETC.
The plant, machinery, vehicles and all other equipment owned or used in
connection with the business of the Company are in good repair and
condition (fair wear and tear excepted) and satisfactory working order
and has been maintained and are not dangerous, obsolete, inefficient or
surplus to requirements.
8.6 INTELLECTUAL PROPERTY
8.6.1 All intellectual property rights including trade marks, service
marks, trade names, logos, get-up, patents, inventions, registered
and unregistered design rights, copyrights, semi-conductor
topography rights, rights of extraction relating to databases,
know-how and other confidential information and all other similar
proprietary rights which may subsist in any part of the world
(whether registered or not), and all pending applications therefor,
which are used in the business of the Company are (or, where
appropriate in the case of pending applications, will be):
(i) legally and beneficially owned by, licensed to or used under
the authority of the owner by the Company. Brief details of
all such material licenses and authorities are set out in
Part 3 of Schedule 5 excluding any shrink-wrap licenses for
computer software;
(ii) so far as the Vendors are aware valid and enforceable;
(iii) so far as the Vendors are aware not being infringed or
attacked or opposed by any person;
(iv) not subject to any license or authority granted by the
Company in favour of another;
and so far as the Vendors aware no claims have been made and no
applications are pending, which if pursued or granted might be
material to the truth and accuracy of any of the above.
8.6.2 The processes employed and the products and services dealt in by
the Company do not use, embody or infringe any intellectual
property rights of the type listed in paragraph 8.6.1 above of
third parties (other than those belonging to or licensed to the
Company and referred to in Schedule 5) and no claims of
infringement of any such intellectual property rights have been
made by any third party.
8.6.3 There are no outstanding or potential claims against the Company
under any contract or under Section 40 of the Patents Act 1977 for
employee compensation in respect of any intellectual property
rights.
8.6.4 So far as the Vendors are aware there has been and is no misuse of
know-how by the Company and no moral rights have been asserted
which would materially and adversely affect the use of any of the
intellectual property rights.
8.7 ABSENCE OF UNDISCLOSED LIABILITIES
There are no material liabilities of the Company other than (i)
liabilities disclosed or provided for in the Audited Accounts and/or the
Completion Accounts; (ii) liabilities incurred in the ordinary course of
business since the Balance Sheet Date, none of which is material; or
(iii) liabilities disclosed elsewhere in this Agreement.
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<PAGE> 37
9 LEASEHOLD PROPERTY
9.1 LEASEHOLD PROPERTIES
The interest of the Company in the Property is leasehold and the requisite
details have been completed in Schedule 4 and:
9.1.1 There is no material subsisting breach, nor any material
non-observance of any covenant, condition or agreement contained in
the Lease on the part of either the relevant landlord so far as the
Vendors are aware or the Company and no landlord has refused to
accept rent or made any complaint or objection.
9.1.2 No alterations have been made to the Property at the expense of the
Company without all necessary consents and approvals and all such
alterations to the Property are to be disregarded on rent reviews
and do not have to be reinstated at the expiry of the term.
9.1.3 Sections 24 to 28 of the Landlord and Tenant Act 1954 have not been
excluded in relation to the tenancy created by the Lease.
9.1.4 All steps in rent reviews have been duly taken and no rent reviews
are or should be currently under negotiation or the subject of a
reference to an expert or arbitrator or the Courts.
9.1.5 There are no other premises or land owned or leased by the Company
other than as stated in this Agreement.
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<PAGE> 38
SCHEDULE 3
WARRANTIES GIVEN BY THE PURCHASER UNDER CLAUSE 6
1 AUTHORITY AND CAPACITY OF THE PURCHASER
1.1 Nextera is a company duly incorporated, validly existing and in good
standing under the laws of the State of Delaware of the United States of
America.
1.2 As of the date of this Agreement, the authorized capital stock of Nextera
consists solely of 50,000,000 shares of Class A Common Stock, par value
US$0.001 per share (the "Nextera Class A Common Stock"), of which
16,811,740 shares were issued and outstanding as of such date; of
4,300,000 shares of Class B Common Stock, par value US$0.001 per share
(the "Nextera Class B Common Stock"), of which 4,274,630 shares were
issued and outstanding as of such date; and of 10,000,000 shares of
Preferred Stock"), of which no shares were issued and outstanding as of
such date. As of the date of this Agreement, other than:
(i) options to purchase 3,043,000 shares of Nextera Class A Common
Stock which have been issued to employees pursuant to
Nextera's 1998 Equity Participation Plan and not yet
exercised;
(ii) options for 581,760 shares of Class A Common Stock which have
been issued to certain employees of Lexecon Inc. and not yet
exercised;
(iii) 1,450,240 shares of Class A Common Stock reserved for issuance
to certain former shareholders of Lexecon Inc. under certain
circumstances set forth in that certain Contribution Agreement
pursuant to which the Lexecon stock was acquired;
(iv) 197,813 shares of Class A Common Stock reserved for issuance
to certain former shareholders of Sibson Canada in exchange
for shares currently owned by such shareholders in Sibson
Canada Co.;
(v) a warrant to acquire 250,000 shares of Class A Common Stock
held by Knowledge Universe, Inc.;
(vi) the right of the holders of certain debt obligations of
Nextera to convert such debt into preferred stock under
certain circumstances there are no shares of the Nextera Stock
authorized and reserved for issuance, and Nextera has no
commitment to authorize, issue, or sell shares of Nextera
Stock of any class or series, or any right or option to
purchase shares of any class or series, except pursuant to
this Agreement and the Stockholders Agreement.
1.3 Other than as aforesaid no person has the right (whether exercisable now
or in the future and whether contingent or not) to call for the allotment,
conversion, issue, sale or transfer of any share or loan capital or any
other security giving rise to a right over the capital of Nextera under
any option or other agreement (including conversion rights and rights of
pre-emption) and there are no Encumbrances on the shares of Nextera or any
arrangements or obligations to create any Encumbrances.
1.4 The execution and delivery of, and the performance by Nextera of its
obligations under, this Agreement and the Tax Deed of Covenant and any
other documents to be executed by Nextera pursuant to or in connection
with this Agreement will not:
1.4.1 result in a breach of any provision of its memorandum or articles of
association bylaws or other constitutional documents; or
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<PAGE> 39
1.4.2 result in a breach of or default under or give any third party a
right to terminate or modify, or result in the creation of any
Encumbrance under any agreement, licence or other instrument or
result in a breach of any order, judgment or decree of any Court,
governmental agency or regulatory body to which any of Nextera or
the Company is a party or by which any of Nextera or any of its
respective assets or the Company is bound.
1.6 The Nextera Shares to be issued pursuant to this Agreement, when issued in
accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable shares of Nextera's Class A
Common Stock, par value US$0.001 per share, and will not be issued in
violation of any pre-emptive rights.
2 AUTHORITY
The Purchaser has full right, authority and power to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by the Purchaser pursuant to this Agreement and, to carry out
the transactions contemplated hereby.
The execution, delivery and performance by the Purchaser of this Agreement
and each such other agreement, document and instrument have been duly
authorised by all necessary organisational action of the Purchaser and no
other action on the part of the Purchaser is required.
This Agreement and each other agreement, document and instrument executed
and delivered by the Purchaser pursuant to this Agreement constitutes, or
when executed and delivered will constitute, valid and binding obligations
of the Purchaser, as applicable, enforceable in accordance with their
terms, subject to the effect of any applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject to the effect of general principles of equity,
including, without limitation, the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law. The execution, delivery and performance by
the Purchaser of this Agreement and each such agreement, document and
instrument:
(i) does not and will not violate any provision of the formation
documents of the Purchaser;
(ii) does not and will not violate any laws of England or any
other jurisdiction applicable to the Purchaser or require the
Purchaser to obtain any approval, consent or waiver of, or
make any filing with, any person or entity (governmental or
otherwise) which has not been obtained or made; and
(iii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise
to a right of termination of any indenture, loan or credit
agreement, or other agreement mortgage, lease, permit, order,
judgment or decree to which the Purchaser is a party and which
is material to the business and financial condition of the
Purchaser.
3 LITIGATION
There is no litigation pending or, to its knowledge, threatened against
the Purchaser which would or could reasonably be expected to prevent or
hinder the completion of the transactions contemplated by this Agreement
which could reasonably be expected to have a material adverse effect on
the Purchaser. There have been no claims made or threatened by a client or
customer of the Purchaser nor, to the knowledge of the Purchaser, are
there any such claims that may be asserted, which in any of the foregoing
cases could reasonably be expected to have a material adverse effect on
the Purchaser.
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4 ABSENCE OF CERTAIN CHANGES
Except as disclosed to the Vendors' Representative in writing since 30
June 1998, there has not been:
4.1 Any change in the business, properties, assets, results of operations,
financial condition, liabilities, or prospects of the Purchaser, which
change by itself or in conjunction with all other such changes, whether
or not arising in the ordinary course of business, has been or could
reasonably be expected to be materially adverse with respect to the
Purchaser;
4.2 Any material contingent liability incurred by the Purchaser as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any
material right of, the Purchaser;
4.3 Any mortgage, encumbrance or lien placed on any of the properties of
the Purchaser which remains in existence on the date hereof or will
remain on the date of the Closing;
4.4 Any material obligation or liability of any nature, whether accrued,
absolute or contingent incurred by the Purchaser other than obligations
and liabilities incurred in the ordinary course of business (it being
understood that product or service liability claims shall not be deemed
to be incurred in the ordinary course of business);
4.5 Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Purchaser other than in the ordinary course
of business;
4.6 Any damage or destruction whether or not covered by insurance,
materially and adversely affecting the properties, assets or business
of the Purchaser;
4.7 Any declaration, setting aside or payment of any dividend by the
Purchaser, or the making of any other distribution in respect of the
membership interests of the Purchaser, or any direct or indirect
redemption, purchase or other acquisition by the Purchaser of its
respective membership interests;
4.8 Any labour trouble or claim of unfair labour practices involving the
Purchaser, any change in the compensation payable or to become payable
by the Purchaser to any of its officers, employees, agents or
independent contractors other than normal merit increases in accordance
with its usual practices, or any bonus payment or arrangement made to
or with any of such officers, employees, agents or independent
contractors;
4.9 Any material change with respect to the officers or management of the
Purchaser;
4.10 Any material obligation or liability incurred by the Purchaser to any
of its officers, directors, members or employees, or any loans or
advances made by the Purchaser to any of its officers, directors,
members or employees, except normal compensation and expense allowances
and advances payable to officers or employees;
4.11 Any change in accounting methods or practices, credit practices or
collection policies used by the Purchaser;
4.12 Any other transaction entered into by the Purchaser other than
transactions in the ordinary course of business (other than as
disclosed); or
4.13 Any agreement or understanding whether in writing or otherwise, for the
Purchaser to take any of the actions specified in paragraphs (5.1)
through to (5.12) above.
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5 COMPLIANCE WITH LAWS
The Purchaser is in compliance with all applicable statutes, ordinances,
orders, judgments, decree, rules and regulations promulgated by any
federal, state, municipal entity, agency, court or other governmental
authority which apply to the Purchaser or to the conduct of its
business, except where non-compliance with such statute, ordinance,
order, judgment, decree, rule or regulation would not have a material
adverse effect on the Purchaser, and the Purchaser has not received
notice of a violation or alleged violation of any such statute,
ordinance, order, rule or regulation.
6 INITIAL PUBLIC OFFERING
6.1 NEXTERA IS IN THE PROCESS OF REGISTERING WITH THE US SECURITIES AND
EXCHANGE COMMISSION FOR AN INITIAL PUBLIC OFFERING: The Purchaser has
provided or made available to the vendors copies of Nextera's
Registration Statement on Form S-1, as filed with the United States
Securities and Exchange Commission (the "SEC") on September 18, 1998, as
the same has been amended or supplemented up to the date hereof (as so
amended or supplemented, the "Registration Statement").
6.2 Nextera is in a jurisdiction which will allow it to proceed to undertake
an initial public offering.
6.3 The Vendors have been provided with a true copy of the accounts of
Nextera for the financial period ended 31st December 1997 and of the
unaudited pro forma combined financial statements of Nextera as at 30th
June 1998 each of which (subject as fairly disclosed therein) gives a
true and fair view of the state of affairs of Nextera and its relevant
subsidiaries as at the date to which they are prepared and of their
results over the periods to which they relate.
6.4 The Vendors have been provided with a true copy of each Stockholders
Agreement to which all Nextera shareholders are party and of the
constitutional documents of Nextera and of all documents governing any
stock or similar option incentive shares of Nextera and/or any of its
subsidiaries.
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SCHEDULE 4
LEASEHOLD PROPERTIES - PARTICULARS OF LEASES
<TABLE>
<CAPTION>
<S> <C>
Address of Property: 3rd Floor, 32 Brook Street
London W1
Landlord: Erdman Lewis International Limited
Current tenant and guarantor: The Alexander Corporation Limited
Term: 8 years from 28/9/92 expires 27/9/2000
Current Rent: L41,600 per annum payable quarterly in
advance on quarter days.
</TABLE>
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<PAGE> 43
SCHEDULE 5
INTELLECTUAL PROPERTY
Copyright and moral rights subsisting in the written and other materials
produced by Alexander for use in client work.
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<PAGE> 44
SCHEDULE 6
VENDORS DEFERRED CONSIDERATION
The aggregate value of Loan Notes to be issued as Vendors Deferred Consideration
will be equal to the Relevant Percentage of L300,000 rounding up any fractional
Loan Note entitlement to the nearest L1.
The RELEVANT PERCENTAGE is that percentage in the table set out below, which
corresponds to the Company's Cumulative Revenue and the Company's Cumulative
Profit Before Tax (values between the figures shown being calculated using
interpolation):
<TABLE>
<CAPTION>
RELEVANT PERCENTAGE
<S> <C> <C> <C> <C> <C>
Company's >11.4 0 70 90 100
Cumulative 10.26 0 60 75 90
Revenue 9.12 0 50 65 80
(LMM) <9.12 0 0 50 65
------------------------------------
<1.74 1.74 1.95 >2.17
</TABLE>
Company's Cumulative Profit Before tax
(LMM)
Example: If the Company's Cumulative Revenue is L10.26 MM and the Company's
Cumulative Profit Before Tax is L1.74 MM the Relevant Percentage would be 60%;
">" means greater than; and
"<" means less than.
In calculating the Company's Cumulative Profit Before Tax no account shall be
taken of and there shall be added back any amounts paid to or to be paid to
Graham Alexander and/or Arthur Morgan under the Supplementary Deferred
Consideration Agreement of even date entered into between them and the
Purchaser.
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<PAGE> 45
In witness whereof this Agreement has been duly executed.
SIGNED by NEXTERA
ENTERPRISES INC. by MICHAEL MULDOWNEY /s/ MICHAEL MULDOWNEY
, Chief Financial
Officer
SIGNED as an AGREEMENT by
the said GRAHAM ALEXANDER
in the presence of: /s/ GRAHAM ALEXANDER
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ.
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
CHARLES SHERNO /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 25 January 1999
in the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ.
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
ARTHUR MORGAN /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 20 January 1999
in the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ.
SIGNED by an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
PHILIP GOLDMAN /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 26 January 1999
in the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ.
44
<PAGE> 46
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
MICHAEL MANWARING
by power given under power of /s/ GRAHAM ALEXANDER
attorney dated 25 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON, EC2Y 8HQ
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
RON HYAMS
by power given under power of /s/ GRAHAM ALEXANDER
attorney dated 15 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON, EC2Y 8HQ
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
VICTOR HARRIS
by power given under power of /s/ GRAHAM ALEXANDER
attorney dated 27 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON, EC2Y 8HQ
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER
for and on behalf of
PAUL BATES
by power given under power of /s/ GRAHAM ALEXANDER
attorney dated 17 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON, EC2Y 8HQ
45
<PAGE> 1
EXHIBIT 10.37
Dated 29 January 1999
NEXTERA ENTERPRISES, INC.
and
MR GRAHAM ALEXANDER
and
MR ARTHUR MORGAN
SUPPLEMENTAL DEFERRED CONSIDERATION
AGREEMENT
relating to the granting of
Loan Notes
to Mr Graham Alexander and Mr Arthur Morgan
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
Tel: (+44) 171 456 2000
Ref: MSM/AXXL
<PAGE> 2
AGREEMENT FOR PURCHASE OF SHARES
THIS AGREEMENT is made on 29 January 1999
Between:
(1) GRAHAM ALEXANDER of 200A West End Lane, London NW5 1SG;
(2) ARTHUR MORGAN of Bovingdon, Marlow Common, Buckinghamshire SL7 2QR; and
(3) NEXTERA ENTERPRISES, INC., a Delaware corporation, whose registered office
is at One Cranberry Hill, Lexington, MA, United States of America (NEXTERA
or the PURCHASER).
IT IS AGREED as follows:
1 INTERPRETATION
In this Agreement, including its Schedules, the headings shall not affect
its interpretation and, unless the context otherwise requires, the
provisions in this Clause 1 apply:
1.1 DEFINITIONS
ALEXANDER OR THE COMPANY means The Alexander Corporation Limited registered
office 32 Brook Street London W1Y 1AG registration number 2204495;
ALEXANDER DEFERRED CONSIDERATION means the consideration to be issued in
accordance with Schedule 1;
DEFERRED CONSIDERATION means the Alexander Deferred consideration and the
Morgan Deferred Consideration;
EMPLOYEES means both Graham Alexander and Arthur Morgan;
MORGAN DEFERRED CONSIDERATION means the consideration to be issued in
accordance with Schedule 2; and
PRINCIPAL AGREEMENT means the agreement between Nextera and the Employees
relating to the Sale and purchase of the whole of the issued capital in The
Alexander Corporation Limited.
Unless otherwise stated, terms in this agreement shall have the same
meaning as in the Principal Agreement.
1.2 HEADINGS
Headings shall be ignored in construing this Agreement.
2 SUPPLEMENTAL DEFERRED CONSIDERATION
In consideration of Graham Alexander and Arthur Morgan entering and
fulfilling Service Agreements with Alexander, Nextera agrees subject to
this Agreement, to grant to Graham Alexander the Alexander Deferred
consideration and to Arthur Morgan the Morgan Deferred Consideration.
3 ALEXANDER DEFERRED CONSIDERATION & MORGAN DEFERRED CONSIDERATION
3.1 ALEXANDER DEFERRED CONSIDERATION
The Alexander Deferred Consideration must be granted by Nextera in
accordance with Schedule 1.
1
<PAGE> 3
3.2 MORGAN DEFERRED CONSIDERATION
The Morgan Deferred Consideration must be granted by Nextera in
accordance with Schedule 2.
4 TERMINATION OF EMPLOYMENT
In the event that Graham Alexander's employment or Arthur Morgan's
employment with the Company is terminated by the Company prior to the
end of the Earn-Out period, then each of them shall still be entitled
to be granted their respective Deferred Consideration if the Company
achieves the targets in Schedule 1 and Schedule 2 PROVIDED they have
not been terminated for gross misconduct.
5. OTHER PROVISIONS
5.1 ANNOUNCEMENTS
No public announcement (excluding announcements (not disclosing the
amount of the consideration paid hereunder) to employees, customers and
suppliers of the Company) concerning the transactions contemplated by,
or the terms of, this Agreement shall (save as required by law or by
the United States securities authorities) be made by either party,
unless the written consent of the other has been obtained and the terms
of the announcement have been agreed in advance. In the case of the
Employees any such consent shall be given by the Employees' Solicitors
on their behalf.
5.2 SUCCESSORS AND ASSIGNS
5.2.1 The Employees agree that the benefit of every provision in this
Agreement is given to Nextera for itself and its successors in
title and assigns. Accordingly, Nextera (and its successors and
assigns) may, without the consent of the Employees, assign the
benefit of all or any of the Employees' obligations under this
Agreement, and/or any benefit arising under or out of this
Agreement to any entity which is its subsidiary, holding company
or a subsidiary of any such holding company.
5.2.2 The Employees may not assign the benefit of all or any of
Nextera's obligations under this Agreement except with the
written consent of Nextera.
5.3 VARIATION
No variation of this Agreement shall be effective unless in writing and
signed by or on behalf of each of the parties to this Agreement.
5.4 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement
may be extended by mutual agreement between the parties but as regards
any time, date or period originally fixed or any time, date or period
so extended time shall be of the essence.
5.5 FURTHER ASSURANCE
At any time after the date of this Agreement the Employees shall and
shall use their best endeavours to procure that any necessary third
party shall execute such documents and do such acts and things as
Nextera may reasonably require for the purpose of giving to Nextera the
full benefit of all the provisions of this Agreement.
5.6 COSTS
The Employees shall bear all legal, accountancy and other costs and
expenses incurred by them in connection with this Agreement. Nextera
shall bear all such costs and expenses incurred by it.
2
<PAGE> 4
5.7 SPECIFIC PERFORMANCE
The parties agree that it would be difficult to measure damages which
might result from a breach of this Agreement by either party and that
money damages would be an inadequate remedy for such a breach.
Accordingly, if there is a breach or proposed breach of any provision of
this Agreement by the Company or any party to this agreement shall be
entitled, in addition to any other remedies which it may have, to an
injunction or other appropriate equitable relief to restrain such breach
without having to show or prove actual damage.
5.8 NOTICES
5.8.1 Any notice or other communication requiring to be given or served
under or in connection with this Agreement shall be in writing and
shall be sufficiently given or served if delivered or sent:
In the case of any of the Employees to:
Address: Alexander Corporation Limited
32 Brook Street
London
W1Y 1AG
Fax:
Attention: Graham Alexander
In the case of the Purchaser to Nextera Enterprises, Inc. at:
Address: Sibson UK
338 Euston Road
Regent Place
London NW1 3BT
Fax:
Attention: Fred Mendelsohn
with a copy to:
Address: One Cranberry Hill
Lexington
MA 02173
United States of America
Fax: +1 212 421 9310
Attention: Vincent Perro
Address: Maron & Sandler
844 Moraga Drive
Los Angeles
CA 900949
3
<PAGE> 5
Fax: +1 310 440 3690
Attention: Jim Banks
5.8.2 Any Party to this agreement may by notice under this clause change
the address or references to which notices must be sent. Any such
notice or other communication shall be delivered by hand or sent by
courier, fax or prepaid first class post. If sent by courier or fax
such notice or communication shall conclusively e deemed to have
been given or served at the time of despatch, in case of service in
the United Kingdom, or the following Business Day in the case of
international service. If sent by post such notice or communication
shall conclusively be deemed to have been received two Business
Days from the time of posting, in the case of inland mail in the
United Kingdom or three Business Days from the time of posting in
the case of international mail.
5.9 SEVERANCE
If any term or provision in this Agreement is to be held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law,
such term or provision or part shall to that extent be deemed not to form
part of this Agreement but the enforceability of the remainder of this
Agreement shall not be affected.
5.10 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be deemed an original, but all the counterparts shall
together constitute one and the same instrument.
5.11 GOVERNING LAW AND SUBMISSION TO JURISDICTION
This Agreement and the documents to be entered into pursuant to it, save
as expressly referred to therein, shall be governed by and construed in
accordance with English law and all the parties irrevocably agree that
the courts of England are to have exclusive jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and
such documents.
5.12 APPOINTMENT OF PROCESS AGENT
Nextera irrevocably appoints Selson UK Limited as its agent to accept
service of process in England in any legal action or proceedings arising
out of or in connection with this Agreement, service upon whom shall be
deemed completed whether or not forwarded to or received by Nextera. If
such process agent ceases to be able to act as such or to have an address
in England, Nextera irrevocably agrees to appoint a new process agent in
England acceptable to the other Parties and to deliver to the other
Parties within 14 days a copy of a written acceptance of appointment by
the process agent. Nothing in this Agreement shall affect the right to
serve process in any other manner permitted by law.
4
<PAGE> 6
SCHEDULE 1
THE ALEXANDER DEFERRED CONSIDERATION
The aggregate value of Loan Notes to be issued as the Alexander Deferred
Consideration will be equal to the Alexander First Amount plus the Alexander
Second Amount unless Graham Alexander has, over the Earn-Out Period, spent less
than on average 30 hours per week (whether on client or administration matters)
as shown by the Company's time recording system, devoted to the Company in
which case the Alexander Deferred Consideration shall be nil.
Where:
The ALEXANDER FIRST AMOUNT is the Relevant Percentage of L150,000;
The RELEVANT PERCENTAGE is that percentage in the table set out below which
corresponds to the Company's Cumulative Revenue and the Company's Cumulative
Profit Before Tax (values between the figures shown being calculated using
interpolation):
RELEVANT PERCENTAGE
-------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Company's >11.4 0 70 90 100
---------------------------------------------------
Cumulative 10.26 0 60 75 90
---------------------------------------------------
Revenue 9.12 0 50 65 80
---------------------------------------------------
(LMM) < 9.12 0 0 50 65
---------------------------------------------------
<1.74 1.74 1.95 2.17
Company's Cumulative Profit Before Tax
(L MM)
</TABLE>
The ALEXANDER SECOND AMOUNT is the Alexander Fee Revenue Percentage of L150,000;
THE ALEXANDER FEE REVENUE PERCENTAGE is that percentage in the table set out
below which corresponds to the appropriate SNA fee Revenue (values between the
figures shown being calculated using interpolation);
ALEXANDER FEE REVENUE PERCENTAGE
<TABLE>
<S> <C> <C>
SNA >4.0 100
---
Fee 3.6 75
---
Revenue 3.2 50
---
(US$MM) >4.0 0
---
</TABLE>
SNA FEE REVENUE means the Sibson North America (Sibson US and Sibson Canada)
aggregate fee revenue from change leadership consulting over the Earn-Out
Period calculated by reference to the financial statements of Sibson North
America. For the purpose of calculating the SNA Fee Revenue, the companies
comprising Sibson US and Sibson Canada throughout the Earn-Out Period shall
include only those companies comprising Sibson US and Sibson Canada at
Completion;
5
<PAGE> 7
< means less than; and
> means greater than.
SCHEDULE 2
THE MORGAN DEFERRED Consideration
The aggregate value of Loan Notes to be issued as the Morgan Deferred
Consideration will be equal to (the Morgan Fee Revenue Percentage of L100,000)
less the Morgan Cash Adjustment.
THE MORGAN FEE REVENUE PERCENTAGE is that percentage in the table set out below
which corresponds to the relevant Morgan Fee Revenue (values between the
figures shown being calculated using interpolation):
<TABLE>
<S> <C> <C>
>2.0 100
-----------
Morgan Fee 1.34 50
-----------
Revenue 0.67 25
-----------
(LM) <0.67 0
-----------
</TABLE>
MORGAN FEE REVENUE means the total client fees introduced to Alexander by
Anthony Morgan during the Earn-out Period which are acknowledged by Nextera as
such;
MORGAN CASH ADJUSTMENT means one half of the aggregate annual retainer paid to
Anthony Morgan during the Earn-Out Period;
< means less than; and
> means greater than.
6
<PAGE> 8
In witness whereof this Agreement has been duly executed.
SIGNED by NEXTERA
ENTERPRISES INC. by MICHAEL /s/ MICHAEL MULDOWNEY
MULDOWNEY, Chief Financial
Officer.
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER in the /s/ GRAHAM ALEXANDER
Presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ
SIGNED as an AGREEMENT by
GRAHAM ALEXANDER for and on /s/ GRAHAM ALEXANDER
behalf of ARTHUR MORGAN by
power given under power of
attorney dated 20 January 1999 in
the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ
7
<PAGE> 1
EXHIBIT 10.39
Dated 29 January 1999
LOAN NOTE INSTRUMENT
Constituting Unsecured Loan Notes of
Nextera Enterprises, Inc.
LINKLATERS & PAINES
One Silk Street
London, EC2Y 8HQ
TEL: (+44) 171-456-2000
Ref: MSM/AXXL
<PAGE> 2
THIS INSTRUMENT is entered into as a deed this 29 day of January 1999 by
NEXTERA ENTERPRISE, INC. a Delaware corporation, of One Cranberry Hill,
Lexington, MA 02173, United States of America (the "COMPANY").
WHEREAS:
The Company, has, in accordance with its constitutional documents and by
a resolution of its Board of Directors passed on 29 January 1999 created
the Unsecured Loan Notes to be issued, in connection with the Alexander
Acquisition to the vendors of the shares of Alexander. The Notes are to
be constituted as provided below.
NOW THIS INSTRUMENT WITNESSES AND DECLARES as follows:
1 DEFINITIONS
1.1 In this Instrument and the Schedules the following expressions shall
where the context permits have the following meanings:
"ALEXANDER" means The Alexander Corporation Limited (a company
incorporated in England and Wales with registered number 2204495);
"ALEXANDER ACQUISITION" means the acquisition by the Company of the whole
of the issued share capital of Alexander in accordance with an agreement
(the "ALEXANDER ACQUISITION AGREEMENT") dated 29 January 1999 made
between the Company and the several vendors of shares of Alexander named
therein;
"BUSINESS DAY" means any day (excluding Saturdays and Sundays) on which
banks in London are open for business;
"CERTIFICATE" means a certificate duly executed by the Company relating
to the Notes represented by it;
"CONDITIONS" means the conditions set out in the Second Schedule as
modified from time to time in accordance with the provisions of this
Instrument;
"DIRECTORS" means the Board of Directors for the time being of the
Company or a duly authorized committee thereof;
"EXTRAORDINARY RESOLUTION" has the meaning given to it in the Third
Schedule;
"FINAL REDEMPTION DATE" means the third anniversary of the date on which
the Notes are first issued pursuant to the Alexander Acquisition
Agreement;
"INTEREST PAYMENT DATE" has the meaning given to it in Condition 6;
"INTEREST PERIOD" has the meaning given to it in Condition 6;
"NOTES" means the Unsecured Loan Notes constituted by this Instrument or,
as the case may be, the principal amount thereof for the time being
issued and outstanding;
"NOTEHOLDER" means a person for the time being entered on the Register as
the holder of a Note;
"REGISTER" means the register of Noteholders to be maintained by the
Company in accordance with Clause 7; and
"REGISTRAR" means the registrar of the Company from time to time.
1.2 References herein to "THIS INSTRUMENT" include, where the context so
admits, the Schedules hereto.
1
<PAGE> 3
1.3 Save as expressly defined any words and expressions defined in the
Companies Act 1985 as in force at the date hereof shall have the same
meanings when used in this instrument.
1.4 References herein to any provision of any statute shall be deemed also to
refer to any statutory modification or re-enactment thereof from time to
time in force.
1.5 Words used herein denoting persons shall include corporations, the
masculine gender shall include the feminine and the singular shall include
that plural and vice versa.
1.6 The headings herein are for convenience only and shall not affect the
interpretation hereof.
1.7 Reference herein to Clauses, Conditions, paragraphs, sub-paragraphs or
Schedules are to clauses, conditions, paragraphs, sub-paragraphs hereof or
to the schedules hereto.
2 AMOUNT OF THE NOTES
2.1 The aggregate principal amount of the Notes constituted by this Instrument
shall be the amount required by the Company in order for it to be able to
satisfy its obligations, under the Alexander Acquisition Agreement, to
issue Notes to the vendors of the shares of Alexander.
2.2 The Notes shall be issued fully paid in amounts and integral multiples of
L1.
3 STATUS OF THE NOTES
The Notes when issued shall rank pari passu equally and rateably without
discrimination or preference and as unsecured obligations of the Company.
The Notes shall be known as "UNSECURED LOAN NOTES".
4 CONDITIONS OF ISSUE
The Conditions and provisions contained in the Schedules shall have effect
in the same manner as if such Conditions and provisions were set out
herein. The Notes shall be held subject to and with the benefit of the
Conditions and of the provisions in the Schedules, all of which shall be
binding on the Company and the Noteholders and all persons claiming through
them respectively.
5 COVENANTS BY THE COMPANY
The Company covenants with the Noteholders and each of them duly to
perform and observe the obligations on its part contained in this
Instrument to the intent that this Instrument shall enure for the benefit
of all Noteholders each of whom may sue for the performance or observance
of the provisions of this Instrument so far as his holding of Notes is
concerned.
6 CERTIFICATES FOR NOTES
6.1 Each Noteholder will be entitled without charge to one Certificate for the
aggregate amount of Notes registered in his name. Each Certificate shall
bear a denoting number and shall be executed by the Company. Every
Certificate shall be in the form or substantially in the form set out in
the First Schedule and shall have the Conditions endorsed thereon.
6.2 The Company shall not be bound to register more than four persons as the
joint holders of any Notes and shall not be bound to issue more than one
Certificate for Notes held jointly by several persons. Delivery of a
Certificate to one of such persons shall be sufficient delivery to all.
6.3 When a Noteholder has redeemed part only of his Notes, the old Certificate
shall be cancelled and a new Certificate for the balance of such Notes
issued without charge.
2
<PAGE> 4
7 REGISTER OF NOTES
7.1 The Company shall at all times keep at an office of the Registrar in the
United Kingdom a Register showing:
7.1.1 the names and addresses of the holders for the time being of the
Notes and, in the case of joint holders, the names of the joint
holders and the address of the first named holder;
7.1.2 the amount of the Notes held by each registered holder and, in
the case of joint holders, the amount of Notes held by the joint
holders taken together;
7.1.3 the date on which the name of each individual registered holder
(including, in the case of joint holders, each joint holder) is
entered in respect of the Notes standing in his or their name;
and
7.1.4 the denoting number of each Certificate for the Notes issued and
the date of issue thereof.
Any change of name or address on the part of any Noteholder shall forthwith
be notified to the Company and the Register shall be altered accordingly.
Any Noteholder and any person (not being a person to whom the Company may
reasonably object) authorised in writing by any Noteholder shall be at
liberty, at all reasonable times during business hours on any Business Day
and free of charge, to inspect the Register and a copy of the Instrument.
The Register may be closed at such times and for such periods as the
Company may from time to time determine, provided that it shall be open for
inspection for not less than two hours on each Business Day, nor shall it
be closed for more than thirty Business Days in any year.
7.2 Except as required by law, the Company will recognise the registered
holder of any Notes as the absolute owner thereof for all purposes and
shall not (except as ordered by a court of competent jurisdiction) be bound
to take notice or see to the execution of any trust, whether express,
implied or constructive, to which any Notes may be subject and the receipt
of the registered holder for the time being of any Notes, or in the case of
joint registered holders the receipt of any of them, for the principal
moneys payable in respect thereof or for the interest from time to time
accruing due in respect thereof or for any other moneys payable in respect
thereof shall be a good discharge to the Company, notwithstanding any
notice it may have, whether express or otherwise, of the right, title,
interest or claim of any other person to or in such Notes, interest or
moneys. The Company shall not be bound to enter any notice of any trust,
whether express, implied or constructive, on the Register in respect of any
Notes.
7.3 Each Noteholder will be recognised by the Company as entitled to his Notes
free from any equity, set-off or cross-claim on the part of the Company
against the original or any intermediate holder of the Notes.
7.4 The Company shall promptly notify the Noteholders of any change in the
identity or the address of the Registrar, provided always that the
Registrar must have an office in the United Kingdom and keep the Register
in the United Kingdom.
8 GOVERNING LAW
This instrument and the Notes shall be governed by and construed in
accordance with English law. The Company irrevocably agrees that the courts
of England are to have exclusive jurisdiction to settle any dispute which
may arise out of or in connection with this instrument and the Notes and
irrevocably submits to the jurisdiction of such courts for that purpose,
but without prejudice to the right of any Noteholder to enforce its rights
under the Notes against the Company or any of its assets in any
jurisdiction.
3
<PAGE> 5
THE FIRST SCHEDULE
FORM OF CERTIFICATE
CERTIFICATE NO. ACCOUNT NO. ISSUE DATE AMOUNT
L
Nextera Enterprises, Inc.
(Incorporated with limited liability in
Delaware, United States of America)
UNSECURED LOAN NOTES [ ]
THIS IS TO CERTIFY THAT the undermentioned is/are the registered holder(s) of
the amount set out below of the Unsecured Loan Notes [ ] constituted by an
instrument entered into by the Company on [ * ] (the "INSTRUMENT") and issued
with the benefit of and subject to the provisions contained in the Instrument.
Where the context so admits, words and expressions defined in the Instrument
shall bear the same meanings in the Conditions endorsed.
This Certificate is evidence of entitlement only. Title to the Notes passes
only on due registration on the Register and any payment due on the Notes
whether of principal or interest will be made only to the duly registered
holder.
NAME(S) OF HOLDER(S) AMOUNT OF NOTES
NEXTERA ENTERPRISES, INC. BY:
Director Director/Secretary
DATED:
NOTES:
1 The Notes are repayable in accordance with the Conditions endorsed.
2 The Notes are transferable, in accordance with this Instrument.
3 A copy of the Instrument is available for inspection at the office of the
Registrar referred to above.
4
<PAGE> 6
THE SECOND SCHEDULE
THE CONDITIONS
1 REPAYMENT, PURCHASE AND REDEMPTION
1.1 Subject as provided below, each Noteholder shall be entitled to require the
Company to repay the whole or any part (being L1 nominal or any integral
multiple thereof) of the principal amount of his holding of Notes at par on
six months from the date of Issue or thereafter, together with accrued
interest thereon (subject to any requirement to deduct income tax
therefrom) up to and including the date of repayment. To exercise such
entitlement, the Noteholder must complete the Notice of Repayment set out
below, stating the amount required to be repaid and the date for repayment
thereof, sign and date the Notice of Repayment and lodge the same with the
Certificate at the office of the Registrar not less than ten Business Days
prior to the due date for repayment. A Notice of Repayment given in
accordance with this Condition shall, without the consent of the Company,
be irrevocable.
1.2 If, at any time, the principal amount of all Notes outstanding shall be
equal to or less than ten percent in total nominal amount of the Notes
issued, the Company shall be entitled, upon giving to the Noteholders not
less than thirty days' notice in writing to redeem all (but not some only)
of the Notes then in issue at par together with accrued interest (subject
to any requirement to deduct income tax) up to and including the date of
redemption.
1.3 The Company may at any time purchase any Notes at any price by tender
(available to all Noteholders alike), private treaty or otherwise by
agreement with the relevant Noteholder(s).
1.4 Unless previously repaid, redeemed or purchased by the Company the Notes
shall be repaid in full at par on the Final Redemption Date, together with
accrued interest (subject to any requirement to deduct income tax) up to
and including that date.
2 EVENTS ON WHICH NOTES BECOME IMMEDIATELY REPAYABLE
Each Noteholder shall be entitled to require all or part of the Notes
(being L1 nominal or any integral multiple thereof) registered in his name
(so far as not previously repaid and unless otherwise agreed by him) to be
repaid immediately at par together with accrued interest (subject to any
requirement to deduct income tax), in each of the following events, upon
written notice by such Noteholder to the Company so long as that event is
continuing:
2.1 any principal or interest payable on any of the Notes held by that
Noteholder is not paid in full within ten Business days after the due date
for payment; or
2.2 the making of an order by a competent court or authority or the passing
of an effective resolution for the winding-up dissolution or its
equivalent in any jurisdiction of the Company (other than for the purposes
of a reconstruction, amalgamation, merger or members' voluntary winding-up
on terms previously approved by an Extraordinary Resolution); or
2.3 the taking of possession by an encumbrancer of, or the appointment of a
trustee, administrator or administrative receiver or manager or a similar
officer over, or an administration order or its equivalent in any
jurisdiction being made in respect of, the whole or substantially the
whole of the undertaking or property of the Company, unless the same is
paid out or discharged within ten Business days.
The Company shall give the Noteholders notice of the happening of any of
the foregoing events promptly after becoming aware of the same.
5
<PAGE> 7
3 PAYMENT
Payment of the principal or the interest for the time being due and owing
on the Notes, or any part thereof, may be made by cheque or warrant and
made payable to the registered holder or, in the case of joint holders, to
the first named holder or to such person or persons as the registered
holder or joint holders may in writing, received by the Company at least
five Business Days prior to the date of such payment, have directed. Every
such cheque or warrant may be sent through the post no later than the
Business Day preceding the due date for payment at the risk of the
registered holder or joint holders and payment of any such cheque or
warrant shall be a good discharge by the Company. No payments of principal
or interest will be mailed to an address in the United States, Canada,
Australia or Japan. Payments will be subject in all cases to any
applicable fiscal and other laws and regulations.
4 SURRENDER OF CERTIFICATE AND PRESCRIPTION
4.1 Without prejudice to any other provisions of this Instrument, every
Noteholder any part of whose Notes is due to be repaid or redeemed under
any of the provisions of these Conditions shall, not later than five
Business Days before the due date for such repayment or redemption,
deliver up to the Company, at the office for the time being of the
Registrar, the Certificate for his Notes which are due to be repaid in
order that it may be cancelled. Unless payment of the amount due to be
repaid has already been made in accordance with Condition 3, upon such
delivery and against a duly signed or authenticated receipt for the
principal moneys payable in respect of the Notes to be repaid, the Company
shall, on the due date for repayment, pay to the Noteholder the amount
payable to him in respect of such repayment or redemption. If any
Certificate so delivered to the Company includes any Notes not then
repayable or redeemed, a new Certificate for the balance of the Notes not
then repayable or redeemed shall be issued free of charge to the
Noteholder delivering such Certificate to the Company.
4.2 If any Noteholder any part of whose Notes is liable to be repaid or
redeemed under these Conditions fails or refuses to deliver up the
Certificate for such Notes at the time and place fixed for repayment
thereof, or fails or refuses to accept payment of the moneys payable in
respect thereof, the moneys payable to such Noteholder shall be paid into
a separate interest-bearing bank account. The payment of such moneys into
a bank account shall not constitute the Company a trustee of such moneys
but shall discharge the Company from all obligations in respect of the
Note. The Company shall not be responsible for the safe custody of such
moneys or for interest thereon except such interest (if any) as the said
moneys may earn whilst on deposit, less any reasonable expenses incurred
by the Company in connection therewith. Any such amount so paid or
deposited which remains unclaimed after a period of twelve years from the
making of the payment or deposit shall revert and belong to the Company,
notwithstanding that in the intervening period the obligation to pay the
same may have been provided for in the books, accounts and other records
of the Company. Subject as aforesaid, any amount so paid or deposited will
forthwith be paid directly to the Noteholder or his successors upon
delivery of the relevant Certificate.
5 CANCELLATION
All Notes repaid, redeemed or purchased by the Company shall be cancelled
and the Company shall not be at liberty to re-issue them.
6 INTEREST
6.1 Until such time as the Notes are repaid, redeemed or purchased by the
Company in accordance with the provisions of the instrument or these
Conditions, the Company shall pay to the Noteholders interest (subject to
any requirement to deduct income tax) on the outstanding
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<PAGE> 8
principal amount of the Notes at the rate of one percent, per annum less
than the base rate of Midland Bank Plc, in arrears on 30 June or 31
December in each year or, if such a day is not a Business Day, on the
immediately preceding Business Day (the "INTEREST PAYMENT DATES") in each
year in respect of the Interest Periods (as defined below) ending on and
including those dates, using such base rate on the first Business Day of
that Interest Period or, in the case of the period from the date of issue
of this note to the next following Interest Payment Date using such base
rate on the date of issue of this Note. Except where Notes have previously
been repaid, redeemed or purchased and subject to Conditions 6.5 and 6.6,
the final interest payment will be made on the Final Redemption Date.
6.2 The period from and including the first date of issue of Notes up to but
excluding the next following 30 June or 31 December (whenever is first) is
herein called an "INTEREST PERIOD". On or as soon as practicable following
an Interest Payment Date, the Company shall deliver to each Noteholder a
certificate as to the gross amount of the relevant interest payment and
the amount of tax deducted.
6.3 Each instalment of interest shall be calculated by applying the rate of
interest determined in accordance with sub-paragraph 6.1 above to the
aggregate principal amount of Notes held by each Noteholder (or
Noteholders in the case of joint holders), multiplying such product by the
actual number of days in the relevant Interest Period divided by 365 and
rounding the resulting figure to the nearest penny (half a penny being
rounded upwards).
6.4 Each interest payment shall be made to the Noteholders registered on the
Register at the close of business on the twenty-first day preceding the
due date for payment of such interest and every such Noteholder shall be
deemed for the purposes of these Conditions to be the holder on such
Interest Payment Date of the Notes held by him on such preceding date,
notwithstanding any intermediate transfer or transmission of any such
Notes.
6.5 Interest on any Notes becoming liable to repayment shall cease to accrue
as from the due date for repayment of such Notes unless (and subject to
compliance by the Noteholder with the provisions of Condition 4) payment
of the moneys is not made by the Company (in which case interest will
continue to accrue until, and including, the date of actual payment).
6.6 If any amount due to a Noteholder in respect of his Notes is not paid on
the due date, that sum shall until paid itself bear interest (accruing on
a daily basis and payable on demand) at the rate of once per cent per
annum above the base rate from time to time of Midland Bank Plc.
7 DOLLAR CONVERSION MECHANISM
7.1 Subject to an election by the Company in accordance with the provisions of
Condition 7.2, the amount payable in sterling by way of principal to each
Noteholder on the third anniversary of the date of issue of this note (the
"FINAL REPAYMENT DATE") pursuant to the provisions of Condition 1.4 shall
be the amount in sterling that could have been purchased at the spot rate
for the purchase of sterling with US dollars certified by the Company as
prevailing at or about 11.00 a.m. (London time) (the "STERLING SPOT RATE")
on the fifth business day before the Final Repayment Date with the amount
in US dollars that the sterling amount equal to the principal amount of
the Notes to be redeemed could have purchased at the spot rate for the
purchase of US dollars with sterling certified by the Company so
prevailing at or about 11.00 a.m. (London time) (the "DOLLAR SPOT RATE")
on the day falling 30 days before the Final Repayment Date (or, if such a
day is not a business day, on the immediately preceding business day)
PROVIDED THAT such amount shall not be less than 99 per cent, or more than
101 per cent, of the sterling principal amount of the Notes to be
redeemed, the amount shall be deemed to be 99 per cent, or 101 per cent,
of the sterling principal amount of the Notes to be redeemed
respectively).
7.2 The Company may elect, by giving 60 days' written notice to the
Noteholders, to:
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<PAGE> 9
(a) pay the Noteholders in lieu of and in satisfaction of the principal
amount of the Notes to be redeemed on the Final Repayment Date
pursuant to the provisions of Condition 1.4, an amount in US dollars
equal to the amount in US dollars that the sterling amount equal to
the principal amount of the Notes to be redeemed could have
purchased on the fifth business day before the Final Repayment Date
at the Dollar Spot Rate (the "DOLLAR REDEMPTION AMOUNT") PROVIDED
THAT the sterling value of the Dollar Redemption Amount calculated
at the Sterling Spot Rate prevailing on the Final Repayment Date
shall not be less than 99 per cent, or more than 101 per cent, of
the principal amount of the Notes to be redeemed (and if such amount
is less than 99 per cent, or more than 101 per cent, of the sterling
principal amount of the Notes to be redeemed, the amount shall be
deemed to be 99 per cent, or 101 per cent, of the sterling principal
amount of the Notes to be redeemed respectively); or
(b) prepay all (but not some only) of the Notes of a Noteholder
together with all interest accrued thereon on any business day
falling within the period from (i) the day falling immediately
after the Interest Payment Date last preceding the Final Repayment
Date to (ii) the Final Repayment Date.
7.3 For the purposes of Conditions 7.1 and 7.2 all sums will be rounded to the
nearest cent or penny, with half cents and half pennies being rounded
upwards. The certificate of the Company in relation to any matter arising
out of Conditions 7.1 and 7.2 shall, in the absence of manifest error, be
final and binding.
7.4 Notwithstanding any election made by the Company pursuant to clauses 7.1
or 7.2, a Noteholder may still require the Company to repay his Notes in
Sterling pursuant to clause 7.1 at any time prior to the Final Repayment
Date.
8 TRANSFER OF NOTES
8.1 The Notes may only be transferred to:-
(i) any other Noteholder; or
(ii) members of the family of the Noteholder to whom the note is
issued.
For the purpose of this clause, family shall include immediate family,
all relatives including cousins, aunts, uncles, parents, grandparents,
and all family of those mentioned here.
9 DEATH OR BANKRUPTCY OF NOTEHOLDERS
9.1 The executors or administrators of a deceased registered holder of Notes
(not being one of several joint holders) and, in the case of the death of
one or more of several joint registered holders, the survivor or
survivors of such joint registered holders, shall be the only person or
persons recognised by the Company as having any title to such Notes.
9.2 Any person becoming entitled to Notes in consequence of the death or
bankruptcy of a holder of Notes or of any other event giving rise to the
transmission of such Notes by operation of law may, upon producing such
evidence that he sustains the character in respect of which he proposes
to act under this Condition or of his title as the Company shall think
sufficient, be registered himself as the holder of such Notes.
10 MODIFICATION
10.1 The provisions of the instrument or of the Notes and the rights of the
Noteholders may from time to time be modified, abrogated or compromised
or any arrangement or amendment agreed in any
8
<PAGE> 10
respect with the sanction of an Extraordinary Resolution or by written
resolution of the holders of at least seventy five per cent in nominal
amount of the Notes then in issue subject, in either case, to the prior
consent of the Company.
10.2 Any such modification, abrogation, compromise or arrangement effected
pursuant to either paragraph 10.1 shall be binding on all Noteholders.
11 DEALINGS
The Notes shall not be capable of being dealt in on any stock exchange in
the United Kingdom or elsewhere and no application has been or is
intended to be made to any stock exchange for the Notes to be listed or
otherwise traded.
12 RECEIPT OF JOINT HOLDERS
If two or more persons are entered in the Register as joint registered
holders of any Notes then, without prejudice to Clause 7 of the
instrument, the receipt by any one of such persons of any interest or
principal shall be as effective a discharge to the Company as if the
person signing such receipt were the sole registered holder of such
Notes.
13 REPLACEMENT OF CERTIFICATES
If the Certificate for any Notes is lost, defaced or destroyed, it may,
upon payment by the Noteholder of any out-of-pocket expenses of the
Company, be replaced, on such terms (if any) as to evidence and indemnity
as the Directors may require, but so that, in the case of defacement, the
defaced Certificate shall be surrendered before the new Certificate is
issued.
14 RISK TO NOTEHOLDERS
All Certificates, other documents and remittances sent through the post
shall be sent at the risk of the Noteholder(s) entitled thereto.
15 NOTICES
15.1 Any notice or other communication requiring to be given or served under
or in connection with this instrument shall be in writing and shall be
sufficiently given or served if delivered or sent, in the case of any of
the Noteholders, to the Noteholders' Solicitors at:
Address: Gouldens
22 Tudor Street
London
EC4Y OJJ
Fax: 44 171 583 3051
Attention: Adam Greaves (file 752614)
In the case of the Company to Nextera Enterprises, Inc. at:
Address: Nextera Enterprises Inc.
338 Euston Road
Regent Place
London NW1 3BT
Fax: 08700 101113
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<PAGE> 11
Attention: Fred Mendelsohn
with a copy to:
Address: Nextera Enterprises, Inc.
One Cranberry Hill
Lexington
MA 02173
United States of America
Fax: +1 212 421 9310
Attention: Vincent Perro
with a copy to:
Address: Maron & Sandler
844 Moraga Drive
Los Angeles
CA 90049
Fax: +1 310 440 3690
Attention: Jim Banks
15.1.1 Any such notice or other communication shall be delivered by hand
or sent by courier, fax or prepaid first class post. If sent by
courier or fax such notice or communication shall conclusively be
deemed to have been given or served at the time of despatch, in
case of service in the United Kingdom, or on the following
Business Day in the case of international service. If sent by
post such notice or communication shall conclusively be deemed to
have been received two Business Days from the time of posting, in
the case of inland in the United Kingdom or three Business Days
from the time of posting in the case of international mail.
16 GENERAL
16.1 Each Noteholder shall be recognized by the Company as entitled to his
Notes free from any equity, set-off or counterclaim on the part of the
Company against the original or any intermediate holder of the Notes.
16.2 The instrument and the Notes are governed by, and will be construed in
accordance with, English law.
10
<PAGE> 12
NOTICE OF REPAYMENT
NEXTERA ENTERPRISES, INC.
UNSECURED LOAN NOTES [ ]
TO: NEXTERA ENTERPRISES INC.
(the "COMPANY")
c/o Sibson UK Limited
338 Euston Road
Regent Place
London NW1 3BT
I/We, being the registered holder(s) of the Notes represented by this
Certificate, hereby give notice that I/we require the Company to repay [the
whole] [L _ ] * of the principal amount of such Notes on [ _ ] ** in
accordance with the Conditions.
I/We, request you to pay to me/us in the manner authorised below the moneys to
which I/we become entitled pursuant to this Notice.
I/We authorise and request you to pay the said sum by cheque payable to [ _ ]
# and send the same through the post at my/our risk to [ _ ]#.
I/We acknowledge that payment of the moneys in the manner hereby authorised
shall be in full and final satisfaction of the principal moneys to which I/we
become entitled as aforesaid.
I/We hereby authorise the despatch of a Certificate for the balance (if any) of
the Notes represented by this Certificate by post at my/our risk to:
Name
-------------------------
at (Address)
-------------------------
Signature
-------------------------
Name
-------------------------
Signature(s)***
-------------------------
Date
-------------------------
* Delete and/or complete as appropriate in a minimum nominal amount of L1
or an integral multiple thereof. If no amount is inserted the notice
will be deemed to relate to the whole of the principal amount
represented by this Certificate.
** Complete the date [ _ ] or [ _ ] in any year on or after [ _ ]
and up to [ _ ] (inclusive) subject to any period of notice required.
# If no name or address is inserted, the repayment will be made or
Certificate sent as the case may be to the first named Noteholder at
his address in the Register. No Certificate will be posted to an
address in the United States, Canada, Australia or Japan.
*** In the case of joint holdings all Noteholders must sign. A corporation
must affix its seal (if any) which must be witnessed in accordance with
the Articles of Association of the corporation or executed in
accordance with the provisions of Section 36A or 36B of the Companies
Act 1985 or, in the case of a body corporate incorporated outside the
United
11
<PAGE> 13
Kingdom, in accordance with the provisions of the Foreign Companies
(Execution of Documents) Regulations 1994.
12
<PAGE> 14
THE THIRD SCHEDULE
PROVISIONS FOR MEETINGS OF THE NOTEHOLDERS
1 CALLING OF MEETINGS
The Company may at any time and shall, upon request in writing signed by
the registered holders of not less than one-tenth in nominal value of the
Notes for the time being outstanding (excluding any in respect of which a
notice requiring repayment shall have been given), convene a meeting of
the Noteholders to be held at such place within the United Kingdom as the
Company shall reasonably and promptly determine.
2 NOTICE OF MEETINGS
2.1 The Company shall give to the Noteholders at least fourteen or, in the
case of a meeting convened for the purpose of passing an Extraordinary
Resolution, at least twenty-one clear days' notice, of any meeting of
Noteholders, specifying the place, day and time of meeting. Any such
notice shall specify the general nature of the business to be transacted
at the meeting thereby convened but, except in the case of a resolution
to be proposed as an Extraordinary Resolution, it shall not be necessary
to specify the terms of any resolution to be proposed.
2.2 The accidental omission to give notice of a meeting, or to send a form of
proxy with a notice, to any person entitled to receive the same, or the
non-receipt of a notice of meeting or form of proxy by any such person,
shall not invalidate the proceedings, including any resolution duly
passed at that meeting.
3 CHAIRMAN OF MEETINGS
Some person nominated by the holders of a majority of the Notes
represented at the meeting, failing which by the Company shall be
entitled to take the chair at any such meeting and if no such nomination
is made or, if at any meeting the person nominated shall not be present
within thirty minutes after the time appointed for holding the meeting,
the Noteholders present shall choose one of their number to be Chairman.
4 QUORUM AT MEETINGS
At any such meeting, persons (at least two in number) holding or
representing by proxy at least one-tenth (or at any such meeting at which
an Extraordinary Resolution is to be considered, one-quarter) in nominal
value of the Notes for the time being outstanding shall form a quorum for
the transaction of business. No business (other than the choosing of a
Chairman) shall be transacted at any meeting unless the requisite quorum
be present at the commencement of business.
5 ABSENCE OF QUORUM
If within thirty minutes from the time appointed for any meeting of the
Noteholders a quorum is not present, the meeting shall, if convened upon
the requisition of the Noteholders, be dissolved. In any other case it
shall stand adjourned to such day and time (being not less than fourteen
nor more than forty-two days thereafter) and to such place as may be
appointed by the Chairman. At such adjourned meeting, the Noteholders
present in person or by proxy and entitled to vote, whatever the number
of persons or the nominal value of the Notes held by them, shall form a
quorum and shall have power to pass any Extraordinary Resolution or other
resolution and to decide upon all matters which could properly have been
disposed of at the meeting from which the adjournment took place.
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<PAGE> 15
6 NOTICE OF ADJOURNED MEETINGS
At least seven days' notice of any adjourned meeting at which an
Extraordinary Resolution is to be submitted shall be given in the manner
provided by this instrument and such notice shall state that the
Noteholders present in person or by proxy at the adjourned meeting will
form a quorum. Notice is not required for any adjourned meeting at which
no Extraordinary Resolution is to be submitted.
7 ADJOURNMENT OF MEETINGS
The Chairman may, with the consent of (and shall if directed by) any such
meeting, adjourn the same from time to time and from place to place but no
business shall be transacted at any adjourned meeting except business
which might lawfully have been transacted at the meeting from which the
adjournment took place.
8 RESOLUTION ON SHOW OF HANDS
Every question submitted to a meeting of Noteholders shall be decided in
the first instance by a show of hands and, in case of an equality of
votes, the Chairman shall, both on a show of hands and on a poll, have a
casting vote in addition to the vote or votes (if any) to which he may be
entitled as a Noteholder or as a duly appointed proxy of a Noteholder.
9 DEMAND FOR POLL
At any meeting of Noteholders, unless (before or on the declaration of the
result of the show of hands) a poll is demanded by the Chairman or by one
or more Noteholders present in person or by proxy and holding or
representing in aggregate not less then one-tenth in nominal value of the
Notes then outstanding, a declaration by the Chairman that a resolution
has been carried or carried by a particular majority or lost or not
carried by a particular majority shall be conclusive evidence of the fact.
10 MANNER OF TAKING POLL
If at any such meeting a poll is so demanded it shall be taken in such
manner as the Chairman may direct and the result of such poll shall be
deemed to be the resolution of the meeting at which the poll was demanded.
11 TIME FOR TAKING POLL
Any poll demanded at any such meeting on the election of a Chairman or on
any question of adjournment shall be taken at the meeting without
adjournment. A poll demanded on any other question shall be taken in such
manner and place immediately or at any time within ten days of such
demand, as the Chairman may direct. No notice need be given of a poll not
taken immediately. The demand for a poll shall not prevent the continuance
of a meeting for the transaction of any business other than the question
on which the poll has been demanded. The demand for a poll may be
withdrawn.
12 PERSONS ENTITLED TO ATTEND AND VOTE
12.1 The registered holder of any of the Notes or, in the case of joint
holders, any one of them shall be entitled to vote in respect thereof
either in person or by proxy and in the latter case as if such joint
holder were solely entitled to such Notes. If more than one of such joint
holders be present at any meeting, either personally or by proxy, the vote
of the senior who tenders a vote (seniority being
14
<PAGE> 16
determined by the order in which the joint holders are named in the
Register) shall be accepted to the exclusion of the votes of the other
joint holders.
12.2 The Directors and the Secretary and solicitors to and auditors of the
Company and any other person authorised by the Directors may attend and
speak (but not vote) at any such meeting.
13 INSTRUMENT APPOINTING PROXY
Every instrument appointing a proxy must be in writing signed by the
appointor or his attorney or, in the case of a corporation, under its
common seal or signed by its attorney or a duly authorised officer and
shall be in he usual or common form or in such other form as the Directors
may approve. Such instrument of proxy shall unless the contrary is stated
thereon be valid as well for an adjournment of the meeting as for the
meeting to which it relates and need not be witnessed. A person appointed
to act as proxy need not be a Noteholder.
14 DEPOSIT OF INSTRUMENT APPOINTING PROXY
The instrument appointing a proxy and the power of attorney or other
authority (if any) under which it is signed or a noterially certified or
office copy of such power or authority shall be deposited at such place or
places as within the United Kingdom the Company may in the notice of
meeting direct or, if no such place is specified, then at the registered
office of the Company not less than forty-eight hours before the time
appointed for holding the meeting or adjourned meeting or the taking of a
poll at which the person named in such instrument proposes to vote; in
default the instrument of proxy shall not be treated as valid. A vote
given in accordance with the terms of an instrument appointing a proxy
shall be valid notwithstanding the previous death or insanity of the
principal or revocation of the instrument of proxy or of the authority
under which the instrument of proxy is given, unless previous notice in
writing of such death, insanity or revocation shall have been received at
the registered office of the Company. No instrument appointing a proxy
shall be valid after the expiration of twelve months from the date of its
execution.
15 VOTES
On a show of hands, every Noteholder who (being an individual) is present
in person or by proxy or (being a corporation) is present by a
representative shall have one vote and, on a poll, every Noteholder
present in person or by proxy shall have one vote for every L1 in nominal
amount of the Notes of which he is the holder. A Noteholder entitled to
more than one vote need not use all his votes or cast all the votes he
uses in the same way.
16 POWERS OF MEETINGS OF NOTEHOLDERS
A meeting of the Noteholders shall, in addition to any other powers, have
the following powers exercisable by Extraordinary Resolution namely:
16.1 power to sanction any compromise or arrangement proposed to be made
between the Company and the Noteholders;
16.2 power to sanction any abrogation, modification or compromise or any
arrangement in respect of the rights of the Noteholders against the
Company or its properties, whether such rights arise under the instrument
or otherwise;
16.3 power to sanction any scheme or proposal for the sale or exchange of the
Notes or for the conversion of the Notes into shares, stock, debentures,
debenture stock or other obligations or securities of the Company or any
other company formed or to be formed or cash or partly for or
15
<PAGE> 17
into such shares, stock, debentures, debenture stock or other obligations
or securities as aforesaid and partly for or into cash;
16.4 power to assent to any modification or abrogation of the provisions of
this Instrument or of the Notes which shall be proposed by the Company and
for which the consent of Noteholders is required and to authorise the
Company to execute an instrument supplemental to this Instrument embodying
any such modification or abrogation;
16.5 power to give any authority or sanction which under the provisions of this
Instrument is required to be given by Extraordinary Resolution;
Provided that no modification of the Conditions or the Instrument shall be
made or take effect unless the Company shall have consented to any such
modification.
17 DEFINITION OF EXTRAORDINARY RESOLUTION
The expression "EXTRAORDINARY RESOLUTION" means a resolution passed at
a meeting of the Noteholders, duly convened and held in accordance with
the provisions herein contained, by a majority consisting of not less than
three-fourths of the persona voting thereat upon a show of hands or, if a
poll is demanded, by a majority consisting of not less that three-fourths
of the votes given on such poll.
18 EXTRAORDINARY RESOLUTION BINDING ON ALL NOTEHOLDERS
An Extraordinary Resolution shall be binding upon all the Noteholders
whether or not present at such meeting and each of the Noteholders shall
be bound to give effect to it accordingly. The passing of any such
resolution shall be conclusive evidence that the circumstances justify the
passing thereof, the intention being that it shall rest with the meeting
to determine without appeal whether or not the circumstances justify the
passing of such resolution.
19 RESOLUTIONS IN WRITING
A resolution in writing signed by the holders of not less than
seventy-five per cent in nominal amount of the Notes for the time being
outstanding who are for the time being entitled to receive notice of
meetings in accordance with the provisions herein contained shall for all
purposes be as valid and effectual as an Extraordinary Resolution. Such
resolution in writing may be contained in one document or in several
documents in similar form each signed by one or more of the Noteholders.
20 MINUTES OF MEETINGS
Minutes of all resolutions and proceedings at every meeting of Noteholders
shall be made and duly entered in books to be from time to time provided
for that purpose by the Company. Any such minutes, if purporting to be
signed by the Chairman of the meeting at which such resolutions were
passed or proceedings held or by the Chairman of the next succeeding
meeting of the Noteholders, shall be conclusive evidence of the matters
therein contained. Until the contrary is proved, every such meeting in
respect of the proceedings of which minutes have been made shall be deemed
to have been duly convened and held and all resolutions passed at that
meeting to have been duly passed.
16
<PAGE> 18
In witness whereof this Instrument has been duly executed and delivered as
a deed poll the day and year first above written.
SIGNED by NEXTERA
ENTERPRISES INC. By MICHAEL /s/ MICHAEL MULDOWNEY
MULDOWNEY, Chief Financial
Officer
17
<PAGE> 1
EXHIBIT 10.40
DATED 29 JANUARY 1999
THE VENDORS
and
NEXTERA ENTERPRISES, INC.
TAX DEED OF COVENANT
relating to the sale and purchase of the whole of the issued
share capital of The Alexander Corporation Limited
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
Tel: (+44) 171 456 2000
Ref: SNP
<PAGE> 2
TAX DEED OF COVENANT
THIS TAX DEED OF COVENANT is made on 29 January 1999 BETWEEN:
(1) THE SEVERAL PERSONS named in the Schedule (the "VENDORS" which
expression shall include the legal person representative of any such
persons); and
(2) NEXTERA ENTERPRISES, INC. whose registered office is at One Cranberry
Hill, Lexington, MA, United States of America (the "PURCHASER").
WHEREAS this Deed is entered into pursuant to the provisions of an
Agreement dated 29 January 1999 and made between the Vendors (1) and the
Purchaser (2) under which the Purchaser agreed to purchase and the Vendors
agreed to sell the entire issued share capital of The Alexander Corporation
Limited (the "AGREEMENT").
IT IS AGREED as follows:
1 INTERPRETATION
In this Deed, including the Schedule, the headings shall not affect its
interpretation and:
1.1 subject to Clause 1.2, words and expressions defined in the Agreement shall
have the same meaning wherever used in this Deed;
1.2 the following expressions bear the following meanings namely:
"CLAIM" includes any liability to make a payment of Taxation and any
notice, demand, assessment, letter or other document issued by the Inland
Revenue or any other statutory, governmental, state, provincial or local
governmental authority, body or official whosoever (whether of the United
Kingdom or elsewhere in the world) indicating that the Purchaser or the
Company is or may be placed or sought to be placed under a liability to
make a payment of Taxation or deprived of or denied any Relief or repayment
of Taxation;
"CORPORATION TAX" has the meaning given to that term in Section 6 ICTA;
"COVENANTORS" means the Vendors;
"ICTA" means the income and Corporation Taxes Act 1988;
"REGULATIONS" means The Corporation Tax (Instalment Payments) (Large
Companies) Regulations 1998;
"RELIEF" includes any relief, loss, allowance, exemption, set-off,
deduction or credit in computing or against profits or Taxation;
"TAX REFUND" has the meaning given to that term in Section 102 of the
Finance Act 1989, as amended by the Regulations;
"TRANSACTION" includes any transaction, circumstance, act, event or
omission of whatever nature and includes, without limitation, any change in
the residence of any person for the purposes of any Taxation and any change
in accounting reference date;
"VENDORS' REPRESENTATIVE" means Graham Alexander or other person notified
in accordance with the Agreement;
1.3 references to "TAXATION" comprise all forms of taxation and statutory,
governmental, state, provincial, local governmental or municipal
impositions, duties, contributions and levies, in each case whether of the
United Kingdom or elsewhere in the world whenever imposed and whether
<PAGE> 3
chargeable directly or primarily against or attributable directly or
primarily to the Company or any other person and all penalties,
charges, costs and interest relating thereto provided that references
to Taxation shall not extend to stamp duty or general or water or
business rates or penalties or interest in respect thereof;
1.4 references to "profits" include income, profits or gains (including
capital gains) of any description or from any source and references to
profits earned, accrued or received include profits deemed to have been
or treated as earned, accrued or received for Taxation purposes;
1.5 references to "Taxation" shall include:
1.5.1 the loss or non-availability of, reduction in the amount of, or
setting off against profits or against a Taxation liability of,
any Relief to the extent that such Relief has been taken into
account in, or in computing a provision for Taxation in, the
Completion Accounts;
1.5.2 the cancellation of, loss of, non-availability of, reduction in
the amount of, or setting off against any Taxation liability of,
a right to repayment of Taxation to the extent that such right
has been taken into account in, or in computing a provision for
Taxation in, the Completion Accounts; and
1.5.3 the setting off against profits or against a Taxation liability
(in either case in respect of which but for such setting off the
Company would have had a liability to pay Taxation in respect of
which a claim could have been made under this Deed) of any
Relief which is not available before Completion but arises in
respect of a Transaction or Transactions occurring after
Completion;
and the amount of the Taxation shall in such cases be deemed to be
equal to (i) (in the case of a repayment) the amount of the repayment
which would otherwise have been obtained or (ii) (in the case of a
Relief) the amount of Taxation which would have been saved by the
Relief but for such loss, non-availability, reduction or set-off,
assuming such Taxation to be payable at the average rate (weighted on a
time basis) appropriate to the earliest period in respect of which
Taxation becomes payable which would not have been payable if the said
Relief had not been lost, reduced or set off or, as the case may be,
had been available. For the purposes of this Clause 1.5, any right to
payment from any non-United Kingdom Taxation authority of any
non-United Kingdom withholding tax or tax credit, which payment has
been assumed to be available in computing the Completion Accounts,
shall be assumed to be or become non-available if, and to the extent
that, such receivable remains unpaid on the date falling twelve months
following Completion, without prejudice to the rights of the
Covenantors under Clause 9 of this Deed but with no requirement for the
Purchaser to give the notice to the Covenantors referred to in that
Clause and provided that the Company has made reasonable endeavours to
obtain such repayment;
1.6 references to specific provisions in United Kingdom Taxation
legislation, regulations or other binding requirements or to United
Kingdom Taxation or accountancy concepts shall, where relevant, also be
taken to apply to the equivalent or most nearly equivalent non-United
Kingdom legislation, regulations, requirements or concepts;
1.7 references to "Inheritance Tax" shall be deemed to include references
to Capital Transfer Tax;
1.8 references to the "Purchaser" shall, where the benefit of this Deed has
been assigned under Clause 12.3 of the Agreement, mean the person or
persons for the time being entitled to the benefit of this Deed.
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2 COVENANT
2.1 Subject as hereinafter provided, the Covenantors hereby jointly and
severally agree with and undertake to the Purchaser to pay to the
Purchaser, or to the Company at the Purchaser's direction, on the due date
for payment an amount equal to:
2.1.1 any liability to Taxation of the Company:
(i) in respect of or arising from any Transaction effected or deemed
to have been effected on or before Completion;
(ii) by reference to any profits earned, accrued or received on or
before Completion; or
(iii) as a result of any underpayment of any installment of
Corporation Tax pursuant to the Regulations prior to Completion;
2.1.2
(i) any liability of the Company to repay in whole or in part any
payment for group relief, payment for the surrender of surplus
advance corporation tax or payment for the surrender of any Tax
Refund received pursuant to any agreement or arrangement
entered into on or before Completion; or
(ii) any payment which the Company fails to obtain for group relief,
for the surrender of surplus advance corporation tax or for the
surrender of any Tax Refund which was taken into account as an
asset in the Completion Accounts;
2.1.3 any liability of the Company to make a payment by way of reimburse-
ment, recharge, indemnity, damages (whether for breach of contract or
arising in tort) or management charge connected in any way with
Taxation:
(i) in respect of or arising from any Transaction effected or
deemed to have been effected on or before Completion; or
(ii) by reference to any profits earned, accrued or received on or
before Completion:
2.1.4 any depletion in or reduction in value of the assets or increase in
the liabilities of the Purchaser and the Company as a result of any
Inheritance Tax which:
(i) is at Completion a charge on any of the shares of assets of the
Company or gives rise to a power to sell, mortgage or charge
any of the shares or assets of the Company; or
(ii) after Completion becomes a charge on any of the shares or
assets of the Company or gives rise to a power to sell,
mortgage or charge any of the shares or assets of the Company
being a liability in respect of inheritance Tax payable as a
result of the death of any person within seven years after a
transfer of value (or a deemed transfer of value) if a charge
on or power to sell, mortgage or charge any such shares or
assets existed at Completion or would, if the death had
occurred immediately before Completion and the inheritance Tax
payable as a result thereof had not been paid, have existed at
Completion; or
(iii) arises as a result of a transfer of value occurring on or
before Completion (whether or not in conjunction with the death
of any person whenever occurring) which increased or decreased
the value of the estate of the Company;
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2.1.5 any Taxation for which the Company becomes liable by virtue of the
operation of sections 767A, 767AA and 767B ICTA where the "taxpayer
company" (as referred to in section 767A(1)(a) ICTA) or the "transferred
company" (as referred to in section 767AA(1)(a) ICTA) is at, or was at any
time prior to, Completion controlled by the Covenantors or any of them or
by the Company or was under common control with the Company (defining
"control" and "controlled" for the purposes of this clause 2.1.5 in
accordance with section 767B ICTA);
2.1.6 any Taxation for which the Company becomes liable in consequence of the
failure by:
(i) any company (other than the Company)
(a) which has at any time (whether before or after Completion)
been a member of a group (as defined from time to time for any
Taxation purpose) of which the Company has at any time prior
to Completion been a member; or
(b) from which the Company has received or become entitled to
receive on or before Completion in respect of shares in that
other company any capital distribution (as defined in section
122(5)(b) of the Taxation of Chargeable Gains Act 1992); or
(ii) any trustee of an employee share ownership trust (within the meaning
of Schedule S to the Finance Act 1989) established by the Company
before Completion or to which a sum has been paid by the Company
before Completion; or
(iii) any company (other than the Company) to pay Taxation in accordance
with arrangements entered into pursuant to Section 36 of the Finance
Act 1998; or
(iv) any other person;
to discharge Taxation within a specified period or otherwise; PROVIDED
THAT in the case of any other person this paragraph shall only apply
insofar as such Taxation arises as a result of profits earned, accrued or
received on or before Completion or a Transaction effected or deemed to
have been effected on or before Completion:
2.1.7 any Taxation:
(i) affecting the Company in respect of or arising from any Transaction
or combination of or series of Transactions completed after
Completion in pursuance of a legally binding obligation or an
arrangement, in either case whether or not conditional, incurred or
entered into on or before Completion outside the ordinary course of
business of the Company; or
(ii) affecting the Company in respect of or arising from any combination
or series of Transactions which includes:
(a) a Transaction outside the ordinary course of business of the
Company effected before Completion; and
(b) one or more Transactions effected after Completion which are
either
(i) in the ordinary course of business; or
(ii) effected in pursuance of a legally binding obligation or
an arrangement, in either case incurred or entered into
on or before Completion and in either case whether or
not conditional; and
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2.1.8 all reasonable costs and expenses (including the costs and expenses
of taking any action under this Deed) incurred or payable by the
Purchaser and the Company in connection with or in consequence of
any matter for which a successful claim is made by the Purchaser
under this Deed.
2.2 In determining for the purposes of this Deed whether a charge on or power
to sell, mortgage or charge any of the shares or assets of the Company
exists at any time the fact that any tax is not yet payable or may be
paid by installments shall be disregarded and such tax shall be treated
as becoming due and a charge or power to sell, mortgage or charge as
arising on the date of the transfer of value or other date or event on or
in respect of which it becomes payable or arises.
2.3 The provisions of Section 213 of the Inheritance Tax Act 1984 shall not
apply to any payments failing to be made under this Deed.
2.4 Any payments made under this Deed shall be treated as an adjustment to
the consideration paid by the Purchaser for the Shares under the terms of
the Agreement.
3 EXCLUSIONS
3.1 The Covenantors shall not be liable under this Deed:
3.1.1 in respect of any Taxation to the extent that provision or reserve
for such Taxation (other than provision for deferred Taxation) was
made in the Completion Accounts or such Taxation or amount was
otherwise taken into account in computing the Completion Accounts;
or
3.1.2 to the extent that such Taxation has been paid prior to Completion;
or
3.1.3 to the extent that such Taxation would not have arisen but for or
is increased by any voluntary Transaction carried out by the
Purchaser or the Company after Completion being an act which:
(i) (if done by the Company) is done otherwise than in the
ordinary course of the business of the Company as carried on
at Completion;
(ii) was not carried out pursuant to a legally binding obligation
of the Company entered into prior to Completion;
(iii) could reasonably have been avoided;
(iv) the Purchaser or Company knew or ought reasonably to have
known would give rise to such Taxation; and
(v) was not carried out with the express approval in writing of
the Covenantors; or
3.1.4 to the extent that such Taxation arises or is increased as a
consequence of any change in the accounting policy or practice
adopted by the Company after Completion, except where such change
was introduced, in the reasonable opinion of the Purchaser, in
order properly to comply with any mandatory legal, regulatory
financial reporting or other requirement in force on or prior to
Completion; or
3.1.5 to the extent that any Relief (other than a Relief taken into
account in, or in computing a provision for Taxation in, the
Completion Accounts) arising as a consequence of or by reference to
any Transaction which occurred on or before Completion or in
respect of a period ending on or before Completion is used to
relieve or mitigate such Taxation; or
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3.1.6 to the extent that such Taxation arises or is increased as a
consequence of any change in the law (including subordinate
legislation) or in the generally published interpretation or
practice of the Inland Revenue or HM Customs & Excise (or any
other Taxation authority) coming into force after Completion or
to the extent that such Taxation arises or is increased by a
change in any rate of Taxation after Completion; or
3.1.7 to the extent that the liability would not have arisen, but for
an act carried out by the Company prior to Completion at the
express written request of the Purchaser outside the ordinary
course of its normal business; or
3.1.8 to the extent that such Taxation arises or is increased by any
voluntary act of the Purchaser or the Company after Completion,
other than an act carried out in the ordinary course of
business, which has the result that any instalment of
Corporation Tax paid prior to Completion pursuant to the
Regulations is insufficient; or
3.1.9 if notice under Clause 4 is not served in respect of the
relevant claim within seven years of the end of the first
accounting period of the Company in question ending after the
Balance Sheet Date or (where the claim has not previously been
settled, satisfied or withdrawn) proceedings in respect thereof
have not been issued and served on the Covenantors within twelve
(12) months of the date of such notice; or
3.1.10 in the case of any Taxation within Clauses 2.1.1.(i), 2.1.3(i)
and 2.1.7, to the extent that such Taxation arises in respect
of actual profits earned by the Company after Completion
(meaning, for the purposes of this Clause 3.1.10,
notwithstanding Clause 1.4, (i) in the case of profits properly
accounted for on a cash rather than an accruals basis, real
profits actually received by the Company after Completion, or
(ii) in the case of profits properly accounted for on an
accruals rather than a cash basis, real profits actually
accrued in its accounts after Completion and actually received
by the Company, whether before or after Completion, as opposed,
in the case of either (i) or (ii), to profits deemed to exist
for any Taxation purpose) as a result of such Transaction of
the Company; or
3.1.11 to the extent that such Taxation liability arises as a result
of the Company failing to submit the returns and computations
required to be made by it or not submitting such returns and
computations within the appropriate time limits or submitting
such returns and computations otherwise than on a proper basis,
in each case after Completion and otherwise than as a result of
any default or failure of the Covenantors in carrying out, or
in failing to carry out, their obligations under Clause 6.
3.1 The time limit within Clause 3.1.9 shall not apply to any claim which
arises out of or in connection with, or is delayed as a result of
fraud, or willful concealment by a Covenantor.
4 CLAIMS
4.1 Without prejudice to the ability of the Purchaser to claim, if the
Purchaser or the Company becomes aware after Completion of any Claim or
circumstances which have given or are likely to give rise to a
liability under this Deed, the Purchaser shall procure that notice
thereof is given as soon as reasonably practicable (and in any event
within ten (10) Business Days of any assessment to Taxation being
received by the Company or Purchaser) to the Vendors' Representative in
the manner hereinafter provided and as regards any such Claim the
Purchaser shall itself or shall procure that the Company shall at the
request of the Vendors' Representative take such action as he may
reasonably request to avoid, dispute, resist, appeal, compromise or
defend the Claim and any adjudication in respect thereof but subject as
set out in Clause 4.2 and Clause 4.3 and subject to the Purchaser and
the Company being indemnified and secured to their reasonable
satisfaction by the Covenantors against all losses (including
additional Taxation), costs, damages and expenses which may thereby be
incurred.
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4.2 The Purchaser shall not and shall procure that the Company shall not,
without the written consent of the Vendor's Representative, admit,
compromise, settle, discharge or otherwise deal with any Claim PROVIDED
THAT the Purchaser or the Company may do so without such consent if either
(i) the Vendors' Representative delays unreasonably in giving any such
request as is mentioned in Clause 4.1 above or (ii) the Covenantors fail to
provide such Indemnification and security as is mentioned in Clause 4.1
above, and in either case the Purchaser or Company, as the case may be, has
notified the Vendors' Representative of its intention to so deal with a
Claim and has afforded the Vendors' Representative a period of ten (10)
Business Days to respond.
4.3 Neither the Purchaser nor the Company shall be required to take any action
which it reasonably considers will be unduly onerous or materially
prejudicial to it.
4.4 The Purchaser shall take all reasonable steps to procure that the Vendors'
Representative or the Covenantors' duly authorised agents are promptly
provided with all material correspondence and documentation and information
in the possession of the Company or the Purchaser's Group or its or their
advisers relating to the relevant Claim as they reasonably require and the
Vendors' Representative shall, and shall procure that the Covenantors' duly
authorised agents shall, (i) treat all information and documents to which
it or the Covenantors' duly authorised agents have access hereunder as
confidential, (ii) not to disclose such information to any third party
(except as required by law or by a Taxation authority or by the
Covenantors' or the Company or professional advisers for the purposes
specified in (iii) below) without the prior written consent of the
Purchaser (which will not be unreasonably withheld or delayed) and (iii)
use such information and records solely for the purposes of dealing with
the relevant Claim.
5 DUE DATE FOR PAYMENT
The due date for payment under Clause 2.1 shall be as follows:
5.1 where a liability of the Covenantors under Clause 2.1 arises from a
liability of the Purchaser or the Company to make a payment of Taxation
which has not at the date of the notice under Clause 4.1 been made:
5.1.1 in relation either to (i) any liability to Taxation other than
Corporation Tax or (ii) any liability to Corporation Tax for
accounting periods and/or companies to which the Regulations do
not apply, the date falling five (5) Business Days before the
latest date on which that Taxation becomes payable to the
relevant Taxation authority in order to avoid a liability to
interest or penalties accruing; and
5.1.2 in relation to any payment of Corporation Tax to which the
Regulations do apply, each date (each a "Date") falling five (5)
Business Days before each date on which an installment of
Corporation Tax fails to be paid in accordance with the
Regulations and, for the purposes of this Clause 5.1.2, the
Covenantors shall be liable to pay to the Purchaser on each Date
an appropriate proportion of the liability to Taxation, such
proportion to be notified by the Purchaser to the Covenantors at
least five (5) Business Days prior to each Date;
5.2 in the case of any loss, non-availability, reduction or setting off of a
Relief:
5.2.1 in relation either to (i) any liability to Taxation other than
Corporation Tax or (ii) any liability to Corporation Tax for
accounting periods and/or companies to which the Regulations do
not apply, the date falling five (5) Business Days before the
earliest date on which Taxation becomes payable to the relevant
Taxation authority which would not have been payable had the
Relief not been lost, unavailable, reduced or set-off; and
5.2.2 in relation to any payment of Corporation Tax to which the
Regulations do apply, each date (each a "Date") falling five (5)
Business Days before each date on which an
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installment of Corporation Tax fails to be paid in accordance
with the Regulations which would have been of a lesser amount had
the Relief not been lost, unavailable, reduced or set-off and,
for the purposes of this Clause 5.2.2, the Covenantors shall be
liable to pay to the Purchaser on each Date an appropriate
proportion of the increased liability to Taxation, such
proportion to be notified by the Purchaser to the Covenantors at
least five (5) Business Days prior to each Date;
5.3 in the case of the loss, reduction, setting off or non-availability of a
repayment of Taxation, the later of the date falling five (5) Business Days
after demand thereof by or on behalf of the Purchaser and the date the
repayment of Taxation would have been obtained;
5.4 in any other case, including where any payment of Taxation has already been
made, five (5) Business Days after service by the Purchaser of a notice
containing a written demand in respect of the matter for which the
Covenantors are liable, including in respect of any Taxation that has
already been paid and is therefore not covered by Clause 5.1 or 5.2 above.
5.5 The due date for payment of any amount by the Purchaser or the Company to
the Covenantors under this Deed shall be five (5) Business Days after
service by the Covenantors of a notice containing a written demand in
respect of the matter for which the Purchaser or the Company is liable.
5.6 Any payment due to be made by the Covenantors under this Deed shall carry
interest from the due date for payment or, if the claim under this Deed
arises from a payment which has been made before the date of the notice
under Clause 4.1, the date such payment was made, until actual payment at
the rate of one per cent above the Base Rate from time to time of Midland
Bank PLC.
6 PRE-COMPLETION COMPUTATIONS
6.1 Subject to and in accordance with the provisions of this Clause 6, the
Covenantors or their duly authorised agents shall, at the Covenantors'
costs (to the extent that such costs is not specifically provided for in
the Completion Accounts and has not been paid before Completion):
6.1.1. prepare, submit and deal with (or procure the preparation and
submission of) all computations and returns relating to Taxation;
and
6.1.2 prepare, submit and deal with (or procure the preparation and
submission of) all claims, elections, surrenders, disclaimers,
notices and consents for Taxation purposes;
in respect of all accounting periods of the Company ending on or before
Completion (the "PRE-COMPLETION ACCOUNTING PERIODS").
6.2 Subject to Clause 6.7 the Covenantors may make, for Pre-Completion
Accounting Periods, only such claims, elections, surrenders, disclaimers,
notices or consents in respect of the Company that have been assumed in the
Completion Accounts to be made by the Company.
6.3 The Covenantors or their duly authorised agents shall deliver all tax
documents relevant to the matters set out in Clause 6.1 above ("TAX
DOCUMENTS") to the Purchaser for authorisation and signing prior to
submission. The Covenantors hereby agree to the Company cancelling any
existing authority held by any employee or agent of or adviser to the
Covenantors to sign Tax Documents on behalf of the Company with effect from
Completion. If a time limit applies in relation to any Tax Document, the
Covenantors shall do everything reasonably within their power to ensure
that the Purchaser receives the Tax Document no later than five (5)
Business Days before the expiry of the time limit.
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6.4 The Covenantors shall procure that:
6.4.1 the Purchaser is kept informed of the progress of all material
matters relating to the Taxation affairs of the Company in relation
to the Pre-Completion Accounting Periods;
6.4.2 the Purchaser receives copies of all material written
correspondence with any Taxation authority insofar as it is
relevant to the matters referred to in Clause 6.1 above; and
6.4.3 so far as reasonably practicable, the Purchaser is consulted fully
in relation to the matters referred to in Clause 6.4.1 above and
shall take into account any reasonable written comments of the
Purchaser in relation thereto.
6.5 The Covenantors agree to use reasonable endeavors to ensure that the
matters referred to in Clause 6.1 they are finalised as soon as reasonably
practicable and that all Tax Documents are true and accurate in all
respects and are not misleading.
6.6 The Purchaser shall procure that the Covenantors and their duly
authorised agents are (on reasonable notice in writing to the Purchaser)
afforded such reasonable access to the books, accounts, personnel and
records of the Company and such other reasonable assistance as may be
reasonably required to enable the Covenantors to discharge their
obligations under this Clause 6.
6.7 Notwithstanding Clause 6.2, neither the Purchaser nor the Company shall be
required to submit any claims, elections, surrenders, disclaimers, notices
or consents in relation to any Relief referred to in Clause 1.5.3 and any
agreement by the Purchaser or the Company shall be without prejudice to
any liability of the Covenantors that may arise in respect of such Relief.
6.8 Neither the Purchaser nor the Company shall be required by this Clause 6
to take any action which it reasonably considers will be unduly onerous
or materially prejudicial to it.
6.9 This Clause 6 shall operate without prejudice to the provisions of Clause
4.
7 STAMP DUTY
The Covenantors hereby jointly and severally warrant to the Purchaser
that all documents in existence prior to Completion forming part of the
title to any asset of the Company at Completion or which the Company may
wish to enforce or produce in evidence are duly stamped and have where
appropriate been adjudicated. The Covenantors hereby jointly and
severally agree that in the event of a breach of this warranty they shall
pay to the Purchaser by way of liquidated damages an amount equal to any
unpaid stamp duty and any interest or penalties payable in respect
thereof.
8 PURCHASER'S INDEMNITY
8.1 The Purchaser hereby covenants with the Covenantors to pay to the
Covenantors an amount equivalent to any Taxation for which the
Covenantors or any other person falling within Section 767A(2) ICTA
become liable in respect of accounting periods of the Company commencing
prior to Completion by virtue of the operation of Sections 767A, 767AA
and 767B ICTA in circumstances where the "taxpayer company" (as referred
to in Section 767A(1) ICTA) or the "transferred company" (as referred to
in Section 767AA(1)(a) ICTA) is the Company except to the extent that the
Taxation for which the Covenantors or other persons are liable:
8.1.1 may be subject to a successful claim under the Agreement or this
Deed by the Purchaser or could be the subject of any such claim,
assuming that a claim was made in respect thereof; or
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8.1.2 has been the subject of a claim under the Agreement or this
Deed by the Purchaser which has not been satisfied; or
8.1.3 has been recovered under Section 767B(2) ICTA or any other
relevant statutory provision (and the Covenantors shall
procure that no such recovery is sought to the extent that
payment is made hereunder); or
8.1.4 arises or is increased as a consequence of any
retrospective change in the law or in the generally
published interpretation or practice of the Inland Revenue
or HM Customs & Excise (or any other Taxation
authority) coming into force after the date hereof or to
the extent that such Taxation arises or is increased by a
change in the rate of Taxation after the date hereof but
with retrospective effect.
8.2 Any amount paid by the Purchaser to the Covenantors pursuant to this
Clause 8 shall be paid by way of adjustment to the consideration paid by
the Purchaser for the Shares under the terms of the Agreement.
8.3 Clauses 4 and 5 shall apply to the covenant contained in Clause 8.1 as
they apply to the covenants contained in Clause 2, replacing references to
the Covenantors by references to the Purchaser (and vice versa) and making
any other necessary modifications.
8.4 Nothing in this Clause 8 shall require the Purchaser to pay more than once
any sum referred to in Clause 8.1 to which more than one Covenantor or any
other person falling within Section 767A(2) ICTA become liable.
9 RECOVERY FROM THIRD PARTIES
If the Covenantors have paid an amount in respect of Taxation under this
Deed and the Company is immediately entitled at the due date for the
making of that payment to recover from some other person any sum in
respect of the Taxation which has resulted in that payment becoming due
from the Covenantors, or at some subsequent date becomes entitled to make
such recovery, then the Purchaser shall as soon as reasonably practicable
notify the Covenantors of such entitlement and shall, if so requested by
the Covenantors and subject to the Purchaser and the Company being
indemnified and secured to their reasonable satisfaction by the
Covenantors against all losses (including additional Taxation), costs,
damages and expenses which may thereby be incurred, procure that the
Company takes all reasonable steps to enforce that recovery (keeping the
Covenantors informed of the progress of any action taken) and shall
account to the Covenantors for the whole of any sum so recovered
(including any interest or repayment supplement paid to the Purchaser or
the Company on or in respect thereof) less any costs and expenses of
recovery (including any Taxation) up to an amount not exceeding the amount
of any payment previously made by the Covenantors in respect of the
Taxation.
10 SAVINGS
10.1 If the auditors for the time being of the Company shall certify in writing
(at the request and expense of the Covenantors) to the Covenantors and the
Purchaser that any liability for Taxation which has resulted in a payment
having been made or becoming due from the Covenantors under this Deed has
given rise to an actual saving (a "SAVING") of Taxation for the Company or
the Purchaser's Group then the amount of the Saving obtained shall first be
set-off against any payment then due from the Covenantors under this Deed
or the Agreement or (to the extent of any excess that is not so set-off)
the Purchaser shall procure that a refund shall be made to the Covenantors
of any previous payment or payments made by the Covenantors under this Deed
or the Agreement and not previously refunded under this Clause up to the
amount of such excess and any balance shall be carried forward and set-off
against any future payment or payments which become due from the
Covenantors under this Deed or the Agreement.
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10.2 For the purposes of this Clause 10 a person obtains a Saving if, as a
result of the Taxation which results in a claim by the Purchaser
hereunder, that person is relieved in whole or in part from a liability to
make some other payment of Taxation which it would otherwise have been
liable to make or obtains a right to repayment of Taxation which would not
otherwise have been available.
10.3 The Purchaser shall not, and shall not be obliged to procure that the
Company shall, utilise any Relief to create or maximise a Saving.
11 WITHHOLDINGS AND DEDUCTIONS
11.1 All sums payable by the Covenantors to the Purchaser under this Deed
shall be paid free and clear of all deductions, withholdings, set-offs or
counterclaims whatsoever save only as may be required by law. If any
deductions or withholdings are required by law the Covenantors shall
(except in the case of interest payable under Clause 5) be obliged to pay
to the Purchaser such sum as will after such deduction or withholding has
been made leave the Purchaser with the same amount as it would have been
entitled to receive in the absence of any such requirement to make a
deduction or withholding.
11.2 If any Taxation authority charges to Taxation any sum paid to the
Purchaser under this Deed (except in the case of interest payable under
Clause 5 and ignoring any Reliefs available to the Purchaser) then the
amount so payable shall be grossed up by such amount as will ensure that
after payment of the Taxation so charged (or which would have been so
charged if any Reliefs available to the Purchaser were ignored) there
shall be left a sum equal to the amount that would otherwise by payable
under this Deed.
11.3 If the Purchaser receives a credit for or refund of any Taxation payable
by it or similar benefit by reason of any deduction or withholding for or
on account of Taxation then, to the extent that the Purchaser is
satisfied (acting in good faith) it can so do without prejudice to the
retention of any credit or refund it receives, it shall reimburse to the
Covenantors such part of such additional amounts paid to it pursuant
Clause 11.1 above as the Purchaser certifies to the Covenantors will
leave it (after such reimbursement) in no better and no worse position
than it would have been if the Covenantors had not been required to make
such deduction or withholding. Nothing in this Clause 11.3 shall oblige
the Purchaser to disclose to the Covenantors, nor shall the Covenantors
be entitled to inspect, any of the books and other records of the
Purchaser not shall anything herein prevent the Purchaser from arranging
its tax and commercial affairs in whatever manner it thinks fit and, in
particular, the Purchaser shall not be under any obligation to claim
credit or relief from or against its corporate profits or similar tax
liability in respect of the amount of such deduction or withholding as
aforesaid in priority to any other reliefs or credits available to it.
11.4 If any deduction or withholding is made from any payment as contemplated
in Clause 11.1, the Covenantors shall supply to the Purchaser such
official receipt, if any, or other evidence of payment to the relevant
authority of the amount deducted or withheld and shall give all
reasonable assistance to enable the Purchaser to receive a credit or
refund or similar benefit by reason of the deduction or withholding as
promptly as possible.
12 EFFECT OF DISCHARGE OF CLAIM
For the avoidance of doubt, the Covenantors shall remain liable in
accordance with the terms of this Deed notwithstanding that any Taxation
giving rise to a liability to make a payment under Clause 2 of this Deed
is or has been discharged or suffered by the Company, whether before or
after the date hereof and whether by payment or by the loss utilisation
of any Relief or right to repayment of Taxation.
11
<PAGE> 13
13 EFFECT OF WAIVER, RELEASE, ETC.
Any liability to a party hereunder may in whole or in part be released,
compounded or compromised or time or indulgence given by the party to
which it is owed in its absolute discretion as regards any of the parties
under such liability without in any way prejudicing or affecting its
rights against any other or others of the parties under the same or a
like liability whether joint and several or otherwise.
14 MISCELLANEOUS
The provisions of Clause 12 of the Agreement (Other Provisions) shall
apply mutatis mutandis to this Deed unless such provisions are otherwise
provided for in this Deed.
15 ILLEGALITY
If at any time any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither
the legality, validity or enforceability of such provision under the law
of any other jurisdiction shall in any way be affected or impaired
thereby.
16 GOVERNING LAW
This Deed shall be governed by and construed in accordance with English
law and all the parties irrevocably agree that the courts of England are
to have exclusive jurisdiction to settle any disputes which may arise out
of or in connection with this Deed.
17 The signature or sealing of this Deed by or on behalf of a party shall
constitute an authority to the solicitors, or an agent or employee of the
solicitors, acting for that party in connection with this Deed to deliver
it as a deed on behalf of that party.
In witness whereof this Deed has been duly executed as a deed the day and
year first before written.
SIGNED as a DEED by
the said GRAHAM ALEXANDER /s/ GRAHAM ALEXANDER
in the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ
SIGNED as a DEED by GRAHAM /S/ GRAHAM ALEXANDER
ALEXANDER
for and on behalf of
CHARLES SHERNO
by power given under power of
attorney dated 25 January 1999
in the presence of:
NICOLA MAYO
One Silk Street
London, EC2Y 8HQ
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<PAGE> 14
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
ARTHUR MORGAN )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 20 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
PHILIP GOLDMAN )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 26 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
MICHAEL MANWARING )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 25 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
RON HYAMS )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 15 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
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<PAGE> 15
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
VICTOR HARRIS )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 27 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
SIGNED as a DEED by GRAHAM
ALEXANDER
for and on behalf of
PAUL BATES )
by power given under power of ) /s/ GRAHAM ALEXANDER
attorney dated 17 January 1999 )
in the presence of:
Nicola Mayo
One Silk Street
London, EC2Y 8HQ.
SIGNED by NEXTERA )
ENTERPRISES INC. by MICHAEL ) /s/ MICHAEL MULDOWNEY
MULDOWNEY, Chief Financial Officer )
14
<PAGE> 16
SCHEDULE - VENDORS
NAME OF VENDOR ADDRESS
Graham Alexander 200A West End Lane
London NW5 1SG
Charles Sherno 2 Lakeside
Spencer House
Hampstead
London NW3
Arthur Morgan Bovingdon
Marlow Common
Buckinghamshire SL7 2QR
Philip Goldman 25 Baxendale
Whetstone
London N20 OEB
Michael Manwaring 7 Highgate West Hill
London N6 4YE
Ron Hyams 37 Ornan Road
London NW3 4QD
Victor Harris 18 Viga Road
Winchmore Hill
London N21 H1J
Paul Bates 56 Coopers Close
London E1 4BD
15
<PAGE> 1
EXHIBIT 10.41
CHARGE OF SHARES
dated 29 January 1999
created by
THE SEVERAL PERSONS NAMED IN SCHEDULE 1
in favour of
NEXTERA ENTERPRISES, INC.
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
Tel: (+44) 171 456 2000
Ref: MSM/AXXL
<PAGE> 2
This Charge is made on 29 January 1999 between
(1) THE SEVERAL PERSONS NAMED IN SCHEDULE 1 (the "CHARGORS" and each a
"CHARGOR", which expressions include the legal personal
representative of any such persons), each in its personal
capacity; and
(2) NEXTERA ENTERPRISES INC. ("NEXTERA", which expression includes
its successors and assigns), a Delaware Corporation, of One
Cranberry Hill Lexington, MA 02173 United States of America.
BACKGROUND
(A) Each Chargor has agreed to charge his Shares in favour of Nextera
as Security for the payment and discharge of his Liabilities.
(B) Nextera and each Chargor intend this Charge to, and it shall,
take effect as a Deed.
Now this charge witnesses and it is agreed as follows:
1 INTERPRETATION
1.1 DEFINITIONS: In this Charge, terms defined in the Principal Agreement
have the same meaning when used in this Charge and, in addition, except
to the extent that the context requires otherwise:
"ADMINISTRATION" means administration under Part II of the Insolvency
Act;
"BANKRUPTCY" means bankruptcy under Part IX of the Insolvency Act;
"CASH" means any cash offered by a Chargor and accepted by Nextera under
clause 4.2;
"CHARGED ASSETS" means the Cash and the Shares and in respect of each
Chargor, his Charged Shares and his Cash and references to his Charged
Assets will be construed accordingly;
"CHARGES" means, in respect of each Chargor, all or any of the Security
created, or which may at any time be created, by or pursuant to this
Charge by that Chargor;
"CHARGORS' REPRESENTATIVE" means the Vendors' Representative under the
Principal Agreement who shall have the same power to bind all the
Chargors under this Charge as that Representative has under the
Principal Agreement;
"COMPANY" or "ALEXANDER" mean The Alexander Corporation Limited;
"CUT-OFF DATE" means the date falling 18 months after the date of
Completion;
"DELEGATE" means a delegate or sub-delegate appointed, directly or
indirectly, pursuant to Clause 9.2;
"ENFORCEMENT EVENT" has the meaning given to it in Clause 8.2;
"ESCROW ARRANGEMENTS" means the arrangements set out in Clauses 3 and 4;
"ESCROW PERIOD" means the period beginning at Completion and ending 18
months after Completion;
"GROUP COMPANY" means Nextera and/or any of its subsidiaries;
"INDIVIDUAL CHARGOR" means each Chargor which is a natural person;
"INSOLVENCY ACT" means the Insolvency Act 1986;
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"LIABILITIES" means, the moneys, debts and liabilities which now are or at
any time hereafter may be or become due, owing or incurred by a Chargor to
the Purchaser (or any assignee of the Purchaser or any person substituted
for the Purchaser by an assignment of the Purchaser's rights and
obligations in accordance with the Principal Agreement) under the
Warranties or the Tax Deed of Covenant (and "Liability" shall be construed
accordingly);
"LPA" means the Law of Property Act 1925;
"PERSON" includes any individual, company, corporation, firm, partnership,
joint venture, undertaking, association, organisation, trust, state or
agency of a state (in each case whether or not having separate legal
personality);
"PRINCIPAL AGREEMENT" means the Share Sale and Purchase Agreement dated 29
January 1999 and entered into between, inter alia, Nextera and the Chargors
relating to the sale of the shares in Alexander to Nextera and in
accordance with which the Chargors received shares in Nextera;
"PURCHASER" means Nextera Enterprises, Inc.;
"RIGHTS" means rights, authorities, discretions, remedies, liberties and
powers (in each case, of any nature whatsoever);
"SECURITY" includes any mortgage, pledge, lien, hypothecation, security
interest or other charge or encumbrance and any other agreement or
arrangement having substantially the same economic effect (including any
"hold-back" or "flawed asset" arrangement) )and "SECURED" shall be
construed according";
"SECURITY ACCOUNT" means the account designated "Alexander Security
Account" or similar opened under the instructions of Nextera at a bank in
the United Kingdom;
"SHARES" means initially the 30,000 shares of Nextera Enterprises, Inc.
owned by the Vendors in the proportions set out in Schedule 1 and charged
to Nextera and thereafter the number of those Nextera Shares of each
Chargor as for the time being remain subject to the Security created by
this Deed;
"SECURITY DOCUMENTS" means:
(i) this Deed;
(ii) the Principal Agreement; and
(iii) the Tax Deed of Covenant;
"TAX(ES)" includes any present or future tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld
or assessed;
the "WINDING-UP" of a Person also includes the amalgamation,
reconstruction, reorganisation, dissolution, liquidation, merger or
consolidation of that Person, and any equivalent or analogous procedure
under the law of any jurisdiction (and "WOUND-UP" shall be construed
accordingly).
1.2 REFERENCES TO STATUTES: Except where otherwise stated, any reference in
this Charge to any Act of Parliament or any Section of, Schedule to or
other provision of an Act of Parliament shall be construed, at any
particular time, as including reference to any modification, extension or
re-enactment thereof then in force and instruments, orders and regulations
then in force and made under or deriving validity from the relevant Act.
1.3 HEADINGS: Headings shall be ignored in construing this Charge.
2
<PAGE> 4
2 UNDERTAKING TO PAY
2.1 CHARGOR TO DISCHARGE: Each Chargor shall discharge each of his Liabilities
when due in accordance with its terms or, if they do not provide a time for
payment, the Security Documents or, if not so provided, immediately on
demand by Nextera.
2.2 LIABILITIES DUE: For the purposes of this Charge, Liabilities are due for
payment when either the relevant Liability and its amount has been admitted
by the Chargors' Representative or each of the Chargors or a judgement has
been given against a Chargor confirming the Liability and its amount and
date for payment there is no further possibility of appeal from such
judgment or the Chargors have failed to lodge an appeal within the
prescribed period.
2.3 PAYMENT: If a Liability becomes due then Nextera may exercise its right
under this Charge and satisfy that Liability against the Charged Assets in
accordance with clause 5.8 of the Principal Agreement.
3 SECURITY
3.1 CHARGING PROVISION: Each Chargor has with full title guarantee and as
security for the payment and discharge of all liabilities hereby charges in
favor of Nextera by way of first fixed charge, all its Charged Assets as
security for the payment and discharge of all Liabilities.
3.2 DELIVERY OF DOCUMENTS: During the continuance of the Charges each Chargor
shall deposit with Nextera, and Nextera shall be entitled to hold, the
certificates of the Charged Shares of such Chargor. If Nextera so requires
by notice to a Chargor from time to time, that Chargor shall immediately
deliver to Nextera such documents relating to all or any of that Chargor's
Charged Assets as shall be specified (whether generally or specifically) in
the relevant notice, including (but only for the purposes of facilitating
due enforcement of the rights of Nextera hereunder) transfers of that
Chargor's Charged Assets with the name of the transferee, the date of and
consideration for the transfer left blank.
3.3 FURTHER ASSURANCE: Each Chargor shall promptly execute and do all such
assurances, acts and things as Nextera may require:
3.3.1 for perfecting or protecting the Charges created or intended to be
created by this Charge or the priority of the Charges or
3.3.2 for facilitating the realisation of the Charged Assets or the
exercise of any Rights vested in Nextera or any Delegate
and shall in particular (without prejudice to the generality of the
foregoing) execute all transfers and assignments of the Charged Assets and
give all notices, orders and directions which Nextera may think expedient.
4 ESCROW ARRANGEMENTS
4.1 SECURITY: The Cash and Shares which each Chargor has charged to Nextera are
held as security for the discharge of the Liabilities.
4.2 CASH FOR SHARE EXCHANGE: Each Chargor may at any time during the Escrow
Arrangements exchange all or any of his Charged Shares for cash by
following the procedure in this clause. The Chargor must give written
notice to Nextera that he wishes to exchange a certain whole number of
Charged Shares for cash. The notice must include a cheque (or equivalent)
for an amount equal to the fair market value of the number of Charged
Shares the Chargor wishes to exchange. The fair market value of Charged
Shares will be determined:
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<PAGE> 5
(i) before a listing of Nextera on a stock exchange, in accordance
Clause 4.4 of the Nextera Stockholders Agreement; and
(ii) after listing of Nextera on a stock exchange, by reference to
the closing sale price of Nextera shares on the exchange on the
date the Chargor's notice is sent to Nextera.
Nextera must deposit the funds offered by the Chargor into the Security
Account and send to the Chargor that number of his Shares requested
within 7 days of receiving his notice and cheque (or equivalent) from the
vendor. Nothing in this clause obliges Nextera to release any Shares if
the amount offered by the Chargor does not correspond with the shares
requested, the payment offered by the Chargor is not received or cleared
in the Security Account within 6 days of Nextera receiving the Chargor's
notice or if the Chargor requests more Share than he or she owns.
4.3 The terms of the Charge shall apply to any cash held in the Security
Account, as applicable, in the same way those terms apply to the Shares.
4.4 If at the end of the Escrow Period there is an outstanding claim under
Clause 5 of the Principal Agreement or under the Tax Deed of Covenant:
4.4.1 Charged Assets with a value sufficient to cover Nextera's
reasonable quantification of the expected Liabilities under the
claim shall remain in the Escrow Arrangements on and subject to the
terms of this Deed until such time as:
(a) it is determined that the Chargors have Liabilities that
have fallen due under that claim, in which event Clause 2.3
above shall apply to the extent necessary and any balance
of the Charged Assets not required to meet such Liabilities
shall be subject to Clause 14.4; or
(b) the claim is withdrawn or struck out or is successfully
defended in court proceedings in circumstances where
Nextera (or its successor or permitted assigns) have no
further rights of appeal in respect thereof, in which event
the provisions of Clause 14.4 shall apply to the Charged
Assets so retained on account of Liabilities prospectively
due under that claim; or
(c) the provisions of Clause 14.4 otherwise apply pro rata to
require their release in whole or part to each of the
Chargors;
4.4.2 Any Charged Assets not required to be retained in the Escrow
Arrangements pursuant to Clause 4.4.1 shall be subject to Clause
14.4.
5 RESTRICTIONS ON DEALING
5.1 SECURITY: No Chargor shall create or have outstanding any Security on,
over or with respect to any of that Chargor's Charged Assets
except for:
5.1.1 the Charges; and
5.1.2 any Security created in favor of or at the request of Nextera; and
5.1.3 pursuant to the Nextera Stockholders Agreement.
5.2 DISPOSAL: Whilst the same are subject to the Charges, no Chargor shall
sell, discount, transfer, assign, lend or otherwise dispose of any of that
Chargor's Charged Assets nor agree to do any of the foregoing except where
required to under the Nextera Stockholders Agreement. Provided that
nothing in this Clause 5.2 shall prevent a Chargor from accepting a
take-over offer or exchange offer for his Shares where such offer is made
holders of Nextera Shares generally and when the
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<PAGE> 6
consideration receivable under such offer is secured in favour of Nextera
on the terms of this Deed.
5.3 CO-OPERATION ON SALE: If, in accordance with Clause 5.2, Nextera consents
to the sale of all or any part of Chargor's Charged Assets then,
subject to Nextera being satisfied that the proceeds arising from
such sale will be deposited with it in accordance with Clause 4
Clause 5.2, Nextera shall make such arrangements as may be
reasonably required to ensure that any certificates held by it
representing the relevant Shares are made available at completion
of that sale and released to the Purchaser thereof upon receipt of
those proceeds as contemplated by Clause 45.2.
6 THE CHARGED ASSETS
6.1 VOTING RIGHTS: Until the Charges become enforceable and Nextera gives
notice to any Chargor that this sentence is no longer to apply in
relation to all or any of the relevant Chargor's Charged Assets,
the relevant Chargor shall be entitled to exercise or direct the
exercise of the voting rights attached to any Charged Assets in
such manner as he or she sees fit. Thereafter:
6.1.1 Nextera shall be entitled to exercise or direct the exercise of
the voting rights attached to his Charged Assets in such manner as
it sees fit, and
6.1.2 the relevant Chargor shall comply or procure the compliance with
any directions of Nextera in respect of the exercise of those
voting rights and shall deliver to Nextera such forms of proxy as
it or he may reasonably require with a view to enabling such
Person as it or he may select to exercise those voting rights.
6.2 NEW RIGHTS: Until the Charges created by a Chargor become enforceable and
Nextera gives notice to that Chargor that this sentence is no longer to
apply in relation to all or any of that Chargor's Charged Assets, the
relevant Chargor shall be entitled to retain any dividend, interest,
bonus or other income derived from his Charged Assets. Thereafter, the
relevant Chargor shall hold any such dividend, interest, bonus or other
income received by it on trust for Nextera and pay the same immediately
to Nextera or as it may direct. Nextera shall be entitled to apply the
same in such manner as it sees fit.
6.3 OTHER RIGHTS: Except as otherwise provided in Clause 6.1, each Chargor
shall ensure that all Rights from time to time attaching to or connected
with his Charged Assets are exercised in accordance with Nextera's wishes.
7 GENERAL UNDERTAKINGS, REPRESENTATIONS AND WARRANTIES
7.1 UNDERTAKINGS: Each Chargor undertakes to Nextera as follows:
7.1.1 he will not do, or suffer to be done, anything which could
prejudice the Charges.
7.1.2 he will notify Nextera of the occurrence of any Enforcement Event
or any event or circumstance which with the giving of any notice,
the expiry of any grace period, and/or (as the case may be) the
making of any determination, provided for in Clause 8.2 would
become an Enforcement Event (and of any action taken or proposed to
be taken to remedy it) promptly after becoming aware of the same.
Nothing in this Deed shall prevent the Chargors from complying with
their obligations under the Nextera Stockholders Agreement.
7.2 REPRESENTATIONS AND WARRANTIES: Each Chargor represents and warrants to
Nextera as set out in Schedule 2 to the extent applicable to that
Chargor.
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<PAGE> 7
8 ENFORCEMENT
8.1 EXERCISE OF RIGHTS: The statutory power of sale and the other statutory
powers conferred on mortgagees by Section 101 of the LPA as varied and
extended by this Charge shall be deemed to arise on the date of this Charge
and shall in favour of any purchaser (as defined in Section 205 of the LPA)
or any Person dealing in good faith with Nextera or Delegate be deemed to
be exercisable on and from the date of this Charge. As between each Chargor
and Nextera (but not so as to affect or concern any such purchaser, Person
or Delegate) the Charges created by that Chargor hereunder shall be
enforceable, and the powers conferred by Section 101 of the LPA as varied
and extended by this Charge shall be exercisable, upon and at any time
after the occurrence of an Enforcement Event occurring in relation to that
Chargor (whether or not the Enforcement Event is continuing at the
relevant time). Section 103 of the LPA shall not apply to this Charge.
8.2 ENFORCEMENT EVENTS: The occurrence at any time and for any reason, whether
within or beyond the control of any party to this Charge, of any of the
following events shall constitute an Enforcement Event but only in relation
to the Chargor(s) in respect of which the event occurs:
8.2.1 FAILURE TO DISCHARGE: Any Chargor fails to discharge any
Liability within 7 days of it becoming due (including for this
purpose, failure to discharge any claim made in respect of a
breach of Warranty under Clause 5 of the Principal Agreement) or,
in the case of Liabilities which are due on demand, within 7 days
of Nextera making demand for the discharge of those Liabilities;
8.2.2 INDIVIDUAL CHARGORS: Any of the following occurs in relation to
an individual Chargor:
(i) BANKRUPTCY OF CHARGOR: Any step is taken by any Person
with a view to the Bankruptcy of the Chargor other than
the presentation of a vexatious or frivolous petition
which is discharged within 14 days of presentation;
(ii) INSOLVENCY: The Chargor stops or suspends or threatens to
stop or suspend payment of all or a material part of (or
a particular type of) his or her debts, or is unable to
pay his her debts, or circumstances exist which would, by
Section 267(2) of the Insolvency Act, entitle a creditor's
petition to be presented in respect of that Chargor, or
is insolvent as defined by Section 341(3) of the
Insolvency Act as in force at the date of this Charge;
(iii) VOLUNTARY ARRANGEMENTS: The Chargor makes any application
to the Court under Section 253 of the Insolvency Act, or
the Chargor proposes or makes any agreement for the
deferral, rescheduling or other readjustment (or proposes
or makes a general assignment or an arrangement or
composition with or for the benefit of the relevant
creditors) of all of (or all of a particular type of) the
Chargor's debts (or of any part which he or she will
otherwise be, or might reasonably be expected otherwise to
be, unable to pay when due), or a moratorium is agreed or
declared in respect of or affecting all or a material part
of (or of a particular type of) the debts of any Chargor;
or
(iv) ANALOGOUS EVENTS: Any event occurs which, under the law of
any relevant jurisdiction, has an analogous or equivalent
effect to any of the events mentioned in paragraphs (i) to
(iv) (inclusive) of this Clause 8.2.2.
8.2.3 ENFORCEMENT PROCEEDINGS: A distress, attachment, execution or other legal
process is levied, enforced or sued out on or against any of the Charged
Assets of a Chargor.
8.2.4 SECURITY ENFORCEABLE: Any Security on or over the Assets of the Chargor
becomes enforceable and any step (including the taking of possession or
the appointment of a
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receiver, administrative receiver, manager or similar Person) is
taken to enforce that Security.
8.2.5 BREACH OF REPRESENTATION OR WARRANTY: Any representation, warranty
or statement by the Chargor in this Charge or in any document
delivered under it is not complied with or is or proves to have
been materially incorrect.
8.2.6 BREACH OF UNDERTAKING: The Chargor does not perform or comply with
any one or more of his or her obligations under this Charge (other
than an obligation for payment to which Clause 8.2.1 above applies)
or any condition attached to any waiver or consent given under this
Charge is not fulfilled and, in the case only of default in respect
of any of the undertakings set out in Clause 8.1 which is capable of
remedy within 14 days, that default is not remedied within 14 days
after notice of that default has been given to it by Nextera.
9 NEXTERA'S RIGHTS
9.1 IN RELATION TO THE CHARGED ASSETS: At any time after the Charges created
by a Chargor shall have become enforceable and provided and to the extent
any Liabilities of that Chargor have fallen due (and after giving notice
to the relevant Chargor or Chargors, without any notice or further
notice, Nextera shall have the Right, either in its own name or in the
name of the relevant Chargor or otherwise and in such manner and upon
such terms and conditions as Nextera thinks fit:
9.1.1 TAKE POSSESSION: To take possession of the Charged Assets of that
Chargor;
9.1.2 DEAL WITH CHARGED ASSETS: To sell, transfer, assign, exchange and
otherwise dispose of or realise the Charged Assets of that Chargor,
either by public offer or auction, tender or private contract and
so that (without limitation) Nextera may do any of these things for
a consideration consisting of cash, debentures, or other
obligations or other valuable consideration of any kind and any
such consideration may be payable or delivered in a lump sum or by
installments spread over such period as Nextera may reasonably
think fit;
9.1.3 RIGHTS OF OWNERSHIP: To exercise and do (or permit any Chargor or
his or her nominee to exercise and do) all such Rights and things
as Nextera would be capable of exercising or doing as if Nextera
were the absolute beneficial owner of the Charged Assets of that
Chargor and in particular, without limitation, to exercise all
Rights attaching to the Charged Assets of that Chargor;
9.1.4 CLAIMS: To settle, adjust, refer to arbitration, compromise and
arrange any claims, accounts, disputes, questions and demands with
or by any Person relating in any way to the Charged Assets of that
Chargor;
9.1.5 LEGAL ACTIONS: To bring, prosecute, enforce, defend and abandon
actions, suits and proceedings in relation to the Charged Assets of
the Chargor;
9.1.6 OTHER POWERS: To do all such other acts and things Nextera may
reasonably consider necessary or expedient for the realisation of
the Charged Assets of that Chargor or incidental to the exercise of
any of the Rights conferred on Nextera under or by virtue of this
Charge, the LPA or the Insolvency Act and to concur in the doing of
anything which Nextera has the Right to do and to do any such thing
jointly with any other Person.
9.2 DELEGATION: Nextera may delegate in any manner to any Person any of the
Rights which are for the time being exercisable by Nextera under this
Charge. Any such delegation may be made upon such terms and conditions
(including power to sub-delegate) as Nextera may think fit.
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10 LIABILITY OF NEXTERA AND DELEGATES
10.1 POSSESSION: If Nextera or any Delegate shall take possession of the
Charged Assets of any Chargor, it or he may at any time relinquish such
possession.
10.2 NEXTERA'S LIABILITY: Nextera shall not in any circumstances (either by
reason of taking possession of the Charged Assets of any Chargor or for
any other reason whatsoever and whether as mortgagee in possession or on
any other basis whatsoever) provided that it has acted reasonably in all
the circumstances:
10.2.1 be liable to account to that Chargor or any other Person for
anything except Nextera's own actual receipts which have not been
distributed or paid to that Chargor or the Persons entitled or at
the time of payment honestly and reasonably believed by Nextera to
be entitled thereto; or
10.2.2 be liable to that Chargor or any other Person for any costs,
charges, losses, damages, liabilities or expenses arising from or
connected with any realisation of those Charged Assets or from any
act, default, omission or misconduct of Nextera, its officers,
employees or agents in relation to those Charged Assets or in
connection with this Charge except to the extent that they shall
be caused by Nextera's own fraud, negligence or wilful misconduct
or that of its officers or employees.
Nextera shall not by virtue of this Clause 10.2 owe any duty of care or
other duty to any Person which it would not owe in the absence of this
Clause 10.2.
10.3 OTHER'S LIABILITY TO ACCOUNT: All the provisions of Clause 10.2 shall
apply, mutatis mutandis, in respect of the liability of any Delegate or
any officer, employee or agent of Nextera or any Delegate.
10.4 If Nextera sells any Charged Assets it shall be deemed, for the purposes
of Clause 5 of the Principal Agreement, to have received the value at
which such Charged Assets may be used to discharge any Liabilities under
the provisions of the Principal Agreement.
11 POWER OF ATTORNEY
11.1 APPOINTMENT: Each Chargor hereby, by way of security, irrevocably
appoints Nextera and every Delegate severally his or her attorney (with
full power of substitution), on his or her behalf and in his or her name
or otherwise, at such time and in such manner as the attorney may think
fit:
11.1.1 to do anything which the relevant Chargor is obliged to do (but
has not done after written request) under this Charge including to
execute charges over, transfers and assignments of, and other
instruments, notices, orders and directions relating to, the
Charged Assets; and
11.1.2 generally to exercise all or any of the Rights conferred on
Nextera or any Delegate in relation to the Charged Assets or under
this Charge, the LPA or the Insolvency Act.
11.2 RATIFICATION: Each Chargor hereby ratifies and confirms and agrees to
ratify and confirm whatever any such attorney shall lawfully do or
purport to do in the exercise or purported exercise of the power of
attorney in Clause 11.1.
12 PROTECTION OF THIRD PARTIES
No Person dealing with Nextera or any Delegate shall be concerned to
enquire whether any event has happened upon which any of the Rights
conferred by or pursuant to this Charge are or may be exercisable,
whether any consents, regulations, restrictions or directions relating to
such
8
<PAGE> 10
Rights have been obtained or complied with or otherwise as to the propriety
or regularity of acts purporting or intended to be in exercise of any such
Rights or as to the application of any money borrowed or raised. All the
protection to purchasers contained in Sections 104 and 107 of the LPA or in
any other legislation for the time being in force shall apply to any Person
purchasing from or dealing with Nextera or any Delegate.
13 DEMANDS AND PAYMENTS
13.1 RECEIPTS BY NEXTERA: All amounts from time to time received or recovered
by Nextera or any Delegate in exercise of their Rights under or in respect
of the Charges granted by a Chargor shall, subject to the discharge of any
liabilities having priority to the Liabilities of that Chargor, be applied
as follows:
13.1.1 in or towards the payment of such of the Liabilities of that Chargor
in such order as Nextera in its absolute discretion may from time to
time determine (save that Nextera may credit the same to, and
require the same to be paid to it for crediting to, an interest
bearing suspense account for so long and in such manner as Nextera
may determine); and
13.1.2 in payment of any surplus to the relevant Chargor or other Person
entitled to it.
13.2 AVOIDANCE OF PAYMENTS: Each Chargor shall on demand indemnify Nextera
against any funding or other cost, charge, loss, liability or expense
(including loss of profit) expended, paid, incurred or debited in account
by Nextera as a result of Nextera being required for any reason (including
any Bankruptcy, Winding-up, insolvency or similar law of any jurisdiction)
to refund all or part of any amount received or recovered by it in respect
of any of the Liabilities of that Chargor or any liability the discharge
of which is, directly or indirectly, guaranteed or otherwise secured by
that Chargor and shall in any event pay to Nextera on demand the amount so
refunded by it.
13.3 Subrogation: So long as the Charges remain outstanding:
13.3.1 any Rights of a Chargor, by reason of the performance of any of that
Chargor's obligations under this Charge, the enforcement of any of
the Charges or any action taken pursuant to any Rights conferred by
or in connection with this Charge, to be indemnified by any Person,
to prove in respect of any liability in the Bankruptcy or Winding-up
of any Person or to take the benefit of or enforce any Security,
guarantees or indemnities, shall be exercised and enforced only in
such manner and on such terms as Nextera may require; and
13.3.2 any amount received or recovered by the relevant Chargor (a) as a
result of any exercise of any such Rights or (b) in the Winding-up
or Bankruptcy of any Person shall be held in trust for and
immediately paid to Nextera.
14 DISCHARGE OF SECURITY
14.1 Continuing Security: Subject to this Clause 14, the Charges shall remain
in full force and effect by way of continuing security and shall not be
affected in any way by any settlement of account (whether or not any
Liabilities remain outstanding thereafter) or other matter or thing
whatsoever and shall be in addition to any other Security, guarantee or
indemnity now or hereafter held by Nextera or any other Person in respect
of the Liabilities.
14.2 Security Unaffected: Without prejudice to the generality of Clause 14.1,
neither the Charges nor the Liabilities shall be affected in any way by:
14.2.1 any time, indulgence, concession, waiver or consent given to any
Chargor or any other Person, whether by Nextera or any other Person:
9
<PAGE> 11
14.2.2 (except to the extent of the relevant amendment or change) any
amendment to or change in any Security, guarantee or indemnity
(including this Charge), the terms of any Liability or liability
the discharge of which is, directly or indirectly, guaranteed or
otherwise secured by any Chargor or any agreement or document
relating to any of the foregoing;
14.2.3 the making or absence of any demand for payment of any
Liabilities on a Chargor or any other Person, whether by Nextera
or any other Person;
14.2.4 the enforcement or absence of enforcement of any Security,
guarantee or indemnity (including this Charge);
14.2.5 any other Security, guarantee or indemnity now or hereafter held
by Nextera or any other Person;
14.2.6 (except to the extent of the relevant release), the release of
any Security, guarantee or indemnity (including this Charge);
14.2.7 the Administration, Bankruptcy or Winding-up of any Chargor, a
Relevant Trust or of any other Person, or any step being taken
for any such Administration, Bankruptcy or Winding-up;
14.2.8 the death or incapacity of any Chargor or any other Person; or
14.2.9 the illegality, invalidity or unenforceability of, or any defect
in, any provision of any agreement or document relating to the
Liabilities or any Security, guarantee or indemnity (including
this Charge) or any of the Rights or obligations of any of the
parties under or in connection with any such document or any
Security, guarantee or indemnity (including this Charge),
whether on the grounds of, not having been duly, executed or
delivered by any Chargor or any other Person or for any other
reason whatsoever.
14.3 CONSOLIDATION: Section 93 of the LPA shall not apply to the Charges.
14.4 FINAL REDEMPTION: Subject and without prejudice to Clause 14.5:
14.4.1 upon proof being given to the reasonable satisfaction of
Nextera that all the Liabilities of the relevant Chargor have
been discharged in full or that provision acceptable to Nextera
for such discharge has been made; or
14.4.2 if, at the Cut-Off Date, there is no claim against the relevant
Chargor which has been made under and in accordance with Clause
5 of the Principal Agreement or under the Tax Deed of Covenant
which remains outstanding; or
14.4.3 if at the Cut-Off Date there is a claim against the relevant
Chargor which has been made under and in accordance with Clause
5 of the Principal Agreement and which relates to a contingent
liability involving a claim or potential claim by a third party
against a Group Company and if no legal proceedings have been
issued against such Group Company in respect of such claim
before the date falling 30 months after the date hereof;
14.4.4 if, as at the Cut-Off Date, a claim against the relevant
Chargor has been made under and in accordance with Clause 5 of
the Principal Agreement which relates to a claim (other than a
contingent liability involving a claim or potential claim by a
third party against a Group Company) and no legal proceedings
have been issued against the Chargor within twelve months from
the date on which the notice of the claim is given in
accordance with Clause 5 of the Principal Agreement, or
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<PAGE> 12
14.4.5 if, and to the extent that as at the Cut-Off Date, there is a
claim which has been made under and in accordance with Clause 5
of the Principal Agreement or under the Tax Deed of Covenant
which remains outstanding against the relevant Chargor and the
following conditions are satisfied:
(i) legal proceedings in respect of a claim have been served
upon the relevant Chargor but are not pursued in a
reasonably expeditious manner;
(ii) the Chargor validly serves notice on the Purchaser stating
that, and specifying the manner in which, the condition
set out in sub-paragraph (i) has been satisfied; and
(iii) the Purchaser fails, within 20 days of receipt of such
notice, to take such steps as may cause the condition set
out in sub-paragraph (i) to cease to apply;
14.4.6 to the extent that as at the Cut-Off Date the value of the
Charged Assets exceeds Nextera's reasonable estimate of the
amount of the Liabilities which are then outstanding following
the application of the previous provisions of this Clause 14.4
and the value of the Charged Assets for this purpose shall be
determined by adding the any Cash to the value of the Shares
being determined as of the Cut off Date in accordance with
Clause 4.3.
Nextera shall at the request of a Chargor execute and do all such deeds,
acts and things as may be necessary to release the Charged Assets of
that Chargor from the Charges created by it provided that where Clauses
14.4.3, 14.4.4, 14.4.5 or 14.4.6 apply Nextera shall only be obliged to
release Charged Assets with a value (calculated as provided in Clause
14.4.6) equal to the value of the claim for which the Chargor ceases to
be liable in accordance with such Clauses.
14.5 AVOIDANCE OF PAYMENTS: No assurance, Security, guarantee or payment
which may be avoided under any law relating to Bankruptcy, insolvency or
Winding-up (including but not limited to Sections 238, 239, 339, 340,
345 or 423 of the Insolvency Act) and no release, settlement, discharge
or arrangement given or made by Nextera on the faith of any such
assurance, Security, guarantee or payment, shall prejudice or affect the
right of Nextera to enforce the Charges to the full extent of the
Liabilities or any other Rights which Nextera may have in respect of the
Liabilities or any part thereof. Each Chargor agrees that in such
circumstances the Charges and this Charge shall be deemed to have
remained in full force and effect notwithstanding any such assurance,
Security, guarantee, payment, release, settlement, discharge or
arrangement. Without prejudice to the foregoing, Nextera shall be
entitled to retain this Charge and shall not be obliged to release the
Charged Assets from the Charges until the expiry of a period of one
month plus such statutory period within which any assurance, Security,
guarantee or payment can be avoided or invalidated after the Liabilities
shall have been discharged in full if it appears to Nextera (acting
reasonably) that there is a material risk of such avoidance or
invalidation. If at any time within such period:
14.5.1 a petition shall be presented to a competent court for an order
for the Bankruptcy of any Chargor or the Bankruptcy, Winding-up
or Administration of any party which has given the relevant
assurance, Security, guarantee or payment; or
14.5.2 any such party shall pass a resolution for or with a view to its
Winding-up.
Nextera may continue to retain this Charge and not to release the
Charged Assets from the Charges for and during such further period as
Nextera in its absolute discretion shall determine.
15 RIGHTS, AMENDMENTS, WAIVERS, CONSENTS AND DETERMINATIONS
15.1 RIGHTS ADDITIONAL: The Rights conferred by or pursuant to this Charge
shall be in addition to and not in substitution for the Rights conferred
on mortgagees by law, which shall apply to the
11
<PAGE> 13
Charges except in so far (if at all) as they are expressly excluded.
Where there is any ambiguity or conflict between the Rights conferred
by law and those conferred by or pursuant to this Charge, the terms of
this Charge shall prevail.
15.2 EXERCISE OF RIGHTS: Except as otherwise provided in this Charge, all
Rights of Nextera hereunder may be exercised at any time and from time
to time at the absolute discretion of Nextera. No failure on the part
of Nextera to exercise, and no delay on its part in exercising, any
Right under this charge will operate as a waiver thereof, nor will any
single or partial exercise of any Right preclude any other or further
exercise thereof or the exercise of any other Right.
15.3 AMENDMENTS, WAIVERS AND CONSENTS: Any provision of this Charge may be
amended, supplemented or novated only if each Chargor and Nextera so
agree in writing. Any waiver of, and any consent or approval by Nextera
under, any provision of this Charge shall not be effective unless it is
in writing, and may be given subject to any conditions thought fit by
Nextera, may be withdrawn or modified at any time in writing and shall
be effective only in the instance and for the purpose for which it is
given.
16 PARTIAL INVALIDITY
The illegality, invalidity or unenforceability of any provision of this
Charge under the law of any jurisdiction shall not affect its legality,
validity or enforceability under the law of any other jurisdiction nor
the legality, validity or enforceability of any other provision.
17. NOTICES
17.1 Any notice or other communication requiring to be given or served under
or in connection with this Agreement shall be in writing and shall be
sufficiently given or served if delivered or sent, in the case of any
of the Chargors, to the Chargors Solicitors at:
Address: Gouldens
22 Tudor Street
London
EC4Y 0JJ
Fax: 44 171 583 3051
Attention: Adam Greaves (file 752614)
In the case of the Purchaser to Nextera Enterprises, Inc. at:
Address: Nextera Enterprises Inc
c/o Sibson UK Limited
338 Euston Road
Regent Place
London NW1 3BT
Fax: 08700 101113
Attention: Fred Mendelsohn
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<PAGE> 14
with a copy to:
Address: Nextera Enterprises, Inc.
One Cranberry Hill
Lexington
MA 02173
United States of America
Fax: +1212 421 9310
Attention: Vincent Perro
with a copy to:
Address: Maron & Sandler
844 Moraga Drive
Los Angeles
CA 900949
Fax: +1 310 440 3690
Attention: Jim Banks
17.1.1 Any such notice or other communication shall be delivered by
hand or sent by courier, fax or prepaid first class post. If sent
by courier or fax such notice or communication shall conclusively
be deemed to have been given or served at the time of dispatch,
in case of service in the United Kingdom, or on the following
Business Day in the case of international service. If sent by
post such notice or communication shall conclusively be deemed
to have been received two Business Days from the time of posting,
in the case of international mail.
18 NOVATION
18.1 BENEFIT AND BURDEN: This Charge shall benefit and bind the parties and
each of their respective successors and permitted assigns. Any reference
in its Charge to any party shall be construed accordingly.
18.2 TRANSFER BY NEXTERA: Nextera may assign the benefit of this Charge to any
person to whom the benefit of the Tax Deed of Covenant and Clause 5 of the
Principal Agreement is assigned in accordance with their terms.
18.3 TRANSFER BY THE CHARGORS: No Chargor may assign or transfer all or any
part of its rights and obligations under this Charge save as provided
herein or in the Principal Agreement.
19 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement
may be extended by mutual agreement between the parties but as regards any
time, date or period originally fixed or any time, date or period so
extended time shall be of the essence.
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<PAGE> 15
20 FURTHER ASSURANCE
At any time after the date of this Agreement each Vendor shall and shall
use his best endeavors to procure that any necessary third party shall
execute such documents and do such acts and things as the Purchaser may
reasonably require for the purposes of perfecting the security given in
this Charge over his Charged Assets.
21 COSTS
The Vendors shall bear all legal, accountancy and other costs and
expenses incurred by them in connection with this Deed. The Purchaser
shall bear all such costs and expenses incurred by it.
22 INTEREST
If the Vendors or the Purchaser default in the payment when due of any
sum payable under this Deed (whether determined by agreement or pursuant
to an order of a court or otherwise) the liability of the Vendors or the
Purchaser (as the case may be) shall be increased to include interest on
such sum from the date when such payment is due until the date of actual
payment (as well after as before judgment) at a rate per annum of one per
cent above the base rate from time to time of Midland Bank PLC. Such
interest shall accrue from day to day.
23 SEVERANCE
If any term or provision in this Agreement is held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law,
such term or provision or part shall to that extent be deemed not to form
part of this Agreement but the enforceability of the remainder of this
Agreement shall not be affected.
24 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of which
shall be deemed an original, but all the counterparts shall together
constitute one and the same instrument.
25 GOVERNING LAW AND SUBMISSION TO JURISDICTION
This Agreement and the documents to be entered into pursuant to it, save
as expressly referred to therein, shall be governed by and construed in
accordance with English law and all the parties irrevocably agree that
the courts of England are to have exclusive jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and
such documents, PROVIDED THAT nothing in this clause shall prevent the
Vendors or any of them from enforcing any judgement or order of such
Court against the Purchaser or its assets in any jurisdiction or affect
any related rights of the Vendors.
26 APPOINTMENT OF PROCESS AGENT
The Purchaser irrevocably appoints Sibson UK Limited Matthew Middleditch
or any partner of Linklaters & Paines as its agent to accept service of
process in England in any legal action or proceedings arising out of or
in connection with this Agreement, service upon whom shall be deemed
completed whether or not forwarded to or received by the Purchaser. If
such process agent ceases to be able to act as such or to have an address
in England, the Purchaser irrevocably agrees to appoint a new process
agent in England acceptable to the other Parties and to deliver to the
other Parties within 14 days a copy of a written acceptance of
appointment by the process agent. Nothing in this Agreement shall affect
the right to serve process in any other manner permitted by law.
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<PAGE> 16
SCHEDULE 1
CHARGORS
<TABLE>
VENDOR/CHARGOR SHARES
- -------------- ------
<S> <C>
Graham Alexander 15,620
Charles Shemo 3,750
Arthur Morgan 2,262
Philip Goldman 3,750
Michael Manwaring 3,812
Ron Hyams 806
</TABLE>
15
<PAGE> 17
SCHEDULE 2
REPRESENTATIONS AND WARRANTIES
(A) INDIVIDUAL CHARGORS
In relation to each Chargor which is an Individual Chargor:
1 CAPACITY: The Chargor is of full age and capacity.
2 NON-VIOLATION OF OTHER AGREEMENTS: The Chargor's entry into, exercise of
its Rights and/or performance of or compliance with the relevant
Chargor's obligations under this Charge and/or creation of the Charges
under this Charge do not and will not:
2.1 violate any agreement to which the relevant Chargor is a party or which
is binding on the relevant Chargor or his or her Assets or
2.2 except for the Charges result in the existence of, or oblige the
relevant Chargor to create, any Security over the Charged Assets.
3 NO DEFAULTS: No Enforcement Event or event or circumstance which with
the giving of any notice, the expiry of any grace period, and/or (as the
case may be) the making of any determination, provided for in Clause 8.2
would become an Enforcement Event, has occurred, or will occur as a
result of the entry into of this Charge and/or the creation of the
Charges.
4 NO SECURITY: Except for the Charges, no Security exists on or over the
Charged Assets of the relevant Chargor.
5 LITIGATION: So far as the relevant Chargor is aware, no litigation,
arbitration or administrative proceeding is current, pending or
threatened:
5.1 to restrain the entry into, exercise of any of the relevant Chargor's
Rights under and/or performance or enforcement of or compliance with any
of the relevant Chargor's obligations under this Charge and/or the
creation of the Charges under this Charge and/or
5.2 which may affect the value of, or Rights of the relevant Chargor in
respect of, the Charged Assets of the relevant Chargor.
6 BENEFICIAL OWNERSHIP: The Chargor is the sole, absolute and beneficial
owner of his or her Charged Assets. The Chargor has not sold or
otherwise disposed of his or her Charged Assets nor agreed to do any of
the foregoing.
7 BANKRUPTCY: No order has been made for the Chargor's Bankruptcy and, so
far as he or she is aware, no petition, application or the like is
outstanding for the Bankruptcy of the relevant Chargor, nor is any such
step intended.
8 INSOLVENCY: The Chargor is not insolvent, or unable to pay his or her
debts and could not be deemed by a court to be unable to pay his debts
within the meaning of Section 268 of the Insolvency Act, nor appears to
have no reasonable prospect of being able to pay a debt as defined by
Section 268(2) nor will he or she become so in consequence of entering
into this Charge or performing his or her obligations under this Charge.
9 REPETITION: Each of the representations and warranties above will be
correct and complied with in all respects at all times during the
continuance of this Security as if repeated then by reference to the
then existing circumstances.
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<PAGE> 18
In witness whereof this Agreement has been duly executed.
SIGNED by NEXTERA ENTER-
PRISES INC.
by MICHAEL MULDOWNEY, /s/ MICHAEL MULDOWNEY
Chief Financial Officer
SIGNED as DEED by
the said GRAHAM ALEXANDER /s/ GRAHAM ALEXANDER
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
CHARLES SHERNO /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 25 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
ARTHUR MORGAN /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 20 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
PHILIP GOLDMAN /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 26 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
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<PAGE> 19
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
MICHAEL MANWARING /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 25 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
RON HYAMS /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 15 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
VICTOR HARRIS /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 27 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
SIGNED by as a DEED by GRAHAM
ALEXANDER
for and on behalf of
PAUL BATES /s/ GRAHAM ALEXANDER
by power given under power of
attorney dated 17 January 1999
in the presence of:
NICOLA MAYO
ONE SILK STREET
LONDON EC2Y 8HQ
18
<PAGE> 1
EXHIBIT 10.48
$22,966,411.50
AMENDED AND RESTATED
DEBENTURE
RECITALS
A. As of March 20, 1997, Nextera Enterprises, L.L.C., a Delaware
limited liability company ("NE LLC") issued a Debenture to Nextera Enterprises
Holdings, L.L.C., a Delaware limited liability company ("NEH LLC") in the amount
of $23,000,000 (the "Debenture").
B. On April 30, 1998, NEH LLC distributed and assigned the Debenture to
its members in the following proportions: (i) Knowledge Universe, L.L.C. -
98.14703%; (ii) Gresham Brebach, Jr. - 1.16805%; (iii) Ronald Bohlin - 0.10070%;
(iv) Debra Bergevine - 0.146171%; (v) Belden Menkus - 0.146037%; (vi) Michael
Muldowney - 0.146006%; and (vii) David Fritts - 0.146006%.
C. On August 5, 1998, Knowledge Universe, L.L.C. contributed and
assigned its interest in the Debenture to Knowledge Universe, Inc. ("KU Inc.").
D. In December, 1998, the 0.146037% of the Debenture held by Belden
Menkus, plus the accrued interest thereon, was paid by NE LLC in connection with
a Severance Agreement entered into between NE LLC and Belden Menkus.
E. On December 31, 1998, after the close of business, the membership
interests in NE LLC were contributed to Nextera Enterprises, Inc. ("NE Inc."),
NE LLC was dissolved, all of the assets of NE LLC were distributed to NE Inc.,
and all of the obligations of NE LLC, including, but not limited to, the
Debenture, were assumed by NE Inc.
F. On December 31, 1998, the terms of the bridge loan from Nextera
Funding, Inc. to NE Inc. (the "Bridge Loan") were modified. One condition of
such modification which pertains to the terms of the Debenture was that the
Debenture be amended so as to provide that, in the event of any notice of
default pursuant to the Bridge Loan, the Debenture shall be, at KU Inc.'s
election, either: (i) moved up in Nextera Enterprises, Inc.'s capital structure
to a holding company level; or (ii) exchanged for preferred stock of NE Inc. on
terms essentially equivalent to that of the Debenture with a liquidation
preference added.
1
<PAGE> 2
G. NE Inc. and KU Inc. have agreed to the following modifications to
the terms of the Debenture relating to the Bridge Loan: (i) if the Bridge Loan
is not paid in full on or before April 30, 1999, the interest rate on the
Debenture (or dividend rate if converted to preferred stock) will increase to
two percent over the Bridge Loan rate as it may vary from time to time; and (ii)
the Debenture (or preferred stock if converted) will convert to current cash
interest (or dividend) payments three months after the Bridge Loan is paid in
full.
H. Lender and Borrower have agreed to Amend And Restate the Debenture
so as to reflect the changes set forth in the Recitals above.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. For value received, Nextera Enterprises, Inc., a Delaware
corporation ("Borrower"), promises to pay to the order of those persons listed
on Schedule "A", attached hereto, or their assigns ("Lender"), the principal sum
of Twenty-Two Million Nine Hundred Sixty-Six Thousand Four Hundred Eleven
Dollars and Fifty Cents ($22,966,411.50) (the "Principal Amount"). Except as
otherwise provided herein, interest shall accrue from the date such amounts were
advanced as set forth on Schedule "B," attached hereto, at ten percent (10%) per
annum, compounded quarterly, based on the calendar year, but in no case shall
the interest rate exceed the maximum rate allowed by law.
2. The Maturity Obligations shall be due and payable on May 1,
2002 (the "Maturity Date"). As used herein, "Maturity Obligations" shall mean
the entire outstanding principal amount, together with all accrued but unpaid
interest thereon, and all other sums due and unpaid hereunder.
3. All payments due under this Debenture are payable in lawful
money of the United States of America at Lender's office at 844 Moraga Drive,
Los Angeles, California 90049 or at such other place as Lender or other holder
hereof shall notify Borrower in writing.
4. All payments received by Lender on this Debenture shall be
applied by Lender as follows: first, to the payment of penalties, late charges,
and similar charges; second, to the payment of accrued and unpaid interest; and
third, to the reduction of the principal amount.
2
<PAGE> 3
5. In the event Borrower fails to pay any installment of interest
for ten (10) days after receipt of notice that same has become due, Borrower
shall pay to Lender a delinquency or late charge, upon demand, equal to five
percent (5%) of the amount of such past due payment, notwithstanding the date on
which such payment is actually paid to Lender.
6. In the event Borrower fails to pay any installment of interest
on this Debenture for twenty (20) days after the same shall become due, then,
and in any such event, Lender may at its option declare the entire unpaid
Principal Amount, together with interest accrued thereon, to be immediately due
and payable and Lender may proceed to exercise any rights or remedies that it
may have under this Debenture or such other rights and remedies which Lender may
have at law, equity, or otherwise. In the event of such acceleration, Borrower
may discharge its obligations to Lender by paying the Maturity Obligations, with
interest at the Delinquency Rate (as defined below) accruing from the date such
acceleration is declared.
7. Any portion of the principal amount, or interest unpaid at
maturity, or when the entire amount of this Debenture is otherwise due and
payable, shall thereafter accrue interest at a rate of fifteen percent (15%) per
annum (the "Delinquency Rate"). The Delinquency Rate shall be effective both
before and after any judgment as may be rendered in a court of competent
jurisdiction provided, however, that if such Delinquency Rate is deemed to be
interest in excess of the amount permitted to be charged to Borrowers under
applicable law, Lender shall be entitled to collect a Delinquency Rate only at
the highest rate permitted by law, and any interest actually collected by Lender
in excess of such lawful amount shall be deemed a payment in reduction of the
principal amount then outstanding under this Debenture and shall be so applied.
8. Borrower may prepay this Debenture in whole or in part without
any premium or penalty.
9. In the event that NE Inc. receives any notice of Default (as
that term is defined in the Bridge Loan documents) from Nextera Funding, Inc.,
this Debenture shall be, at KU Inc.'s election, either (i) moved up in Nextera
Enterprises, Inc.'s capital structure to a holding company level, or (ii)
exchanged for preferred stock of NE Inc. on terms essentially equivalent to that
of this Debenture, but with a liquidation preference added (the "Exchanged
Preferred Stock").
3
<PAGE> 4
10. If the Bridge Loan has not been paid in full on or before
April 30, 1999, then on May 1, 1999 the interest rate on this Debenture (or
dividend rate if this Debenture has been converted into Exchanged Preferred
Stock) shall increase to a rate which is two percentage points in excess of the
Bridge Loan rate as it may vary from time to time.
11. Ninety days after the Bridge Loan is paid in full, all accrued
interest on this Debenture to that date shall be added to the principal sum then
outstanding on this Debenture, and from such date forward all interest accrued
shall be paid quarterly in cash on the last business day of each calendar
quarter. If this Debenture has been converted into Exchanged Preferred Stock of
NE Inc., then ninety days after the Bridge Loan is paid in full, all accrued
dividends on such Exchanged Preferred Stock shall be paid in-kind by the
issuance of additional Exchanged Preferred Stock in a face amount equal to the
sum of such accrued dividends, and from such date forward the dividends on all
the Exchanged Preferred Stock shall be paid quarterly in cash on the last
business day of each calendar quarter.
12. This Debenture shall be subordinated to any other Debenture of
Borrower held by Lender or any assignee of Lender.
13. In the event this Debenture is turned over to an attorney at
law for collection after default, in addition to the Maturity Obligations,
Lender shall be entitled to collect all costs of collection, including but not
limited to reasonable attorneys' fees incurred, whether or not suit on this
Debenture is filed, and all such costs and expenses shall be payable on demand.
14. This Debenture may not be changed orally, but only by an
agreement in writing signed by the party against whom such agreement is sought
to be enforced.
15. Borrower, for itself and its successors and assigns, and each
endorser or guarantor of this Debenture, for its heirs, successors, and assigns,
hereby waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment, and waives and renounces all rights to the benefits of any statute
of limitations and any moratorium, appraisement, and exemption now provided or
which may hereafter be provided by any federal or state statute, including but
not limited to exemptions provided by or allowed under the Bankruptcy Reform Act
of 1978, both as to itself and as to all of its property, whether real or
personal, against the enforcement and collection of the obligations
4
<PAGE> 5
evidenced by this Debenture and any and all extensions, renewals, and
modifications hereof.
16. It is the intention of the parties to conform strictly to
applicable usury laws from time to time in force, and all agreements between
Borrower and Lender, whether now existing or hereafter arising and whether oral
or written, are hereby expressly limited so that in no contingency or event
whatsoever shall the amount paid or agreed to be paid to Lender or the holder
hereof, or collected by Lender or such holder, for the use, forbearance, or
detention of the money to be lent hereunder or otherwise, exceed the maximum
amount permissible under applicable usury laws. If under any circumstances
whatsoever fulfillment of any provision hereof at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if under any circumstances Lender or
other holder hereof shall ever receive an amount deemed interest, by applicable
law, which would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing hereunder and not to the payment of interest, or
if such excessive interest exceeds the unpaid principal amount and other
indebtedness, the excess shall be deemed to have been a payment made by mistake
and shall be refunded to Borrower or to any other person making such payment on
Borrower's behalf. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Lender and Borrower
and any endorser or guarantor of this Debenture.
17. This Debenture shall be governed by and construed under the
laws of the State of Massachusetts. Borrower hereby submits to personal
jurisdiction within the State of Massachusetts for the enforcement of Borrower's
obligations hereunder, and waives any and all personal rights under the law of
any other state to object to jurisdiction within the State of
5
<PAGE> 6
Massachusetts for the purposes of litigation to enforce such obligation of
Borrower.
IN WITNESS WHEREOF, Borrower and Lender, intending to be legally
bound hereby, have caused this Amended And Restated Debenture to be duly
executed effective as of December 31, 1998.
"BORROWER"
Nextera Enterprises, Inc., a Delaware
corporation
By: /s/ Gresham Brebach, Jr.
------------------------------------
Gresham Brebach, Jr.
Its President
"LENDER"
Knowledge Universe, Inc., a Delaware
corporation
By: /s/ Stanley E. Maron
------------------------------------
Stanley E. Maron
Its Secretary
/s/ Gresham Breback, Jr.
-----------------------------------------
Gresham Brebach, Jr.
/s/ Ronald Bohlin
-----------------------------------------
Ronald Bohlin
/s/ Debra Bergevine
-----------------------------------------
Debra Bergevine
/s/ Michael Muldowney
-----------------------------------------
Michael Muldowney
/s/ David Fritts
-----------------------------------------
David Fritts
6
<PAGE> 7
Schedule "A"
<TABLE>
<CAPTION>
Lenders Percentage Ownership
------- --------------------
<S> <C>
Knowledge Universe, Inc. 98.29057%
Gresham Brebach, Jr. 1.16976%
Ronald Bohlin 0.10085%
Debra Bergevine 0.14638%
Michael Muldowney 0.14622%
David Fritts 0.14622%
---------
100%
</TABLE>
Schedule "B"
Schedule of Advances
<TABLE>
<CAPTION>
Date Amount of Advance Principal Balance
- ---- ----------------- -----------------
<S> <C> <C>
3/20/97 $ 728,640 $ 728,640
4/18/97 $ 230,000 $ 958,640
5/19/97 $ 276,000 $ 1,234,640
6/17/97 $ 276,000 $ 1,510,640
7/23/97 $13,800,000 $15,310,640
8/15/97 $ 920,000 $16,230,640
9/9/97 $ 165,600 $16,396,240
9/30/97 $ 276,000 $16,672,240
10/14/97 $ 276,000 $16,948,240
11/4/97 $ 276,000 $17,224,240
11/21/97 $ 920,000 $18,144,240
1/5/98 $ 4,799,330.50 $22,943,570.50
4/10/98 $ 22,841 $22,966,411.50
-------------- --------------
</TABLE>
7
<PAGE> 1
EXHIBIT 10.49
$24,933,534.66
AMENDED AND RESTATED
DEBENTURE
RECITALS
A. As of January 5, 1998, Nextera Enterprises, L.L.C., a Delaware
limited liability company ("NE LLC") issued a Debenture to Nextera Enterprises
Holdings, L.L.C., a Delaware limited liability company ("NEH LLC") in the amount
of $24,970,000 (the "Debenture").
B. On April 30, 1998, NEH LLC distributed and assigned the Debenture to
its members in the following proportions: (i) Knowledge Universe, L.L.C. -
98.14703%; (ii) Gresham Brebach, Jr. - 1.16805%; (iii) Ronald Bohlin - 0.10070%;
(iv) Debra Bergevine - 0.146171%; (v) Belden Menkus - 0.146037%; (vi) Michael
Muldowney - 0.146006%; and (vii) David Fritts - 0.146006%.
C. On August 5, 1998, Knowledge Universe, L.L.C. contributed and
assigned its interest in the Debenture to Knowledge Universe, Inc. ("KU Inc.").
D. In December, 1998, the 0.146037% of the Debenture held by Belden
Menkus, plus the accrued interest thereon, was paid by NE LLC in connection with
a Severance Agreement entered into between NE LLC and Belden Menkus.
E. On December 31, 1998, after the close of business, the membership
interests in NE LLC were contributed to Nextera Enterprises, Inc. ("NE Inc."),
NE LLC was dissolved, all of the assets of NE LLC were distributed to NE Inc.,
and all of the obligations of NE LLC, including, but not limited to, the
Debenture, were assumed by NE Inc.
F. On December 31, 1998, the terms of the bridge loan from Nextera
Funding, Inc. to NE Inc. (the "Bridge Loan") were modified. One condition of
such modification which pertains to the terms of the Debenture was that the
Debenture be amended so as to provide that, in the event of any notice of
default pursuant to the Bridge Loan, the Debenture shall be, at KU Inc.'s
election, either: (i) moved up in Nextera Enterprises, Inc.'s capital structure
to a holding company level; or (ii) exchanged for preferred stock of NE Inc. on
terms essentially equivalent to that of the Debenture with a liquidation
preference added.
1
<PAGE> 2
G. NE Inc. and KU Inc. have agreed to the following modifications to
the terms of the Debenture relating to the Bridge Loan: (i) if the Bridge Loan
is not paid in full on or before April 30, 1999, the interest rate on the
Debenture (or dividend rate if converted to preferred stock) will increase to
two percent over the Bridge Loan rate as it may vary from time to time; and (ii)
the Debenture (or preferred stock if converted) will convert to current cash
interest (or dividend) payments three months after the Bridge Loan is paid in
full.
H. Lender and Borrower have agreed to Amend And Restate the Debenture
so as to reflect the changes set forth in the Recitals above.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. For value received, Nextera Enterprises, Inc., a Delaware
corporation ("Borrower"), promises to pay to the order of those persons listed
on Schedule "A", attached hereto, or their assigns ("Lender"), the principal sum
of Twenty-Four Million Nine Hundred Thirty-Three Thousand Five Hundred
Thirty-Four Dollars and Sixty-Six Cents ($24,933,534.66) (the "Principal
Amount"). Except as otherwise provided herein, interest shall accrue from the
date such amounts were advanced as set forth on Schedule "B," attached hereto,
at ten percent (10%) per annum, compounded quarterly, based on the calendar
year, but in no case shall the interest rate exceed the maximum rate allowed by
law.
2. The Maturity Obligations shall be due and payable on May 1,
2002 (the "Maturity Date"). As used herein, "Maturity Obligations" shall mean
the entire outstanding principal amount, together with all accrued but unpaid
interest thereon, and all other sums due and unpaid hereunder.
3. All payments due under this Debenture are payable in lawful
money of the United States of America at Lender's office at 844 Moraga Drive,
Los Angeles, California 90049 or at such other place as Lender or other holder
hereof shall notify Borrower in writing.
4. All payments received by Lender on this Debenture shall be
applied by Lender as follows: first, to the payment of penalties, late charges,
and similar charges; second, to the payment of accrued and unpaid interest; and
third, to the reduction of the principal amount.
2
<PAGE> 3
5. In the event Borrower fails to pay any installment of interest
for ten (10) days after receipt of notice that same has become due, Borrower
shall pay to Lender a delinquency or late charge, upon demand, equal to five
percent (5%) of the amount of such past due payment, notwithstanding the date on
which such payment is actually paid to Lender.
6. In the event Borrower fails to pay any installment of interest
on this Debenture for twenty (20) days after the same shall become due, then,
and in any such event, Lender may at its option declare the entire unpaid
Principal Amount, together with interest accrued thereon, to be immediately due
and payable and Lender may proceed to exercise any rights or remedies that it
may have under this Debenture or such other rights and remedies which Lender may
have at law, equity, or otherwise. In the event of such acceleration, Borrower
may discharge its obligations to Lender by paying the Maturity Obligations, with
interest at the Delinquency Rate (as defined below) accruing from the date such
acceleration is declared.
7. Any portion of the principal amount, or interest unpaid at
maturity, or when the entire amount of this Debenture is otherwise due and
payable, shall thereafter accrue interest at a rate of fifteen percent (15%) per
annum (the "Delinquency Rate"). The Delinquency Rate shall be effective both
before and after any judgment as may be rendered in a court of competent
jurisdiction provided, however, that if such Delinquency Rate is deemed to be
interest in excess of the amount permitted to be charged to Borrowers under
applicable law, Lender shall be entitled to collect a Delinquency Rate only at
the highest rate permitted by law, and any interest actually collected by Lender
in excess of such lawful amount shall be deemed a payment in reduction of the
principal amount then outstanding under this Debenture and shall be so applied.
8. Borrower may prepay this Debenture in whole or in part without
any premium or penalty.
9. In the event that NE Inc. receives any notice of Default (as
that term is defined in the Bridge Loan documents) from Nextera Funding, Inc.,
this Debenture shall be, at KU Inc.'s election, either (i) moved up in Nextera
Enterprises, Inc.'s capital structure to a holding company level, or (ii)
exchanged for preferred stock of NE Inc. on terms essentially equivalent to that
of this Debenture, but with a liquidation preference added (the "Exchanged
Preferred Stock").
3
<PAGE> 4
10. If the Bridge Loan has not been paid in full on or before
April 30, 1999, then on May 1, 1999 the interest rate on this Debenture (or
dividend rate if this Debenture has been converted into Exchanged Preferred
Stock) shall increase to a rate which is two percentage points in excess of the
Bridge Loan rate as it may vary from time to time.
11. Ninety days after the Bridge Loan is paid in full, all accrued
interest on this Debenture to that date shall be added to the principal sum then
outstanding on this Debenture, and from such date forward all interest accrued
shall be paid quarterly in cash on the last business day of each calendar
quarter. If this Debenture has been converted into Exchanged Preferred Stock of
NE Inc., then ninety days after the Bridge Loan is paid in full, all accrued
dividends on such Exchanged Preferred Stock shall be paid in-kind by the
issuance of additional Exchanged Preferred Stock in a face amount equal to the
sum of such accrued dividends, and from such date forward the dividends on all
the Exchanged Preferred Stock shall be paid quarterly in cash on the last
business day of each calendar quarter.
12. In the event this Debenture is turned over to an attorney at
law for collection after default, in addition to the Maturity Obligations,
Lender shall be entitled to collect all costs of collection, including but not
limited to reasonable attorneys' fees incurred, whether or not suit on this
Debenture is filed, and all such costs and expenses shall be payable on demand.
13. This Debenture may not be changed orally, but only by an
agreement in writing signed by the party against whom such agreement is sought
to be enforced.
14. Borrower, for itself and its successors and assigns, and each
endorser or guarantor of this Debenture, for its heirs, successors, and assigns,
hereby waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment, and waives and renounces all rights to the benefits of any statute
of limitations and any moratorium, appraisement, and exemption now provided or
which may hereafter be provided by any federal or state statute, including but
not limited to exemptions provided by or allowed under the Bankruptcy Reform Act
of 1978, both as to itself and as to all of its property, whether real or
personal, against the enforcement and collection of the obligations evidenced by
this Debenture and any and all extensions, renewals, and modifications hereof.
4
<PAGE> 5
15. It is the intention of the parties to conform strictly to
applicable usury laws from time to time in force, and all agreements between
Borrower and Lender, whether now existing or hereafter arising and whether oral
or written, are hereby expressly limited so that in no contingency or event
whatsoever shall the amount paid or agreed to be paid to Lender or the holder
hereof, or collected by Lender or such holder, for the use, forbearance, or
detention of the money to be lent hereunder or otherwise, exceed the maximum
amount permissible under applicable usury laws. If under any circumstances
whatsoever fulfillment of any provision hereof at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if under any circumstances Lender or
other holder hereof shall ever receive an amount deemed interest, by applicable
law, which would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing hereunder and not to the payment of interest, or
if such excessive interest exceeds the unpaid principal amount and other
indebtedness, the excess shall be deemed to have been a payment made by mistake
and shall be refunded to Borrower or to any other person making such payment on
Borrower's behalf. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Lender and Borrower
and any endorser or guarantor of this Debenture.
16. This Debenture shall be governed by and construed under the
laws of the State of Massachusetts. Borrower hereby submits to personal
jurisdiction within the State of Massachusetts for the enforcement of Borrower's
obligations hereunder, and waives any and all personal rights under the law of
any other state to object to jurisdiction within the State of
5
<PAGE> 6
Massachusetts for the purposes of litigation to enforce such obligation of
Borrower.
IN WITNESS WHEREOF, Borrower and Lender, intending to be legally
bound hereby, have caused this Amended And Restated Debenture to be duly
executed effective as of December 31, 1998.
"BORROWER"
Nextera Enterprises, Inc., a Delaware
corporation
By: /s/ Gresham Brebach, Jr.
------------------------------------
Gresham Brebach, Jr.
Its President
"LENDER"
Knowledge Universe, Inc., a Delaware
corporation
By: /s/ Stanley E. Maron
------------------------------------
Stanley E. Maron
Its Secretary
/s/ Gresham Brebach, Jr.
-----------------------------------------
Gresham Brebach, Jr.
/s/ Ronald Bohlin
-----------------------------------------
Ronald Bohlin
/s/ Debra Bergevine
-----------------------------------------
Debra Bergevine
/s/ Michael Muldowney
-----------------------------------------
Michael Muldowney
/s/ David Fritts
-----------------------------------------
David Fritts
6
<PAGE> 7
Schedule "A"
<TABLE>
<CAPTION>
Lenders Percentage Ownership
------- --------------------
<S> <C>
Knowledge Universe, Inc. 98.29057%
Gresham Brebach, Jr. 1.16976%
Ronald Bohlin 0.10085%
Debra Bergevine 0.14638%
Michael Muldowney 0.14622%
David Fritts 0.14622%
---------
100%
</TABLE>
Schedule "B"
Schedule of Advances
<TABLE>
<CAPTION>
Date Amount of Advance Principal Balance
- ---- ----------------- -----------------
<S> <C> <C>
1/5/98 $4,868,679.52 $4,868,679.52
1/29/98 $ 149,780.95 $5,018,460.47
2/11/98 $ 99,853.96 $5,118,314.43
2/13/98 $ 149,780.95 $5,268,095.38
2/26/98 $ 299,561.90 $5,567,657.28
3/23/98 $ 299,561.90 $5,867,219.18
4/7/98 $6,700,200.91 $12,567,420.09
4/8/98 $9,735,761.38 $22,303,181.47
4/30/98 $2,630,353.09 $24,933,534.56
</TABLE>
7
<PAGE> 1
EXHIBIT 10.56
[Lexecon Inc. Letterhead]
December 31, 1998
Andrew M. Rosenfield
Lexecon Inc.
332 South Michigan Avenue
Chicago, IL 60604
Dear Mr. Rosenfield:
This letter will constitute our agreement regarding your employment
relationship with Lexecon Inc. ("Lexecon"), beginning as of the day on which
Lexecon becomes a wholly-owned subsidiary of Nextera Enterprises, Inc. or an
affiliate thereof ("Nextera") (the "Effective Date").
1. POSITION. Lexecon will employ you to provide services in connection
with its business of providing economic, litigation and business transaction
support services to government and industry (the "Business") in a position
comparable to your current position (or another position reasonably agreed by
the parties). Your services will cover those aspects of the Business in which
you presently participate. Subject to fulfilling your Priority Employment
Obligation, you agree to carry out your responsibilities under this Agreement in
an efficient, trustworthy, effective and businesslike manner.
2. SERVICE FEES.
(a) During the Service Term you shall be paid at your hourly
billing rate multiplied by the number of billable hours which you work on any
client matter on behalf of Lexecon; provided that the first $500,000 of total
payments otherwise payable to you pursuant to this Section shall instead be paid
to you at 25% of your hourly billing rate (i.e., you will receive $125,000 in
payments in respect of your first $500,000 of billings). You agree that Lexecon
shall set your hourly billing rate with respect to all client matters. To the
extent your hourly billing rate varies among client matters, you will be paid
based on the hourly billing rate for each client.
(b) You will be entitled to such benefits as are provided to other
executive employees of Lexecon (vacation, medical, etc.), in accordance with and
subject to Lexecon's policies and guidelines as in effect from time to time, but
in no event will such benefits be less than those provided to executive officers
of Nextera.
1
<PAGE> 2
(c) You authorize Lexecon to deduct and withhold from all
compensation to be paid to you any and all sums required to be deducted or
withheld by Lexecon pursuant to the provisions of any federal, state, or local
law, regulation, ruling, or ordinance, including, but not limited to, income tax
withholding and payroll taxes.
3. SCOPE OF SERVICE. Lexecon acknowledges your employment obligations
to the distance learning business such as that conducted by Knowledge
University, L.L.C. (or any successor or related entity) and your part-time
teaching obligations at The University of Chicago, which will have priority over
your obligations to Lexecon (collectively, the "Priority Employment
Obligation"). You agree that after fulfilling your Priority Employment
Obligation, you will not devote a material amount of time to any commercial
endeavor other than Lexecon. It is understood that the term "material" shall be
determined in reference to your remaining time available to perform services for
Lexecon available after fulfillment of your Priority Employment Obligation. You
will not be required to devote any minimum number of hours to your
responsibilities under this Agreement. Notwithstanding anything in this
Agreement to the contrary, your Priority Employment Obligation may not be
changed by you in the future so as to:
o by virtue of location or otherwise, diminish your effective
availability to render services to Lexecon; or
o restrict your ability to render services to Lexecon to any
greater degree than those caused by your relationship as of
the date hereof with Knowledge University, L.L.C. and The
University of Chicago; and it being understood that your
Priority Employment Obligation may not relate to any endeavor
other than the distance learning business such as that
conducted by Knowledge University, L.L.C. and teaching
obligations at The University of Chicago.
4. TERM. Your term of employment will run from the Effective Date to
the third anniversary thereof, unless terminated earlier (i) upon your death or
Disability, or (ii) by Lexecon either with or without Cause (such term being
referred to as the "Service Term"). If Lexecon wishes to terminate your service
without Cause, Lexecon shall give you at least sixty (60) days prior written
notice. In the event of early termination without Cause, Lexecon will pay you,
in accordance with Section 2, for all services rendered by you prior to the date
of such termination.
5. RIGHTS OF FIRST NEGOTIATION AND FIRST REFUSAL.
a. You agree that during the three months prior to the expiration of
the term of this Agreement under Section 4, you will provide Lexecon the right
of first negotiation with respect to your services following such expiration. If
Lexecon exercises such right, you agree to negotiate in good faith with Lexecon
to extend or renew this Agreement or to negotiate to otherwise continue your
services to Lexecon on mutually agreeable terms.
2
<PAGE> 3
b. In the event Lexecon and you do not reach agreement for the
extension or renewal of this Agreement or the continuation of your services to
Lexecon under Section 5.a., you agree that if, at any time prior to the date
that is four years after the Effective Date, you shall have finalized the
material terms of employment or engagement with any commercial enterprise that
engages in the Business (a "Competitor"), you shall give a written notice (the
"Competitor Notice") to Lexecon describing fully the proposed terms of such
arrangement, and the name and address of the Competitor. Lexecon shall have the
right to employ or engage you on substantially equivalent terms and conditions
as set forth in the Competitor Notice by delivery of a notice of exercise of its
right of first refusal (the "Lexecon Notice") within fifteen days after the date
the Competitor Notice is delivered to Lexecon. Upon receipt of the Lexecon
Notice, you agree to cease all discussions and negotiations with the Competitor
and any other Competitors. Nothing in this Section shall permit you to negotiate
with Competitors while this Service Agreement is in effect.
6. ADDITIONAL TERMS. You and Lexecon also agree to the provisions
contained in Appendix A attached hereto and incorporated herein. Initially
capitalized terms used herein without definition have the meanings as defined in
Appendix A.
7. SERVICE PROVIDER REPRESENTATION. You represent that you are free to
enter into and perform each of the terms and conditions of this letter agreement
including Appendix A (collectively, the "Agreement"); that you are not a party
to any confidentiality, non-compete or other agreement that restricts the
services that may be rendered by you to Lexecon other than the Priority
Employment Obligation; and that your execution and/or performance of services to
Lexecon under this Agreement does not and will not violate or breach any other
agreement between you and any other person or entity. You acknowledge that but
for this representation, Lexecon would not agree to enter into this Agreement.
8. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Illinois.
3
<PAGE> 4
Please confirm your agreement with the foregoing and Appendix A by signing
the enclosed copy of this letter where indicated and returning it to me.
Very truly yours,
LEXECON INC.
By /S/ DENNIS W. CARLTON
--------------------------------
AGREED:
/S/ ANDREW M. ROSENFIELD
4
<PAGE> 5
APPENDIX A
THIS APPENDIX A is attached to the letter agreement dated December 31 ,
1998 between Lexecon Inc. ("Company") and Andrew M. Rosenfield ("Service
Provider") (the "Service Agreement," and together with this Appendix A, the
"Agreement").
WHEREAS, pursuant to a Contribution Agreement, dated as of December 31,
1998, by and among Nextera Enterprises, Inc. ("Nextera"), Company and the
shareholders of Company (including the Service Provider), such shareholders are
contributing all of the outstanding shares of capital stock of Company to
Nextera (the "Transaction"); and
WHEREAS, Service Provider has been a key employee to Company and Service
Provider's covenants contained herein to be material and significant to
Company's success and the Service Provider's agreement to be employed by Company
and to provide the covenants contained herein constitute material provisions of
the Transaction;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The following definitions shall apply to this Agreement
(including the Service Agreement):
The termination of Service Provider's services to the Company prior
to the expiration of the Service Term for other than death, Disability, Cause or
resignation by Service Provider, shall be deemed a termination "without Cause."
A termination shall be for "Cause" if (a) Service Provider: (i)
commits an act of fraud, dishonesty, embezzlement or misappropriation involving
Company, (ii) is convicted of, or enters a plea of guilty or no contest to, any
crime involving moral turpitude or dishonesty, (iii) commits an act, or fails to
commit an act, involving Company which amounts to, or with the passage of time
would amount to, a material breach of this Agreement, which breach is not cured
within 30 days after written demand for substantial performance is received by
Service Provider from Company which specifically identifies the breach which the
Board believes Service Provider has committed, or (iv) willfully fails or
habitually neglects to perform Service Provider's responsibilities under this
Agreement (other than such failure resulting from Disability), which failure or
neglect is not cured within 30 days after written demand for substantial
performance is received by Service Provider from Company which specifically
identifies the manner in which the Board believes Service Provider has not
performed Service Provider's responsibilities, and (b) Company terminates
Service Provider and, in conjunction with such termination, provides written
notice to Service Provider that Service Provider is being terminated for Cause.
The term "Disability" means a physical or mental disability that
renders Service Provider unable to perform Service Provider's normal duties for
Company for a period of 60 or
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<PAGE> 6
more days as determined in the good faith judgment of the President or the Board
of Directors of Company.
2. Access to Confidential Information. Service Provider's services
previously rendered to Company and to be rendered hereunder have placed Service
Provider and shall continue to place Service Provider in a position of
confidence and trust with Company and have allowed and may continue to allow
Service Provider access to Confidential Information. As used herein,
"Confidential Information" shall mean information and compilations of
information relating to the business of Company including, but not limited to,
information regarding any trade secrets, proprietary knowledge, operating
procedures, finances, financial condition, organization, employees, customer
lists, client lists, suppliers, distributors, agents, and other personnel,
business activities, budgets, strategic or financial plans, objectives,
marketing plans, documents, products, services, price and price lists, operating
and training materials, data bases and analyses and all other documents relating
thereto or strategies of Company. However, Confidential Information will not
include any information which is or becomes available in the public domain or
which is or becomes known to the public or the industry by any means other than
disclosure by Service Provider.
3. Covenant as to Nondisclosure or Use of Confidential Information.
Service Provider agrees that at all times during and after the term of Service
Provider's engagement with Company hereunder, Service Provider will maintain the
Confidential Information in strictest confidence and will not, unless required
to do so in the conduct of Company's operations or unless required to do so by
legal process (such as subpoena), disclose to any individual or business
enterprise of any nature, or use for Service Provider's own personal use or
financial gain, whether individually or on behalf of another person, firm,
corporation or entity, any Confidential Information. Without limiting the
generality of the foregoing, Service Provider agrees that Company's agreements
with other persons may include agreements that impose obligations or
restrictions regarding the confidential nature of work pursuant to such an
agreement. Service Provider agrees to be bound by all such obligations and
restrictions made known to him, and to do whatever is reasonably necessary to
satisfy the obligations of Company. In the event Service Provider is required by
legal process to disclose any Confidential Information, Service Provider shall
give prompt notice thereof to Company to allow Company to object to such
process, obtain a protective order or take other reasonable action.
4. Assignment of Inventions. To the maximum extent permitted by law,
Service Provider shall assign and transfer to Company and does hereby assign and
transfer to Company Service Provider's entire right, title and interest in and
to all inventions including, but not limited to, designs, discoveries,
inventions, improvements, formulas, ideas, devices, techniques, processes,
writings, trade secrets, trademarks, trademark applications, patents, copyrights
and all other intellectual property rights including but not limited to notes,
records, reports, software, plans, memoranda and other tangible information
relating to such intellectual property, whether or not subject to protection
under applicable laws, which Service Provider solely or jointly with others
conceives, makes or acquires at any time during Service Provider's past, present
or future engagement with Company and which relate in any manner to the actual
or demonstrably
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<PAGE> 7
anticipated business, products, processes, work, operations, research and
development or other activities of Company, or result from or are suggested by
any task assigned to Service Provider or any work performed by Service Provider
for or on behalf of Company ("Inventions"), but excluding those developed in
connection with his Priority Employment Obligation. All Inventions are and shall
be the sole property of Company.
Notwithstanding anything in this Agreement to the contrary, Service
Provider shall be entitled to write books and articles for publication under his
own name and shall be entitled to receive and retain any royalties therefrom, so
long as (1) Service Provider's writing activities do not interfere with the
performance of his responsibilities under this Agreement and (2) such books or
articles do not disclose or exploit any confidential or proprietary information
of Company or its clients.
5. Disclosure of Inventions, Patents, Copyrights and Other Rights.
Service Provider agrees:
5.1 To keep and maintain adequate and current written records of
all Inventions made by Service Provider (in the form of notes, sketches,
drawings and other forms specified by Company) while engaged with Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Service Provider will disclose such Inventions promptly
in writing to the President of Company.
5.2 Upon request, to promptly execute a written assignment of
title to Company for any Invention required to be assigned by Section 4
("assignable invention") and Service Provider will preserve any such assignable
invention as Confidential Information.
5.3 Upon request and at Company's expense, to assist Company or
its nominee during and at any time subsequent to Service Provider's employment
in every reasonable way to obtain for Company's or its nominee's benefit,
patents, copyrights, mask work rights and other statutory rights ("Statutory
Rights") for such assignable inventions in any and all countries, which
inventions shall be and remain the sole and exclusive property of Company or its
nominee whether or not patented, copyrighted or the subject of a mask work
right. Service Provider shall execute such papers and perform such lawful acts
as Company deems reasonably necessary to exercise all rights, title and interest
in such Statutory Rights.
5.4 To execute and deliver to Company or its nominee upon request
all documents, including applications for and assignments of Statutory Rights to
be issued therefor, as Company determines are necessary or desirable to apply
for and obtain Statutory Rights on such assignable inventions in any and all
countries and/or to protect the interest of Company or its nominee in Statutory
Rights and to vest title thereto in Company or its nominee.
6. Return of Records, Equipment and Confidential Information. Upon the
earlier of termination of Service Provider's services hereunder or request by
Company, Service Provider shall promptly return to Company: (i) all Confidential
Information and all documents, records,
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<PAGE> 8
procedures, books, notebooks, and any other documentation in any form whatsoever
(including, but not limited to, written, audio, video or electronic) containing
any information pertaining to Company which includes Confidential Information,
including any and all copies of such documentation then in Service Provider's
possession or control regardless of whether such documentation was prepared or
compiled by Service Provider, Company, employees of Company, representatives,
agents, or independent contractors, and (ii) all equipment or tangible personal
property entrusted to Service Provider by Company. Service Provider will not
retain any original, copy, description, document, data base or other form of
media that contains or relates to any Confidential Information whether produced
by Service Provider or otherwise. Without limiting the generality of the
foregoing, Service Provider shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to Service Provider, other than from any of the foregoing
owned, used or controlled by Company. Service Provider acknowledges that all
Confidential Information and all such documentation, copies of such
documentation, equipment, and tangible personal property are and shall at all
times remain the sole and exclusive property of Company.
7. Post-Engagement Cooperation. Service Provider agrees that following
Service Provider's termination of services under this Agreement, Service
Provider shall cooperate and assist Company at Company's reasonable request and
expense in any dispute, controversy, or litigation to which Company is a party
and with respect to which Service Provider obtained knowledge while engaged with
Company or any of its predecessors, affiliates, successors, or assigns,
including, but not limited to, Service Provider's participation in any court or
arbitration proceedings, giving of testimony, signing of affidavits, or such
other personal cooperation as counsel for Company shall request.
8. Remedies. Service Provider has carefully considered the nature and
extent of the restrictions imposed by the covenants in this Appendix A and
Service Provider agrees that they are fair and reasonable and such restrictions
will not prevent Service Provider from earning a livelihood. In view of the
position of confidence and trust which Service Provider has and will enjoy with
Company and the relationship with the customers, suppliers and employees of
Company pursuant to Service Provider's engagement with Company, and recognizing
both the access to confidential financial and other information which Service
Provider has had and will have pursuant to Service Provider's engagement with
the Company and the fact that the Service Provider's covenants herein constitute
material provisions of the Transaction, Service Provider expressly acknowledges
that the restrictive covenants set forth in this Appendix A are necessary in
order to protect and maintain the proprietary interests, goodwill and other
legitimate business interests of Company. Service Provider further acknowledges
that (i) it would be difficult to calculate damages to Company from any breach
of Service Provider's obligations under this Appendix A, (ii) that injury to
Company from any such breach would be irreparable and impossible to measure, and
(iii) that the remedy at law for any breach or threatened breach of this
Appendix A would therefore be an inadequate remedy and, accordingly, Company
shall, in addition to all other available remedies (including without limitation
seeking such damages as it can show it has sustained by reason of such breach
and/or the exercise of all other rights it has
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<PAGE> 9
under this Agreement), be entitled to injunctive and other similar equitable
remedies without the necessity of showing actual damages or posting bond.
9. General Provisions.
(a) All notices hereunder shall be deemed to have been duly given when
delivered, addressed as follows (or at such other address as the addressed party
may have substituted by notice pursuant to this Section):
If to Service Provider: Andrew M. Rosenfield
10 West Deerpath
Lake Forest, IL 60045
If to Company: Lexecon Inc.
332 South Michigan Avenue
Chicago, IL 60604
Attn: Andrew M. Rosenfield
Fax: (312) 322-0220
with a copy to:
Maron & Sandler
844 Moraga Drive
Los Angeles, California 90049
Attn: Stanley E. Maron, Esq.
Fax: (310) 440-3690
(b) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof. This Agreement (and the amounts payable
to Service Provider) may be changed only by the written agreement of the
parties. This Agreement (and the rights and duties hereunder) may be assigned by
Company but not by Service Provider (provided that Service Provider shall not be
required to perform services for any business other than that presently
conducted (or contemplated by) Company).
(c) Every provision of this Agreement is intended to be severable from
every other provision of this Agreement. If any provision of this Agreement is
held to be unreasonable or excessive in scope or duration, that provision will
be deemed to be reformed to the minimum extent necessary so that such provision
as reformed may and shall be enforced to the maximum extent permitted by law. If
any provision of this Agreement is held to be void or unenforceable, in whole or
in part, the remaining provisions will remain in full force and effect, unless
the remaining provisions are so eviscerated by such holding that they do not
reflect the intent of the parties in entering into this Agreement.
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<PAGE> 10
(d) Any waiver of any breach of any provision of this Agreement will not
be deemed to be a waiver of any subsequent breach of that provision, or of any
breach of any other provision of this Agreement. No failure or delay in
exercising any right under any provision of this Agreement will be deemed a
waiver of that or any other right.
(e) Each of the parties has had the opportunity to be represented by
counsel in the negotiation and preparation of this Agreement. The parties agree
that this Agreement is to be construed as jointly drafted. Accordingly, this
Agreement will be construed according to the fair meaning of its language, and
the rule of construction that ambiguities are to be resolved against the
drafting party will not be employed in the interpretation of this Agreement.
(f) Transmission by facsimile of an executed counterpart signature page
hereof by a party hereto shall constitute due execution and delivery of this
Agreement by such party.
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<PAGE> 1
EXHIBIT 10.57
CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT
THIS CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT (the "Agreement") is
entered into as of December 31, 1998 by and between Lexecon Inc. ("Company") and
Daniel R. Fischel ("Mr. Fischel").
WHEREAS, pursuant to a Contribution Agreement (the "Contribution
Agreement"), dated as of December 31, 1998, by and among Nextera Enterprises,
Inc. ("Nextera"), Company and the shareholders of Company (including Mr.
Fischel), such shareholders are contributing all of the outstanding shares of
capital stock of Company to Nextera (the "Transaction"); and
WHEREAS, Mr. Fischel is a key employee of the Company and Nextera deems
Mr. Fischel's covenants contained herein to be material and significant to
Company's success; and
WHEREAS, the execution of this Agreement is a condition to the
consummation by Nextera of the Transaction;
NOW, THEREFORE, the parties hereto agree as follows:
1. Access to Confidential Information. Mr. Fischel's services
previously rendered to Company have placed him in a position of confidence and
trust with Company and have allowed and may continue to allow him access to
Confidential Information. As used herein, "Confidential Information" shall mean
information and compilations of information relating to the business of Company
including, but not limited to, information regarding any trade secrets,
proprietary knowledge, operating procedures, finances, financial condition,
organization, employees, customer lists, client lists, suppliers, distributors,
agents, and other personnel, business activities, budgets, strategic or
financial plans, objectives, marketing plans, documents, products, services,
price and price lists, operating and training materials, data bases and analyses
and all other documents relating thereto or strategies of Company. However,
Confidential Information will not include any information which is or becomes
available in the public domain or which is or becomes known to the public or the
industry by any means other than disclosure by Mr. Fischel.
2. Covenant as to Nondisclosure or Use of Confidential Information. Mr.
Fischel agrees that he will maintain the Confidential Information in strictest
confidence and, unless required to do so by legal process (such as subpoena),
not disclose to any individual or business enterprise of any nature, or use for
his own personal use or financial gain, whether individually or on behalf of
another person, firm, corporation or entity, any Confidential Information.
Without limiting the generality of the foregoing, Mr. Fischel agrees that
Company's agreements with other persons may include agreements that impose
obligations or restrictions regarding the confidential nature of work pursuant
to such an agreement. Mr. Fischel agrees to be bound by all such obligations and
restrictions made known to him, and to do whatever is reasonably necessary
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<PAGE> 2
to satisfy the obligations of Company. In the event Mr. Fischel is required by
legal process to disclose any Confidential Information, he shall give prompt
notice thereof to Company to allow Company to object to such process, obtain a
protective order or take other reasonable action.
3. Assignment of Inventions. To the maximum extent permitted by law,
Mr. Fischel does hereby assign and transfer to Company his entire right, title
and interest in and to all inventions including, but not limited to, designs,
discoveries, inventions, improvements, formulas, ideas, devices, techniques,
processes, writings, trade secrets, trademarks, trademark applications, patents,
copyrights and all other intellectual property rights including but not limited
to notes, records, reports, software, plans, memoranda and other tangible
information relating to such intellectual property, whether or not subject to
protection under applicable laws, which he solely or jointly with others
conceived, made or acquired at any time during his employment with Company prior
to the date hereof and which relate in any manner to the actual or demonstrably
anticipated business, products, processes, work, operations, research and
development or other activities of Company, or result from any work performed by
Mr. Fischel for or on behalf of Company ("Inventions"), but excluding those
developed in connection with his activities at The University of Chicago (or
another institution of higher learning). All Inventions shall be the sole
property of Company.
Notwithstanding anything in this Agreement to the contrary, Company
acknowledges that Mr. Fischel has (and in the future shall be entitled to) write
books and articles for publication under his own name and is (and shall be)
entitled to receive and retain any royalties therefrom, so long as such books or
articles do not disclose or exploit any confidential or proprietary information
of Company or its clients.
4. Disclosure of Inventions, Patents, Copyrights and Other Rights. Mr.
Fischel agrees:
4.1 Upon request, to promptly execute a written assignment of
title to Company for any Invention required to be assigned by Section 3
("assignable invention") and he will preserve any such assignable invention as
Confidential Information.
4.2 Upon request and at Company's expense, to assist Company or
its nominee in every reasonable way to obtain for Company's or its nominee's
benefit, patents, copyrights, mask work rights and other statutory rights
("Statutory Rights") for such assignable inventions in any and all countries,
which inventions shall be and remain the sole and exclusive property of Company
or its nominee whether or not patented, copyrighted or the subject of a mask
work right. Mr. Fischel shall execute such papers and perform such lawful acts
as Company deems reasonably necessary to exercise all rights, title and interest
in such Statutory Rights.
4.3 To execute and deliver to Company or its nominee upon request
all documents, including applications for and assignments of Statutory Rights to
be issued therefor, as Company determines are necessary or desirable to apply
for and obtain Statutory Rights on
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<PAGE> 3
such assignable inventions in any and all countries and/or to protect the
interest of Company or its nominee in Statutory Rights and to vest title thereto
in Company or its nominee.
5. Return of Records, Equipment and Confidential Information. Upon
request by Company, Mr. Fischel shall promptly return to Company: (i) all
Confidential Information and all documents, records, procedures, books,
notebooks, and any other documentation in any form whatsoever (including, but
not limited to, written, audio, video or electronic) containing any information
pertaining to Company which includes Confidential Information, including any and
all copies of such documentation then in his possession or control regardless of
whether such documentation was prepared or compiled by Mr. Fischel, Company,
employees of Company, representatives, agents, or independent contractors, and
(ii) all equipment or tangible personal property entrusted to Mr. Fischel by
Company. Mr. Fischel will not retain any original, copy, description, document,
data base or other form of media that contains or relates to any Confidential
Information whether produced by him or otherwise. Without limiting the
generality of the foregoing, upon request Mr. Fischel shall permanently delete
all Confidential Information from all computers, disks, CD-ROMS, tapes, and
other media owned or used by or accessible to him, other than from any of the
foregoing owned, used or controlled by Company. Mr. Fischel acknowledges that
all Confidential Information and all such documentation, copies of such
documentation, equipment, and tangible personal property are and shall at all
times remain the sole and exclusive property of Company.
6. Post-Employment Cooperation. Mr. Fischel shall cooperate and assist
Company at Company's reasonable request and expense in any dispute, controversy,
or litigation to which Company is a party and with respect to which he obtained
knowledge while employed by Company or any of its predecessors, affiliates,
successors, or assigns, including, but not limited to, his participation in any
court or arbitration proceedings, giving of testimony, signing of affidavits, or
such other personal cooperation as counsel for Company shall request.
7. Commercial Endeavors. Other than his academic positions at The
University of Chicago (or academic positions at another university or
institution of higher education), Mr. Fischel agrees not to devote a material
amount of time to any commercial endeavor at any time when he is bound by the
provisions of Section 6.1 of the Contribution Agreement.
8. Remedies. Mr. Fischel has carefully considered the nature and extent
of the restrictions imposed by the covenants in this Agreement and agrees that
they are fair and reasonable and such restrictions will not prevent him from
earning a livelihood. In view of the position of confidence and trust which Mr.
Fischel has enjoyed with Company and his relationship with the customers,
suppliers and employees of Company, and recognizing both the access to
confidential financial and other information which he has had and the fact that
his covenants herein constitute material provisions of the Transaction, Mr.
Fischel expressly acknowledges that the restrictive covenants set forth in this
Agreement are necessary in order to protect and maintain the proprietary
interests, goodwill and other legitimate business interests of Company. Mr.
Fischel further acknowledges that (i) it would be difficult to calculate damages
to Company
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<PAGE> 4
from any breach of his obligations under this Agreement, (ii) that injury to
Company from any such breach would be irreparable and impossible to measure, and
(iii) that the remedy at law for any breach or threatened breach of this
Agreement would therefore be an inadequate remedy and, accordingly, Company
shall, in addition to all other available remedies (including without limitation
seeking such damages as it can show it has sustained by reason of such breach
and/or the exercise of all other rights it has under this Agreement), be
entitled to injunctive and other similar equitable remedies without the
necessity of showing actual damages or posting bond.
9. General Provisions.
(a) Services performed by Mr. Fischel for Company after the date of this
Agreement shall be as an employee. Mr. Fischel shall be paid at his hourly rate
multiplied by the number of billable hours he works on any client matter;
provided that the first $500,000 of total payments otherwise payable to Mr.
Fischel pursuant to this Section shall instead be paid to him at 25% of his
hourly rate (i.e., he will receive $125,000 in respect of his first $500,000 of
billings). Mr. Fischel authorizes Company to deduct and withhold from all
compensation to be paid to Mr. Fischel any and all sums required to be deducted
or withheld by Company pursuant to the provisions of any federal, state, or
local law, regulation, ruling or ordinance, including, but not limited to,
income tax withholding and payroll taxes. So long as Mr. Fischel is employed
with Company, Mr. Fischel will be entitled to such benefits as are provided to
the executive employees of Company (vacation, medical, etc.), in accordance with
and subject to Company's policies and guidelines as in effect from time to time,
but in no event will such benefits be less than those provided to executive
officers of Nextera.
(b) All notices hereunder shall be deemed to have been duly given when
delivered, addressed as follows (or at such other address as the addressed party
may have substituted by notice pursuant to this Section):
If to Mr. Fischel: 975 Sheridan Road
Highland Park, IL 60035
If to Company: Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attn: Andrew M. Rosenfield
Fax: (312) 322-0218
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<PAGE> 5
with a copy to:
Maron & Sandler
844 Moraga Drive
Los Angeles, California 90049
Attn: Stanley E. Maron, Esq.
Fax: (310) 440-3690
(c) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof.
(d) Every provision of this Agreement is intended to be severable from
every other provision of this Agreement. If any provision of this Agreement is
held to be unreasonable or excessive in scope or duration, that provision will
be deemed to be reformed to the minimum extent necessary so that such provision
as reformed may and shall be enforced to the maximum extent permitted by law. If
any provision of this Agreement is held to be void or unenforceable, in whole or
in part, the remaining provisions will remain in full force and effect, unless
the remaining provisions are so eviscerated by such holding that they do not
reflect the intent of the parties in entering into this Agreement.
(e) Any waiver of any breach of any provision of this Agreement will not
be deemed to be a waiver of any subsequent breach of that provision, or of any
breach of any other provision of this Agreement. No failure or delay in
exercising any right under any provision of this Agreement will be deemed a
waiver of that or any other right.
(f) Each of the parties has had the opportunity to be represented by
counsel in the negotiation and preparation of this Agreement. The parties agree
that this Agreement is to be construed as jointly drafted. Accordingly, this
Agreement will be construed according to the fair meaning of its language, and
the rule of construction that ambiguities are to be resolved against the
drafting party will not be employed in the interpretation of this Agreement.
(g) Transmission by facsimile of an executed counterpart signature page
hereof by a party hereto shall constitute due execution and delivery of this
Agreement by such party.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives, as of the date first written above.
COMPANY:
LEXECON INC., an Illinois corporation
By: /S/ ANDREW M. ROSENFIELD
------------------------------------
Name: Andrew M. Rosenfield
Title:
/S/ DANIEL R. FISCHEL
-----------------------------------------
MR. DANIEL R. FISCHEL
vi
<PAGE> 1
EXHIBIT 10.58
CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT
THIS CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT (the "Agreement") is
entered into as of December 31, 1998 by and between Lexecon Inc.
("Company") and Dennis W. Carlton ("Mr. Carlton").
WHEREAS, pursuant to a Contribution Agreement (the "Contribution
Agreement"), dated as of December 31, 1998, by and among Nextera Enterprises,
Inc. ("Nextera"), Company and the shareholders of Company (including Mr.
Carlton), such shareholders are contributing all of the outstanding shares of
capital stock of Company to Nextera (the "Transaction"); and
WHEREAS, Mr. Carlton is a key employee of the Company and Nextera deems
Mr. Carlton's covenants contained herein to be material and significant to
Company's success; and
WHEREAS, the execution of this Agreement is a condition to the
consummation by Nextera of the Transaction;
NOW, THEREFORE, the parties hereto agree as follows:
1. Access to Confidential Information. Mr. Carlton's services previously
rendered to Company have placed him in a position of confidence and trust with
Company and have allowed and may continue to allow him access to Confidential
Information. As used herein, "Confidential Information" shall mean information
and compilations of information relating to the business of Company including,
but not limited to, information regarding any trade secrets, proprietary
knowledge, operating procedures, finances, financial condition, organization,
employees, customer lists, client lists, suppliers, distributors, agents, and
other personnel, business activities, budgets, strategic or financial plans,
objectives, marketing plans, documents, products, services, price and price
lists, operating and training materials, data bases and analyses and all other
documents relating thereto or strategies of Company. However, Confidential
Information will not include any information which is or becomes available in
the public domain or which is or becomes known to the public or the industry by
any means other than disclosure by Mr. Carlton.
2. Covenant as to Nondisclosure or Use of Confidential Information. Mr.
Carlton agrees that he will maintain the Confidential Information in strictest
confidence and, unless required to do so by legal process (such as subpoena),
not disclose to any individual or business enterprise of any nature, or use for
his own personal use or financial gain, whether individually or on behalf of
another person, firm, corporation or entity, any Confidential Information.
Without limiting the generality of the foregoing, Mr. Carlton agrees that
Company's agreements with other persons may include agreements that impose
obligations or restrictions regarding the confidential nature of work pursuant
to such an agreement. Mr. Carlton agrees to be bound by all such obligations and
restrictions made known to him, and to do whatever is reasonably
i
<PAGE> 2
necessary to satisfy the obligations of Company. In the event Mr. Carlton is
required by legal process to disclose any Confidential Information, he shall
give prompt notice thereof to Company to allow Company to object to such
process, obtain a protective order or take other reasonable action.
3. Assignment of Inventions. To the maximum extent permitted by law, Mr.
Carlton does hereby assign and transfer to Company his entire right, title and
interest in and to all inventions including, but not limited to, designs,
discoveries, inventions, improvements, formulas, ideas, devices, techniques,
processes, writings, trade secrets, trademarks, trademark applications, patents,
copyrights and all other intellectual property rights including but not limited
to notes, records, reports, software, plans, memoranda and other tangible
information relating to such intellectual property, whether or not subject to
protection under applicable laws, which he solely or jointly with others
conceived, made or acquired at any time during his employment with Company prior
to the date hereof and which relate in any manner to the actual or demonstrably
anticipated business, products, processes, work, operations, research and
development or other activities of Company, or result from any work performed by
Mr. Carlton for or on behalf of Company ("Inventions"), but excluding those
developed in connection with his activities at The University of Chicago (or
another institution of higher learning). All Inventions shall be the sole
property of Company.
Notwithstanding anything in this Agreement to the contrary, Company
acknowledges that Mr. Carlton has (and in the future shall be entitled to) write
books and articles for publication under his own name and is (and shall be)
entitled to receive and retain any royalties therefrom, so long as such books or
articles do not disclose or exploit any confidential or proprietary information
of Company or its clients.
4. Disclosure of Inventions, Patents, Copyrights and Other Rights. Mr.
Carlton agrees:
4.1 Upon request, to promptly execute a written assignment of title
to Company for any Invention required to be assigned by Section 3 ("assignable
invention") and he will preserve any such assignable invention as Confidential
Information.
4.2 Upon request and at Company's expense, to assist Company or its
nominee in every reasonable way to obtain for Company's or its nominee's
benefit, patents, copyrights, mask work rights and other statutory rights
("Statutory Rights") for such assignable inventions in any and all countries,
which inventions shall be and remain the sole and exclusive property of Company
or its nominee whether or not patented, copyrighted or the subject of a mask
work right. Mr. Carlton shall execute such papers and perform such lawful acts
as Company deems reasonably necessary to exercise all rights, title and interest
in such Statutory Rights.
4.3 To execute and deliver to Company or its nominee upon request
all documents, including applications for and assignments of Statutory Rights to
be issued therefor, as Company determines are necessary or desirable to apply
for and obtain Statutory Rights on
ii
<PAGE> 3
such assignable inventions in any and all countries and/or to protect the
interest of Company or its nominee in Statutory Rights and to vest title thereto
in Company or its nominee.
5. Return of Records, Equipment and Confidential Information. Upon request
by Company, Mr. Carlton shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in his possession or control regardless of whether such
documentation was prepared or compiled by Mr. Carlton, Company, employees of
Company, representatives, agents, or independent contractors, and (ii) all
equipment or tangible personal property entrusted to Mr. Carlton by Company. Mr.
Carlton will not retain any original, copy, description, document, data base or
other form of media that contains or relates to any Confidential Information
whether produced by him or otherwise. Without limiting the generality of the
foregoing, upon request Mr. Carlton shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to him, other than from any of the foregoing owned, used
or controlled by Company. Mr. Carlton acknowledges that all Confidential
Information and all such documentation, copies of such documentation, equipment,
and tangible personal property are and shall at all times remain the sole and
exclusive property of Company.
6. Post-Employment Cooperation. Mr. Carlton shall cooperate and assist
Company at Company's reasonable request and expense in any dispute, controversy,
or litigation to which Company is a party and with respect to which he obtained
knowledge while employed by Company or any of its predecessors, affiliates,
successors, or assigns, including, but not limited to, his participation in any
court or arbitration proceedings, giving of testimony, signing of affidavits, or
such other personal cooperation as counsel for Company shall request.
7. Commercial Endeavors. Other than his academic positions at The
University of Chicago (or academic positions at another university or
institution of higher education), Mr. Carlton agrees not to devote a material
amount of time to any commercial endeavor at any time when he is bound by the
provisions of Section 6.1 of the Contribution Agreement.
8. Remedies. Mr. Carlton has carefully considered the nature and extent of
the restrictions imposed by the covenants in this Agreement and agrees that they
are fair and reasonable and such restrictions will not prevent him from earning
a livelihood. In view of the position of confidence and trust which Mr. Carlton
has enjoyed with Company and his relationship with the customers, suppliers and
employees of Company, and recognizing both the access to confidential financial
and other information which he has had and the fact that his covenants herein
constitute material provisions of the Transaction, Mr. Carlton expressly
acknowledges that the restrictive covenants set forth in this Agreement are
necessary in order to protect and maintain the proprietary interests, goodwill
and other legitimate business interests of Company. Mr. Carlton further
acknowledges that (i) it would be difficult to calculate damages to Company from
any breach of his obligations under this Agreement, (ii) that injury to
iii
<PAGE> 4
Company from any such breach would be irreparable and impossible to measure, and
(iii) that the remedy at law for any breach or threatened breach of this
Agreement would therefore be an inadequate remedy and, accordingly, Company
shall, in addition to all other available remedies (including without limitation
seeking such damages as it can show it has sustained by reason of such breach
and/or the exercise of all other rights it has under this Agreement), be
entitled to injunctive and other similar equitable remedies without the
necessity of showing actual damages or posting bond.
9. General Provisions.
(a) Services performed by Mr. Carlton for Company after the date of this
Agreement shall be as an employee. Mr. Carlton shall be paid at his hourly rate
multiplied by the number of billable hours he works on any client matter;
provided that the first $750,000 of total payments otherwise payable to Mr.
Carlton pursuant to this Section shall instead be paid to him at 50% of his
hourly rate (i.e., he will receive $375,000 in respect of his first $750,000 of
billings). Mr. Carlton authorizes Company to deduct and withhold from all
compensation to be paid to Mr. Carlton any and all sums required to be deducted
or withheld by Company pursuant to the provisions of any federal, state, or
local law, regulation, ruling or ordinance, including, but not limited to,
income tax withholding and payroll taxes. So long as Mr. Carlton is employed
with Company, Mr. Carlton will be entitled to such benefits as are provided to
the executive employees of Company (vacation, medical, etc.), in accordance with
and subject to Company's policies and guidelines as in effect from time to time,
but in no event will such benefits be less than those provided to executive
officers of Nextera.
(b) All notices hereunder shall be deemed to have been duly given when
delivered, addressed as follows (or at such other address as the addressed party
may have substituted by notice pursuant to this Section):
If to Mr. Carlton: 184 Sheridan Road
Glencoe, IL 60022
If to Company: Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attn: Andrew M. Rosenfield
Fax: (312) 322-0218
iv
<PAGE> 5
with a copy to:
Maron & Sandler
844 Moraga Drive
Los Angeles, California 90049
Attn: Stanley E. Maron, Esq.
Fax: (310) 440-3690
(c) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof.
(d) Every provision of this Agreement is intended to be severable from
every other provision of this Agreement. If any provision of this Agreement is
held to be unreasonable or excessive in scope or duration, that provision will
be deemed to be reformed to the minimum extent necessary so that such provision
as reformed may and shall be enforced to the maximum extent permitted by law. If
any provision of this Agreement is held to be void or unenforceable, in whole or
in part, the remaining provisions will remain in full force and effect, unless
the remaining provisions are so eviscerated by such holding that they do not
reflect the intent of the parties in entering into this Agreement.
(e) Any waiver of any breach of any provision of this Agreement will not
be deemed to be a waiver of any subsequent breach of that provision, or of any
breach of any other provision of this Agreement. No failure or delay in
exercising any right under any provision of this Agreement will be deemed a
waiver of that or any other right.
(f) Each of the parties has had the opportunity to be represented by
counsel in the negotiation and preparation of this Agreement. The parties agree
that this Agreement is to be construed as jointly drafted. Accordingly, this
Agreement will be construed according to the fair meaning of its language, and
the rule of construction that ambiguities are to be resolved against the
drafting party will not be employed in the interpretation of this Agreement.
(g) Transmission by facsimile of an executed counterpart signature page
hereof by a party hereto shall constitute due execution and delivery of this
Agreement by such party.
v
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives, as of the date first written above.
COMPANY:
LEXECON INC., an Illinois corporation
By: /s/ ANDREW M. ROSENFIELD
--------------------------------------
Name: ANDREW M. ROSENFIELD
Title:
/s/ DENNIS W. CARLTON
------------------------------------------
MR. DENNIS W. CARLTON
vi
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
NAME INCORPORATION
---- -------------
<S> <C>
The Alexander Corporation Limited United Kingdom
Nextera Business Performance Solutions Group, Inc. Massachusetts
Cranberry Hill Capital, L.L.C. Delaware
Critias, Inc. Delaware
Lexecon Inc. Illinois
The Planning Technologies Group, L.L.C. Delaware
Pyramid Imaging, Inc. California
Scanada, Inc. Delaware
Sibson Canada Co. Nova Scotia, Canada
Sibson International, LLC Delaware
Sibson & Company, LLC Delaware
Sibson UK Limited United Kingdom
Timaeus, Inc. Delaware
</TABLE>
<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
February 19, 1999, in Amendment No. 3 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, Inc. included in Amendment No. 3 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
February 19, 1999
<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 Amendment No. 3 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
February 19, 1999
<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. 3 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
February 20, 1999
<PAGE> 1
EXHIBIT 23.1.4
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 Amendment No. 3 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
February 19, 1999
<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 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. 3 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
February 19, 1999
<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 December 29, 1998 with respect to the financial
statements of Sibson & Company, L.P., and Subsidiaries, included in the
Pre-effective Amendment No. 3 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
February 19, 1999
<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 September 1, 1998 with respect to the financial
statements of Sibson Canada, Inc., included in the Pre-effective Amendment No. 3
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
February 19, 1999
<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 February 2, 1999, with respect to the financial
statements of Lexecon, Inc., included in Amendment No. 3 to the Registration
Statement (Form S-1) and related Prospectus of Nextera Enterprise, Inc., for
the registration of shares of its Class A common stock.
/s/ Ernst & Young LLP
Chicago, Illinois
February 19, 1999
<PAGE> 1
EXHIBIT 23.1.9
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 25, 1998, with respect to the 1997 financial
statements Pyramid Imaging, Inc., included in Amendment No. 3 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
San Francisco, California
February 19, 1999
<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 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> FEB-26-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 554 1,496
<SECURITIES> 0 0
<RECEIVABLES> 2,302 32,361
<ALLOWANCES> 100 1,267
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,619 42,517
<PP&E> 1,311 9,332
<DEPRECIATION> 130 1,276
<TOTAL-ASSETS> 22,655 176,691
<CURRENT-LIABILITIES> 4,954 108,278
<BONDS> 0 0
0 0
0 0
<COMMON> 19,747 31,660
<OTHER-SE> (3,015) (20,170)
<TOTAL-LIABILITY-AND-EQUITY> 16,732 176,691
<SALES> 7,998 67,590
<TOTAL-REVENUES> 7,998 67,590
<CGS> 4,718 44,985
<TOTAL-COSTS> 5,561 26,123
<OTHER-EXPENSES> 0 6,671
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32 6,723
<INCOME-PRETAX> (2,313) (16,912)
<INCOME-TAX> 702 243
<INCOME-CONTINUING> (3,015) (17,155)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,015) (14,997)
<EPS-PRIMARY> (0.74) (1.14)
<EPS-DILUTED> (0.74) (1.14)
</TABLE>
