<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-25995
NEXTERA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4700410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Cranberry Hill, Lexington, Massachusetts 02421
(Address of principal executive office, including zip code)
(781) 778-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [_] No [X]
As of July 31, 1999 there were 29,025,540 shares of $.001 par value
Class A Common Stock outstanding and 4,274,630 shares of $.001 par value Class B
Common Stock outstanding.
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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 2
Consolidated Statements of Operations for the
Three Months Ended June 30, 1999 and 1998 3
Consolidated Statements of Operations for the
Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 16
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Items 18
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
1
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PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998(1)
------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,425 $ 1,496
Accounts receivable, net of allowance for
doubtful accounts of $1,163 at June 30, 1999 and
$1,267 at December 31, 1998 38,265 31,094
Costs and estimated earnings in excess of billings 4,524 2,962
Due from affiliates 19 400
Due from officers 469 856
Prepaid expenses and other current assets 2,444 5,709
-------- --------
Total current assets 50,146 42,517
Property and equipment, net 9,358 8,056
Intangible assets, net of accumulated amortization of
$2,688 at June 30, 1999 and $1,977 at December 31, 1998 152,781 125,082
Other assets 1,672 1,036
-------- --------
Total assets $213,957 $176,691
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,793 $ 23,530
Notes payable to bank 17,906 6,156
Bridge loan payable (including $37,500 payable to
related party at December 31, 1998) -- 75,849
Deferred revenue 1,601 1,193
Due to affiliates 372 1,068
Current portion of long-term debt and capital lease obligations 658 482
-------- --------
Total current liabilities 47,330 108,278
Long-term debt and capital lease obligations 4,013 2,600
Debentures due to affiliates, including accrued interest thereon 29,940 53,149
Other long-term liabilities 1,198 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,
197,813 shares issued and outstanding at June 30, 1999
and December 31, 1998 495 495
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 29,025,517 and 16,811,740 shares issued
and outstanding at June 30, 1999 and December 31, 1998 29 17
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 4,274,630 shares issued and outstanding at
June 30, 1999 and December 31, 1998 4 4
Additional paid-in capital 154,839 31,144
Retained earnings (deficit) (23,891) (20,170)
-------- --------
Total stockholders' equity 131,476 11,490
-------- --------
Total liabilities and stockholders' equity $213,957 $176,691
======== ========
</TABLE>
(1) Derived from audited financial statements as of December 31, 1998.
See Notes to Consolidated Financial Statements
2
<PAGE> 4
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net revenues $36,519 $13,909
Cost of revenues 20,470 9,315
------- -------
Gross profit 16,049 4,594
Selling, general and administrative expenses 10,594 4,410
Amortization expense 1,156 344
Compensation expense - other 1,705 --
------- -------
Income (loss) from operations 2,594 (160)
Interest expense, net (2,591) (1,104)
------- -------
Income (loss) before provision for income taxes 3 (1,264)
Provision for income taxes 2 75
------- -------
Net income (loss) $ 1 $(1,339)
======= =======
Net income (loss) per common share, basic and diluted $ 0.00 $ (0.09)
======= =======
Weighted average common shares outstanding, basic 28,240 15,290
======= =======
Weighted average common shares outstanding, diluted 28,802 15,290
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net revenues $72,664 $22,095
Cost of revenues 40,982 14,938
------- -------
Gross profit 31,682 7,157
Selling, general and administrative expenses 20,748 7,296
Amortization expense 2,190 568
Compensation expense - other 6,089 --
------- -------
Income (loss) from operations 2,655 (707)
Interest expense, net (6,374) (2,671)
------- -------
Loss before provision for income taxes (3,719) (3,378)
Provision for income taxes 2 200
------- -------
Net loss $(3,721) $(3,578)
======= =======
Net loss per common share, basic and diluted $ (0.15) $ (0.29)
======= =======
Weighted average common shares outstanding, basic and diluted 24,925 12,409
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 6
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,721) $ (3,578)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,594 931
Non-cash compensation charges 6,031 --
Change in operating assets and liabilities, net of effect of acquired
businesses:
Accounts receivable (3,059) (1,877)
Due from affiliate 381 138
Due to affiliate (696) 60
Prepaid expenses and other current assets 3,306 111
Income tax receivable -- 414
Accounts payable and accrued expenses 859 3,683
Costs and estimated earnings in excess of billings (1,563) 726
Deferred revenue 391 126
Other (606) (790)
-------- --------
Net cash provided by (used in) operating activities 4,917 (56)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,331) (426)
Acquisition of businesses, net of cash acquired (11,465) (25,756)
-------- --------
Net cash used in investing activities (13,796) (26,182)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A and Class B Common Stock 103,654 5,230
Proceeds from issuance of Class B Preferred Stock -- 24,993
Due from officers 387 (849)
Borrowings (repayments) under note payable to bank 11,749 (639)
Borrowings under bridge loan payable 2,000 --
Repayment of bridge loan payable (79,564) --
Repayment of debentures due to affiliates (25,607) --
Repayments of long-term debt and capital lease obligations (811) (130)
-------- --------
Net cash provided by financing activities 11,808 28,605
-------- --------
Net increase in cash and cash equivalents 2,929 2,367
Cash and cash equivalents at beginning of period 1,496 554
-------- --------
Cash and cash equivalents at end of period $ 4,425 $ 2,921
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,569 $ 134
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
5
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NEXTERA ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The accompanying financial statements of Nextera Enterprises, Inc.
("Nextera" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments and
adjustments related to the Company's 1998 equity recapitalization) considered
necessary for a fair presentation have been included. Operating results for the
three- and six- month periods ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
The consolidated balance sheet as of December 31, 1998 has been
derived from the consolidated financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
These financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in the
Company's Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission on May 17, 1999.
ACQUISITIONS
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. 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 the membership interests of SiGMA to Nextera
Business Performance Solutions Group, Inc. ("NBPSG"), a wholly owned subsidiary
of the Company.
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. PTG was
acquired for $6.7 million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired Pyramid Imaging, Inc.
("Pyramid"), a California-based consulting and technology firm. Pyramid was
acquired for $10.0 million in cash and 640,000 shares of Class A Common Stock,
including $0.8 million in cash and 53,333 shares of Class A Common Stock (the
"Pyramid Earn-out Shares") accrued as of June 30, 1999 as a result of the
achievement of certain revenue and pretax 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
6
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Sibson Canada, Inc., (collectively "Sibson") human resources consulting firms
based in New Jersey and Toronto, Canada, respectively. Sibson was acquired for
$37.4 million in cash, 2,613,087 shares of Class A Common Stock and 197,813
Exchangeable Shares of a subsidiary of the Company, 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. Lexecon was acquired
for $31.1 million in cash and 4,266,240 shares of Class A Common Stock,
including 1,450,240 shares of Class A Common Stock (the "Lexecon Contingent
Shares") which were determined based on the price per share in the initial
public offering of the Company's Class A Common Stock (see Note 2).
Effective January 29, 1999, the Company acquired The Alexander
Corporation Limited ("Alexander"), a United Kingdom-based human resources
consulting firm. Alexander was acquired for (pound)300,000 (approximately
$490,000 as of January 29, 1999) and 150,000 shares of Class A Common Stock. In
addition, the Company will pay an earn-out of up to an additional (pound)700,000
over a three-year period depending upon Alexander's satisfaction of certain
performance criteria.
Effective May 18, 1999, the Company acquired NeoEnterprises, Inc.
("NeoEnterprises"), a Connecticut-based electronic commerce, or "e-commerce,"
consulting and development company. NeoEnterprises was acquired for 170,000
shares of Class A Common Stock and was merged into Neonext LLC ("Neonext"), a
newly-formed acquisition subsidiary of the Company, as a part of the
acquisition.
Effective June 1, 1999, the Company acquired substantially all of the
assets and certain liabilities of The Economics Resource Group, Inc. ("ERG"), a
Massachusetts-based consulting firm that provides economic and strategic
services primarily to energy and other regulated industries. ERG was acquired
for $9.6 million of cash and a $2.4 million promissory note payable December 31,
2000, subject to post-closing adjustments based upon certain financial
performance criteria for ERG.
Note 2. STOCKHOLDERS' EQUITY
On May 21, 1999, the Company completed its initial public offering
("the Offering") of its Class A Common Stock. The Company sold 11,500,000 shares
of Class A Common Stock and realized net proceeds of $103.0 million.
Substantially all of these net proceeds were used to repay a portion of the
Company's then outstanding short- and long-term debt.
Based upon the share price of the Class A Common Stock in the
Offering, fully-vested stock options entitling option holders to purchase
197,760 shares of Class A Common Stock were granted on May 18, 1999 to certain
key executives of Lexecon. Pursuant to these grants, the Company recorded
compensation expense - other of $1.7 million representing the difference between
the fair value of the Class A Common Stock on the date of grant of $10.00 per
share and the exercise price of the options.
7
<PAGE> 9
Note 3. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were calculated as
follows:
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic
- -----
Net income (loss) $ 1 $(1,339) $(3,721) $(3,578)
------- ------- ------- -------
Weighted average shares 28,240 15,290 24,925 12,409
------- ------- ------- -------
Basic earnings (loss) per share $ 0.00 $ (0.09) $ (0.15) $ (0.29)
======= ======= ======= =======
Diluted
- -------
Net income (loss) $ 1 $(1,339) $(3,721) $(3,578)
------- ------- ------- -------
Weighted average shares 28,240 15,290 24,925 12,409
Effect of stock options 562 -- -- --
------- ------- ------- -------
Weighted average shares, as adjusted 28,802 15,290 24,925 12,409
------- ------- ------- -------
Diluted earnings (loss) per share $ 0.00 $ (0.09) $ (0.15) $ (0.29)
======= ======= ======= =======
</TABLE>
8
<PAGE> 10
NEXTERA ENTERPRISES, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The disclosure and analysis in this quarterly report contain
"forward-looking statements." Forward-looking statements give Nextera's current
expectations or forecasts of future events. These statements can be identified
by the fact that they do not relate strictly to historic or current facts. They
use words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these forward-looking statements include statements relating to future actions
or the outcome of financial results. From time to time, Nextera also may provide
oral or written forward-looking statements in other materials released to the
public. Any or all of the forward-looking statements in this quarterly report
and in any other public statements make may turn out to be incorrect. They can
be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed.
Actual results may vary materially.
Factors that might cause such a difference include, but are not
limited to, those discussed below in "Item 5: Factors That May Affect Future
Performance" as well as those discussed in Nextera's Registration Statement on
Form S-1 under the heading "Risk Factors." It is not possible to predict or
identify all such factors. Consequently, any such list should not be considered
to be a complete set of all potential risks or uncertainties. Nextera undertakes
no obligation to publicly update any forward-looking statements, whether as a
result of new information or future events.
OVERVIEW
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 three 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 Strategy and
Research Services, Human Capital Services, and Information Technology Consulting
and Process Transformation Services. The Strategy and Research Services practice
provides in-depth business and economic analyses of business conditions,
relevant business frameworks and business practices. Through the Strategy and
Research 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 focuses
research on a number of issues of client concern.
9
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The Human Capital Services practice assists clients in implementing
organizational and strategic changes established by senior management through
all levels of the organization. The Company recently combined its Process
Transformation Services and its Information Technology Consulting Services
practice areas into a single Information Technology Consulting and Process
Transformation Services practice. This practice area 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. Additionally, it also helps clients solve complex
operational issues through major business transformation programs, redesigned
business processes, and best practices.
In August 1999, Nextera combined the operations of NBPSG, Pyramid and
Neonext into a new organization named Nextera Interactive. Nextera Interactive
was formed to increase Nextera's focus on the rapidly growing e-commerce and
e-business service markets. Nextera Interactive will provide a portfolio of
service offerings, including e-commerce and e-business strategy formulation,
market positioning and branding, user interface and technical architecture
design and full design and development of Internet and web-based applications
and systems.
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.
10
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SEQUENTIAL QUARTERLY TRENDS AND 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 Company's annual 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>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
1998 1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 8,186 $13,909 $17,486 $28,009 $36,145 $36,519
Cost of revenues 5,623 9,315 12,641 17,406 20,512 20,470
------- ------- ------- ------- ------- -------
Gross profit 2,563 4,594 4,845 10,603 15,633 16,049
Selling, general and
administrative expenses 2,886 4,410 7,279 8,528 10,154 10,594
Amortization expense 224 344 466 688 1,034 1,156
Restructuring costs -- -- 967 331 -- --
Compensation expense --
other -- -- -- 6,671 4,384 1,705
------- ------- ------- ------- ------- -------
Income (loss) from operations (547) (160) (3,867) (5,615) 61 2,594
Interest income (expense), net (1,567) (1,104) (1,648) (2,404) (3,783) (2,591)
------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes (2,114) (1,264) (5,515) (8,019) (3,722) 3
Provision for income taxes 125 75 -- 43 -- 2
------- ------- ------- ------- ------- -------
Net income (loss) $(2,239) $(1,339) $(5,515) $(8,062) $(3,722) $ 1
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth, for periods indicated, the percentage
relationship to net revenues of the Company's results of operations.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
1998 1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100% 100% 100% 100% 100% 100%
Cost of revenues 69 67 72 62 57 56
--- --- --- --- --- ---
Gross profit 31 33 28 38 43 44
Selling, general and
Administrative expenses 35 32 42 30 28 29
Amortization expense 3 2 3 2 3 3
Restructuring costs - - 6 1 - -
Compensation expense --
Other - - - 24 12 5
--- --- --- --- --- ---
Income (loss) from operations (7) (1) (22) (20) - 7
Interest income (expense), net (19) (8) (9) (9) (10) (7)
--- --- --- --- --- ---
Income (loss) before (26) (9) (32) (29) (10) -
provision for income taxes
Provision for income taxes 1 1 - - - -
--- --- --- --- --- ---
Net income (loss) (27)% (10)% (32)% (29)% (10)% 0%
=== === === === === ===
</TABLE>
11
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RESULTS OF OPERATIONS
In light of the number and significance of acquisitions completed
since January 1, 1998, management has decided to present a comparison of results
for (i) the three months ended June 30, 1999 versus the three months ended March
31, 1999 and (ii) the three months ended March 31, 1999 versus the three months
ended December 31, 1998, because it believes that such comparisons are the most
meaningful presentation of the Company's financial results.
All acquisitions completed by Nextera have been accounted for under
the purchase method of accounting. Accordingly, the Consolidated Financial
Statements of the Company include operating results of the acquired companies
only from the effective date of each respective acquisition.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND THREE MONTHS ENDED MARCH 31,
1999
Net Revenues. Net revenues increased to $36.5 million for the three
months ended June 30, 1999 from $36.1 million for the three months ended March
31, 1999. This increase was primarily attributable to an increase in e-commerce
and e-business revenues and to the inclusion of revenues generated by ERG, which
was acquired effective June 1, 1999, offset in part by a reduction in revenues
related to enterprise resource planning ("ERP") services performed during the
quarter. As a result of the reduced demand for ERP services, the Company
utilized a lower level of outside contractors during the current quarter.
Gross Profit. Gross profit increased 2.6% to $16.0 million for the
three months ended June 30, 1999 from $15.6 million for the three months ended
March 31, 1999. Gross margin as a percentage of sales increased to 43.9% for the
three months ended June 30, 1999 from 43.3% for the three months ended March 31,
1999. The increase in gross margin was due primarily to higher margins on
e-commerce and e-business services than those earned on ERP-related business.
The Company has historically utilized subcontractors to perform a significant
portion of ERP services and, in most instances, has recorded lower gross margins
on revenue related to such subcontracted services than on work performed by
internal consultant resources.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 4.3% to $10.6 million for the three months
ended June 30, 1999 from $10.2 million for the three months ended December 31,
1998. As a percentage of revenues, such expenses increased slightly to 29.0% for
the three months ended June 30, 1999 from 28.1% for the three months ended March
31, 1999.
Interest Income (Expense), Net. Interest expense, net decreased to
$2.6 million for the three months ended June 30, 1999 from $3.8 million for the
three months ended December 31, 1998. This decrease was due primarily to the
repayment of a portion of the Company's outstanding indebtedness with the
proceeds from the Company's initial public offering of Class A Common Stock,
which was completed on May 21, 1999.
Compensation Expense - Other. The Company granted to certain
non-stockholder employees of Lexecon fully-vested options to purchase 197,760
shares of Class A Common Stock at an exercise price of $1.50 per share effective
as of May 1999. The Company recorded an expense of $1.7 million in
12
<PAGE> 14
the three months ended June 30, 1999, which represented the difference between
the fair value of the options on the date of grant of $10.00 per share, and the
exercise price of the options.
In March 1999, the Company granted to certain non-employee
consultants of Lexecon fully-vested options to purchase 445,245 shares of Class
A Common Stock at an exercise price of $14.00 per share. The Company recorded a
non-cash compensation charge of $4.4 million related to the grant of these
options in the three months ended March 31, 1999.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND THREE MONTHS ENDED DECEMBER
31, 1998
Net Revenues. Net revenues increased 29.1% to $36.1 million for the
three months ended March 31, 1999 from $28.0 million for the three months ended
December 31, 1998. This increase was primarily attributable to the inclusion of
revenues generated by Lexecon, which was acquired effective December 31, 1998,
and by Alexander, which was acquired effective January 29, 1999.
Gross Profit. Gross profit increased 47.4% to $15.6 million for the
three months ended March 31, 1999 from $10.6 million for the three months ended
December 31, 1998. Gross margin as a percentage of sales increased to 43.3% for
the three months ended March 31, 1999 from 37.9% for the three months ended
December 31, 1998. The increase in gross profit and gross margin was due
primarily to the acquisition of Lexecon (the "Lexecon Acquisition").
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 19.1% to $10.2 million for the three months
ended March 31, 1999 from $8.5 million for the three months ended December 31,
1998. As a percentage of revenues, such expenses decreased to 28.1% for the
three months ended March 31, 1999 from 30.4% for the three months ended December
31, 1998. The dollar increase was due primarily to the inclusion of the Lexecon
Acquisition for the three months ended March 31, 1999, offset in part by the
inclusion in the three months ended December 31, 1998 of $0.4 million of a
supplemental management fee charged by Knowledge Universe, Inc. ("Knowledge
Universe").
Interest Income (Expense), Net. Interest expense, net increased to
$3.8 million for the three months ended March 31, 1999 from $2.4 million for the
three months ended December 31, 1998. This increase was due primarily to
borrowings incurred to fund the Lexecon Acquisition.
Restructuring. During the three months ended December 31, 1998 the
Company recorded restructuring costs of $0.3 million related to severance
obligations incurred in connection with the combination of two of the Company's
operating subsidiaries, Symmetrix, Inc. ("Symmetrix") and SiGMA, into NBPSG.
Compensation Expense - Other. The Company granted to certain
non-employee consultants of Lexecon options to purchase 445,245 shares of Class
A Common Stock at an exercise price of $14.00 per share in March 1999. Such
options were fully-vested upon grant. The Company accounted for the issuance of
such options in accordance with EITF 96-18 and recorded a non-cash compensation
charge of $4.4 million in the three months ended March 31, 1999.
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Such charge represents the estimated fair value of the options calculated using
the Black-Scholes model.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $2.8 million on June 30, 1999,
compared with a working capital deficit of $65.8 million on December 31, 1998.
Included in working capital were cash and cash equivalents of $4.4 million and
$1.5 million on June 30, 1999 and December 31, 1998, respectively. The increase
in working capital was primarily attributable to the completion of the Company's
initial public offering on May 21, 1999, which resulted in net proceeds to the
Company of $103.0 million. A portion of such proceeds were used to retire
amounts outstanding under a short-term bridge loan, with the balance used to
repay a portion of the Company's outstanding long-term indebtedness and certain
management and other fees.
Net cash provided by operating activities was $4.9 million for the
six months ended June 30, 1999. The primary components of net cash provided by
operating activities were a net loss of $3.7 million and an increase in accounts
receivables of $3.1 million, offset by depreciation and amortization expense of
$3.6 million, a non-cash compensation charge of $6.0 million and a decrease in
prepaid expenses of $3.3 million.
Net cash used in investing activities was $13.8 million for the six
months ended June 30, 1999. The primary components of cash used in investing
activities were the acquisitions of Alexander in January 1999 and the
acquisition of ERG in June 1999, totaling $10.1 million, exclusive of $0.3
million of cash acquired, and expenditures of $2.3 million for furniture,
equipment and leasehold improvements.
Net cash from financing activities was $11.8 million for the six
months ended June 30, 1999. The primary components of cash generated from
financing activities were $103.0 million of net proceeds from the completion of
the Company's initial public offering of common stock, offset by $79.6 million
of cash utilized to repay bridge loan borrowings and $25.6 million of cash
utilized to repay a portion of the Company's outstanding indebtedness.
Additionally, borrowings under notes payables to banks totaled $11.7 million, of
which $9.6 million was incurred in connection with the acquisition of ERG.
The Company has an aggregate borrowing capacity of $30.0 million
under a Discretionary Demand Credit Facility as of June 30, 1999. Interest on
the Discretionary Demand Credit Facility is based on the lender's base rate,
which was 7.75% as of June 30, 1999. This facility has a final maturity date of
January 5, 2000. As of June 30, 1999, the Company had borrowings outstanding
under this facility totaling $17.9 million. This facility is secured by
substantially all of the Company's assets.
Nextera believes that cash flow from operations, along with available
borrowings under the Discretionary Demand Credit Facility, will be sufficient to
meet short-term liquidity requirements, excluding cash which may be required for
future acquisitions. The Company intends to replace the Discretionary Demand
Credit Facility with a new arrangement to provide working capital and financing
for potential acquisitions. The Company is currently negotiating a term sheet
for such a facility. There can be no assurances that the Company will be
successful in securing such a facility, 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.
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There also can be no assurances that any additional required financing will be
available through additional bank borrowings, debt or equity offerings or
otherwise, or that if such financing is available, that it will be available on
terms favorable to the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are coded to accept only
two digit entries in the date code field. These date code fields need to be
modified or upgraded to accept four digit entries to distinguish dates beginning
on or after January 1, 2000 from dates beginning prior to January 1, 2000. 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 its subsidiaries, for Year 2000 compliance. The Company
relies upon microprocessor-based personal computers and commercially available
applications software. Nextera is in the process of upgrading its existing
computer software and IT systems as well as those of its subsidiaries. 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 its subsidiaries, 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.
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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 June 30, 1999, 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Currently, the majority of Nextera's sales and expenses are
denominated in U.S. dollars and as a result the Company has not experienced
significant foreign exchange gains and losses to date. While Nextera is
conducting some transactions in foreign currencies during 1999, the Company does
not anticipate that foreign exchange gains or losses will be significant.
Nextera has not engaged in foreign currency hedging activities to date.
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds
Effective May 18, 1999, Nextera issued 170,000 shares of Class A
Common Stock to James K. Burns, the former sole stockholder of NeoEnterprises,
in exchange for all of the capital stock of NeoEnterprises.
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<PAGE> 18
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 and upon the exemption from registration
set forth in Section 4(2) of the Securities Act. The foregoing transaction did
not involve a distribution or public offering. Nextera did not engage any
underwriters in connection with the foregoing transaction and did not pay any
underwriting discounts or commissions.
Effective May 18, 1999, Nextera granted certain employees of Lexecon
fully-exercisable options to purchase 197,760 shares of Class A Common Stock at
an exercise price of $1.50 per share. The Company had agreed effective December
31, 1998 to grant the foregoing options in connection with the Lexecon
Acquisition. 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 and upon the exemption from registration
set forth in Section 4(2) of the Securities Act. The foregoing transaction did
not involve a distribution or public offering. Nextera did not engage any
underwriters in connection with the foregoing transaction and did not pay any
underwriting discounts or commissions.
On May 21, 1999, Nextera completed a firm commitment underwritten
initial public offering of 11,500,000 shares of Class A Common Stock. The shares
were registered with the Securities and Exchange Commission pursuant to a
registration statement on Form S-1 (No. 333-63789), which was declared effective
on May 18, 1999 (the "Registration Statement"). The public offering was
underwritten by a syndicate of underwriters led by Donaldson, Lufkin & Jenrette
Securities Corporation, Banc of America Securities LLC, BancBoston Robertson
Stephens, BT Alex. Brown Incorporated, and Thomas Weisel Partners LLC, as their
representatives.
A total of 11,500,000 shares of the Company's Class A Common Stock
were sold at a price to the public of $10.00 per share. The public offering
commenced on May 18, 1999 and closed on May 21, 1999. The initial public
offering resulted in gross proceeds of $115.0 million, $7.8 million of which was
applied toward underwriting discounts and commissions. Other expenses related to
the public offering totaled approximately $4.2 million, net of certain
reimbursements from the representatives of the underwriters, of which $4.1
million was paid to persons other than directors or officers of Nextera or their
associates or persons owning ten (10) percent or more of any class of the
Company's equity securities, or affiliates of Nextera, and of which $144,000 was
paid for legal services rendered in connection with the public offering to a law
firm of which Stanley E. Maron and Richard V. Sandler, directors of the Company,
are partners. Total expenses related to the public offering were approximately
$12.0 million.
From the effective date of the Company's Registration Statement
through June 30, 1999, the net proceeds of the offering were applied as follows:
(i) $102.1 million to repay outstanding indebtedness, of which $63.7 was paid to
an affiliate of an entity holding more than 10% of the Company's outstanding
Common Stock; (ii) $750,000 was paid to the lender under the bridge loan in
consideration for certain consents and amendments granted by such lender; and
(iii) $151,000 for accrued management fees was paid to an affiliate of an entity
holding more than 10% of the Company's outstanding Common Stock.
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Item 4. Submission of Matters to a Vote of Security Holders
On May 14, 1999, an annual meeting of the stockholders of Nextera was
held in Los Angeles, California. At the meeting, all of directors were
re-elected, which directors constituted all of the directors of the Company at
the time of the annual meeting. The matters voted upon and the votes cast at the
annual meeting were as follows:
Votes Cast
Matter Voted Upon For Against Abstentions
----------------- ----------- ---------- -----------
1. Election of Directors:
Gresham T. Brebach, Jr. 47,446,203 -- 12,650,425
Ronald K. Bohlin 47,446,203 -- 12,650,425
Roger Brossy 47,446,203 -- 12,650,425
Ralph Finerman 47,446,203 -- 12,650,425
Steven B. Fink 47,446,203 -- 12,650,425
Stanley E. Maron 47,446,203 -- 12,650,425
Michael D. Rose 47,446,203 -- 12,650,425
Richard V. Sandler 47,446,203 -- 12,650,425
2. Adoption of the 1998 Equity
Participation Plan of Nextera
Enterprises, Inc. 47,446,203 -- 12,650,425
3. Adoption of the Nextera/Lexecon
Limited Purpose Stock Option Plan
of Nextera Enterprises, Inc. 47,446,203 -- 12,650,425
Item 5. Other Information
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
LIMITED COMBINED OPERATING HISTORY.
Nextera was formed in February 1997 and has grown substantially since
its inception, principally through the acquisitions of Symmetrix, SiGMA, PTG,
Pyramid, Sibson, Lexecon, Alexander, NeoEnterprises and ERG (collectively, 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 performance and other information contained in this
quarterly report 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.
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NET LOSSES.
The Company has been in existence since February 1997. For the year
ended December 31, 1998 and for the six months ended June 30, 1999, Nextera
experienced net losses of $17.2 million and $3.7 million, respectively. There
can be no assurance that Nextera will achieve or sustain profitability in the
future.
MANAGEMENT OF GROWTH.
Nextera has experienced 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 June 30, 1999, the number
of consultants employed by the Company has increased to 481 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.
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 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.
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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.
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.
CONTROL BY KNOWLEDGE UNIVERSE OR ITS AFFILIATES.
Nextera Enterprises Holdings, Inc. ("Nextera Holdings") currently
owns 8,810,000 shares of Class A Common Stock and 3,844,200 shares of Class B
Common Stock, which together represent approximately 64.5% of the voting power
of the Company's 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.
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Accordingly, Nextera Holdings 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 acquisition of
Sibson, as amended in connection with the Lexecon Acquisition (the "Stockholders
Agreement"), and determine the 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.
The former stockholders of Lexecon have not yet exercised their right to
nominate a director under the Stockholders Agreement. Such control by Nextera
Holdings could materially adversely affect the market price of the Class A
Common Stock or delay or prevent a change in control of Nextera.
Nextera Holdings is controlled by Knowledge Enterprises, Inc.
("Knowledge Enterprises") which, in turn, is controlled by Knowledge Universe,
Inc. and 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 other
affiliates of Knowledge Universe independently of Nextera. There can be no
assurance that conflicts of interest between Knowledge Universe, Knowledge
Enterprises, Nextera Holdings or any other affiliate of Knowledge Universe 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 Universe 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.
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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 Nextera Holdings, Knowledge Enterprises, Knowledge Universe or
any affiliate of Knowledge Universe could materially adversely affect the
Company's business, operating results and financial condition.
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.
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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 "Item 2: Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL AMOUNT OF GOODWILL AND OTHER INTANGIBLE ASSETS RELATING TO
PERSONNEL.
As of June 30, 1999, the Company's intangible assets, net of
accumulated amortization, were approximately $152.8 million, of which
approximately $38.8 million and $61.2 million were attributable to the
acquisition of Sibson and the Lexecon Acquisition, respectively. Intangible
assets at June 30, 1999, net of accumulated amortization, included $148.1
million of goodwill and $4.7 million for intangibles relating to personnel.
Intangible assets are being amortized by Nextera on a straight-line basis
generally over 40 years for goodwill and over five years for intangibles
relating to personnel. 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 "Item 2: Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONCENTRATION OF NET REVENUES WITHIN A RELATIVELY LIMITED NUMBER OF CLIENTS AND
INDUSTRIES.
Nextera has in the past derived, and may in the future derive, a
significant portion of its net revenues from a relatively limited number of
clients. For example, for the 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.
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<PAGE> 25
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.
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.
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PROJECT RISKS.
The Company's client engagements often involve projects that are
critical to the operation of a client's business and provide benefits that may
be difficult to quantify. Nextera's failure or inability to meet a client's
expectations in the performance of its services could result in a client's
refusal to pay or give rise to claims against the Company or damage Nextera's
reputation, any of which could materially adversely affect its business,
operating results and financial condition. There can be no assurance that the
Company will not fail to satisfy certain clients' expectations.
FIXED-PRICE OR CAPPED-FEE 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 "Item 2:
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
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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 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.
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.
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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.
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 dates beginning
on or after January 1, 2000 from dates beginning prior to January 1, 2000. 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 its subsidiaries, for Year 2000 compliance. The Company
relies upon microprocessor-based personal computers and commercially available
applications software. Nextera is in the process of upgrading its existing
computer software and IT systems as well as those of its subsidiaries. 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 its subsidiaries, 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 June 30, 1999, 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 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.
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ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS.
The Company's Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") and Bylaws, as well as Delaware corporate law,
contain certain provisions that could have the effect of delaying, deferring or
preventing a change in control of Nextera. These provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Class A Common Stock. The Certificate of Incorporation authorizes the
Company's Board of Directors to issue shares of Preferred Stock of Nextera, in
one or more series, and to establish the rights and preferences (including the
convertibility of such shares of Preferred Stock into shares of Class A Common
Stock) of any series of Preferred Stock so issued. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Class A Common Stock. Such provisions also may inhibit fluctuations in the
market price of the Class A Common Stock that could result from takeover
attempts. Additionally, the Certificate of Incorporation provides that any
action required or permitted to be taken by stockholders of Nextera must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of stockholders may be
called only by the Board of Directors, the Chairman of the Board, or the
President of the Company, and stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting. The Bylaws require stockholders to comply with special advance notice
procedures in order to make a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of stockholders
(the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that only persons who are nominated by, or at the direction of, the Company's
notice of meeting, the Board of Directors or by a stockholder who has given
timely written notice to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
the Company. The Stockholder Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Company's notice of meeting, the Board
of Directors or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before such meeting. In addition, under the Stockholder Notice Procedure, a
stockholder's notice to the Company proposing to nominate a person for election
as a director or relating to the conduct of business other than the nomination
of directors must contain a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the nomination or proposal is made. If
the chairman of a meeting determines that business was not properly brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
business shall not be discussed or transacted. The foregoing provisions and
requirements could make it difficult for stockholders to effect certain
corporate actions.
The Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law. 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
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<PAGE> 31
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
Universe or their affiliates should be considered interested stockholders
subject to the provisions of Section 203.
INTELLECTUAL PROPERTY RIGHTS.
Nextera's success is dependent in part upon certain methodologies and
other proprietary intellectual property rights. Nextera relies upon a
combination of nondisclosure, confidentiality (including confidentiality
agreements with employees), license, employment, and client agreements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom Nextera licenses intellectual
property. In addition, Nextera generally limits the distribution of its
proprietary information. There can be no assurance, however, that the steps
taken by Nextera to protect its intellectual property rights will be adequate to
deter misappropriation of proprietary information or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights or that competitors will not be able to develop
similar or functionally equivalent methodologies. Furthermore, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries, and no assurance can be given that foreign copyright and
trade secret laws will adequately protect the Company's intellectual property
rights. Although Nextera believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, there can be no
assurance that Nextera's employees will not misappropriate the intellectual
property of others. Accordingly, the Company is subject to the risk of claims
alleging infringement of third-party intellectual property rights. Any such
claims could require Nextera to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of asserted infringement, any of which
could materially adversely affect the Company's business, operating results and
financial condition. The Company presently holds no patents or registered
copyrights.
VOLATILITY OF STOCK PRICE.
The market price of the Class A Common Stock has fluctuated and may
continue to 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.
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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.
To the extent additional shares of Common Stock are issued or
outstanding options and warrants to purchase Class A Common Stock are exercised,
there may be dilution to current stockholders. 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.
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. A substantial number of outstanding shares of common stock and
shares of common stock issuable upon exercise of outstanding stock options will
become available for resale in the public market at prescribed times. As of July
31, 1999, Nextera had 29,025,540 shares of Class A Common Stock outstanding. The
11,500,000 shares sold in the recent initial public offering are freely tradable
under the Securities Act of 1933, as amended, unless held by "affiliates" as
defined in Rule 144 under the Securities Act ("Rule 144"). The remaining
17,525,540 shares of Class A Common Stock (which do not include (i) 197,813
shares of Class A Common Stock issuable upon exchange of the Exchangeable
Shares, (ii) 53,333 Pyramid Earn-out Shares and (iii) 1,450,240 Lexecon
Contingent Shares) and 4,274,630 shares of Class B Common Stock are "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 16,955,686 shares of Class A
Common Stock and 4,266,030 shares of Class B Common Stock have agreed that they
will not sell, directly or indirectly, any Common Stock, subject to certain
exceptions, without the prior consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") for a period of 180 days from May 18, 1999 (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").
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A total of 4,266,240 shares of Class A Common Stock are subject to the Lexecon
Lock-up Agreements (assuming the issuance of the Lexecon Contingent Shares). In
addition, Nextera's Certificate of Incorporation provides that each holder of
Common Stock, other than with respect to 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 (excluding
shares issuable upon the exchange of the Exchangeable Shares, the Lexecon
Contingent Shares and as Pyramid Earn-out Shares, but including shares issuable
upon conversion of Class B Common Stock) 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) 6,463 shares will
be eligible for sale 180 days after May 18, 1999; and (ii) 21,793,707 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.
Nextera has filed two registration statements on Form S-8 covering (i)
6,993,537 shares of Class A Common Stock issuable under the 1998 Equity
Participation Plan of Nextera Enterprises, Inc. (the "1998 Equity Participation
Plan") and (ii) 5,500,000 shares of Class A Common Stock issuable under the
Nextera/Lexecon Limited Purpose Stock Option Plan of Nextera Enterprises, Inc.
(the "Limited Purpose Plan"). Of the 6,990,223 shares of Class A Common Stock
issuable under the 1998 Equity Participation Plan, 3,155,426 shares were subject
to outstanding options as of July 31, 1999, of which approximately 581,545 were
exercisable on such date. Of the 5,500,000 shares of Class A Common Stock
issuable under the Limited Purpose Plan, as of July 31, 1999 the Company has
granted options to purchase an aggregate of 3,381,452 shares, of which options
to purchase 643,005 shares of Class A Common Stock were exercisable on such
date. The holders of 19,053,589 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 (i) 197,813 shares of Class A Common Stock upon exchange of the
Exchangeable Shares, (ii) 53,333 Pyramid Earn-out Shares and (iii) 1,450,240
Lexecon Contingent Shares). If such holders, by exercising their registration
rights, cause a large number of shares of Class A Common Stock to be registered
and sold in the public market, such sales could materially adversely affect the
market price of the Class A Common Stock. In addition, if the Company is
required, pursuant to such registration rights, to include shares held by such
persons in a registration statement which Nextera files to raise additional
capital, the inclusion of such shares could adversely affect the Company's
ability to raise needed capital.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Discretionary Demand Credit Agreement dated as of June 25,
1999 between Nextera Enterprises, Inc. and BankBoston,
N.A.
10.2 Demand Note dated June 25, 1999 of Nextera Enterprises,
Inc. in favor of BankBoston, N.A.
10.3 Guarantee and Security Agreement dated as of June 25, 1999
between Nextera Enterprises, Inc., BankBoston, N.A. and
the entities listed on the signature pages thereto.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended June 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: August 16, 1999 By: /s/ Gresham T. Brebach, Jr.
--------------------------------------------
Gresham T. Brebach, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: August 16, 1999 By: /s/ Michael P. Muldowney
--------------------------------------------
Michael P. Muldowney
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 1
Execution Version
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Exhibit 10.1
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NEXTERA ENTERPRISES, INC.
DISCRETIONARY DEMAND CREDIT AGREEMENT
Dated as of June 25, 1999
with
BANKBOSTON, N.A.
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TABLE OF CONTENTS
1. Definitions; Certain Rules of Construction...............................1
2. The Credits..............................................................4
2.1. Discretionary Revolving Credit Facility......................4
2.2. Letters of Credit............................................4
3. Interest; Fees, etc......................................................7
3.1. Interest.....................................................7
3.2. Capital Adequacy, etc........................................8
3.3. Letter of Credit Fee.........................................8
3.4. Computations of Interest.....................................8
4. Payment..................................................................8
4.1. Payment upon Demand or at Maturity...........................8
4.2. Voluntary Prepayments of Loan................................9
4.3. Reborrowing..................................................9
5. Conditions to Extending Credit...........................................9
5.1. Officer's Certificate........................................9
5.2. Note.........................................................9
5.3. Legal Opinion................................................9
5.4. Guarantee and Security Agreement.............................9
5.5. Perfection of Security.......................................9
5.6. Fees.........................................................9
5.7. Other Outstanding Debt......................................10
5.8. No Material Litigation......................................10
5.9. No Material Default of any Material Contract................10
5.10. Repayment of Outstanding Debt..............................10
5.11. Release of Certain Security Interests......................10
5.12. Minimum EBITDA.............................................10
5.13. Other Lender Confirmation..................................10
5.14. Proper Proceedings.........................................10
5.15. Legality, etc..............................................11
5.16. General....................................................11
6. Representations and Warranties..........................................11
6.1. Organization and Business...................................11
6.2. Financial Statements and Other Information..................11
6.3. Changes in Condition........................................12
6.4. Litigation..................................................12
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6.5. No Legal Obstacle to Agreements.............................12
6.6. Taxes.......................................................13
7. Certain Actions Following a Default.....................................13
7.1. Exercise of Rights..........................................13
7.2. Setoff......................................................13
7.3. Cumulative Remedies.........................................13
8. Expense; Indemnity......................................................13
8.1. Expenses....................................................13
8.2. General Indemnity...........................................13
9. Successors and Assigns; Agent...........................................14
10. Notices................................................................14
11. Course of Dealing, Amendments and Waivers..............................15
12. WAIVER OF JURY TRIAL...................................................15
13. Venue; Service of Process; Certain Waivers.............................16
14. General................................................................16
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EXHIBITS
2 - Form of Note
2.1.1 - Letters of Credit to be Provided at Closing
2.2 - Current Standby Letter of Credit Application and Agreement Form of
the Lender
5.1 - Form of Officer's Certificate
5.4 - Form of Guarantee and Security Agreement
5.7 - Debentures
5.10 - Debt Outstanding After the Closing
6.4 - Litigation
6.5 - Legal Obstacles to Agreements
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NEXTERA ENTERPRISES, INC.
DISCRETIONARY DEMAND CREDIT AGREEMENT
This Agreement, dated as of June 25, 1999, is among Nextera
Enterprises, Inc., a Delaware corporation (the "COMPANY"), its Subsidiaries from
time to time party hereto and BankBoston, N.A. (the "LENDER"). The parties agree
as follows:
1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Except as the context
otherwise explicitly requires, (a) the capitalized term "Section" refers to
sections of this Agreement, (b) the capitalized term "Exhibit" refers to
exhibits to this Agreement, (c) references to "$" and "Dollars" are to United
States dollars, (d) the word "including" shall be construed as "including
without limitation", (e) accounting terms not otherwise defined herein have the
meaning provided under GAAP, (f) references to a particular statute or
regulation include all rules and regulations thereunder and any successor
statute, regulation or rule thereto, in each case as from time to time in
effect, and (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement and the
other Credit Documents. References to "the date hereof" mean the date first set
forth above.
"AGREEMENT" means this Discretionary Demand Credit Agreement as from
time to time in effect.
"APPLICABLE RATE" means the Base Rate; PROVIDED, HOWEVER, that an
additional 2% per annum shall be added to the Base Rate effective on the day the
Lender notifies the Company that the interest rates hereunder are increasing as
a result of the occurrence and continuance of a Default until such Default is no
longer continuing.
"BANKING DAY" means any day (other than Saturday or Sunday) on which
banks are open to conduct business in Boston, Massachusetts.
"BASE RATE" means, on any date, the greater of (a) the rate of interest
announced by the Lender as its Base Rate or (b) the sum of 2% PLUS the Federal
Funds Rate.
"CLOSING DATE" means the date on which any extension of credit is made
pursuant to Section 2.
"COMPANY" means Nextera Enterprises, Inc., a Delaware corporation.
"CREDIT DOCUMENTS" means:
(1) this Agreement, the Note, the Guarantee and Security
Agreement, the Subordination Agreement, each Letter of Credit, each
draft presented or accepted under a
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Letter of Credit and each application and agreement for a Letter of
Credit on the Lender's customary form, each as from time to time in
effect; and
(2) any other present or future agreement or instrument from
time to time entered into among the Lender, on one hand, and the
Company and any of its Subsidiaries, on the other hand, relating to,
amending or modifying this Agreement or any other Credit Document
referred to above or which is stated to be a Credit Document, each as
from time to time in effect.
"CREDIT OBLIGATIONS" means all present and future liabilities,
obligations and indebtedness of the Company or any of its Subsidiaries owing to
the Lender under or in connection with this Agreement or any other Credit
Document, including obligations in respect of principal, interest, reimbursement
obligations under Letters of Credit provided by the Lender, Letter of Credit
fees, amounts provided for in Section 3.2 and other fees, charges, indemnities
and expenses from time to time owing hereunder or under any other Credit
Document.
"DEFAULT" means any failure by the Company to make any payment in
respect of (a) interest on or in respect of any of the Credit Obligations owed
by the Company to the Lender as the same shall become due and payable or (b)
principal of any of the Credit Obligations owed by the Company to the Lender as
the same shall become due and payable, whether upon demand by the Lender or on
the Final Maturity Date.
"FEDERAL FUNDS RATE" means, for any day, the rate equal to the weighted
average (rounded upward to the nearest x%) of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, (a) as such weighted average is published for such day
(or, if such day is not a Banking Day, for the immediately preceding Banking
Day) by the Federal Reserve Bank of New York or (b) if such rate is not so
published for such Banking Day, quotations received by the Lender from three
federal funds brokers of recognized standing selected by the Lender. Each
determination by the Lender of the Federal Funds Rate shall, in the absence of
manifest error, be conclusive.
"FINAL MATURITY DATE" means January 5, 2000.
"GAAP" means generally accepted accounting principles as from time to
time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board, consistently followed.
"GUARANTEE AND SECURITY AGREEMENT" means the Guarantee and Security
Agreement to be entered into by and among the Lender and the Obligors in
substantially the form of EXHIBIT 5.4.
"INDEMNIFIED PARTY" is defined in Section 8.2.
"LENDER" means BankBoston, N.A.
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"LETTER OF CREDIT" means one or more irrevocable documentary or
standby letters of credit issued by the Lender for the account of the Company or
any of its Subsidiaries, subject to all the terms and conditions of this
Agreement and so long as no Default exists, from time to time on and after the
initial Closing Date and prior to the Final Maturity Date.
"LETTER OF CREDIT EXPOSURE" means, at any date, the sum of (a) the
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, PLUS (b) the
aggregate face amount of all drafts that the Lender has previously accepted
under Letters of Credit but has not paid.
"LOAN" means the aggregate principal amount of the loans outstanding
from time to time under Section 2.1.
"MARGIN STOCK" means "margin stock" within the meaning of Regulations
T, U or X of the Board of Governors of the Federal Reserve System.
"MATERIAL ADVERSE CHANGE" means a material adverse change in the
business, operations, assets, financial condition, income or prospects of the
Company and its Subsidiaries (on a consolidated basis).
"NOTE" means the form of demand note payable to the Lender in
substantially the form of EXHIBIT 2 evidencing the Company's obligations to pay
the Loan.
"OBLIGORS" means the Company and the Subsidiaries of the Company
party hereto from time to time.
"PAYMENT DATE" means the last Banking Day of each month.
"PERSON" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability company,
business trust, trust, organization, business, individual or government or any
governmental agency or political subdivision thereof.
"SUBSIDIARY" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own more than 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold more
than 50% of the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer; PROVIDED, HOWEVER, that the term "Subsidiary"
shall not include Cranberry Hill Capital LLC.
"UNIFORM CUSTOMS AND PRACTICE" means the Uniform Customs and Practice
for Documentary Credits adopted by a Congress of the International Chamber of
Commerce, and any subsequent revisions thereof approved by a Congress of the
International Chamber of Commerce and adhered to by the Lender.
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2. THE CREDITS.
2.1. DISCRETIONARY REVOLVING CREDIT FACILITY.
2.1.1. DISCRETIONARY REVOLVING LOAN. Subject to all the terms
and conditions of this Agreement and AT THE LENDER'S SOLE AND ABSOLUTE
DISCRETION, from time to time on and after the initial Closing Date and
prior to the Final Maturity Date, the Lender may make loans to the
Company in such amounts as may be requested by the Company in
accordance with Section 2.2, or in such lesser amounts as the Lender
may elect in its sole and absolute discretion; PROVIDED, HOWEVER, that
on the initial Closing Date, the Lender will advance sufficient funds
to the Company to (a) fund the acquisition of The Economics Resource
Group, Inc., (b) advance up to $8,000,000 million for the repayment in
full of the Company's or its Subsidiaries' existing lines of credit and
(c) provide the Letters of Credit set forth on EXHIBIT 2.1.1, but in
any event not more than $30,000,000 in the aggregate. The sum of the
aggregate principal amount of loans made under this Section 2.1 at any
one time outstanding shall in no event exceed $30,000,000.
2.1.2. BORROWING REQUESTS. The Company may from time to time
request a loan under Section 2.1 by providing to the Lender a notice
(which may be given by a telephone call received by an authorized
representative of the Lender and promptly confirmed in writing). Such
notice must be received by the Lender no later than noon (Boston time)
on the requested Closing Date. The notice must specify the amount of
the requested revolving loan (which shall be not less than $100,000 and
an integral multiple of $1,000). If the Lender in its sole and absolute
discretion elects to make such loan, each such loan will be made by
depositing the amount thereof to the general account of the Company
with the Lender.
2.1.3. NOTE. The Lender shall keep a record of the Loan. The
Company's obligations to pay the Loan shall be evidenced by the Note.
2.2. LETTERS OF CREDIT.
2.2.1. ISSUANCE OF LETTERS OF CREDIT. Letters of Credit shall
be issued only for such lawful corporate purposes as the Company has
requested in writing and to which the Lender agrees. The sum of the
Letter of Credit Exposure PLUS the aggregate principal amount of loans
made under Section 2.1 at any one time outstanding shall in no event
exceed $30,000,000. Letter of Credit Exposure shall in no event exceed
$5,000,000.
2.2.2. REQUESTS FOR LETTERS OF CREDIT. The Company may from
time to time request a Letter of Credit to be issued by providing the
Lender a notice which is actually received not less than five Banking
Days (for standby Letters of Credit) and one Banking Day (for
documentary Letters of Credit) prior to the requested Closing Date for
such
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Letter of Credit specifying (a) the amount of the requested Letter of
Credit, (b) the beneficiary thereof, (c) the requested Closing Date and
(d) a summary of the principal terms of the text for such Letter of
Credit. Each Letter of Credit will be issued by forwarding it to the
Company or to such other Person as directed in writing by the Company.
In connection with the issuance of any Letter of Credit, the Company
shall furnish to the Lender a certificate in substantially the form of
EXHIBIT 5.1 and any customary application and agreement forms required
by the Lender (the current form of which is attached hereto as EXHIBIT
2.2.2). In the event of any inconsistency between such application and
agreement forms and this Agreement, this Agreement shall govern. Upon
each issuance of a Letter of Credit, the Company shall pay to the
Lender the fees contemplated by Section 3.3.
2.2.3. FORM AND EXPIRATION OF LETTERS OF CREDIT. Each Letter
of Credit issued under this Section 2.2 and each draft accepted or paid
under such a Letter of Credit shall be issued, accepted or paid, as the
case may be, by the Lender at its principal office. No Letter of Credit
shall provide for the payment of drafts drawn thereunder, and no draft
shall be payable, at a date which is later than the Final Maturity
Date. Each Letter of Credit and each draft accepted under a Letter of
Credit shall be in such form and minimum amount, and shall contain such
terms, as the Lender and the Company may agree upon at the time such
Letter of Credit is issued.
2.2.4. REIMBURSEMENT OF PAYMENT. At such time as the Lender
makes any payment on a draft presented or accepted under a Letter of
Credit, the amount of such payment shall be considered a Loan under
Section 2.1 (regardless of whether the conditions set forth in Section
5 are satisfied) as if the Company had paid in full the amount required
with respect to the Letter of Credit by borrowing such amount under
Section 2.1, except as provided below. In the event such amount would
cause the Loan to exceed $30,000,000 or in the event the Lender has
previously provided written notice to the Company that Letter of Credit
payments will no longer be considered a Loan under Section 2.1, the
Company will on demand pay to the Lender in immediately available funds
the amount of such payment.
2.2.5. UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and
Practice shall be binding on the Company and the Lender except to the
extent otherwise provided herein, in any Letter of Credit or in any
other Credit Document. Anything in the Uniform Customs and Practice to
the contrary notwithstanding:
a. Neither the Company nor any beneficiary of any Letter
of Credit shall be deemed an agent of the Lender.
b. With respect to each Letter of Credit, neither the
Lender nor its correspondents shall be responsible for or shall have
any duty to ascertain (unless the Lender or such correspondent is
grossly negligent or willful in failing so to ascertain):
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(1) the genuineness of any signature or the
validity, form, sufficiency, accuracy, genuineness or legal
effect of any endorsements;
(2) delay in giving, or failure to give, notice
of arrival, notice of refusal of documents or of discrepancies
in respect of which the Lender refuses the documents or any
other notice, demand or protest;
(3) the performance by any beneficiary under any
Letter of Credit of such beneficiary's obligations to the
Company;
(4) inaccuracy in any notice received by the
Lender;
(5) the validity, form, sufficiency, accuracy,
genuineness or legal effect of any instrument, draft,
certificate or other document required by such Letter of
Credit to be presented before payment of a draft if such
instrument, draft, certificate or other document appears on
its face to comply with the requirements of the Letter of
Credit, or the office held by or the authority of any Person
signing any of the same; or
(6) failure of any instrument to bear any
reference or adequate reference to such Letter of Credit, or
failure of any Person to note the amount of any instrument on
the reverse of such Letter of Credit or to surrender such
Letter of Credit or to forward documents in the manner
required by such Letter of Credit.
c. Except insofar as a particular Letter of Credit
contains express, contrary instructions, the Lender may honor as
complying with the terms of any Letter of Credit and with this
Agreement any drafts or other documents otherwise in order signed or
issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for benefit of creditors,
liquidator, receiver or other legal representative of the party
authorized under such Letter of Credit to draw or issue such drafts or
other documents.
d. The occurrence of any of the events referred to in
the Uniform Customs and Practice or in the preceding clauses of this
Section 2.2.5 shall not affect or prevent the vesting of any of the
Lender's rights or powers hereunder or the Company's obligation to make
reimbursement of amounts paid under any Letter of Credit or any draft
accepted thereunder.
e. The Company will promptly examine (i) each Letter of
Credit (and any amendments thereof) sent to it by the Lender and (ii)
all instruments and documents delivered to it from time to time by the
Lender. The Company will notify the Lender of any claim of
noncompliance by notice actually received within one Banking Day after
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receipt of any of the foregoing documents, the Company being
conclusively deemed to have waived any such claim against the Lender
and its correspondents unless such notice is given.
f. In the event of any conflict between the provisions
of this Agreement and the Uniform Customs and Practice, the provisions
of this Agreement shall govern.
2.2.6. SUBROGATION. Upon any payment by the Lender under any
Letter of Credit and until the reimbursement of the Lender by the
Company with respect to such payment, the Lender shall be entitled to
be subrogated to, and to acquire and retain, the rights which the
Person to whom such payment is made may have against the Company, all
for the benefit of the Lender. The Company will take such action as the
Lender may reasonably request, including requiring the beneficiary of
any Letter of Credit to execute such documents as the Lender may
reasonably request, to assure and confirm to the Lender such
subrogation and such rights, including the rights, if any, of the
beneficiary to whom such payment is made in accounts receivable,
inventory and other properties and assets of any Obligor.
2.2.7. MODIFICATION, CONSENT, ETC. If the Company requests
or consents in writing to any modification or extension of any Letter
of Credit, or waives any failure of any draft, certificate or other
document to comply with the terms of such Letter of Credit, and if the
Lender consents thereto, the Lender shall be entitled to rely on such
request, consent or waiver. This Agreement shall be binding upon the
Company with respect to such Letter of Credit as so modified or
extended, and with respect to any action taken or omitted by the Lender
pursuant to any such request, consent or waiver.
3. INTEREST; FEES, ETC.
3.1. INTEREST. The Loan shall accrue and bear interest at a rate
per annum which shall at all times equal the Applicable Rate. The Company will
pay the accrued and unpaid interest on the Loan on the earliest of (a) DEMAND BY
THE LENDER, (b) each Payment Date and (c) and on any stated maturity of the
Loan.
3.2. CAPITAL ADEQUACY, ETC. If the Lender shall determine that
compliance by the Lender with any law, statute or regulation which is effective
or adopted after the date hereof regarding capital adequacy of banks or bank
holding companies has or would have the effect of reducing the rate of return on
the capital of the Lender and its affiliates as a consequence of the extensions
of credit contemplated hereby, or the Lender's maintenance of the extensions of
credit contemplated hereby, to a level below that which the Lender could have
achieved but for such compliance (taking into consideration the policies of the
Lender and its affiliates with respect to capital adequacy immediately before
such compliance and assuming that the capital of such Lender and its affiliates
was fully utilized prior to such compliance) by an amount deemed by such Lender
to be material, then such Lender may claim compensation from the Company.
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Within 30 days after the receipt by the Company of a certificate from
the Lender setting forth why it is claiming compensation under this Section 3.2
and computations (in reasonable detail) of the amount thereof, the Company shall
pay to the Lender such additional amounts as such Lender sets forth in such
certificate as sufficient fully to compensate it on account of the foregoing
provisions of this Section 3.2. The determination by the Lender of the amount to
be paid to it and the basis for computation thereof hereunder shall be
conclusive so long as (a) such determination is made in good faith, (b) no
manifest error appears therein, (c) the Lender uses reasonable averaging and
attribution methods and (d) the Lender generally requires such compensation from
other similarly situated borrowers from whom it has the right to require such
compensation.
3.3. LETTER OF CREDIT FEE. The Company shall, on the date of
issuance or any extension or renewal of any Letter of Credit and at such other
time or times as such charges are customarily made by the Lender, pay a fee to
the Lender (a) in respect of each standby Letter of Credit equal to the product
of 1.5% per annum, calculated on the basis of a year of 360 days and the actual
number of days elapsed, for the stated term of such standby Letter of Credit,
MULTIPLIED BY the face amount of such standby Letter of Credit and (b) in
respect of each documentary Letter of Credit, equal to the product of 1.5%
MULTIPLIED BY the face amount of such documentary Letter of Credit. The Company
will also pay to the Lender all customary fees for issuance, negotiation,
amendment or processing of the Letters of Credit.
3.4. COMPUTATIONS OF INTEREST. For purposes of this Agreement,
interest (and any amount expressed as interest) shall be computed on the basis
of a 365/366-day year.
4. PAYMENT.
4.1. PAYMENT UPON DEMAND OR AT MATURITY. The Company will pay to
the Lender an amount equal to the Loan, together with all accrued and unpaid
interest thereon and all other Credit Obligations then outstanding, upon the
earlier of (a) DEMAND BY THE LENDER or (b) the Final Maturity Date.
4.2. VOLUNTARY PREPAYMENTS OF LOAN. The Company may from time to
time prepay all or any portion of the Loan (in a minimum amount of $100,000 and
an integral multiple of $1,000), without penalty or premium.
4.3. REBORROWING. The amounts of the Loan prepaid may be
reborrowed, subject to the Lender's sole and absolute discretion, in accordance
with Section 2, subject to the limitations thereof.
5. CONDITIONS TO EXTENDING CREDIT. The Lender may extend credit hereunder
IN ITS SOLE AND ABSOLUTE DISCRETION, and in addition would expect satisfaction
of the following further conditions, on or before the Closing Date therefor:
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5.1. OFFICER'S CERTIFICATE. The representations and warranties
contained in Section 6 shall be true and correct on and as of the Closing Date
with the same force and effect as though originally made on and as of such date;
no Default shall exist on the Closing Date prior to or immediately after giving
effect to the requested extension of credit; as of the Closing Date, no Material
Adverse Change shall have occurred; and the Company shall have furnished to the
Lender on the Closing Date a certificate to these effects, in substantially the
form of EXHIBIT 5.1.
5.2. NOTE. On the initial Closing Date, the Company shall have
executed the Note and delivered it to the Lender.
5.3. LEGAL OPINION. On the initial Closing Date, the Lender shall
have received from Maron & Sandler, counsel for the Company, and Latham &
Watkins and Perkins, Smith & Cohen LLP, special counsel for the Company, hereby
authorized and directed by the Company, their opinions with respect to the
transactions contemplated by the Credit Documents, which opinions shall be
reasonably satisfactory to the Lender.
5.4. GUARANTEE AND SECURITY AGREEMENT. The Obligors shall have duly
authorized, executed and delivered to the Lender the Guarantee and Security
Agreement.
5.5. PERFECTION OF SECURITY. The Obligors shall have duly
authorized, executed, acknowledged and delivered to the Lender for filing such
security agreements, notices, financing statements and other instruments as the
Lender may have reasonably requested in order to perfect the liens purported or
required pursuant to the Credit Documents to be created in the Credit Security
(as defined in the Guarantee and Security Agreement) and shall have paid all
filing or recording fees or taxes required to be paid in connection therewith,
including any recording, mortgage, documentary, transfer or intangible taxes.
5.6. FEES. On the initial Closing Date, the Company shall have paid
to the Lender (a) a transaction fee of $25,000 and (b) reasonable fees and
expenses of the Lender's counsel for which statements have been provided to the
Company on or prior to the initial Closing Date.
5.7. OTHER OUTSTANDING DEBT. As of the initial Closing Date, the
Company shall also have aggregate credit facility indebtedness (including
capitalized lease obligations) of no more than $15,000,000 PLUS no more than
$29,950,000 of the Company's debentures owing to affiliates of Knowledge
Enterprises, Inc., certain officers of the Company and an employee of the
Company, each of whom shall enter into a subordination agreement with the Lender
on terms satisfactory to the Lender, which debentures are set forth in EXHIBIT
5.7.
5.8. NO MATERIAL LITIGATION. No material adverse litigation and no
material litigation or other proceeding, the result of which could impair or
prevent the consummations of the transactions contemplated hereby, shall have
occurred.
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5.9. NO MATERIAL DEFAULT OF ANY MATERIAL CONTRACT. No material
default of any material contact of the Company or any of its Subsidiaries shall
have occurred.
5.10. REPAYMENT OF OUTSTANDING DEBT. As of the initial Closing Date,
the Company shall have repaid, or contemporaneously upon the receipt of any
initial Loan by the Lender to the Company will repay, any existing outstanding
debt, except as set forth on EXHIBIT 5.10.
5.11. RELEASE OF CERTAIN SECURITY INTERESTS. As of the initial
Closing Date, each of Nextera Funding, Inc. and the holders of the Company's
debentures set forth on EXHIBIT 5.7, shall have released all security interests
or other liens granted by the Company and its Subsidiaries to secure
indebtedness and other obligations owing to such parties, and such security
interests or liens shall be of no further force or effect.
5.12. MINIMUM EBITDA. The sum of (a) pro forma adjusted consolidated
net income of the Company and its Subsidiaries for the four-quarter period ended
March 31, 1999 AND (b) the amount deducted in calculating such pro forma
adjusted consolidated net income in respect of interest expense, income taxes,
depreciation and amortization shall exceed $20,000,000.
5.13. OTHER LENDER CONFIRMATION. The Lender shall have received
confirmation from each of the lenders identified in part A of EXHIBIT 6.5 either
that (i) the execution, delivery and performance of each of the Credit Documents
by the Obligors will not result in a breach of or a default under such lenders'
respective credit facilities extended to one or more of the Obligors or (ii)
that each such credit facility shall be terminated as of the initial Closing
Date.
5.14. PROPER PROCEEDINGS. This Agreement, each other Credit Document
and the transactions contemplated hereby and thereby shall have been authorized
by all necessary corporate proceedings of the Obligors. All necessary consents,
approvals and authorizations of any governmental or administrative agency or any
other Person of any of the transactions contemplated hereby or by any other
Credit Document shall have been obtained and shall be in full force and effect.
5.15. LEGALITY, ETC. The making of the requested extension of credit
shall not (a) subject the Lender to any penalty or special tax or (b) be
prohibited by any law or governmental order or regulation applicable to the
Lender.
5.16. GENERAL. All instruments and legal and corporate proceedings,
in connection with the transactions contemplated by this Agreement and each
other Credit Document, shall be satisfactory in form and substance to the
Lender, and the Lender shall have received copies of all documents, including
records of corporate proceedings, which the Lender may have reasonably requested
in connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities.
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6. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to extend
credit to the Company hereunder, the Company and the other Obligors party
hereto, represent and warrant that:
6.1. ORGANIZATION AND BUSINESS.
6.1.1. THE COMPANY. The Company is a duly organized and
validly existing corporation, in good standing under the laws of the
State of Delaware, with all power and authority necessary to (a) enter
into and perform this Agreement and each other Credit Document to which
it is party and (b) own its properties and carry on the business now
conducted or proposed to be conducted by it. The Company has taken all
corporate action required to execute, deliver and perform this
Agreement and each other Credit Document to which it is party. Copies
of the charter and by-laws of the Company have been previously
delivered to the Lender and are correct and complete.
6.1.2. SUBSIDIARIES. Each Subsidiary of the Company is a
duly organized and validly existing corporation or limited liability
company, in good standing under the laws of the jurisdiction in which
it is organized, with all power and authority necessary to (a) enter
into and perform the Guarantee and Security Agreement and each other
Credit Document to which it is party and (b) own its properties and
carry on the business now conducted or proposed to be conducted by it.
Each Subsidiary has taken all corporate or limited liability company
action required to execute, deliver and perform each Credit Document to
which it is a party.
6.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company has
previously furnished to the Lender copies of (a) the consolidated balance sheets
of the Company as of December 31 in 1998 and 1997, and the related consolidated
statements of operations, of stockholders' equity and of cash flows for the
fiscal years of the Company then ended, accompanied by the review of the
Company's accountants and (b) the consolidated balance sheet of the Company as
of March 31, 1999 and the related statements of operations and of cash flows for
the fiscal quarter and portion of the fiscal year then ended. The financial
statements (including the notes thereto) referred to in the preceding sentence
have been prepared in accordance with GAAP and fairly present in all material
respects the financial condition of the Persons covered thereby at the dates
thereof and the results of their operations for the periods covered thereby,
subject to the case of interim statements only to normal year-end audit
adjustments and the addition of footnotes.
6.3. CHANGES IN CONDITION. No Material Adverse Change has occurred
since December 31, 1998.
6.4. LITIGATION. Except as set forth in EXHIBIT 6.4, no litigation,
at law or in equity, or any proceeding before any federal, state, provincial or
municipal court, board or other governmental or administrative agency or any
arbitrator is pending or to the knowledge of the
-11-
<PAGE> 16
Company threatened which may reasonably involve any material risk of any final
judgment or liability not adequately covered by insurance or which is otherwise
reasonably likely to result in any Material Adverse Change. Other than as
disclosed in the financial statements, no judgment, decree or order of any
federal, state, provincial or municipal court, board or other governmental or
administrative agency or arbitrator has been issued against the Company which
has resulted, or is reasonably likely to result, in any Material Adverse Change.
6.5. NO LEGAL OBSTACLE TO AGREEMENTS. Except as set forth in
EXHIBIT 6.5, neither the execution and delivery of this Agreement or any other
Credit Document, nor the making of any borrowings hereunder, nor the
consummation of any transaction referred to in or contemplated by this Agreement
or any other Credit Document, nor the fulfillment of the terms hereof or thereof
or of any other agreement, instrument, deed or lease referred to in this
Agreement or any other Credit Document, has constituted or resulted in or will
constitute or result in:
(1) any breach or termination of the provisions of any
agreement, instrument, deed or lease which is material to the Company
and its Subsidiaries, taken as a whole, or which would have a material
adverse effect on the rights of the Lender hereunder, to which the
Company or any of its Subsidiaries is a party or by which it is bound,
or of the charter or by-laws of the Company or any of its Subsidiaries;
(2) the violation of any law, statute, judgment, decree
or governmental order, rule or regulation applicable to the Company or
any of its Subsidiaries;
(3) the creation under any agreement, instrument, deed or
lease of any lien (other than liens securing the Credit Obligations)
upon any of the assets of the Company or any of its Subsidiaries; or
(4) any redemption, retirement or other repurchase
obligation of the Company under any charter, by-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any of its Subsidiaries in connection with
the execution, delivery and performance of this Agreement or any other Credit
Document, the transactions contemplated hereby or thereby or the making of any
borrowing by the Company hereunder.
6.6. TAXES. The Company has filed (or obtained extensions to file)
required tax returns and paid taxes due except such taxes as are being contested
in good faith and as to which adequate reserves have been set aside in
conformity with GAAP.
7. CERTAIN ACTIONS FOLLOWING A DEFAULT. If a Default shall occur and be
continuing, then in each and every such case:
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<PAGE> 17
7.1. EXERCISE OF RIGHTS. The Lender shall proceed to protect and
enforce its rights by suit in equity, action at law and/or other appropriate
proceeding, either for specific performance of any covenant or condition
contained in this Agreement or any other Credit Document.
7.2. SETOFF. The Lender may offset and apply toward the payment of
such balance or part thereof (and/or toward the curing of any Default) any
indebtedness from the Lender to the Company or any other Obligor, including any
indebtedness represented by deposits in any account maintained with the Lender,
regardless of the adequacy of any security for the Credit Obligations, and the
Lender shall have no duty to determine the adequacy of any such security in
connection with any such offset.
7.3. CUMULATIVE REMEDIES. To the extent not prohibited by
applicable law which cannot be waived, all of the Lender's rights hereunder and
under each other Credit Document shall be cumulative.
8. EXPENSE; INDEMNITY.
8.1. EXPENSES. The Company will pay: (a) all reasonable expenses of
the Lender (including the reasonable fees and disbursements of the special
counsel to the Lender) in connection with the preparation of this Agreement, the
transactions contemplated hereby and operations hereunder; (b) all transfer and
documentary stamp and similar taxes at any time payable in respect of this
Agreement or the Loan; and (c) all other reasonable expenses incurred by the
Lender in connection with the enforcement of any rights hereunder or under any
other Credit Document upon the occurrence and during the continuance of a
Default, including costs of collection and reasonable attorneys' fees and
expenses.
8.2. GENERAL INDEMNITY. The Company shall indemnify the Lender and
each of the Lender's directors, officers, employees, agents, attorneys,
accountants, consultants and each Person, if any, who controls the Lender (each
Lender and each of such directors, officers, employees, agents, attorneys,
accountants, consultants and control Persons is referred to as an "INDEMNIFIED
PARTY") and hold each of them harmless from and against any and all claims,
damages, liabilities and reasonable expenses (including reasonable fees and
disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with (a) the Indemnified Party's compliance
with or contest of any subpoena or other process issued against it in any
proceeding involving the Company or any of its Subsidiaries or their affiliates,
(b) any litigation or investigation involving the Company, any of its
Subsidiaries or their affiliates, or any officer, director or employee thereof,
(c) the existence or exercise of any security rights with respect to the
collateral under the Credit Documents or (d) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby; PROVIDED, HOWEVER,
that the foregoing indemnity shall not apply to litigation commenced by the
Company against the Lender which seeks enforcement of any of the rights of the
Company hereunder or under any other Credit Document
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<PAGE> 18
and is determined adversely to the Lender in a final nonappealable judgment or
to the extent such claims, damages, liabilities and expenses result from the
Indemnified Party's own gross negligence or willful misconduct.
9. SUCCESSORS AND ASSIGNS; AGENT. Any reference in this Agreement to any
of the parties hereto shall be deemed to include the successors and assigns of
such party, and all covenants and agreements by or on behalf of the Company or
the Lender that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and assigns; PROVIDED, HOWEVER, that the
Company may not assign its rights or obligations under this Agreement under any
circumstances and the Lender may assign its rights or obligations under this
Agreement only as follows: The Lender may from time to time grant participations
in the Loan and Note, or assign all or part of the Loan and Note, upon such
terms as the Lender may determine, to affiliates of the Lender or, with the
consent of the Company which shall not be unreasonably withheld, to other banks
or financial institutions. The Lender shall act as collateral agent for itself
and any other lenders who may from time to time become party hereto.
10. NOTICES. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy (confirmed by
telephone or writing) or similar teletransmission) addressed as provided below
(or to the addressee at such other address as the addressee shall have specified
by notice actually received by the addressor), and if either (a) actually
delivered in fully legible form to such address (evidenced in the case of a
telex by receipt of the correct answer back) or (b) in the case of a letter,
five days shall have elapsed after the same shall have been deposited in the
United States mails, with first-class postage prepaid and registered or
certified.
If to the Company, to it at the following address:
Nextera Enterprises, Inc.
One Cranberry Hill
Lexington, Massachusetts 02421
Attention: Chief Financial Officer
If to the Lender, to it at the following address:
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Sharon A. Stone, Information Technology Division
11. COURSE OF DEALING, AMENDMENTS AND WAIVERS. No course of dealing between
the Lender and the Company or any affiliate of the Company shall operate as a
waiver of any of the Lender's
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<PAGE> 19
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. No delay or omission on the part of the Lender in exercising
any right under this Agreement or any other Credit Document or with respect to
the Credit Obligations shall operate as a waiver of such right or any other
right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver, consent or amendment with respect to this Agreement or any other
Credit Document shall be binding unless it is in writing and signed by the
Lender.
12. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, EACH OF THE OBLIGORS AND THE LENDER WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE
DEALINGS OF THE LENDER OR THE OBLIGORS IN CONNECTION WITH ANY OF THE ABOVE, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT,
TORT OR OTHERWISE. Either the Lender or the Obligors may file an original
counterpart or a copy of this Agreement with any court as written evidence of
the consent of the Obligors and the Lender to the waiver of their rights to
trial by jury.
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<PAGE> 20
13. VENUE; SERVICE OF PROCESS; CERTAIN WAIVERS. Each of the Obligors and
the Lender:
(1) Irrevocably submits to the nonexclusive jurisdiction
of the state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof;
(2) Waives to the extent not prohibited by applicable law
that cannot be waived, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court;
(3) Consents to service of process in any such proceeding
in any manner at the time permitted by Chapter 223A of the General Laws
of The Commonwealth of Massachusetts and agrees that service of process
by registered or certified mail, return receipt requested, at its
address specified in or pursuant to Section 10 is reasonably calculated
to give actual notice; and
(4) Waives to the extent not prohibited by applicable law
that cannot be waived any right it may have to claim or recover in any
such proceeding any special, exemplary, punitive or consequential
damages.
14. GENERAL. All covenants, agreements, representations and warranties made
in this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been material and relied on
by the Lender, notwithstanding any investigation made by the Lender, and shall
survive the execution and delivery to the Lender hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof, and any invalid or
unenforceable provision shall be modified so as to be enforced to the maximum
extent of its validity or enforceability. The headings in this Agreement are for
convenience of reference only and shall not limit, alter or otherwise affect the
meaning hereof. This Agreement and the other Credit Documents constitute the
entire understanding of the parties with respect to the subject matter hereof
and thereof and supersede all prior and current understandings and agreements,
whether written or oral. This Agreement may be executed in any number of
counterparts which together shall constitute one instrument. This Agreement
shall be governed by and construed in accordance with the laws (other than the
conflict of laws rules) of The Commonwealth of Massachusetts.
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<PAGE> 21
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
NEXTERA ENTERPRISES, INC.
By:
----------------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
----------------------------------------
Name:
Title:
CRITIAS, INC.
ERG ACQUISITION CORP.
LEXECON INC.
NEONEXT LLC
NEXTERA BUSINESS PERFORMANCE SOLUTIONS
GROUP, INC.
THE PLANNING TECHNOLOGIES GROUP, L.L.C.
PYRAMID IMAGING, INC.
SCANADA, INC.
SIBSON & COMPANY, LLC
SIBSON INTERNATIONAL, LLC
TIMAEUS, INC.
By:
----------------------------------------
As an authorized officer of each of the
foregoing corporations or limited
liability companies
-17-
<PAGE> 1
Exhibit 10.2
NEXTERA ENTERPRISES, INC.
DEMAND NOTE
$30,000,000 June 25, 1999
FOR VALUE RECEIVED, the undersigned NEXTERA ENTERPRISES, INC., a
Delaware corporation (the "COMPANY"), promises to pay to BankBoston, N.A. (the
"LENDER"), or order, on the earlier of (a) written DEMAND or (b) January 5,
2000, the principal sum of $30,000,000 or such lesser amount as may be from time
to time outstanding, together with interest from the date hereof, computed on
the basis of a 365/366-day year, on the principal amount hereof from time to
time unpaid (the "LOAN") at a per annum rate which shall at all times equal the
Base Rate, and interest on overdue principal hereof and, to the extent not
prohibited by applicable law, on overdue installments of interest at a per annum
rate equal to the Base Rate PLUS 2% per annum. This Note may be prepaid in whole
or in part at any time or from time to time, without premium or penalty.
1 DISCRETIONARY DEMAND CREDIT AGREEMENT. This Note is issued pursuant to
a Discretionary Demand Credit Agreement dated as of June 25, 1999 between the
Company and the Lender (the "CREDIT AGREEMENT"). Capitalized terms not otherwise
defined herein are used as defined in the Credit Agreement. Pursuant to a
Guarantee and Security Agreement dated as of June 25, 1999 among the Company,
certain of the Company's Subsidiaries and the Lender, the obligations of the
Company under this Note and the Credit Agreement are (a) guaranteed by all the
Company's domestic Subsidiaries (other than Cranberry Hill Capital LLC) and (b)
secured by substantially all the assets of the Company and such domestic
Subsidiaries.
2 LOANS AND REPAYMENTS. All loans made by the Lender pursuant to the
Credit Agreement and all repayments of the principal thereof shall be recorded
by the Lender and, prior to any transfer hereof, appropriate notations to
evidence the foregoing information with respect to each such Loan then
outstanding shall be endorsed by the Lender on the schedule attached hereto or
on a continuation of such schedule attached to and made a part hereof; PROVIDED,
HOWEVER, that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company under this Note,
such Credit Agreement or any other Credit Document.
3 WAIVERS. The Company waives to the extent not prohibited by applicable
law (a) all presentments, demands for performance, notices of nonperformance
(except to the extent required by the provisions hereof), protests, notices of
protest and notices of dishonor, (b) any requirement of diligence or promptness
on the part of the Lender in the enforcement of its rights under this Note, (c)
any and all notices of every kind and description which may be required to be
given by any statute or rule of law and (d) any valuation, stay, appraisement or
redemption laws.
<PAGE> 2
4 PAYMENTS; NOTICES. All payments to the holder hereof shall be made at
the address set forth below or at such other address as the holder hereof shall
specify in writing to the Company. Any notice, demand or other communication in
connection with this Note shall be deemed to be delivered if in writing
addressed as provided in Section 10 of the Credit Agreement.
5 ASSIGNABILITY; GOVERNING LAW. This Note shall bind and inure to the
benefit of the Company and the Lender and their respective successors and
assigns, including as such successors and assigns of the Lender any holder of
this Note, provided that the obligations of the Company hereunder may not be
assigned except with the prior written consent of the holder hereof. This Note
shall be governed by and construed in accordance with the laws (other than the
conflict of laws rules) of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned Company has caused this Note to be
executed as an agreement under seal by its duly authorized officer as of the
date first above written.
NEXTERA ENTERPRISES, INC.
By:
--------------------------------------
Name:
Title:
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<PAGE> 3
LOAN AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount Amount of Unpaid
of Principal Principal Notation
Date Loan Repaid Balance Made By
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-3-
<PAGE> 1
Exhibit 10.3
Execution Version
-----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEXTERA ENTERPRISES, INC.
GUARANTEE AND SECURITY AGREEMENT
Dated as of June 25, 1999
with
BANKBOSTON, N.A.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Reference to Credit Agreement; Definitions; Certain Rules of Construction................1
2. Guarantee................................................................................2
2.1. Guarantee of Credit Obligations..............................................2
2.2. Continuing Obligation........................................................3
2.3. Waivers with Respect to Credit Obligations...................................3
2.4. Lender's Power to Waive, etc.................................................5
2.5. Information Regarding the Company, etc.......................................5
2.6. Certain Guarantor Representations............................................6
2.7. Subrogation..................................................................6
2.8. Subordination................................................................7
2.9. Future Subsidiaries; Further Assurances......................................7
2.10. Contribution Among Guarantors...............................................7
3. Security.................................................................................8
3.1. Credit Security..............................................................8
3.1.1. Tangible Personal Property.......................................8
3.1.2. Rights to Payment of Money.......................................8
3.1.3. Intangibles......................................................8
3.1.4. Pledged Stock....................................................9
3.1.5. Pledged Rights...................................................9
3.1.6. Pledged Indebtedness.............................................9
3.1.7. Chattel Paper, Instruments, etc..................................9
3.1.8. Leases...........................................................9
3.1.9. Deposit Accounts.................................................9
3.1.10. Collateral......................................................9
3.1.11. Books and Records...............................................9
3.1.12. Insurance......................................................10
3.1.13. All Other Property.............................................10
3.1.14. Proceeds and Products..........................................10
3.1.15. Excluded Property..............................................10
3.2. Additional Credit Security..................................................11
3.2.1. Real Property...................................................11
3.2.2. Motor Vehicles and Aircraft.....................................11
3.3. Certain Covenants with Respect to Credit Security...........................11
3.3.1. Pledged Stock...................................................11
3.3.2. Accounts and Pledged Indebtedness...............................11
3.3.3. No Liens or Restrictions on Transfer or Change of Control.......12
3.3.4. Location of Credit Security; Subsidiaries.......................12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
3.3.5. Trade Names.....................................................12
3.3.6. Insurance.......................................................13
3.3.7. Intellectual Property...........................................13
3.3.8. Deposit Accounts................................................14
3.3.9. Modifications to Credit Security................................14
3.3.10. Delivery of Documents..........................................14
3.3.11. Perfection of Credit Security..................................14
3.4. Administration of Credit Security...........................................14
3.4.1. Use of Credit Security..........................................15
3.4.2. Accounts........................................................15
3.4.3. Distributions on Pledged Securities.............................15
3.4.4. Voting Pledged Securities.......................................15
3.5. Right to Realize upon Credit Security.......................................16
3.5.1. Assembly of Credit Security; Receiver...........................16
3.5.2. General Authority...............................................16
3.5.3. Marshaling, etc.................................................17
3.5.4. Sales of Credit Security........................................17
3.5.5. Sale without Registration.......................................18
3.5.6. Application of Proceeds.........................................19
3.6. Custody of Credit Security..................................................19
4. General...........................................................................19
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
3.1.15(5) - Excluded Property
3.3.4. - List of Obligors' Chief Executive Offices and Principal Places
of Business
3.3.5. - List of Obligor Trade Names
3.3.7. - List of Intellectual Property
3.3.8. - Deposit Accounts
-iii-
<PAGE> 5
NEXTERA ENTERPRISES, INC.
GUARANTEE AND SECURITY AGREEMENT
This Agreement, dated as of June 25, 1999, is among Nextera
Enterprises, Inc., a Delaware corporation (the "COMPANY"), the Subsidiaries of
the Company from time to time party hereto and BankBoston, N.A., as Lender under
the Credit Agreement (as defined below). The parties agree as follows:
1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS; CERTAIN RULES OF
CONSTRUCTION. Reference is made to the Credit Agreement dated as of the date
hereof, as from time to time in effect (the "CREDIT AGREEMENT"), among the
Company, the Subsidiaries of the Company from time to time party thereto and the
Lender. Capitalized terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined. Certain other
capitalized terms are used in this Agreement as specifically defined below in
this Section 1. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section shall include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) terms
defined in the UCC and not otherwise defined herein have the meaning provided
under the UCC, (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect, and (g) references to a particular
Person include such Person's successors and assigns to the extent not prohibited
by this Agreement and the other Credit Documents. References to "the date
hereof" mean the date first set forth above.
"ACCOUNTS" is defined in Section 3.1.2.
"AGREEMENT" means this Guarantee and Security Agreement as from time to
time in effect.
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"CODE" means the federal Internal Revenue Code of 1986.
"CREDIT SECURITY" means all assets now or from time to time hereafter
subjected to a security interest, mortgage or charge (or intended or required so
to be subjected pursuant to this Agreement or any other Credit Document) to
secure the payment or performance of any of the Credit Obligations on a pari
passu basis, including the assets described in Section 3.1.
"DOMESTIC SUBSIDIARY" means any Subsidiary that is not a Foreign
Subsidiary.
"FINANCING DEBT" means (a) borrowed money, (b) indebtedness evidenced
by notes, debentures or similar instruments, (c) capitalized lease obligations,
(d) the deferred purchase
<PAGE> 6
price of assets, services or securities, including related noncompetition,
consulting and stock purchase obligations (other than ordinary trade accounts
payable within six months after the incurrence thereof in the ordinary course of
business), (e) mandatory redemption or dividend rights on capital stock (or
other equity, (f) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers acceptances, surety bonds, other financial
guarantees and interest rate protection agreements (without duplication of other
indebtedness supported or guaranteed thereby) and, without duplication (g) any
guarantees of such items.
"FOREIGN SUBSIDIARY" means each Subsidiary that is organized under the
laws of, and conducting its business primarily in a jurisdiction outside of, the
United States of America and that is not domesticated or dually incorporated
under the laws of the United States of America or the states thereof.
"GUARANTOR" means the Subsidiaries of the Company party hereto from
time to time.
"INTELLECTUAL PROPERTY" is defined in Section 3.3.7.
"OBLIGORS" means the Company and the Subsidiaries of the Company party
hereto from time to time.
"PLEDGED INDEBTEDNESS" is defined in Section 3.1.6.
"PLEDGED RIGHTS" is defined in Section 3.1.5.
"PLEDGED SECURITIES" means the Pledged Stock, the Pledged Rights and
the Pledged Indebtedness, collectively.
"PLEDGED STOCK" is defined in Section 3.1.4.
"UCC" means the Uniform Commercial Code as in effect in Massachusetts
on the date hereof; PROVIDED, HOWEVER, that with respect to the perfection of
the Lender's lien on the Credit Security and the effect of nonperfection
thereof, the term "UCC" means the Uniform Commercial Code as in effect in any
jurisdiction the laws of which are made applicable by section 9-103 of the
Uniform Commercial Code as in effect in Massachusetts.
2. GUARANTEE.
2.1. GUARANTEE OF CREDIT OBLIGATIONS. Each Guarantor
unconditionally guarantees that the Credit Obligations will be performed and
paid in full in cash when due and payable, whether upon demand of the Lender or
on the Final Maturity Date thereof, this guarantee being a guarantee of payment
and not of collectability and being absolute and in no way conditional or
-2-
<PAGE> 7
contingent. In the event any part of the Credit Obligations shall not have been
so paid in full when due and payable, each Guarantor will, immediately upon
notice by the Lender or, without notice, immediately upon the occurrence of a
Default, pay or cause to be paid to the Lender the amount of such Credit
Obligations which are then due and payable and unpaid. The obligations of each
Guarantor hereunder shall not be affected by the invalidity, unenforceability or
irrecoverability of any of the Credit Obligations as against the Company, any
other Obligor, any other guarantor thereof or any other Person. For purposes
hereof, the Credit Obligations shall be due and payable when and as the same
shall be due and payable under the terms of the Credit Agreement or any other
Credit Document, notwithstanding the fact that the collection or enforcement
thereof may be stayed or enjoined under the Bankruptcy Code or other applicable
law.
2.2. CONTINUING OBLIGATION. Each Guarantor acknowledges that the
Lender has entered into the Credit Agreement (and, to the extent that the Lender
may enter into any future Credit Document, will have entered into such
agreement) in reliance on this Section 2 being a continuing irrevocable
agreement, and such Guarantor agrees that its guarantee may not be revoked in
whole or in part. The obligations of the Guarantors hereunder shall terminate
upon the Final Maturity Date, PROVIDED that all of the Credit Obligations have
been indefeasibly paid in full in cash and discharged; PROVIDED, FURTHER, that:
(1) if a claim is made upon the Lender at any time for repayment
or recovery of any amounts or any property received by the Lender from any
source on account of any of the Credit Obligations and the Lender repays or
returns any amounts or property so received (including interest thereon to the
extent required to be paid by the Lender) or
(2) if the Lender becomes liable for any part of such claim by
reason of (i) any judgment or order of any court or administrative authority
having competent jurisdiction or (ii) any settlement or compromise of any such
claim,
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or property so returned or the amounts for which the Lender becomes
liable (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts or property had never been received by the Lender,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Not later than five days
after receipt of notice from the Lender, the Guarantors shall pay to the Lender
an amount equal to the amount of such repayment or return for which the Lender
has become liable. Payments hereunder by a Guarantor may be required by the
Lender on any number of occasions.
2.3. WAIVERS WITH RESPECT TO CREDIT OBLIGATIONS. Except to the
extent expressly required by the Credit Agreement or any other Credit Document,
each Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):
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(1) presentment, demand for payment and protest of nonpayment of
any of the Credit Obligations, and notice of protest, dishonor or
nonperformance;
(2) notice of acceptance of this guarantee and notice that credit
has been extended, at the Lender's sole and absolute discretion, in reliance on
such Guarantor's guarantee of the Credit Obligations;
(3) notice of any Default or of any inability to enforce
performance of the obligations of the Company or any other Person with respect
to any Credit Document or notice of any demand for payment of any Credit
Obligations;
(4) demand for performance or observance of, and any enforcement
of any provision of the Credit Agreement, the Credit Obligations or any other
Credit Document or any pursuit or exhaustion of rights or remedies with respect
to any Credit Security or against the Company or any other Person in respect of
the Credit Obligations or any requirement of diligence or promptness on the part
of the Lender in connection with any of the foregoing;
(5) any act or omission on the part of the Lender which may impair
or prejudice the rights of such Guarantor, including rights to obtain
subrogation, exoneration, contribution, indemnification or any other
reimbursement from the Company or any other Person, or otherwise operate as a
deemed release or discharge;
(6) failure or delay to perfect or continue the perfection of any
security interest in any Credit Security or any other action which harms or
impairs the value of, or any failure to preserve or protect the value of, any
Credit Security;
(7) any statute of limitations or any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than the obligation of the principal;
(8) any "single action" or "anti-deficiency" law which would
otherwise prevent the Lender from bringing any action, including any claim for a
deficiency, against such Guarantor before or after the Lender's commencement or
completion of any foreclosure action, whether judicially, by exercise of power
of sale or otherwise, or any other law which would otherwise require any
election of remedies by the Lender; and
(9) all demands and notices of every kind with respect to the
foregoing.
Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 2.3.
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<PAGE> 9
No delay or omission on the part of the Lender in exercising any right
under any Credit Document or under any other guarantee of the Credit Obligations
or with respect to the Credit Security shall operate as a waiver or
relinquishment of such right. No action which the Lender or the Company or any
other Obligor may take or refrain from taking with respect to the Credit
Obligations shall affect the provisions of this Agreement or the obligations of
each Guarantor hereunder. The Lender's rights shall not at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or any other Obligor, or by any noncompliance by the Company or any
other Obligor with any Credit Document, regardless of any knowledge thereof
which the Lender may have or otherwise be charged with.
2.4. LENDER'S POWER TO WAIVE, ETC. Each Guarantor grants to the
Lender full power in their discretion, without notice to or consent of such
Guarantor, such notice and consent being expressly waived to the fullest extent
permitted by applicable law, and without in any way affecting the liability of
such Guarantor under its guarantee hereunder:
(1) To waive compliance with, and any Default under, and to
consent to any amendment to or modification or termination of any provision of,
or to give any waiver in respect of, the Credit Agreement, any other Credit
Document, the Credit Security, the Credit Obligations or any guarantee thereof
(each as from time to time in effect);
(2) To grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to effect any
total or partial release (by operation of law or otherwise), discharge,
compromise or settlement with respect to the obligations of the Obligors or any
other Person in respect of the Credit Obligations, whether or not rights against
such Guarantor under this Agreement are reserved in connection therewith;
(3) To take security in any form for the Credit Obligations, and
to consent to the addition to or the substitution, exchange, release or other
disposition of, or to deal in any other manner with, any part of any property
contained in the Credit Security whether or not the property, if any, received
upon the exercise of such power shall be of a character or value the same as or
different from the character or value of any property disposed of, and to
obtain, modify or release any present or future guarantees of the Credit
Obligations and to proceed against any of the Credit Security or such guarantees
in any order;
(4) To collect or liquidate or realize upon any of the Credit
Obligations or the Credit Security in any manner or to refrain from collecting
or liquidating or realizing upon any of the Credit Obligations or the Credit
Security; and
(5) To extend credit under the Credit Agreement, any other Credit
Document or otherwise in such amount as the Lender may determine, in its sole
and absolute discretion, including increasing the amount of credit and the
interest rate and fees with respect thereto, even though the condition of the
Obligors (financial or otherwise, on an individual or consolidated basis) may
have deteriorated since the date hereof.
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2.5. INFORMATION REGARDING THE COMPANY, ETC. Each Guarantor has
made such investigation as it deems desirable of the risks undertaken by it in
entering into this Agreement and is fully satisfied that it understands all such
risks. Each Guarantor waives any obligation which may now or hereafter exist on
the part of the Lender to inform it of the risks being undertaken by entering
into this Agreement or of any changes in such risks and, from and after the date
hereof, each Guarantor undertakes to keep itself informed of such risks and any
changes therein. Each Guarantor expressly waives any duty which may now or
hereafter exist on the part of the Lender to disclose to such Guarantor any
matter related to the business, operations, character, collateral, credit,
condition (financial or otherwise), income or prospects of the Company and its
affiliates or their properties or management, whether now or hereafter known by
the Lender. Each Guarantor represents, warrants and agrees that it assumes sole
responsibility for obtaining from the Company all information concerning the
Credit Agreement and all other Credit Documents and all other information as to
the Company and its affiliates or their properties or management as such
Guarantor deems necessary or desirable.
2.6. CERTAIN GUARANTOR REPRESENTATIONS. Each Guarantor represents
that:
(1) it is in its best interest and in pursuit of the purposes for
which it was organized as an integral part of the business conducted and
proposed to be conducted by the Company and its Subsidiaries, and reasonably
necessary and convenient in connection with the conduct of the business
conducted and proposed to be conducted by them, to induce the Lender to enter
into the Credit Agreement and to extend credit to the Company by making the
guarantee contemplated by this Section 2;
(2) the credit available under the Credit Agreement will directly
or indirectly inure to its benefit;
(3) by virtue of the foregoing it is receiving at least reasonably
equivalent value from the Lender for its guarantee;
(4) it will not be rendered insolvent as a result of entering into
this Agreement;
(5) after giving effect to the transactions contemplated by this
Agreement, it will have assets having a fair saleable value in excess of the
amount required to pay its probable liability on its existing debts as such
debts become absolute and matured;
(6) it has, and will have, access to adequate capital for the
conduct of its business;
(7) it has the ability to pay its debts from time to time incurred
in connection therewith as such debts mature;
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<PAGE> 11
(8) it has been advised by the Lender that the Lender is unwilling
to enter into the Credit Agreement unless the guarantee contemplated by this
Section 2 is given by it; and
(9) all of its equity or ownership interests are owned, directly
or indirectly, by the Company.
2.7. SUBROGATION. Each Guarantor agrees that, until the Credit
Obligations are paid in full, it will not exercise any right of reimbursement,
subrogation, contribution, offset or other claims against the Company or any
other Obligor arising by contract or operation of law in connection with any
payment made or required to be made by such Guarantor under this Agreement.
After the payment in full of the Credit Obligations, each Guarantor shall be
entitled to exercise against the Company and the other Obligors all such rights
of reimbursement, subrogation, contribution and offset, and all such other
claims, to the fullest extent permitted by law.
2.8. SUBORDINATION. Each Guarantor covenants and agrees that, after
the occurrence and during the continuance of a Default, all Indebtedness, claims
and liabilities then or thereafter owing by the Company or any other Obligor to
such Guarantor whether arising hereunder or otherwise are subordinated to the
prior payment in full of the Credit Obligations and are so subordinated as a
claim against such Obligor or any of its assets, whether such claim be in the
ordinary course of business or in the event of voluntary or involuntary
liquidation, dissolution, insolvency or bankruptcy, so that no payment with
respect to any such Indebtedness, claim or liability will be made or received
while a Default exists.
2.9. FUTURE SUBSIDIARIES; FURTHER ASSURANCES. The Company will from
time to time cause any future Domestic Subsidiary within 30 days after any such
Person becomes a Domestic Subsidiary, to join this Agreement as a Guarantor
pursuant to a joinder agreement in form and substance satisfactory to the
Lender; PROVIDED, HOWEVER, that in the event such a Domestic Subsidiary is
prohibited by any valid law, statute, rule or regulation from guaranteeing the
Credit Obligations, (a) such guarantee will be limited to the extent necessary
to comply with such prohibition or (b) if such limitation on the guaranteed
amount is not sufficient to avoid such prohibition, the Obligors will pledge the
stock of such Domestic Subsidiary to the Lender to secure the Credit Obligations
pursuant to a pledge agreement in form and substance satisfactory to the Lender.
Each Guarantor will, promptly upon the request of the Lender from time to time,
execute, acknowledge and deliver, and file and record, all such instruments, and
take all such action, as the Lender deems necessary or advisable to carry out
the intent and purpose of this Section 2.
2.10. CONTRIBUTION AMONG GUARANTORS. The Guarantors agree that, as
among themselves in their capacity as guarantors of the Credit Obligations, the
ultimate responsibility for repayment of the Credit Obligations, in the event
that the Company fails to pay when due its Credit Obligations, shall be
equitably apportioned, to the extent consistent with the Credit Documents, among
the respective Guarantors (a) in the proportion that each, in its capacity as a
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<PAGE> 12
guarantor, has benefited from the discretionary extensions of credit to the
Company by the Lender under the Credit Agreement or (b) if such equitable
apportionment cannot reasonably be determined or agreed upon among the affected
Guarantors, in proportion to their respective net worths determined on or about
the date hereof (or such later date as such Guarantor becomes party hereto). In
the event that any Guarantor, in its capacity as a guarantor, pays an amount
with respect to the Credit Obligations in excess of its proportionate share as
set forth in this Section 2.10, each other Guarantor shall, to the extent
consistent with the Credit Documents, make a contribution payment to such
Guarantor in an amount such that the aggregate amount paid by each Guarantor
reflects its proportionate share of the Credit Obligations. In the event of any
default by any Guarantor under this Section 2.10, each other Guarantor will
bear, to the extent consistent with the Credit Documents, its proportionate
share of the defaulting Guarantor=s obligation under this Section 2.10. This
Section 2.10 is intended to set forth only the rights and obligations of the
Guarantors among themselves and shall not in any way affect the obligations of
any Guarantor to the Lender under the Credit Documents (which obligations shall
at all times constitute the joint and several obligations of all the
Guarantors).
3. SECURITY.
3.1. CREDIT SECURITY. As security for the payment and performance
of the Credit Obligations, each Obligor party hereto mortgages, pledges and
collaterally grants and assigns to the Lender and the holders from time to time
of any Credit Obligation, and creates a security interest in favor of the Lender
and such holders in, all of such Obligor's right, title and interest in and to
(but none of its obligations or liabilities with respect to) the items and types
of present and future property described in Sections 3.1.1 through 3.1.14
(subject, however, to Section 3.1.15), whether now owned or hereafter acquired,
all of which shall be included in the term "CREDIT SECURITY":
3.1.1. TANGIBLE PERSONAL PROPERTY. All goods, machinery,
equipment, inventory and all other tangible personal property of any
nature whatsoever, wherever located, including raw materials, work in
process, finished parts and products, supplies, spare parts,
replacement parts, merchandise for resale, computers, tapes, disks and
computer equipment.
3.1.2. RIGHTS TO PAYMENT OF MONEY. All rights to receive the
payment of money, including accounts and receivables, rights to receive
the payment of money under contracts, franchises, licenses, permits,
subscriptions or other agreements (whether or not earned by
performance), and rights to receive payments from any other source (all
such rights, other than Financing Debt, being referred to herein as
"ACCOUNTS").
3.1.3. INTANGIBLES. All of the following (to the extent not
included in Section 3.1.2): (a) contracts, franchises, licenses,
permits, subscriptions and other agreements and all rights thereunder;
(b) rights granted by others which permit such Obligor to sell or
market items of personal property; (c) United States and foreign
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common law and statutory copyrights and rights in literary property and
rights and licenses thereunder; (d) trade names, United States and
foreign trademarks, service marks, internet domain names, registrations
of any of the foregoing and related good will; (e) United States and
foreign patents and patent applications; (f) computer software,
designs, models, know-how, trade secrets, rights in proprietary
information, formulas, customer lists, backlog, orders, subscriptions,
royalties, catalogues, sales material, documents, good will, inventions
and processes; (g) judgments, causes in action and claims, whether or
not inchoate, and (h) all other general intangibles and intangible
property and all rights thereunder.
3.1.4. PLEDGED STOCK. (a) All shares of capital stock or
other evidence of beneficial interest in any corporation, business
trust or limited liability company, (b) all limited partnership
interests in any limited partnership, (c) all general partnership
interests in any general or limited partnership, (d) all joint venture
interests in any joint venture and (e) all options, warrants and
similar rights to acquire such capital stock or such interests. All
such capital stock, interests, options, warrants and other rights are
collectively referred to as the "PLEDGED STOCK".
3.1.5. PLEDGED RIGHTS. All rights to receive profits or
surplus of, or other distributions (including income, return of capital
and liquidating distributions) from, any partnership, joint venture or
limited liability company, including any distributions by any such
Person to partners, joint venturers or members. All such rights are
collectively referred to as the "PLEDGED RIGHTS".
3.1.6. PLEDGED INDEBTEDNESS. All Financing Debt from time to
time owing to such Obligor from any Person (all such Financing Debt
being referred to as the "PLEDGED INDEBTEDNESS").
3.1.7. CHATTEL PAPER, INSTRUMENTS, ETC. All chattel paper,
non-negotiable instruments, negotiable instruments, documents and
investment property.
3.1.8. LEASES. All leases of personal property, whether such
Obligor is the lessor or the lessee thereunder.
3.1.9. DEPOSIT ACCOUNTS. All general or special deposit
accounts, including any demand, time, savings, passbook or similar
account maintained by such Obligor with any bank, trust company,
savings and loan association, credit union or similar organization, and
all money, cash and cash equivalents of such Obligor, whether or not
deposited in any such deposit account.
3.1.10. COLLATERAL. All collateral granted by third parties
to, or held by, such Obligor with respect to the Accounts, Pledged
Securities, chattel paper, instruments, leases and other items of
Credit Security.
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3.1.11. BOOKS AND RECORDS. All books and records, including
books of account and ledgers of every kind and nature, all
electronically recorded data (including all computer programs, disks,
tapes, electronic data processing media and software used in connection
with maintaining such Obligor's books and records), all files,
correspondence and all containers for the foregoing.
3.1.12. INSURANCE. All insurance policies which insure
against any loss or damage to any other Credit Security or which are
otherwise owned by such Obligor.
3.1.13. ALL OTHER PROPERTY. All other property, assets and
items of value of every kind and nature, tangible or intangible,
absolute or contingent, legal or equitable.
3.1.14. PROCEEDS AND PRODUCTS. All proceeds, including
insurance proceeds, and products of the items of Credit Security
described or referred to in Sections 3.1.1 through 3.1.13 and, to the
extent not included in the foregoing, all distributions with respect to
the Pledged Securities.
3.1.15. EXCLUDED PROPERTY. Notwithstanding Sections 3.1.1
through 3.1.14 and 3.2.1, the payment and performance of the Credit
Obligations shall not be secured by:
(1) any contract, license, permit, lease or franchise
that validly prohibits the creation by such Obligor of a security
interest in such contract, license, permit, lease or franchise (or in
any rights or property obtained by such Obligor under such contract,
license, permit, lease or franchise); PROVIDED, HOWEVER, that the
provisions of this Section 3.1.15 shall not prohibit the security
interests created by this Agreement from extending to the proceeds of
such contract, license, permit, lease or franchise (or such rights or
property) or to the monetary value of the good will and other general
intangibles of the Obligors relating thereto;
(2) any rights or property to the extent that any valid
and enforceable law or regulation applicable to such rights or property
prohibits the creation of a security interest therein; PROVIDED,
HOWEVER, that the provisions of this Section 3.1.15 shall not prohibit
the security interests created by this Agreement from extending to the
proceeds of such rights or property or to the monetary value of the
good will and other general intangibles of the Obligors relating
thereto;
(3) any lease of real or personal property to the extent
that the creation of a security interest or lien would result in a
breach or default by such Obligor under such lease or which would
result in a change in control or other matter requiring the consent of
the other party to such lease;
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<PAGE> 15
(4) more than 66% of the outstanding voting stock or
other voting equity in any Foreign Subsidiary to the extent that the
pledge of voting stock or other voting equity above such amount would
result in a repatriation of a material amount of foreign earnings under
the Code (including the "deemed dividend" provisions of section 956 of
the Code); or
(5) the property described on EXHIBIT 3.1.15(5) and in
Section 3.2 (but, with respect to such property described in Section
3.2, only in the event and to the extent the Lender has not specified
that such items be included in the Credit Security pursuant thereto).
3.2. ADDITIONAL CREDIT SECURITY. As additional Credit Security,
each Obligor covenants that it will mortgage, pledge and collaterally grant and
assign to the Lender and the holders from time to time of any Credit Obligation,
and will create a security interest in favor of the Lender and such holders in,
all of its right, title and interest in and to (but none of its obligations with
respect to) such of the following present or future items as the Lender may from
time to time specify by notice to such Obligor, whether now owned or hereafter
acquired, and the proceeds and products thereof, except to the extent consisting
of rights or property of the types referred to in Section 3.1.15(a) through (e),
subject only to liens permitted by Section 3.3.3, all of which shall thereupon
be included in the term "CREDIT SECURITY":
3.2.1. REAL PROPERTY. All real property and immovable
property and fixtures, leasehold interests and easements wherever
located, together with all estates and interests of such Obligor
therein, including lands, buildings, stores, manufacturing facilities
and other structures erected on such property, fixed plant, fixed
equipment and all permits, rights, licenses, benefits and other
interests of any kind or nature whatsoever in respect of such real and
immovable property.
3.2.2. MOTOR VEHICLES AND AIRCRAFT. All motor vehicles and
aircraft.
3.3. CERTAIN COVENANTS WITH RESPECT TO CREDIT SECURITY. Each
Obligor covenants that:
3.3.1. PLEDGED STOCK. All shares of capital stock, limited
partnership interests, membership interests and similar securities
included in the Pledged Stock shall be at all times duly authorized,
validly issued, fully paid and (in the case of capital stock and
limited partnership interests) nonassessable. Each Obligor will deliver
to the Lender certificates representing the Pledged Stock accompanied
by a stock transfer power executed in blank and, if the Lender so
requests, with the signature guaranteed, all in form and manner
reasonably satisfactory to the Lender. Pledged Stock that is not
evidenced by a certificate or an appropriate control statement with
respect thereto shall be provided to the Lender, all in form and
substance reasonably satisfactory to the Lender. The Lender may at any
time transfer into its name or the name of its nominee any Pledged
Stock. In the event the Pledged Stock includes any Margin Stock, the
Obligors will
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furnish to the Lender Federal Reserve Form U-1 and take such other
action as the Lender may reasonably request to ensure compliance with
applicable laws.
3.3.2. ACCOUNTS AND PLEDGED INDEBTEDNESS. Each Obligor will,
immediately upon the receipt thereof, deliver to the Lender any
promissory note or similar instrument representing any Account or
Pledged Indebtedness, after having endorsed such promissory note or
instrument in blank.
3.3.3. NO LIENS OR RESTRICTIONS ON TRANSFER OR CHANGE OF
CONTROL. All Credit Security shall be free and clear of any liens and
restrictions on the transfer thereof, including contractual provisions
which prohibit the assignment of rights under contracts, except for
liens permitted by this Section 3.3.3. Without limiting the generality
of the foregoing, each Obligor will in good faith attempt to exclude
from agreements, instruments, deeds or leases to which it becomes a
party after the date hereof provisions that would prevent such Obligor
from creating a security interest in such agreement, instrument, deed
or lease or any rights or property acquired thereunder as contemplated
hereby. None of the Pledged Stock shall be subject to any option to
purchase or similar rights of any Person. Except with the written
consent of the Lender, which consent will not be unreasonably withheld,
each Obligor will in good faith attempt to exclude from any agreement,
instrument, deed or lease provisions that would restrict the change of
control or ownership of the Company or any of its Subsidiaries, or the
creation of a security interest in the ownership of the Company or any
of its Subsidiaries.
3.3.4. LOCATION OF CREDIT SECURITY; SUBSIDIARIES. Each
Obligor shall at all times keep its records concerning the Accounts at
its chief executive office and principal place of business, which
office and place of business shall be as set forth in EXHIBIT 3.3.4 (as
from time to time supplemented by notice to the Lender as set forth
below) or, so long as such Obligor shall have taken all steps
reasonably necessary to perfect the Lender's security interest in the
Credit Security with respect to such new address, at such other address
as such Obligor may specify by notice actually received by the Lender
not less than 10 Banking Days prior to such change of address. No
Obligor shall at any time keep tangible personal property of the type
referred to in Section 3.1.1 in any jurisdiction other than the
jurisdictions specified in such EXHIBIT 3.3.4 (as so supplemented) or,
so long as such Obligor shall have taken all steps reasonably necessary
to perfect the Lender's security interest in the Credit Security with
respect to such other jurisdiction, other jurisdictions as such Obligor
may specify by notice actually received by the Lender not less than 10
days prior to moving such tangible personal property into such other
jurisdiction. EXHIBIT 3.3.4 also lists all Domestic Subsidiaries of the
Company, their jurisdictions of organization and the ownership of each
such Subsidiary.
3.3.5. TRADE NAMES. No Obligor will adopt or do business
under any name other than its name as set forth on the signature page
to this Agreement, except as set forth in EXHIBIT 3.3.5 or any other
name specified by notice actually received by the Lender not
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less than 10 Banking Days prior to the conduct of business under such
additional name. Since its inception, no Obligor has changed its name
or adopted or conducted business under any trade name other than as set
forth on the signature page hereto or on EXHIBIT 3.3.5.
3.3.6. INSURANCE. Each insurance policy included in, or
insuring against loss or damage to, the Credit Security shall name the
Lender as additional insured party or as loss payee. No such insurance
policy shall be cancelable or subject to termination or reduction in
amount or scope of coverage until after at least 30 days' prior written
notice from the insurer to the Lender. At least 10 days prior to the
expiration of any such insurance policy for any reason, each Obligor
shall furnish the Lender with a renewal or replacement policy and
evidence of payment of the premiums therefor when due. Each Obligor
grants to the Lender full power and authority as its attorney-in-fact,
effective upon notice to such Obligor after the occurrence and during
the continuance of a Default, to obtain, cancel, transfer, adjust and
settle any such insurance policy and to endorse any drafts thereon. Any
amounts that the Lender receives under any such policy (including
return of unearned premiums) insuring against loss or damage to the
Credit Security when no Default has occurred and is continuing shall be
delivered to the Obligors for the replacement, restoration and
maintenance of the Credit Security. Any such amounts that the Lender
receives after the occurrence and during the continuance of a Default
shall, at the Lender's option, be applied to payment of the Credit
Obligations or to the replacement, restoration and maintenance of the
Credit Security. If any Obligor fails to provide insurance as required
by this Agreement, the Lender may, at its option, purchase such
insurance, and such Obligor will on demand pay to the Lender the amount
of any payments made by the Lender for such purpose, together with
interest on the amounts so disbursed from five Banking Days after the
date demanded until payment in full thereof at the Applicable Rate.
3.3.7. INTELLECTUAL PROPERTY. Exhibit 3.3.7 shall set forth
the following items (collectively, the "INTELLECTUAL PROPERTY"):
(1) all copyrights owned by the Obligors that are
registered with the United States Copyright Office (or any office
maintaining registration of copyrights in any foreign jurisdiction) and
all applications for such registration and
(2) all trademarks, tradenames, service marks, service
names and patents owned by the Obligors that are registered with the
United States Patent and Trademark Office (or any office maintaining
registration of such items in any state of the United States of America
or any foreign jurisdiction) and all applications for such
registration.
The Obligors shall duly authorize, execute and deliver to the Lender
separate memoranda of security interests provided by the Lender with
respect to the foregoing Intellectual Property for filing in the
offices described above. Upon the registration of any additional
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Intellectual Property (or the filing of applications therefor) in the
offices described above, the Obligors shall notify the Lender and duly
authorize, execute and deliver to the Lender separate memoranda of
security interests covering such additional Intellectual Property for
filing in such offices.
3.3.8. DEPOSIT ACCOUNTS. Each Obligor shall keep all its
bank and deposit accounts only with the Lender, or with such other
financial institutions as are listed on EXHIBIT 3.3.8.
3.3.9. MODIFICATIONS TO CREDIT SECURITY. Except with the
prior written consent of the Lender, which consent will not be
unreasonably withheld, no Obligor shall amend or modify, or waive any
of its rights under or with respect to, any material Accounts, general
intangibles, Pledged Securities or leases if the effect of such
amendment, modification or waiver would be to reduce the amount of any
such items or to extend the time of payment thereof, to waive any
default by any other party thereto, or to waive or impair any remedies
of the Obligors or the Lender under or with respect to any such
Accounts, general intangibles, Pledged Securities or leases, in each
case other than consistent with past practice in the ordinary course of
business and on an arm's-length basis. Each Obligor will promptly give
the Lender written notice of any request by any Person for any material
credit or adjustment with respect to any Account, general intangible,
Pledged Securities or leases.
3.3.10. DELIVERY OF DOCUMENTS. Upon the Lender's request,
each Obligor shall deliver to the Lender, promptly upon such Obligor's
receipt thereof, copies of any agreements, instruments, documents or
invoices comprising or relating to the Credit Security. Pending such
request, such Obligor shall keep such items at its chief executive
office and principal place of business.
3.3.11. PERFECTION OF CREDIT SECURITY. This Agreement shall
create in favor of the Lender, a legal, valid and enforceable security
interest in the Credit Security described herein. In the case of the
Pledged Stock, when stock certificates representing such Pledged Stock
and stock powers related thereto duly executed in blank by the relevant
Pledgor are delivered to the Lender, and in the case of the other
Credit Security described in this Agreement, when financing statements
in appropriate form are filed in the jurisdictions in which the Obligor
is incorporated, its principal executive office and chief place of
business is located and it owns real or tangible personal property,
this Agreement shall provide a fully perfected lien on, and security
interest in, all right, title and interest of the Obligors in such
Credit Security, as security for the Credit Obligations. Upon the
Lender's reasonable request from time to time, the Obligors will
execute and deliver, and file and record in the proper filing and
recording places, all such instruments, including financing statements,
collateral assignments of copyrights, trademarks and patents, mortgages
or deeds of trust and notations on certificates of title, and will take
all such other action, as the Lender deems reasonably necessary for
confirming to it the
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<PAGE> 19
Credit Security or to carry out any other purpose of this Agreement or
any other Credit Document. 1.1.1.
3.4. ADMINISTRATION OF CREDIT SECURITY. The Credit Security shall
be administered as follows, and if a Default shall have occurred and be
continuing, Section 3.5 shall also apply.
3.4.1. USE OF CREDIT SECURITY. Until the Lender provides
written notice to the contrary, each Obligor may use, commingle and
dispose of any part of the Credit Security in the ordinary course of
its business.
3.4.2. ACCOUNTS. To the extent specified by prior written
notice from the Lender after the occurrence and during the continuance
of a Default, all sums collected or received and all property recovered
or possessed by any Obligor in connection with any Credit Security
shall be received and held by such Obligor in trust for and on the
Lender's behalf, shall be segregated from the assets and funds of such
Obligor, and shall be delivered to the Lender. Without limiting the
foregoing, upon the Lender's request after the occurrence and during
the continuance of a Default, each Obligor shall institute depository
collateral accounts, lock-box receipts and similar credit procedures
providing for the direct receipt of payment on Accounts at a separate
address, the segregation of such proceeds for direct payment to the
Lender and appropriate notices to Account debtors. Upon the Lender's
request after the occurrence and during the continuance of a Default,
each Obligor will cause its accounting books and records to be marked
with such legends and segregated in such manner as the Lender may
specify.
3.4.3. DISTRIBUTIONS ON PLEDGED SECURITIES.
(1) Until a Default shall occur and be continuing, the
respective Obligors shall be entitled, to the extent permitted by the
Credit Documents, to receive all distributions on or with respect to
the Pledged Securities (other than distributions constituting
additional Pledged Securities). All distributions constituting
additional Pledged Securities will be retained by the Lender (or if
received by any Obligor shall be held by such Person in trust and shall
be immediately delivered by such Person to the Lender in the original
form received, endorsed in blank) and held by the Lender as part of the
Credit Security.
(2) If a Default shall have occurred and be continuing,
all distributions on or with respect to the Pledged Securities shall be
retained by the Lender (or if received by any Obligor shall be held by
such Person in trust and shall be immediately delivered by it to the
Lender in the original form received, endorsed in blank) and held by
the Lender as part of the Credit Security or applied by the Lender to
the payment of the Credit Obligations in accordance with Section 3.5.6.
3.4.4. VOTING PLEDGED SECURITIES.
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<PAGE> 20
(1) Until a Default shall occur and be continuing, the
respective Obligors shall be entitled to vote or consent with respect
to the Pledged Securities in any manner not inconsistent with the terms
of any Credit Document, and the Lender will, if so requested, execute
appropriate revocable proxies therefor.
(2) If a Default shall have occurred and be continuing,
if and to the extent that the Lender shall so notify in writing the
Obligor pledging the Pledged Securities in question, only the Lender
shall be entitled to vote or consent or take any other action with
respect to the Pledged Securities (and any Obligor will, if so
requested, execute appropriate proxies therefor).
3.5. RIGHT TO REALIZE UPON CREDIT SECURITY. Except to the extent
prohibited by applicable law that cannot be waived, and subject to the Obligors'
obligations under the credit facilities listed on exhibit 6.5 to the Credit
Agreement, this Section 3.5 shall govern the Lender's rights to realize upon the
Credit Security if any Default shall have occurred and be continuing. The
provisions of this Section 3.5 are in addition to any rights and remedies
available at law or in equity and in addition to the provisions of any other
Credit Document. In the case of a conflict between this Section 3.5 and any
other Credit Document, this Section 3.5 shall govern.
3.5.1. ASSEMBLY OF CREDIT SECURITY; RECEIVER. Each Obligor
shall, upon the Lender's request, assemble the Credit Security and
otherwise make it available to the Lender. The Lender may have a
receiver appointed for all or any portion of the Obligors' assets or
business which constitutes the Credit Security in order to manage,
protect, preserve, sell and otherwise dispose of all or any portion of
the Credit Security in accordance with the terms of the Credit
Documents, to continue the operations of the Obligors and to collect
all revenues and profits therefrom to be applied to the payment of the
Credit Obligations, including the compensation and expenses of such
receiver.
3.5.2. GENERAL AUTHORITY. To the extent specified in written
notice from the Lender to the Obligor in question, each Obligor grants
the Lender full power and authority, subject to the other terms hereof
and applicable law, to take any of the following actions (for the sole
benefit of the Lender and the holders from time to time of any Credit
Obligations, but at such Obligor's expense):
(1) To ask for, demand, take, collect, sue for and
receive all payments in respect of any Accounts, general intangibles,
Pledged Securities or leases which such Obligor could otherwise ask
for, demand, take, collect, sue for and receive for its own use.
(2) To extend the time of payment of any Accounts,
general intangibles, Pledged Securities or leases and to make any
allowance or other adjustment with respect thereto.
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<PAGE> 21
(3) To settle, compromise, prosecute or defend any action
or proceeding with respect to any Accounts, general intangibles,
Pledged Securities or leases and to enforce all rights and remedies
thereunder which such Obligor could otherwise enforce.
(4) To enforce the payment of any Accounts, general
intangibles, Pledged Securities or leases, either in the name of such
Obligor or in its own name, and to endorse the name of such Obligor on
all checks, drafts, money orders and other instruments tendered to or
received in payment of any Credit Security.
(5) To notify the third party payor with respect to any
Accounts, general intangibles, Pledged Securities or leases of the
existence of the security interest created hereby and to cause all
payments in respect thereof thereafter to be made directly to the
Lender; PROVIDED, HOWEVER, that whether or not the Lender shall have so
notified such payor, such Obligor will at its expense render all
reasonable assistance to the Lender in collecting such items and in
enforcing claims thereon.
(6) To sell, transfer, assign or otherwise deal in or
with any Credit Security or the proceeds thereof, as fully as such
Obligor otherwise could do.
3.5.3. MARSHALING, ETC. The Lender shall not be required to
make any demand upon, or pursue or exhaust any of their rights or
remedies against, any Obligor or any other guarantor, pledgor or any
other Person with respect to the payment of the Credit Obligations or
to pursue or exhaust any of their rights or remedies with respect to
any collateral therefor or any direct or indirect guarantee thereof.
The Lender shall not be required to marshal the Credit Security or any
guarantee of the Credit Obligations or to resort to the Credit Security
or any such guarantee in any particular order, and all of its and their
rights hereunder or under any other Credit Document shall be
cumulative. To the extent it may lawfully do so, each Obligor
absolutely and irrevocably waives and relinquishes the benefit and
advantage of, and covenants not to assert against the Lender, any
valuation, stay, appraisement, extension, redemption or similar laws
now or hereafter existing which, but for this provision, might be
applicable to the sale of any Credit Security made under the judgment,
order or decree of any court, or privately under the power of sale
conferred by this Agreement, or otherwise. Without limiting the
generality of the foregoing, each Obligor (a) agrees that it will not
invoke or utilize any law which might prevent, cause a delay in or
otherwise impede the enforcement of the rights of the Lender in the
Credit Security and (b) waives all such laws. In addition, each Obligor
waives any right to prior notice (except to the extent expressly
required by this Agreement) or judicial hearing in connection with
foreclosure on or disposition of any Credit Security, including any
such right which such Obligor would otherwise have under the
Constitution of the United States of America, any state or territory
thereof or any other jurisdiction.
-17-
<PAGE> 22
3.5.4. SALES OF CREDIT SECURITY. All or any part of the
Credit Security may be sold for cash or other value in any number of
lots at public or private sale, without demand, advertisement or
notice; PROVIDED, HOWEVER, that unless the Credit Security to be sold
threatens to decline speedily in value or is of a type customarily sold
on a recognized market, the Lender shall give the Obligor granting the
security interest in such Credit Security 10 days' prior written notice
of the time and place of any public sale, or the time after which a
private sale may be made, which notice each of the Obligors and the
Lender agrees to be reasonable. At any sale or sales of Credit
Security, any Lender or any of its respective officers acting on its
behalf, or such Lender's assigns, may bid for and purchase all or any
part of the property and rights so sold, may use all or any portion of
the Credit Obligations owed to such Lender as payment for the property
or rights so purchased, and upon compliance with the terms of such sale
may hold and dispose of such property and rights without further
accountability to the respective Obligors, except for the proceeds of
such sale or sales pursuant to Section 3.5.6. The Obligors acknowledge
that any such sale will be made by the Lender on an "as is" basis with
disclaimers of all warranties, whether express or implied. The
respective Obligors will execute and deliver or cause to be executed
and delivered such instruments, documents, assignments, waivers,
certificates and affidavits, will supply or cause to be supplied such
further information and will take such further action, as the Lender
shall reasonably request in connection with any such sale.
3.5.5. SALE WITHOUT REGISTRATION. If, at any time when the
Lender shall determine to exercise its rights hereunder to sell all or
part of the securities included in the Credit Security, the securities
in question shall not be effectively registered under the Securities
Act (or other applicable law), the Lender may, in its sole discretion,
sell such securities by private or other sale not requiring such
registration in such manner and in such circumstances as the Lender may
deem necessary or advisable in order that such sale may be effected in
accordance with applicable securities laws without such registration
and the related delays, uncertainty and expense. Without limiting the
generality of the foregoing, in any event the Lender may, in its sole
discretion, (a) approach and negotiate with a single purchaser or one
or more possible purchasers to effect such sale, (b) restrict such sale
to one or more purchasers each of whom will represent and agree that
such purchaser is purchasing for its own account, for investment and
not with a view to the distribution or sale of such securities and (c)
cause to be placed on certificates representing the securities in
question a legend to the effect that such securities have not been
registered under the Securities Act (or other applicable law) and may
not be disposed of in violation of the provisions thereof. Each Obligor
agrees that such manner of disposition is commercially reasonable, that
it will upon the Lender's request give any such purchaser access to
such information regarding the issuer of the securities in question as
the Lender may reasonably request and that the Lender shall not incur
any responsibility for selling all or part of the securities included
in the Credit Security at any private or other sale not requiring such
registration, notwithstanding the possibility that a substantially
higher price might be realized if the sale were deferred until after
registration under the
-18-
<PAGE> 23
Securities Act (or other applicable law) or until made in compliance
with certain other rules or exemptions from the registration provisions
under the Securities Act (or other applicable law). Each Obligor
acknowledges that no adequate remedy at law exists for breach by it of
this Section 3.5.5 and that such breach would not be adequately
compensable in damages and therefore agrees that this Section 3.5.5 may
be specifically enforced.
3.5.6. APPLICATION OF PROCEEDS. The proceeds of all sales
and collections in respect of any Credit Security or other assets of
any Obligor, all funds collected from the Obligors and any cash
contained in the Credit Security, the application of which is not
otherwise specifically provided for herein, shall be applied as
follows:
(1) First, to the payment of the costs and expenses of
such sales and collections, the reasonable expenses of the Lender and
the reasonable fees and expenses of its special counsel;
(2) Second, any surplus then remaining to the payment of
the Credit Obligations in such order and manner as the Lender may in
its reasonable discretion determine; PROVIDED, HOWEVER, that any such
payment shall be distributed to the Lender in accordance with the
Credit Agreement and the other Credit Documents; and
(3) Third, any surplus then remaining shall be paid to
the Obligors, subject, however, to the rights of the holder of any then
existing lien of which the Lender has actual notice.
3.6. CUSTODY OF CREDIT SECURITY. Except as provided by applicable
law that cannot be waived, the Lender will have no duty as to the custody and
protection of the Credit Security, the collection of any part thereof or of any
income thereon or the preservation or exercise of any rights pertaining thereto,
including rights against prior parties, except for the use of reasonable care in
the custody and physical preservation of any Credit Security in its possession.
The Lender will not be liable or responsible for any loss or damage to any
Credit Security, or for any diminution in the value thereof, by reason of the
act or omission of any agent selected by the Lender acting in good faith.
1. GENERAL. Addresses for notices, consent to jurisdiction,
jury trial waiver and numerous other provisions applicable to this Agreement are
contained in the Credit Agreement. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof, and any invalid or unenforceable provision shall be modified
so as to be enforceable to the maximum extent of its validity or enforceability.
The headings in this Agreement are for convenience of reference only and shall
not limit, alter or otherwise affect the meaning hereof. This Agreement and the
other Credit Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral. This
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<PAGE> 24
Agreement is a Credit Document and may be executed in any number of
counterparts, which together shall constitute one instrument. This Agreement
shall be governed by and construed in accordance with the laws (other than the
conflict of laws rules) of The Commonwealth of Massachusetts, except as may be
required by the UCC of other jurisdictions with respect to matters involving the
perfection of the Lender's lien on the Credit Security located in such other
jurisdictions.
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<PAGE> 25
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first written above.
NEXTERA ENTERPRISES, INC.
By:
----------------------------------------
Name:
Title:
CRITIAS, INC.
ERG ACQUISITION CORP.
LEXECON INC.
NEONEXT LLC
NEXTERA BUSINESS PERFORMANCE SOLUTIONS
GROUP, INC.
THE PLANNING TECHNOLOGIES GROUP, L.L.C.
PYRAMID IMAGING, INC.
SCANADA, INC.
SIBSON & COMPANY, LLC
SIBSON INTERNATIONAL, LLC
TIMAEUS, INC.
By:
----------------------------------------
As an authorized officer of each of the
foregoing corporations and limited
liability companies
BANKBOSTON, N.A.
By:
----------------------------------------
Name:
Title:
<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 QUARTERLY REPORT, TO WHICH THIS SCHEDULE IS AN EXHIBIT, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 1,496 4,425
<SECURITIES> 0 0
<RECEIVABLES> 32,361 39,428
<ALLOWANCES> 1,267 1,163
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,517 50,146
<PP&E> 9,332 12,038
<DEPRECIATION> 1,276 2,680
<TOTAL-ASSETS> 176,691 213,957
<CURRENT-LIABILITIES> 108,278 47,330
<BONDS> 0 0
0 0
0 0
<COMMON> 31,660 155,367
<OTHER-SE> (20,170) (23,891)
<TOTAL-LIABILITY-AND-EQUITY> 176,691 213,957
<SALES> 67,590 72,664
<TOTAL-REVENUES> 67,590 72,664
<CGS> 44,985 40,982
<TOTAL-COSTS> 26,123 22,938
<OTHER-EXPENSES> 6,671 6,089
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,723 6,374
<INCOME-PRETAX> (16,912) (3,719)
<INCOME-TAX> 243 2
<INCOME-CONTINUING> (17,155) (3,721)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (14,997) (3,721)
<EPS-BASIC> (1.14) (.15)
<EPS-DILUTED> (1.14) (.15)
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