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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 333-63789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTERA ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8742 95-4700410
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL P. MULDOWNEY
CHIEF FINANCIAL OFFICER
NEXTERA ENTERPRISES, INC.
ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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DAVID A. HAHN, ESQ. MARK H. BURNETT, ESQ.
HOWARD L. ARMSTRONG, ESQ. MICHAEL A. CONZA, ESQ.
LATHAM & WATKINS TESTA, HURWITZ & THIBEAULT, LLP
701 "B" STREET, SUITE 2100 HIGH STREET TOWER
SAN DIEGO, CA 92101 125 HIGH STREET
(619) 236-1234 BOSTON, MA 02110
(617) 248-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
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Class A Common Stock, $.001 par value............... $158,700,000 $50,633
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(3) Previously paid based upon an estimated initial public offering price of
$15.00 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 16, 1999
PROSPECTUS
, 1999
11,500,000 SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
All of the 11,500,000 shares of Class A Common Stock, par value $0.001 per
share (the "Class A Common Stock"), offered hereby (the "Offering") are being
sold by Nextera Enterprises, Inc. ("Nextera" or the "Company"). The Class A
Common Stock and the Company's Class B Common Stock, par value $0.001 per share,
(the "Class B Common Stock" and together with the Class A Common Stock, the
"Common Stock"), are substantially identical except with respect to voting power
and conversion rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share, on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Each share
of Class B Common Stock is convertible into one share of Class A Common Stock
under certain circumstances. See "Description of Capital Stock." Approximately
$75.5 million of the net proceeds of the Offering will be used to repay
indebtedness held by Knowledge Universe, Inc. ("Knowledge Universe") and other
affiliates of the Company. See "Use of Proceeds." After the Offering, Knowledge
Enterprises, Inc. ("Knowledge Enterprises"), through its wholly-owned
subsidiary, Nextera Enterprises Holdings, Inc. ("Nextera Holdings"), will
control approximately 64.5% of the combined voting power of the outstanding
Common Stock.
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently anticipated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "NXRA."
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share....................... $ $ $
Total(3)........................ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters, a
description of the use of a portion of the net proceeds to repay
indebtedness to an affiliate of one of the Underwriters and the payment of
certain other compensation to certain Underwriters.
(2) Before deducting expenses estimated at $2,100,000, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 1,725,000 additional shares at the Price to Public less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
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[NETERA'S VALUE PROPOSITION CHART]
Graphic entitled "Nextera's Value Proposition" depicts a large triangle in
the center of the graphic with inward-pointing arrows placed along each side of
the center triangle. The top of the large triangle contains the words "Clients
Enhance Business Performance Through. . ." The center of the large triangle is
divided into three sections. The leftmost section contains the words "Dynamic
Strategic Management." The middle section contains the words "High Performance
Business Processes." The rightmost section contains the words "Organizational
Development." The bottom of the large triangle contains the words "Applying
Emerging Technologies to" with the following three bullet points listed
underneath: "Leverage Human Capital," "Measure Business Performance" and
"Develop Enterprise-wide Solutions." The inward-pointing arrow in the upper left
corner of the graphic has superimposed upon it the heading "Comprehensive
Consulting Expertise." The inward-pointing arrow in the upper right corner of
the graphic has superimposed upon it the heading "Client-Focused Results
Delivery." The inward-pointing arrow at the lower center of the graphic has
superimposed upon it the heading "Synergistic Business Models."
Nextera helps its clients enhance their business performance by providing
consulting services that enable clients to (i) proactively refine their
strategies to adjust to changing regulatory and market conditions, (ii)
transform business processes to achieve higher levels of operational
performance, (iii) capitalize on the capabilities of their internal resources,
and (iv) apply technology to support innovative approaches to conducting
business. Nextera brings together complementary services drawn from its four
practice areas and delivers these services through client-focused teams that
consist of individuals with the competencies needed to address all aspects of a
client's consulting needs. Nextera employs a business model in which business
units independently manage their operations while participating in the Company's
programs for cross-company joint marketing and opportunity management, sharing
best practices, locating needed expertise, and capitalizing on Nextera's
knowledge base.
2
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. These forward-looking statements speak only as of
the date of this Prospectus, or, if specified, as of their dates. The Company
undertakes no obligation to publicly update any forward-looking statements,
whether as a result of new information or future events.
------------------------
Lexecon is a registered service mark and Nextera, Sibson, Pyramid Imaging,
Nextera Business Performance Solutions Group, Symmetrix, SiGMA, The Planning
Technologies Group and Alexander are service marks used by the Company in
providing services. This Prospectus also includes names, trademarks, service
marks and registered trademarks and service marks of companies other than the
Company, which names, trademarks, service marks and registered trademarks and
service marks are the property of such companies.
3
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[THIS PAGE INTENTIONALLY LEFT BLANK]
4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, and the Historical Financial Statements and Notes thereto,
and the Unaudited Pro Forma Combined Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Class A Common Stock offered hereby
involves a high degree of risk. See "Risk Factors" beginning on page 8. Unless
otherwise indicated, (i) all references in this Prospectus to Nextera or the
Company mean Nextera Enterprises, Inc., and its direct and indirect
subsidiaries, including the operations of, or the successors to, Nextera
Business Performance Solutions Group, Inc. (formerly Symmetrix, Inc.), SiGMA
Consulting, LLC, The Planning Technologies Group, Inc., Pyramid Imaging, Inc.,
Sibson & Company, L.P., Sibson Canada, Inc., Lexecon Inc. and The Alexander
Corporation Limited (each an "Acquired Company" and collectively the "Acquired
Companies") prior to their acquisition by the Company, and the operations of
Nextera Enterprises, L.L.C. ("Nextera LLC"), a predecessor to Nextera
Enterprises, Inc., prior to Nextera LLC's liquidation and dissolution; (ii) all
information in this Prospectus assumes the exchange of Class A Common Units and
Class B Common Units of Nextera LLC for shares of Class A Common Stock and Class
B Common Stock of the Company and the exchange of all exchangeable shares of a
Canadian subsidiary of the Company (the "Exchangeable Shares") for Class A
Common Stock (see "The Company--Exchangeable Shares"); and (iii) all information
in this Prospectus assumes no exercise of the Underwriters' over-allotment
option.
THE COMPANY
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, economic analysis, operations improvement, organizational
design and information technology ("IT") primarily to Fortune 500 and other
multinational companies and government agencies. The Company provides services
in four practice areas, which enables it to offer a broad range of complementary
services that assist clients in achieving enhanced business performance by
anticipating and addressing their complex, multi-disciplinary consulting needs.
Nextera helps organizations redefine the way in which existing work is conducted
or new businesses and markets are entered by analyzing underlying strategic and
economic issues affecting business performance, redesigning operational
processes and business practices, defining and managing major change
initiatives, and using emerging information technologies (such as web-based
technologies and electronic commerce) to support these new strategic approaches.
The professional consulting services industry is driven by changes in the
business environment, such as increased competition, regulatory changes,
globalization, technological advances and evolving organizational models. In
response to these changes, many organizations are altering traditional
approaches to overall strategy, business processes, organizational design and
the use of IT. Lacking the skilled personnel, technical capabilities and time
necessary to formulate and implement strategies to benefit from these changes,
many organizations are increasingly retaining third-party service professionals
for help and expertise. According to an industry source, the worldwide market
for professional consulting services is estimated to have been $46.3 billion in
1997, and is projected to increase to $88.5 billion in 2002. Consulting service
providers employing traditional approaches typically do not offer the broad
perspective and integrated solutions critical to solving the multi-disciplinary
problems organizations are currently facing. In order to solve such problems,
organizations are demanding that third-party providers have experience in a
breadth of practice areas.
The Company's portfolio of practice areas includes Strategy and Research
Services, Process Transformation Services, Human Capital Services, and
Information Technology Consulting 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
focused research on a number of issues of client concern. The Process
Transformation Services practice helps organizations solve complex operational
issues through major business transformation programs, redesigned business
processes, and best practices adaptation. The Human Capital Services practice
assists clients in implementing organizational and strategic changes established
by senior management through all levels of the organization. The Information
Technology Consulting Services practice applies emerging technologies such as
web-based technologies and electronic commerce to design and develop high impact
business process support systems and knowledge management systems.
Nextera's flexible delivery model, which is designed to bring together
required expertise in business strategy and research, operations improvement,
organizational design and IT consulting, enables it to provide timely and
unbiased perspectives on clients' enterprise-wide management problems and
cost-effectively implement multi-disciplinary solutions. The Company's breadth
of expertise enables it to deliver services initially in any of its four
practice areas and offers opportunities to expand the scope of its engagements
to include complementary or follow-on services in other practice areas. The
Company provides its services across a broad spectrum of industries, including
communications, consumer products, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. Representative clients include America Online, Inc., The
Chubb Corporation, Duke Energy
5
<PAGE> 7
Corporation, International Business Machines Corporation, MCI WorldCom, Inc.,
Mead Johnson & Company, National Broadcasting Company, Inc., SmithKline Beecham,
PLC and the United States Department of Justice.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and internal growth to provide a comprehensive perspective on the
problems and issues facing its clients in today's competitive environment. Since
inception, the Company has built competencies in its four practice areas
primarily through acquisitions and, to a lesser extent, through internal growth.
Each Acquired Company maintains a business focus which complements the
businesses of the other Acquired Companies, enabling synergies to be realized
across all of Nextera's practice areas.
The Company's objective is to be a leading provider of consulting services
in its four practice areas. Nextera intends to achieve this objective by: (i)
expanding service offerings through selective acquisitions; (ii) leveraging
cross-selling opportunities to expand the scope of engagements; (iii) attracting
and retaining key personnel who will enhance and complement the Company's
service capabilities; (iv) building a common identity for the services the
Company provides by marketing the Nextera brand name; and (v) expanding
Nextera's international presence.
The Company is a Delaware corporation and maintains its principal executive
office at One Cranberry Hill, Lexington, Massachusetts 02421. The Company's
telephone number is (781) 778-4400.
THE OFFERING
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Class A Common Stock offered by the Company.......... 11,500,000 shares
Common Stock to be outstanding after the Offer-
ing:(1)
Class A Common Stock............................. 30,551,714 shares(2)(3)
Class B Common Stock............................. 4,274,630 shares
Total Common Stock.......................... 34,826,344 shares
Use of proceeds...................................... To repay certain outstanding indebtedness,
including indebtedness to certain affiliates of
the Company; to pay accrued management fees to
Knowledge Universe, an affiliate of the Company;
and to pay certain other fees. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............... NXRA
</TABLE>
- ------------------------------
(1) The Class A Common Stock and the Class B Common Stock are substantially
identical except with respect to voting power and conversion rights. The
Class A Common Stock entitles its holders to one vote per share, and the
Class B Common Stock entitles its holders to ten votes per share, on all
matters submitted to a vote of the Company's stockholders, including in
connection with the election of the Board of Directors. Each share of Class
B Common Stock is convertible into one share of Class A Common Stock under
certain circumstances. See "Risk Factors--Control by Knowledge Universe or
its Affiliates" and "Description of Capital Stock."
(2) Excludes (i) 5,000,000 shares of Class A Common Stock reserved for issuance
under the Company's 1998 Equity Participation Plan (the "1998 Equity
Participation Plan") pursuant to which options to purchase 3,163,652 shares
will be outstanding upon the closing of the Offering, see
"Management--Employee Benefit Plans," (ii) 197,760 shares of Class A Common
Stock issuable upon exercise of options reserved for issuance to certain
non-stockholder key executives of Lexecon Inc. ("Lexecon") assuming the
price per share of the Class A Common Stock in the Offering is $11.00 (the
number of shares subject to such options will range from a minimum of 31,560
shares if the price per share in the Offering is $17.50 or higher to a
maximum of 197,760 shares if the price per share in the Offering is $12.50
or less), see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations," (iii) 3,004,239 shares of
Class A Common Stock (assuming the price per share of Class A Common Stock
in the Offering is $11.00) issuable upon exercise of options which the
Company has granted or agreed to grant to certain personnel of Lexecon under
the Nextera/Lexecon Limited Purpose Stock Option Plan (the "Limited Purpose
Plan"), see "Management--Employee Benefit Plans," (iv) 250,000 shares of
Class A Common Stock issuable upon exercise of certain warrants issued in
connection with the acquisition of Lexecon (the "Lexecon Acquisition"), see
"Certain Transactions--Guaranty and Warrants to Purchase Class A Common
Stock," and (v) 4,274,630 shares of Class A Common Stock issuable upon
conversion of the 4,274,630 outstanding shares of the Company's Class B
Common Stock. See "Description of Capital Stock."
(3) Assumes (i) the exchange of all Exchangeable Shares for 197,813 shares of
Class A Common Stock, see "The Company--Exchangeable Shares," (ii) the
issuance of 53,333 shares of Class A Common Stock to the former shareholders
of Pyramid Imaging, Inc. ("Pyramid") assuming Pyramid's satisfaction in full
of certain financial performance criteria for the twelve months ending March
31, 1999 (the "Pyramid Earn-out Shares"), see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions,"
and (iii) the issuance of 1,450,240 shares of Class A Common Stock to the
former stockholders of Lexecon in connection with the Lexecon Acquisition
(the "Lexecon Contingent Shares") (assuming the price per share of the Class
A Common Stock in the Offering is $11.00). The number of Lexecon Contingent
Shares to be issued will range from a minimum of 231,440 shares if the price
per share in the Offering is $17.50 or higher to a maximum of 1,450,240
shares if the price per share in the Offering is $12.50 or less. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."
6
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SUMMARY CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
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ACTUAL PRO FORMA(1)
---------------------------------------- -----------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net revenues.................................. $ 7,998 $ 67,590 $135,167
Gross profit.................................. 3,280 22,605 56,317
Income (loss) from operations(2).............. (2,281) (10,189) 1,713
Net loss...................................... (3,015) (17,155) (12,044)
Net loss per share, basic and diluted(3)...... $ (0.74) $ (1.14) $ (0.61)
Weighted average shares outstanding, basic and
diluted..................................... 4,061 14,997 19,891
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<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------
ACTUAL AS ADJUSTED(4)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,496 $ 1,496
Working capital (deficit)................................... (65,761) 10,192
Total assets................................................ 176,691 191,788
Total short-term debt and capital lease obligations......... 82,487 6,638
Total long-term debt and capital lease obligations.......... 55,749 14,650
Total stockholders' equity.................................. 11,490 144,495
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(1) The summary pro forma combined statement of operations data for the year
ended December 31, 1998 is presented as if the acquisitions of the Acquired
Companies other than The Alexander Corporation Limited ("Alexander") had
been consummated as of January 1, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions" and
Unaudited Pro Forma Combined Financial Statements. Alexander was acquired by
the Company in January 1999 and is not material to the Company's results of
operations or financial position.
(2) Income (loss) from operations for the year ended December 31, 1998 includes
$1,298,000 of restructuring costs related to Nextera Business Performance
Solutions Group, Inc. ("Business Performance Solutions") and a compensation
expense charge of $6,671,000 resulting from cash payments and fully-vested
stock options granted to certain non-stockholder key executives of Lexecon.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(4) As adjusted to give effect to (i) the sale of 11,500,000 shares of Class A
Common Stock at an assumed initial public offering price of $11.00 per share
and the application of the estimated net proceeds of the Offering, see "Use
of Proceeds" and "Capitalization," and (ii) the issuance of 1,450,240
Lexecon Contingent Shares (assuming the price per share of the Class A
Common Stock in the Offering is $11.00). The number of Lexecon Contingent
Shares to be issued will range from a minimum of 231,440 shares if the price
per share in the Offering is $17.50 or higher to a maximum of 1,450,240
shares if the price per share in the Offering is $12.50 or less. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."
7
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Class A Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
LIMITED COMBINED OPERATING HISTORY. Nextera was formed in February 1997 and
has grown substantially since its inception, principally through the
acquisitions of the Acquired Companies. Although the Acquired Companies have
been in operation for some time, the Company has a limited history of combined
operations. Consequently, the historical and pro forma information herein may
not be indicative of Nextera's financial condition and future performance. There
can be no assurances that the Company will not encounter financial, managerial
or other difficulties as a result of its lack of combined operating history.
Further, the success of Nextera's acquisitions will depend on a number of
factors, including the Company's ability to integrate the businesses and
operations of the Acquired Companies, to retain certain key employees of the
Acquired Companies and to preserve and expand the businesses and operations of
the Acquired Companies. There can be no assurance that Nextera will be able to
successfully integrate and operate the businesses of the Acquired Companies or
that the Company will not experience losses as a result of these acquisitions.
Failure to achieve the anticipated benefits of these acquisitions or to
successfully integrate the operations of the Acquired Companies could materially
adversely affect the business, operating results and financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Acquisitions."
NET LOSSES. The Company has been in existence since February 1997. On an
historical basis, for the period from February 26, 1997 through December 31,
1997 and for the year ended December 31, 1998, Nextera experienced net losses of
$3.0 million and $17.2 million, respectively. On a pro forma basis, Nextera
experienced a net loss of $12.0 million for the year ended December 31, 1998.
There can be no assurance that Nextera will achieve or sustain profitability in
the future.
MANAGEMENT OF GROWTH. Nextera has experienced a period of rapid growth that
has challenged, and will likely continue to challenge, the Company's managerial
and other resources. Since the Company's inception in February 1997 through
December 31, 1998, the number of consultants employed by the Company has
increased to 433 and the scope of Nextera's geographic coverage has expanded
significantly. Nextera intends to hire additional consultants through
acquisitions and its own recruiting efforts and expects its geographic coverage
to continue to grow in the future. The Company's success in managing its growth
will depend on its ability to continue to enhance its operating, financial and
management information systems and to recruit, develop, motivate and manage
effectively its expanding work force. For example, Nextera is in the process of
integrating a new financial reporting system, and any failure or significant
delay in achieving the integration of such system or complications with respect
to the change to such system could materially adversely affect the Company. In
addition, Nextera's future success will depend in large part on its ability to
continue to set rates and fees competitively and to maintain high employee
utilization rates and project quality, particularly if the average size or
number of the Company's projects increases. If Nextera is unable to manage
growth or new employees effectively or if its personnel are unable to achieve
anticipated performance or utilization levels, the Company's services, its
ability to retain key personnel, and its business, operating results and
financial condition could be materially adversely affected. There can be no
assurance that Nextera will be able to effectively manage its growth or that the
Company's business will continue to expand. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Growth
Strategy" and "--Human Resources."
OPERATIONAL, FINANCIAL AND ACCOUNTING RISKS OF ACQUISITIONS. Since its
inception, Nextera has significantly expanded through acquisitions and expects
to pursue additional acquisitions in order to enhance its service offerings and
client base, expand its geographic presence and obtain experienced consultants.
The timing, magnitude and success of the Company's acquisition efforts and the
related capital expenditures and
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commitments cannot be predicted. Nextera competes for acquisitions with
companies that have significantly greater financial and management resources
than the Company, which may lead to limited acquisition opportunities for
Nextera and may result in higher purchase prices or transaction costs. There can
be no assurance that the Company will be able to integrate successfully any
acquired businesses without substantial expense, delays or other operational or
financial costs or problems, including costs in pursuing and negotiating with
acquisition candidates, or that it will be able to identify, acquire or
profitably manage additional businesses or acquisitions. Acquisitions may
involve certain risks, including significant diversion of management's
attention, failure to retain key acquired personnel, unanticipated events or
circumstances and legal liabilities. Client satisfaction or performance problems
at a single acquired firm could have a material adverse impact on the reputation
of Nextera as a whole. Further, there can be no assurance that the Company's
future acquired businesses will achieve expected results or generate anticipated
revenues or earnings. In order to pursue additional acquisitions, Nextera may
also require debt or equity financing that may not be available on terms
favorable to the Company, if at all, and may result in dilution to the holders
of Class A Common Stock. For the foreseeable future, Nextera will be unable to
account for future acquisitions under the pooling-of-interests method of
accounting. Accordingly, the Company will be required to account for
acquisitions under the purchase method of accounting, which may result in
substantial additional annual non-cash amortization charges for goodwill and
other intangible assets in Nextera's statements of operations. In addition, the
Company could be required to make substantial cash payments related to any such
acquisition. Any of these factors could materially adversely affect Nextera's
business, operating results and financial condition. See "--Substantial Amount
of Goodwill and Other Intangible Assets," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business--Growth Strategy"
and "--Acquisitions."
ATTRACTION AND RETENTION OF SKILLED CONSULTANTS. Because Nextera's business
involves the delivery of professional services and is labor-intensive, the
Company's success depends in large part upon its ability to attract, motivate
and retain highly skilled consultants. Qualified business consultants are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that Nextera will be able to attract, motivate
and retain sufficient numbers of highly skilled consultants. Any inability to do
so could impair the Company's ability to effectively manage and complete its
client projects and to secure future client engagements, and as a result could
materially adversely affect Nextera's business, operating results and financial
condition. Because the Company has experienced growth principally through the
acquisitions of the Acquired Companies, substantially all of Nextera's current
consultants were initially hired by one of the Acquired Companies and not the
Company. There can be no assurance that these consultants will continue to be
satisfied with the culture or benefits of the Company or prospects for
advancement within Nextera. Further, even if the Company is able to expand the
number of qualified consultants, the resources required to attract, motivate and
retain such consultants may adversely affect Nextera's operating margins, which
could materially adversely affect the Company's business, operating results and
financial condition. To the extent that Nextera is unable to attract, motivate
or retain qualified consultants from among individuals currently legally
eligible to work in the United States, the Company may need to utilize foreign
labor under H-1B and other employment-related permits and visas granted by the
United States government. In the event that such visas are unavailable, either
due to a change in policy or law or a reduction in the number of such visas
granted, Nextera may be unable to attract or retain additional qualified
consultants or may incur unexpected substantial additional labor costs, any of
which could materially adversely affect the Company's business, operating
results and financial condition. See "Business--Human Resources."
CONTROL BY KNOWLEDGE UNIVERSE OR ITS AFFILIATES. After the Offering,
Knowledge Enterprises will own, through Nextera Holdings, 8,810,000 shares of
Class A Common Stock and 3,844,200 shares of Class B Common Stock, which
together will represent approximately 64.5% of the voting power of the
outstanding Common Stock. The Class A Common Stock entitles its holders to one
vote per share, and the Class B Common Stock entitles its holders to ten votes
per share, on all matters submitted to a vote of Nextera's stockholders,
including in connection with the election of the Board of Directors.
Accordingly, Knowledge Enterprises will be able to elect all of the Company's
directors, except for two directors to be elected in accordance with the terms
of a stockholders agreement entered into in connection with the acquisitions
(the "Sibson Acquisitions") of Sibson & Company, L.P. and Sibson Canada, Inc.
(collectively, "Sibson"), as amended in connection with the Lexecon Acquisition
(the "Stockholders Agreement"), and determine the
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disposition of all matters submitted to a vote of Nextera's stockholders,
including mergers, transactions involving a change in control of the Company and
other corporate transactions and the terms thereof. See "Certain
Transactions--Stockholders Agreement." The former stockholders of Lexecon have
not yet exercised their right to nominate a director under the Stockholders
Agreement. Such control by Knowledge Enterprises could materially adversely
affect the market price of the Class A Common Stock or delay or prevent a change
in control of Nextera.
Knowledge Enterprises is controlled by Knowledge Universe which, in turn,
is controlled by Knowledge Universe, L.L.C. ("KU, LLC"). Knowledge Enterprises
was formed to conduct certain of Knowledge Universe's businesses whose primary
customers are other businesses. Knowledge Enterprises controls businesses which
presently operate in the following three sectors: (i) career workforce
management (including staffing, employee training and testing and assessment);
(ii) business consulting through Nextera; and (iii) informational meetings and
conferences (including seminars). Knowledge Universe was formed by Lawrence J.
Ellison, Michael R. Milken and Lowell J. Milken to build, through a combination
of internal development and acquisitions, leading companies in a broad range of
areas relating to career management, technology and education and the
improvement of individual and corporate performance. Knowledge Universe has
focused on acquiring and building education-oriented companies with activities
in areas such as youth education, continuing education, corporate training (both
classroom-based and computer-delivered), educational content creation and
distribution, and information technology and management consulting. Knowledge
Universe and Knowledge Enterprises may form, invest in or acquire other
businesses which are involved in these and related areas, among others, which
businesses may be operated under the control of Knowledge Universe or Knowledge
Enterprises independently of Nextera. There can be no assurance that conflicts
of interest between Knowledge Universe, Knowledge Enterprises and the Company
will not arise or that any such conflict of interest will be resolved in a
manner favorable to Nextera, including potential competitive business
activities, indemnity arrangements, registration rights, sales or distributions
by Nextera Holdings of Nextera's Class A Common Stock and Class B Common Stock
and the exercise by Knowledge Enterprises of its ability to control the
management and affairs of the Company.
The Company was founded in February 1997 by entities which were under the
direct or indirect control of Lawrence J. Ellison, Michael R. Milken and Lowell
J. Milken. Subsequent to the formation of the Company, ownership of the Common
Stock originally held by such founding entities was transferred to Nextera
Holdings. KU, LLC indirectly controls Knowledge Enterprises. Lawrence J.
Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have the
power to control KU, LLC. As a result, Lawrence J. Ellison, Michael R. Milken
and Lowell J. Milken may each be deemed to have the power to direct the voting
and disposition of, and to share beneficial ownership of, any shares of Common
Stock owned by Nextera Holdings. On February 24, 1998, without admitting or
denying any liability, Michael R. Milken consented to the entry of a final
judgment in the U.S. District Court for the Southern District of New York in
Securities and Exchange Commission v. Michael R. Milken et al., which judgment
was entered on February 26, 1998, restraining and enjoining Michael R. Milken
from associating with any broker, dealer, investment advisor, investment
company, or municipal securities dealer and from violating Section 15(a) of the
Exchange Act. On March 11, 1991, in the action entitled In the Matter of Michael
R. Milken, the Securities and Exchange Commission instituted a proceeding
pursuant to Section 15(b)(6) of the Exchange Act and ordered that Michael R.
Milken be barred from association with any broker, dealer, investment advisor,
investment company, or municipal securities dealer. On April 24, 1990, Michael
R. Milken consented to the entry of a final judgment in the U.S. District Court
for the Southern District of New York in Securities and Exchange Commission v.
Drexel Burnham Lambert Incorporated, et al., restraining and enjoining Michael
R. Milken from engaging in transactions, acts, practices and courses of business
which constitute or would constitute violations of, or which aid and abet or
would aid and abet violations of Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d),
14(e), 15(c)(3) and 17(a)(1) of the Exchange Act, and Regulations T and X and
Rules 10b-5, 10b-6, 13d-1, 13d-2, 14c-3, 15c3-1, 17a-3 and 17a-4 promulgated
thereunder and Section 17(a) of the Securities Act of 1933, as amended. Lowell
J. Milken is the brother of Michael R. Milken.
Any change in Nextera's relationship with Knowledge Enterprises, Knowledge
Universe or KU, LLC could materially adversely affect the Company's business,
operating results and financial condition. See "The
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Company--Transfer to Nextera Holdings," "Management--Board of Directors,"
"Certain Transactions," "Principal Stockholders" and "Description of Capital
Stock."
VARIABILITY AND SEASONALITY OF QUARTERLY OPERATING RESULTS. Nextera may
experience fluctuations in its future quarterly operating results. Variations in
the Company's net revenues and operating results from quarter-to-quarter may be
caused by such factors as the number of active client projects, termination of
major client projects, the number of business days in a quarter, hiring,
integration and utilization of consultants and other employees, the mix and
timing of client projects, re-evaluation of progress on and completion of client
projects, variations in utilization rates and average billing rates for
consultants, the accuracy of estimates of resources required to complete ongoing
projects, the integration of acquired entities, and the length of Nextera's
sales cycle. Because a relatively high percentage of the Company's expenses is
relatively fixed, a variation in the number or timing of client projects,
particularly at or near the end of any quarter, may cause significant variations
in operating results from quarter-to-quarter and could result in losses to
Nextera for any particular fiscal period. Events such as write-offs of
uncollectable accounts, the unanticipated termination of a major project or the
completion during a single quarter of several major client projects without
deploying consultants to new engagements could result in the Company's
underutilization of consultants which could, in turn, materially adversely
affect Nextera's business, operating results and financial condition. To the
extent that increases in the numbers of consultants are not followed by
corresponding increases in net revenues, the operating results of the Company
could be materially adversely affected. In addition, it is difficult for Nextera
to forecast the timing of revenues because project cycles depend on factors such
as the size and scope of consulting projects and circumstances specific to each
client. Because the Company's consultants only generate revenues when they are
engaged on client projects, Nextera's operating results are adversely affected
when its consultants cannot perform services for clients due to vacations, sick
days, holidays, inclement weather, training schedules or other reasons. In
particular, the Company can be expected to generate a smaller proportion of its
net revenues and realize lower operating income during the fourth quarter of the
year due to the number of holidays in that quarter. Given the foregoing factors,
Nextera believes that quarter-to-quarter comparisons of its operating results
are not necessarily meaningful and that the results for one quarter should not
be relied upon as an indication of future performance. Demand for Nextera's
services is significantly affected by the general level of economic activity.
When economic activity slows, clients may delay or cancel plans that involve the
hiring of consultants. The Company is unable to predict the level of economic
activity at any particular time, and fluctuations in the general economy could
materially adversely affect Nextera's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SUBSTANTIAL AMOUNT OF GOODWILL AND OTHER INTANGIBLE ASSETS RELATING TO
PERSONNEL. As of December 31, 1998, the Company's intangible assets, net of
accumulated amortization, were approximately $125.1 million, of which
approximately $39.5 million and $47.8 million were attributable to the Sibson
Acquisitions and the Lexecon Acquisition, respectively. Intangible assets at
December 31, 1998, net of accumulated amortization, included $120.4 million of
goodwill and $4.7 million for intangibles relating to personnel. Intangible
assets are being amortized by Nextera on a straight-line basis 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 "--Operational, Financial and Accounting
Risks of Acquisitions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Acquisitions."
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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. Further, clients in the
financial services, diversified services, insurance and health care industries
accounted for approximately 16%, 13%, 12% and 10%, respectively, of Nextera's
pro forma net revenues for the year ended December 31, 1998. Any economic
conditions or other factors adversely affecting any of the foregoing industries
or any increase in the size or number of the Company's competitors within these
industries could materially adversely affect Nextera's business, operating
results and financial condition. See "--Absence of Written Contracts,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Clients and Representative Engagements."
POTENTIAL CONFLICTS OF INTERESTS. The Company provides economic and
litigation consulting services primarily in connection with significant or
complex transactions, disputes or other matters that are usually adversarial or
that involve sensitive client information. Nextera's engagement by a client to
provide such services frequently precludes the Company from accepting
engagements with entities which may have interests which are adverse to the
subject matter of such engagements. In addition, the Company may be precluded
from accepting engagements due to clients' expectations of loyalty, perceived
conflicts of interests or other reasons. Accordingly, the number of both
potential clients and potential engagements is limited, particularly in the
economic consulting and litigation services markets. Moreover, in many of the
industries in which Nextera provides economic and litigation consulting
services, there has been a continuing trend toward business consolidations and
strategic alliances. These consolidations and alliances reduce the number of
potential clients for the Company's services and increase the likelihood that
the Company will be unable to continue certain ongoing engagements or accept
certain new engagements as a result of conflicts of interests. Any such result
could materially adversely affect Nextera's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's success is highly dependent upon
the efforts, abilities, business generation capabilities and project execution
skills of its senior consulting executives and other key personnel. The loss of
the services of any of these persons for any reason could materially adversely
affect Nextera's business, operating results and financial condition, including
its ability to secure and complete engagements. There can be no assurance that
the Company will be able to retain these persons or to attract suitable
replacements or additional personnel if required. In addition, if one or more of
Nextera's key personnel resigns from the Company to join a competitor or to form
a competing business, any resulting loss of existing or potential clients to any
such competitor could materially adversely affect Nextera's business, operating
results and financial condition. Most of the Company's senior consultants are
not bound by non-competition agreements with the Company. Further in the event
of the loss of any such personnel, there can be no assurance that the Company
would be able to prevent the unauthorized disclosure or use of its technical
knowledge, practices or procedures by such personnel. Nextera generally does not
maintain key person life insurance coverage for employees. See "Business--Human
Resources" and "Management--Directors, Executive Officers and Other Senior
Managers."
PROJECT RISKS. The Company's client engagements often involve projects that
are critical to the operation of a client's business and provide benefits that
may be difficult to quantify. Nextera's failure or inability to meet a client's
expectations in the performance of its services could result in a client's
refusal to pay or give rise to claims against the Company or damage Nextera's
reputation, any of which could materially adversely
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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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
EFFECT OF CHANGING LAWS AND REGULATIONS. For the years ended December 31,
1997 and 1998, Nextera derived approximately 28% and 24%, respectively, of its
pro forma net revenues from economic and litigation consulting services related
to antitrust matters, mergers and acquisitions and other securities matters. A
substantial portion of these net revenues were derived from engagements relating
to United States antitrust and securities laws. Changes in these laws, changes
in judicial interpretations of these laws or less vigorous enforcement of these
laws by the United States Department of Justice, the United States Federal Trade
Commission or other federal agencies as a result of changes in philosophy,
political decisions, priorities or other reasons could materially reduce the
magnitude, scope, number or duration of engagements available to the Company in
this area. In addition, adverse changes in general economic conditions or
conditions influencing merger and acquisition activity could have an adverse
impact on engagements in which Nextera assists clients in connection with
proposed mergers and acquisitions. Any reductions in the number of the Company's
securities, antitrust and mergers and acquisitions consulting engagements could
materially adversely affect Nextera's business, operating results and financial
condition.
ABSENCE OF WRITTEN CONTRACTS. Nextera derives a significant portion of its
net revenues from client projects involving significant dollar values.
Accordingly, the cancellation, delay or significant reduction in the scope of a
large engagement could materially adversely affect the Company's business,
operating results and financial condition. Clients engage the Company on a
project-by-project basis, often without a written contract, and a client can
generally terminate an engagement with little or no notice to Nextera and
without penalty. As a result, Nextera believes that the number of clients or the
number and size of its existing projects are not reliable indicators or measures
of future net revenues. The Company has in the past provided, and is likely in
the future to provide, services to clients without a written contract. When a
client defers, modifies or cancels a project, Nextera must be able to rapidly
deploy its consultants to other projects in order to minimize the
underutilization of employees and the resulting adverse impact on operating
results. In addition, the Company's operating expenses are relatively fixed and
cannot be reduced on short notice to compensate for unanticipated variations in
the number or size of projects in progress. As a result, any termination,
significant reduction or modification of its business relationships with any of
its significant clients or with a number of smaller clients could materially
adversely affect Nextera's business, operating results and financial condition.
COMPETITION. The consulting services industry includes a large number of
competitors, is subject to rapid change and is highly competitive. Nextera
believes that the principal competitive factors in the consulting services
industry are reputation, industry expertise, analytical ability and price.
Nextera also believes that its ability to compete depends in part on a number of
factors outside of its control, including the ability of its competitors to
hire, retain and compensate consultants, offer lower-priced services, respond to
client requirements, and develop advanced services or technology. Nextera's
primary competitors include participants from a variety of market segments,
including general management consulting companies, boutique management
consulting firms that provide specialized services or focus on certain
industries, "Big Five" and other accounting firms, economic consulting firms,
technical and economic advisory firms, individual academics, systems consulting
and implementation firms, application software firms, service groups of computer
equipment companies, outsourcing companies, and systems integration companies.
Many of these competitors have significantly greater financial, technical, and
marketing resources, and greater name recognition than Nextera. In addition,
many of these competitors have been operating for a significantly longer
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period of time than the Company and have established long-term client
relationships. Nextera also competes with its clients' internal resources,
particularly where the resources represent a fixed cost to the client. Such
competition may impose additional pricing pressures on Nextera. In addition,
Nextera faces intense competition in its efforts to recruit and retain qualified
consultants. There can be no assurance that the Company will be able to compete
successfully with its existing competitors or any new competitors. See
"Business--Competition."
FOREIGN OPERATIONS. Nextera derived approximately 7% and 6% of its net
revenues on a pro forma basis from clients outside of the United States for the
years ended December 31, 1997 and 1998, respectively. The Company has engaged in
projects in Canada and the United Kingdom and intends to continue to seek an
increasing number of foreign engagements. One of the components of Nextera's
growth strategy is to expand its international presence and seek additional
business outside the United States. Nextera's international business operations
are and will be subject to a number of risks, including difficulties in managing
foreign operations, enforcing agreements and collecting receivables through
foreign legal systems; longer payment cycles; fluctuations in the value of
foreign currencies; and unexpected regulatory, economic or political changes in
foreign markets. The relationship between non-dollar denominated revenues and
dollar denominated expenses may subject the Company to significant foreign
exchange risks. In addition, Nextera may in the future acquire an interest in
entities that operate in countries where the repatriation or conversion of
currency is restricted. There can be no assurance that these factors will not
materially adversely affect the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Growth Strategy."
RAPID TECHNOLOGICAL CHANGE. Nextera's success will depend in part on its
ability to develop business consulting and strategic information technology
solutions that keep pace with continuing changes in information processing
technology and the effect of such changes on client needs and preferences. Part
of the Company's strategy is to focus on business performance solutions, which
include strategic/knowledge management systems and enabling technologies. There
can be no assurance that Nextera will be successful in adequately addressing
developments in IT on a timely basis or that, if these developments are
addressed, the Company will be successful in the marketplace. In addition, there
can be no assurance that products or technologies developed by others or
changing client preferences will not render Nextera's services uncompetitive or
obsolete. The Company's failure to identify or address these developments could
materially adversely affect Nextera's business, operating results and financial
condition.
YEAR 2000 RISKS. Many currently installed computer systems are coded to
accept only two digit entries in the date code field. These date code fields
need to be modified or upgraded to accept four digit entries to distinguish
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 the Acquired Companies, for Year 2000 compliance. The
Company relies upon microprocessor-based personal computers and commercially
available applications software. Nextera is in the process of upgrading the
existing computer software and IT systems of the Company, including the Acquired
Companies. The Company is reviewing its utility systems (heat, light,
telephones, etc.) and other non-IT systems for the impact of Year 2000.
Additionally, should the Company undertake future acquisitions, the Year 2000
risks that affect the Company can be expected to similarly affect such
acquisition candidates. The Company intends to review the systems of all
acquisition candidates for Year 2000 compliance. However, the failure to correct
a material Year 2000 problem either within the Company, including any of the
Acquired Companies, within a vendor or supplier or within an acquisition
candidate could result in an interruption in, or a failure of, certain normal
business activities or
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operations of the Company. Such interruptions or failures could materially
adversely affect the Company's business, operating results and financial
condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's business, operating results or financial condition.
The Company intends to take continuous steps to identify Year 2000 problems
related to its vendors and to formulate a system of working with key
third-parties to understand their ability to continue providing services and
products through the change to Year 2000. The Company intends to work directly
with its key vendors, including financial institutions and utility-providers,
and partner with them if necessary, to avoid any business interruptions.
The Company believes the most likely worst case scenario related to Year
2000 risks is a material business interruption that leads to client
dissatisfaction and the termination of a project or projects by dissatisfied
clients. Such an interruption in services could occur due to a breakdown in any
number of the Company's computer systems and applications and non-IT systems, or
the systems of third-parties. Examples are failures in the Company's application
software, computer chips embedded in equipment, supply of materials from its
suppliers, or lack of adequate telecommunications, power, or other utilities.
Any such failure could prevent the Company from being able to deliver its
services as expected, which could materially adversely affect the Company's
business, operating results and financial condition.
The cost of the Company's Year 2000 compliance assessment and upgrade is
being funded from current operations. As of December 31, 1998, the cost to the
Company of its Year 2000 identification, assessment, remediation and testing
efforts, as well as currently anticipated costs to be incurred by the Company
with respect to Year 2000 issues of third parties, was expected to be less than
$200,000. Because of the uncertainty associated with Year 2000 failures, it is
not possible at present to quantify the cost of corrective actions. The Company
will continue to consider the likelihood of a material business interruption due
to the Year 2000 issue, and, if necessary, implement appropriate contingency
plans. Since the Company has adopted a plan to address these Year 2000 issues,
it has not developed a comprehensive contingency plan should these issues fail
to be completed successfully or in their entirety. However, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time. There
can be no assurance that unexpected Year 2000 compliance problems of either the
Company or its vendors, customers and service providers will not materially
adversely affect the Company's business, operating results and financial
condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failure of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service liability brought against
Nextera related to its Year 2000 consulting could result in substantial cost to
the Company and divert management's attention from Nextera's operations, which
could materially adversely affect the Company's business, operating results and
financial condition.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's
Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and Bylaws, as well as Delaware corporate law, contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Nextera. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Class
A Common Stock. The Certificate of Incorporation authorizes the Company's Board
of Directors to issue shares of Preferred Stock of Nextera, in one or more
series, and to establish the rights and preferences (including the
convertibility of such shares of Preferred Stock into shares of Class A Common
Stock) of any series of Preferred Stock so issued. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market
15
<PAGE> 17
value of the Class A Common Stock. Such provisions also may inhibit fluctuations
in the market price of the Class A Common Stock that could result from takeover
attempts. Additionally, the Certificate of Incorporation provides that any
action required or permitted to be taken by stockholders of Nextera must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of stockholders may be
called only by the Board of Directors, the Chairman of the Board, or the
President of the Company, and stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting. The Bylaws require stockholders to comply with special advance notice
procedures in order to make a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of stockholders
(the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that only persons who are nominated by, or at the direction of, the Company's
notice of meeting, the Board of Directors or by a stockholder who has given
timely written notice to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
the Company. The Stockholder Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Company's notice of meeting, the Board
of Directors or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before such meeting. In addition, under the Stockholder Notice Procedure, a
stockholder's notice to the Company proposing to nominate a person for election
as a director or relating to the conduct of business other than the nomination
of directors must contain a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the nomination or proposal is made. If
the chairman of a meeting determines that business was not properly brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
business shall not be discussed or transacted. The foregoing provisions and
requirements could make it difficult for stockholders to effect certain
corporate actions.
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within the
previous three years, did own) 15% or more of the corporation's voting stock.
This statute contains provisions enabling a corporation to avoid the statute's
restrictions if the stockholders holding a majority of the corporation's voting
stock approve an amendment to the corporation's certificate of incorporation or
bylaws. Neither the Company's Certificate of Incorporation nor Bylaws contain
such a provision, and the Company does not presently intend to submit such a
provision to its stockholders. The Company does not believe that Nextera
Holdings, Knowledge Enterprises or their affiliates should be considered
interested stockholders subject to the provisions of Section 203. See "--Control
by Knowledge Universe or its Affiliates" and "Description of Capital Stock."
INTELLECTUAL PROPERTY RIGHTS. Nextera's success is dependent in part upon
certain methodologies and other proprietary intellectual property rights.
Nextera relies upon a combination of nondisclosure, confidentiality (including
confidentiality agreements with employees), license, employment, and client
agreements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom Nextera
licenses intellectual property. In addition, Nextera generally limits the
distribution of its proprietary information. There can be no assurance, however,
that the steps taken by Nextera to protect its intellectual property rights will
be adequate to deter misappropriation of proprietary information or that the
Company will be able to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights or that competitors will not be able to
develop similar or functionally equivalent methodologies. Furthermore, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries, and no assurance can be given that foreign copyright and
trade secret laws will adequately protect the Company's intellectual property
rights. Although Nextera believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, there can be no
assurance that Nextera's employees will not misappropriate the
16
<PAGE> 18
intellectual property of others. Accordingly, the Company is subject to the risk
of claims alleging infringement of third-party intellectual property rights. Any
such claims could require Nextera to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of asserted infringement, any of which
could materially adversely affect the Company's business, operating results and
financial condition. The Company presently holds no patents or registered
copyrights.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Class A Common Stock.
Consequently, the initial public offering price per share will be determined by
negotiations between Nextera and the representatives of the Underwriters and may
not be indicative of the market price of the Class A Common Stock after the
Offering. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price per share. Application has been
made for quotation of the Class A Common Stock on the Nasdaq National Market;
however, there can be no assurance that an active trading market will develop
and be sustained after the Offering. In the absence of a public trading market,
investors may be unable to liquidate their investments in the Company. The
market price of the Class A Common Stock may fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
adverse circumstances affecting the introduction or market acceptance of new
services offered by Nextera, announcements of new services by competitors,
changes in earnings estimates by analysts, changes in accounting principles,
sales of Class A Common Stock or Class B Common Stock by existing holders, the
depth and liquidity of the market for Class A Common Stock, loss of key
personnel, general market conditions and other factors. The Company believes,
based on publicly available historical data, that equity securities of entities
with businesses similar to the Company's are subject to greater volatility than
the general market. In addition, the stock market from time to time has
experienced broad price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of individual companies. These
broad market fluctuations, as well as shortfalls in operating results as
compared to securities analysts' expectations or changes in such analysts'
projections or recommendations, and general economic market conditions, may
materially and adversely affect the market price of the Class A Common Stock. In
the past, following periods of volatility in the market price of a company's
securities, class action litigation has often been instituted against such a
company. Any such litigation brought against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could materially adversely affect Nextera's business, operating results and
financial condition.
DILUTION. Purchasers of shares of Class A Common Stock in the Offering will
experience an immediate dilution of $10.90 per share in the net tangible book
value per share of Class A Common Stock after the Offering. To the extent
additional shares are issued or outstanding options and warrants to purchase
Class A Common Stock are exercised, there may be further dilution. There can be
no assurance that the Company will not require additional funds to support its
working capital requirements or for other purposes, in which case Nextera may
seek to raise such additional funds through public or private debt or equity
financing or from other sources. There can be no assurance that such additional
financing will be available or that, if available, such financing will be
obtained on terms favorable to the Company and would not result in additional
dilution of Nextera's stockholders. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of significant amounts of Common
Stock in the public market after the Offering or the perception that such sales
will occur could materially adversely affect the market price of the Class A
Common Stock or the future ability of the Company to raise capital through an
offering of its equity securities. Of the shares of Common Stock to be
outstanding upon completion of the Offering, the 11,500,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless such shares are purchased by "affiliates" of Nextera within
the meaning of Rule 144 ("Rule 144") under the Securities Act.
The remaining 23,326,344 shares of Common Stock (including (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, assuming the price per share of the Class A Common Stock in
the Offering is $11.00, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisitions") held by existing
stockholders upon completion of the Offering will be "restricted
17
<PAGE> 19
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 16,916,056 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 the date of this Prospectus
(the "DLJ Lock-up Agreements"). In connection with the Lexecon Acquisition, the
former stockholders of Lexecon entered into lock-up agreements which provide
that they may not sell or otherwise dispose of their shares of Class A Common
Stock for a six-month period following the Offering, and that subsequent to such
six-month period, those stockholders will not sell more than one-third of such
shares in the subsequent 12-month period and more than two-thirds of such shares
in the subsequent 24-month period (the "Lexecon Lock-up Agreements" and
collectively with the DLJ Lock-up Agreements, the "Lock-up Agreements"). A total
of 4,266,240 shares of Class A Common Stock are subject to the Lexecon Lock-up
Agreements (assuming the issuance of 1,450,240 Lexecon Contingent Shares, which
number may vary based upon the price per share of the Class A Common Stock in
the Offering, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Acquisitions"). In addition, Nextera's Certificate of
Incorporation provides that each holder of Common Stock, other than the holders
of the shares of Class A Common Stock acquired in the Offering, agrees not to
sell, directly or indirectly, any Common Stock, subject to certain exceptions,
without the prior consent of DLJ for a period of 180 days from the date of this
Prospectus. Giving effect to these Lock-up Agreements and the foregoing
provisions of the Company's Certificate of Incorporation and without giving
effect to the registration rights under the Stockholders Agreement, additional
shares of Class A Common Stock (including shares issuable upon conversion of
Class B Common Stock, upon the exchange of the Exchangeable Shares and as
Pyramid Earn-out Shares and Lexecon Contingent Shares assuming the price per
share of the Class A Common Stock in the Offering is $11.00) will be available
for sale in the public market (subject in certain circumstances to compliance
with certain volume and other restrictions under Rule 144) as follows: (i) 4,588
shares will be eligible for sale 180 days after the date of this Prospectus; and
(ii) 23,321,756 shares will become eligible for sale under Rule 144 commencing
December 31, 1999, upon the expiration of the restrictions imposed by the
Stockholders Agreement and the Lexecon Lock-up Agreements.
Following the date of this Prospectus, Nextera intends to register on one
or more registration statements on Form S-8 5,000,000 shares of Class A Common
Stock issuable under the 1998 Equity Participation Plan. The Company has also
agreed to issue options under the Limited Purpose Plan and intends to file one
or more registration statements on Form S-8 to register the shares of Class A
Common Stock that are issuable upon the exercise of such options. Of the
5,000,000 shares of Class A Common Stock issuable under the 1998 Equity
Participation Plan, 3,163,652 shares were subject to outstanding options as of
April 1, 1999, of which approximately 584,859 will be exercisable at the time of
the Offering. Assuming the price per share of Class A Common Stock in the
Offering is $11.00, the Company will grant options to purchase an aggregate of
the 3,004,239 shares of Class A Common Stock under the Limited Purpose Plan, of
which options to purchase 445,245 shares of Class A Common Stock will be
exercisable at the time of the Offering. See "Management--Employee Benefit
Plans."
Upon completion of the Offering, the holders of 19,051,714 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, which number may
vary based upon the price per share of the Class A Common Stock in the Offering,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions."). If such holders, by exercising their registration
rights, cause a large number of shares of Class A Common Stock to be registered
and sold in the public market, such sales could materially adversely affect the
market price of the Class A Common Stock. In addition, if the Company is
required, pursuant to such registration rights, to include shares held by such
persons in a registration statement which Nextera files to raise additional
capital, the inclusion of such shares could adversely affect the Company's
ability to raise needed capital. See "Management--Employee Benefit Plans,"
"Principal Stockholders" and "Shares Eligible for Future Sale."
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<PAGE> 20
THE COMPANY
The organizational structure of the Company and its subsidiaries is as
follows:
[COMPANY CHART]
Chart indicating the organizational structure of the Company depicts four
boxes. The top box contains the words "Nextera Enterprises, Inc." above the word
"("Nextera")." Below the top box is a line leading to a second box with the
number "100%" next to the line. The second box contains the words "Sibson
Entities"." Below the second box is a second line leading to a third box with
the number "14.3%" next to the line. Below the top box is a second line leading
to the third box with the number "85.7%" next to the line. The third box
contains five bullet points: "Nextera Business Performance Solutions Group,
Inc.", "Pyramid Imaging, Inc.", "The Planning Technologies Group, L.L.C.",
"Sibson & Company, LLC" and "Sibson Canada Co." Below the top box is a third
line leading to the fourth box with the number 100% next to the line. The fourth
box contains the words "Lexacon Inc."
The following discussion summarizes the Company's formation and certain
other significant events relating to its capital structure prior to the
Offering. For additional related information see "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources" and "Certain Transactions."
Formation. The Company was formed on February 26, 1997 as Education
Technology Consulting, L.L.C. and renamed Nextera Enterprises, L.L.C. on April
11, 1997. Nextera LLC was liquidated and dissolved on December 31, 1998, at
which time the Company commenced operating as a Delaware corporation. The
initial members of Nextera LLC were Nextera Enterprises Holdings, L.L.C.
(formerly Education Technology Consulting Holdings, LLC) ("NEH") and EDU, L.L.C.
("EDU"), each of which was an affiliate of KU, LLC. In connection with the
commencement of their respective employment, Gresham T. Brebach, Jr., the
Company's President, Chief Executive Officer and Chairman of the Board of
Directors, Ronald K. Bohlin, the Company's Chief Operating Officer and Director,
Michael P. Muldowney, the Company's Chief Financial Officer, Debra I. Bergevine,
the Company's Vice President, Marketing, and certain additional individuals
became members of NEH. See "Certain Transactions--Investments in the Company."
Recapitalization. Effective as of April 30, 1998, approximately $48.0
million of Nextera LLC's contributed capital was redesignated as debt in the
form of (i) a debenture dated March 20, 1997 with a principal amount of $23.0
million, which matures on May 1, 2002 and bears interest at a rate of 10% per
annum (the "March Debenture") and (ii) a debenture dated January 5, 1998 with a
principal amount of $24.9 million, which matures on May 1, 2002 and bears
interest at a rate of 10% per annum (the "January Debenture" and together with
the March Debenture, the "Debentures"), and NEH was liquidated and dissolved. In
connection with these transactions, the former members of NEH became members of
Nextera LLC and interests in the January Debenture and March Debenture were
distributed to KU, LLC, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine,
one other employee and one former employee of Nextera LLC. The March Debenture
is subordinate to the January Debenture. The interest on the principal amount of
the Debentures is deemed to have begun to accrue on the date the respective
redesignated capital contributions were originally contributed to Nextera LLC.
See Note 9 of Notes to the Company's Consolidated Financial Statements. The
Debentures were amended in connection with the Lexecon Acquisition with respect
to future interest rate provisions and conversion into preferred stock on
substantially equivalent terms. Effective April 15, 1999, the Debentures were
further amended with respect to certain future interest rate changes. See
"Certain Transactions--Amendment of the Debentures."
Transfer to Nextera Holdings. Effective August 5, 1998, KU, LLC contributed
all of its Class A Common Units and Class B Common Units of Nextera LLC and all
of its other interests in Nextera LLC,
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<PAGE> 21
including its interest in the Debentures and its rights under a management
agreement with Nextera LLC, to Knowledge Universe in exchange for shares of its
capital stock. Effective August 7, 1998, Knowledge Universe and EDU contributed
all of their Class A Common Units and Class B Common Units of Nextera LLC to
Knowledge Enterprises in exchange for capital stock of Knowledge Enterprises
(the "KE Transaction"). In February 1999, Knowledge Enterprises contributed all
of its interest in the Common Stock of the Company to its wholly-owned
subsidiary, Nextera Holdings. See "Certain Transactions--Management Agreement"
and "Principal Stockholders."
Exchangeable Shares. In connection with the Sibson Acquisitions, Nextera
LLC formed Sibson Canada Co., a wholly owned Canadian subsidiary, which issued
the Exchangeable Shares to the holders of capital stock of Sibson Canada, Inc.
The holders of Exchangeable Shares may exchange such shares at any time for an
aggregate of 197,813 shares of Class A Common Stock. The Exchangeable Shares are
designed to provide an opportunity for the shareholders of Sibson Canada, Inc.
to achieve a Canadian tax deferral in certain circumstances. The holders of
Exchangeable Shares are entitled to dividend and other rights equivalent to
shares of Class A Common Stock but are not entitled to vote on matters submitted
to the holders of Class A Common Stock until such time as the holders of
Exchangeable Shares exchange such shares for Class A Common Stock.
Exchange Transaction. On December 31, 1998 and in connection with the
Lexecon Acquisition, all of the members of Nextera LLC (the "Members") other
than Timaeus, Inc. and Critias, Inc., the two entities that owned Sibson &
Company, L.P. prior to its acquisition by Nextera LLC (together, the "Sibson
Entities"), contributed all of their membership interests in Nextera LLC to
Nextera in exchange for Common Stock. The percentage interests and classes of
Common Stock received by each Member (other than the Sibson Entities)
corresponded to the percentage interests and classes of the Nextera LLC
membership interests held by such Member. Each Member that contributed Class A
Common Units of Nextera LLC received shares of Class A Common Stock and each
member that contributed Class B Common Units of Nextera LLC received shares of
Class B Common Stock. Contemporaneous with the exchange of membership interests
of Nextera LLC for Common Stock, the shareholders of the Sibson Entities
contributed all of the issued and outstanding common stock of the Sibson
Entities to the Company in exchange for shares of Class A Common Stock. The
aggregate percentage interests of Class A Common Stock received by the
shareholders of the Sibson Entities corresponded to the percentage interests of
Class A Common Units in Nextera LLC held by the Sibson Entities (the collective
contributions of membership interests in Nextera LLC and capital stock of the
Sibson Entities to the Company and the Lexecon Acquisition are referred to as
the "Exchange Transaction"). Subsequent to the Exchange Transaction, Nextera LLC
was liquidated and dissolved and as a result thereof distributed its assets and
liabilities to the Company and the Sibson Entities in proportion to the
membership interests held by each of them.
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<PAGE> 22
USE OF PROCEEDS
The net proceeds to Nextera from the sale of the 11,500,000 shares offered
by the Company pursuant to the Offering are estimated to be approximately $117.1
million ($134.8 million if the Underwriters' over-allotment option is exercised
in full), at an assumed offering price of $11.00 per share after deducting the
estimated underwriting discounts and commissions and Offering expenses payable
by the Company, net of certain reimbursements. See "Underwriting." The principal
purposes of the Offering are to create a public market for the Class A Common
Stock, enhance Nextera's ability to use its Class A Common Stock as a means of
attracting, motivating and retaining key employees, facilitate the Company's
future access to public equity markets, repay indebtedness, and obtain
additional working capital. Nextera intends to use the net proceeds from the
Offering as follows:
(i) approximately $79.4 million to repay outstanding principal and
interest under a $77.5 million credit facility entered into effective
August 31, 1998, and amended effective December 31, 1998 and April 15, 1999
(the "Bridge Loan") which bears interest at 12% per annum, and matures on
May 31, 1999. Under the Bridge Loan, the Company borrowed $38.0 million to
finance the Sibson Acquisitions, $31.1 million to finance the Lexecon
Acquisition, $4.2 million to finance the payment of bonuses to certain
non-stockholder key executives of Lexecon, $2.0 million to finance the
acquisition of Alexander and $2.2 million for general corporate purposes,
including working capital. See "Certain Transactions--Bridge Loan
Amendment." Knowledge Universe holds a note from the Company with a
principal amount of $37.5 million and Nextera Funding, Inc., an entity not
affiliated with the Company, holds the remaining interests under the Bridge
Loan. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Underwriting."
(ii) approximately $750,000 will be paid to Nextera Funding, Inc., an
entity not affiliated with the Company, in consideration for certain
consents and amendments given in connection with the amendment to the
Bridge Loan. See "Underwriting."
(iii) approximately $410,000 to pay accrued management fees to
Knowledge Universe. See "Certain Transactions--Management Agreement."
(iv) approximately $37.1 million to repay outstanding principal and
interest on the March Debenture in full and outstanding interest and a
portion of the principal on the January Debenture. Approximately $18.0
million of principal of the January Debenture will remain outstanding after
the Offering. Each of the Debentures bears interest at 10% per annum, and
matures on May 1, 2002. All of the interests in the Debentures are held by
Knowledge Universe, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine
and one other employee of the Company, who will receive payments of
approximately $36.4 million, $434,000, $37,000, $54,000, $54,000, and
$54,000, respectively upon repayment in full of the March Debenture and the
partial repayment of the January Debenture. The indebtedness associated
with the Debentures was incurred to finance acquisitions and for general
working capital purposes. See "The Company--Recapitalization," "Certain
Transactions--Investments in the Company" and "--Amendment of the
Debentures." Upon the repayment in full of the March Debenture and the
partial repayment of the January Debenture, Messrs. Brebach and Muldowney,
Ms. Bergevine and one other employee of the Company will repay $434,000,
$54,000, $49,000 and $54,000, respectively, pursuant to promissory notes
executed by them and held by the Company. See "Certain Transactions--Loans
to Certain Officers."
Pending such uses, Nextera intends to invest the net proceeds from the
Offering in short-term, investment-grade, interest-bearing securities. Although
Nextera examines potential acquisition opportunities from time to time, other
than as disclosed in this Prospectus, the Company has no current plans,
commitments, agreements or understandings with respect to any material
acquisitions or investments as of the date of this Prospectus, and no portion of
the net proceeds has been allocated for any specific material acquisition or
investment. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisitions" and "--Liquidity and Capital Resources."
DIVIDEND POLICY
Nextera has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain all future earnings, if any, for use in
the operation and development of its business and, therefore, does not expect to
declare or pay any cash dividends on its Common Stock in the foreseeable future.
The payment of dividends in the future, if any, will be at the discretion of the
Board of Directors.
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<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of Nextera as of December
31, 1998 on (i) an actual basis and (ii) an as adjusted basis to give effect to
(a) the exchange of all Exchangeable Shares for 197,813 shares of Class A Common
Stock, (b) the issuance of 1,450,240 Lexecon Contingent Shares (assuming the
price per share of the Class A Common Stock in the Offering is $11.00), and (c)
the sale of 11,500,000 shares of Class A Common Stock offered hereby at an
assumed initial public offering price of $11.00 per share and the application of
the estimated net proceeds of the Offering. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions." The information set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and the related
Notes thereto and the Unaudited Pro Forma Combined Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt and capital lease obligations......... $ 82,487 $ 6,638
Total long-term debt and capital lease obligations.......... 55,749 14,650
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding, actual
and as adjusted........................................ -- --
Exchangeable Shares, no par value, 2,500,000 shares
authorized, 197,813 shares issued and outstanding,
actual, and zero shares issued and outstanding, as
adjusted............................................... 495 --
Class A Common Stock, $0.001 par value; 50,000,000 shares
authorized, 16,811,740 shares issued and outstanding,
actual, and 29,959,793 shares issued and outstanding,
as adjusted(1)......................................... 17 30
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 4,274,630 shares issued and outstanding,
actual and as adjusted................................. 4 4
Additional paid-in capital................................ 31,144 164,631
Accumulated deficit....................................... (20,170) (20,170)
-------- --------
Total stockholders' equity (deficit)................... $ 11,490 $144,495
-------- --------
Total capitalization.............................. $149,726 $165,783
======== ========
</TABLE>
- ------------------------------
(1) Excludes (i) 5,000,000 shares of Class A Common Stock reserved for issuance
under the 1998 Equity Participation Plan pursuant to which options to
purchase 3,163,652 shares will be outstanding upon the closing of the
Offering, see "Management--Employee Benefit Plans," (ii) 384,000 shares of
Class A Common Stock issuable upon exercise of options granted to certain
non-stockholder key executives of Lexecon, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations," (iii) 197,760 shares of Class A Common Stock issuable upon
exercise of options reserved for issuance to certain non-stockholder key
executives of Lexecon assuming the price per share of the Class A Common
Stock in the Offering is $11.00 (the number of shares subject to such
options will range from a minimum of 31,560 shares if the price per share in
the Offering is $17.50 or higher to a maximum of 197,760 shares if the price
per share in the Offering is $12.50 or less), see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations," (iv) 3,004,239 shares of Class A Common Stock (assuming the
price per share of Class A Common Stock in the Offering is $11.00) issuable
upon exercise of options which the Company has granted or agreed to grant to
certain personnel of Lexecon under the Limited Purpose Plan, see
"Management--Employee Benefit Plans," (v) 250,000 shares of Class A Common
Stock issuable upon exercise of certain warrants issued in connection with
the Lexecon Acquisition, see "Certain Transactions--Guaranty and Warrants to
Purchase Class A Common Stock," and (vi) 4,274,630 shares of Class A Common
Stock issuable upon conversion of the 4,274,630 shares of the Company's
Class B Common Stock. See "Description of Capital Stock."
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<PAGE> 24
DILUTION
As of December 31, 1998, the net tangible book deficit of Nextera was
$(113.6) million, or $(5.00) per share of Common Stock. Net tangible book value
per share is equal to the amount of total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding
after giving effect to (i) the issuance of 1,450,240 Lexecon Contingent Shares
(assuming the price per share of the Class A Common Stock in the Offering is
$11.00) and (ii) the exchange of the Exchangeable Shares for 197,813 shares of
Class A Common Stock. After giving effect to the receipt and application of the
estimated net proceeds from the sale of the 11,500,000 shares of Class A Common
Stock offered hereby at an assumed initial public offering price of $11.00 per
share, the net tangible book value of Nextera as of December 31, 1998 would have
been $3.5 million, or $0.10 per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $5.10 per share of
Common Stock to existing stockholders and an immediate dilution of $10.90 per
share of Common Stock to new stockholders. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book deficit per share before the
Offering............................................... $(5.00)
Increase per share attributable to new investors.......... 5.10
------
Pro forma net tangible book value per share after the
Offering.................................................. 0.10
------
Dilution per share to new investors......................... $10.90
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the difference between the existing stockholders and new stockholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to Nextera and the average price paid per share by
existing stockholders and by new stockholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 22,734,423 66.4% $ 47,613,000 27.4% $ 2.09
New stockholders.................. 11,500,000 33.6 126,500,000 72.6 11.00
---------- ----- ------------ ------
Total................... 34,234,423 100.0% $174,113,000 100.0%
========== ===== ============ ======
</TABLE>
The foregoing tables and calculations assume (i) no exercise of the
Underwriters' over-allotment option, (ii) no exercise of options to purchase
2,480,240 shares of Class A Common Stock at a weighted average exercise price of
$6.50 per share granted under the 1998 Equity Participation Plan outstanding as
of December 31, 1998, (iii) no exercise of options to purchase 384,000 shares of
Class A Common Stock granted to certain non-stockholder key executives of
Lexecon, (iv) no exercise of options to purchase 197,760 shares of Class A
Common Stock issuable upon exercise of options reserved for issuance to certain
non-stockholder key executives of Lexecon at an exercise price of $1.50 per
share assuming the price per share of the Class A Common Stock in the Offering
is $11.00 (the number of shares subject to such options will range from minimum
of 31,560 shares if the price per share in the Offering is $17.50 or higher to a
maximum of 197,760 if the price per share in the Offering is $12.50 or less),
(v) no issuance of 3,004,239 shares of Class A Common Stock (assuming the price
per share in the Offering is $11.00) issuable upon exercise of options which the
Company has granted or agreed to grant to certain personnel of Lexecon under the
Limited Purpose Plan, and (vi) no exercise of warrants to purchase 250,000
shares of Class A Common Stock issuable upon exercise of certain warrants issued
in connection with the Lexecon Acquisition at an exercise price of $8.80 per
share (assuming the price per share in the Offering is $11.00). The exercise of
options and warrants to purchase Class A Common Stock will result in further
dilution to new investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions," and "--Results of
Operations," "Management--Employee Benefit Plans," "Description of Capital
Stock--Warrants," "Certain Transactions--Guaranty and Warrants to Purchase Class
A Common Stock," and "Shares Eligible for Future Sale."
23
<PAGE> 25
SELECTED CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Statements of Operations Data
presented below for the period from February 26, 1997 (date of inception)
through December 31, 1997 and the year ended December 31, 1998 and the Balance
Sheet Data as of December 31, 1997 and 1998 have been derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Ernst & Young LLP, independent auditors, whose report with
respect thereto is included elsewhere in this Prospectus. See the Company's
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
The unaudited pro forma Statements of Operations Data for the year ended
December 31, 1998 combine the historical statements of operations of Nextera and
the Acquired Companies other than Alexander as if such acquisitions had been
completed on January 1, 1998. This pro forma data should be read in conjunction
with the respective Historical Financial Statements of Nextera and the Acquired
Companies (including the Notes thereto), the Unaudited Pro Forma Combined
Financial Statements (including the Notes thereto), Management's Discussion and
Analysis of Financial Condition and Results of Operations, and other financial
information of Nextera and the Acquired Companies appearing elsewhere herein.
The pro forma statements may not be indicative of the results that would have
actually been obtained had the acquisitions reflected therein occurred on the
dates indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
------------------------------------- -----------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF
INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues................................................ $ 7,998 $ 67,590 $135,167
Cost of revenues............................................ 4,718 44,985 78,850
------- -------- --------
Gross profit................................................ 3,280 22,605 56,317
Selling, general and administrative expenses................ 5,306 23,103 41,469
Amortization expense........................................ 255 1,722 4,326
Restructuring costs(2)...................................... -- 1,298 1,298
Compensation expense--other(3).............................. -- 6,671 7,511
------- -------- --------
Income (loss) from operations............................... (2,281) (10,189) 1,713
Interest income (expense), net.............................. (32) (6,723) (13,521)
------- -------- --------
Loss before provision for income taxes...................... (2,313) (16,912) (11,808)
Provision for income taxes.................................. 702 243 236
------- -------- --------
Net loss.................................................... $(3,015) $(17,155) $(12,044)
======= ======== ========
Net loss per common share, basic and diluted(4)............. $ (0.74) $ (1.14) $ (0.61)
Weighted average common shares outstanding, basic and
diluted................................................... 4,061 14,997 19,891
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 554 $ 1,496
Working capital (deficit)................................. (335) (65,761)
Total assets.............................................. 22,655 176,691
Total short-term debt and capital lease obligations....... 1,833 82,487
Total long-term debt and capital lease obligations........ 969 55,749
Total stockholders' equity................................ 16,732 11,490
</TABLE>
- ------------------------------
(1) The pro forma selected combined statement of operations data for the year
ended December 31, 1998 are presented as if the acquisitions of the Acquired
Companies other than Alexander had been consummated as of January 1, 1998.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Acquisitions" and Unaudited Pro Forma Combined Financial
Statements. Alexander was acquired by the Company in January 1999 and is not
material to the Company's results of operations or financial position.
(2) Restructuring costs related to Business Performance Solutions.
(3) Results from cash payments and fully-vested stock options granted to certain
non-stockholder key executives of Lexecon. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. Nextera's actual results, performance
or achievements could differ materially from the results, performance or
achievements expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, economic analysis, operations improvement, organizational
design and IT primarily to Fortune 500 and other multinational companies and
government agencies. The Company provides services in four practice areas, which
enables it to offer a broad range of complementary services that assist clients
in achieving enhanced business performance by anticipating and addressing their
complex, multi-disciplinary consulting needs. Nextera helps organizations
redefine the way in which existing work is conducted or new businesses and
markets are entered by analyzing underlying strategic and economic issues
affecting business performance, redesigning operational processes and business
practices, defining and managing major change initiatives, and using emerging
information technologies (such as web-based technologies and electronic
commerce) to support new strategic approaches.
Nextera was founded in February 1997 and has focused on building its
portfolio of practice areas primarily through selective acquisitions and, to a
lesser extent, internal growth. The Company has pursued an acquisition strategy
that has resulted in the acquisitions of the Acquired Companies. The Company's
results of operations have been, and will continue to be, affected by
substantial annual non-cash amortization charges for goodwill as a result of
these acquisitions being accounted for under the purchase method of accounting.
For the foreseeable future, Nextera will be unable to account for future
acquisitions under the pooling-of-interests method of accounting because, among
other reasons, the Company is a controlled subsidiary. Accordingly, the Company
will be required to account for acquisitions under the purchase method of
accounting, which may result in substantial additional annual non-cash
amortization charges for goodwill and other intangible assets in Nextera's
statements of operations. Intangible assets are being amortized by Nextera on a
straight-line basis over 5 years for intangibles relating to personnel and over
40 years for all other intangibles, including goodwill. In accordance with SFAS
No. 121, the Company will periodically evaluate whether recent events and
circumstances have occurred that indicate the acquired goodwill may warrant
revision.
Nextera is affiliated with Knowledge Enterprises and Knowledge Universe and
from time-to-time has been engaged on an arm's-length basis to provide
consulting services for Knowledge Universe and its affiliates. The Company
expects that it may also be engaged to provide such services in the future. See
"Certain Transactions--Engagement of the Company by Knowledge Universe or its
Affiliates." Knowledge Enterprises and Knowledge Universe are engaged in
acquiring and operating companies in a broad range of areas relating to (i)
career workforce management (including staffing, employee training and testing
and assessment), (ii) business consulting through Nextera, and (iii)
informational meetings and conferences (including seminars). Knowledge Universe
has focused on acquiring and building education-oriented companies with
activities in areas such as youth education, corporate training (both
classroom-based and computer-delivered), educational content creation and
distribution, and information technology and management consulting. Nextera
expects to benefit from its association with Knowledge Universe and Knowledge
Enterprises through increased access to prospective client contacts and other
business opportunities and the potential ability of Knowledge Universe and
Knowledge Enterprises to enhance the Company's market exposure, although there
can be no assurance that these expected benefits will be realized.
The Company generates net revenues by providing business and IT consulting
services primarily under time and materials, fixed-price or capped-fee billing
arrangements. Under time and materials billing
25
<PAGE> 27
arrangements, revenues are recognized as the services are performed. Revenues on
fixed-price and capped-fee contracts are recognized using the percentage of
completion method of accounting and are adjusted monthly for the cumulative
impact of any revision in estimates. The Company determines the percentage of
completion of its contracts by comparing costs incurred to date to total
estimated costs. Contract costs include all direct labor and expenses related to
the contract performance. On a pro forma basis, fixed-price or capped-fee
billing arrangements accounted for approximately 8% and 12% of Nextera's net
revenues for the years ended December 31, 1997 and 1998, respectively. See "Risk
Factors--Fixed-Price or Capped-Fee Contracts." The Company believes that the
majority of its work will continue to be performed under time and materials
billing arrangements. Net revenues exclude reimbursable expenses charged to
clients. The Company typically bills on a monthly basis to monitor client
satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's net revenues are derived from clients located
in the United States and Canada. The Company's 10 largest clients accounted for
approximately 24% and 29% of pro forma net revenues for the years ended December
31, 1997 and 1998, respectively. For the years ended December 31, 1997 and 1998,
none of the Company's clients individually accounted for 10% or more of the
Company's pro forma net revenues. See "Risk Factors--Concentration of Net
Revenues Within a Relatively Limited Number of Clients and Industries."
Gross profit is derived from net revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. Nextera's financial
performance is primarily based upon billing margin (billable daily rate less the
consultant's daily cost) and personnel utilization rates (billable days divided
by paid days). The Company monitors its engagements to manage billing and
utilization rates. The Company derives a substantial majority of its net
revenues from engagements billed on a time and materials basis. The Company is
generally able to pass increases in its cost of revenues along to its clients to
the extent that the Company bills engagements on a time and materials basis. The
Company generally is unable to pass along increases in its cost of revenues with
respect to engagements billed on a fixed-price or capped-fee basis. Generally,
clients are billed for expenses incurred by Nextera on the clients' behalf. In
addition, Nextera closely monitors and attempts to control expenses that are not
passed through to its clients. Incentive compensation expenses paid to
consultants have a large variable component relating to net revenues and profit
and, therefore, vary based upon the Company's ability to achieve its operating
objectives.
Selling, general and administrative expenses consist of salaries and
benefits of certain senior management and other administrative personnel and
training, marketing and promotional costs. These expenses are associated with
the Company's development of new business and with the Company's management,
finance, recruiting, marketing and administrative activities. Incentive
compensation expenses for certain senior management also have a significant
variable component relating to net revenues and profit and, therefore, vary
based upon the Company's ability to achieve its operating objectives.
Through December 31, 1998, the Company and certain of its subsidiaries were
treated as partnerships for federal and state income tax purposes and all items
of income, expense and tax credits were passed through to their respective
equity holders. Business Performance Solutions (formerly named Symmetrix, Inc.
("Symmetrix")) and Pyramid, two of the Company's wholly owned subsidiaries, were
subject to income taxes for periods ended prior to January 1, 1999. The
Company's provision for income taxes for periods ended through December 31, 1998
reflect the accrued tax liabilities of these two subsidiaries and certain items
of income and loss from the ownership of Lexecon. As of December 31, 1998,
Business Performance Solutions had pre-acquisition net operating loss
carryforwards of approximately $5.8 million which arose principally as a result
of disqualifying dispositions of Business Performance Solutions' previously
outstanding stock options. As a result of the ownership change of Business
Performance Solutions upon its acquisition by the Company, these net operating
loss carryforwards are subject to limitations under the Internal Revenue Code.
See Note 6 of Notes to the Company's Consolidated Financial Statements.
Effective December 31, 1998, as a result of the Exchange Transaction, the
Company changed its form of incorporation and became subject to income taxes.
The Company's tax provisions, both historically and for periods ending after
December 31, 1998, did and are expected to vary from the federal statutory rate
of 34% predominately due to nondeductible goodwill amortization, utilization of
post-acquisition net operating losses, state and local taxes and nondeductible
meal expenses.
26
<PAGE> 28
ACQUISITIONS
All acquisitions completed by Nextera have been accounted for under the
purchase method of accounting. Accordingly, the historical Consolidated
Financial Statements of the Company included in this Prospectus include
operating results of the Acquired Companies only from the effective date of each
respective acquisition and are not necessarily indicative of the future
financial condition or results of operations of the Company.
Effective July 30, 1997, Nextera acquired Symmetrix, a Massachusetts-based
management consulting and technology consulting company, which has been renamed
Nextera Business Performance Solutions Group, Inc. Through Business Performance
Solutions, the Company offers enhanced services in acquisition due diligence,
customer profitability, IT strategy assessment and design, construction, and
deployment of complete business systems. Business Performance Solutions was
acquired for $15.5 million in cash.
Effective January 5, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of SiGMA Consulting, LLC ("SiGMA"), a New
York-based management consulting firm. Through SiGMA, the Company offered
consulting services focusing on change management and helping organizations
improve core business processes, including product development, manufacturing
and distribution, sales, and enterprise management. SiGMA was acquired for $10.0
million in cash and 669,000 shares of Class A Common Stock. Effective December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions. SiGMA subsequently liquidated and dissolved and
distributed all of its assets to Business Performance Solutions.
Effective March 31, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of The Planning Technologies Group, Inc.
("PTG"), a Massachusetts-based strategy and management consulting firm. Through
PTG, the Company offers strategy formulation, strategic planning process design,
and business process assessment and redesign services. PTG was acquired for $6.7
million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, the Company acquired Pyramid, a California-based
consulting and technology firm. Through Pyramid, the Company offers consulting
services focused on providing technology-based solutions within the areas of
knowledge management, electronic commerce, customer management, and human
capital management. Pyramid was acquired for $9.2 million in cash and 586,667
shares of Class A Common Stock. In addition, the Company agreed to an earn-out
provision providing for the payment of up to an additional $0.8 million in cash
and 53,333 shares of Class A Common Stock upon the achievement of certain
revenue and pre-tax profit targets related to the performance of Pyramid during
the twelve months ending March 31, 1999.
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., human resources consulting firms based in New Jersey and Toronto,
Canada, respectively. Through Sibson, the Company provides human capital
consulting services offering human resource strategies, outsourcing assessments,
organizational designs, rewards/ incentives programs, performance management
processes and systems, and executive coaching services. Sibson also serves sales
and marketing organizations with sales strategy, selling process, sales channel
and selling effectiveness consulting. Sibson was acquired for $37.4 million in
cash and 2,613,087 shares of Class A Common Stock and the Exchangeable Shares,
which may be exchanged at the option of the holders into 197,813 shares of Class
A Common Stock.
Effective December 31, 1998, the Company acquired Lexecon, an
Illinois-based economic consulting firm. Through Lexecon, Nextera provides a
full range of economic consulting services, including economic, financial and
statistical analysis and expert testimony, which are predominately used in
matters relating to complex litigation and regulatory proceedings. Lexecon was
acquired for $31.1 million in cash, 2,816,000 shares of Class A Common Stock and
the Lexecon Contingent Shares to be determined based on the price per share of
the Class A Common Stock in the Offering. The number of Lexecon Contingent
Shares to be issued will range from a minimum of 231,440 shares if the price per
share in the Offering is $17.50 or higher to a maximum of 1,450,240 shares if
the price per share in the Offering is $12.50 or less. Assuming the price per
27
<PAGE> 29
share of the Class A Common Stock in the Offering is $11.00, 1,450,240 Lexecon
Contingent Shares will be issued. However, if the Offering does not occur on or
prior to February 29, 2000, all 1,450,240 Lexecon Contingent Shares will be
deemed issued and simultaneously redeemed by the Company at a price of $7.65 per
share, which will require the Company to pay approximately $11.1 million in cash
to the former stockholders of Lexecon. The value of the Lexecon Contingent
Shares actually issued will increase the amount of goodwill the Company records
in connection with the Lexecon Acquisition. Nextera's obligation to effect the
foregoing redemption of the Lexecon Contingent Shares was guaranteed by
Knowledge Universe in consideration for the issuance of warrants to purchase
250,000 shares of Class A Common Stock. See "Certain Transactions--Guaranty and
Warrants to Purchase Class A Common Stock."
Effective January 29, 1999, the Company acquired Alexander, a United
Kingdom-based human resources consulting firm. Through Alexander, Nextera
provides human capital consulting services including leadership development,
culture change, team performance and individual coaching. Alexander was acquired
for L300,000 (approximately $490,000 as of January 29, 1999) and 150,000 shares
of Class A Common Stock, subject to post-closing adjustments. In addition, the
Company will pay an earn-out of up to an additional L700,000 over a three-year
period depending upon Alexander's satisfaction of certain performance criteria.
Effective February 21, 1999, the Company executed a nonbinding term sheet
to acquire The Economics Resource Group, Inc. ("ERG"), a Massachusetts-based
consulting firm that provides economic and strategic services primarily to
energy and other regulated industries. The transaction consideration is expected
to be up to $12 million in cash, subject to post-closing adjustment based upon
specified financial performance criteria for ERG, and the assumption of
specified liabilities. The Company proposes to enter into service agreements
with the principal stockholders of ERG and may enter into employment agreements
with other key ERG employees. The service agreements are expected to provide,
among other things, for the issuance of options to purchase Class A Common Stock
to the principal stockholders of ERG based on prior cash compensation paid to
such individuals. The transaction is subject to the Company's due diligence
review of ERG and other customary closing conditions. No assurance can be made
that the Company will consummate this acquisition or that the terms of such
acquisition will not vary from those anticipated at this time.
Effective February 23, 1999, the Company executed a nonbinding term sheet
to acquire NeoEnterprises, Inc. ("NeoEnterprises"), a Connecticut-based
electronic commerce, or "e-commerce," consulting and development company. If
this acquisition is completed, the Company will develop and provide e-commerce
services to clients. The transaction consideration is expected to be 86,000
shares of Class A Common Stock. NeoEnterprises is expected to be merged into
Pyramid as a part of the acquisition. James K. Burns, the sole stockholder of
NeoEnterprises, became an employee of the Company effective February 1, 1999.
See "Management -- Directors, Executive Officers, and Other Senior Managers." It
is anticipated that Mr. Burns will receive an earn-out of up to an additional
84,000 shares of Class A Common Stock over a five-year period depending upon
Pyramid's satisfaction of certain performance criteria. No assurance can be made
that the Company will consummate this acquisition or that the terms of such
acquisition will not vary from those anticipated at this time.
28
<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations for the
periods indicated. This information for quarterly periods has been prepared on
the same basis as the Consolidated Financial Statements and, in the opinion of
the Company's management, reflects all adjustments (consisting only of normal
and recurring adjustments and adjustments related to the Company's equity
recapitalization) necessary for the fair presentation of the information for the
periods presented.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE THREE MONTHS ENDED
THROUGH YEAR ENDED --------------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1998 1997(1) 1997 1997 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $ 7,998 $ 67,590 $ -- $ 3,039 $4,959 $ 8,186 $13,909
Cost of revenues..... 4,718 44,985 -- 1,851 2,867 5,623 9,315
------- -------- ----- ------- ------ ------- -------
Gross profit....... 3,280 22,605 -- 1,188 2,092 2,563 4,594
Selling, general and
administrative
expenses........... 5,306 23,103 987 1,848 2,471 2,886 4,410
Amortization
expense............ 255 1,722 -- 101 154 224 344
Restructuring
costs(2)........... -- 1,298 -- -- -- -- --
Compensation
expense--
other(3)........... -- 6,671 -- -- -- -- --
------- -------- ----- ------- ------ ------- -------
Loss from
operations....... (2,281) (10,189) (987) (761) (533) (547) (160)
Interest income
(expense), net..... (32) (6,723) 3 8 (43) (1,567) (1,104)
------- -------- ----- ------- ------ ------- -------
Loss before
provision for
income taxes..... (2,313) (16,912) (984) (753) (576) (2,114) (1,264)
Provision for income
taxes.............. 702 243 -- 280 422 125 75
------- -------- ----- ------- ------ ------- -------
Net loss........... $(3,015) $(17,155) $(984) $(1,033) $ (998) $(2,239) $(1,339)
======= ======== ===== ======= ====== ======= =======
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1998
(IN THOUSANDS)
<S> <C> <C>
Net revenues......... $17,486 $28,009
Cost of revenues..... 12,641 17,406
------- -------
Gross profit....... 4,845 10,603
Selling, general and
administrative
expenses........... 7,279 8,528
Amortization
expense............ 466 688
Restructuring
costs(2)........... 967 331
Compensation
expense--
other(3)........... -- 6,671
------- -------
Loss from
operations....... (3,867) (5,615)
Interest income
(expense), net..... (1,648) (2,404)
------- -------
Loss before
provision for
income taxes..... (5,515) (8,019)
Provision for income
taxes.............. -- 43
------- -------
Net loss........... $(5,515) $(8,062)
======= =======
</TABLE>
- ------------------------------
(1) During the period from February 26, 1997 (date of inception) through March
31, 1997, the Company incurred expenses of $34,000 which are included in the
three months ended June 30, 1997.
(2) Restructuring costs are related to Business Performance Solutions.
(3) Results from cash payments and fully-vested stock options granted to certain
non-stockholder key executives of Lexecon.
29
<PAGE> 31
The following table sets forth, for periods indicated, the percentage
relationship to net revenues of the Company's results of operations. This
information for quarterly periods has been prepared on the same basis as the
Consolidated Financial Statements and, in the opinion of the Company's
management, reflects all adjustments (consisting only of normal and recurring
adjustments and adjustments related to the Company's equity recapitalization)
necessary for the fair presentation of the information for the periods
presented.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE THREE MONTHS ENDED
THROUGH YEAR ENDED --------------------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1998 1997 1997 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... 100% 100% -- 100% 100% 100% 100%
Cost of revenues..... 59 67 -- 61 58 69 67
---- --- ---- ---- ---- ---- ---
Gross profit....... 41 33 39 42 31 33
Selling, general and
administrative
expenses........... 66 34 61 50 35 32
Amortization
expense............ 3 3 3 3 3 2
Restructuring
costs.............. -- 2 -- -- -- --
Compensation
expense--other..... -- 10 -- -- -- -- --
---- --- ---- ---- ---- ---- ---
Loss from
operations....... (29) (15) (25) (11) (7) (1)
Interest income
(expense),
net................ 0 (10) 0 (1) (19) (8)
---- --- ---- ---- ---- ---- ---
Loss before
provision for
income taxes..... (29) (25) (25) (12) (26) (9)
Provision for income
taxes.............. 9 -- 9 8 1 1
---- --- ---- ---- ---- ---- ---
Net loss........... (38%) (25%) (34%) (20%) (27%) (10%)
==== === ==== ==== ==== ==== ===
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1998
<S> <C> <C>
Net revenues......... 100% 100%
Cost of revenues..... 72 62
--- ---
Gross profit....... 28 38
Selling, general and
administrative
expenses........... 42 30
Amortization
expense............ 3 2
Restructuring
costs.............. 6 1
Compensation
expense--other..... -- 24
--- ---
Loss from
operations....... (22) (20)
Interest income
(expense),
net................ (9) (9)
--- ---
Loss before
provision for
income taxes..... (32) (29)
Provision for income
taxes.............. -- --
--- ---
Net loss........... (32%) (29%)
=== ===
</TABLE>
In light of the Company's inception on February 26, 1997, the number of
acquisitions completed and the absence of significant operations through June
30, 1997, management has decided to present a comparison of results for (i) the
three months ended December 31, 1998 versus the three months ended September 30,
1998, (ii) the three months ended September 30, 1998 versus the three months
ended June 30, 1998, (iii) the three months ended June 30, 1998 versus the three
months ended March 31, 1998, and (iv) the three months ended March 31, 1998
versus the three months ended December 31, 1997, because it believes that such
comparisons are the most meaningful presentation of the Company's operating
results.
All acquisitions completed by Nextera have been accounted for under the
purchase method of accounting. Accordingly, the historical Consolidated
Financial Statements of the Company included in the Prospectus include operating
results of the Acquired Companies only from the date of each respective
acquisition. As the Lexecon Acquisition was consummated on December 31, 1998 and
Alexander was acquired by the Company in January 1999, the following
period-to-period comparisons do not reflect the results of Lexecon or Alexander.
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COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net Revenues. Net revenues increased 60.2% to $28.0 million for the three
months ended December 31, 1998 from $17.5 million for the three months ended
September 30, 1998. This increase was due primarily to the inclusion of Sibson's
net revenues for the three months ended December 31, 1998 as compared to only
one month of such net revenues in the three months ended September 30, 1998. The
increase in revenues was also attributable to a $0.6 million reduction in
revenues resulting principally from a reduction in the estimated percentage of
completion of a fixed-price contract during the three months ended September 30,
1998. No such reduction was reflected in the three months ended December 31,
1998. See "Business -- Legal Proceedings" for a discussion of other issues
related to this contract.
Gross Profit. Gross profit increased 118.8% to $10.6 million for the three
months ended December 31, 1998 from $4.8 million for the three months ended
September 30, 1998. Gross margin increased to 37.9% for the three months ended
December 31, 1998 from 27.7% for the three months ended September 30, 1998. The
increase in gross profit and gross margin was due primarily to the Sibson
Acquisitions. Gross profit and gross margin also increased due, to a lesser
extent, to a reduction reflected during the three months ended September 30,
1998 in the estimated percentage of completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.2% to $8.5 million for the three months
ended December 31, 1998 from $7.3 million for the three months ended September
30, 1998. As a percentage of net revenues, such expenses decreased to 30.5% for
the three months ended December 31, 1998 from 41.6% for the three months ended
September 30, 1998. The dollar increase was due primarily to the inclusion of
the Sibson Acquisitions for the entire three months ended December 31, 1998 and
the inclusion in the three months ended December 31, 1998 of $0.4 million of a
supplemental management fee charge by Knowledge Universe, offset in part by the
inclusion during the three months ended September 30, 1998 of $1.1 million of a
supplemental management fee charge by Knowledge Universe for 1998, and the
inclusion of $0.3 million of compensation expense related to the purchase of
Common Stock by certain of the Company's executive officers. See "Certain
Transactions--Management Agreement."
Interest Income (Expense), Net. Interest expense, net increased 45.9% to
$2.4 million for the three months ended December 31, 1998 from $1.6 million for
the three months ended September 30, 1998. This increase was due primarily to
the borrowings to fund the Sibson Acquisitions on August 31, 1998. See
"Liquidity and Capital Resources," "Use of Proceeds" and Note 9 of Notes to the
Company's Consolidated Financial Statements.
Restructuring. During the three months ended December 31, 1998 and
September 30, 1998, the Company recorded restructuring costs of $0.3 million and
$1.0 million, respectively, related to the approval by the Board of Directors of
a plan to combine two of the Company's operating subsidiaries, Symmetrix and
SiGMA, into a single operating unit, renamed Business Performance Solutions. In
connection with such plan, specific individuals were identified for termination
along with the severance benefits to be offered. In addition, certain leased
space was to be vacated. The restructuring charge recorded during the three
months ended December 31, 1998 consisted of severance and termination costs
related to individuals who were not informed of their severance until after
September 30, 1998. The restructuring charges recorded during the three months
ended September 30, 1998 consisted principally of $0.3 million for severance
payments and termination costs related to individuals whose severance
arrangements were known as of September 30, 1998 and $0.6 million for leased
office space to be vacated, net of estimated sub-lease income. The accounting
for the Company's restructuring plan and its related exit costs is in compliance
with EITF 94-3.
Compensation Expense--Other. On December 31, 1998, the Company entered into
agreements with certain non-stockholder key executives of Lexecon under which
payments totaling $4.2 million in cash were made and fully-vested options (the
"Vested Options") to purchase 384,000 shares of Class A Common Stock at an
exercise price of $1.50 per share were granted. In addition, the Company
reserved for issuance to these key executives options to purchase Class A Common
Stock at an exercise price of $1.50 per share (the "Reserved Options"). The
number of shares of Class A Common Stock subject to the Reserved Options will be
determined based on the initial public offering price per share of the Class A
Common Stock, ranging from a minimum of 31,560 shares if the initial public
offering price per share is $17.50 or higher, to a maximum of
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<PAGE> 33
197,760 shares if the initial public offering price per share is $12.50 or less.
However, if the Offering does not occur on or prior to February 29, 2000, all
197,760 Reserved Options will be deemed issued and exercised, and the Class A
Common Stock acquired upon such exercise will be redeemed by the Company at a
price of $7.65 per share, which will require the Company to pay approximately
$1.2 million in cash to such non-stockholder key executives of Lexecon, net of
the proceeds for the exercise of such options. The Company recorded $6.6 million
in the three months ended December 31, 1998, which represented the cash paid
plus the difference between the fair market value of the Class A Common Stock on
the date of grant of $7.65 per share, and the exercise price of the Vested
Options. The Company will incur additional compensation expense related to the
Reserved Options at the time the number of shares of Class A Common Stock
subject to the Reserved Options is determined.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED JUNE
30, 1998
Net Revenues. Net revenues increased 25.7% to $17.5 million for the three
months ended September 30, 1998 from $13.9 million for the three months ended
June 30, 1998. This increase was due primarily to the net revenues generated by
Sibson which was acquired effective August 31, 1998, partially offset by a $0.6
million reduction in revenues resulting principally from a reduction in the
estimated percentage completion of an ongoing fixed-price contract.
Gross Profit. Gross profit increased 5.5% to $4.8 million for the three
months ended September 30, 1998 from $4.6 million for the three months ended
June 30, 1998. Gross margin decreased to 27.7% for the three months ended
September 30, 1998 from 33.0% for the three months ended June 30, 1998. The
increase in gross profit was due primarily to the Sibson Acquisitions. The
decrease in gross margin was primarily attributable to a reduction in the
estimated percentage completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 65.1% to $7.3 million for the three months
ended September 30, 1998 from $4.4 million for the three months ended June 30,
1998. As a percentage of net revenues, such expenses increased to 41.6% for the
three months ended September 30, 1998 from 31.7% for the three months ended June
30, 1998. The dollar increase was due primarily to the increase in the number of
employees attributable to the Sibson Acquisitions and the inclusion in the three
months ended September 30, 1998 of $1.1 million of the $1.5 million supplemental
management fee charged by Knowledge Universe for 1998 and approximately $0.3
million of compensation expense related to the purchase of Common Stock by
certain of the Company's executive officers during the three months ended
September 30, 1998, as well as additional hirings. Excluding the foregoing $1.1
million supplemental management fee and $0.3 million compensation expense,
selling, general and administrative expenses for the three months ended
September 30, 1998 were $5.8 million, or 33% of net revenues. See "Certain
Transactions--Management Agreement," and "--Investments in the Company."
Interest Income (Expense), Net. Interest expense increased 49.3% to $1.6
million for the three months ended September 30, 1998 from $1.1 million for the
three months ended June 30, 1998. This increase was due primarily to borrowings
under the Bridge Loan to finance the Sibson Acquisitions. See "Liquidity and
Capital Resources," "Use of Proceeds" and Note 9 of Notes to the Company's
Consolidated Financial Statements.
Restructuring. During the three months ended September 30, 1998, the
Company recorded restructuring costs of $1.0 million related to Business
Performance Solutions. These restructuring costs consisted principally of $0.3
million for severance payments and termination costs and $0.6 million for
vacated leased office space, net of estimated sub-lease income.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED MARCH 31,
1998
Net Revenues. Net revenues increased 69.9% to $13.9 million for the three
months ended June 30, 1998 from $8.2 million for the three months ended March
31, 1998. This increase was due predominately to the net revenues generated by
PTG and Pyramid, which were acquired effective March 31, 1998, and to a lesser
extent from higher utilization rates and greater business levels at Symmetrix.
No net revenues from PTG or Pyramid were recorded by Nextera in the three months
ended March 31, 1998.
Gross Profit. Gross profit increased 79.2% to $4.6 million for the three
months ended June 30, 1998 from $2.6 million for the three months ended March
31, 1998. Gross margin increased to 33.0% for the three months ended June 30,
1998 from 31.3% for the three months ended March 31, 1998. The increase in gross
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<PAGE> 34
margin was due primarily to the addition of PTG and Pyramid and, to a lesser
extent, more effective utilization of consultants on billable projects and a
lower utilization of outside contractors, which decreased cost of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 52.8% to $4.4 million for the three months
ended June 30, 1998 from $2.9 million for the three months ended March 31, 1998.
As a percentage of net revenues, such expenses decreased to 31.7% for the three
months ended June 30, 1998 from 35.3% for the three months ended March 31, 1998.
The dollar increase was due primarily to the increase in the number of employees
attributable to the PTG and Pyramid acquisitions, as well as additional hirings.
The decrease as a percentage of net revenues was due primarily to a greater
increase in net revenues in relation to the increase in such expenses.
Interest Income (Expense), Net. Interest expense decreased 29.5% to $1.1
million for the three months ended June 30, 1998 from $1.6 million for the three
months ended March 31, 1998. This decrease was due primarily to the inclusion in
the three months ended March 31, 1998 of $0.8 million related to 1997 interest
on the Debentures, which was accrued in such period due to the recapitalization
of the Company. This decrease was partially offset by increased borrowings to
fund the PTG and Pyramid acquisitions. See "--Liquidity and Capital Resources,"
"Use of Proceeds" and Note 9 of Notes to the Company's Consolidated Financial
Statements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND THREE MONTHS ENDED DECEMBER
31, 1997
Net Revenues. Net revenues increased 65.1% to $8.2 million for the three
months ended March 31, 1998 from $5.0 million for the three months ended
December 31, 1997. This increase was due to the net revenues generated from
SiGMA, which was acquired under the purchase method of accounting on January 5,
1998, partially offset by reserves taken on a fixed-price contract which has now
been completed. No net revenues from SiGMA were recorded by Nextera for the
three months ended December 31, 1997.
Gross Profit. Gross profit increased 22.5% to $2.6 million for the three
months ended March 31, 1998 from $2.1 million for the three months ended
December 31, 1997. Gross margin decreased to 31.3% for the three months ended
March 31, 1998 from 42.2% for the three months ended December 31, 1997. The
decrease in gross margin was primarily due to a $0.5 million reserve adjustment
on a fixed-price contract taken in the three months ended March 31, 1998,
partially offset by increased gross profit generated from SiGMA. The amount of
the reserve adjustment was determined using the percentage of completion method
of accounting.
Selling, General and Administrative. Selling, general and administrative
expenses increased 16.8% to $2.9 million for the three months ended March 31,
1998 from $2.5 million for the three months ended December 31, 1997. As a
percentage of net revenues, such expenses decreased to 35.3% for the three
months ended March 31, 1998 from 49.8% for the three months ended December 31,
1997. The dollar increase was due primarily to the increase in the number of
employees attributable to the SiGMA acquisition as well as additional hirings.
The decrease as a percentage of net revenues was due primarily to a greater
increase in net revenues in relation to the increase in such expenses.
Interest Income (Expense), Net. Net interest expense increased to $1.6
million for the three months ended March 31, 1998 from $43,000 for the three
months ended December 31, 1997. This increase was due primarily to interest on
the Debentures which was accrued in the three months ended March 31, 1998, $0.8
million of which related to contributions made in 1997. See "--Liquidity and
Capital Resources," "Use of Proceeds" and Note 9 of Notes to the Company's
Consolidated Financial Statements.
CERTAIN FIRST QUARTER 1999 COMPENSATION EXPENSE
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. Such charge represents the estimated fair value of the
options calculated using the Black-Scholes model.
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LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations and its short term and long
term liquidity needs through the proceeds of equity issuances and borrowings.
Nextera LLC initially issued common and preferred equity units between February
1997 and April 1998 for total proceeds of approximately $50.0 million. On April
30, 1998, in connection with the recapitalization of Nextera LLC, the preferred
units and a portion of the common units were converted into the Debentures. The
Debentures accrue interest at 10% per annum, mature on May 1, 2002, and interest
on the principal amount of the Debentures was deemed to have begun to accrue on
the date the respective equity capital contributions were originally made. The
total Debentures outstanding, including accrued interest, at December 31, 1998
was $53.1 million. The Debentures were amended in connection with the Lexecon
Acquisition with respect to future interest rate and payment provisions and
conversion into preferred stock on substantially equivalent terms and to provide
that, in the event the Bridge Loan remains unpaid after April 30, 1999, the
interest rate will increase to a rate which is two percentage points over the
interest rate on the Bridge Loan. Effective April 15, 1999, the Debentures were
further amended to extend such date to May 31, 1999. See "Certain
Transactions--Investments in the Company," "--Amendment of the Debentures," and
Note 9 of Notes to the Company's Consolidated Financial Statements.
SHORT-TERM LIQUIDITY
On August 31, 1998, the Company entered into the Bridge Loan, which was
amended on December 31, 1998 in connection with the Lexecon Acquisition and
further amended effective April 15, 1999. The Bridge Loan is secured by
substantially all of the Company's assets and contains certain restrictive
covenants. The Bridge Loan provides for financing in the amount of $77.5
million, of which $38.0 million was used to finance the Sibson Acquisitions,
$31.1 million was used to finance the Lexecon Acquisition, $4.2 million was used
to finance the payment of bonuses to certain non-stockholder key executives of
Lexecon and $2.2 million was used for general corporate purposes, including
working capital. The Bridge Loan bears interest at 12% per annum and matures on
May 31, 1999. Prior to December 31, 1998, the Bridge Loan bore interest at the
rate of LIBOR plus 450 basis points. As of December 31, 1998, $75.8 million of
principal and interest was outstanding under the Bridge Loan, which will be
repaid with a portion of the net proceeds of the Offering. See "Use of
Proceeds," "Certain Transactions--Bridge Loan Amendment" and "Underwriting."
Principally as a result of the Bridge Loan, as of December 31, 1998, the Company
had a working capital deficit of $65.8 million. Subsequent to December 31, 1998,
the Company drew down an additional $2.0 million under the Bridge Loan to
finance the acquisition of Alexander and for other general corporate purposes.
Net cash used in operating activities was $5.5 million for the year ended
December 31, 1998. The primary component of the net cash used in operations was
a net loss of $17.2 million, which was partially offset by depreciation and
amortization of $2.8 million, an increase in accounts payable and accrued
liabilities of $4.3 million, and an increase in accrued interest related to the
Debentures of $5.2 million.
Net cash used in investing activities was $97.4 million for the year ended
December 31, 1998. The primary components of the net cash used in investing
activities were (i) the acquisition of SiGMA in January 1998, the acquisition of
PTG in March 1998, the acquisition of Pyramid in March 1998, the Sibson
Acquisitions in August 1998 and the Lexecon Acquisition in December 1998,
totalling $96.1 million, exclusive of $0.9 million of cash acquired and (ii)
expenditures of $2.2 million for furniture, equipment and leasehold
improvements. See Note 1 of Notes to the Company's Consolidated Financial
Statements.
Nextera, principally through the Acquired Companies, had an aggregate of
$11.0 million under credit facilities (collectively, the "Credit Facilities") as
of December 31, 1998. Interest rates on the Credit Facilities are based on prime
or commercial paper interest rates plus margins varying from prime plus 25 basis
points to prime plus 100 basis points. The Credit Facilities are secured by
substantially all of the assets of the applicable borrower. Collectively, $6.2
million was outstanding under the Company's Credit Facilities at December 31,
1998 and bore interest at a weighted average rate of 8.5%. Certain of the Credit
Facilities contain restrictive covenants relating to maintenance of financial
ratios, operating restrictions, and restrictions of the payment of
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<PAGE> 36
dividends from certain Acquired Companies to Nextera. However, the Credit
Facilities do not restrict the incurrence of indebtedness by Nextera at the
parent company level.
LONG-TERM LIQUIDITY
The Company intends to consolidate these Credit Facilities in a new credit
arrangement to provide working capital and financing for potential acquisitions.
Toward this end, the Company has executed a commitment letter and term sheet
with BankBoston, N.A. and BancBoston Robertson Stephens Inc. for a syndicated
committed revolving credit facility of up to $110 million, subject to reduction
in the event that the net proceeds from the Offering are less than $132 million,
for acquisitions and general corporate purposes. If this new credit facility is
consummated, it would become effective after the completion of the Offering with
a maturity date of up to four years from effectiveness. Under the proposed terms
of the new credit facility, the Company would become subject to certain
restrictive covenants relating to maintenance of financial ratios, restrictions
on indebtedness and permitted acquisitions, operating restrictions, and
restrictions on the payment of dividends to the Company's stockholders.
Borrowings under the new credit facility would be secured by a first priority
security interest in substantially all the assets of Nextera and its
subsidiaries and a pledge of the capital stock of Nextera's subsidiaries. The
closing of this new credit facility is subject to the Company's receipt of at
least $100 million net proceeds from the Offering, subordination of the portion
of the Debentures remaining outstanding after the Offering to the new credit
facility, satisfactory completion of due diligence reviews, execution of
definitive documentation, and other customary closing conditions. Negotiations
have not yet commenced between the prospective lenders, the Company and the
holders of the Debentures regarding the terms and conditions of any such
subordination agreement. The Company is also evaluating alternative sources of
financing, although no firm commitments exist as of the date of this Prospectus.
There can be no assurance that such new credit arrangement or alternative
arrangements will be obtained, and if so, when and on what terms.
The Company believes available borrowings under the Credit Facilities will
be sufficient to finance the Company's currently anticipated operating and
capital requirements for at least the next twelve months, excluding potential
acquisitions. The Company may require significant amounts of cash for any future
acquisitions. There can be no assurance that the Company will be able to obtain
financing for any such acquisition, including ERG. In addition, there can be no
assurance that the Company's actual needs will not exceed anticipated levels or
that the Company will generate sufficient net revenues to fund its operations in
the absence of other sources. There also can be no assurance that any additional
required financing will be available through additional bank borrowings, debt or
equity offerings or otherwise, or that if such financing is available, that it
will be available on terms favorable to the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are coded to accept only two
digit entries in the date code field. These date code fields need to be modified
or upgraded to accept four digit entries to distinguish 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 the Acquired Companies, for Year 2000 compliance. The
Company relies upon microprocessor-based personal computers and commercially
available applications software. Nextera is in the process of upgrading the
existing computer software and IT systems of the Company, including the Acquired
Companies. The Company is reviewing its utility systems (heat, light,
telephones, etc.) and other non-IT systems for the impact of Year 2000.
Additionally, should the Company undertake future acquisitions, the Year 2000
risks that affect the Company can be expected to
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<PAGE> 37
similarly affect such acquisition candidates. The Company intends to review the
systems of all acquisition candidates for Year 2000 compliance. However, the
failure to correct a material Year 2000 problem either within the Company,
including any of the Acquired Companies, within a vendor or supplier or within
an acquisition candidate could result in an interruption in, or a failure of,
certain normal business activities or operations of the Company. Such
interruptions or failures could materially adversely affect the Company's
business, operating results and financial condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's business, operating results or financial condition.
The Company intends to take continuous steps to identify Year 2000 problems
related to its vendors and to formulate a system of working with key
third-parties to understand their ability to continue providing services and
products through the change to Year 2000. The Company intends to work directly
with its key vendors, including financial institutions and utility-providers,
and partner with them if necessary, to avoid any business interruptions.
The Company believes the most likely worst case scenario related to Year
2000 risks is a material business interruption that leads to client
dissatisfaction and the termination of a project or projects by dissatisfied
clients. Such an interruption in services could occur due to a breakdown in any
number of the Company's computer systems and applications and non-IT systems, or
the systems of third-parties. Examples are failures in the Company's application
software, computer chips embedded in equipment, supply of materials from its
suppliers, or lack of adequate telecommunications, power, or other utilities.
Any such failure could prevent the Company from being able to deliver its
services as expected, which could materially adversely affect the Company's
business, operating results and financial condition.
The cost of the Company's Year 2000 compliance assessment and upgrade is
being funded from current operations. As of December 31, 1998, the cost to the
Company of its Year 2000 identification, assessment, remediation and testing
efforts, as well as currently anticipated costs to be incurred by the Company
with respect to Year 2000 issues of third parties, was expected to be less than
$200,000. Because of the uncertainty associated with Year 2000 failures, it is
not possible at present to quantify the cost of corrective actions. The Company
will continue to consider the likelihood of a material business interruption due
to the Year 2000 issue, and, if necessary, implement appropriate contingency
plans. Since the Company has adopted a plan to address these Year 2000 issues,
it has not developed a comprehensive contingency plan should these issues fail
to be completed successfully or in their entirety. However, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time. There
can be no assurance that unexpected Year 2000 compliance problems of either the
Company or its vendors, customers and service providers will not materially
adversely affect the Company's business, operating results and financial
condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failures of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service liability brought against
Nextera related to its Year 2000 consulting could result in substantial cost to
the Company and divert management's attention from Nextera's operations, which
could materially adversely affect the Company's business, operating results and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from
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<PAGE> 38
changes in the value of those derivatives would be accounted for depending on
the use of the derivative and whether it qualified for hedge accounting. SFAS
133 is effective beginning in 2000. The adoption of SFAS 133 is not expected to
have a material impact on the financial position or results of operations of the
Company.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires companies to
capitalize qualifying computer software costs that are incurred during the
application development stage and amortize them over the software's estimated
useful life. The Company adopted the provisions of SOP 98-1 effective January 1,
1998 and capitalized costs totaling $349,000 in accordance with its provisions.
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BUSINESS
THE COMPANY
Nextera Enterprises, Inc. provides leading-edge consulting services focused
on business strategy, economic analysis, operations improvement, organizational
design and IT primarily to Fortune 500 and other multinational companies and
government agencies. The Company provides services in four practice areas, which
enables it to offer a broad range of complementary services that assist clients
in achieving enhanced business performance by anticipating and addressing their
complex, multi-disciplinary consulting needs. Nextera helps organizations
redefine the way in which existing work is conducted or new businesses and
markets are entered by analyzing underlying strategic and economic issues
affecting business performance, redesigning operational processes and business
practices, defining and managing major change initiatives, and using emerging
information technologies (such as web-based technologies and electronic
commerce) to support new strategic approaches.
The Company's portfolio of practice areas includes Strategy and Research
Services, Process Transformation Services, Human Capital Services, and
Information Technology Consulting 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
focused research on a number of issues of client concern. The Process
Transformation Services practice helps organizations solve complex operational
issues through major business transformation programs, redesigned business
processes, and best practices adaptation. The Human Capital Services practice
assists clients in implementing organizational and strategic changes established
by senior management through all levels of the organization. The Information
Technology Consulting Services practice applies emerging technologies such as
web-based technologies and electronic commerce to design and develop high impact
business process support systems and knowledge management systems.
Nextera's flexible delivery model, which is designed to bring together
required expertise in business strategy and research, operations improvement,
organizational design and IT consulting, enables it to provide timely and
unbiased perspectives on clients' enterprise-wide management problems and to
cost-effectively implement multi-disciplinary solutions. The Company's breadth
of expertise enables it to deliver services initially in any of its four
practice areas and offers opportunities to expand the scope of its engagements
to include complementary or follow-on services in other practice areas. The
Company provides its services across a broad spectrum of industries, including
communications, consumer products, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. Representative clients include America Online, Inc., The
Chubb Corporation, Duke Energy Corporation, International Business Machines
Corporation, MCI WorldCom, Inc., Mead Johnson & Company, National Broadcasting
Company, Inc., SmithKline Beecham, PLC and the United States Department of
Justice.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and, to a lesser extent, internal growth to provide a balanced
perspective on the problems and issues facing its clients in today's competitive
environment. As of December 31, 1998, Nextera had 609 employees, including 433
consultants.
INDUSTRY BACKGROUND
Change is one of the most important factors driving demand for professional
consulting services. Increased competition, regulatory changes, globalization,
technological advances, and evolving organizational models are leading to
changes in the business environment. Traditional barriers to competition are
becoming less effective in protecting competitive positions. Regulatory changes
have led to increased competition both from within industries and from new
entrants from other market sectors. Commercial activity is becoming increasingly
global, requiring consideration of both domestic and international operations in
strategic decision-
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making and resource utilization. With the advent of the Internet and electronic
commerce, technology is increasingly being used in a variety of innovative,
strategic ways to create new products and services, open new sales and marketing
channels, and reduce costs and time-to-market for products and services.
Moreover, business and IT strategies continue to converge as organizations
recognize that technology can create new business opportunities as well as
support existing business. The increasingly complex and dynamic business
environment is also forcing government agencies to frequently adjust their
regulatory strategies, leading to an increased need for businesses to understand
the underlying economic issues affecting business strategies and performance. In
response to these challenges and opportunities, organizations are altering
traditional approaches to overall strategy, business processes, organizational
design, and the use of IT.
Many organizations lack the skilled personnel, technical capabilities, and
time necessary to formulate strategies and implement changes needed to benefit
from these new challenges and opportunities. In addition, organizations must
continually keep pace with new technological and competitive developments, which
further strain internal resources. Moreover, organizations expect timely and
substantial economic returns from their investments in strategic initiatives and
organizational change. As a result, many organizations are increasingly
retaining third-party professionals for help and expertise.
Demand for professional consulting services is expected to grow rapidly.
According to an industry source, the worldwide market for professional
consulting services is estimated to have been $46.3 billion in 1997, and is
projected to increase to $88.5 billion in 2002. It is estimated that the
worldwide market for strategy and business consulting services will grow at an
annual rate of 12%, from $19.9 billion in 1997 to $34.9 billion in 2002. The
worldwide market for IT consulting is estimated to grow at an annual rate of
14%, from $12.7 billion in 1997 to $24.8 billion in 2002. It is estimated that
the worldwide market for custom application development and integration will
grow at an annual rate of 15%, from $13.7 billion in 1997 to $28.8 billion in
2002. Moreover, the Company believes that the professional consulting services
industry is highly fragmented and will experience consolidation as service
providers seek to expand and enhance service to clients.
Professional consulting services have traditionally been focused on issues
of business strategy, operations improvement, organizational design, and IT
consulting. Historically, consulting service providers have offered services
focusing on one or two of these issues and few providers have had the breadth of
expertise or comprehensive approach to providing services to address effectively
multi-disciplinary business problems. For example, service providers oriented
around strategy formulation and market assessment often provide some expertise
in addressing operational or organizational issues, but typically do not address
IT issues or opportunities.
Given the rapidly changing nature of today's business environment,
traditional approaches do not provide the broad perspective or range of
expertise required for a comprehensive examination of the causes of business
problems. Consequently, consulting service providers employing traditional
approaches do not offer the types of integrated solutions critical to solving
the multi-disciplinary problems that organizations currently face. In order to
solve such problems, organizations are demanding that third-party service
providers have experience in a breadth of practice areas. For example,
organizations increasingly seek assistance not only to formulate strategy, but
also to implement strategic processes that support ongoing strategic
decision-making. As a result, organizations now demand highly-participative,
fact-driven strategic management processes that focus on strategic objectives
and explicitly link business processes, human capital, and IT strategies.
NEXTERA ADVANTAGE
Through its portfolio of practice areas, Nextera offers a broad range of
complementary services that assist clients in achieving enhanced business
performance by anticipating and addressing their complex, multi-disciplinary
consulting needs. The Company helps organizations develop dynamic business
strategies, redesign operational processes, and enhance organizational
effectiveness needed to achieve their visions and goals. The Company's flexible
delivery model, which is designed to bring together required expertise in
business strategy and research, operations improvement, organizational design,
and IT consulting, enables Nextera to solve its
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clients' enterprise-wide management problems and deliver results which are
timely and cost-effective. The key elements of Nextera's advantage include:
Portfolio of Complementary Practice Areas. Through its portfolio of four
practice areas--Strategy and Research Services, Process Transformation Services,
Human Capital Services, and Information Technology Consulting Services--the
Company addresses its clients' needs from varying perspectives and draws on its
experience from each to provide multi-disciplinary services to its clients.
Nextera utilizes this perspective to help clients identify and examine business
problems and to develop and implement the strategic, operational, and
organizational responses needed to solve such problems and sustain performance
improvement. As a result, the Company, with its balanced perspective, offers
objective and independent services which are valued by organizations.
Experience and Expertise. Nextera's experience within industries and
practice areas enables its consultants to more fully and rapidly understand
their clients' businesses and the competitive industry environments in which
they operate. The Company's senior consulting executives average more than 20
years of consulting or industry experience and have all held senior level
positions in large organizations with management responsibility for large
numbers of consultants. Of the Company's consultants, 51% have either doctorate
or master's degrees.
Long-term Client Relationships. The Company has established long-term
relationships with numerous clients, many of whom are Fortune 500 companies.
Through these relationships, the Company gains in-depth knowledge of its
clients' businesses and industries, which facilitates the Company's
identification of other complementary services and the ability to offer timely
services to these clients. As a result of these long-term relationships, the
Company has amassed significant expertise in a wide range of industries,
including the financial services, health care, utilities, and manufacturing
industries.
Flexible Delivery Model. Nextera's flexible delivery model enables it to
provide timely and unbiased perspectives on client problems and implement
multi-disciplinary solutions. Initially, the Company is able to deliver services
in any of its practice areas and then expand the scope of its engagements to
include complementary or follow-on services in other practice areas. Nextera
delivers its services through Client Service Teams with the support of Affinity
Groups. For each engagement, Nextera establishes a Client Service Team managed
by a senior-level client service director and comprised of consultants who are
selected to provide the appropriate combination of industry experience,
functional expertise, and geographic coverage. Client service teams enhance
overall client satisfaction by enabling the senior-level client service director
to provide a single point of contact for the client and the overall team to take
a multi-disciplinary approach to engagements. Client Service Teams are supported
by Affinity Groups, which are comprised of individuals from across the Company's
practice areas as well as third-party practitioners. Affinity Group members draw
from their respective client work, industry experience, and expertise to share
knowledge and experiences and develop methodologies and tools used in the
delivery of services.
Proprietary Information System and Scaleable Infrastructure. Nextera has
developed and is expanding its proprietary information system that facilitates
synergies across its practice areas. NextNet, the foundation of the Company's IT
infrastructure, provides the backbone and architecture for a collection of
integrated applications accessed through a common, web-based user interface.
Nextera's information system enables it to share business information and
knowledge among its consultants and to effectively manage its corporate
resources. NextNet provides an interactive environment through which defined
groups, including Client Service Teams, can collaborate to solve complex client
problems. In addition to its information system, Nextera's infrastructure
incorporates recruiting, staff development and deployment, collaborative
marketing initiatives, sharing of intellectual capital, and enterprise
management systems. The Company believes that this scaleable infrastructure has
the capacity to support the Company's growth plans for the foreseeable future.
Nextera Culture. The Company emphasizes professionalism, independence, and
objectivity among its consultants, and believes that these attributes are
reflected in the quality of the services it provides to its clients. Nextera
encourages teamwork and knowledge sharing to foster the professional growth of
its consultants and enhance the delivery of services to clients. The Company
seeks to sustain high retention rates for consultants achieved by the Acquired
Companies by retaining certain key cultural elements of each
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Acquired Company. Toward this end, Nextera's compensation and incentive programs
are designed to give all consultants the ability to become equity participants
in the Company. Stability among the Company's consultants leads to consistency
in the composition of Client Service Teams and a reduced learning curve on new
projects for existing clients.
GROWTH STRATEGY
The Company's objective is to be a leading provider of consulting services
in its four practice areas. The key elements of the Company's growth strategy
include:
Expand Service Offerings through Selective Acquisitions. Nextera intends to
continue to take advantage of the highly fragmented nature of the consulting
industry by acquiring select complementary consulting businesses. The Company is
developing its business around its practice areas and intends to broaden and
enhance its substantive expertise, service offerings, and geographic coverage
through strategic acquisitions. For example, to capitalize on the growth in
electronic commerce, the Company intends to evaluate potential acquisitions
designed to strengthen its capabilities in this area. From time to time, the
Company may also evaluate selective potential acquisitions outside these
practice areas if justified by client needs and market demand.
Pursue Cross-selling Opportunities. Nextera intends to provide additional
services and expand the scope of engagements during delivery to include
follow-on complementary activities. The Company believes that its integrated
approach to its portfolio of practice areas and its ability to cross-sell will
significantly enhance its ability to establish, sustain, and expand
relationships with clients. The Company's close working relationship with its
clients affords it the opportunity to become aware of, and to help define,
additional project opportunities and to market additional capabilities to its
clients. Client service opportunities are disseminated and coordinated on-line
through Nextera's Business Development System, a proprietary NextNet application
providing company-wide access and the identification and sharing of sales,
marketing, and other business data.
Attract and Retain Key Personnel. The Company intends to attract and retain
consultants who will enhance and complement the Company's service capabilities
by fostering a creative, innovative, collaborative work environment and through
competitive compensation and incentive programs. Nextera has a national
recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting firms, IT and process
consulting firms, technology companies, and from the industries that the Company
serves. Nextera's broad client base and flexible delivery model provide its
consultants diverse client experiences for professional growth. The Company
offers its consultants the opportunity to become equity participants in the
Company and has implemented policies and programs designed to accommodate
individual needs. For example, Nextera employs a "virtual office" concept to
provide travel and relocation flexibility where appropriate.
Market the Nextera Brand Name. Nextera intends to continue to build a
common identity for the services it provides under the Nextera brand name. The
Company actively promotes its name and capabilities through its sales and
marketing activities. The Company believes that using a common brand name for
its services enhances its visibility and recognition in the market and improves
its ability to compete for new and expanded business. Nextera also believes that
its association with Knowledge Enterprises and Knowledge Universe will increase
the Company's market exposure and provide prospective client contacts and other
business opportunities.
Expand International Presence. The Company intends to expand its
international presence through the growth of existing practices and selective
acquisitions of complementary consulting businesses in international markets.
For example, Nextera recently acquired Alexander, thereby enhancing its ability
to offer human capital consulting services to the European market. The Company
believes that clients will increasingly demand a global presence from consulting
service providers and Nextera intends to continue to expand internationally to
participate in the market for global consulting services and to generate new
opportunities. Nextera's geographic priority is to expand its service offerings
in Europe within the Company's existing portfolio of practice areas.
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SERVICE OFFERINGS
The Company's portfolio of practice areas enables it to provide a breadth
of services to its clients. By offering clients a combination of business
strategy, operations improvement, organizational design, and IT consulting
services, Nextera helps clients identify and examine business problems and
develop and implement the strategic, organizational, and operational initiatives
needed to solve such problems and sustain performance improvement. Each of the
Company's practice areas has a well-articulated perspective that not only
addresses its own particular service offerings, but also promotes the logical
flow of consulting services from research to strategy to implementation and IT
processes.
For example, the Strategy and Research Services practice area provides
analyses which often demonstrate the need for organizations to develop a
business strategy to proactively respond to new competitive challenges and
assists organizations in developing such business strategy that can be
interactively managed throughout the organization. The Process Transformation
Services practice area develops the creative business processes that are
designed to yield the desired results. In order to successfully implement such
business strategy, the Human Capital Services practice area provides innovative
services to address the need for flexible organizational structures capable of
capitalizing on internal resources. Finally, the Information Technology
Consulting Services practice area develops IT infrastructure and applications
that enable clients to conduct business in new ways, support the redesigned
business processes and aid employee decision making.
The Company's four practice areas are as follows:
Strategy and Research Services. The Company provides in-depth business and
economic analyses of business conditions, relevant business frameworks, and
business practices. Nextera combines the expertise of its consultants with that
of clients, independent practitioners, and academics to provide focused research
on issues of client concern, including strategic management, merger analysis,
employment practices, corporate finance, product development, and knowledge
management. Through the Strategy and Research Services practice area, Nextera
provides litigation support, including expert testimony, principally in
antitrust and securities matters. The Company also assists organizations in
developing, refining, and implementing successful business strategies. Nextera
works with the senior management of a client to develop multiple probability
scenarios based on external market conditions as well as current and potential
operational capabilities. Through the use of IT, the Company conducts analyses
of such information, assesses alternative strategies, and provides a basis for
consensus building. For example, a major regional bank, faced with significant
market discontinuity resulting from bank consolidations and the emergence of new
competitors, sought Nextera's assistance to determine strategies for future
growth. Through an analytically rigorous scenario planning process, the Company
helped its client decide to acquire a leading competitor and invest in emerging
business opportunities that could be critical to the client's future growth. As
a result of this new strategy, the Company's client has strengthened its leading
regional market position.
Process Transformation Services. Nextera helps organizations solve complex
operational issues through major business transformation programs, redesigned
business processes, and best practices adaptation. Business transformation
programs typically involve refinement of the client's operations strategy,
examination of the existing processes and procedures, redesign of critical
processes, and identification of the cultural and organizational issues to be
addressed to successfully implement change. For example, Nextera assisted a high
technology company in re-engineering its software services business. After
analyzing the differences between existing delivery methods and best practices,
Nextera designed a new service model, then assisted the client in working with
its engineering, service, finance and marketing organizations to implement
service center consolidations, establish a new customer call handling system and
revise its service delivery and engineering management practices.
Human Capital Services. Nextera helps clients invest in and gain business
advantages from their human capital by identifying the impact on their workforce
of various strategies. The Company also assists in developing new organizational
designs by establishing programs for personnel selection, recruitment,
development, and succession, identifying the drivers of business performance,
and helping organizations achieve critical focus from their workforce through
programs to enhance "business literacy." The Company also helps clients
communicate and implement organizational changes designed to respond to new
opportunities or
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competitive threats and establish reward programs for broad employee groups,
managers and executives. For example, when a leading defense contractor
transitioned its market focus from government clients to commercial clients, it
experienced uneven earnings across diversified business units. Nextera assisted
in establishing corporate and business unit goals focused on sustaining
profitable growth and enhancing shareholder value. In addition, the Company
helped design short- and long-term incentives for the client's senior managers
that were based on the expected contribution of their individual areas of
responsibility.
Information Technology Consulting Services. Nextera helps clients use
emerging technologies to create high impact business process support systems and
knowledge management systems. The Company develops custom solutions that employ
electronic commerce and web-based technologies to redefine clients' processes
for customer service, new product development, and channel expansion. For
example, through the development of an electronic commerce application
infrastructure that supports the creation, publication and distribution of
time-sensitive information, Nextera helped a publishing company transition from
distributing financial analysts' research reports to its customers via facsimile
to providing on-line, on-demand electronic access to research. The Company also
helps clients define, manage and implement packaged solutions in finance,
customer relationship, supply chain and operations management.
The following chart illustrates the Company's portfolio of practice areas:
[PRACTICE AREAS CHART]
The chart consists of five columns and six rows. In the first column, the
following words appear in the rows, descending from the top: "Lexecon Inc.,"
"The Planning Technologies Group, L.L.C.", "Nextera Business Performance
Solutions Group, Inc.", "Sibson & Company, LLC Sibson Canada Co." and "Pyramid
Imaging, Inc." The words "Production Areas" appear above columns two through
five. Column two is entitled "Strategy and Research Services." Beneath this
title, a bullet point appears in rows one and two. Column three is entitled
"Process Transformation Services." Beneath this title, a bullet point appears in
the third row and a shaded diamond appears in rows four and five. Column four is
entitled "Human Capital Services". Beneath this title is a shaded diamond in row
three; a bullet point in row four, and a shaded diamond in row five. The fifth
column is entitled "Information Technology Consulting Services". Beneath this
title is a shaded diamond in row two, a bullet point in row three, a shaded
diamond in row four and a bullet point in row five.
ACQUISITIONS
Since inception, the Company has made the following acquisitions:
Symmetrix, Inc. Symmetrix was founded in 1985 and acquired by the
Company effective July 30, 1997 and subsequently renamed Nextera Business
Performance Solutions Group, Inc. Through Business Performance Solutions, the
Company offers enhanced services in acquisition due diligence, customer
profitability, IT strategy assessment, and the design, construction, and
deployment of complete business systems. Business Performance Solutions
primarily offers its services to the financial services, health care, insurance,
and utilities industries. Business Performance Solutions is located in
Lexington, Massachusetts.
SiGMA Consulting, LLC. SiGMA commenced operations in 1991 and was
acquired by the Company effective January 5, 1998. Through SiGMA, the Company
offers consulting services focusing on change management and helping
organizations improve core business processes, including product development,
manufacturing and distribution, sales, and enterprise management. SiGMA
primarily offers its services to the manufacturing, high technology,
entertainment, and transportation industries. SiGMA, which employ a
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"virtual office" concept for its consultants, maintains an office in Rochester,
New York and a development center in Hudson, Massachusetts. Effective December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions. SiGMA was subsequently liquidated and dissolved
and distributed all of its assets to Business Performance Solutions.
The Planning Technologies Group, Inc. PTG was founded in 1990 and
acquired by the Company effective March 31, 1998. Through PTG, the Company
offers strategy formulation, strategic planning process design, and business
process assessment and redesign services. PTG primarily offers its services to
the health care, insurance, financial services, consumer products,
manufacturing, and high technology industries. PTG is located in Lexington,
Massachusetts.
Pyramid Imaging, Inc. Pyramid was founded in 1993 and acquired by the
Company effective March 31, 1998. Through Pyramid, the Company offers consulting
services focused on providing technology-based solutions within the areas of
knowledge management, electronic commerce, customer management, and human
capital management. Pyramid primarily offers its services to the investment
banking and brokerage, investment management, commercial and retail banking,
insurance, utility, and high technology industries. Pyramid is located in San
Francisco, California and maintains an office in New York, New York.
Sibson & Company, L.P. and Sibson Canada, Inc. Sibson & Company, L.P.
and Sibson Canada, Inc. were founded in 1959 and 1993, respectively, and
acquired by the Company effective August 31, 1998. Through Sibson, the Company
provides human capital consulting services offering human resource strategies,
outsourcing assessments, organizational designs, rewards and incentives
programs, performance management processes and systems, and executive coaching
services. The Company also serves sales and marketing organizations with sales
strategy, selling process, sales channel, and selling effectiveness consulting.
Sibson primarily offers its services to the health care, financial services,
professional services, consumer products, and high technology industries. Sibson
is located in Princeton, New Jersey, and Toronto, Canada and maintains offices
in New York, New York, Raleigh, North Carolina, Los Angeles, California,
Chicago, Illinois, and London, England.
Lexecon Inc. Lexecon was founded in 1977 and acquired by the Company
effective December 31, 1998. Through Lexecon, the Company provides a full range
of economic consulting services, including economic, financial and statistical
analysis and expert testimony, which are predominantly used in matters relating
to complex litigation and regulatory proceedings. Lexecon provides expertise in
the areas of antitrust, contracts, regulatory issues, corporate finance,
intellectual property, international trade, securities, taxation and employment
practices. Lexecon serves clients across a broad range of industries, including
telecommunications, high technology and government, and is located in Chicago,
Illinois.
The Alexander Corporation Limited. Alexander was founded in 1987 and was
acquired by the Company effective January 29, 1999. Through Alexander, the
Company provides human capital consulting services including leadership
development, culture change, team performance and individual coaching. Alexander
serves clients across a broad range of industries including the pharmaceutical,
financial services, professional services, retail and consumer products and
leisure industries. Alexander is located in London, England.
NeoEnterprises, Inc. The Company has executed a nonbinding term sheet to
acquire NeoEnterprises, which was founded in 1998. NeoEnterprises is a
Connecticut-based e-commerce consulting and development company. As a part of
the acquisition, it is expected that NeoEnterprises will be merged with Pyramid.
James K. Burns, the sole stockholder of NeoEnterprises, became an employee of
the Company effective February 1, 1999. See "Management--Directors, Executive
Officers, and Other Senior Managers." Through Pyramid, the Company may develop
and provide the e-commerce services previously provided by NeoEnterprises. No
assurance can be made that the Company will consummate this acquisition or that
the terms of such acquisition will not vary from those anticipated at this time.
The Economic Resources Group, Inc. The Company has executed a
nonbinding term sheet to acquire ERG, a Massachusetts-based consulting firm that
provides economic and strategic services primarily to energy and other regulated
industries. The transaction is subject to the Company's due diligence review of
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ERG and other customary closing conditions. No assurance can be made that the
Company will consummate this acquisition or that the terms of such acquisition
will not vary from those anticipated at this time.
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
The Company's clients consist primarily of Fortune 500 and other
multinational companies. On a pro forma basis, the Company's ten largest clients
accounted for approximately 24% and 29% of its net revenues for the years ended
December 31, 1997 and 1998, respectively, and no client in either such period
accounted for 10% or more of the Company's pro forma net revenues. See "Risk
Factors--Absence of Written Contracts." Nextera has served a broad range of
clients, including those in the table below, which collectively represented a
significant portion of the Company's 1997 and 1998 pro forma net revenues. This
table includes the names of clients which were the ultimate beneficiary of
Lexecon's services, although Lexecon was generally retained by law firms
representing such clients.
<TABLE>
<S> <C> <C>
MEDIA/ENTERTAINMENT FINANCIAL SERVICES MANUFACTURING
National Broadcasting BancBoston Robertson Stephens Inc. American Business Products
Company, Inc. Fleet Financial Group, Inc. BE Aerospace
Nelson Information, Inc. ING Capital Corporation Rockwell International
NationsBanc Montgomery Securities LLC Corporation
TECHNOLOGY/COMMUNICATIONS PaineWebber Group Inc.
America Online, Inc. Wells Fargo & Company HEALTH CARE
BellSouth Corporation Olsten Corporation
GTE Corporation DIVERSIFIED SERVICES Pfizer Inc
International Business Ernst & Young LLP SmithKline Beecham, PLC
Machines Corporation PricewaterhouseCoopers LLP
MCI WorldCom, Inc. Qualex, Inc. GOVERNMENT
SBC Communications Inc. Internal Revenue Service
Scientific-Atlanta, Inc. INSURANCE U.S. Department of Justice
The Chubb Corporation
CONSUMER PRODUCTS/RETAIL Massachusetts Mutual Life Insurance ENERGY
Mead Johnson & Company Metropolitan Life Insurance Company Duke Energy Corporation
Polo Ralph Lauren Southern California Edison
</TABLE>
Examples of services provided to clients in each of Nextera's practice
areas include the following:
Strategy and Research Services. A major global insurance and financial
services company retained Nextera to develop a new corporate strategy for one of
its global businesses and to identify organizational and operational changes
needed to enable the client to pursue such new strategy. The Company's
consultants worked with the client's management team in a scenario based
planning process, which developed multiple probable future scenarios based on
external market factors as well as current and potential operational
capabilities, and then conducted simulations to test the effectiveness of
various strategies against each probable scenario. Using the results of these
simulations, the client's management team worked with Nextera to gain consensus
on their strategic direction. As a result of this process, the client decided to
pursue a strategy of focused growth and diversification, including selective
acquisitions. The client then worked closely with Nextera to conduct an
organizational alignment analysis, a highly structured process designed to
identify opportunities for work reduction and cost savings and to focus an
organization on the activities critical to providing the operational and
financial leverage necessary to execute the new strategy. The client has
estimated that the organizational alignment analysis identified annual cost
savings in excess of $100 million, which are expected to provide a financial
basis for the implementation of the client's new corporate strategy.
Process Transformation Services. A subsidiary of a Fortune 500 company
retained Nextera to redesign its finance function by addressing issues of
organizational effectiveness and technology support. Working closely with the
client's financial management, the Company clarified the goals and role of the
finance function and analyzed the organizational factors and systems critical to
achieving such redesign. Nextera initiated a comprehensive solution that
modified the finance processes and standardized the client's general ledger and
financial reporting requirements. These initiatives were followed by the
Company's examination and conversion of the chart of accounts used by various
financial subsystems to conform to the new
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standardized accounting and reporting requirements. Nextera also assisted the
client in a broad variety of finance initiatives, including process
reengineering and redesign of its enterprise-wide IT architecture. The Company
believes that its services have enabled the client to realize efficiencies in
the finance function's information collection, analysis and reporting
activities.
Human Capital Services. A leading consumer services company retained
Nextera to assist in addressing productivity and quality issues which the client
believed were hindering customer satisfaction and compressing margins.
Turn-around time demanded by customers had shortened and capital costs required
in this fast-evolving business made cost management critical. Resulting downward
pressure on employee compensation was causing higher employee turnover and the
client's management team believed that its ability to hire better qualified
employees was being undermined by its compensation structure. Nextera studied
quality and productivity performance at 50 of the client's sites and identified
the critical points where the workforce had the most impact on the process.
Nextera then helped the client develop employee incentive programs tailored to
each facility's process and geared toward the leverage points that could drive
productivity, quality, and cost performance in that facility. In addition,
Nextera developed a comprehensive communication program to introduce and
implement the new programs. The Company believes that the introduction of these
programs contributed to improved quality and productivity, decreased employee
turnover and absenteeism, and reduced overtime costs.
Information Technology Consulting Services. The Equity Research division
of a leading investment banking firm retained Nextera to assist it in improving
its internal publication process and creating a new, efficient mechanism for
distributing research to its sales desk and clients. Building on the client's
existing database of its earnings estimates on hundreds of companies, Nextera
worked with the client on a requirements definition, functional specification
and project plan for a repository capable of storing all of the client's
electronic research documents so that such documents could be accessed either
through the client's intranet or home page. Nextera then helped the client
design and develop a new, scaleable IT system capable of preserving the existing
data model while supporting potential future expansion. Once developed, the
solution was integrated, tested, and installed. The entire project, from the
requirements definition to installation and integration, was executed in four
months. This system currently supports over 2,000 internal and external users
and is designed to support an annual flow of thousands of documents through the
system and to archive more than 10,000 documents. Nextera believes this system
will improve the client's service capabilities by providing faster delivery,
enabling personalized distributions to customers and generating increased
feedback on customer preferences.
FLEXIBLE DELIVERY MODEL
Nextera's flexible delivery model provides clients with the full range of
the Company's expertise through a structured multi-disciplinary approach that
focuses on the needs and problems of each individual client. The Company's
breadth of expertise enables it to deliver services initially in any of its four
practice areas and expand the scope of its engagements to include complementary
or follow-on services in other practice areas. Nextera delivers its services
through Client Service Teams with the support of Affinity Groups. The key
elements of Nextera's flexible delivery model are as follows:
Client Service Teams. For each engagement, Nextera establishes a Client
Service Team managed by a senior-level client service director and comprised of
consultants who are selected to provide the appropriate combination of industry
experience, functional expertise, and geographic coverage. Client service teams
enhance overall client satisfaction by enabling the senior-level client service
director to provide a single point of contact for the client and the overall
team to take a multi-disciplinary approach to engagements. In addition, Client
Service Teams increase visibility of potential opportunities and enhance the
Company's ability to establish strong relationships with the client's senior
executives. As a result, the Client Service Team develops an in-depth
understanding of the client's needs and focuses the Company's various service
capabilities to meet such needs, providing substantial value to the client.
Client Service Teams emphasize the Company's diverse capabilities to clients and
regularly cross-market across its practice areas.
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Affinity Groups. Client Service Teams are supported by Affinity Groups,
which are comprised of individuals from across the Company's practice areas as
well as independent consultants, specialists and academics. Affinity Group
members draw from their respective client work, industry experience and
expertise to share knowledge and best practices and develop methodologies and
tools used in the delivery of services to clients and in the training of the
Company's consultants. Affinity Groups utilize NextNet to facilitate the sharing
of information and have formal and informal meetings and discussions. The
Company has established Affinity Groups for the financial services, health care,
and utilities industries and intends to establish Affinity Groups for other key
industry sectors and practice areas as needed.
SALES AND MARKETING
Nextera employs a variety of business development and marketing techniques
to reach prospective clients, including industry seminars featuring
presentations by Company personnel, trade press coverage, an Internet site, and
authoring of articles and other publications regarding market trends, emerging
business challenges and the Company's service offerings. Nextera's marketing
leadership team, with members from each of the Acquired Companies, sets the
Company's overall marketing priorities and provides oversight to key marketing
initiatives. The principal buyers of the Company's services are chief executive
officers and other senior executives with organizational policy-making
responsibilities.
Nextera also relies to a significant extent on the efforts of its
employees, particularly its senior consulting executives and consultants, to
market the Company's services. Nextera employs a "selling practitioner" model in
which the Company's senior consulting executives are responsible for identifying
and obtaining new business as well as managing client engagements and
relationships. Consultants are encouraged to generate business from both
existing and new clients and successful efforts are rewarded with increased
compensation and promotions. Nextera's close working relationships with many of
its clients enable the Company's consultants to become aware of, and to help
define, additional project opportunities, thereby facilitating the Company's
ability to market additional capabilities to its clients. In pursuing new
business, the Company's consultants emphasize Nextera's overall capabilities and
experience while also promoting the expertise of the particular employees who
will work on the project. In addition, Nextera's senior consulting executives
meet with prospective clients and senior managers in organizations where Nextera
has worked in the past to make them aware of the Company's capabilities.
MANAGEMENT INFORMATION SYSTEM
Nextera is investing in NextNet to improve individual and organizational
performance through shared business information and knowledge. NextNet provides
the backbone and architecture for a collection of integrated applications
accessed through a common web-based user interface. NextNet facilitates rapid
delivery responsiveness by identifying the most qualified resources available
for each client engagement and encourages collaboration around resolution of
client problems, increasing quality, and expertise. The Company also utilizes
NextNet to help integrate newly acquired companies into the Company's portfolio
of practice areas and rapidly adopt Nextera's business practices and procedures.
The initial NextNet application areas are the Nextera Business Development
System, the NextHR Employee Management System, and an integrated financial
system. The Business Development System, which is updated weekly by engagement
managers of each Acquired Company, provides company-wide management of all sales
leads and business opportunities and enhances Nextera's ability to set
priorities and manage future business. The first release of the NextHR Employee
Management System will provide skills and expertise location, staffing requests,
and job posting information. A company-wide, third-party financial management
system is being implemented and will be integrated with other NextNet
applications.
In addition to its application focus, NextNet offers an interactive
environment through which user groups can share knowledge throughout the
Company. Using NextNet, members of Client Service Teams and Affinity Groups
share timely information, tools, methodologies, and insights, which are
delivered to each consultant's personalized home page, creating a focused,
interactive environment.
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<PAGE> 49
NextNet has been developed to have a flexible application architecture
capable of expanding and supporting applications in response to the Company's
growth and changing needs. A high-performance SQL database drives the data
elements of NextNet, while a full-text search engine enables knowledge
management services. Application logic is built using the latest web-development
tools, and the applications are delivered through an integrated browser
interface.
HUMAN RESOURCES
Nextera's ability to attract and retain experienced consultants to work on
client engagements and to generate new business is a key factor to Nextera's
success. As of December 31, 1998, the Company had 609 employees, including 433
consultants.
Consulting Personnel. Nextera's senior consulting executives average more
than 20 years of consulting or industry experience. Many of these senior
consulting executives are nationally recognized as experts in their respective
fields, having published articles and lectured extensively. Eleven of the
Company's senior consulting executives have founded and managed successful
management and IT consulting firms. Of Nextera's consultants, 51% have either
doctorate or master's degrees. This flexibility in staffing engagements enhances
Nextera's ability to apply its resources as needed to meet the demands of its
clients.
Recruiting. Nextera seeks to hire consultants who not only have strong
analytical skills but also are creative, intellectually curious, and driven to
develop expertise in new practice areas and industries. The Company has a
national recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting, IT and process
consulting firms, technology companies, and from the industries that Nextera
serves. Entry-level consultants are recruited from leading academic
institutions, graduate business administration programs and undergraduate IT
programs. In connection with its hiring efforts, Nextera employs internal
recruiters, retains several executive search firms, and relies on personal and
business contacts to recruit experienced consultants.
Compensation. In order to attract and retain consultants, Nextera offers
what it believes to be attractive compensation and benefits packages. Employee
compensation is a combination of base salary, bonus opportunity, and equity
participation. Consultant bonuses are paid out of bonus pools established for
each of the Acquired Companies through an annual operations planning process. A
consultant's bonus is based on the consultant's individual contributions and the
Acquired Company's performance. See "Management--Bonus Plans."
Training and Career Development. The Company has a career enhancement
program that offers its consultants career enrichment opportunities and access
to individualized training. Career development programs are specific to the
needs of each Acquired Company and all employees receive a combination of
orientation training, skills enhancement training, mentoring, and periodic
briefings. Nextera's flexible staffing methods are supported by its NextHR
Employee Management System to provide the Company's consultants with diverse and
challenging client experiences.
Outside Consultants and Independent Contractors. Through Lexecon, the
Company maintains affiliate relationships with distinguished academics. These
individuals are engaged by Nextera to give expert testimony or to participate in
client engagements. When necessary, the Company supplements its consultants on
certain engagements with independent contractors. The Company believes that its
practice of retaining independent contractors on a per-engagement basis provides
it with greater flexibility in providing specialized skills and adjusting
consultant levels in response to changes in demand for its services.
COMPETITION
The consulting services industry includes a large number of competitors, is
subject to rapid change, and is highly competitive. Nextera believes that the
principal competitive factors in the consulting services industry are
reputation, industry expertise, analytical ability, service, and price. The
Company believes it competes favorably with respect to these factors. Nextera
also believes that its ability to compete depends in part on a number of factors
outside of its control, including the ability of its competitors to hire, retain
and compensate consultants, offer lower-priced services, respond to client
requirements, and develop advanced services or technology.
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<PAGE> 50
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.
INTELLECTUAL PROPERTY RIGHTS
The Company's success has resulted, in part, from its analytical templates,
application frameworks, software objects and customizable applications. Nextera
relies upon a combination of nondisclosure, confidentiality, license and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. In addition, Nextera generally
limits the distribution of its proprietary information. There can be no
assurance, however, that the steps taken by Nextera to protect its intellectual
property will be adequate to deter misappropriation of proprietary information
or that the Company will be able to detect unauthorized use and take appropriate
steps to enforce its intellectual property rights or that competitors will not
be able to develop similar or functionally equivalent methodologies.
Furthermore, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries, and no assurance can be given that
foreign copyright and trade secret laws will adequately protect the Company's
intellectual property rights. Although Nextera believes that its services do not
infringe on the intellectual property rights of others and that it has all
rights necessary to utilize the intellectual property employed in its business,
there can be no assurance that Nextera's employees will not misappropriate the
intellectual property of others. Accordingly, the Company is subject to the risk
of claims alleging infringement of third-party intellectual property rights. Any
such claims could require the Company to spend significant sums in litigation,
pay damages, develop non-infringing intellectual property or acquire licenses to
the intellectual property that is the subject of asserted infringement. The
Company presently holds no patents or registered copyrights.
FACILITIES
The Company's corporate headquarters is located in Lexington, Massachusetts
in a leased facility consisting of approximately 6,900 square feet, under a
four-year lease that expires in 2002. The Company also occupies leased office
space in Los Angeles, California; San Francisco, California; Chicago, Illinois;
Hudson, Massachusetts; Lexington, Massachusetts; Princeton, New Jersey; New
York, New York; Rochester, New York; Raleigh, North Carolina; Toronto, Canada;
and London, England. The Company believes that its existing facilities are
adequate to meet its current requirements and that suitable space will be
available as needed on terms acceptable to the Company.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings, claims and
litigation arising in the ordinary course of business, the outcome of which, in
the opinion of management, would not have a material adverse effect on the
Company.
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<PAGE> 51
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGERS
The directors, executive officers, and other senior managers of the Company
and their respective ages as of April 1, 1999, and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers
Gresham T. Brebach, Jr. ........................ 58 President, Chief Executive Officer,
and Chairman of the Board of Directors
Ronald K. Bohlin................................ 47 Chief Operating Officer and Director
Michael P. Muldowney............................ 35 Chief Financial Officer
Debra I. Bergevine.............................. 48 Vice President, Marketing
Roger Brossy.................................... 39 Managing Director, Sibson and Director
Ralph Finerman.................................. 63 Director
Steven B. Fink(1)(2)............................ 48 Director
Stanley E. Maron(2)............................. 50 Director
Michael D. Rose(1).............................. 56 Director
Richard V. Sandler(2)........................... 50 Director
Other Senior Managers
Martin G. Glavin................................ 41 Managing Director, Business Performance
Solutions
James K. Burns.................................. 51 Managing Director, E-Business, Pyramid
Mason S. Tenaglia............................... 42 Managing Director, PTG
Andrew M. Rosenfield............................ 47 Chairman, Lexecon
Dennis W. Carlton............................... 48 President, Lexecon
Daniel R. Fischel............................... 47 Principal, Lexecon
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Gresham T. Brebach, Jr. currently serves as President, Chief Executive
Officer, and Chairman of the Board of Directors of the Company, positions he has
held since its inception. Prior to founding the Company, Mr. Brebach was
Executive Vice President of Renaissance Solutions, Inc. from January 1995 to
February 1997 and was a self-employed consultant from September 1994 to December
1994. Mr. Brebach was Senior Vice President of Digital Equipment Corporation
from March 1993 to August 1994 and a Director of McKinsey & Co., a management
consulting firm, from December 1989 to March 1993. In 1988, Mr. Brebach founded
ICG, Inc., an IT consulting firm, and operated such firm until it was acquired
by McKinsey & Co. in December 1989. Prior to such time, Mr. Brebach was Managing
Partner of Andersen Consulting, North America, a leading systems integration and
consulting firm, from 1986 to 1988. Mr. Brebach also serves as a director of
Aspen Technology.
Ronald K. Bohlin currently serves as Chief Operating Officer and a Director
of the Company, positions he has held since its inception. Prior to founding the
Company, Mr. Bohlin was Senior Vice President of Renaissance Solutions from
November 1994 to February 1997. Mr. Bohlin was Vice President, Strategic
Services of Digital Equipment Corporation from October 1993 to November 1994,
Vice President, Corporate Marketing of Analog Devices, Inc. from February 1992
to October 1993 and, from 1981 to 1992, held various management and consulting
positions, including Principal, with McKinsey & Co.
Michael P. Muldowney joined the Company in May 1997 as Vice President,
Finance and currently serves as Chief Financial Officer, a position he has held
since May 1998. Mr. Muldowney is a certified public accountant and, prior to
joining the Company, Mr. Muldowney was Corporate Controller as well as a
Principal
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<PAGE> 52
of Mercer Management Consulting, Inc., ("Mercer"), from 1992 to May 1997, and
held various other financial management positions with Mercer from 1989 to 1992.
Mr. Muldowney was a Senior Auditor of Marsh & McLennan Companies, Inc. from 1986
to 1989.
Debra I. Bergevine currently serves as Vice President, Marketing of the
Company, a position she has held since April 1997. Prior to joining Nextera, Ms.
Bergevine was Director of Marketing & Investor Relations of Renaissance
Solutions, Inc. from March 1995 to April 1997. Ms. Bergevine served as Director
of Marketing and in various other management capacities with Digital Equipment
Corporation from 1980 to 1995.
Roger Brossy currently serves as Managing Director, Sibson and a Director
of the Company, positions he has held since August 1998. Mr. Brossy was elected
as a Director of the Company pursuant to a stockholders agreement. See "Certain
Transactions--Stockholders Agreement." Mr. Brossy has held various management
and consulting positions with Sibson since 1985. From 1981 to 1985, Mr. Brossy
was a consultant with Hay Associates, a human resources consulting firm.
Ralph Finerman currently serves as a Director of the Company, a position he
has held since August 1998. Mr. Finerman is the President of RFG Financial
Group, Inc., a financial consulting firm, a position he has held since 1994.
From 1983 to 1994, Mr. Finerman was in private practice as a certified public
accountant and attorney.
Steven B. Fink currently serves as a Director of the Company, a position he
has held since its inception. Mr. Fink is Vice Chairman of Knowledge Universe, a
position he has held since January 1995, and serves as an officer or director of
other privately-held affiliates of Knowledge Universe. From December 1993 to
December 1996, Mr. Fink was Vice President of MC Group, a business consulting
firm. Mr. Fink was President of East West Capital, an investment firm, from 1989
to December 1993. Mr. Fink is a director of Spring Group, PLC, a business
consulting firm.
Stanley E. Maron currently serves as a Director of the Company, a position
he has held since its inception. Mr. Maron also currently serves as a Director
of Knowledge Universe. Mr. Maron is a senior partner in the law firm of Maron &
Sandler, a Professional Corporation, which was formed in September 1994. Mr.
Maron specializes in corporate and tax law. Prior to forming Maron & Sandler,
Mr. Maron was a senior partner of Buchalter, Nemer, Fields & Younger, a law
firm, which he joined as an associate in 1975.
Michael D. Rose currently serves as a Director of the Company, a position
he has held since October 1998. Mr. Rose also currently serves as a director of
Knowledge Universe. Mr. Rose served as Chairman of the Board of Directors of
Promus Hotel Corporation from April 1995 through December 1997 and has continued
to serve as a Director since December 1997. Mr. Rose was Chairman of the Board
of Directors of Harrah's Entertainment, Inc. from June 1995 to December 1996.
From November 1989 to June 1995, Mr. Rose was Chairman of the Board of Directors
of The Promus Companies, Incorporated and also served as its Chief Executive
Officer from November 1989 to April 1994. Mr. Rose is also a Director of Ashland
Inc., First Tennessee National Corporation, General Mills, Inc., Stein Mart,
Inc., FelCor Lodging Trust, Inc., ResortQuest International, Inc. and Darden
Restaurants, Inc.
Richard V. Sandler currently serves as a Director of the Company, a
position he has held since its inception. Mr. Sandler is a senior partner in the
law firm of Maron & Sandler, a Professional Corporation, which was formed in
September 1994. Mr. Sandler specializes in general securities and business law.
Prior to forming Maron & Sandler, Mr. Sandler was a partner of Victor & Sandler,
a law firm.
Martin G. Glavin currently serves as Managing Director, Business
Performance Solutions and has held various management positions with SiGMA (now
part of Business Performance Solutions) since 1991. Prior to co-founding SiGMA,
Mr. Glavin held various management and consulting positions with KPMG Peat
Marwick from 1987 to 1991 and Price Waterhouse from 1979 to 1987.
James K. Burns currently serves as Managing Director, E-Business, Pyramid,
a position he has held since February 1999. Mr. Burns is also President and
Chairman of the Board of NeoEnterprises. From 1997 to 1998, Mr. Burns served as
Co-Chief Executive Officer and as a director of CIS, Inc., a strategic change
and information technology solutions firm. From 1994 to 1997, Mr. Burns was
associated with Swiss Bank--
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<PAGE> 53
Warburg, an investment bank, as Chief Operating Officer of North America, a
Managing Director and a member of the United States Management Committee, among
other positions. From 1992 to 1994, Mr. Burns was Vice Chairman, Chief Operating
Officer and Chief Executive Officer--United States and Latin America of SHL
Systemhouse, now MCI Systemhouse. From 1988 to 1992, Mr. Burns was Vice
President and Head of Global Information Technology at Goldman Sachs.
Mason S. Tenaglia currently serves as Managing Director, PTG and has held
various management positions with PTG since 1990. Prior to co-founding PTG, Mr.
Tenaglia was Sr. Vice President of MicroMentor, Inc., a consulting and executive
development firm, from 1986 to 1989.
Andrew M. Rosenfield currently serves as Chairman, Lexecon and has held
various management positions with Lexecon since he co-founded it in 1977. Mr.
Rosenfield also serves as a Senior Lecturer in Law at The University of Chicago
Law School. Mr. Rosenfield is also a director of UNEXT.com, LLC, an educational
services company.
Dennis W. Carlton currently serves as President, Lexecon, a position he has
held since November 1997. Mr. Carlton has held various executive positions with
Lexecon since 1977. Mr. Carlton also serves as Professor of Economics at The
University of Chicago's Graduate School of Business, a position he has held
since 1984.
Daniel R. Fischel currently serves as Principal, Lexecon, and has held
various management positions with Lexecon since 1981. Mr. Fischel also serves as
Dean of The University of Chicago Law School and has served as the Lee and Brena
Freeman Professor of Law and Business at The University of Chicago Law School
since 1989.
BOARD OF DIRECTORS
The Company's Certificate of Incorporation and its Bylaws provide that the
Company's Board of Directors will consist of not less than seven nor more than
thirteen members, the exact number to be fixed from time to time by resolution
adopted by the directors of the Company. The Board of Directors currently
consists of eight directors. Directors will be elected by the holders of Class A
Common Stock and Class B Common Stock voting together as a class with the
holders of Class A Common Stock entitled to one vote per share and the holders
of the Class B Common Stock entitled to ten votes per share. See "Risk Factors--
Control by Knowledge Universe or its Affiliates" and "Description of Capital
Stock." Pursuant to the Stockholders Agreement, the stockholders of the Company
agreed to vote their shares of Common Stock to elect Sibson's manager or senior
managing principal to the Board of Directors and to elect a nominee of the
former stockholders of Lexecon. Mr. Brossy was elected to the Board of Directors
as the Sibson representative pursuant to the Stockholders Agreement. The former
stockholders of Lexecon have not yet exercised their right to nominate a
director.
BOARD COMMITTEES
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee") consisting of Messrs. Fink, Maron, and Sandler. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees, and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), consisting of Messrs.
Fink and Rose. The Compensation Committee determines compensation for the
Company's senior executive officers and administers the 1998 Equity
Participation Plan.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
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<PAGE> 54
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Fink and Rose. There are no Compensation Committee interlocks.
DIRECTOR COMPENSATION
Directors are reimbursed for all expenses incurred in connection with
attendance at Board of Directors and Committee meetings, but do not otherwise
receive any compensation for services as a director. In February 1999, pursuant
to the 1998 Equity Participation Plan, the Company granted to each of Messrs.
Finerman, Fink, Maron, Rose and Sandler in their capacity as independent
directors, options to purchase 15,000 shares of Class A Common Stock at an
exercise price of $11.00 per share. Following the Offering, Nextera intends to
evaluate director compensation and may implement a more extensive program for
directors who are not employed by the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued for the
period from February 26, 1997 through December 31, 1997 and for the year ended
December 31, 1998 for the Company's Chief Executive Officer and its four other
most highly compensated executive officers whose compensation exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
FISCAL OPTIONS COMPENSATION(1)
NAME AND POSITION YEAR SALARY BONUS (# OF SHARES) ---------------
<S> <C> <C> <C> <C> <C>
Gresham T. Brebach, Jr................ 1998 $716,000(2) $112,500 -- $173,047
Chief Executive Officer 1997 530,588(3) 133,000 -- --
Ronald K. Bohlin...................... 1998 450,004(4) 101,250 -- 168,445
Chief Operating Officer 1997 337,509(5) 65,000 -- --
Michael P. Muldowney.................. 1998 181,417 40,950 -- 30,547
Chief Financial Officer 1997 116,666 24,000 -- --
Debra I. Bergevine.................... 1998 175,958 39,713 -- 30,813
Vice President, Marketing 1997 113,333 18,000 -- --
Roger Brossy.......................... 1998(6) 83,333 100,000 8,000 --
Managing Director, Sibson
</TABLE>
- ------------------------------
(1) Includes (i) dollar value of the difference between the price paid for
shares of Common Stock purchased in August 1998 and the fair market value of
such Common Stock on the date of purchase, and (ii) the value of life
insurance paid by the Company.
(2) Includes $150,000 consisting of guaranteed bonus amount earned in 1998.
(3) Includes $125,000 consisting of guaranteed bonus amount earned in 1997.
(4) Includes $100,000 consisting of guaranteed bonus amount earned in 1998.
(5) Includes $75,000 consisting of guaranteed bonus amount earned in 1997.
(6) Represents compensation and awards from August 31, 1998 to December 31,
1998.
BONUS PLANS
As a key component of the annual compensation program, the Company has
implemented a bonus plan designed to recognize individual and Acquired Company
performance. The bonus plan is funded by the performance of each Acquired
Company (other than Sibson and Lexecon) and is intended to complement base
compensation while providing incentive and recognition for exceptional
individual and team efforts in meeting and exceeding such Acquired Company's
operating targets. All employees with three months or more
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<PAGE> 55
of service are eligible to participate. Employee target bonus percentages range
from 10% to 50% of the individual's base salary, dependent on their
classification. Bonus calculations are dependent upon an employee's target bonus
percentage, individual performance rating, annualized service as well as the
final performance of the applicable Acquired Company.
Lexecon maintains a bonus plan for its employees which provides for the
payment of discretionary bonuses based on individual performance and Lexecon's
operating results. This plan is administered by Lexecon's management, subject to
the Company's approval with respect to certain matters.
Sibson & Company, LLC, a subsidiary of the Company ("Sibson LLC") has
established an Annual Incentive Plan, the principal purpose of which is to
attract and motivate the principals and certain employees of Sibson LLC by
providing them with the opportunity to participate in Sibson LLC's success.
Bonus awards under the plan are distributed semi-annually or annually to the
participants from an award pool based upon the performance of the individual
participant and Sibson LLC during such semi-annual or annual period and the
target bonus award for the participant as established by Sibson LLC management.
This plan provides for an annual award pool based on Sibson LLC's financial
performance and is administered by Sibson LLC management, subject to the
Company's approval with respect to the establishment of performance criteria for
the individual participants and Sibson LLC.
OPTION GRANTS
The following table summarizes individual grants of options to purchase
Class A Common Stock granted in 1998 to the Named Executive Officers.
STOCK OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK
------------------------------------------------------------ PRICE APPRECIATION
NUMBER OF FOR
SECURITIES PERCENT OF TOTAL OPTION TERM(1)
UNDERLYING OPTIONS GRANTED TO EXERCISE ------------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL 1998 ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach, Jr...... -- -- -- -- -- --
Ronald K. Bohlin............ -- -- -- -- -- --
Michael P. Muldowney........ -- -- -- -- -- --
Debra I. Bergevine.......... -- -- -- -- -- --
Roger Brossy................ 8,000 * $7.50 August 31, 2008 $0 $0
</TABLE>
- ---------------
* Indicates less than 1.0%.
(1) The potential realizable values are based on an assumption that the stock
price of the Company's Class A Common Stock will appreciate at the annual
rate shown (compounded annually) from the date of grant until the end, of
the option term. The Board of Directors has determined that the fair market
value of the Company's Class A Common Stock on the date of grant was $2.50
per share. These values do not take into account amounts required to be paid
as income taxes under the Internal Revenue Code and any applicable state
laws or option provisions providing for termination of an option following
termination of employment, non-transferability or vesting. These amounts are
calculated based on the requirements promulgated by the Commission and do
not reflect the Company's estimate of future stock price growth of the
shares of the Class A Common Stock, nor do they give effect to any actual
appreciation in the Class A Common Stock. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Class A
Common Stock and overall stock market conditions.
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<PAGE> 56
FISCAL YEAR-END OPTION VALUE TABLE
None of the Named Executive Officers exercised any Company options during
1998. The following table sets forth certain information with respect to the
value of the options as of December 31, 1998 held by the Named Executive
Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS(#) AT FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Gresham T. Brebach, Jr. ......................... -- -- -- --
Ronald K. Bohlin................................. -- -- -- --
Michael P. Muldowney............................. -- -- -- --
Debra I. Bergevine............................... -- -- -- --
Roger Brossy..................................... 0 8,000 $0 $1,200
</TABLE>
- ---------------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
fair market value at December 31, 1998 of $7.65 as determined by the Board
of Directors.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Gresham T. Brebach, Jr. dated
March 3, 1997 (the "Brebach Agreement"). The Brebach Agreement provides for a
term of three years. Such term may be extended for an additional period of two
years with 90 days written notice prior to the expiration of the initial term.
Pursuant to the Brebach Agreement, Mr. Brebach is employed as the Company's
Chief Executive Officer and receives a minimum annual base salary of $500,000, a
guaranteed annual bonus of $150,000, and an additional annual bonus of up to
one-third of his base salary, in an amount to be determined by the Board of
Directors of the Company, as well as benefits under the Company's benefit plans.
Pursuant to the Brebach Agreement, Mr. Brebach purchased Class A Common Units of
NEH at an aggregate purchase price of $40,000 (which units were ultimately
converted into 200,000 shares of Class A Common Stock and 86,000 shares of Class
B Common Stock), subject to the Company's right to repurchase at original cost
up to (i) 80% of such interests in the event Mr. Brebach is terminated or leaves
the employ of the Company prior to one year after commencement of employment,
(ii) 60% of such interests in the event Mr. Brebach is terminated or leaves the
employ of the Company after one year but prior to two years after commencement
of employment, (iii) 40% of such interests in the event Mr. Brebach is
terminated or leaves the employ of the Company after two years but prior to
three years after commencement of employment, and (iv) 20% of such interests in
the event Mr. Brebach is terminated or leaves the employ of the Company after
three years but prior to four years after commencement of employment. The
Company's right to repurchase any portion of Mr. Brebach's interests in the
Company shall terminate if Mr. Brebach leaves the employ of the Company prior to
March 3, 2000 for any reason other than death, disability, cause, voluntary
termination, or if the Company elects not to extend the term past March 3, 2000.
The Brebach Agreement also provides that in the event the Company terminates Mr.
Brebach's employment, other than for cause, retirement, disability or death, the
Company shall (i) pay Mr. Brebach the balance of his base salary to which he
would have been entitled to receive through the end of the then applicable term
and (ii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term or until Mr.
Brebach is employed elsewhere. The Brebach Agreement provides that a change of
control of the Company shall have no effect on Mr. Brebach's financial interests
pursuant to the Brebach Agreement. Mr. Brebach is also subject to
noncompetition, nondisclosure, post-employment cooperation, and nonsolicitation
covenants.
The Company has an employment agreement with Ronald K. Bohlin dated April
1, 1997 (the "Bohlin Agreement"). The Bohlin Agreement provides for an initial
term of three years. Such initial term may be extended for an additional period
of two years with 90 days written notice prior to the expiration of the initial
term. Pursuant to the Bohlin Agreement, Mr. Bohlin is employed as the Company's
Chief Operating Officer and receives a minimum annual base salary of $350,000, a
guaranteed annual bonus of $100,000, and an
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additional annual bonus of up to 25% of his base salary, in an amount to be
determined by the Board of Directors of the Company, as well as benefits under
the Company's benefit plans. Pursuant to the Bohlin Agreement, Mr. Bohlin
purchased Class A Common Units of NEH at an aggregate purchase price of $20,000
(which units were ultimately converted into 100,000 shares of Class A Common
Stock and 43,000 shares of Class B Common Stock), subject to the Company's right
to repurchase at original cost up to (i) 80% of such interests in the event Mr.
Bohlin is terminated or leaves the employ of the Company prior to one year after
commencement of employment, (ii) 60% of such interests in the event Mr. Bohlin
is terminated or leaves the employ of the Company after one year but prior to
two years after commencement of employment, (iii) 40% of such interests in the
event Mr. Bohlin is terminated or leaves the employ of the Company after two
years but prior to three years after commencement of employment, and (iv) 20% of
such interests in the event Mr. Bohlin is terminated or leaves the employ of the
Company after three years but prior to four years after commencement of
employment. The Company's right to repurchase any portion of Mr. Bohlin's
interests in the Company shall terminate if Mr. Bohlin leaves the employ of the
Company prior to April 1, 2000 for any reason other than death, disability,
cause, voluntary termination, or if the Company elects not to extend the term
past April 1, 2000. The Bohlin Agreement also provides that in the event the
Company terminates Mr. Bohlin's employment prior to April 1, 2000, other than
for cause, retirement, disability or death, the Company shall (i) pay Mr. Bohlin
the balance of his base salary to which he would have been entitled to receive
through the end of the then applicable term and (ii) continue to provide
benefits upon the same terms and conditions then in effect on the date of
termination through the then applicable term or until Mr. Bohlin is employed
elsewhere. The Bohlin Agreement provides that a change of control of the Company
shall have no effect on Mr. Bohlin's financial interests pursuant to the Bohlin
Agreement. Mr. Bohlin is also subject to noncompetition, nondisclosure,
post-employment cooperation, and nonsolicitation covenants.
The Company entered into an employment agreement with Michael P. Muldowney
dated April 25, 1997 (the "Muldowney Agreement"). The Muldowney Agreement
provides for a term of one year, renewable by the Company for additional periods
of one year each upon at least 90 days prior notice to Mr. Muldowney. The
Company has renewed the Muldowney Agreement through April 30, 2000. Pursuant to
the Muldowney Agreement, Mr. Muldowney is employed as the Company's Chief
Financial Officer and receives a minimum annual base salary of $191,000 and an
annual bonus of up to 30% of his base salary, in an amount to be determined by
the Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Muldowney Agreement, Mr. Muldowney purchased
Class A Common Units of NEH at an aggregate purchase price of $5,000 (which
units were ultimately converted into 25,000 shares of Class A Common Stock and
10,750 shares of Class B Common Stock), subject to the Company's right to
repurchase such shares at fair market value, provided that in the event Mr.
Muldowney voluntarily terminates his employment or is dismissed for cause prior
to April 25, 2000, the Company has the right to repurchase such shares at cost.
Mr. Muldowney is also subject to noncompetition, nondisclosure, and
nonsolicitation covenants.
The Company entered into an at-will employment agreement with Debra I.
Bergevine dated March 25, 1997 (the "Bergevine Agreement"). Pursuant to the
Bergevine Agreement, Ms. Bergevine is employed as the Company's Vice President,
Marketing and receives a minimum annual base salary of $170,000 and an annual
bonus of up to 20% of her base salary, in an amount to be determined by the
Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Bergevine Agreement, Ms. Bergevine purchased
Class A Common Units of NEH at an aggregate purchase price of $5,000 (which
units were ultimately converted into 25,000 shares of Class A Common Stock and
10,750 shares of Class B Common Stock), subject to the Company's right to
repurchase such shares at its then fair market value, provided that in the event
Ms. Bergevine voluntarily terminates her employment or is dismissed for cause
prior to March 25, 2000, the Company has the right to repurchase such shares at
cost. Ms. Bergevine is also subject to noncompetition, nondisclosure, and
nonsolicitation covenants.
Sibson LLC entered into an employment agreement with Roger Brossy dated
August 31, 1998 (the "Brossy Agreement"). The Brossy Agreement provides for a
term of two years, as well as automatic renewal on each subsequent anniversary
for subsequent one-year terms unless either Mr. Brossy or Sibson LLC gives
written notice to the other not less than sixty days prior to such anniversary.
Pursuant to the Brossy Agreement, Mr. Brossy receives a minimum annual base
salary of $250,000, an initial annual target bonus
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equal to 60% of his annual base salary pursuant to Sibson LLC's Annual Incentive
Plan, as well as benefits under Sibson LLC's benefit plans. Pursuant to the
Brossy Agreement, Mr. Brossy purchased 1,554 Class A Common Units of Nextera LLC
at a price of $0.14 per unit (which were ultimately converted into 1,554 shares
of Class A Common Stock). The Brossy Agreement also provides that upon Sibson
LLC's termination of Mr. Brossy's employment, other than for cause, retirement,
disability or death, Sibson LLC shall (i) pay Mr. Brossy the balance of his base
salary and a pro-rata share of the applicable bonus to which he would have been
entitled to receive through the end of the then applicable term (ii) cause any
options granted to Mr. Brossy under the Company's 1998 Equity Participation Plan
to vest to the extent of 50% of the remaining unvested portion of such options,
and (iii) continue to provide benefits upon the same terms and conditions then
in effect on the date of termination through the then applicable term. Mr.
Brossy is also subject to a Noncompete, Non-Solicitation, Proprietary
Information, Confidentiality and Inventions Agreement.
EMPLOYEE BENEFIT PLANS
1998 Equity Participation Plan. Nextera's 1998 Equity Participation Plan
provides incentives for officers, key employees and consultants of the Company
and its subsidiaries through granting of options, restricted stock and other
awards ("Awards"). In addition to Awards made to officers, key employees or
consultants, the 1998 Equity Participation Plan permits the granting of options
("Director Options") to the Company's independent non-employee directors.
Under the 1998 Equity Participation Plan, not more than 5,000,000 shares of
Class A Common Stock (or the equivalent in other equity securities) are
authorized for issuance upon exercise of options, stock appreciation rights
("SARs"), and other Awards, or upon vesting of restricted or deferred stock
awards. The maximum number of shares which may be subject to options or stock
appreciation rights granted under the 1998 Equity Participation Plan to any
individual in any calendar year cannot exceed 100,000. As of April 1, 1999,
options to purchase 3,163,652 shares of Class A Common Stock were outstanding
under the 1998 Equity Participation Plan.
Prior to the closing of the Offering, the Board of Directors of the Company
will administer the 1998 Equity Participation Plan. After the closing of the
Offering, the Compensation Committee or another committee thereof (the
"Committee") will administer the 1998 Equity Participation Plan with respect to
grants to key employees or consultants of the Company and the full Board of
Directors will administer the 1998 Equity Participation Plan with respect to
Director Options. The Committee will consist of at least two members of the
Board of Directors, each of whom is a "non-employee director" for purposes of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3")
and, with respect to options and SARs which are intended to constitute
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), an "outside director" for the purposes of
Section 162(m) of the Code. Subject to the terms and conditions of the 1998
Equity Participation Plan, the Board of Directors or Committee has the authority
to select the persons to whom Awards are to be made, to determine the number of
shares to be subject thereto and the terms and conditions thereof, and to make
all other determinations and to take all other actions necessary or advisable
for the administration of the 1998 Equity Participation Plan. The Board of
Directors or Committee may delegate to certain officers of the Company its
authority to select the persons to whom Awards are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof. In
addition, the Board of Directors has discretion to determine the terms and
conditions of Director Options and to interpret and administer the 1998 Equity
Participation Plan with respect to Director Options. The Committee (and the
Board of Directors) are also authorized to adopt, amend and rescind rules
relating to the administration of the 1998 Equity Participation Plan.
Options, SARs, restricted stock and other Awards under the 1998 Equity
Participation Plan may be granted to individuals who are then officers or other
key employees of the Company or any of its present or future subsidiaries. Such
Awards also may be granted to consultants of the Company selected by the Board
of Directors or Committee for participation in the 1998 Equity Participation
Plan. Independent directors of the Company may be granted NQSOs (as defined
herein) by the Board of Directors. The Committee may grant
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or issue stock options, SARs, restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments and other stock related
benefits, or any combination thereof to key employees and consultants. Each
Award will be set forth in a separate agreement with the person receiving the
Award and will indicate the type, terms and conditions of the Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Class A Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (in the discretion of the
Board of Directors) in one or more installments after the grant date, subject to
the participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Board of Directors and/or the Company. NQSOs may be granted for a term of up to
ten (10) years, as specified by the Board of Directors.
Incentive Stock Options ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Class A Common Stock on the date of
grant, may only be granted to key employees, must expire within a specified
period of time following the Optionee's termination of employment, and must be
exercised within the ten years after the date of grant; but may be subsequently
modified to disqualify them from treatment as ISOs. In the case of an ISO
granted to an individual who owns (or is deemed to own) at least 10% of the
total combined voting power of all classes of stock of the Company, the 1998
Equity Participation Plan provides that the exercise price must be at least 110%
of the fair market value of a share of Class A Common Stock on the date of grant
and the ISO must expire upon the fifth anniversary of the date of its grant.
Restricted Stock may be sold to any key employee or consultant at various
prices (but not below par value) and made subject to such restrictions as may be
determined by the Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise transferred
or hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
Deferred Stock may be awarded to any key employee or consultant, typically
without payment of consideration, but subject to vesting conditions based on
continued employment or on performance criteria established by the Committee.
Like restricted stock, deferred stock may not be sold, or otherwise transferred
or hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
SARs may be granted to any key employee or consultant in connection with
stock options or other Awards, or separately. SARs granted by the Committee in
connection with stock options or other Awards will provide for payments to the
holder based upon increases in the price of the Company's Class A Common Stock
over the exercise price of the related option or other Awards. Except as
required by Section 162(m) of the Code with respect to an SAR intended to
qualify as performance-based compensation as described in Section 162(m) of the
Code, there are no restrictions specified in the 1998 Equity Participation Plan
on the exercise of SARs or the amount of gain realizable therefrom, although
restrictions may be imposed by the Board of Directors or Committee in the SAR
agreements. The Committee may elect to pay SARs in cash or in Class A Common
Stock or in a combination of both.
Dividend Equivalents may be granted to any key employee or consultant by
the Board of Directors or the Committee. The amount of the Dividend Equivalents
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, Deferred
Stock, Performance Awards, SARs or other Awards held by the participant.
Performance Awards may be granted to any key employee or consultant by the
Committee. Generally, these Awards will be based upon specific performance
targets and may be paid in cash or in Class A Common
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Stock or in a combination of both. Performance Awards may also include bonuses
which may be granted by the Committee which may be payable in cash or in Class A
Common Stock or in a combination of both.
Stock Payments may be received by any key employee or consultant selected
by the Committee in the manner determined from time to time by the Committee.
The number of shares of Class A Common Stock or an option or other right to
purchase Class A Common Stock shall be determined by the Committee, and may be
based upon performance criteria as determined by the Committee.
The 1998 Equity Participation Plan prohibits any participant in the plan
from, without the prior written consent of the representatives of the
Underwriters and subject to certain exceptions, selling or otherwise disposing
of any shares of Class A Common Stock or options to acquire shares of Class A
Common Stock during the 180-day period following the date of this Prospectus.
The Nextera/Lexecon Limited Purpose Stock Option Plan. Nextera adopted the
Limited Purpose Plan to provide incentives for key personnel of Lexecon by
granting such key personnel options to purchase shares of Nextera's Class A
Common Stock. Assuming the price per share of the Class A Common Stock in the
Offering is $11.00, the Company will grant options to purchase 3,004,239 shares
of Class A Common Stock under the Limited Purpose Plan, including the grant in
March 1999 to certain non-employee consultants of Lexecon of fully-vested
options to purchase an aggregate of 445,245 shares of Class A Common Stock with
an exercise price of $14.00 per share. The number of remaining shares subject to
options to be granted to employees under the Limited Purpose Plan will vary
based upon the price per share in the Offering.
Prior to the closing of the Offering, the Board of Directors will
administer the Limited Purpose Plan. After the closing of the Offering, the
Committee will administer the Limited Purpose Plan. The Committee will consist
of at least two members of the Board, each of whom is a "non-employee director"
for purposes of Rule 16b-3 and an "outside director" for the purposes of Section
162(m) of the Code. Subject to the terms and conditions of the Limited Purpose
Plan, the Board of Directors or Committee has the authority to select the
persons to whom options will be granted, to determine the number of shares to be
subject thereto and the terms and conditions thereof, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the Limited Purpose Plan. The Committee (and the Board of
Directors) may delegate to certain officers of the Company its authority to
select the persons to whom options will be granted, to determine the number of
shares to be subject thereto and the terms and conditions thereof. The Committee
(and the Board of Directors) is also authorized to adopt, amend and rescind
rules relating to the administration of the Limited Purpose Plan.
Under the terms of the Limited Purpose Plan, options may be granted only to
individuals who are then key employees of Lexecon or who are consultants of
Lexecon selected by the Board of Directors or Committee for participation in the
Limited Purpose Plan. Options granted under the Limited Purpose Plan shall not
be "incentive stock options" within the meaning of Section 422 of the Code, but
rather all such options shall be "nonqualified stock options." Each such option
will be evidenced by a separate written agreement with the person receiving the
option and will indicate the type, terms and conditions of the option.
Options granted under the Limited Purpose Plan will provide for the right
to purchase Class A Common Stock at the price per share of the Class A Common
Stock in the Offering and will become exercisable (at the discretion of the
Board of Directors or the Committee) in one or more installments after the grant
date, subject to the participant's continued employment with Lexecon. Options
may be granted for a term of up to ten (10) years, as specified by the Committee
(or the Board of Directors).
The Limited Purpose Plan prohibits any participant in the Limited Purpose
Plan from, without the prior written consent of the representatives of the
Underwriters and subject to certain exceptions, selling or otherwise disposing
of any shares of Class A Common Stock or options to acquire shares of Class A
Common Stock during the 180-day period following the date of this Prospectus.
Retirement Plans. Nextera and certain subsidiaries sponsor retirement
savings plans (the "Retirement Plans") under Section 401(k) of the Code for the
benefit of employees meeting certain minimum service requirements. Eligible
employees may elect to contribute to the plan subject to limitations established
by the Code. The trustees of the Retirement Plans select investment
opportunities from which participants may
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choose to contribute. The Company matches up to 25% of the first 4% of eligible
participant contributions for employees of PTG, Pyramid, and the Company's
Executive Officers and administrative personnel. The Company has agreed to match
25% of total contributions (subject to the limitations of the Code) for
individuals who were active employees of Business Performance Solutions as of
December 31, 1998. Other contributions are made at the discretion of the
Company. On a pro forma basis, the Company made contributions to the Retirement
Plans of approximately $160,000 for the year ended December 31, 1998.
The Company maintains defined contribution profit-sharing plans for the
eligible employees of Sibson LLC and Lexecon and the eligible former employees
of SiGMA (the "Profit-Sharing Plans") which provide for certain retirement
benefits. Contributions by the Company to the Profit-Sharing Plans are at the
discretion of management at the subsidiary level subject to overall budgetary
control by Nextera. Participants in the profit sharing plan of Sibson LLC are
eligible to make elective deferral contributions, without matching by Sibson
LLC. Sibson LLC may also make qualified non-elective contributions. For the year
ended December 31, 1998 on a pro forma basis, the Company contributed
approximately $3.5 million to the Profit-Sharing Plans. The Company intends to
make additional contributions to the Profit-Sharing Plans in the future as
determined by its management.
Other. The Company maintains customary health and benefit plans for its
employees. In addition, Sibson LLC currently provides post-retirement medical
benefits for Sibson LLC employees who retire after age 50 with at least 15 years
of service. Any such Sibson retiree may elect to receive medical coverage under
Sibson LLC's medical program until the earlier of age 65 or the retiree's death.
Sibson LLC pays 75% of the annual cost of the comprehensive medical coverage and
the retiree pays the remaining 25%. In connection with the Sibson Acquisitions,
the Company committed to maintain this post-retirement medical coverage (and all
other Sibson employee benefit programs) through December 31, 1999, subject to
certain limited exceptions, and the termination of applicable employment
agreements.
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CERTAIN TRANSACTIONS
Loans to Certain Officers. NEH made loans to Gresham T. Brebach, Jr., the
Company's Chief Executive Officer, Michael P. Muldowney, the Company's Chief
Financial Officer and Debra I. Bergevine, the Company's Vice President,
Marketing, the proceeds of which were used to purchase from NEH Preferred Units
of NEH. These loans were evidenced by promissory notes, dated January 2, 1998,
executed by the respective individuals in favor of NEH, and secured by a
security interest in the respective membership units purchased by these
individuals. All of the foregoing promissory notes bear interest at 10% per
annum and mature on January 2, 2003, subject to mandatory prepayment upon the
happening of certain events. The principal amounts of the promissory notes
executed by Messrs. Brebach and Muldowney and Ms. Bergevine are $576,000,
$72,000 and $62,000, respectively. All of the foregoing promissory notes and
security documents were contributed to, and are now held by, the Company. The
foregoing Preferred Units purchased by Messrs. Brebach and Muldowney and Ms.
Bergevine were ultimately converted to a 1.2%, 0.1% and 0.1% interest,
respectively, in the Debentures.
Bridge Loan Amendment. The Company, Knowledge Universe and the other party
to the Bridge Loan entered into a Consent and Amendment (the "Bridge Loan
Amendment") to the Bridge Loan on December 31, 1998. Pursuant to the Bridge Loan
Amendment, Knowledge Universe loaned the Company $37.5 million and became a
participant under the Bridge Loan. In connection with the Bridge Loan Amendment,
the Company, Lexecon, Sibson LLC, Pyramid, Business Performance Solutions and
PTG granted Knowledge Universe a security interest ("Security Interest") in
substantially all of their respective assets and properties, including the stock
or membership interests of all of the Acquired Companies. The Security Interest
is pari passu with the security interest granted to the other party to the
Bridge Loan. The Acquired Companies also guaranteed the obligations of the
Company under the Bridge Loan. The Bridge Loan Amendment provides for an
interest rate of 12% per annum and extended the maturity of the Bridge Loan to
April 30, 1999. The Company used $31.1 million of the proceeds of the loan from
Knowledge Universe to finance the Lexecon Acquisition, $4.2 million to finance
the payment of bonuses to certain non-stockholder key executives of Lexecon,
$2.0 million to finance the acquisition of Alexander and $2.2 million for
general corporate purposes, including working capital. The Bridge Loan was
further amended effective April 15, 1999 to extend the maturity date to May 31,
1999.
Management Agreement. Effective March 1, 1997, Nextera entered into an oral
agreement with KU, LLC whereby KU, LLC provided certain management and advisory
services to the Company, for which the Company agreed to pay a management fee of
$10,000 per month to KU, LLC. Such agreement was subsequently transferred to
Knowledge Universe in August 1998. The $10,000 monthly fee was increased to
$50,000 per month effective January 1, 1999. In December 1998, the Company
entered into an agreement to pay an additional management fee of $1.5 million to
Knowledge Universe for additional services rendered by Knowledge Universe and
KU, LLC to the Company in 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations." Accrued
management fees of approximately $410,000 will be paid from the proceeds of the
Offering. See "Use of Proceeds." Said monthly management fee agreement was
terminated effective as of the date of this Prospectus.
Engagement of the Company by Knowledge Universe or its Affiliates. The
Company was engaged by KU, LLC to perform certain reviews and render advice in
connection with potential acquisitions of third-parties by KU, LLC. The total
amount billed to KU, LLC by the Company in connection with this engagement
amounted to approximately $207,480 in 1998. In addition, the Company was engaged
by KU, LLC at various times to provide advice relating to general business
strategy and human resources. The amount billed to KU, LLC by the Company in
connection with these engagements amounted to approximately $692,520 in 1998.
The Company was engaged at various times by Productivity Point
International, Inc. ("PPI"), an affiliate of Knowledge Universe, to provide
strategy, business operations and IT advice. The total amount billed to PPI by
the Company in connection with these engagements amounted to approximately
$225,000 in 1997 and $642,000 in 1998. In addition, the Company was engaged at
various times by TEC Worldwide, Inc. ("TEC"), an affiliate of Knowledge
Universe, to provide strategy, business operations and IT advice. The total
amount
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billed to TEC by the Company in connection with these engagements amounted to
approximately $90,000 in 1998.
Knowledge Universe, PPI, TEC and other affiliates of Knowledge Universe may
engage the Company to provide various consulting services in the future. Such
future transactions will be entered into on an arm's-length basis in accordance
with Delaware law.
Investments in the Company. From March 7, 1997 through April 30, 1998, KU,
LLC purchased Class A Common Units of NEH for aggregate consideration of $1.8
million (net of a subsequent redemption), which were ultimately converted into
8,805,000 shares of Class A Common Stock and 3,842,050 shares of Class B Common
Stock. Also during this period, EDU purchased Class A Common Units of NEH for
aggregate consideration of $1,000, which were ultimately converted into 5,000
shares of Class A Common Stock and 2,150 shares of Class B Common Stock.
Pursuant to the KE Transaction, ownership of the Class A Common Stock and Class
B Common Stock arising out of the foregoing transactions was transferred to
Knowledge Enterprises. See "The Company--Transfer to Nextera Holdings." During
the same period, KU, LLC purchased Class B Preferred Units of NEH for aggregate
consideration of $47.1 million, which were ultimately converted into a 98.3%
interest in the Debentures.
In November 1997, Messrs. Brebach, Bohlin, and Muldowney and Ms. Bergevine
purchased Class A Common Units of NEH, which purchases were in addition to the
Common Stock purchased pursuant to their respective employment agreements. Mr.
Brebach purchased Class A Common Units of NEH for aggregate consideration of
$40,000, which units were ultimately converted into 200,000 shares of Class A
Common Stock and 86,000 shares of Class B Common Stock. Mr. Bohlin purchased
Class A Common Units of NEH for aggregate consideration of $10,000, which units
were ultimately converted into 50,000 shares of Class A Common Stock and 21,500
shares of Class B Common Stock. Mr. Muldowney purchased Class A Common Units of
NEH for aggregate consideration of $5,000, which units were ultimately converted
into 25,000 shares of Class A Common Stock and 10,750 shares of Class B Common
Stock. Ms. Bergevine purchased Class A Common Units of NEH for aggregate
consideration of $5,000, which units were ultimately converted into 25,000
shares of Class A Common Stock and 10,750 shares of Class B Common Stock. For a
discussion of the Class A Common Units of NEH purchased by Messrs. Brebach,
Bohlin and Muldowney and Ms. Bergevine pursuant to their employment agreements,
see "Management--Employment Agreements."
From March 20, 1997 to July 23, 1997, EDU contributed $25,000 to Nextera
LLC in exchange for 10,000 Class A Common Units of Nextera LLC, which were
subsequently redeemed for $25,000.
In April 1997, Nextera LLC issued a warrant to NEH (the "Warrant") to
purchase 5,000,000 Class A Common Units at an exercise price of $2.50 per unit.
Effective April 30, 1998, the Warrant was amended to provide for the issuance of
5,000,000 Class B Common Units. The Warrant was exchanged for 4,300,000 Class B
Common Units which were ultimately converted into 4,300,000 shares of Class B
Common Stock.
Effective as of April 30, 1998, approximately $48.0 million of Nextera
LLC's contributed capital was redesignated as debt in the form of the
Debentures. As a result of the liquidation and dissolution of NEH, interests in
the Debentures were distributed to KU, LLC, Messrs. Brebach, Bohlin and
Muldowney, Ms. Bergevine, one other employee and one former employee of Nextera
LLC. See "The Company--Recapitalization."
On August 31, 1998, Messrs. Brebach, Bohlin, and Muldowney and Ms.
Bergevine purchased additional Class A Common Units and Class B Common Units of
Nextera LLC. Mr. Brebach purchased units for aggregate consideration of $9,900,
which units were ultimately converted into 49,500 shares of Class A Common Stock
and 21,285 shares of Class B Common Stock. Mr. Bohlin purchased units for
aggregate consideration of $9,900, which units were ultimately converted into
49,500 shares of Class A Common Stock and 21,285 shares of Class B Common Stock.
Mr. Muldowney purchased units for aggregate consideration of $1,800, which units
were ultimately converted into 9,000 shares of Class A Common Stock and 3,870
shares of Class B Common Stock. Ms. Bergevine purchased units for aggregate
consideration of $1,800, which units were ultimately converted into 9,000 shares
of Class A Common Stock and 3,870 shares of Class B Common
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Stock. Also on August 31, 1998, Mr. Brossy purchased Class A Common Units of
Nextera LLC for aggregate consideration of $218, which units were ultimately
converted into 1,554 shares of Class A Common Stock.
On December 31, 1998 and in connection with the Lexecon Acquisition, all of
the members of Nextera LLC other than the Sibson Entities contributed all of
their membership interests in Nextera LLC to Nextera in exchange for Common
Stock. See "The Company--Exchange Transaction."
On December 31, 1998 and in connection with the Exchange Transaction, Mr.
Brossy received 194,203 shares of Class A Common Stock in exchange for his
equity interest in the Sibson Entities.
Amendment of the Debentures. Effective December 31, 1998, the Company,
Knowledge Universe, Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine and one
other employee of the Company amended the Debentures in connection with the
Lexecon Acquisition, and further amended the Debentures effective April 15, 1999
(the "Debenture Amendments"). The Debenture Amendments provide that in the event
the Bridge Loan remains unpaid following May 31, 1999, the interest rate will
increase to two percentage points over the interest rate on the Bridge Loan. In
addition, as required by the terms of the Bridge Loan, if an event of default
occurs under the Bridge Loan, the Debentures must either be (i) moved up in the
Company's capital structure to a holding company level or (ii) at Knowledge
Universe's election, exchanged for preferred stock of Nextera on terms
substantially equivalent to the existing terms of the Debentures with the
addition of a liquidation preference until all amounts owed under the Bridge
Loan are paid in full. Three months after the full repayment of all amounts due
under the Bridge Loan, the holders of the Debentures (or preferred stock, if
converted) will have the ability to modify the terms of the Debentures (or
preferred stock, if converted) to provide for current cash interest (or
dividend) payments.
Guaranty and Warrants to Purchase Class A Common Stock. Effective December
31, 1998, Knowledge Universe agreed to guaranty (the "Guaranty") the Company's
obligations to the former stockholders of Lexecon to repurchase 1,450,240 shares
of Class A Common Stock which will be issued if Nextera does not complete an
initial public offering by February 29, 2000 to such persons in connection with
the Lexecon Acquisition at a price of $7.65 per share. This repurchase
obligation will arise if Nextera has not completed an initial public offering of
the Class A Common Stock prior to February 29, 2000. As compensation to
Knowledge Universe to provide the Guaranty, the Company issued Knowledge
Universe warrants (the "Guaranty Warrants") to purchase 250,000 shares of Class
A Common Stock at an exercise price equal to 80% of the initial public offering
price of the Class A Common Stock (assuming the price per share in the Offering
is $11.00 the exercise price would be $8.80), provided, however, if such initial
public offering does not occur by August 31, 2000, the exercise price will be
$7.65 per share, as adjusted for stock splits, stock dividends and similar
transactions. The Guaranty Warrants expire on December 31, 2003. See
"Description of Capital Stock--Warrants."
Stockholders Agreement. In connection with the Sibson Acquisitions and the
Lexecon Acquisition the Company, Nextera LLC and the stockholders of the Company
prior to the Offering entered into the Stockholders Agreement, including an
amendment thereto, to set forth various agreements among the stockholders and
the Company. The Stockholders Agreement provides that the stockholders are
required to vote their shares of Common Stock to elect Sibson's manager/senior
managing principal to the Company's Board of Directors. This requirement
continues until such time that (i) the Company's consolidated net revenues
generated by Sibson LLC fall below 15% of the Company's total consolidated net
revenues for any fiscal year and (ii) the earnings before interest, taxes,
depreciation and amortization ("EBITDA") generated by Sibson LLC falls below 15%
of the Company's total consolidated EBITDA less corporate headquarters expense
for such fiscal year. Pursuant to this provision, Roger Brossy was appointed to
the Board of Directors. The Stockholders Agreement also provides that the
stockholders are required to vote their shares of Common Stock to elect one
designee of the former stockholders of Lexecon until December 31, 2000. The
former stockholders of Lexecon have not yet exercised their right pursuant to
this provision.
The Stockholders Agreement also provides that the Company will not enter
into related transactions in excess of $2 million with any affiliate of the
Company without the prior approval of a majority of the Company's Board of
Directors who are not and, within the past five years, have not been directly or
indirectly affiliated with such affiliate and do not receive any compensation
from, or own any equity interest in, such
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affiliate. The Stockholders Agreement also provides that Nextera Holdings,
Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine, and certain other
individuals will not sell or otherwise dispose of their shares for a six-month
period following the Offering, and that subsequent to such six-month period,
those stockholders will not sell or otherwise dispose of more than one-third of
such shares in the subsequent 12-month period and more than two-thirds of such
shares in the subsequent 24-month period. 12,654,200, 642,785, 285,285, 84,370,
and 84,370 shares of Common Stock held by Nextera Holdings, Messrs. Brebach,
Bohlin, and Muldowney and Ms. Bergevine, respectively, are subject to this
provision. In addition, the Stockholders Agreement provides certain registration
rights. See "Shares Eligible for Future Sale--Registration Rights."
The Stockholders Agreement may be amended only by the affirmative vote of
(i) Nextera, (ii) stockholders of Nextera holding a majority of the shares of
Common Stock subject to the Stockholders Agreement and (iii) stockholders of
Nextera holding a majority of the shares of Common Stock held by the former
stockholders of the Sibson Entities and which are subject to the Stockholders
Agreement. Subject to certain exceptions, pursuant to the Stockholders Agreement
as amended and the terms of a certain letter agreement between Nextera and the
former stockholders of the Sibson Entities dated December 15, 1998, upon the
vote of a majority of Nextera's Board of Directors, the Stockholders Agreement
may be amended by Nextera to add additional parties with the consent of a
majority of the shares of Common Stock held by the former stockholders of the
Sibson Entities and which are subject to the Stockholders Agreement.
Retention of Maron & Sandler. The law firm of Maron & Sandler has served as
the Company's general counsel since the Company's inception. Stanley E. Maron
and Richard V. Sandler, Directors of the Company, are partners of Maron &
Sandler. In 1998, Maron & Sandler billed Nextera $473,471 for legal services
rendered to the Company. In addition, Messrs. Maron and Sandler and other
attorneys of Maron & Sandler hold interests in an entity which holds non-voting
units of a limited liability company which holds membership interests in KU,
LLC. These non-voting units amount to a less than 0.18% interest in KU, LLC.
Retention of RFG Financial Group, Inc. Since June 1997, the Company has
retained RFG Financial Group, Inc. to provide accounting and financial services.
Ralph Finerman, a Director of the Company, is President of RFG Financial Group,
Inc.
Transactions with Founders. 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 held by such founding entities was
transferred to Nextera Holdings. Nextera Holdings is a wholly-owned subsidiary
of Knowledge Enterprises. Knowledge Enterprises is controlled by Knowledge
Universe which, in turn, is controlled by KU, LLC. 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. Nextera Holdings holds 8,810,000 shares of Class A Common
Stock and 3,844,200 shares of Class B Common Stock, which were acquired for
aggregate consideration of approximately $1.8 million. See "--Investments in the
Company."
The Company pays Knowledge Universe management fees for certain advisory,
management and other services. Said management fee agreement was terminated
effective as of the date of this Prospectus. See "--Management Agreement." The
Company has also been engaged by Knowledge Universe or its affiliates from time
to time to provide consulting services and render advice. The Company expects
that such engagements will continue after the date of this Prospectus on an
arm's length basis. See "--Engagement of the Company by Knowledge Universe or
its Affiliates." Knowledge Universe will receive approximately $410,000 of the
net proceeds of the Offering to pay accrued management fees. See "Use of
Proceeds."
Knowledge Universe holds a 98.3% interest in the Debentures, which interest
was acquired for approximately $47.1 million. See "--Investments in the
Company." The Debentures were subsequently amended in connection with the
Lexecon Acquisition, and further amended effective April 15, 1999. See
"--Amendment of the Debentures." Knowledge Universe also loaned the Company
$37.5 million and became a participant under the Bridge Loan. See "--Bridge Loan
Amendment." Of the net proceeds from the
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<PAGE> 66
Offering, Knowledge Universe will receive approximately $36.4 million in
repayment of a portion of its interest in the Debentures and $38.4 million in
repayment of its interest in the Bridge Loan. See "Use of Proceeds."
Knowledge Universe received the Guaranty Warrants from the Company as
compensation for providing the Guaranty. See "--Guaranty and Warrants to
Purchase Class A Common Stock." In addition, Nextera Holdings is a party to the
Stockholders Agreement, which provides Nextera Holdings with certain
registration rights. See "--Stockholders Agreement" and "Shares Eligible for
Future Sale--Registration Rights."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 1, 1999 by (i) each person known to
the Company to beneficially own more than five percent of any class of the
outstanding Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer of the Company, and (iv) all directors and executive officers
of the Company as a group. Unless otherwise indicated, all shares are owned
directly and the indicated person has sole voting and investment power. Unless
otherwise indicated, the address of the persons named below is care of Nextera
Enterprises, Inc., One Cranberry Hill, Lexington, MA 02421.
<TABLE>
<CAPTION>
CLASS B BENEFICIAL OWNERSHIP
CLASS A COMMON STOCK COMMON STOCK(1) AFTER THE OFFERING(2)(3)
------------------------------------------ ------------------------- --------------------------
SHARES PERCENT PERCENT OF
BENEFICIALLY OWNED PERCENT SHARES COMMON
NAME OF OWNED PRIOR TO PRIOR TO OWNED AFTER BENEFICIALLY PERCENT OF PERCENT OF STOCK
BENEFICIAL OWNER OFFERING(2) OFFERING(3) OFFERING(3) OWNED CLASS VOTING POWER OUTSTANDING
<S> <C> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach,
Jr.(4)................... 449,500 2.4% 1.5% 193,285 4.5% 3.3% 1.8%
Ronald K Bohlin............ 199,500 1.0 * 85,785 2.0 1.4 *
Michael P. Muldowney(5).... 59,000 * * 25,370 * * *
Debra I. Bergevine......... 59,000 * * 25,370 * * *
Roger Brossy............... 194,203 1.0 * -- -- * *
Ralph Finerman............. -- -- -- -- -- -- --
Steven B. Fink............. -- -- -- -- -- -- --
Stanley E. Maron........... -- -- -- -- -- -- --
Michael D. Rose............ -- -- -- -- -- -- --
Richard V. Sandler......... -- -- -- -- -- -- --
Dennis W. Carlton(6)(7).... 1,167,883 6.1 3.8 -- -- 1.6 3.4
Daniel R. Fischel(6)(8).... 1,327,887 7.0 4.3 -- -- 1.8 3.8
Andrew M.
Rosenfield(6)(9)......... 1,327,887 7.0 4.3 -- -- 1.8 3.8
Nextera Enterprises
Holdings, Inc.(10)....... 8,810,000 46.2 28.8 3,844,200 89.9 64.5 36.3
Lawrence J. Ellison(10).... 8,810,000 46.2 28.8 3,844,200 89.9 64.5 36.3
Michael R. Milken(10)...... 8,810,000 46.2 28.8 3,844,200 89.9 64.5 36.3
Lowell J. Milken(10)....... 8,810,000 46.2 28.8 3,844,200 89.9 64.5 36.3
All directors and executive
officers as a group (10
persons)................. 961,203 5.0% 3.1% 329,810 7.7% 5.8% 3.7%
</TABLE>
- ------------------------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Class A
or Class B Common Stock, as applicable.
(1) No shares of Class B Common Stock will be sold in the Offering.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(3) Based on (i) 19,051,714 shares of Class A Common Stock outstanding prior to
the Offering and 30,551,714 shares of Class A Common Stock outstanding
after the Offering, (ii) 4,274,630 shares of Class B Common Stock
outstanding both prior to and after the Offering, and (iii) in each case,
includes 197,813 shares of Class A Common Stock issuable upon the exchange
of the Exchangeable Shares, see "The Company--Exchangeable Shares," 53,333
Pyramid Earn-out Shares and 1,450,240 Lexecon Contingent Shares to be
issued assuming the price per share of the Class A Common Stock in the
Offering is $11.00 (the number of Lexecon Contingent Shares to be issued
will range from a minimum
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of 231,400 shares if the price per share in the Offering is $17.50 or
higher to a maximum of 1,450,240 shares if the price per share in the
Offering is $12.50 or less). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions.".
(4) Includes 160,000 shares of Class A Common Stock held by Brebach Holdings,
LLC, of which Mr. Brebach is a Manager.
(5) Includes 5,000 shares of Class A Common Stock held by the Muldowney
Children Irrevocable Trust. Mr. Muldowney has disclaimed all beneficial
ownership of such shares.
(6) Includes 397,003 Lexecon Contingent Shares to be issued to Mr. Carlton and
451,387 Lexecon Contingent Shares to be issued to each of Messrs. Fischel
and Rosenfield assuming the price per share of the Class A Common Stock in
the Offering is $11.00. The number of Lexecon Contingent Shares to be
issued to Mr. Carlton will vary from a minimum of 63,356 if the price per
share in the Offering is $17.50 or higher to a maximum of 397,003 if the
price per share in the Offering is $12.50 or less. The number of Lexecon
Contingent Shares to be issued to each of Messrs. Fischel and Rosenfield
will vary from a minimum of 72,036 shares if the price per share in the
Offering is $17.50 or higher to a maximum of 451,387 if the price per share
in the Offering is $12.50 or less. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions."
(7) Includes 934,306 shares of Class A Common Stock (including the Lexecon
Contingent Shares) held by the DC 1999 GRAT-N, of which Mr. Carlton is the
trustee.
(8) All shares of Class A Common Stock are held by the DF 1999 GRAT-N, of which
Mr. Fischel is the trustee.
(9) All shares of Class A Common Stock are held by the AR 1999 GRAT-N, of which
Mr. Ronsefield is the trustee.
(10) Lawrence J. Ellison, Michael R. Milken, and Lowell J. Milken may each be
deemed to have the power to direct the voting and disposition of, and to
share beneficial ownership of, any shares of Common Stock owned indirectly
by Knowledge Enterprises through Nextera Holdings. Lawrence J. Ellison,
Michael R. Milken, and Lowell J. Milken may be deemed to be a group within
the meaning of Rule 13d-5 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Lawrence J. Ellison is Chairman and Chief
Executive Officer of Oracle Corporation and a director of KU, LLC,
Knowledge Universe and Knowledge Enterprises. Michael R. Milken is Chairman
of the Board of Directors of KU, LLC, Knowledge Universe and Knowledge
Enterprises. On February 24, 1998, without admitting or denying any
liability, Michael R. Milken consented to the entry of a final judgment in
the U.S. District Court for the Southern District of New York in Securities
and Exchange Commission v. Michael R. Milken et al., which judgment was
entered on February 26, 1998, restraining and enjoining Michael R. Milken
from associating with any broker, dealer, investment advisor, investment
company, or municipal securities dealer and from violating Section 15(a) of
the Exchange Act. On March 11, 1991, in the action entitled In the Matter
of Michael R. Milken, the Securities and Exchange Commission instituted a
proceeding pursuant to Section 15(b)(6) of the Exchange Act and ordered
that Michael R. Milken be barred from association with any broker, dealer,
investment advisor, investment company, or municipal securities dealer. On
April 24, 1990, Michael R. Milken consented to the entry of a final
judgment in the U.S. District Court for the Southern District of New York
in Securities and Exchange Commission v. Drexel Burnham Lambert
Incorporated, et al., restraining and enjoining Michael R. Milken from
engaging in transactions, acts, practices and courses of business which
constitute or would constitute violations of, or which aid and abet or
would aid and abet violations of Sections 7(c), 7(f), 9(a)(2), 10(b),
13(d), 14(e), 15(c)(3), and 17(a)(1) of the Exchange Act, and Regulations T
and X and Rules 10b-5, 10b-6, 13d-1, 13d-2, 14c-3, 15c3-1, 17a-3, and 17a-4
promulgated thereunder and Section 17(a) of the Securities Act of 1933, as
amended. Lowell J. Milken is Vice-Chairman of the Board of Directors of KU,
LLC and Knowledge Universe, a member of the board of directors of Knowledge
Enterprises and the brother of Michael R. Milken.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Class A Common Stock, par value
$0.001 per share, 4,300,000 shares of Class B Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As
of April 1, 1999, there were 17,350,328 shares of Class A Common Stock issued
and outstanding (excluding the Exchangeable Shares, Pyramid Earn-out Shares and
the Lexecon Contingent Shares) which were held by 103 stockholders, 4,274,630 of
Class B Common Stock issued and outstanding which were held by 17 stockholders
and no shares of Preferred Stock issued and outstanding. The Company has also
agreed to issue (i) 197,813 shares of Class A Common Stock upon the exchange of
the Exchangeable Shares, see "The Company--Exchangeable Shares," (ii) up to
53,333 Pyramid Earn-out Shares assuming Pyramid's satisfaction in full of
certain financial performance criteria for the twelve months ending March 31,
1999 and (iii) the Lexecon Contingent Shares which, assuming the price per share
of the Class A Common Stock in the Offering is $11.00, will consist of 1,450,240
shares of Class A Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions."
COMMON STOCK
Voting Rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Holders of
Class A Common Stock and Class B Common Stock vote together as a single class on
all matters presented to the stockholders for their vote or approval, except as
may be required by Delaware law or as otherwise expressly specified in the
Certificate of Incorporation. The Company, by action of its Board of Directors
and the affirmative vote of the holders of a majority of the voting power of the
Class A Common Stock and Class B Common Stock, voting together as a class, may
increase or decrease the number of authorized shares of Class A Common Stock or
Preferred Stock. The Company, by action of its Board of Directors and the
affirmative vote of both (i) the holders of a majority of the voting power of
the Class A Common Stock and Class B Common Stock, voting together as a class,
and (ii) the holders of a majority of the voting power of the Class B Common
Stock, voting as a separate class, may increase or decrease the number of
authorized shares of Class B Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate, when and if declared by the
Board of Directors, out of legally available funds. The Company may not make any
dividend or distribution with respect to any class of Common Stock unless at the
same time the Company makes a ratable dividend or distribution with respect to
each outstanding share of Common Stock regardless of class. In the case of a
stock dividend or other distribution payable in shares of a class of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class.
Split, Subdivision or Combination. None of the Class A Common Stock or the
Class B Common Stock may be subdivided, consolidated, reclassified or otherwise
changed in any manner unless the other class is subdivided, consolidated,
reclassified or otherwise changed in the same proportion.
Conversion Rights. The Class A Common Stock has no conversion rights. Each
share of Class B Common Stock is convertible at any time, at the option of the
holder, into one share of Class A Common Stock. Each share of Class B Common
Stock shall convert automatically into one share of Class A Common Stock upon
its sale, assignment, pledge, gift or other transfer (an "Assignment" or to
"Assign"), other than (a) to a Controlled Affiliate of the transferor; or (b)
pursuant to a Qualified Transfer (as defined below). The term "Controlled
Affiliate" means, with respect to a transferor, any individual or entity that is
controlled directly or indirectly (by ownership of voting securities, contract
or otherwise) by such transferor. "Qualified Transfer" means (i) any transfer of
shares of Class B Common Stock by will or pursuant to the laws of descent and
distribution to any member or members of a stockholder's Family, (ii) any
transfer of shares of Class B Common Stock by a stockholder to a domestic trust
created for the sole benefit of one or more of the stockholder or any member or
members of the stockholder's Family, (iii) any transfer of shares of Class B
Common Stock from a trust described in clause (ii) above to the stockholder (or
former stockholder) who
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transferred shares of Class B Common Stock to such trust, (iv) any transfer to a
domestic limited partnership or a domestic limited liability company if there
are no partners or members of such limited partnership or limited liability
company other than a stockholder and members of a stockholder's Family; (v) any
transfer of Class B Common Stock from a limited partnership or limited liability
company described in clause (iv) above to a stockholder (or former stockholder)
who transferred Class B Common Stock to such limited partnership or limited
liability company; and (vi) any transfer of shares of Class B Common Stock from
one holder of Class B Common Stock to another holder of Class B Common Stock as
of August 31, 1998. "Family" means a person's spouse, lineal descendants,
parents, siblings, and lineal descendants of siblings. Any such relationship by
legal adoption shall be included.
Upon any Assignment of Class B Common Stock by Knowledge Enterprises, other
than to a Controlled Affiliate or pursuant to a Qualified Transfer, a
proportionate amount of the Class B Common Stock held by the other holders of
Class B Common Stock will also automatically convert into Class A Common Stock.
For example, if Knowledge Enterprises Assigns 25% of its Class B Common Stock to
a third party who is not an Affiliate and not pursuant to a Qualified Transfer,
then those shares of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis and 25% of the Class B Common Stock held by
each other holder of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis.
In the event that a group comprised of one or more of Michael R. Milken,
Lawrence J. Ellison or Lowell J. Milken cease to control, directly or indirectly
(through the ownership of voting securities, contract or otherwise), Knowledge
Enterprises or any other person or entity that owns any or all of the shares of
Class B Common Stock owned by Knowledge Enterprises on the date hereof, then all
shares of Class B Common Stock shall automatically convert into shares of Class
A Common Stock.
Notwithstanding the foregoing, (i) these automatic conversion provisions
shall not apply in the case of a merger or similar transaction by the Company in
which all the outstanding shares of Common Stock of the Company regardless of
class are purchased by the acquiror, and (ii) any holder of Class B Common Stock
may pledge his shares of Class B Common Stock to a financial institution (the
"Pledgee") pursuant to a bona fide pledge of such shares as collateral security
for indebtedness due to the Pledgee, and, if the Pledgee forecloses or takes
similar action, such pledged shares of Class B Common Stock shall be converted
automatically into shares of Class A Common Stock.
Merger. Upon the merger or consolidation of the Company, holders of each
class of Common Stock will be entitled to receive equal per share payments or
distributions, except that in any transaction in which shares of capital stock
are distributed, such shares may differ only to the extent that the Class A
Common Stock and the Class B Common Stock differ as provided in the Company's
Certificate of Incorporation.
Liquidation Rights. Upon any dissolution or liquidation of the Company, the
holders of the Class A Common Stock and Class B Common Stock will be entitled to
receive ratably all assets of the Company available for distribution to
stockholders, subject to any preferential rights of any then outstanding shares
of Preferred Stock.
Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. The rights of holders of
Class A Common Stock and Class B Common Stock are subject to the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
The Certificate of Incorporation provides that each holder of shares of
Common Stock, other than shares of Common Stock acquired in the Offering,
agrees, subject to certain exceptions, not to (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or
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otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJ. In addition, during such period, each holder
of shares of Common Stock, other than shares of Common Stock acquired in the
Offering, agrees, subject to certain exceptions, not to make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock without DLJ's prior written consent.
PREFERRED STOCK
The Company's Certificate of Incorporation allows the Company to issue
without stockholder approval Preferred Stock having rights senior to those of
the Common Stock. As of the date of this Prospectus, no shares of Preferred
Stock will be outstanding. Therefore, the Board of Directors has the authority,
without further action by the stockholders, to issue up to 10,000,000 shares of
Preferred Stock from time to time in one or more series. Each series of
Preferred Stock will have the number of shares, designations, powers,
preferences, and special or relative rights and privileges as may be determined
by the Board of Directors, which may include dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, and conversion
rights. The authority of the Board of Directors to issue Preferred Stock without
further action by the stockholders provides flexibility in connection with
possible acquisitions and other corporate purposes, but may also result in the
issuance of Preferred Stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock and in some circumstances have the effect of
decreasing the market price of the Common Stock. The Company currently has no
plans to issue any shares of Preferred Stock.
WARRANTS
In connection with the Guaranty, the Company issued the Guaranty Warrants
to purchase 250,000 shares of Class A Common Stock to Knowledge Universe. The
Guaranty Warrants expire on December 31, 2003. See "Certain
Transactions--Guaranty and Warrants to Purchase Class A Common Stock."
EXCHANGEABLE SHARES
In connection with the Sibson Acquisitions, Nextera LLC formed Sibson
Canada Co. a wholly owned Canadian subsidiary, which issued Exchangeable Shares
to the holders of capital stock of Sibson Canada, Inc. The holders of
Exchangeable Shares may exchange such shares at any time for an aggregate of
197,813 shares of Class A Common Stock. The Exchangeable Shares are designed to
provide an opportunity for the shareholders of Sibson Canada, Inc. to achieve a
Canadian tax deferral in certain circumstances. The holders of Exchangeable
Shares are entitled to dividend and other rights equivalent to shares of Class A
Common Stock but are not entitled to vote on matters submitted to the holders of
Class A Common Stock until such time as the holders of Exchangeable Shares
exchange such shares for Class A Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate of
Incorporation and Bylaws. This summary does not purport to be complete and is
qualified in its entirety by reference to the DGCL, the Certificate of
Incorporation and the Bylaws.
Certain provisions of the Certificate of Incorporation and the Bylaws could
have anti-takeover effects. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the policies
formulated by the Board of Directors. In addition, these provisions are intended
to ensure that the Board will have sufficient time to act in what the Board of
Directors believes to be the best interests of the Company and its stockholders.
These provisions also are designed to reduce the vulnerability of the Company to
an unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its
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outstanding shares or an unsolicited proposal for the restructuring or sale of
all or part of the Company. The provisions are also intended to discourage
certain tactics that may be used in proxy fights.
Delaware Anti-Takeover Law. The Company is a Delaware corporation that is
subject to Section 203 of the DGCL. Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its Certificate of Incorporation or Bylaws not to be governed by
Section 203 (the Company has not made such an election), (ii) the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder was approved by the board of directors of the corporation
before such stockholder became an interested stockholder, (iii) upon
consummation of the transaction that made such stockholder an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction (excluding
voting stock owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a confidential right to tender
stock held by the plan in a tender or exchange offer) or (iv) the business
combination is approved by the board of directors of the corporation and
authorized at a meeting by two-thirds of the voting stock which the interested
stockholder does not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an interested stockholder, transactions with an
interested stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as (i) those stockholders who become beneficial owners of
15% or more of a Delaware corporation's voting stock, (ii) those affiliates or
associates of a Delaware corporation who were owners of 15% or more of such
corporation's voting stock within the three-year period prior to the date on
which it is sought to be determined whether such person is an interested
stockholder, and (iii) the affiliates or associates of such stockholders. The
Company does not believe that any of Nextera Holdings, (which will hold 64.5% of
the combined voting power of the outstanding Common Stock upon consummation of
the Offering,) Knowledge Enterprises or their affiliates is an "interested
stockholder."
No Stockholder Action by Written Consent; Special Meetings. The Certificate
of Incorporation provides that stockholder action can only be taken at an annual
or special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Bylaws provide that special meetings of
stockholders may be called only by the Board of Directors, its Chairman or the
President of the Company. Stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company. The
Stockholder Notice Procedure provides that only persons who are nominated by, or
at the direction of, the Company's notice of meeting, the Board of Directors or
by a stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure also provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of, the
Company's notice of meeting, the Board of Directors or by a stockholder who has
given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, if a stockholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the stockholder
must submit written notice to the Company not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting (or if
the date of the annual meeting is not within 30 days before or after such
anniversary date, then, to be timely, notice must be delivered
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<PAGE> 73
not more than 90 nor less than 60 days prior to such annual meeting or the 10th
day after the earlier of (i) the date notice of the meeting was mailed or (ii)
the date a public announcement of the date of such meeting is first made). In
addition, under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the nomination or proposal is made. If the chairman of a meeting
determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Company's Board of Directors will consist of between seven and thirteen
members, the exact number to be fixed from time to time by resolution adopted by
the affirmative vote of a majority of the directors of the Company. The Board of
Directors currently consists of eight directors. Further, subject to the rights
of the holders of any series of Preferred Stock then outstanding and the
Stockholders Agreement, the Bylaws authorize the Board of Directors to fill
newly created directorships. A director so elected by the Board of Directors
holds office until his successor is elected and qualified. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, the Bylaws
also provide that directors may be removed only for cause and only by the
affirmative vote of holders of 66 2/3% of the outstanding shares of voting
securities then entitled to vote generally in the election of directors, voting
together as a single class. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Company's Board of Directors by filling the vacancies
created by such removal with its own nominees.
Limitation of Officer and Director Liability and Indemnification
Arrangements. The Company's Certificate of Incorporation provides that an
officer or director of the Company will not be personally liable to the Company
or its stockholders for monetary damages for any breach of his fiduciary duty as
an officer or director, except in certain cases where liability is mandated by
the DGCL. The provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company or
its officers or directors from compliance with federal or state securities laws.
The Bylaws also generally provide that the Company shall indemnify, to the
fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses incurred by him
in connection with such Proceeding. An officer or director shall not be entitled
to indemnification by the Company if (i) the officer or director did not act in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the Company, or (ii) with respect to any criminal action or
proceeding, the officer or director had no reasonable cause to believe his
conduct was unlawful.
Bylaws. The Bylaws are subject to adoption, amendment, alteration, repeal
or rescission either by (a) the Board of Directors or (b) the affirmative vote
of the holders of not less than 66 2/3% of the total voting power of all
outstanding securities of the Company then entitled to vote generally in the
election of directors, voting together as a single class, at any regular meeting
of the Board of Directors or of the stockholders or at any special meeting of
the Board of Directors or of the stockholders if notice of such adoption,
amendment, alteration, repeal or rescission is contained in the notice of such
special meeting.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock will be
ChaseMellon Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 30,551,714 shares
of Class A Common Stock and 4,274,630 shares of Class B Common Stock
outstanding, assuming (i) no exercise of the Underwriters' over-allotment
option, (ii) no exercise of outstanding options to purchase Class A Common
Stock, (iii) the exchange of all Exchangeable Shares for 197,813 shares of Class
A Common Stock, see "The Company--Exchangeable Shares," (iv) the issuance of
53,333 Pyramid Earn-out Shares, assuming Pyramid's satisfaction in full of
certain financial performance criteria for the twelve months ending March 31,
1999, and (v) the issuance of 1,450,240 Lexecon Contingent Shares (assuming the
price per share of the Class A Common Stock in the Offering is $11.00). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions." Of these shares, the 11,500,000 shares of Class A
Common Stock sold in the Offering are freely tradable without restriction or
further registration under the Securities Act, except that any shares held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), may generally be sold only in compliance with the
limitations of Rule 144 described below.
SALE OF RESTRICTED SHARES
The remaining shares of Common Stock (including Class A Common Stock
issuable upon exchange of the Exchangeable Shares) are "restricted securities"
as defined under Rule 144. Restricted Securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under the Securities Act. Additionally, Nextera's Certificate of Incorporation
provides that each holder of Common Stock, other than the holders of the shares
of Common Stock acquired in the Offering, agrees not to sell, directly or
indirectly, any Common Stock, subject to certain exceptions, without the prior
consent of DLJ for a period of 180 days from the date of this Prospectus.
Subject to the Lock-up Agreements described below and the foregoing provisions
of the Company's Certificate of Incorporation, and without giving effect to the
registration rights described below, additional shares of Class A Common Stock
(including shares issuable upon conversion of Class B Common Stock, upon the
exchange of the Exchangeable Shares and as Lexecon Contingent Shares assuming
the price per share of the Class A Common Stock in the Offering is $11.00) will
be available for sale in the public market (subject in certain circumstances to
compliance with certain volume and other restrictions under Rule 144) as
follows: (i) 4,588 shares will be eligible for sale 180 days after the date of
this Prospectus; and (ii) 23,321,756 shares will become eligible for sale under
Rule 144 commencing December 31, 1999 upon the expiration of the restrictions
imposed by the Stockholders Agreement and the Lexecon Lock-up Agreements.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Class A
Common Stock (approximately 305,517 shares as of the date of this Prospectus) or
(ii) the average weekly trading volume in the Class A Common Stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a sale
and who has beneficially owned the shares proposed to be sold for at least two
years, would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permits non-affiliates to sell their Rule 701 shares
without having to comply with the public information, holding period, volume
limitation or notice provisions of Rule 144 and permits affiliates to sell their
Rule 701 shares without having to comply with Rule 144's holding period
restrictions, in each case commencing 90 days after the date of this Prospectus.
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OPTIONS AND WARRANTS
Upon consummation of the Offering, the Company will have outstanding
options and warrants to purchase shares of Class A Common Stock, of which
1,280,104 will be exercisable. Following the Offering, the Company intends to
file one or more registration statements on Form S-8 under the Securities Act to
register the 5,000,000 shares of Class A Common Stock that are issuable upon the
exercise of stock options either outstanding or available for grant pursuant to
the 1998 Equity Participation Plan. The Company has also agreed to issue options
under the Limited Purpose Plan, and intends to file one or more registration
statements on Form S-8 to register the shares of Class A Common Stock that are
issuable upon the exercise of such options. Such Registration Statements will
become effective immediately upon filing; however, consistent with the terms of
the 1998 Equity Participation Plan and the Limited Purpose Plan, holders of
options will be unable to sell any shares of Class A Common Stock received upon
the exercise of options granted thereunder until the expiration of 180 days
after the date of this Prospectus without the prior written consent of DLJ.
Shares covered by such Registration Statement will be eligible for sale in the
public market after the effective date of such Registration, subject to Rule 144
limitations applicable to affiliates as well as to the limitations on sale and
vesting described above.
REGISTRATION RIGHTS
Stockholders holding an aggregate of 23,326,344 shares of Class A Common
Stock (including shares issuable upon conversion of Class B Common Stock, upon
exchange of the Exchangeable Shares and as Lexecon Contingent Shares)
("Holders") are entitled to certain registration rights under the Stockholders
Agreement. Commencing 180 days after the Offering, Knowledge Enterprises or an
affiliate that then owns an equity interest in the Company may make a one-time
written request of the Company for registration with the Securities and Exchange
Commission (a "Demand Registration") of all or part of its Class A Common Stock
of the Company, provided, however, that the Company need not effect a Demand
Registration unless it includes at least 10% of the Company's issued and
outstanding Common Stock. The Company may defer such Demand Registration for a
single period not to exceed 180 days, if the Board of Directors determines in
the exercise of its reasonable judgment that effecting such Demand Registration
at such time would have a material adverse effect on the Company. In addition,
Holders who together hold at least 10% of the issued and outstanding Common
Stock of the Company may make a one-time written request of the Company for a
Demand Registration on the same terms as those applicable to Knowledge
Enterprises as set forth above.
The Stockholders Agreement also provides piggyback registration rights to
Holders for their shares of Class A Common Stock ("Registrable Securities"). The
Company must provide prior written notice to those Holders whenever it proposes
to register any Common Stock (or securities convertible into or exchangeable
for, or options to purchase, Common Stock) with the Securities and Exchange
Commission on a form that would permit the registration of Registrable
Securities. The Company will register in such registration all Registrable
Securities requested to be included, provided that if, in the opinion of the
applicable underwriter, the number of securities proposed to be included is
greater that what could be sold without having a material impact on the
offering, the Company will include securities in the following priority: (i)
first, the Common Stock the Company proposes to sell, and (ii) second, the
Registrable Securities requested to be included in such registration by the
holders of Registrable Securities pro rata based on the number of Registrable
Securities that each such stockholder shall have requested to include therein.
The Stockholders Agreement further provides that the Company will bear all
expenses incident to the Company's performance of its registration obligations,
other than the costs or expenses of any selling stockholders for underwriters'
commissions, brokerage fees or transfer taxes, or the fees and expenses of any
counsel, accountants or other representative retained by any selling
stockholder. The Company is obligated, however, to reimburse the selling
stockholders in each Demand Registration for the reasonable fees of one counsel
up to $25,000.
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EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Class A
Common Stock, and no precise prediction can be made as to the effect, if any,
that market sales of shares of Class A Common Stock or the availability of
shares of Class A Common Stock for sale will have on the market price of the
Class A Common Stock prevailing from time to time. Nevertheless, the sale of
substantial amounts of the Class A Common Stock in the public market could
adversely affect prevailing market prices and could impair the Company's future
ability to raise capital through the sale of its equity securities.
LOCK-UP AGREEMENTS
Directors, officers and certain stockholders of the Company holding an
aggregate of 16,916,056 shares of Class A Common Stock and 4,266,030 shares of
Class B Common Stock have agreed that they will not, without the prior written
consent of DLJ and subject to certain exceptions, sell or otherwise dispose of
any shares of Common Stock or options to acquire shares of Common Stock during
the 180-day period following the date of this Prospectus. The Company has agreed
not to sell or otherwise dispose of any shares of Class A Common Stock during
the 180-day period following the date of this Prospectus without the prior
written consent of DLJ, except the Company may (i) issue, and grant options to
purchase, shares of Class A Common Stock under the 1998 Equity Participation
Plan and the Limited Purpose Plan and (ii) issue shares of Class A Common Stock
in connection with acquisitions, if the terms of such issuance provide that such
Class A Common Stock shall not be resold prior to the expiration of such 180-day
period. DLJ may release any or all shares from the DLJ Lock-Up Agreements at any
time or from time to time without notice.
In connection with the Lexecon Acquisition, the former stockholders of
Lexecon entered into lock-up agreements which provide that they may not sell or
otherwise dispose of their shares of Class A Common Stock for a six-month period
following the Offering, and that subsequent to such six-month period, those
stockholders will not sell more than one-third of such shares in the subsequent
12-month period and more than two-thirds of such shares in the subsequent
24-month period. A total of 4,266,240 shares of Class A Common Stock are subject
to the Lexecon Lock-up Agreements (assuming the issuance of 1,450,240 Lexecon
Contingent Shares, which number may vary based upon the price per share of the
Class A Common Stock in the Offering, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisitions").
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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., BT Alex. Brown Incorporated, NationsBanc
Montgomery Securities LLC, and Thomas Weisel Partners LLC (collectively, the
"Representatives"), have severally agreed to purchase from the Company the
respective number of shares of Class A Common Stock set forth opposite their
names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
BT Alex. Brown Incorporated.................................
NationsBanc Montgomery Securities LLC.......................
Thomas Weisel Partners LLC..................................
Total............................................. 11,500,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Class A Common Stock offered
hereby (other than those shares covered by the over-allotment option described
below) if any are purchased.
The Underwriters initially propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain dealers
(including the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
initial offering of the Class A Common Stock, the public offering price and
other selling terms may be changed by the Representatives at any time without
notice. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin and Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the Offering over the Internet. The Underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 1,725,000 additional shares of Class A
Common Stock at the initial public offering price less underwriting discounts
and commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares proportionate to such Underwriter's underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Representatives have agreed to reimburse the Company for certain
amounts in connection with the Offering.
Effective August 31, 1998, the Company and Nextera Funding, Inc., an
affiliate of DLJ, entered into the Bridge Loan which provided for a $40 million
credit facility bearing interest at the rate of LIBOR plus 450 basis points per
annum and maturing on March 1, 1999. Effective December 31, 1998, the Bridge
Loan was amended to change the interest rate to 12% per annum commencing on
December 31, 1998 and extend the
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<PAGE> 78
maturity date to April 30, 1999. Effective April 15, 1999, the Bridge Loan was
further amended to extend the maturity date to May 31, 1999. The Company
borrowed $38.0 million from Nextera Funding, Inc. under the Bridge Loan to
finance the Sibson Acquisitions and paid Nextera Funding, Inc. a commitment fee
of $400,000 and a takedown fee of $380,000. The Company also agreed to reimburse
Nextera Funding, Inc. for all reasonable out-of-pocket costs, expenses and other
payments, including but not limited to reasonable legal fees and disbursements,
incurred or made in connection with the Bridge Loan. The indebtedness incurred
under the Bridge Loan will be repaid with a portion of the net proceeds from the
Offering. As a result of such arrangements, the Conduct Rules of the National
Association of Securities Dealers, Inc. require that the initial public offering
price of the Class A Common Stock be no higher than that recommended by a
qualified independent underwriter, as defined in Rule 2720 of the Conduct Rules.
BT Alex. Brown Incorporated, one of the Representatives of the Underwriters,
will serve as the qualified independent underwriter and has assumed the
responsibilities of acting as qualified independent underwriter in pricing the
Class A Common Stock offered hereby and conducting "due diligence" in respect
thereto. BT Alex. Brown Incorporated will receive a fee of $5,000 from the
Company as compensation to act as qualified independent underwriter.
DLJ and the Company are parties to a letter agreement dated August 31,
1998, as supplemented on December 31, 1998 (the "Engagement Letter"). Pursuant
to the Engagement Letter, DLJ has the right to act as the Company's lead
placement agent, lead initial purchaser or lead managing underwriter in the
event that the Company determines to sell its securities with the services of an
outside financial advisor or investment bank during the period ending August 31,
1999. In addition, in connection with the Bridge Loan Amendment and in payment
for certain consent and extension fees, DLJ will receive a cash fee of $750,000
at the earlier of the closing of the Offering or April 30, 1999.
The Company executed a commitment letter and term sheet for a syndicated
revolving credit facility of up to $110 million with BancBoston Robertson
Stephens Inc., one of the Representatives ("BRS"), and BankBoston, N.A., an
affiliate of BRS. Under the terms of the Commitment Letter, the Company will pay
BankBoston, N.A. a fee equal to 1.25% of the total amount of the credit
facility, payment of which all except $100,000 is subject to the execution of
final definitive documentation for the credit facility. In the event the Company
terminates the commitment letter under certain circumstances after the date of
the Offering, the Company will be required to pay a total fee of $275,000 to
BankBoston, N.A. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Each of the Company, its executive officers and directors and shareholders
of the Company has agreed, subject to certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or (ii) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Class A Common Stock (regardless of whether
any of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Class A Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJ. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain shareholders of the Company has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock without DLJ's prior
written consent.
Thomas Weisel Partners LLC, one of the Representatives, was organized and
registered as a broker-dealer in December 1998. Since December 1998, Thomas
Weisel Partners LLC has co-managed thirteen public offerings of equity
securities and has acted as an underwriter in an additional four public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with the Company or any of its officers, directors or
controlling persons, except with respect to its contractual relationship with
the Company pursuant to the Underwriting Agreement.
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<PAGE> 79
Prior to the Offering, there has been no established trading market for the
Class A Common Stock. The initial public offering price for the shares of Class
A Common Stock offered hereby will be determined by negotiation among the
Company and the Representatives. The factors to be considered in determining the
initial public offering price include the history of and the prospects for the
industry in which the Company competes, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering.
A portion of the shares offered hereby will be reserved for sale to persons
designated by the Company and the number of shares offered to the public will be
reduced to the extent those persons purchase such shares. The price per share of
the shares to be sold to such persons will be the same as the price to the
public in the Offering. The maximum investment of any such person may be limited
by the Company in its sole discretion. The number of shares to be sold under
this program shall not exceed five percent of the number of shares of Class A
Common Stock offered in connection with the Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Class A
Common Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Class A Common Stock offered hereby may not be offered
or sold, directly or indirectly, nor may this Prospectus or any other offering
material or advertisements in connection with the offer and sale of any such
shares of Class A Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Class A Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the Class
A Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Class A Common Stock in the open market to cover such syndicate short
position or to stabilize the price of the Class A Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed Class A Common
Stock in syndicate covering transactions, in stabilizing transactions or
otherwise. These activities may stabilize or maintain the market price of the
Class A Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
The legality of the issuance of the Class A Common Stock offered hereby
will be passed upon for the Company by Latham & Watkins, San Diego, California
and certain other matters will be passed upon for the Company by Maron &
Sandler, Los Angeles, California. See "Management--Directors, Executive Officers
and Other Senior Managers," "--Board Committees" and "Certain
Transactions--Retention of Maron & Sandler" for information concerning Maron &
Sandler's relationship with the Company. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
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EXPERTS
The Consolidated Financial Statements and schedule of Nextera Enterprises,
Inc. at December 31, 1997 and 1998 and for the period from February 26, 1997 to
December 31, 1997 and the year ended December 31, 1998, the Consolidated
Financial Statements of Symmetrix, Inc. and Subsidiaries at May 31, 1997, and
for the year ended May 31, 1997, and for the period from June 1, 1997 to July
30, 1997 and the Financial Statements of SiGMA Consulting, LLC at December 31,
1996 and 1997 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The Consolidated Financial Statements of Symmetrix, Inc. and Subsidiaries
at May 31, 1996 and for the year then ended appearing in this Prospectus and the
Registration Statement have been audited by BDO Seidman, LLP, independent
auditors, as indicated in their report with respect thereto, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The Financial Statements of PTG at December 31, 1996 and 1997 and the years
then ended appearing in this Prospectus and the Registration Statement have been
audited by Harte Carucci & Driscoll, P.C., independent auditors, as indicated in
their report with respect thereto, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Consolidated Financial Statements of Sibson & Company, L.P. and
Subsidiaries at December 31, 1996 and 1997 and August 31, 1998 and for each of
the two years in the period ended December 31, 1997 and the eight month period
ended August 31, 1998 appearing in this Prospectus and the Registration
Statement have been audited by Farkouh, Furman & Faccio, independent auditors,
as indicated in their reports with respect thereto, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Sibson Canada, Inc. at December 31, 1997 and
for the year then ended appearing in this Prospectus and the Registration
Statement have been audited by Grant Thornton, independent auditors, as
indicated in their report with respect thereto, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Pyramid Imaging, Inc. at December 31, 1997 and
for the year then ended appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon, and is included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The Financial Statements of Lexecon Inc. at December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
79
<PAGE> 81
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Class A
Common Stock being offered in the Offering. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements made in this Prospectus as to the
contents of any contract, agreement or any other document referred to herein are
not necessarily complete; with respect to each such contract, agreement or
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference to
the Registration Statement exhibits filed as a part thereof. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Commission's principle office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of either of them or any part thereof may be
obtained from such office upon payment of fees prescribed by the Commission. The
Registration Statement, including the exhibits and schedules thereto, are also
available on the Commission's Web Site at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
will make available copies of quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
80
<PAGE> 82
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS:
Consolidated Financial Statements of Nextera Enterprises,
Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-3
Consolidated Balance Sheets -- December 31, 1997 and
1998.................................................. F-4
Consolidated Statements of Operations -- For the period
February 26, 1997 (date of inception) through December
31, 1997 and for the year ended December 31, 1998..... F-5
Consolidated Statements of Stockholders' Equity -- For
the period February 26, 1997 (date of inception)
through December 31, 1997 and for the year ended
December 31, 1998..................................... F-6
Consolidated Statements of Cash Flows -- For the period
February 26, 1997 (date of inception) through December
31, 1997 and for the year ended December 31, 1998..... F-7
Notes to Consolidated Financial Statements............. F-8
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:
Consolidated Financial Statements of Symmetrix, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-20
Consolidated Balance Sheets -- May 31, 1997 and July
30, 1997.............................................. F-21
Consolidated Statements of Operations and Accumulated
Deficit -- For the year ended May 31, 1997 and for the
period June 1, 1997 through July 30, 1997............. F-22
Consolidated Statements of Cash Flows -- For the year
ended May 31, 1997 and for the period June 1, 1997
through July 30, 1997................................. F-23
Notes to Consolidated Financial Statements............. F-24
Consolidated Financial Statements of Symmetrix, Inc.
Independent Auditors' Report........................... F-30
Consolidated Balance Sheet -- May 31, 1996............. F-31
Consolidated Statement of Operations -- For the year
ended May 31, 1996.................................... F-32
Consolidated Statement of Changes in Stockholders'
Equity -- For the year ended May 31, 1996............. F-33
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1996.................................... F-34
Notes to Consolidated Financial Statements............. F-35
Financial Statements of SiGMA Consulting, LLC
Report of Ernst & Young LLP, Independent Auditors...... F-42
Balance Sheets -- December 31, 1996 and 1997........... F-43
Statements of Income -- For the years ended December
31, 1996 and 1997..................................... F-44
Statements of Members' Equity -- For the years ended
December 31, 1996 and 1997............................ F-45
Statements of Cash Flows -- For the years ended
December 31, 1996 and 1997............................ F-46
Notes to Financial Statements.......................... F-47
Financial Statements of The Planning Technologies Group,
Inc.
Report of Independent Auditors......................... F-50
Balance Sheets -- December 31, 1996 and 1997 and March
31, 1998 (unaudited).................................. F-51
Statements of Income and Retained Earnings -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998
(unaudited)........................................... F-52
Statements of Cash Flows -- For the years ended
December 31, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998 (unaudited)............. F-53
Notes to Financial Statements.......................... F-54
Financial Statements of Pyramid Imaging, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-57
Balance Sheets -- December 31, 1997 and March 31, 1998
(unaudited)........................................... F-58
</TABLE>
F-1
<PAGE> 83
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES
(CONTINUED):
Statements of Operations -- For the year ended December
31, 1997 and for the three months ended March 31, 1998
(unaudited)........................................... F-59
Statements of Shareholders' Equity -- For the year
ended December 31, 1997 and for the three months ended
March 31, 1998 (unaudited)............................ F-60
Statements of Cash Flows -- For the year ended December
31, 1997 and for the three months ended March 31, 1998
(unaudited)........................................... F-61
Notes to Financial Statements.......................... F-62
Financial Statements of Sibson & Company, L.P. and
Subsidiaries
Independent Auditor's Report........................... F-68
Consolidated Balance Sheets -- December 31, 1996 and
1997 and August 31, 1998.............................. F-69
Consolidated Statements of Operations and Partners'
Capital -- For the years ended December 31, 1996 and
1997 and for the eight months ended August 31, 1998... F-70
Consolidated Statements of Cash Flows -- For the years
ended December 31, 1996 and 1997 and for the eight
months ended August 31, 1998.......................... F-71
Notes to Consolidated Financial Statements............. F-72
Financial Statements of Sibson Canada, Inc.
Auditors' Report....................................... F-78
Balance Sheets -- December 31, 1997 and August 31, 1998
(unaudited)........................................... F-79
Statements of Operations and Retained Earnings -- For
the year ended December 31, 1997 and for the eight
months ended August 31, 1997 and 1998 (unaudited)..... F-80
Statements of Changes in Financial Position -- For the
year ended December 31, 1997 and for the eight months
ended August 31, 1997 and 1998 (unaudited)............ F-81
Notes to Financial Statements.......................... F-82
Financial Statements of Lexecon Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-86
Balance Sheets -- December 31, 1997 and 1998........... F-87
Statements of Operations -- For the years ended
December 31, 1996, 1997 and 1998...................... F-88
Statements of Shareholders' Equity -- For the years
ended December 31, 1996, 1997 and 1998................ F-89
Statements of Cash Flows -- For the years ended
December 31, 1996, 1997, and 1998..................... F-90
Notes to Financial Statements.......................... F-91
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Basis of Presentation.................................. PF-1
Unaudited Pro Forma Combined Balance Sheet -- December
31, 1998.............................................. PF-2
Unaudited Pro Forma Combined Statement of
Operations -- For the year ended December 31, 1998.... PF-3
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ PF-4
</TABLE>
F-2
<PAGE> 84
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nextera Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Nextera
Enterprises, Inc. (the Company) (formerly Nextera Enterprises, L.L.C.) as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from February 26,
1997 (date of inception) through December 31, 1997 and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nextera
Enterprises, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from February 26, 1997 (date of
inception) through December 31, 1997 and for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
F-3
<PAGE> 85
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 554 $ 1,496
Accounts receivable, net of allowance for doubtful
accounts of $100 at December 31, 1997 and $1,267 at
December 31, 1998...................................... 2,202 31,094
Costs and estimated earnings in excess of billings........ 856 2,962
Due from affiliates....................................... 225 400
Due from officers......................................... -- 856
Prepaid expenses and other current assets................. 368 5,709
Income tax receivable..................................... 414 --
------- --------
Total current assets................................. 4,619 42,517
Long-term receivable........................................ 532 --
Property and equipment, net................................. 1,181 8,056
Intangible assets, net of accumulated amortization of $255
at December 31, 1997 and $1,977 at December 31, 1998...... 15,762 125,082
Other assets................................................ 561 1,036
------- --------
Total assets......................................... $22,655 $176,691
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,284 $ 23,530
Notes payable to bank..................................... 1,687 6,156
Bridge loan payable (including $37,500 payable to related
party at December 31, 1998)............................ -- 75,849
Deferred revenue.......................................... 747 1,193
Due to affiliates......................................... 90 1,068
Current portion of long-term debt and capital lease
obligations............................................ 146 482
------- --------
Total current liabilities............................ 4,954 108,278
Long-term debt and capital lease obligations................ 969 2,600
Debentures due to affiliates, including accrued interest
thereon................................................... -- 53,149
Other long-term liabilities................................. -- 1,174
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Exchangeable shares, no par value, 2,500,000 shares
authorized, zero and 197,813 shares issued and
outstanding at December 31, 1997 and December 31, 1998,
respectively........................................... -- 495
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 7,898,800 and 16,811,740 shares issued and
outstanding at December 31, 1997 and December 31, 1998,
respectively........................................... 8 17
Class B Common Stock, $0.001 par value, zero and 4,274,630
shares authorized, issued and outstanding at December
31, 1997 and December 31, 1998, respectively........... -- 4
Additional paid-in capital................................ 19,739 31,144
Retained earnings (deficit)............................... (3,015) (20,170)
------- --------
Total stockholders' equity........................... 16,732 11,490
------- --------
Total liabilities and stockholders' equity........... $22,655 $176,691
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 86
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net revenues.............................................. $ 7,998 $ 67,590
Cost of revenues.......................................... 4,718 44,985
------- --------
Gross profit......................................... 3,280 22,605
Selling, general and administrative expenses.............. 5,306 23,103
Amortization expense...................................... 255 1,722
Restructuring costs....................................... -- 1,298
Compensation expense--other............................... -- 6,671
------- --------
Loss from operations................................. (2,281) (10,189)
Interest income........................................... 37 160
Interest expense.......................................... (69) (6,883)
------- --------
Loss before provision for income taxes............... (2,313) (16,912)
Provision for income taxes................................ 702 243
------- --------
Net loss............................................. $(3,015) $(17,155)
======= ========
Net loss per common share, basic and diluted.............. $ (0.74) $ (1.14)
======= ========
Weighted average common shares outstanding, basic and
diluted................................................. 4,061 14,997
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 87
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B EXCHANGEABLE
COMMON STOCK COMMON STOCK PREFERRED STOCK SHARES
------------------- ------------------ ---------------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A Common
Stock..................... 7,898,800 $ 8 -- $-- -- $ -- -- $ --
Net loss.................... -- -- -- -- -- -- -- --
---------- --- --------- --- ----------- -------- ------- ----
Balance at December 31,
1997...................... 7,898,800 8 -- -- -- -- -- --
Issuance of Class A Common
Stock..................... 2,111,200 2 -- -- -- -- -- --
Issuance of Class A Common
Stock in connection with
acquired businesses....... 6,947,114 7 -- -- -- -- 197,813 495
Recapitalization of
Shares.................... -- -- -- -- 22,977,000 22,977 -- --
Exchange of warrant for
Class B Common Stock...... -- -- 4,300,000 4 -- -- -- --
Issuance of Class B
Preferred Stock........... -- -- -- -- 24,993,000 24,993 -- --
Redemption of Class B
Preferred Stock in
exchange for 10%
Debentures................ -- -- -- -- (47,970,000) (47,970) -- --
Repurchases and cancellation
of Class A and Class B
Common Stock.............. (280,374) -- (83,420) -- -- -- -- --
Issuances of Class A and
Class B Common Stock...... 135,000 -- 58,050 -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
---------- --- --------- --- ----------- -------- ------- ----
Balance at December 31,
1998...................... 16,811,740 $17 4,274,630 $ 4 -- $ -- 197,813 $495
========== === ========= === =========== ======== ======= ====
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCK-
PAID-IN EARNINGS HOLDERS'
CAPITAL (DEFICIT) EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Issuance of Class A Common
Stock..................... $ 19,739 $ -- $ 19,747
Net loss.................... -- (3,015) (3,015)
-------- -------- --------
Balance at December 31,
1997...................... 19,739 (3,015) 16,732
Issuance of Class A Common
Stock..................... 5,276 -- 5,278
Issuance of Class A Common
Stock in connection with
acquired businesses....... 28,846 -- 29,348
Recapitalization of
Shares.................... (22,977) -- --
Exchange of warrant for
Class B Common Stock...... (4) -- --
Issuance of Class B
Preferred Stock........... -- -- 24,993
Redemption of Class B
Preferred Stock in
exchange for 10%
Debentures................ -- -- (47,970)
Repurchases and cancellation
of Class A and Class B
Common Stock.............. (70) -- (70)
Issuances of Class A and
Class B Common Stock...... 334 -- 334
Net loss.................... -- (17,155) (17,155)
-------- -------- --------
Balance at December 31,
1998...................... $ 31,144 $(20,170) $ 11,490
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 88
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (3,015) $(17,155)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 417 2,813
Deferred income taxes.................................. 702 --
Non-cash compensation charges.......................... -- 2,670
Change in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable.................................. 425 1,923
Due from affiliate................................... (225) (175)
Due to affiliate..................................... 90 978
Prepaid expenses and other current assets............ (272) (3,747)
Income tax receivable................................ -- 414
Accounts payable and accrued expenses................ 517 9,461
Costs and estimated earnings in excess of billings... (761) (2,212)
Deferred revenue..................................... (2,403) (747)
Other................................................ 45 273
-------- --------
Net cash used in operating activities........... (4,480) (5,504)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (955) (2,209)
Acquisition of businesses, net of cash acquired........... (15,321) (95,168)
-------- --------
Net cash used in investing activities........... (16,276) (97,377)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A and Class B Common
Stock.................................................. 19,747 5,304
Proceeds from issuance of Class B Preferred Stock......... -- 24,993
Repurchases of Class A and B Common Stock................. -- (70)
Due from officers......................................... -- (856)
Borrowings (repayments) under note payable to bank........ 1,606 (324)
Borrowings under Bridge Loan.............................. -- 75,500
Repayments of long-term debt and capital lease
obligations............................................ (43) (724)
-------- --------
Net cash provided by financing activities....... 21,310 103,823
-------- --------
Net increase in cash and cash equivalents................. 554 942
Cash and cash equivalents at beginning of period.......... -- 554
-------- --------
Cash and cash equivalents at end of period................ $ 554 $ 1,496
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 113 $ 1,240
======== ========
Cash paid during the period for taxes..................... $ -- $ 76
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 89
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Nextera Enterprises, Inc. ("Nextera" or the "Company") provides
leading-edge business strategy, operations improvement, organizational design,
and information technology ("IT") consulting services primarily to Fortune 500
and other multinational companies. The Company provides services in four
practice areas, which enables it to offer a breadth and balance of services that
assist clients in achieving enhanced business performance by anticipating and
addressing their complex, multi-disciplinary consulting needs.
Nextera was formed on February 26, 1997 as Education Technology Consulting
LLC and renamed Nextera Enterprises L.L.C. on April 11, 1997. Effective December
31, 1998, Nextera Enterprises L.L.C. was dissolved, at which time the company
commenced operating as Nextera Enterprises, Inc. Accordingly, the consolidated
financial statements reflect the operations of the predecessor, Nextera
Enterprises, L.L.C., for all periods through December 31, 1998. Stockholders'
equity has been restated to give retroactive recognition to the establishment of
Nextera Enterprises, Inc. for all periods presented by reclassifying from common
stock to additional paid-in capital the proceeds from the issuance of units in
excess of the par value of the common stock. In addition, all references in the
financial statements and notes to number of shares, per share amounts and stock
option data have been restated to reflect the formation of Nextera Enterprises,
Inc.
The majority stockholder of the Company is Nextera Enterprises Holdings,
Inc., a wholly-owned subsidiary of Knowledge Enterprises, Inc. Knowledge
Enterprises, Inc. is controlled by Knowledge Universe, Inc. which, in turn, is
controlled by Knowledge Universe, L.L.C.
Acquisitions
Effective July 30, 1997, the Nextera acquired Symmetrix, Inc.
("Symmetrix"), a management consulting and information technology consulting
company, for cash of approximately $15,500,000. The acquisition was accounted
for under the purchase method of accounting; accordingly, the purchase price was
allocated to the underlying assets and liabilities based on their respective
estimated fair values at the date of the acquisition. Correspondingly,
Symmetrix' results of operations subsequent to the acquisition have been
included in the Company's results of operations. Symmetrix was subsequently
renamed Business Performance Solutions Group, Inc. ("Business Performance
Solutions").
Effective January 5, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of SiGMA Consulting, LLC ("SiGMA"), a New
York-based management consulting firm. Through SiGMA, the Company offered
consulting services focusing on change management and helping organizations
improve core business processes, including product development, manufacturing
and distribution, sales, and enterprise management. SiGMA was acquired for $10.0
million in cash and 669,000 shares of Class A Common Stock. Effective December
31, 1998, the Company transferred all of the membership interests of SiGMA to
Business Performance Solutions.
Effective March 31, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of The Planning Technologies Group, Inc.
("PTG"), a Massachusetts-based strategy and management consulting firm. Through
PTG, the Company offers strategy formulation, strategic planning process design,
and business process assessment and redesign services. PTG was acquired for $6.7
million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, the Nextera acquired Pyramid Imaging, Inc.
("Pyramid"), a California-based consulting and technology firm. Through Pyramid,
the Company offers consulting services focused on providing technology-based
solutions within the areas of knowledge management, electronic commerce,
customer management, and human capital management. Pyramid was acquired for $9.2
million in cash and 586,667 shares of Class A Common Stock. In addition, the
Company agreed to an "earn-out" provision providing for the payment of up to an
additional $0.8 million in cash and 53,333 shares of Class A Common Stock upon
the achievement of certain revenue and pretax profit targets related to the
performance of Pyramid during the twelve months ending March 31, 1999.
F-8
<PAGE> 90
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., (collectively "Sibson") human resources consulting firms based in
New Jersey and Toronto, Canada, respectively. Through Sibson, the Company
provides human capital consulting services offering human resource strategies,
outsourcing assessments, organizational designs, rewards/incentives programs,
performance management processes and systems, and executive coaching services.
Sibson also serves sales and marketing organizations with sales strategy,
selling process, sales channel and selling effectiveness consulting. Sibson was
acquired for $37.4 million in cash, 2,613,087 shares of Class A Common Stock and
197,813 Exchangeable Shares which may be exchanged at the option of the holders
into 197,813 shares of Class A Common Stock.
Effective December 31, 1998, the Company acquired Lexecon Inc. ("Lexecon"),
an Illinois-based economic consulting firm. Through Lexecon, Nextera provides a
full range of economic consulting services, including economic, financial and
statistical analysis and expert testimony, which are predominately used in
matters relating to complex litigation and regulatory proceedings. Lexecon was
acquired for $31.1 million in cash, 2,816,000 shares of Class A Common Stock and
certain additional shares of Class A Common Stock to be determined based on the
price per share in the Offering of the Class A Common Stock (the "Reserved
Shares"). The number of Reserved Shares to be issued will range from a minimum
of 231,440 shares if the price per share in an initial public offering ("the
Offering") is $17.50 or higher to a maximum of 1,450,240 shares if the price per
share in the Offering is $12.50 or less. However, if the Offering does not occur
on or prior to February 29, 2000, all 1,450,240 Reserved Shares will be deemed
issued and simultaneously redeemed by the Company at a price of $7.65 per share,
which will require the Company to pay approximately $11.1 million in cash to the
former stockholders of Lexecon.
The following information presents the unaudited pro forma condensed
results of operations as if the acquisitions of Symmetrix, SiGMA, PTG, Pyramid,
Sibson and Lexecon had occurred on January 1, 1997. The pro forma results are
presented for information purposes only and are not necessarily indicative of
the future results of operations of the Company or the results of operations of
the Company had the acquisitions occurred on January 1, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998
(IN THOUSANDS,
EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net revenues....................................... $105,275 $135,167
Net loss........................................... (3,567) (12,044)
Net loss per common share, basic and diluted....... $ (0.36) $ (0.61)
</TABLE>
Subsequent to December 31, 1998, the Company acquired the stock of The
Alexander Corporation Limited ("Alexander"). Alexander was acquired for L300,000
(approximately $490,000) and 150,000 shares of Class A Common Stock. The
acquisition of Alexander has been accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the underlying
assets and liabilities based on their respective estimated fair values at the
date of the acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
F-9
<PAGE> 91
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In light of the fact that the Company's common stock is not traded on any
public market, the Company has established the fair market value for its common
stock from time to time. In determining the fair market value, the Company has
considered, among other factors, the values utilized in certain arms-length
negotiated transactions, valuations prepared by outside consultants and the
market values of comparable public companies as adjusted for the lack of
liquidity of the Company's common stock.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5-7 years
Equipment......................................... 3-5 years
Software.......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property. Amortization of assets under capital leases is
included in depreciation.
Intangible Assets
Intangible assets consist principally of the cost in excess of assets
acquired resulting from acquisitions and are being amortized on a straight-line
basis over 5 years for intangibles relating to personnel and over 40 years for
all other intangibles. The Company assesses the carrying value and future useful
life of these assets whenever events or changes in circumstances indicate that
impairment may have occurred or that the future life has diminished. The Company
considers the future undiscounted cash flows of the acquired companies in
assessing the recoverability of these assets. If an impairment is indicated
through this review, the carrying amount of the intangible assets will be
reduced to their respective estimated fair values as determined based upon the
best information available in the circumstances. Such information likely would
include a review of comparable market prices of similar assets or businesses, if
available, or an estimate of fair value based upon the present value of
estimated expected future cash flows. Any impairment is charged to expense in
the period in which the impairment is incurred.
F-10
<PAGE> 92
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................ $14,917 $121,751
Intangibles related to personnel........ 1,100 5,308
------- --------
16,017 127,059
Less: accumulated amortization.......... 255 1,977
------- --------
Intangible assets, net.................. $15,762 $125,082
======= ========
</TABLE>
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. During 1998, no customer accounted for more than 10%
of net revenues. Sales to three significant customers accounted for 36%, 20% and
10% of net revenues during 1997.
Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates in accordance with SFAS No. 52, "Foreign Currency
Translation." Foreign currency transaction gains and losses are included in the
accompanying statement of operations and are not material for all periods
presented.
Basic and Diluted Earnings Per Common Share
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the
presentation of two amounts, basic earnings per common share and diluted
earnings per common share. Earnings per common share excludes any dilutive
effects of options, warrants and convertible securities. For the period ended
December 31, 1997 and 1998, basic and diluted earnings per common share are the
same due to the antidilutive effect of potential common shares outstanding.
Income Taxes
Nextera was treated as a partnership for federal and state income tax
purposes through December 31, 1998. Therefore, all items of income, expense, and
tax credit are passed through to the individual unit holders. Accordingly, no
provision for income taxes is required for Nextera. Symmetrix and Pyramid,
wholly owned subsidiaries of the Company, are subject to income taxes and report
their income tax provision using the liability method in accordance with
Financial Accounting Standards Board Statement 109, Accounting for Income Taxes
("Statement 109"). Under Statement 109, deferred income taxes are provided for
differences between the financial reporting and tax bases of assets and
liabilities. Effective December 31, 1998, as a result of the incorporation of
Nextera Enterprises, Inc., the Company became subject to income taxes.
Stock-Based Compensation and Other Equity Instruments
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options.
F-11
<PAGE> 93
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company follows the provisions of EITF 96-18 in accounting for equity
instruments issued to non-employees in exchange for goods or services.
Accordingly, warrants issued to Knowledge Universe, Inc. in connection with an
acquisition (see Note 7) have been recorded at their fair value on the date of
grant.
Recently Issued Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
SFAS 133 requires companies to record derivatives on the bivalence sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 is effective beginning in 2000. The adoption of SFAS 133 is not expected to
have a material impact on the financial position or results of operations of the
Company.
In March, 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1") SOP 98-1 requires companies to capitalize
qualifying computer software costs that are incurred during the application
development stage and amortize them over the software's estimated useful life.
The Company adopted the provisions of SOP 98-1 effective January 1, 1998 and
capitalized costs totaling $349,000 in accordance with its provisions.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Equipment.......................................... $ 663 $3,409
Software........................................... 55 923
Furniture and fixtures............................. 371 3,380
Leasehold improvements............................. 222 1,620
------ ------
1,311 9,332
Less: accumulated depreciation..................... 130 1,276
------ ------
Property and equipment, net........................ $1,181 $8,056
====== ======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable............................ $ 720 $ 6,086
Accrued payroll and compensation.................. 837 12,103
Other............................................. 727 5,341
------ -------
$2,284 $23,530
====== =======
</TABLE>
5. FINANCING ARRANGEMENTS
Bridge Loan
In August 1998, the Company secured a $40,000,000 revolving credit facility
(the "Bridge Loan"), which bore interest during 1998 at the rate of LIBOR plus
450 basis points per annum (10.2% at December 31,
F-12
<PAGE> 94
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998). The Bridge Loan is secured by substantially all of the Company's assets
and contains certain restrictive covenants, with which the Company was in
compliance at December 31, 1998. Effective December 31, 1998, the Bridge Loan
was amended to increase the credit facility to $77,500,000, to add Knowledge
Universe, Inc. as a lender under the credit facility and to extend the maturity
to April 30, 1999. Borrowings under the amended Bridge Loan bear interest at a
rate of 12%. As of December 31, 1998, $75,849,000 was outstanding under the
Bridge Loan, including $349,000 of accrued interest.
Notes Payable to Bank
The Company and its subsidiaries have lines of credit with banks which
provide for an aggregate maximum borrowing capacity of $11.0 million. Lines of
credit with an aggregate maximum borrowing capacity of $10.0 million bear
interest at rates ranging from prime (7.75% at December 31, 1998) plus 0.25% to
prime plus 1%. The balance of the lines bear interest at the commercial paper
rate (approximately 4.8% at December 31, 1998) plus 3.15%. As of December 31,
1998, borrowings outstanding under the lines of credit totaled $6,156,000 and
bore interest at a weighted average rate of 8.49%. The lines contain restrictive
covenants, with which the Company was in compliance at December 31, 1998,
relating to maintenance of financial ratios, operating restrictions and
restrictions on the payment of dividends.
Long-term Debt
Long-term debt excluding certain debentures arising in connection with a
recapitalization occurring in April 1998 (see Note 9 -- Recapitalization)
consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Unsecured notes payable to former stockholders and
employees of Symmetrix, issued in connection with the
acquisition of common stock of Symmetrix. Interest
accrues at the lower of 10.0% or prime (7.75% at December
31, 1998), payable in bi-annual installments with
principal ranging from $1,152 to $7,560, through July
2002..................................................... $ 172 $ 71
Unsecured note payable to a former stockholder of Symmetrix
issued in connection with a non-compete agreement. Annual
payments of $120,000 are due through May 2010. Interest
accrues annually at 8.7%................................. 915 873
Other...................................................... 28 30
------ ------
1,115 974
Less: current portion...................................... 146 101
------ ------
Long-term debt............................................. $ 969 $ 873
====== ======
</TABLE>
Annual maturities of long-term debt for the years ending after December 31,
1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................. $101
2000.................................................. 77
2001.................................................. 64
2002.................................................. 59
2003.................................................. 62
2004 and thereafter................................... 611
----
$974
====
</TABLE>
F-13
<PAGE> 95
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal.................................... $ -- $200
State...................................... -- 43
---- ----
Total current tax provision........ -- 243
---- ----
Deferred:
Federal.................................... 596 --
State...................................... 106 --
---- ----
Total deferred tax provision....... 702 --
---- ----
Total tax provision................ $702 $243
==== ====
</TABLE>
\ Deferred tax assets reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Reserves................................................ $ 60 $ 525
Other accrued liabilities............................... 363 1,377
Net operating loss carryforwards........................ 2,327 4,680
------ -------
Deferred tax asset................................... 2,750 6,582
Valuation allowance..................................... 2,716 3,628
------ -------
Net deferred tax asset.................................. 34 2,954
Deferred tax liability:
Depreciation............................................ (34) (21)
Deductible goodwill amortization........................ -- (457)
Cash-to-accrual adjustments............................. -- (2,476)
------ -------
Total deferred tax asset........................ $ 0 $ 0
====== =======
</TABLE>
In December 31, 1997, Symmetrix had approximately $5,819,000 of
pre-acquisition tax net operating loss carryforwards which expire through the
year 2012. At December 31, 1998, Symmetrix, Pyramid and Lexecon have tax net
operating loss carryforwards of approximately $9,102,000, $351,000 and
$2,246,000, respectively, which will expire through the year 2018. As a result
of ownership changes, net operating losses are subject to limitations under the
Internal Revenue Code.
F-14
<PAGE> 96
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the consolidated effective tax rate of the Company is
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
<S> <C> <C>
Tax (benefit) at statutory rate.............. (34)% (34)%
State taxes (benefit), net of federal
benefit.................................... (6) 0
Permanent differences........................ 3 2
Loss treated as partnership flow-through for
tax purposes............................... 54 11
Corporate losses not benefited............... 0 20
Other........................................ 13 2
--- ---
Income tax provision......................... 30% 1%
=== ===
</TABLE>
7. RELATED PARTY TRANSACTIONS
During 1997, the Company entered into a professional services contract with
Productivity Point International, Inc. ("PPI"), a subsidiary of Knowledge
Universe, L.L.C. Revenues from PPI were $225,000 in 1997 and $642,000 in 1998.
The Company also performed additional services for Knowledge Universe, L.L.C.
and TEC Worldwide, Inc., an affiliate of Knowledge Universe, L.L.C., during 1998
and recorded revenues totaling $900,000 and $90,000, respectively. At December
31, 1998, a total of $400,000 was due from PPI, Knowledge Universe, L.L.C. and
TEC Worldwide, Inc.
On July 31, 1995, Symmetrix entered into a four year non-compete agreement
("Agreement") with its then majority stockholder ("Stockholder") in conjunction
with the Stockholder's sale of his holdings in Symmetrix' common stock to a
non-affiliated third party. Symmetrix capitalized the value of the Agreement,
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At December 31, 1998, the carrying amount was $144,000 and was
included in other assets on the consolidated balance sheet.
In connection with an equity recapitalization, $47,970,000 was recorded as
debentures due to affiliates (see Note 9). In connection with the amendment of
the Bridge Loan, Knowledge Universe, Inc. provided a $37.5 million credit
facility to the Company (see Note 5).
Knowledge Universe, Inc. has guaranteed the Company's contingent obligation
to repurchase certain Reserved Shares arising in connection with the Company's
acquisition of Lexecon (see Note 1--Acquisitions). In consideration for the
issuance of this guaranty, the Company granted to Knowledge Universe, Inc.
warrants to purchase 250,000 shares of Class A Common Stock at an exercise price
of 80% of the initial public offering price per share of the Company's Class A
Common Stock, provided, however, if such public offering does not occur by
August 31, 2000, the exercise price will be $7.65 per share, as adjusted for
stock splits, stock dividends and similar transactions. The warrants expire on
December 31, 2003. The Company has included approximately $1,000,000, the
estimated fair value of the warrants, calculated using the Black-Scholes model,
as a component of its purchase price incurred in connection with the Lexecon
acquisition.
Management fees of $90,000 in 1997 and $120,000 in 1998 due to Knowledge
Universe, Inc. were incurred. In addition, the Company also incurred a
supplemental management fee of $1,500,000 to Knowledge Universe, Inc. for
additional services rendered to the Company during 1998. As of December 31,
1998, $210,000 of such fees were unpaid.
F-15
<PAGE> 97
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company leases its office facilities under operating leases which
expire from 2001 to 2007. The majority of the leases require payments for
additional expenses such as taxes, maintenance and utilities. Certain of the
leases contain renewal options. The Company also has operating leases for
certain equipment. Total rent expense for the period from February 26, 1997
(date of inception) through December 31, 1997 and for 1998 was approximately
$449,000 and $2,223,000, respectively. The Company also leases certain equipment
under capital leases.
Future minimum lease payments under capital leases and noncancelable
operating leases for the years ending after December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1999........................................... $ 605 $ 4,545
2000........................................... 1,265 4,368
2001........................................... 468 3,868
2002........................................... 15 3,441
2003........................................... 5 2,314
2004 and thereafter............................ 6,399
------ -------
Total minimum lease payments........... 2,358 $24,935
=======
Less amounts representing interest............. (250)
------
Present value of minimum capitalized lease
payments.................................... 2,108
Current portion................................ (381)
------
Long-term capitalized lease obligation......... $1,727
======
</TABLE>
9. STOCKHOLDERS' EQUITY
The Company's historical equity structure is described below. As of April
30, 1998, the Company amended and restated its capital structure (see
Recapitalization below). As of December 31, 1998, the Company converted from a
limited liability company to a "C" corporation.
Historical
As of December 31, 1997, the Company was authorized to issue two classes of
stock: Class A Common Stock and Class B Preferred Stock. Each Class A Common
stockholder had one vote per share of Class A Common Stock. The Class B
Preferred Stock was non-voting. At December 31, 1997, the Company had a warrant
outstanding to purchase 5,000,000 shares of Class A Common Stock at an exercise
price of $2.50 per share, with an expiration date of August 1, 2002 (the
"Warrant"). At any time after May 1, 2002, or upon the exercise of the Warrant,
the Class B Preferred stockholders have the right to require the Company to
redeem all of their Class B Preferred Stock for an amount equal to their
adjusted capital balances. The Class B Preferred Stock also had a liquidation
preference equal to their Undistributed Return, as defined in the amended and
restated operating agreement of the limited liability company. The Company had a
right to approve or disapprove any proposed transfer of stock.
Recapitalization
During the period from January 1, 1998 through April 30, 1998, $30,223,000
of additional capital was contributed, bringing the total contributed capital to
$49,970,000. As of April 30, 1998, the Company undertook a recapitalization,
which was unanimously approved by the stockholders of the Company. The net
result of the recapitalization was the redesignation of $47,970,000 of capital
as debentures. As a result of the recapitalization transactions, the Company
issued two debentures with principal amounts of $24,970,000 and $23,000,000,
respectively. Both debentures are due on May 1, 2002. The debentures accrue
interest at a rate of
F-16
<PAGE> 98
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10% retroactive to the date the initial capital was funded. Accordingly, for the
year ended December 31, 1998, the Company incurred approximately $793,000 of
interest expense pursuant to the recapitalization related to the period ended
December 31, 1997. As of December 31, 1998, $53,149,000 of principal and
interest was due under the debentures.
Also, as part of the recapitalization, the stated value of the 10,000,000
Class A Common Stock was reduced to $0.20 per share from $2.50 per share.
Effective December 31, 1998, a par value of $0.001 per share was established for
Class A and Class B Common Stock.
In addition, pursuant to the recapitalization, the Warrant to acquire
5,000,000 shares of Class A Common Stock was amended to provide that the shares
subject to the Warrant were changed to a new class of authorized Class B Common
Stock. The Class B Common Stock has the same economic characteristics as the
Class A Common Stock, except that each Class B Common stockholder has ten votes
per share of Class B Common Stock. The warrant was contributed to the Company in
exchange for 4,300,000 shares of Class B Common Stock on April 30, 1998.
Employee Equity Participation Plan
In 1997, the Company established its Employee Equity Participation Plan
("EPP"), whereby the Board of Directors may make discretionary awards of stock
appreciation rights ("SAR") to employees of the Company. At the exercise date,
the Company may settle its SAR obligations by making either cash payments or
issuing Class A Common Stock equal to the amount of the underlying appreciated
value of the Company's Class A Common Stock from the initial grant date. The
exercise of the SAR is limited by the provisions of each applicable employee
agreement, however, the exercise period cannot exceed seven years. For the
period ended December 31, 1997, 450,000 SARs were granted under the EPP, at an
initial price of $5.00. The Company recognized no compensation expense relating
to the SARs during the period ended December 31, 1997. Pursuant to the EPP,
4,500,000 SARs have been reserved for issuance.
Subsequent to December 31, 1997, the Board of Directors approved the
conversion of all existing SARs into options pursuant to the provisions of the
EPP. The exercise price of the options was $5.00, which was equal to or exceeded
the fair value on the date of the conversion.
A summary of stock options held by Company employees as of December 31,
1998 and the related transactions for the year ended December 31, 1998,
excluding those related to Lexecon employees as discussed below, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE REMAINING LIFE
<S> <C> <C> <C>
Outstanding options at December
31, 1997....................... 450,000 $5.00 8.5 years
Granted........................ 2,170,233 6.78 9.7 years
Forfeited...................... (139,993) 6.06 9.2 years
--------- ----- ---------
Outstanding options at December
31, 1998....................... 2,480,240 $6.50 9.4 years
========= ===== =========
</TABLE>
All options detailed above have a 10 year life and vest over a four year
period. As of December 31, 1998, 100,760 options were vested.
In December 1998, the Company entered into agreements with certain
non-stockholder key executives of Lexecon under which payments totaling
$4,248,000 in cash were made and fully-vested options (the "Vested Options") to
purchase 384,000 shares of Class A Common Stock at an exercise price of $1.50
per share were granted. Additionally, the Company reserved for issuance to these
key executives options (the "Reserved Options") to purchase Class A Common Stock
at an exercise price of $1.50 per share. The number of shares of Class A Common
Stock subject to the Reserved Options will be determined based on the price per
share in the Offering of the Class A Common Stock, ranging from a minimum of
31,560 shares if the price per share in
F-17
<PAGE> 99
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Offering is $17.50 or higher, to a maximum of 197,760 shares if the price
per share in the Offering is $12.50 or less. However, if the Offering does not
occur on or prior to February 29, 2000, all 197,760 Reserved Options will be
deemed issued and exercised, and the Class A Common Stock acquired upon such
exercise will be redeemed by the Company at a price of $7.65 per share, which
will require the Company to pay approximately $1,216,000 in cash to such
non-stockholder key executives of Lexecon, net of the proceeds from the exercise
of such options. The Company recorded as "Compensation expense--other"
$6,671,000 in 1998, which represented the cash paid, which includes the
Company's matching medicare obligation on cash paid to the non-stockholder key
executives, plus the difference between the fair market value of the Class A
Common Stock on the date of grant of $7.65 per share, and the exercise price of
the Vested Options. The Company will incur additional compensation expense
related to the Reserved Options at the time the number of shares of Class A
Common Stock subject to the Reserved Options is determined.
The Company has adopted the disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS 123,
applies Accounting Principles Board Opinion ("APB") No. 25 and related
interpretations in accounting for its plans. If the Company had adopted the
optional recognition provisions of SFAS 123 for its stock option plans, net loss
and net loss per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
(IN THOUSANDS,
EXCEPT PER SHARE
COMMON DATA)
<S> <C>
Net loss
As reported.............................. $ (17,155)
Pro forma................................ (17,627)
Net loss per common share
As reported.............................. $ (1.14)
Pro forma................................ $ (1.18)
</TABLE>
The fair value of stock options used to compute pro forma net loss and net
loss per common share disclosure is the estimated fair value at grant date using
the Black-Scholes option pricing model assuming expected volatility of 55% and a
risk free interest rate of 5%.
Adoption of the optional recognition provisions of SFAS 123 during 1997
would have had no effect on reported net loss and net loss per common share.
At December 31, 1998, the Company had reserved 9,707,386 unissued shares of
its Class A Common Stock for possible issuances under stock-based compensation
plans, for possible issuances of contingent shares in connection with
acquisitions (see Note 1), for possible issuances in connection with outstanding
warrants, and for possible conversions of exchangeable shares.
10. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The following table sets forth the reconciliation of the numerator and
denominator of the net loss per common share computation:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net loss.................................. $(3,015) $(17,155)
Weighted average common shares
outstanding............................. 4,061 14,997
Net loss per common share................. $ (0.74) $ (1.14)
======= ========
</TABLE>
F-18
<PAGE> 100
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RETIREMENT SAVINGS PLANS
The Company and certain of its subsidiaries sponsor retirement savings
plans under Section 401(k) of the Internal Revenue Code for the benefit all of
their employees meeting certain minimum service requirements. Eligible employees
may elect to contribute to the retirement plans subject to limitations
established by the Internal Revenue Code. The trustees of the plans select
investment opportunities from which participants may choose to contribute.
Matching contributions are made at the discretion of the Company and, for
certain plans, as a percentage of employee contributions. Total discretionary
and matching contribution expense under the plans for 1998 was $1,839,000. There
were no contributions for the period from February 26, 1997 (date of inception)
through December 31, 1997.
12. RESTRUCTURING COSTS
During 1998, the Company recorded restructuring costs of $1,298,000 related
to the combination of Symmetrix and SiGMA resulting in the formation of Business
Performance Solutions. These restructuring costs consisted principally of
$603,000 of severance payments and terminating costs and $616,000 for vacated
leased office space, net of estimated sublease income. The Company's
restructuring plan and its related exit costs have been accounted for pursuant
to EITF 94-3. As of December 31, 1998, $947,000 was included in accounts payable
and accrued expensed related to unpaid restructuring costs.
13. CONTINGENCIES
The Company is subject to certain asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and
defend itself in any litigation which may arise from such claims. While the
ultimate outcome of these matters could affect the results of operations of any
one quarter or year when resolved in future periods, and while there can be no
assurance with respect thereto, management believes that after final
disposition, any financial impact to the Company would not be material to the
Company's financial position.
F-19
<PAGE> 101
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Symmetrix, Inc.
We have audited the accompanying consolidated balance sheets of Symmetrix,
Inc. and subsidiaries as of May 31, 1997 and July 30, 1997, and the related
consolidated statements of operations and accumulated deficit and cash flows for
the year ended May 31, 1997 and for the period from June 1, 1997 through July
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Symmetrix,
Inc. and subsidiaries at May 31, 1997 and July 30, 1997, and the results of
their operations and their cash flows for the year ended May 31, 1997 and for
the period from June 1, 1997 through July 30, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1998
F-20
<PAGE> 102
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 838 $ 543
Accounts receivable, net of allowance for doubtful
accounts of $100 at May 31, 1997 and July 30, 1997..... 2,919 2,560
Costs and estimated earnings in excess of billings........ 471 95
Prepaid expenses and other current assets................. 174 97
Refundable income taxes................................... 416 416
------- -------
Total current assets.............................. 4,818 3,711
Long-term receivable........................................ 600 600
Property and equipment, net................................. 411 387
Other assets................................................ 654 607
------- -------
Total assets...................................... $ 6,483 $ 5,305
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,595 $ 6,773
Notes payable to bank..................................... 114 81
Due to affiliate.......................................... 1 3
Deferred revenue.......................................... 3,802 3,150
Current portion of long-term debt......................... 128 128
------- -------
Total current liabilities......................... 6,640 10,135
Long-term debt.............................................. 1,048 1,030
Stockholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized,
1,216,921 shares issued and outstanding................ 12 12
Additional paid-in capital................................ 995 995
Accumulated deficit....................................... (2,212) (6,867)
------- -------
Total stockholders' equity (deficit).............. (1,205) (5,860)
------- -------
Total liabilities and stockholders' equity
deficit......................................... $ 6,483 $ 5,305
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 103
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEAR ENDED JUNE 1, 1997
MAY 31, THROUGH
1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $15,052 $ 2,381
Cost of revenues............................................ 13,529 1,994
------- -------
Gross profit........................................... 1,523 387
Selling, general and administrative expenses................ 6,584 887
Compensation expense--repurchase of stock options........... -- (4,126)
------- -------
Loss from operations................................... (5,061) (4,626)
Gain on sale of investment.................................. 1,884 --
Interest income............................................. 53 8
Interest expense............................................ (116) (37)
------- -------
Net loss............................................... (3,240) (4,655)
Retained earnings (accumulated deficit) at beginning of
period.................................................... 1,028 (2,212)
------- -------
Accumulated deficit at end of period........................ $(2,212) $(6,867)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 104
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE JUNE 1, 1997
YEAR ENDED THROUGH
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,240) $(4,655)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment............................. (1,884) --
Depreciation........................................... 261 38
Amortization........................................... 246 53
Change in operating assets and liabilities:
Accounts receivable.................................. (541) 359
Costs and estimated earnings in excess of billings... (13) 376
Long-term receivable................................. (600) --
Due to affiliate..................................... 1 2
Prepaid expenses and other current assets............ 210 77
Refundable taxes..................................... (14) --
Accounts payable and accrued expenses................ 720 4,178
Deferred revenue..................................... 3,541 (652)
Other................................................ (60) (6)
------- -------
Net cash used in operating activities............. (1,373) (230)
------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (245) (14)
Proceeds from sale of investment.......................... 2,259 --
------- -------
Net cash provided by (used in) investing
activities...................................... 2,014 (14)
------- -------
Cash flows from financing activities:
Borrowings under line of credit........................... 114 --
Repayments of long-term debt.............................. (100) (18)
Repayments under line of credit........................... (164) (33)
------- -------
Net cash used in financing activities............. (150) (51)
------- -------
Net increase (decrease) in cash and cash equivalents...... 491 (295)
Cash and cash equivalents at beginning of period.......... 347 838
------- -------
Cash and cash equivalents at end of period................ $ 838 $ 543
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 118 $ 23
======= =======
Income taxes........................................... $ 314 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 105
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND JULY 30, 1997
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company") offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design, construction, and deployment of complete
business systems. Symmetrix primarily offers its services to the financial
services, health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership (the
"Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the Partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1996, the Company had provided 74% of the Partnership's capital. During the year
ended May 31, 1995, certain Class B Limited Partners were admitted in place of a
portion of the Company's investment as a Class B Limited Partner. A total of
$125,000 was paid to the Company in return for this portion of the Company's
Class B Limited Partnership interest. To date, the Partnership has not generated
any revenues or expenses. Management intends to dissolve the Partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee, and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
F-24
<PAGE> 106
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5-7 years
Equipment......................................... 3-5 years
Software.......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. For the year ended May 31, 1997, revenues to three
significant customers accounted for 69% of net revenues. Three customers
accounted for 84% of receivables, net of related deferred revenue at May 31,
1997.
Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price not less than the fair value of the shares at the date of
grant and accounts for stock options granted to employees in accordance with the
provisions of Accounting Principle Board Opinion No. 25, Accounting for Stock
Issued to Employees.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
3. INVESTMENT
The Company held an 8.5% investment in Olympic Manufacturing Group, Inc.
("Olympic"), a privately-held manufacturing company. The Company did not have a
controlling interest in Olympic and the investment was valued at cost. The
investment was sold during the year ended May 31, 1997 at a gain of $1,883,927.
F-25
<PAGE> 107
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment.......................................... $1,319 $1,321
Software........................................... 250 262
Furniture and fixtures............................. 230 230
Leasehold improvements............................. 69 69
------ ------
1,868 1,882
Less: accumulated depreciation..................... 1,457 1,495
------ ------
Property and equipment, net........................ $ 411 $ 387
====== ======
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable............................. $ 365 $ 175
Accrued payroll.................................... 320 463
Compensated absences............................... 220 258
Accrued compensation............................... -- 4,126
Profit sharing..................................... 1,234 1,234
Other.............................................. 456 517
------ ------
$2,595 $6,773
====== ======
</TABLE>
6. FINANCING ARRANGEMENTS
Notes Payable to Bank
The Company has a $1,800,000 unsecured line of credit with a bank that
expires on November 30, 1998. Borrowings under the line bear interest at the
bank's prime rate plus 1.0% (9.5% at July 30, 1997) and are limited to a
percentage of specified trade receivables. The agreement provides for an annual
commitment fee of 0.5% of the unused line. The Company had $1,000,000 available
under the line of credit at May 31, 1997 and July 30, 1997. On January 1, 1998,
the Company increased its unsecured line of credit with the bank to $2,000,000.
The line contains restrictive covenants relating to maintenance of financial
ratios, operating restrictions and restrictions on the payment of dividends.
The Company had a $220,000 unsecured declining demand line that expired on
July 1, 1997. The Company also has a $150,000 unsecured line of credit with a
bank that expires on August 31, 1998. Borrowings under the lines bear interest
at the bank's prime rate plus 1.0% (9.5% at May 31, 1997 and July 30, 1997). The
agreement provides for drawdowns through August 31, 1998, with the line
declining by $6,250 per month beginning on September 1, 1996.
F-26
<PAGE> 108
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Unsecured notes payable to former stockholders and
employees, issued in connection with the repurchase of the
Company's stock. Interest accrues at the lower of 10.0% or
prime (8.5% at May 31, 1997 and July 31, 1997), payable in
bi-annual installments with principal ranging from $1,152
to $8,960, through July 2002.............................. $ 191 $ 175
Unsecured note payable to a former stockholder issued in
connection with a non-competition agreement. Annual
payments of $120,000 are due through May 2010. Interest
accrues annually at 8.7%.................................. 951 951
Other....................................................... 34 32
------ ------
1,176 1,158
Less: current portion....................................... 128 128
------ ------
Long-term debt.............................................. $1,048 $1,030
====== ======
</TABLE>
Annual maturities of long-term debt for the fiscal years ending after July
30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $128
1999........................................................ 135
2000........................................................ 85
2001........................................................ 72
2002 and thereafter......................................... 738
------
$1,158
======
</TABLE>
7. INCOME TAXES
Deferred tax assets reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Reserves................................... $ 180 $ 40
Other accrued liabilities.................. 1,000 1,107
Net operating loss carryforwards........... 120 1,996
------- -------
Total............................ 1,300 3,143
Valuation allowance........................ (1,252) (3,114)
------- -------
Net deferred tax asset..................... 48 29
Deferred liability: depreciation........... (48) (29)
------- -------
Total net deferred tax asset..... $ 0 $ 0
======= =======
</TABLE>
The Company has approximately $5,819,000 of net operating loss
carryforwards which expire through the year 2012. The net operating loss
carryforwards arose principally as a result of disqualifying dispositions of the
Company's previously outstanding stock options. As a result of ownership
changes, these net operating losses are subject to limitations under the
Internal Revenue Code.
F-27
<PAGE> 109
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
8. RELATED PARTY TRANSACTIONS
On July 31, 1995, the Company entered into a non-compete agreement
("Agreement") with the then majority stockholder ("Stockholder") in conjunction
with the Stockholder's sale of his holdings in the Company's common stock to a
non-affiliated third party. The Company capitalized the value of the Agreement,
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At May 31, 1997 and July 30, 1997, the carrying amounts were
$546,000 and $493,000, respectively, and were included in other assets on the
balance sheet.
9. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the year ended May 31, 1997 and for the period June 1,
1997 through July 30, 1997 was approximately $751,000 and $148,000,
respectively.
Future minimum lease payments under noncancelable operating leases, for the
fiscal years ending after July 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $887
1999................................................ 887
2000................................................ 887
2001................................................ 887
2002 and thereafter................................. 665
------
Total minimum lease payments................. $4,213
======
</TABLE>
10. STOCKHOLDERS' EQUITY
Stock Option Plan
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees. The Plan provided for a maximum of 1,415,298 shares of
common stock of the Company to be granted over ten years from the date the Plan
was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for the stockholders having ownership in excess of 10%). The non-qualified
options are exercisable in accordance with the terms agreed for each option
granted.
During the year ended May 31, 1997, the Company granted 112,000 options
with exercise prices equal to or exceeding the fair market value at the date of
grant of the Company's common stock, ranging from $2.55 to $5.05. There were
1,025,558 stock options outstanding at May 31, 1997. No stock options were
granted during the two months ended July 30, 1997.
In July 1997, the Board of Directors approved a stock option repurchase
plan whereby all of the outstanding stock options were canceled. The repurchase
amount was accrued at July 30, 1997 at a cost of $4,126,000, which was charged
to operations in the two months ended July 30, 1997. As a result, no stock
F-28
<PAGE> 110
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997 AND JULY 30, 1997
options were outstanding at July 30, 1997. Accordingly, the disclosure of pro
forma net loss required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation has not been presented because such
information is not deemed to be meaningful. The Plan will expire by its own
terms on September 20, 1998.
11. RETIREMENT SAVINGS PLAN
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit of all
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the Retirement Plan subject to limitations established by
the Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. The Company made
contributions to the Retirement Plan of $139,000 for the year ended May 31,
1997. There were no contributions to the Retirement Plan by the Company for the
period from June 1, 1997 through July 30, 1997.
12. SUBSEQUENT EVENT
Effective July 30, 1997, all of the outstanding stock of the Company was
acquired by Nextera Enterprises, L.L.C. for cash of $15,500,000.
F-29
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Symmetrix, Inc.
Lexington, Massachusetts
We have audited the accompanying consolidated balance sheet of Symmetrix,
Inc. and subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Symmetrix, Inc.
and subsidiaries at May 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO SEIDMAN
Boston, Massachusetts
July 19, 1996
F-30
<PAGE> 112
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 347
Accounts receivable, net of allowance for doubtful
accounts of $62........................................ 2,837
Refundable income taxes................................... 402
Other receivables......................................... 198
Prepaid expenses.......................................... 186
Investment................................................ 500
Deferred income taxes..................................... 44
------
Total current assets.............................. 4,514
Property and equipment, net................................. 427
Covenant not to compete, net of accumulated amortization of
$192...................................................... 794
Deposits.................................................... 47
------
Total assets...................................... $5,782
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank..................................... $ 164
Accounts payable.......................................... 341
Accrued expenses.......................................... 1,550
Deferred revenue.......................................... 261
Current maturities of long-term debt...................... 122
------
Total current liabilities......................... 2,438
Long-term debt, less current maturities..................... 1,152
Deferred income taxes....................................... 32
------
Total liabilities................................. 3,622
Minority interest in consolidated subsidiary................ 125
Commitments (Notes 9 and 11)
Stockholders' equity:
Common stock, $0.01 par value, 10,000,000 shares
authorized, 1,216,921 shares outstanding............... 12
Additional paid-in capital................................ 995
Retained earnings......................................... 1,028
------
Total stockholders' equity........................ 2,035
------
Total liabilities and stockholders' equity........ $5,782
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 113
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Net revenues................................................ $19,237
Cost of revenues............................................ 9,015
-------
Gross profit........................................... 10,222
Selling, general and administrative expenses................ 10,547
-------
Loss from operations................................... (325)
Interest income............................................. 46
Interest expense............................................ (102)
-------
Net loss before income tax benefit..................... (381)
Income tax benefit.......................................... 247
-------
Net loss............................................... $ (134)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 114
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------------- CAPITAL IN CURRENCY TOTAL
NUMBER OF EXCESS OF RETAINED TREASURY TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE PAR EARNINGS STOCK ADJUSTMENT EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1995... 1,877,215 $ 18 $ 1,345 $1,162 $(318) $ 12 $2,219
Shares contributed by
stockholder............. (595,294) (6) 6 -- -- -- 0
Purchase and retirement of
shares.................. (15,000) -- (38) -- -- -- (38)
Retirement of treasury
stock................... (50,000) -- (318) -- 318 -- --
Foreign currency
translation
adjustment.............. -- -- -- -- -- (12) (12)
Net loss.................. -- -- -- (134) -- -- (134)
---------- ---- ------- ------ ----- ---- ------
Balance at May 31, 1996... 1,216,921 $ 12 $ 995 $1,028 -- -- $2,035
========== ==== ======= ====== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 115
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (134)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on disposal of property and equipment............. (48)
Provision for doubtful accounts........................ 214
Depreciation and amortization.......................... 153
Deferred income taxes.................................. 225
Changes in operating assets and liabilities:
Accounts receivables................................. (1,003)
Refundable income taxes.............................. (381)
Other receivables.................................... (83)
Prepaid expenses..................................... (140)
Other assets......................................... 14
Accounts payable..................................... 78
Accrued expenses..................................... (183)
Deferred revenue..................................... (45)
--------
Net cash used in operating activities............. (1,333)
--------
Cash flows from investing activities:
Proceeds from disposal of property and equipment.......... 69
Purchase of property and equipment........................ (227)
--------
Net cash used in investing activities............. (158)
--------
Cash flows from financing activities
Repayment of obligations under capital lease.............. (16)
Borrowings under line of credit........................... 589
Repayments of line of credit.............................. (425)
Proceeds from issuance of notes payable................... 94
Repayments of notes payable............................... (73)
Purchase of treasury stock................................ (7)
--------
Net cash provided by financing activities......... 162
Effect of exchange rate fluctuations on cash and cash
equivalents............................................ (12)
--------
Net decrease in cash and cash equivalents................. (1,341)
Cash and cash equivalents at beginning of year............ 1,688
--------
Cash and cash equivalents at end of year.................. $ 347
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 116
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company") offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design construction, and deployment of complete business
systems. Symmetrix primarily offers its services to the financial services,
health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership ("the
Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the Partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1996, the Company had provided 74% of the Partnership's capital. During the year
ended May 31, 1995, certain Class B Limited Partners were admitted in place of a
portion of the Company's investment as a Class B Limited Partner. A total of
$125,000 was paid to the Company in return for this portion of the Company's
Class B Limited Partnership interest. To date, the Partnership has not generated
any revenues or expenses.
On January 1, 1995, Symmetrix European Holdings, Inc. ("Symmetrix
Holdings") (a Delaware corporation) and Symmetrix Europe, SA ("Symmetrix
Europe") (a French corporation) were formed for the purpose of conducting
business in Europe. The Company holds 80% of the outstanding stock of Symmetrix
Holdings, which holds 99.9% of the outstanding stock of Symmetrix Europe.
Activity for these subsidiaries has been consolidated into the Company's
financial statements for the year ended May 31, 1996. In November 1995, the
Board of Directors approved the abandonment of the operating activities of
Symmetrix Holdings and Symmetrix Europe.
The Partnership, Symmetrix Holdings and Symmetrix Europe have calendar
year-ends and thus for purposes of consolidation, the accounts of these
subsidiaries are based on a period which corresponds with the fiscal period of
the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates and assumptions.
Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operation are translated
into U.S. dollars at the exchange rate in effect as of the balance sheet date
and revenue and expenses are translated at average exchange rates during the
period. The resultant translation adjustment is reflected as a separate
component of stockholders' equity. Transaction gains and losses are reflected in
the consolidated statement of operations.
F-35
<PAGE> 117
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues earned. Revenues include reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposit
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's cash equivalents
consist of an overnight repurchase agreement that is managed by a financial
institution with a strong credit rating. Accordingly, management believes the
investment is subject to minimal credit and market risk.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures........................... 5-7 years
Equipment........................................ 3-5 years
Software......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair values based on short-term maturities of these instruments. The carrying
value of long-term debt approximates its fair value based on references to
similar instruments.
Concentration of Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to four significant customers accounted for
14%, 14%, 13% and 13%, respectively, of revenues for the year ended May 31,
1996.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
F-36
<PAGE> 118
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
3. INVESTMENT
The Partnership has an investment in Olympic Manufacturing Group, Inc.
("Olympic"), a privately held manufacturing company. The Company does not have a
controlling interest in Olympic and the investment is carried at cost. The value
of $499,966 does not necessarily represent an amount which would be realized
upon the sale or other disposition of the investment.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Equipment...................................... $1,083
Computer software.............................. 248
Furniture and fixtures......................... 223
Leasehold improvements......................... 68
------
1,622
Less: accumulated depreciation and
amortization................................. 1,195
------
Property and equipment, net.................... $ 427
======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Accrued profit sharing......................... $ 710
Accrued compensation........................... 380
Other.......................................... 460
------
$1,550
======
</TABLE>
For the year ended May 31, 1996, the Company made distributions to
employees under a discretionary profit-sharing plan amounting to $723,499.
6. FINANCING ARRANGEMENTS
Short-term Borrowings -- Lines of Credit
The Company has a $220,000 unsecured declining demand line of credit that
expires on July 1, 1997. Borrowing under the line bear interest at the bank's
prime rate plus 1% (9.25% at May 31, 1996). The agreement provides for drawdowns
through September 30, 1995 with the line declining by $10,000 per month
beginning on October 1, 1995. As of May 31, 1996, the Company had borrowings
outstanding of $164,025.
In addition, the Company has a $1,000,000 unsecured line of credit with a
bank. Borrowing under the line bear interest at the bank's prime rate plus 1%
(9.25% at May 31, 1996) and are limited to an advance rate of specified trade
receivables. The agreement provides for a commitment fee of 0.5% of unused line.
The maximum borrowings outstanding during the year were $374,129. There were no
borrowings outstanding at May 31, 1996.
F-37
<PAGE> 119
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Secured installment note, interest at 8.69%. Principal and
interest payments are payable in equal annual installments
of $120,000 through August 2010. As security, the Company
pledged and granted the stockholder a security interest in
all of its rights, title and interest in all the shares of
capital stock of another entity in which the stockholder
has an equity interest (See Note 12)...................... $ 985
Secured installment note, interest at 13.3%. Principal and
interest payments are payable in equal monthly
installments of $1,106 through March, 2000. The note is
secured by a copier with a net book value of $55,638 at
May 31, 1996.............................................. 42
Unsecured note payable to a former stockholders issued in
connection with the repurchase of the Company's stock.
Principal payments range from $3,600 to $7,560 bi-annually
and are payable through July, 2000. Interest accrues at
the lower of 10% or prime (8.25% at May 31, 1996)......... 148
Unsecured note payable to a former employee issued in
connection with a bonus. Principal of $8,960 plus accrued
interest is payable semi-annually in January and July with
final payment due in January, 1999. Interest accrues at
the lower of 10 percent or prime (8.25% at May 31,
1996)..................................................... 54
Unsecured note payable to a former employee issued in
connection with a non-compete agreement. Semi-annual
principal payments of $5,000 are due through July, 2000.
Interest accrues at the lower of 10 percent or prime
(8.25% at May 31, 1996)................................... 45
------
1,274
Less: current maturities.................................... 122
------
Long-term debt.............................................. $1,152
======
</TABLE>
Annual maturities of long-term debt for the fiscal years ending after May
31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................... $ 122
1998........................................... 127
1999........................................... 116
2000........................................... 72
2001........................................... 56
Thereafter..................................... 781
------
$1,274
======
</TABLE>
F-38
<PAGE> 120
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1996
(IN THOUSANDS)
<S> <C>
Current:
Federal...................................... $(434)
State........................................ (38)
-----
(472)
-----
Deferred:
Federal...................................... 172
State........................................ 53
-----
225
-----
Income tax benefit............................. $(247)
=====
</TABLE>
The difference between the effective tax rate and the statutory tax rate of
34% relates primarily to the worthlessness of Symmetrix Europe stock.
Deferred tax assets relate to receivable and liability reserves. The
deferred tax liability relates to the basis difference of property and
equipment.
8. RELATED PARTY TRANSACTION
The Company entered into a contract with Olympic and provided services
through February 1996. The Company bills Olympic on a monthly basis at cost for
the time and materials incurred on the project. The total costs reimbursed on
the project were approximately $95,000 for the year ended May 31, 1996.
9. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the year ended May 31, 1996 was approximately
$783,000. Future minimum lease payments under this noncancelable operating lease
for the fiscal years ending after May 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................... $ 824
1998........................................... 824
1999........................................... 824
2000........................................... 824
2001........................................... 824
Thereafter..................................... 755
------
Total minimum lease payments......... $4,875
======
</TABLE>
10. STOCKHOLDERS' EQUITY
On July 31, 1995, a stockholder contributed 595,294 shares of common stock
in conjunction with his sale of an equivalent number of shares of capital stock.
In addition, on July 31, 1995, the Board of Directors authorized an increase in
the authorized shares of common stock from 2,352,020 shares to 10,000,000
shares.
F-39
<PAGE> 121
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
During the year ended May 31, 1996, the Company purchased 15,000 shares of
its common stock from a former employee for $38,250. Notes payable in the amount
of $30,600 were issued in connection with the purchase of the shares. In
addition, during the year ended May 31, 1996 the 15,000 shares purchased above,
and the 50,000 shares of common stock held as treasury stock at May 31, 1995, as
well as the 595,294 shares contributed above, were canceled and common stock and
additional paid-in capital were accordingly reduced by $6,604 and $349,439,
respectively.
Stock Option Plan
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees. The plan provided for a maximum of 1,415,298 shares of
common stock of the Company to be granted over ten years from the date the Plan
was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for the stockholders having ownership in excess of 10%). The non-qualified
options are exercisable in accordance with the terms agreed for each option
granted.
During the year ended May 31, 1996, the Company amended the Plan. Stock
option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
<S> <C> <C>
Outstanding, May 31, 1995................. 311,600 $2.80 - $6.85
Granted................................... 1,010,408 2.55
Canceled.................................. (251,600) 2.80 - 6.85
Redeemed.................................. (77,350) 2.55
------------- ---------------
Outstanding, May 31, 1996................. 993,058 $2.80 - $2.90
============= ===============
</TABLE>
With respect to the redemption of 77,350 stock options during the year
ended May 31, 1996, the Company recognized $197,243 of compensation expense.
At May 31, 1996, 473,379 options were exercisable and 142,041 shares were
available for future grant. In addition, an additional 280,199 shares are
available for grant if the Company meets certain growth targets in accordance
with a Preemptive Rights Agreement.
11. RETIREMENT SAVINGS PLAN
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit of all
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the Retirement Plan subject to limitations established by
the Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. There were no
contributions to the plan by the Company during the year ended May 31, 1996.
F-40
<PAGE> 122
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
12. COVENANT NOT TO COMPETE
On July 31, 1995, the Company entered into a noncompete agreement (the
"Noncompete Agreement") with the then majority stockholder (the "Stockholder")
in conjunction with the Stockholder selling a portion of his holdings of the
Company's common stock to a non-affiliated third party. The Noncompete Agreement
provides for, among other things, that the Stockholder not compete, as defined
with the Company through August 22, 1999. In consideration of the covenants and
agreements contained within the Noncompete Agreement, the Company agreed to pay
an aggregate of $1,800,000 in equal annual installments of $120,000 through May
2010. The Company capitalized the value of the Noncompete Agreement at $985,000
and is amortizing the amount on a straight-line basis over the life of the
Noncompete Agreement. As security for the payment and performance of all payment
obligations under the Noncompete Agreement, the Company pledged and granted the
Stockholder a security interest in all of its rights, title and interest in all
of its shares of capital stock of another entity in which the Stockholder has an
equity interest.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Payments for interest and income taxes amounted to $31,526 and $21,484,
respectively, for the year ended May 31, 1996.
During the year ended May 31, 1996, the Company issued notes payable in
exchange for the purchase of treasury stock for $30,600.
14. SUBSEQUENT EVENTS
On July 1, 1996, the Company obtained a $150,000 unsecured declining demand
line of credit for acquiring equipment that expires on August 31, 1998.
Borrowings under the line bear interest at the bank's prime rate plus 1%. The
agreement provides for drawdowns through August 31, 1996 with the line declining
by $6,250 per month beginning on September 1, 1996.
F-41
<PAGE> 123
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SiGMA Consulting, LLC
We have audited the accompanying balance sheets of SiGMA Consulting, LLC
(the Company) as of December 31, 1996 and 1997, and the related statements of
income, members' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SiGMA Consulting, LLC at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 31, 1998
F-42
<PAGE> 124
SIGMA CONSULTING, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------------
1996 1997
(IN THOUSANDS, EXCEPT
UNIT DATA)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $0 and $314 at December 31, 1996 and 1997,
respectively........................................... $1,831 $2,931
Costs and estimated earnings in excess of billings........ 25 42
Due from affiliates....................................... 34 48
------ ------
Total current assets.............................. 1,890 3,021
Property and equipment, net................................. 55 164
Other assets................................................ 13 40
------ ------
Total assets...................................... $1,958 $3,225
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Overdraft liability....................................... $ 212 $ 267
Accounts payable and accrued expenses..................... 192 1,091
Note payable to bank...................................... 375 --
Due to affiliates......................................... 130 --
Deferred revenue.......................................... -- 389
Distributions payable..................................... -- 114
------ ------
Total current liabilities......................... 909 1,861
Other liabilities........................................... -- 98
Members' equity:
Member units, no par value, 100,503 units authorized,
100,503 and 88,137 units issued and outstanding at
December 31, 1996 and 1997, respectively............... 206 207
Retained earnings......................................... 843 1,059
------ ------
Total members' equity............................. 1,049 1,266
------ ------
Total liabilities and members' equity............. $1,958 $3,225
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 125
SIGMA CONSULTING, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $7,455 $10,051
Cost of revenues............................................ 5,431 7,552
------ -------
Gross profit.............................................. 2,024 2,499
Selling, general and administrative expenses................ 1,092 1,151
------ -------
Income from operations.................................... 932 1,348
Interest income............................................. 4 7
Interest expense............................................ (37) (34)
------ -------
Net income................................................ $ 899 $ 1,321
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 126
SIGMA CONSULTING, LLC
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK MEMBER UNITS
---------------- ----------------- RETAINED TOTAL
SHARES AMOUNT UNITS AMOUNT EARNINGS EQUITY
(IN THOUSANDS, EXCEPT SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 9,500 $ 1 -- $ -- $ 205 $ 206
Reorganization as an LLC......... (9,500) (1) 100,503 206 (205) --
Distributions.................... -- -- -- -- (56) (56)
Net income....................... -- -- -- -- 899 899
------ --- ------- ---- ------ ------
Balance at December 31, 1996....... -- -- 100,503 206 843 1,049
Redemption of member units....... -- -- (12,366) (2) (312) (314)
Distributions.................... -- -- -- -- (790) (790)
Net income....................... -- -- -- -- 1,321 1,321
------ --- ------- ---- ------ ------
Balance at December 31, 1997....... -- $-- 88,137 $204 $1,062 $1,266
====== === ======= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 127
SIGMA CONSULTING, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 899 $ 1,321
Adjustments to reconcile net income to net cash provided
by
(used in) operating activities:
Depreciation........................................... 21 43
Change in operating assets and liabilities:
Accounts receivable.................................. (607) (1,100)
Costs and estimated earnings in excess of billings... 48 (17)
Overdraft liability.................................. 102 55
Accounts payable and accrued expenses................ (149) 899
Due from affiliate................................... 14 (14)
Deferred revenue..................................... (368) 389
Other................................................ 7 (27)
----- -------
Net cash provided by (used in) operating
activities....................................... (33) 1,549
----- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (15) (53)
----- -------
Net cash used in investing activities............. (15) (53)
----- -------
Cash flows from financing activities:
Redemption of members' units.............................. -- (315)
Due to affiliates......................................... 130 (130)
Repayments of note payable................................ (26) (375)
Distributions............................................. (56) (676)
----- -------
Net cash provided by (used in) financing
activities....................................... 48 (1,496)
----- -------
Net change in cash........................................ -- --
Cash at beginning of year................................. -- --
----- -------
Cash at end of year....................................... $ -- $ --
===== =======
Non-cash transactions:
Capital lease obligations................................. $ -- $ 98
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 128
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
SiGMA Consulting, LLC ("SiGMA" or the "Company"), formed effective January
1, 1996 as a successor company to SiGMA Consulting, Inc., offers consulting
services focusing on change management and helping organizations improve core
business processes, including product development, manufacturing and
distribution, sales, and enterprise management. SiGMA primarily offers its
services to the manufacturing, high technology, entertainment, and
transportation industries.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company primarily derives its revenues from consulting services under
time and materials, capped-fee and fixed-price billing arrangements. Under time
and material arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenue recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues recognized. Net revenues exclude reimbursable expenses charged to
clients.
Property and Equipment
Property and equipment are stated at cost. Depreciation has been provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures........................... 5-7 years
Equipment........................................ 3-5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property, whichever is shorter.
Financial Instruments
The carrying value of financial instruments such as accounts receivable,
accounts payable and accrued expenses and notes payable to bank approximate
their fair values based on the short-term maturities of these instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Revenues from three significant customers accounted
for 49% of net revenues for each of the
F-47
<PAGE> 129
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
years ended December 31, 1996 and 1997, respectively. Two customers accounted
for 31% and 52% of total receivables, as of December 31, 1996 and 1997,
respectively.
Income Taxes
The Company is treated as a partnership for federal and state income tax
purposes. Therefore, all items of income, expense, and tax credit are passed
through to the individual unit holders. Accordingly, no provision for income
taxes is required.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment.................................................. $101 $ 250
Furniture and fixtures..................................... 9 12
Leasehold improvements..................................... 2 2
---- -----
112 264
Less: accumulated depreciation............................. 57 100
---- -----
Property and equipment, net................................ $ 55 $ 164
==== =====
</TABLE>
Equipment includes an asset acquired under a capital lease for $98,000 in
1997.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable.................................... $ 49 $ 37
Accrued pension........................................... 125 162
Accrued bonuses........................................... -- 664
Accrued contractor fees................................... 10 201
Other..................................................... 8 27
---- ------
$192 $1,091
==== ======
</TABLE>
5. FINANCING ARRANGEMENTS
Note Payable to Bank
The Company had a line of credit with a bank, providing the lesser of
$1,000,000 or 75% of eligible trade receivables. The line of credit was secured
by substantially all of the assets of the Company and expired in February 1998.
Borrowings under the line bear interest at the bank's prime rate plus 0.75%
(9.25% at December 31, 1996 and 1997).
In February 1998, the Company renewed its line of credit with the bank
("New Line"), which provides the lesser of $1,000,000 or 65% of eligible trade
receivables. The New Line is secured by substantially all of the assets of the
Company and has no expiration date. Borrowings under the line bear interest at
the bank's prime rate plus 0.75%.
F-48
<PAGE> 130
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFITS
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit all employees
meeting certain minimum service requirements. Eligible employees may elect to
contribute to the Retirement Plan subject to limitations established by the
Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. The total cost
recognized under the Retirement Plan during the years ended December 31, 1996
and 1997 amounted to approximately $224,000 and $303,000, respectively.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company paid legal fees totaling $34,000 on the behalf of
certain members of the Company. At December 31, 1997, this amount was included
on the balance sheet as due from affiliates.
During 1996, the Company received advances totaling $130,000 from certain
members of the Company. At December 31, 1996, this amount was included on the
balance sheet as due to affiliates. The advances were non-interest bearing and
were repaid in 1997.
During 1995, the Company made a non-interest bearing $40,000 loan to a
shareholder. At December 31, 1996, $34,000 was outstanding, which was repaid in
1997.
8. SUBSEQUENT EVENT
Effective January 5, 1998, the Company agreed to be acquired by Nextera
Enterprises, L.L.C. for cash of $10,000,000 and 669,000 Class A Common Units, as
well as the assumption of certain liabilities.
F-49
<PAGE> 131
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
The Planning Technologies Group, Inc.
Lexington, Massachusetts
We have audited the accompanying balance sheets of The Planning
Technologies Group, Inc. as of December 31, 1996 and 1997 and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Planning Technologies
Group, Inc. at December 31, 1996 and 1997, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
HARTE CARUCCI & DRISCOLL, P.C.
Woburn, Massachusetts
February 19, 1998, except for Note 8,
which is April 4, 1998.
F-50
<PAGE> 132
THE PLANNING TECHNOLOGIES GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- MARCH 31,
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 262 $ 92 $ 959
Accounts receivable....................................... 662 1,663 855
Accounts receivable-other................................. -- 78 36
Interest receivable....................................... -- 1 3
Prepaid expenses.......................................... 34 29 25
------ ------ ------
Total current assets.............................. 958 1,863 1,878
Property and equipment, net................................. 225 226 230
Security deposits........................................... 108 78 78
------ ------ ------
Total assets...................................... $1,291 $2,167 $2,186
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1 $ 6 $ 150
Accrued expenses.......................................... 196 564 775
Deferred revenue.......................................... 209 506 143
------ ------ ------
Total current liabilities......................... 406 1,076 1,068
Commitments and contingencies............................... -- -- --
Stockholders' equity:
Common stock, no par value, $1.00 stated value, 200,000
shares authorized, 126, 136 and 136 shares issued and
126, 136 and 126 shares outstanding at December 31,
1996, December 31, 1997 and March 31, 1998,
respectively........................................... 0 0 0
Additional paid-in-capital................................ 86 140 140
Retained earnings......................................... 799 951 1,278
Less: 10 shares held in treasury, at cost................. -- -- (300)
------ ------ ------
Total stockholders' equity........................ 885 1,091 1,118
------ ------ ------
Total liabilities and stockholders' equity........ $1,291 $2,167 $2,186
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 133
THE PLANNING TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............................................ $4,534 $5,244 $1,398 $1,700
Cost of revenues........................................ 3,579 4,036 1,029 1,125
------ ------ ------ ------
Gross profit.................................. 955 1,208 369 575
General and administrative expense...................... 887 941 231 259
------ ------ ------ ------
Income from operations........................ 68 267 138 316
Loss on disposal of equipment........................... (3) (21) -- (1)
Interest income......................................... 36 42 4 12
------ ------ ------ ------
Net income.................................... $ 101 $ 288 $ 142 $ 327
Retained earnings, beginning of period.................. $ 698 $ 799 $ 799 $ 951
Distributions to stockholders........................... -- (136) (136) --
------ ------ ------ ------
Retained earnings, end of period........................ $ 799 $ 951 $ 805 $1,278
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 134
THE PLANNING TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 101 $ 288 $ 142 $ 327
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of equipment..................... 3 21 -- 1
Depreciation...................................... 58 69 15 19
Changes in operating assets and liabilities:
Accounts receivable............................... 402 (1,001) (672) 808
Accounts receivable-other......................... -- (78) -- 42
Interest receivable............................... -- (2) -- (1)
Advance to employees and shareholders............. 15 -- -- --
Prepaid expenses.................................. (15) 5 15 4
Security deposits................................. -- 30 -- --
Accounts payable.................................. (53) 6 130 143
Accrued expense................................... (211) 368 411 211
Deferred revenue.................................. 40 297 (54) (363)
----- ------- ----- ------
Net cash provided by (used in) operating
activities................................. 340 3 (13) 1,191
----- ------- ----- ------
Cash flows from investing activities:
Proceeds from disposition of equipment............... -- 2 -- 1
Purchase of property and equipment................... (96) (93) (16) (25)
----- ------- ----- ------
Net cash used in investing activities........ (96) (91) (16) (24)
----- ------- ----- ------
Cash flows from financing activities:
Distributions to stockholders........................ -- (136) (126) --
Proceeds from issuance of stock...................... -- 54 54 --
Purchase of treasury stock........................... -- -- -- (300)
----- ------- ----- ------
Net cash used in financing activities........ -- (82) (72) (300)
----- ------- ----- ------
Net (decrease) increase in cash and cash equivalents... 244 (170) (101) 867
Cash and cash equivalents at beginning of period....... 18 262 262 92
----- ------- ----- ------
Cash and cash equivalents at end of period............. $ 262 $ 92 $ 161 $ 959
===== ======= ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 135
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
The Planning Technologies Group, Inc. ("PTG" or the "Company") offers
strategy formulation, strategic planning process design, and business process
assessment and redesign services. PTG primarily offers its services to the
health care, insurance, financial services, consumer products, manufacturing and
high technology industries.
2. SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Interim Financial Statements (Unaudited)
The balance sheet at March 31, 1998 and the statements of income and
retained earnings, and cash flows for the three months ended March 31, 1997 and
1998 are unaudited, and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials billing arrangements. Revenues are recognized as the services are
provided. Deferred revenue represents billings in excess of revenues recognized.
Net revenues exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
The Company considers all highly liquid investments and other short-term
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost which approximates market
value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives of the assets
as follows:
<TABLE>
<S> <C>
Equipment........................................... 5 years
Furniture and fixtures.............................. 7 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property, whichever is shorter.
F-54
<PAGE> 136
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments.
Concentration of Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. Sales to three
significant customers accounted for 32%, 29% and 20%, respectively, of net
revenues for the year ended December 31, 1997.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter "S"
of the Internal Revenue Code. Accordingly, no provision for federal income taxes
has been provided in the financial statements as all income of the Company is
taxed directly to the shareholders.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................... $240 $291
Furniture and fixtures...................................... 89 90
---- ----
329 381
Less: accumulated depreciation.............................. 104 155
---- ----
Property and equipment, net................................. $225 $226
==== ====
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued profit sharing contribution......................... $100 $116
Accrued bonuses............................................. 92 441
Other....................................................... 4 7
---- ----
$196 $564
==== ====
</TABLE>
5. COMMITMENTS
The Company leases its facilities under an operating lease, which expires
in the year 2001. Rent expense charged to operations for the years ended
December 31, 1996 and 1997 was $163,264 and $176,618, respectively.
The Company is currently leasing vehicles under operating leases expiring
September 2000. Lease expense charged to operations for the years ended December
31, 1996 and 1997 was $18,950 and $21,843,
F-55
<PAGE> 137
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Also, the Company has an operating lease for certain equipment.
Lease expense for this equipment charged to operations for the years ended
December 31, 1996 and 1997, was $0 and $2,500, respectively.
Minimum future payments under the operating leases having remaining terms
in excess of one year as of December 31, 1997 for each of the fiscal years
ending after December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................. $ 194
1999.............................................. 191
2000.............................................. 183
2001.............................................. 148
2002.............................................. --
--------
$ 716
========
</TABLE>
6. STOCKHOLDERS' EQUITY
During 1997, the Company issued ten shares of common stock to an employee
of the company. Accordingly, common stock has been increased by $10.00 per share
and additional paid-in-capital has been increased by $53,600, representing the
excess of the cost over the stated value of the common stock issued.
At December 31, 1996 and 1997, the Company had 126 and 136 shares of no par
value common stock issued and outstanding, respectively. Common shares are
voting and dividends are paid at the discretion of the Board of Directors. All
common shares are restricted from transfer with the Company being offered the
first right to repurchase all of the shares proposed, but not less than all, at
the book value per share, as defined by the Company. Within one (1) year of
termination, the stockholder may elect to require the Company to purchase all
(but not less than all) of the shares of the stock.
7. PROFIT SHARING PLAN
The Company sponsors a combination profit sharing 401(k) plan that covers
all eligible employees. The 401(k) provision allows the employee to make
contributions to the plan based on the percent of pre-tax earnings chosen by the
employee up to a maximum of 15% of gross wages. Any Company contributions to the
profit sharing plan are at the discretion of the Board of Directors. The Company
contributed $99,607 and $116,854 to the profit sharing plan in 1996 and 1997,
respectively.
8. SUBSEQUENT EVENTS
Effective March 31, 1998, the Company sold substantially all of its assets
to and certain liabilities were assumed by Nextera Enterprises, L.L.C.
("Nextera") in exchange for cash of $6,710,000 and 214,000 Class A Common Units
of Nextera.
F-56
<PAGE> 138
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Pyramid Imaging, Inc.
We have audited the accompanying balance sheet of Pyramid Imaging, Inc. as
of December 31, 1997 and the related statement of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pyramid Imaging, Inc. at
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Francisco, California
September 25, 1998
F-57
<PAGE> 139
PYRAMID IMAGING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2 $ 2
Trade accounts receivable, net of $50 allowance for
doubtful accounts...................................... 1,926 2,498
Prepaid taxes............................................. 234 226
Inventory................................................. 28 7
Prepaid expenses and other current assets................. 38 37
Deferred income taxes -- current.......................... 42 42
------ ------
Total current assets........................................ 2,270 2,812
Property and equipment, net................................. 361 389
Deferred income taxes -- noncurrent......................... 36 44
Other....................................................... 11 --
------ ------
Total assets...................................... $2,678 $3,245
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 789 $ 856
Accrued expenses.......................................... 117 334
Line of credit............................................ 203 342
Distributions payable to shareholders..................... 150 --
Customer deposits......................................... 26 --
Advances from affiliate................................... -- 840
------ ------
Total current liabilities................................... 1,285 2,372
Shareholders' equity:
Voting common stock, no par value; 10,000 shares
authorized, 3,000 shares issued and outstanding........ 530 530
Retained earnings......................................... 863 343
------ ------
Total shareholders' equity.................................. 1,393 873
------ ------
Total liabilities and shareholders' equity........ $2,678 $3,245
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 140
PYRAMID IMAGING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net revenues.............................................. $6,925 $2,471
Cost of revenues.......................................... 4,360 1,350
------ ------
Gross profit............................................ 2,565 1,121
Selling, general and administrative....................... 2,714 796
Compensation expense--repurchase of stock options......... -- 840
------ ------
Loss from operations.................................... (149) (515)
Interest income........................................... 23 --
Interest expense.......................................... (15) (5)
Other expenses............................................ (20) --
------ ------
Loss before taxes....................................... (161) (520)
Income tax benefit........................................ 60 --
------ ------
Net loss................................................ $ (101) $ (520)
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 141
PYRAMID IMAGING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK TOTAL
------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------ -------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 31, 1996....................... 3,000,000 $530 $1,114 $1,644
Distributions to shareholders.................. -- -- (150) (150)
Net loss....................................... -- -- (101) (101)
--------- ---- ------ ------
Balance, December 31, 1997....................... 3,000,000 530 863 1,393
--------- ---- ------ ------
Net loss (unaudited)........................... -- -- (520) (520)
--------- ---- ------ ------
Balance, March 31, 1998 (unaudited).............. 3,000,000 $530 $ 343 $ 873
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 142
PYRAMID IMAGING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (101) $(520)
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 206 78
Deferred income taxes............................... (64) (8)
Loss on disposal of equipment....................... 21 --
Changes in operating assets and liabilities:
Accounts receivable............................... 223 (572)
Prepaid taxes..................................... (234) 8
Inventories....................................... 45 21
Prepaid expenses and other assets................. (24) 12
Accounts payable.................................. (15) 67
Accrued expenses.................................. 100 217
Accrued income taxes payable...................... (409) --
Interest payable.................................. (15) --
Sales tax payable................................. (61) --
Customer deposits................................. 21 (26)
------- -----
Net cash used in operating activities.................... (307) (723)
Investing activities:
Purchases of property and equipment................. (300) (106)
Repayments on receivables from shareholders......... 20 --
------- -----
Net cash used in investing activities............. (280) (106)
Financing activities:
Proceeds from borrowings under line of credit....... 2,779 139
Repayments on borrowings under line of credit....... (2,576) --
Repayments of loans to shareholders................. (250) (150)
Borrowings from affiliate........................... -- 840
------- -----
Net cash used in financing activities............. (47) 829
------- -----
Net decrease in cash and cash equivalents................ (634) --
Cash at beginning of period.............................. 636 2
------- -----
Cash at end of period.................................... $ 2 $ 2
======= =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes........................................ $ 625 $ --
======= =====
Interest............................................ $ 15 $ 5
======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 143
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pyramid Imaging, Inc. ("Pyramid" or the "Company") was formed in 1993 with
offices in San Francisco, California; New York, New York; and Dallas, Texas. The
Company offers consulting services focused on providing technology within the
areas of knowledge management, electronic commerce, customer management, and
human capital management. Pyramid primarily offers its services to the health
care, insurance, financial services, consumer products, manufacturing and high
tech industries.
2. ACQUISITION OF COMPANY
Pursuant to the Purchase Agreement, (the "Agreement") dated March 31, 1998
(the "closing"), Nextera Enterprises, LLC ("Nextera"), acquired all of the
outstanding capital stock of the Company (4,009,971 shares of common stock
outstanding as of the closing) from the holders of the Company's stock (the
"Holders"). At closing, all outstanding options to purchase the Company's common
stock were canceled pursuant to an Option Cancellation Agreement entered into
with each optionholder of the Company. In return for the contribution of the
Company's outstanding shares and the cancellation of the outstanding options,
the Holders received $8,091,667 in cash and 520,667 Class A Common Units issued
pursuant to the Limited Liability Company Agreement of Nextera dated April 9,
1997, as amended on January 6, 1998.
Additional consideration to the Holders of the Company's common stock have
been provided per the Agreement in the form of a Revenue Earn-Out, as defined in
the Agreement, for the twelve month period ending March 31, 1999. The additional
consideration is not to exceed $833,333 and 53,333 Class A units.
Pursuant to the Agreement, the holders have agreed to indemnify Nextera
against certain breaches of the representations, warranties and covenants made
by the Company and the holders in the Agreement. To secure payment of the
holders indemnification obligations, an additional $825,000 in cash and 66,000
Class A units are being held in escrow.
In accordance with the Agreement, a certain level of shareholders' equity
of the Company must exist as of March 31, 1998 in order for the full purchase
consideration, as discussed above, to be paid by Nextera. If threshold is not
met, Nextera will deduct any shortfall from the escrowed funds.
3. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services primarily under
time and materials and, to a lesser extent, fixed price billing arrangements.
Under time and materials arrangements, revenues are recognized as the services
are provided.
Revenues on fixed price billing arrangements are recognized based on the
achievement of agreed upon milestones described in each contract, which
approximates percentage of completion. Contract costs include all direct labor
and expenses related to the contract performance.
Inventories
Inventories, consisting primarily of computer-related equipment are stated
at the lower of cost (determined using the specific identification method) or
market.
F-62
<PAGE> 144
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 7 years.
Advertising Costs
The Company incurs advertising costs in connection with printed material
and trade shows. All costs associated with advertising are expensed as incurred.
The Company expensed approximately $55,000 for the year ended December 31, 1997.
Research and Development
The Company incurred approximately $92,000 in software-related research and
development costs for the year ended December 31, 1997. All costs relating to
research and development have been expensed as incurred.
Concentration of Credit Risk
The Company provides its services in the United States. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. For the year ended December 31, 1997, the Company had four
customers representing approximately 67% of net revenues and 69% of total
receivables.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 9, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires the
use of option valuation models that were not developed for use in valuing
employee stock options.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Equipment................................................... $ 662
Software.................................................... 82
Furniture and fixtures...................................... 19
-----
763
Less: accumulated depreciation and amortization............. (402)
-----
Property and equipment, net................................. $ 361
=====
</TABLE>
F-63
<PAGE> 145
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. CREDIT FACILITY
The Company maintains a $750,000 line of credit with a financial
institution that expires on May 31, 1998. Borrowings under the line of credit
bear interest at the 30-day commercial paper rate plus 3.15%. The line of credit
is secured by the assets of the Company and is guaranteed by two shareholders.
Outstanding borrowings under the line of credit were $202,602 at December 31,
1997.
The Company is obligated to comply with certain financial and other
covenants under the terms of its credit facility.
Because the interest rate on the credit facility is variable and resets
frequently, management believes that the carrying value of the Company's credit
facility approximates fair market value.
Subsequent to December 31, 1997, the line of credit was extended through
May 31, 1999.
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Current:
Federal................................................... $ 2
State..................................................... 1
----
3
Deferred:
Federal................................................... (49)
State..................................................... (14)
----
(63)
----
Total provision (benefit) for income tax.................... $(60)
====
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the federal statutory income tax rate to the Company's income before
taxes as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Income tax provision (benefit) at federal statutory rate.... $(55)
State income tax, net of federal tax effect................. (8)
Nondeductible expenses...................................... 3
----
Provision (benefit) for income taxes........................ $(60)
====
</TABLE>
F-64
<PAGE> 146
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Accruals and reserves..................................... $42
Depreciation.............................................. 36
---
Total deferred tax assets................................... 78
Deferred tax liabilities.................................... --
---
Total net deferred tax assets..................... $78
===
Recorded as:
Current deferred tax assets............................... 42
Noncurrent deferred tax assets............................ 36
---
$78
===
</TABLE>
Deferred tax assets and liabilities are classified in the balance sheet
based on the classification of the related asset or liability. Management has
concluded that no valuation allowance is required based on its assessment that
historical levels of taxable income are sufficient to realize the tax assets.
7. RELATED PARTY TRANSACTIONS
In 1993, the Company granted a five year, 6%, $250,000 note payable due to
a shareholder. The note was paid in full during 1997.
In October 1995, the Company issued a 10%, $333,000 note payable due to a
shareholder. Payments under the note were to commence October 2000. Effective
March 1996, the note was converted to 125 shares of the Company's common stock
at $2,664 per share.
In January 1996, the Company sold its wholly-owned subsidiary, Pyramid
Interactive, Inc. to two shareholders of the Company. In connection with the
sale, the Company granted a five year, 8%, $20,000 note receivable to these
shareholders. The note was paid in full in 1997.
8. LEASES
The Company leases its office facilities and certain office equipment under
operating leases. Certain office leases provide for renewal options at the
discretion of the lessee. Rental expense amounted to $171,529 for the year ended
December 31, 1997. Future minimum lease payments under noncancelable operating
leases for the years ending after December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998........................................................ $20
1999........................................................ 20
2000........................................................ 8
---
$48
===
</TABLE>
F-65
<PAGE> 147
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY
Stock Option Plan
Effective January 1997, the Company established the 1997 Equity Incentive
Plan ("the Plan"). The Plan provides employees, outside directors and
consultants eligibility for incentive stock options, nonstatutory stock options,
stock bonuses, rights to purchase restricted stock and stock appreciation
rights. The exercise price of nonstatutory stock options shall not be less than
85% of the fair market value of the stock at the date of grant. The exercise
price of the incentive stock options shall not be less than the fair market
value of the stock at the date of grant. The fair market value of the stock
appreciation rights are based on calculated fair market values outlined in the
agreement. The Company authorized 3,000,000 shares of common stock for issuance
under the Plan. The term of the option shall not exceed ten years from the date
of grant. Options vest at predetermined intervals based on the grantee's tenure
with the Company or upon the Company's meeting certain performance objectives
specified within each grantee's option agreement, but not to exceed five years.
Shares awarded under options which have not vested are subject to repurchase by
the Company at amounts equal to the exercise prices which would have been paid
by the employees upon exercise.
Stock-Based Compensation
"Pro forma" information regarding net income is required by Statement No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a minimum value option
pricing model with the following weighted-average assumptions for the year ended
December 31, 1997: risk-free interest rate of 6.29%; and a weighted-average
expected life of the option of 9.2 years.
The minimum value option valuation model was developed for use in
estimating the fair value of traded options. Option valuation models require the
input of subjective assumptions, including the expected life of the option.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of "pro forma" disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying Statement No. 123 on "pro forma" net income (loss) are not likely to be
representative of the effects on reported net income (loss) for future years.
The Company's reported and "as adjusted" information is as follows for the year
ended December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Net income (loss), as reported.............................. $(101)
Net income (loss), as adjusted.............................. (181)
</TABLE>
F-66
<PAGE> 148
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Activity
The Company's stock option activity and related information under the Plan
for the year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Options outstanding -- beginning of year.................... -- $ --
Granted................................................... 2,991,000 .51
Exercised................................................. -- --
Forfeited................................................. 624,000 .50
--------- ----------
Options outstanding -- end of year.......................... 2,367,000 $ .51
========= ==========
Options exercisable at end of year.......................... 1,738,000 $ .51
========= ==========
Weighted average fair value of options granted during the
year with exercise prices equal to market value on date of
grant..................................................... $ .23
Weighted average fair value of options granted during the
year with exercise prices in excess of market value on the
date of grant............................................. $ .10
Weighted average remaining contractual life................. 8.07 years
</TABLE>
Subsequent to December 31, 1997, 105,000 stock options were granted and
1,009,972 options were exercised.
As mentioned in note 2, effective March 30, 1998, all outstanding stock
options to purchase the Company's common stock were cancelled pursuant to the
Agreement. The Company paid $840,132, which will be charged against operations
in 1998, to all option holders as consideration for the cancellation of the
options.
10. RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution plan under section 401(K) of
the Internal Revenue Code. The plan covers all employees who have been employed
for 30 days and work more than 30 hours per week. The plan provides for up to
15% contributions of a covered employee's eligible pay with no matching
contribution by the employer.
Effective March 30, 1998, the Company's Board of Directors approved the
termination of the defined contribution plan.
11. SUBSEQUENT EVENTS
Effective March 31, 1998, a contract with a significant customer
representing 21% of 1997 revenues was terminated. In connection with the
termination, the Company received a termination fee of $635,700 which was
recorded and earned in 1998.
12. YEAR 2000 (UNAUDITED)
The Company has began an assessment of its computer systems with respect to
dates in the Year 2000 and thereafter. Currently, the Company is unable to
assess whether there will be significant adverse effects on the Company's
systems and operations.
F-67
<PAGE> 149
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Sibson & Company, L.P.
We have audited the accompanying consolidated balance sheets of Sibson &
Company, L.P. and Subsidiaries as of December 31, 1996 and 1997 and August 31,
1998 and the related consolidated statements of operations and partners' capital
and cash flows for each of the two years in the period ended December 31, 1997
and for the eight month period ended August 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sibson &
Company, L.P. and Subsidiaries as at December 31, 1996 and 1997 and August 31,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997 and for the eight month period
ended August 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, at the close of
business on August 31, 1998, the Company sold and transferred all of its assets
subject to its liabilities in exchange for cash and other consideration. The
Company ceased operations thereafter. These financial statements reflect the
financial position of the Company prior to this transaction.
/s/ FARKOUH, FURMAN & FACCIO
New York, New York
December 29, 1998
F-68
<PAGE> 150
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, AUGUST 31,
------------------ ----------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 1,030 $ 1,633 $ 377
Accounts receivable (less allowance for doubtful accounts
of $194 in 1996, $483 in 1997 and $298 in 1998)....... 9,166 9,610 13,811
Notes receivable from affiliates......................... 315 464 277
Prepaid expenses and other current assets................ 545 344 524
------- ------- -------
Total current assets............................. 11,056 12,051 14,989
Fixed assets, at cost (less depreciation of $790 in 1996,
$1,168 in 1997 and $1,475 in 1998)....................... 961 1,607 2,895
Notes receivable from affiliates, less current portion..... 13
Other assets (net of amortization of $359 in 1996, $413 in
1997 and $450 in 1998)................................... 268 313 345
------- ------- -------
Total............................................ $12,298 $13,971 $18,229
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Cash overdraft........................................... $ 738 $ 14 $ 1,074
Accounts payable, accrued expenses and taxes............. 306 626 973
Commissions payable...................................... 387 139 294
Fee advances payable..................................... 1,293 1,302 786
Profit sharing plan payable.............................. 1,399 1,552 1,499
Accrued compensation..................................... 2,478 3,597 4,311
Loan payable--bank....................................... -- -- 2,550
Other current liabilities................................ 222 421 616
------- ------- -------
Total current liabilities........................ 6,823 7,651 12,103
Accrued compensation and benefits.......................... 1,110 951 458
Other long-term liabilities................................ 226 288 561
------- ------- -------
Total liabilities................................ 8,159 8,890 13,122
Minority interest.......................................... -- (1) (3)
Partners' capital.......................................... 4,139 5,082 5,110
------- ------- -------
Total liabilities and partners' capital.......... $12,298 $13,971 $18,229
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 151
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
DECEMBER 31, EIGHT MONTHS ENDED
-------------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues.............................................. $29,178 $34,650 $29,192
Cost of revenues...................................... 21,674 25,629 21,637
------- ------- -------
Gross profit................................ 7,504 9,021 7,555
Selling, general and administrative expenses.......... 6,769 7,575 6,394
------- ------- -------
Income from operations...................... 735 1,446 1,161
Interest income....................................... 65 95 51
Interest expense...................................... (94) (86) (146)
Post retirement healthcare cost....................... (135) (140) (96)
Other income (expense)................................ 33 8 (5)
------- ------- -------
Net income.................................. 604 1,323 965
Partners' capital at beginning of period.............. 3,650 4,139 5,082
Partners' capital contributions....................... 118 334 27
Partners' capital withdrawals......................... (233) (714) (964)
------- ------- -------
Partners' capital end of period....................... $ 4,139 $ 5,082 $ 5,110
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-70
<PAGE> 152
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
DECEMBER 31, EIGHT MONTHS ENDED
-------------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 604 $ 1,323 $ 965
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 470 505 574
Donation of fixed assets.............................. 9
Minority interest in net (loss) of consolidated
subsidiaries....................................... (1) (2)
(Gain) or loss on sale of furniture, fixtures and
equipment.......................................... (53) (8) 13
Changes in operating assets and liabilities:
Accounts receivable................................ (2,178) (444) (4,201)
Prepaid expenses and other assets.................. 155 206 (193)
Accounts payable, accrued expenses and taxes....... 36 320 347
Commissions payable................................ 32 (628) 155
Accrued postretirement healthcare benefit.......... 128 131 96
Fee advances payable............................... 709 9 (516)
Profit sharing plan payable........................ 205 153 (53)
Accrued compensation............................... 1,013 1,212 127
Other current liabilities.......................... 4 (4) 126
------- ------- -------
Net cash provided by (used in) operating
activities..................................... 1,125 2,774 (2,553)
------- ------- -------
Cash flows from investing activities:
Purchase of fixed assets.................................. (409) (704) (1,158)
Proceeds from sale of furniture, fixtures and equipment... 53 8 69
Other..................................................... (47) (104) (56)
------- ------- -------
Net cash (used in) investing activities.......... (403) (800) (1,145)
------- ------- -------
Cash flows from financing activities:
(Decrease) or increase in cash overdraft.................. 172 (724) 1,060
Notes receivable from affiliates, net..................... 246 (36) 109
Proceeds from general partner capital contributions....... 109
Partners' capital withdrawals............................. (233) (513) (964)
Payment of capitalized lease obligations.................. (203) (207) (313)
Proceeds from revolving line of credit.................... 3,850 2,350 5,400
Repayment of revolving line of credit..................... (3,850) (2,350) (2,850)
------- ------- -------
Net cash provided by (used in) financing
activities..................................... (18) (1,371) 2,442
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 704 603 (1,256)
Cash and cash equivalents at beginning of period............ 326 1,030 1,633
------- ------- -------
Cash and cash equivalents at end of period.................. $ 1,030 $ 1,633 $ 377
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 92 $ 79 $ 135
======= ======= =======
Supplemental schedule of noncash investing and financing
activities:
Employees purchase of limited partnership interests funded
through notes receivable.................................. $ 66 $ 24 $ --
======= ======= =======
General partners' capital contributions funded through note
receivable................................................ $ 52 $ 201 $ 27
======= ======= =======
Capital lease obligations incurred for fixed assets......... $ 116 $ 393 $ 757
======= ======= =======
Note payable on redemption of general partners' partnership
interest.................................................. $ -- $ 201 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 153
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SALE AND TRANSFER OF COMPANY ASSETS
Effective at the close of business on August 31, 1998, Sibson & Company,
L.P. (the "Company") sold 85% of its assets subject to certain of its
liabilities in exchange for $34,764,000. In addition, the Company transferred
15% of its assets subject to certain of its liabilities in exchange for
2,613,087 Class A Common Units of Nextera Enterprises, LLC. The Company,
subsequently ceased operations and changed its name to Castor, L.P.
2. THE COMPANY
Prior to the sale and transfer of its assets, Sibson & Company, L.P., a
limited partnership, provided human capital consulting services offering human
resource strategies, outsourcing assessments, organizational designs,
rewards/incentives programs, performance management processes and systems, and
executive coaching services. The Company also served sales and marketing
organizations with sales strategy, selling process, sales channel and selling
effectiveness consulting.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Sibson &
Company, L.P. and its 99% owned subsidiary, Sibson Europe, LLC and its 100%
owned subsidiary, Sibson UK Limited. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derived its revenues from consulting services primarily under
time and materials billing arrangements. Under time and materials arrangements,
revenues are recognized as the services are provided. Revenues exclude
reimbursable expenses charged to clients.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using accelerated
methods over estimated useful lives of five to seven years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
life of the improvements, whichever is shorter.
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these
F-72
<PAGE> 154
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
instruments. The carrying value of long-term debt approximates its fair value
based on references to similar instruments.
Income Taxes
Since the partnership is not subject to income taxes, the results of
partnership operations are included in the income tax returns of the partners.
Taxes, if any, are payable directly by the partners, accordingly, no provision
for income taxes is included in the attached financial statements. The
partnership files its tax returns on the cash basis of accounting.
The partnership, however, is liable for certain state taxes as a result of
the sale transaction described in Note 1. These financial statements do not give
effect to these state taxes due by the Company or its partners as a result of
the transaction.
4. ESCROW ACCOUNT
In accordance with an employment agreement, the Company is required to
escrow unpaid commissions totaling $223,251 as of August 31, 1998. The funded
escrow amount was not available for use by the Company other than for the
payment of these commissions. As a result of the sale and transfer transaction
as described in Note 1, the employment agreement has been terminated.
5. NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates consist of:
Limited Partners
The notes receivable from limited partners ($123,000 at December 31, 1996,
$111,000 at December 31, 1997 and $11,500 at August 31, 1998) provided for
interest at rates ranging from 8.75% to 10%. The $11,500 note receivable was
repaid subsequent to August 31, 1998.
Shareholder of Sibson Canada, Inc.
The note receivable from a shareholder of Sibson Canada, Inc. ($75,000 at
December 31, 1996 and 1997 and $15,000 at August 31, 1998) provided for interest
at 10% and was repaid subsequent to August 31, 1998.
Sibson Canada, Inc. (a Licensee Company)
The note receivable from Sibson Canada, Inc. ($60,000 at December 31, 1996)
was repaid in 1997.
Sibson South Africa (a Licensee Company)
The note receivable from Sibson South Africa ($50,000 at December 31, 1997)
was repaid in 1998.
General Partner
The notes receivable from the general partner ($130,000 at December 31,
1996, $288,000 at December 31, 1997 and $250,050 at August 31, 1998) provided
for interest at rates ranging from 8.75% to 10% and were repaid subsequent to
August 31, 1998.
F-73
<PAGE> 155
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and office equipment......................... $ 572 $1,030 $1,681
Telephone equipment.................................... 195 253 315
Computer equipment..................................... 742 1,094 1,850
Leasehold improvements................................. 227 379 482
Artwork................................................ 15 19 33
Automobile............................................. -- -- 9
------ ------ ------
1,751 2,775 4,370
Less: accumulated depreciation......................... (790) (1,168) (1,475)
------ ------ ------
Fixed assets, net...................................... $ 961 $1,607 $2,895
====== ====== ======
</TABLE>
7. NOTE PAYABLE TO BANK
As of August 31, 1998, the Company had a revolving $4,000,000 line of
credit with a bank with interest at the prime rate. The Company shall pay a fee
equal to 0.25% per annum on the amount of the unused line of credit, if any. The
agreement expired August 31, 1998. All tangible and intangible property of the
Company has been pledged to secure any outstanding bank debt, which is also
guaranteed by the general partner. The line of credit contains covenants
regarding various financial statement amounts, ratios and activities of the
Company. Advances under the revolving credit agreement are subject to adequate
collateral.
As part of the revolving line of credit, the bank has made available a
maximum of $2,000,000, which the Company may utilize in the form of letters of
credit or to finance leases. Outstanding letters of credit or lease obligations
under the agreement will proportionately reduce the maximum revolving line
available. As of August 31, 1998, letters of credit outstanding and lease
obligations totalled $1,164,558.
8. CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under capital leases expiring in
various years through April 2003. Obligations under capital leases have been
recorded in the accompanying financial statements at the present value of future
minimum lease payments, discounted at interest rates ranging from 8.5% to 15.5%.
Obligations under capital leases consisted of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------- AUGUST 31,
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion........................................... $178 $275 $ 447
Long-term portion......................................... 199 288 561
---- ---- ------
Total..................................................... $377 $563 $1,008
==== ==== ======
</TABLE>
F-74
<PAGE> 156
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The future minimum lease payments under the capital leases and the net
present value of the future minimum lease payments for the years ending after
August 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 516
2000........................................................ 432
2001........................................................ 145
2002........................................................ 16
2003........................................................ 10
------
Total future minimum lease payments......................... 1,119
Less amount representing interest........................... 111
------
Present value of future minimum lease payments.............. $1,008
======
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company maintains a Profit Sharing and Salary Reduction Plan (the
"Plan") which covers all eligible employees. Employees may defer a portion of
their annual compensation up to the maximum amount permitted under the Internal
Revenue Code.
Under the terms of the Plan, the Company may contribute an amount equal to
the maximum amount, which is deductible for federal income tax purposes.
Employer contributions to the Plan were $1,390,965, and $1,546,641 for the years
ended December 31, 1996 and 1997, respectively. For the eight months ended
August 31, 1998, the contributions to the Plan were $1,496,529. In addition, the
Company pays a supplemental profit sharing contribution, as wages, to those
employees whose compensation is in excess of the maximum amount permitted under
the Internal Revenue Code.
Post-retirement Healthcare Benefit
The Company presently provides a post-retirement healthcare benefits plan
which provides for 75% of the annual cost of medical coverage for a retiree with
at least 15 years of service and who is between 50 and 64 years of age. Coverage
ceases once the retiree reaches age 65.
Effective January 1, 1995, the Company adopted SFAS No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions ("SFAS No. 106").
This statement requires the Company to accrue, during the employee's years of
service, the expected cost of providing benefits. The cost of providing these
benefits was previously recognized in the period in which the benefits were
paid.
The Company adopted SFAS No. 106 on a prospective basis. The net transition
obligation represents the difference between the Company's January 1, 1995
accrued post-retirement healthcare costs prior to the adoption of SFAS No. 106
and the unfunded liability for these costs as of that date. The Company does not
fund these costs. The net transition liability at January 1, 1995 was $684,766
and will be amortized over 20 years.
F-75
<PAGE> 157
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of net periodic post-retirement healthcare benefit cost are
as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 47 $ 46
Interest cost............................................... 54 59
Amortization of net transition liability over 20 years...... 34 35
---- ----
Net post-retirement healthcare benefit cost................. $135 $140
==== ====
</TABLE>
A reconciliation of the accumulated post-retirement healthcare benefit
obligation to the accrued postretirement healthcare benefit liability recognized
in the balance sheet is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement healthcare benefit obligations:
Active participants....................................... $ 395 $ 414
Fully eligible participants............................... 86 60
Retirees.................................................. 321 299
----- -----
802 773
Unrecognized transition obligation........................ (616) (582)
----- -----
186 191
Unrecognized net gain....................................... 76 202
----- -----
Accrued post-retirement healthcare benefit liability........ $ 262 $ 393
===== =====
</TABLE>
The assumed healthcare cost trend rate used in measuring the accumulated
post-retirement obligation was 7% with subsequent annual decrements of 0.15% to
an ultimate trend rate of 3.5%. A 1.0% increase in the assumed healthcare cost
trend rate for each year would increase the accumulated post-retirement
healthcare benefit obligation by approximately 11% and the net post-retirement
cost by approximately 15%. The discount rate used in determining the accumulated
post-retirement healthcare benefit liability was 7%.
For the eight month period ended August 31, 1998, the Company has estimated
the net periodic post-retirement healthcare benefit cost as $96,000. The
estimated accrued post-retirement healthcare benefit liability as at August 31,
1998 is $489,000.
10. EMPLOYMENT AGREEMENT
The Company had an employment agreement under which an employee was
entitled to compensation based upon the collections from business specifically
generated by the employee. In addition, the employee was entitled to
compensation based upon certain other business. The employment agreement was due
to expire on April 30, 2000, however, as a result of the sale and transfer of
assets provided in Note 1, the employment agreement has been cancelled effective
after August 31, 1998.
F-76
<PAGE> 158
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OPERATING LEASES
The Company leased office space in six locations under leases expiring at
various times through August 2007. The leases provided for escalations based
upon increases in real estate taxes, operating expenses and cost of living
increases.
The future minimum annual lease payments for the fiscal years ending after
August 31, 1998 were as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $1,534
2000........................................................ 1,657
2001........................................................ 1,329
2002........................................................ 1,096
2003........................................................ 905
Thereafter.................................................. 3,368
------
$9,889
======
</TABLE>
Rent expense included in the attached statement of operations was
$1,654,229 net of sublease income of $180,123 in 1996, $1,576,053 net of
sublease income of $37,830 in 1997 and $1,205,657 net of sublease income of
$21,690 in 1998.
The Company's obligation under two of the leases is secured by letters of
credit totaling $650,000.
The Company leased various equipment on operating leases with terms through
2002. Monthly rental payments on these leases were approximately $30,000.
As a result of the sale and transfer of assets provided in Note 1, all
leases were assigned to the acquiring entity.
12. LICENSING AGREEMENTS
The Company had granted licenses to companies in South Africa, Canada,
Australia, New Zealand and the United Kingdom to use the name "Sibson &
Company". These licenses provided for royalties payable to the Company equal to
5% of their respective revenues.
13. UNINSURED CASH BALANCES
The Company maintains its cash in several banks. The bank balances on
deposit which are in excess of the FDIC insurance limits was approximately
$670,000 at August 31, 1998.
F-77
<PAGE> 159
AUDITORS' REPORT
To the Directors of
Sibson Canada, Inc.
We have audited the balance sheet of Sibson Canada, Inc. as at December 31,
1997 and the statements of operations and retained earnings and changes in
financial position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and changes in its financial position for the year
then ended in accordance with accounting principles generally accepted in Canada
which differ in certain respects from accounting principles generally accepted
in the United States (See Note 10).
/s/ GRANT THORNTON
Chartered Accountants
Toronto, Canada
September 1, 1998
F-78
<PAGE> 160
SIBSON CANADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 AUGUST 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 44 $ 51
Receivables............................................... 800 856
Prepaids.................................................. 18 122
---- ------
Total current assets.............................. 862 1,029
Equipment, net.............................................. 32 21
---- ------
Total assets...................................... $894 $1,050
==== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ 0 $ 175
Payables and accruals..................................... 45 301
Bonus payable............................................. 354 205
License fee payable....................................... 112 10
Income taxes payable...................................... 20 0
Deferred income........................................... 35 23
---- ------
Total current liabilities......................... 566 714
Due to shareholders......................................... 65 59
Shareholders' equity:
Capital stock............................................. 93 93
Retained earnings......................................... 170 184
---- ------
Total shareholders' equity........................ 263 277
---- ------
Total liabilities and shareholders' equity........ $894 $1,050
==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 161
SIBSON CANADA, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTHS ENDED
YEAR ENDED AUGUST 31,
DECEMBER 31, --------------------------
1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................ $2,939 $1,976 $2,006
Cost of revenues........................................ 2,053 1,388 1,287
------ ------ ------
Gross profit....................................... 886 588 719
Selling, general and administrative..................... 762 511 684
------ ------ ------
Income before income taxes......................... 124 77 35
Income taxes............................................ 38 25 21
------ ------ ------
Net income......................................... $ 86 $ 52 $ 14
====== ====== ======
Retained earnings, beginning of period.................. $ 84 $ 84 $ 170
Retained earnings, end of period........................ $ 170 $ 136 $ 184
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 162
SIBSON CANADA, INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE
EIGHT MONTHS ENDED
FOR THE AUGUST 31,
YEAR ENDED -------------------------
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 86 $ 52 $ 14
Depreciation....................................... 12 8 6
Change in operating assets and liabilities:
Trade receivables................................ (237) (289) (56)
Shareholders receivables......................... (41) 0 (6)
Other receivables................................ (19) 0 0
Prepaids......................................... 3 3 (104)
Payables and accruals............................ (91) (78) 256
Bonus payable.................................... 354 363 (149)
License fee payable.............................. 56 59 (102)
Income taxes payable............................. 20 21 (20)
Deferred income.................................. 35 37 (12)
----- ----- -----
Net cash provided by operating activities..... 178 176 (173)
----- ----- -----
Cash flows from investing activities:
Purchase of equipment, net......................... (5) (2) 5
----- ----- -----
Net cash used in investing activities......... (5) (2) 5
----- ----- -----
Net increase in cash (bank indebtedness)................ 173 174 (168)
Cash (bank indebtedness) at beginning of period......... (129) (129) 44
----- ----- -----
Cash (bank indebtedness) at end of period............... $ 44 $ 45 $(124)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 163
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
Sibson Canada, Inc. (the "Company") provides human capital consulting
services including human resource strategies, outsourcing assessments,
organizational designs, rewards and incentives programs, performance management
processes and systems, and executive coaching services. The Company also serves
sales and marketing organizations with sales strategy, selling process, sales
channel and selling effectiveness consulting.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada. See Note 10 for
differences between these principles and those generally accepted in the United
States. All amounts in the financial statements are expressed in United States
dollars unless noted otherwise.
Interim Financial Statements (Unaudited)
The balance sheet at August 31, 1998, and the statements of operations and
retained earnings and changes in financial position for the eight months ended
August 31, 1998 and 1997 are unaudited, and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The company derives its revenues from consulting services under time and
materials billing arrangements. Revenues are recognized as services are
provided. Deferred income relates to funds received from clients for future
projects.
Depreciation
Rates and bases of depreciation applied to write-off the cost less
estimated salvage value of property and equipment over their estimated lives are
as follows:
<TABLE>
<S> <C>
Furniture and
fixtures.............. 20%, declining balance
Office equipment........ 20%, declining balance
Computer hardware....... 30%, declining balance
Computer software....... 30%, declining balance
</TABLE>
Translation of Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are
translated at year-end exchange rates and revenue and expenses are translated at
average rates. Translation gains and losses are included in earnings.
F-82
<PAGE> 164
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying values of the financial assets and liabilities approximate
their fair values based on the short-term maturities of these instruments.
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
(IN THOUSANDS)
<S> <C>
Trade....................................................... $726
Shareholders................................................ 52
Income taxes................................................ --
Other....................................................... 22
----
$800
====
</TABLE>
4. EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
(IN THOUSANDS)
<S> <C>
Furniture and fixtures...................................... $ 6
Office equipment............................................ 10
Computer hardware........................................... 62
Computer software........................................... 22
---
100
Less: accumulated depreciation.............................. 68
---
Property and equipment, net................................. $32
===
</TABLE>
5. BANK INDEBTEDNESS
As of December 31, 1997, the Company has an authorized bank line of credit
of Canadian $289,000 of which there have been no drawdowns. Any loan balance
outstanding bears interest at the bank prime rate plus 1% per annum and is
payable on demand. As security, the Company has provided a registered general
assignment of book debts, a registered general security agreement, an assignment
of fire insurance and key man life insurance.
6. LICENSE FEE
The Company has entered into an agreement with Sibson & Co., L.P., to pay
5% of its revenues in exchange for support services and the right to use the
name. The agreement is automatically renewed on an annual basis unless written
notice is provided by either party indicating they wish to terminate the
agreement. The license fee expense for the year ended December 31, 1997 is
$127,183 of which $112,136 remains payable at year-end.
F-83
<PAGE> 165
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. DUE TO SHAREHOLDERS
Amounts due to shareholders are non-interest bearing and due on demand. The
amounts are classified as long-term as it is not the intention of the
shareholders to demand repayment in the upcoming year.
8. CAPITAL STOCK
Common shares, unlimited number authorized, 1,307 issued for proceeds of
$70,855; Class A common shares, unlimited number authorized, 230 issued for
proceeds of $22,408.
Holders of Class A common shares are entitled to a dividend per share equal
to the amount of any declared common share dividend per share, convertible to
common shares at the option of the holder upon approval by the Board of
Directors and upon payment to the company of additional amounts of money, if
any, as specified in the resolution approving the conversion.
9. COMMITMENTS
The Company has entered into agreements to lease its premises and various
pieces of office and computer equipment. The current premises lease expires
October 1998, and a new lease has been entered into subsequent to year end for a
further 10 year period. The equipment leases are for various periods to 2001.
Minimum commitments for each of the next five years and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1998........................................... $174
1999........................................... 127
2000........................................... 126
2001........................................... 104
2002........................................... 83
Thereafter..................................... 495
</TABLE>
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accounting principles utilized in the preparation of these financial
statements conform in all material respects with those generally accepted in the
United States ("US GAAP"), except as indicated below.
The statement of changes in financial position included herein was prepared
in accordance with Canadian generally accepted accounting principles. Under US
GAAP, the bank indebtedness position would be reported as a financing item
rather than being included in the cash position. The 1997 statement of changes
in financial position would disclose a decrease in financing of $129,426, and
cash at the beginning of the year at $0.
11. SUBSEQUENT EVENTS
On August 17, 1998, the Company and one of its corporate shareholders
continued as Nova Scotia corporations. Subsequently, the Company, the corporate
shareholder and a newly incorporated unlimited liability company, were
amalgamated under the laws of Nova Scotia and continued operating as Sibson
Canada Co.
Effective August 31, 1998, all of the Company's Shareholders sold all of
their stock to Nextera Enterprises, L.L.C. in exchange for cash of $2,611,000
and 197,813 Exchangeable Shares. The Exchangeable Shares are exchangeable at any
time by the holders thereof for Class A Common Stock of Nextera Enterprises,
L.L.C.
F-84
<PAGE> 166
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems, which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-85
<PAGE> 167
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Lexecon Inc.
We have audited the accompanying balance sheets of Lexecon Inc. (effective
December 31, 1998, a wholly-owned subsidiary of Nextera Enterprises, Inc.) as of
December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lexecon Inc. at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 2, 1999
F-86
<PAGE> 168
LEXECON INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1997 1998
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 15 $ 68
Accounts receivable, less allowance for doubtful accounts
of $200 in 1997 and 1998............................... 10,578 9,301
Loans and advances........................................ 179 108
Prepaid expenses.......................................... 169 173
Equipment held for sale, net.............................. -- 25
------- -------
Total current assets.............................. 10,941 9,675
Fixed assets, net........................................... 1,265 2,058
Deferred income tax benefit................................. 12 18
Deposits.................................................... 70 70
Prepaid expenses............................................ 203 129
------- -------
Total assets...................................... $12,491 $11,950
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable -- Bank...................................... $ 1,600 $ 1,725
Current maturities of long-term obligations............... 200 304
Accounts payable.......................................... 487 856
Accrued expenses.......................................... 877 744
Deferred income tax liability............................. 143 121
------- -------
Total current liabilities......................... 3,307 3,750
------- -------
Long-term obligations, net of current maturities............ -- 624
Deferred rent............................................... 842 908
Lease termination fee....................................... 143 123
Security deposits........................................... 45 45
Shareholders' equity:
Common stock, no par value, $17.50 stated value, 12,000
shares authorized, 1,000 shares issued and
outstanding............................................ 18 18
Additional paid-in capital................................ 85 85
Retained earnings......................................... 8,051 6,397
------- -------
Total shareholders' equity........................ 8,154 6,500
------- -------
Total liabilities and shareholders' equity........ $12,491 $11,950
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE> 169
LEXECON INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $27,061 $31,974 $35,199
Cost of services............................................ 20,734 24,055 30,611
------- ------- -------
Gross profit.............................................. 6,327 7,919 4,588
General and administrative expenses......................... 5,247 5,660 6,337
------- ------- -------
Income (loss) from operations............................. 1,080 2,259 (1,749)
Interest expense............................................ (123) (63) (46)
Interest income............................................. 49 53 113
------- ------- -------
Income (loss) before income taxes......................... 1,006 2,249 (1,682)
Provision (benefit) for income taxes........................ 25 27 (28)
------- ------- -------
Net income (loss)......................................... $ 981 $ 2,222 $(1,654)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 170
LEXECON INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995..................... 1,000 $18 $85 $ 4,848 $ 4,951
Net income..................................... -- -- -- 981 981
----- --- --- ------- -------
Balance at December 31, 1996..................... 1,000 18 85 5,829 5,932
Net income..................................... -- -- -- 2,222 2,222
----- --- --- ------- -------
Balance at December 31, 1997..................... 1,000 18 85 8,051 8,154
Net loss....................................... -- -- -- (1,654) (1,654)
----- --- --- ------- -------
Balance at December 31, 1998..................... 1,000 $18 $85 $ 6,397 $ 6,500
===== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 171
LEXECON INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ 981 $ 2,222 $(1,654)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 490 489 552
Deferred rent............................................. 65 59 66
Deferred taxes............................................ 25 27 (28)
Provision for doubtful accounts........................... 73 (20) --
(Gain) loss on sale of property and equipment............. (3) -- 29
Changes in operating assets and liabilities:
Accounts receivable.................................... 727 (2,412) 1,277
Loans and advances..................................... (3) (139) 71
Prepaid expenses....................................... (405) 219 70
Accounts payable and accrued expenses.................. 144 131 236
Deferred compensation.................................. (1,998) -- --
Lease termination fee.................................. (16) (16) (20)
------- ------- -------
Net cash provided by operating activities................... 80 560 599
Cash flows from investing activities:
Capital expenditures paid in cash......................... (512) (434) (424)
Proceeds from sale of property and equipment.............. 15 -- 5
------- ------- -------
Net cash used in investing activities....................... (497) (434) (419)
Cash flows from financing activities:
Borrowings on long-term obligations....................... 600 -- --
Cash paid on long-term obligations........................ (237) (218) (252)
Borrowings on notes payable............................... 1,550 1,600 1,725
Cash paid on notes payable................................ (1,500) (1,550) (1,600)
------- ------- -------
Net cash (used) provided by financing activities............ 413 (168) (127)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (4) (42) 53
Cash and cash equivalents at beginning of year.............. 61 57 15
Cash and cash equivalents at end of year.................... $ 57 $ 15 $ 68
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 65 $ 63 $ 46
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 172
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Lexecon Inc. ("Lexecon" or the "Company") provides a full range of economic
consulting services including economic, financial and statistical analysis and
expert testimony, which are predominately used in matters relating to complex
litigation and regulatory proceedings. Lexecon provides expertise in areas of
antitrust, contracts, regulatory issues, corporate finance, intellectual
property, international trade, securities, taxation and employment practices.
Lexecon serves clients across a broad range of industries, including
telecommunications, high technology and government.
2. SALE OF COMPANY AND BASIS OF PRESENTATION
Effective December 31, 1998, the Company's stock was contributed to Nextera
Enterprises, Inc. ("Nextera") in exchange for $31.1 million of cash and
2,816,000 of Nextera Class A Common Stock (the "Contribution Agreement").
Additional equity of up to 1,450,240 shares of Nextera Class A Common Stock will
be reserved for issuance to the shareholders of the Company in the event of a
Nextera initial public offering, the amount of which is contingent upon the
timing and per share offering price of such public offering. Certain
nonshareholders released the Company concurrently with the consummation of the
Contribution Agreement of all liabilities or claims for prior compensation of
any nature including any described herein. The Company also entered into
employment agreements with certain senior executives providing for the payment
of cash and stock options to them as bonus compensation in consideration of
their entering into the employment agreements. In addition, at the time of the
acquisition, one shareholder of the Company entered into a Service Agreement, as
defined, with the Company.
These financial statements reflect the operations and financial position of
the Company immediately prior to the Contribution Agreement, which was effective
at the close of business on December 31, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Revenues from engagements are recognized as services are provided based
upon hours worked and agreed-upon hourly rates, net of estimated fee
adjustments. Lexecon's revenues also include other charges billed to clients,
which include outside consultants, travel and other out-of-pocket expenses,
charges for support staff, computer usage, and other reimbursable charges. An
allowance is provided for any amounts considered uncollectible.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-91
<PAGE> 173
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the useful life of the assets which
is generally three to seven years. Leasehold improvements are being amortized
using the straight-line method over their useful lives or the term of the lease,
whichever is shorter.
Income Taxes
Effective May 1, 1991, the shareholders of the Company elected to be
treated as an "S" Corporation under the provisions of the Internal Revenue Code.
Accordingly, each shareholder reports the taxable income or loss of the Company
on their individual tax returns. The Company continues to be subject to the
Illinois replacement tax.
The "S" Corporation election was terminated upon the sale of the Company
(see Note 2).
Deferred Income Taxes
Deferred income taxes, representing the Illinois Replacement Tax, arise
from timing differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods. The principal
sources of timing differences are the use of the accrual basis of accounting in
the accompanying financial statements and the use of the cash basis of
accounting for tax purposes, leasehold improvements being amortized over their
useful lives or the term of the lease whichever is shorter for financial
statement purposes and lives prescribed by the Internal Revenue Code for tax
purposes and rent being expensed on a straight line method for financial
statement purposes and being expensed as paid for tax purposes.
Concentration of Credit Risk
The Company's customer base consists of a broad range of clients in a
variety of industries located throughout the United States and in certain other
countries. No client comprised more than 10% of net revenues in 1996. In 1997
and 1998, one client comprised approximately 18% and 21% of net revenues,
respectively. In 1998, another client comprised 10% of net revenues. The Company
performs a credit evaluation of each of its clients to minimize its
collectibility risk.
The Company provides an allowance for doubtful accounts to provide for
potentially uncollectible amounts. Activity in the allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $148 $221 $200
Charge to cost and expenses........................... 88 41 --
Amounts written off................................... (15) (62) --
---- ---- ----
Balance at end of year................................ $221 $200 $200
==== ==== ====
</TABLE>
F-92
<PAGE> 174
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Furniture fixtures and equipment........................... $4,150 $5,324
Leasehold improvements..................................... 1,507 1,502
------ ------
5,657 6,826
Accumulated depreciation and amortization.................. 4,392 4,768
------ ------
$1,265 $2,058
====== ======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Salaries and payroll taxes................................. $ 420 $ 392
Profit-sharing contribution................................ 267 263
Current portion of lease termination fee................... 16 18
------ ------
Other...................................................... 174 71
------ ------
$ 877 $ 744
====== ======
</TABLE>
6. NOTES PAYABLE -- BANK
The Company has a line of credit which permits borrowings of up to
$2,000,000 with interest at the bank's base rate, as defined (7.75% at December
31, 1998), plus 0.25% and is secured by the Company's accounts receivable and
other sundry assets. The terms of the line of credit include certain operating
and financial covenants.
The Company also had an outstanding standby letter of credit at December
31, 1998, in the amount of $500,000 which was issued in lieu of a security
deposit on the Company's leased office space.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Capital lease payable in monthly installments of $30,966
including principal and interest at 8.5% due October
2001..................................................... $ -- $ 928
Note payable in monthly installments of $16,667 plus
interest at 7.94%........................................ 200 --
------ ------
200 928
Less: current maturities................................... 200 304
------ ------
$ -- $ 624
====== ======
</TABLE>
F-93
<PAGE> 175
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company conducts its operations in facilities that are leased under an
operating lease expiring February 14, 2007. The lease also requires payments of
additional amounts to cover operating expenses and real estate taxes. The
Company also has operating leases for certain equipment. Effective October 26,
1998, the Company entered into a capital lease for new computer hardware and
software, the net present value of the initial future lease payments was
$980,000.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms for the fiscal years ending after December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
<S> <C> <C>
1999........................................... $ 372 $ 514
2000........................................... 372 516
2001........................................... 304 655
2002........................................... -- 750
2003........................................... -- 754
Thereafter..................................... -- 2,403
------ ------
Total minimum lease payments......... $1,048 $5,592
======
Less amounts representing interest............. (120)
------
Present value of minimum capitalized lease
payments..................................... 928
Current portion................................ 304
------
Long-term capitalized lease obligations........ $ 624
======
</TABLE>
Equipment recorded under capital leases of $898,000 (net of accumulated
amortization of $82,000) is included in Property and Equipment as of December
31, 1998.
Rent expense under operating leases for the years ended December 31, 1996,
1997 and 1998, amounted to approximately $617,000, $617,000, and $648,000,
respectively. Deferred rent represents the excess of amortization of rent
expenses over the term of the lease on a straight-line basis over required
rental payments for base rents.
On October 17, 1994, the Company's existing office lease agreement was
amended in order to allow the Company to vacate certain leased space that it
held. As a result of this amendment, the Company is required to pay as
additional rent $300,000 payable in 120 equal monthly installments of $2,500.
The net present value of this obligation, discounted at 8.00%, in the amount of
$205,334 was charged to expense as of December 31, 1994. The unamortized
discount is reflected on the balance sheet as lease termination fee.
9. PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan for all eligible employees.
Contributions to the Plan are at the discretion of the Company's Board of
Directors. The Company does not maintain any interest in its contribution but
reserves the right to modify or discontinue the Plan. Contributions to the Plan
for the years ending December 31, 1996, 1997, and 1998 amounted to $251,561,
$267,804, and $263,565, respectively.
10. OTHER COMPENSATION ARRANGEMENTS
On December 31, 1993, the Company entered into a deferred compensation plan
for its shareholders for services previously rendered to the Company. Under the
terms of the Plan the officers received a total of
F-94
<PAGE> 176
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$6,000,000 payable in annual installments of $2,000,000 beginning in 1994 with
interest on the unpaid balance at a rate of 7%.
In 1996, the Company informed certain of its nonshareholder senior
executives that it was in the process of implementing, for their benefit, a
program to provide them in the event of the sale or merger of the Company, a
compensatory interest as a non-shareholder in a participation pool aggregating
12% of the value of the Company in excess of book value (see Note 2).
On an annual basis, the Company pays discretionary bonuses to employees
which are authorized by the Board of Directors. In addition, pursuant to a
shareholders agreement, see Note 11, the shareholders have been entitled to
receive annual bonuses based on income, as defined. Bonus expense including
employees and shareholders for the years ended December 31, 1996, 1997, and 1998
was $9,136,600, $11,387,300, and $17,611,000, respectively, and is included in
cost of services on the statement of income.
11. COMMITMENTS AND CONTINGENCIES
The shareholders of the Company entered into a shareholder agreement and
employment termination agreements, each as amended in December 1990. Under the
terms of the agreements, in the event of the death or disability of a
shareholder or other "terminating event" as defined in the agreement, the
Company is to repurchase from the terminated shareholder or his estate all
shares held by the shareholder or estate. The purchase price for each share will
be the base purchase price per share as defined in the agreement plus or minus
the increase or decrease in the book value per share from the base date, as
defined. The purchase price shall be payable in cash; however, the Company shall
have the option to pay at least 25% of the purchase price in cash and deliver a
promissory note payable in three equal annual installments with interest payable
annually on the unpaid balance at the lowest appropriate applicable federal rate
of the Internal Revenue Code at the time of issuance. In connection with the
sale of the Company (see Note 2), the aforementioned shareholder agreement and
employment termination agreements were canceled.
During the period ended December 31, 1991, the Company entered into a Suite
License Agreement with Metro-Chicago Sports Stadium Joint Venture. No expense
has been recorded under this agreement since the Company has been reimbursed by
one of its shareholders and other unrelated parties for substantially all costs
incurred under this agreement. On September 1, 1998, the Company renewed its
Suite License Agreement. The terms of the new agreement require payments
aggregating approximately $1,000,000 payable in annual installments of
approximately $200,000 from 1999 through 2004.
The Company is involved in claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material effect on the Company's
results of operations or financial position.
12. YEAR 2000 (UNAUDITED)
The Company is in process of evaluating its information systems to
determine their compliance with the Year 2000 issue. Based on information
currently available, the Company believes that all necessary changes will occur
on a timely basis and that expenditures relating to the Year 2000 will not have
a significant impact on the Company's result of operations or financial
position.
F-95
<PAGE> 177
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Financial Statements give effect
to the Company's acquisitions of (i) Symmetrix, Inc. (renamed Nextera Business
Performance Solutions Group, Inc. ("Business Performance Solutions")) effective
July 31, 1997, (ii) SiGMA Consulting, LLC ("SiGMA") effective January 5, 1998,
(iii) The Planning Technologies Group, Inc. ("PTG") effective March 31, 1998,
(iv) Pyramid Imaging, Inc. ("Pyramid") effective March 31, 1998, (v) Sibson &
Company, L.P. and Sibson Canada, Inc. (collectively, "Sibson") effective August
31, 1998 (the "Sibson Acquisitions") and (vi) Lexecon Inc. ("Lexecon") effective
December 31, 1998 (the "Lexecon Acquisition"). Business Performance Solutions,
SiGMA, PTG, Pyramid, Sibson and Lexecon are referred to collectively as the
"Acquired Companies." Each of these acquisitions is being accounted for under
the purchase method of accounting. Each of the Acquired Companies has a December
31 fiscal year end.
The following Unaudited Pro Forma Combined Balance Sheet of the Company at
December 31, 1998 is adjusted to reflect the initial public offering of the
Company's Class A Common Stock (the "Offering") and the application of the
estimated net proceeds therefrom, including the repayment of certain
indebtedness, as if the Offering had occurred on December 31, 1998.
The following Unaudited Pro Forma Combined Statements of Operations of the
Company for the year ended December 31, 1998 has been prepared to give effect to
(i) the acquisitions of the Acquired Companies (excluding Symmetrix, Inc. which
was acquired effective July 31, 1997) as of January 1, 1998 and (ii) the
Offering and the application of the estimated net proceeds therefrom, including
the repayment of certain indebtedness, as if such transactions had occurred as
of January 1, 1998. The Alexander Corporation Limited was acquired by the
Company in January 1999 and is not material to the Company's financial position
or results of operations and is excluded from the Unaudited Pro Forma Combined
Statements of Operations.
The Unaudited Pro Forma Combined Financial Statements may not be indicative
of the results that would have been obtained if the transactions reflected
therein had occurred on the dates indicated or which may be realized in the
future. The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical financial statements of Nextera Enterprises,
Inc. and the Acquired Companies included elsewhere in this Prospectus.
PF-1
<PAGE> 178
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
ACTUAL OFFERING
(A) ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 1,496 $ --(B) $ 1,496
Accounts receivable, net............................. 31,094 -- 31,094
Costs and estimated earnings in excess of billings... 2,962 -- 2,962
Due from affiliates.................................. 400 -- 400
Due from officers.................................... 856 (856)(B) --
Prepaid expenses and other current assets............ 5,709 -- 5,709
-------- -------- --------
Total current assets.............................. 42,517 (856) 41,661
Property and equipment, net............................ 8,056 -- 8,056
Intangible assets, net of accumulated amortization..... 125,082 15,953(B) 141,035
Other assets........................................... 1,036 -- 1,036
-------- -------- --------
Total assets...................................... $176,691 $ 15,097 $191,788
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 23,530 $ (750)(B) $ 22,780
Notes payable to bank................................ 6,156 -- 6,156
Bridge loan payable.................................. 75,849 (75,849)(B) --
Deferred revenue..................................... 1,193 -- 1,193
Due to affiliates.................................... 1,068 (210)(B) 858
Current portion of long-term debt and capital lease
obligations....................................... 482 -- 482
-------- -------- --------
Total current liabilities......................... 108,278 (76,809) 31,469
Long-term debt and capital lease obligations........... 2,600 -- 2,600
Other long-term liabilities............................ 1,174 -- 1,174
Debentures due to affiliates, including accrued
interest thereon..................................... 53,149 (41,099)(B) 12,050
Stockholders' equity:
Common stock and exchangeable shares................. 31,660 133,005(B) 164,665
Retained earnings (deficit).......................... (20,170) -- (20,170)
-------- -------- --------
Total stockholders' equity........................ 11,490 133,005 144,495
-------- -------- --------
Total liabilities and stockholders' equity........ $176,691 $ 15,097 $191,788
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-2
<PAGE> 179
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------------------------------------
ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
(C) (D)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues......... $ 67,590 $67,577 $ -- $135,167 $ -- $135,167
Cost of revenues..... 44,985 49,225 (15,360)(E) 78,850 -- 78,850
-------- ------- -------- -------- ------- --------
Gross profit.... 22,605 18,352 15,360 56,317 -- 56,317
-------- ------- -------- -------- ------- --------
Selling, general and
administrative
expenses........... 23,103 18,366 -- 41,469 -- 41,469
Amortization
expense............ 1,722 -- 2,604(F) 4,326 399(B) 4,725
Restructuring
costs.............. 1,298 -- -- 1,298 -- 1,298
Compensation
expense--
other(G)........... 6,671 840 -- 7,511 1,879(H) 9,390
-------- ------- -------- -------- ------- --------
Income (loss)
from
operations.... (10,189) (854) 12,756 1,713 2,278 (565)
-------- ------- -------- -------- ------- --------
Interest income
(expense), net..... (6,723) (21) (6,777)(I) (13,521) 13,378(J) (143)
-------- ------- -------- -------- ------- --------
Income (loss)
before income
tax expense
(benefit)..... (16,912) (875) 5,979 (11,808) 11,100 (708)
-------- ------- -------- -------- ------- --------
Income tax expense
(benefit).......... 243 (7) --(K) 236 -- 236
-------- ------- -------- -------- ------- --------
Net income
(loss)........ $(17,155) $ (868) $ 5,979 $(12,044) $11,100 $ (944)
======== ======= ======== ======== ======= ========
Net income (loss) per
common share, basic
and diluted........ $ (1.14) $ (0.61) $ (0.03)
======== ======== ========
Weighted average
common shares
outstanding, basic
and diluted........ 14,997 19,891 32,841
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-3
<PAGE> 180
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) Represents the historical consolidated balance sheet of the Company as
of December 31, 1998.
(B) Represents the adjustments to record the Offering and the application
of the estimated net proceeds therefrom, including the repayment of certain
indebtedness. See "Use of Proceeds." Also assumes the presumed issuance of an
additional 1,450,240 shares of Class A Common Stock in connection with the
Lexecon Acquisition based upon an estimated initial public offering price of
$11.00 per share. Such shares have been reflected in As Adjusted intangible
assets and equity at $11.00 per share, the estimated initial public offering
price.
(C) Represents the historical consolidated statement of operations of the
Company for the year ended December 31, 1998. The Company's statement of
operations for the year ended December 31, 1998 reflects the results of
operations of Symmetrix and SiGMA for the entire period, of Pyramid and PTG for
periods after March 31, 1998, and of Sibson for the period after August 31,
1998, the effective date of their acquisition by the Company. Revenues and
expenses of Sibson Canada, Inc. have been translated from Canadian dollars to
U.S. dollars at the average exchange rate in effect for the period.
(D) Represents the historical statements of operations of Pyramid and PTG
for the three months ended March 31, 1998, the historical consolidated
statements of operations of Sibson (including Sibson Canada, Inc.) for the eight
months ended August 31, 1998 and the historical statement of operations for
Lexecon for the year ended December 31, 1998. Certain reclassifications have
been made to the historical statements of income and operations to conform with
the Company's classifications.
(E) In connection with the Sibson Acquisitions, the Lexecon Acquisition and
the acquisition of PTG, written agreements were entered into which governed the
calculations of management bonuses. In each case, the bonus calculation was
changed from a discretionary amount to a formula based on revenue and operating
income performance. The new bonus provision was documented and the revenue and
operating income targets and bonuses percentages were specified. The pro forma
adjustment represents the difference between the actual bonuses paid or accrued
for the year ended December 31, 1998 and the amount that would have been paid
based on the new formulas set forth in the respective employment agreements.
Management believes that the prospective effect of changes to pre-acquisition
bonus formulas, coupled with the post-acquisition inclusion of key employees in
the Company's equity participation plans, will not have a material adverse
effect on the future operations of the Company.
(F) Represents the adjustments to amortization expense to reflect the
allocation of the purchase price for the PTG and Pyramid acquisitions for the
three months ended March 31, 1998, the Sibson Acquisitions for the eight months
ended August 31, 1998, and the Lexecon Acquisition for the year ended December
31, 1998, in each case using five years for intangibles related to personnel and
40 years for goodwill.
(G) Includes $840,000 from the cancellation and repurchase of all of
outstanding options to purchase Pyramid stock in connection with its acquisition
by the Company and $6,671,000 from agreements executed on December 31, 1998 with
certain non-stockholder key executives of Lexecon under which payments totaling
$4,248,000 in cash were made and fully-vested options to purchase 384,000 shares
of Class A Common Stock at an exercise price of $1.50 were granted.
(H) Based upon an estimated initial public offering price of $11.00 per
share, fully-vested options to purchase 197,760 shares of Class A Common Stock
at an exercise price of $1.50 per share would be granted to certain
non-stockholder key executives of Lexecon. The Offering Adjustment represents
the difference between the assumed initial public offering price and the
exercise price, multiplied by the number of options granted.
(I) Represents the adjustments to record the interest expense for the year
ended December 31, 1998, resulting from the $38,000,000 borrowing incurred in
connection with the Sibson Acquisitions and from the $31,146,000 borrowing
incurred in connection with the Lexecon Acquisition. The borrowings bear
interest at the assumed rate of 12% per annum and mature on May 31, 1999.
PF-4
<PAGE> 181
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(J) Represents the adjustments to eliminate the interest expense for the
indebtedness repaid with a portion of the estimated net proceeds from the
Offering, calculated as the actual amount of interest incurred by the Company on
an historical basis, incurred on borrowings to be repaid from the net proceeds
of the Offering, plus interest calculated on a pro forma basis arising in
connection with the acquisitions detailed in Note I above. See "Use of
Proceeds."
(K) The pro forma tax provision for the year ended December 31, 1998 is
recorded for Pyramid, which is a taxable operating unit, and is based upon pro
forma loss for the year ended December 31, 1998, applied to the effective tax
rate of Pyramid.
PF-5
<PAGE> 182
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE
UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY, TO ANY PERSON IN ANY JURISDICTION WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 5
Risk Factors............................... 8
The Company................................ 19
Use of Proceeds............................ 21
Dividend Policy............................ 21
Capitalization............................. 22
Dilution................................... 23
Selected Consolidated and Pro Forma
Combined Financial Data.................. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 25
Business................................... 38
Management................................. 50
Certain Transactions....................... 61
Principal Stockholders..................... 66
Description of Capital Stock............... 68
Shares Eligible for Future Sale............ 73
Underwriting............................... 76
Legal Matters.............................. 78
Experts.................................... 79
Available Information...................... 80
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
11,500,000 SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
---------------------
DLJDIRECT INC.
, 1999
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Class A Common Stock.
All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 50,633
NASD filing fee............................................. 19,000
Nasdaq National Market listing fee.......................... 80,000
Legal fees and expenses..................................... 850,000
----------
Accounting fees and expenses................................ 500,000
Printing and engraving expenses............................. 400,000
Blue Sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 180,367
----------
TOTAL............................................. $2,100,000
==========
</TABLE>
- ------------------------------
All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors and officers to the fullest extent
permitted by Delaware law. Delaware law permits, but does not require, a
corporation to indemnify officers, directors, employees or agents and expressly
provides that the indemnification provided for under Delaware law shall not be
deemed exclusive of any indemnification right under any bylaw, vote of
stockholders or disinterested directors, or otherwise. Delaware law permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of the Company, provided that each such person acted in good faith and in
a manner that he or she reasonably believed was in or not opposed to the
Company's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware law does
not allow indemnification of directors in the case of an action by or in the
right of the Company (including stockholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court.
The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.
The Company maintains directors' and officers' liability insurance covering
its executive officers and directors. The policies have limits of up to $15
million in the aggregate, subject to retentions of up to $100,000 in the
aggregate.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On March 20, 1997, the Company issued to NEH 316,800 Class A Common
Units for consideration of $63,360 and 728,640 Class B Preferred Units for
consideration of $728,640. This transaction was
II-1
<PAGE> 184
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(b) On March 20, 1997, the Company issued 3,200 Class A Common Units to EDU
for consideration of $8,000. This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(c) On April 9, 1997, the Company issued a warrant to NEH (the "Warrant")
to purchase 5,000,000 Class A Common Units of the Company at an exercise price
of $2.50 per unit in connection with the initial capitalization of the Company.
The Warrant had an expiration date of August 1, 2002. On April 30, 1998, the
Company amended the Warrant to provide for the issuance of Class B Common Units
upon exercise of the Warrant rather than Class A Common Units. On April 30,
1998, the Warrant was exchanged for 4,300,000 Class B Common Units. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(d) On April 18, 1997, the Company issued to NEH 100,000 Class A Common
Units for consideration of $20,000 and 230,000 Class B Preferred Units for
consideration of $230,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(e) On May 19, 1997, the Company issued to NEH 120,000 Class A Common Units
for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(f) On June 17, 1997, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(g) On July 23, 1997, the Company issued to NEH 6,000,000 Class A Common
Units for consideration of $1,200,000 and 13,800,000 Class B Preferred Units for
consideration of $13,800,000. This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(h) On July 23, 1997, the Company issued 6,800 Class A Common Units to EDU
for consideration of $17,000. This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(i) On August 15, 1997, the Company issued to NEH 400,000 Class A Common
Units for consideration of $80,000 and 920,000 Class B Preferred Units for
consideration of $920,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(j) On September 9, 1997, the Company issued to NEH 72,000 Class A Common
Units for consideration of $14,400 and 165,600 Class B Preferred Units for
consideration of $165,600. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(k) On September 30, 1997, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(l) On October 14, 1997, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
II-2
<PAGE> 185
(m) On November 4, 1997, the Company issued to NEH 120,000 Class A Common
Units for consideration of $24,000 and 276,000 Class B Preferred Units for
consideration of $276,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(n) On November 21, 1997, the Company issued to NEH 400,000 Class A Common
Units for consideration of $80,000 and 920,000 Class B Preferred Units for
consideration of $920,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(o) On January 5, 1998, the Company issued to NEH 2,101,700 Class A Common
Units for consideration of $420,240 and 9,708,560 Class B Preferred Units for
consideration of $9,708,560. This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(p) On January 5, 1998, the Company issued 669,000 Class A Common Units to
SiGMA Consulting, LLC in exchange for all of the issued and outstanding
ownership units of SiGMA Consulting, LLC. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Rule 506 of Regulation D promulgated under the Securities Act.
(q) On January 29, 1998, the Company issued to NEH 150,000 Class B
Preferred Units for consideration of $150,000. This transaction was undertaken
in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Securities Act.
(r) On February 11, 1998, the Company issued to NEH 100,000 Class B
Preferred Units for consideration of $100,000. This transaction was undertaken
in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Securities Act.
(s) On February 13, 1998, the Company issued to NEH 150,000 Class B
Preferred Units for consideration of $150,000. This transaction was undertaken
in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Securities Act.
(t) On February 26, 1998, the Company issued to NEH 300,000 Class B
Preferred Units for consideration of $300,000. This transaction was undertaken
in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Securities Act.
(u) On March 23, 1998, the Company issued to NEH 300,000 Class B Preferred
Units for consideration of $300,000. This transaction was undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Securities Act.
(v) Effective March 31, 1998, the Company issued 214,000 Class A Common
Units to The Planning Technologies Group, Inc. as a part of the purchase price
for the assets of The Planning Technologies Group, Inc. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 506 of Regulation D under the Securities
Act.
(w) Effective March 31, 1998, the Company issued an aggregate of 586,667
Class A Common Units to the former stockholders of Pyramid Imaging, Inc. as a
part of the purchase price for all of the issued and outstanding capital stock
of Pyramid Imaging, Inc. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(x) On April 7, 1998, the Company issued to NEH 6,710,000 Class B Preferred
Units for consideration of $6,710,000. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(y) On April 8, 1998, the Company issued to NEH 9,750,000 Class B Preferred
Units for consideration of $9,750,000. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
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<PAGE> 186
(z) On April 10, 1998, the Company issued to NEH 10,000 Class A Common
Units for consideration of $2,000 and 23,000 Class B Preferred Units for
consideration of $23,000. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(aa) On April 30, 1998, the Company issued to NEH 2,634,200 Class B
Preferred Units for consideration of $2,634,200. This transaction was undertaken
in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Securities Act.
(bb) Effective as of April 30, 1998, approximately $48.0 million of the
Company's contributed capital was redesignated as debt in the form of two
debentures issued to NEH. The first debenture is dated March 20, 1997 with a
principal amount of $23.0 million, which matures on May 1, 2002 and bears
interest at a rate of 10% per annum. The second debenture is dated January 5,
1998 with a principal amount of $25.0 million, which matures on May 1, 2002 and
bears interest at a rate of 10% per annum. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(cc) On August 31, 1998, the Company issued to Gresham T. Brebach, Jr.
49,500 Class A Common Units and 21,285 Class B Common Units for aggregate
consideration of $9,900. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(dd) On August 31, 1998, the Company issued to Ronald K. Bohlin 49,500
Class A Common Units and 21,285 Class B Common Units for aggregate consideration
of $9,900. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(ee) On August 31, 1998, the Company issued to Michael P. Muldowney 9,000
Class A Common Units and 3,870 Class B Common Units for aggregate consideration
of $1,800. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(ff) On August 31, 1998, the Company issued to Debra I. Bergevine 9,000
Class A Common Units and 3,870 Class B Common Units for aggregate consideration
of $1,800. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(gg) On August 31, 1998, the Company issued to David Fritts 9,000 Class A
Common Units and 3,870 Class B Common Units for aggregate consideration of
$1,800. This transaction was undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(hh) On August 31, 1998, the Company issued to Belden Menkus 9,000 Class A
Common Units and 3,870 Class B Common Units for aggregate consideration of
$1,800. This transaction was undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(ii) Effective August 31, 1998, the Company issued an aggregate of
2,613,087 Class A Common Units to Sibson & Company, L.P. as a part of the
purchase price for the assets of Sibson & Company, L.P. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 506 of Regulation D under the Securities
Act.
(jj) Effective August 31, 1998, the Company issued an aggregate of 48,360
Class A Common Units to certain employees pursuant to employment agreements
between SC/NE, LLC, Sibson Canada Co. or Sibson UK Limited and such employees,
each dated as of August 31, 1998, for aggregate consideration of $6,770. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
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<PAGE> 187
(kk) Effective December 31, 1998, the Company issued 11,382,653 shares of
Class A Common Stock and 4,274,630 shares of Class B Common Stock to the former
members of Nextera LLC other than the Sibson Entities in exchange for 11,382,653
Class A Common Units of Nextera LLC and 4,274,630 Class B Common Units of
Nextera LLC. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(ll) Effective December 31, 1998, the Company issued 2,613,087 shares of
Class A Common Stock to the former stockholders of the Sibson Entities in
exchange for all of the outstanding capital stock of the Sibson Entities. The
Sibson Entities held 2,613,087 Class A Common Units of Nextera LLC at the time
of such exchange. This transaction was undertaken in reliance upon the exemption
from the registration requirements of the Securities Act afforded by Section
4(2) of the Securities Act.
(mm) Effective December 31, 1998, the Company issued 2,816,000 shares of
Class A Common Stock and agreed to issue up to 1,450,240 shares of Class A
Common Stock depending on the timing of this Offering and the price per share of
the Class A Common Stock in the Offering to the former stockholders of Lexecon
as partial consideration for the exchange of all of the capital stock of
Lexecon. This transaction was undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
(nn) Effective December 31, 1998, the Company granted to certain employees
of Lexecon fully-exercisable options to purchase 384,000 shares of Class A
Common Stock at an exercise price of $1.50 per share as a signing bonus to such
employees in connection with employment agreements entered into between such
employees and Lexecon at the time of the Lexecon Acquisition. Also effective
December 31, 1998, the Company agreed to grant to such employees of Lexecon
fully-exercisable options to purchase up to 197,760 shares of Class A Common
Stock at an exercise price of $1.50 per share depending on the timing of this
Offering and the price per share of the Class A Common Stock in the Offering.
This transaction was undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
(oo) Effective December 31, 1998, the Company issued warrants to purchase
250,000 shares of Class A Common Stock to Knowledge Universe in return for the
Guaranty by Knowledge Universe. The exercise price of the warrants is equal to
80% of the initial public offering price of the Class A Common Stock, provided,
however, if such initial public offering does not occur by August 31, 2000, the
exercise price will be $7.65 per share, as adjusted for stock splits, stock
dividends and similar transactions. The warrants expire on December 31, 2003.
This transaction was undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
(pp) Effective April 1997, the Company granted to certain employees options
to purchase 134,400 Class A Common Units at an exercise price of $0.50 per unit
under the Amended and Restated Employee Equity Participation Plan of Nextera LLC
(the "Nextera LLC Equity Participation Plan"). Effective April 1997 through
February 1998, the Company granted to certain employees options to purchase
864,431 Class A Common Units at an exercise price of $5.00 per unit under the
Nextera LLC Equity Participation Plan. Effective January 1998 through December
1998, the Company granted to certain employees options to purchase 1,472,233
Class A Common Units at an exercise price of $7.50 per unit under the Nextera
LLC Equity Participation Plan. Each of the options vests one-fourth per year
over a four-year period. These transactions were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
Rule 701 under the Securities Act or Section 4(2) of the Securities Act.
(qq) Effective December 31, 1998, the Company agreed in connection with the
Lexecon transaction to grant options to purchase a total of 3,004,239 shares of
Class A Common Stock to certain personnel of Lexecon under the Limited Purpose
Plan, assuming the price per share of the Class A Common Stock in the Offering
is $11. Of these options, the Company granted to certain non-employee
consultants of Lexecon fully-exercisable options to purchase an aggregate of
445,245 shares of Class A Common Stock at an exercise price of $14.00 per share
in March 1999. The Company expects to grant the remainder of these options to
certain employees of Lexecon immediately prior to the Offering. The precise
number of options to be granted to employees of Lexecon by the Company will
depend on the price per share in the Offering. Each of the options
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<PAGE> 188
granted to employees of Lexecon will vest at the rate of one-third each year
over a three year period. The exercise price of the options granted to employees
of Lexecon will equal the price per share of the Class A Common Stock in the
Offering. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Rule 701 under
the Securities Act or Section 4(2) of the Securities Act.
(rr) Effective December 31, 1998, the Company issued a total of 2,471,064
options to purchase Class A Common Stock under the 1998 Equity Participation
Plan to certain employees to replace options previously granted under the
Nextera LLC Equity Participation Plan on the same general terms and conditions
as the previously granted options. This transaction was undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Rule 701 under the Securities Act or Section 4(2) of the Securities
Act.
(ss) Effective January 26, 1999, the Company granted to employees of the
Company and its subsidiaries options to purchase an aggregate of 313,000 shares
of Class A Common Stock at an exercise price of $11.00 per share under the 1998
Equity Participation Plan. Each of the options vests one-fourth per year over a
four-year period. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Rule 701 under the Securities Act or Section 4(2) of the Securities Act.
(tt) Effective January 29, 1999, the Company issued an aggregate of 150,000
shares of Class A Common Stock to the former stockholders of Alexander as a part
of the purchase price for all of the issued and outstanding capital stock of
Alexander. This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
(uu) Effective January 29, 1999, the Company granted to certain employees
of Alexander options to purchase an aggregate of 300,000 shares of Class A
Common Stock at an exercise price of $11.00 per share. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 701 under the Securities Act or Section 4(2)
of the Securities Act.
(vv) In January 1999, the Company granted options to purchase 15,000 shares
of Class A Common Stock at an exercise price of $11.00 per share to each of the
Company's independent directors under the 1998 Equity Participation Plan. Such
independent directors include Ralph Finerman, Steven B. Fink, Stanley E. Maron,
Michael D. Rose and Richard V. Sandler. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Rule 701 under the Securities Act or Section 4(2) of the
Securities Act.
(ww) In January 1999, the Company issued an aggregate of 384,000 shares of
Class A Common Stock to the holders of certain options to purchase Class A
Common Stock upon exercise of such options and payment of the exercise price
thereof. Such options were granted to certain employees of Lexecon on December
31, 1998. These transactions were undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Rule 506 of
Regulation D under the Securities Act.
(xx) In January and February 1999, the Company issued an aggregate of 4,588
shares of Class A Common Stock to the holders of certain options to purchase
Class A Common Stock upon exercise of such options and payment of the exercise
price thereof. Such options were granted under the 1998 Equity Participation
Plan. These transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 701 under the
Securities Act or Section 4(2) of the Securities Act.
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<PAGE> 189
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
1.1(2) Form of Underwriting Agreement.
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) Amended and Restated Bylaws.
4.1(2) Form of Class A Common Stock Certificate.
5.1(2) Opinion of Latham & Watkins.
10.1(1) 1998 Equity Participation Plan.
10.2(2) Nextera/Lexecon Limited Purpose Stock Option Plan.
10.3(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto.
10.4(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company.
10.5(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto.
10.6(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.7(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto.
10.8(1) First Amendment to Purchase Agreement dated as of September
30, 1998 by and among Nextera Enterprises, L.L.C., Pyramid
Imaging, Inc., the former shareholders of Pyramid Imaging,
Inc. listed on the signature pages thereto and Nextera
Enterprises, Inc.
10.9(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust Company.
10.10(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C.
10.11(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company.
10.12(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto.
</TABLE>
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<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.13(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc.
10.14(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.15(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto.
10.16(1) Escrow Agreement dated as of August 31, 1998 by and among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.17(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto.
10.18(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and the individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A (previously
filed as Exhibit 4.3 to this Registration Statement as filed
with the Commission on September 18, 1998).
10.19(1) First Amendment to Stockholders Agreement dated as of
December 15, 1998 by and among Nextera Enterprises, L.L.C.,
Nextera Enterprises, Inc. and the individuals and other
parties listed on the signature pages thereto (previously
filed as Exhibit 4.4 to Amendment No. 2 to this Registration
Statement as filed with the Commission on January 21, 1999).
10.20(1) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc.
(previously filed as Exhibit 4.5 to Amendment No. 2 to this
Registration Statement as filed with the Commission on
January 21, 1999).
10.21(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc.
10.22(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc.
10.23(1) Consent and Amendment dated as of December 31, 1998 to the
Securities Purchase Agreement dated as of August 31, 1998 by
and among Nextera Enterprises, L.L.C., Nextera Funding,
Inc., Nextera Enterprises, Inc. and Knowledge Universe, Inc.
10.24(1) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding, Inc.
10.25(1) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe, Inc.
10.26(1) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc.
10.27(1) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto.
10.28(1) Letter agreement dated as of December 31, 1998 by and among
Nextera Enterprises, Inc., Knowledge Universe, Inc. and the
individuals listed on the signature page thereto.
</TABLE>
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<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.29(1) Warrant to Purchase Class A Common Stock of Nextera
Enterprises, Inc. dated as of December 31, 1998 issued to
Knowledge Universe, Inc.
10.30(1) Senior Secured Note dated January 28, 1999 of Nextera
Enterprises, Inc. in favor of Nextera Funding, Inc.
10.31(2) Amended and Restated Security and Pledge Agreement by and
between Nextera Enterprises, Inc. and Nextera Funding, Inc.
10.32(2) Amended and Restated Security and Pledge Agreement by and
between Pyramid Imaging, Inc. and Nextera Funding, Inc.
10.33(2) Amended and Restated Security and Pledge Agreement by and
between The Planning Technologies Group, L.L.C. and Nextera
Funding, Inc.
10.34(2) Amended and Restated Security and Pledge Agreement by and
between Nextera Business Performance Solutions Group, Inc.
and Nextera Funding, Inc.
10.35(2) Amended and Restated Security and Pledge Agreement by and
between Sibson & Company, LLC and Nextera Funding, Inc.
10.36(2) Amendment to Subsidiary Guaranty by each of the corporations
listed on Annex A Attached thereto
10.37(2) Second Amendment to Securities Purchase Agreement dated as
of April 15, 1999 by and among Nextera Enterprises, Inc.,
Knowledge Universe, Inc. and Nextera Funding, Inc.
10.38(1) Agreement relating to the sale and purchase of the whole of
the issued share capital of The Alexander Corporation
Limited dated as of January 29, 1999 by and among Nextera
Enterprises, Inc. and the parties listed on Schedule I
thereto.
10.39(1) Supplemental Deferred Consideration Agreement dated as of
January 29, 1999 by and among Nextera Enterprises, Inc.,
Graham Alexander and Arthur Morgan.
10.40(1) Loan Note Instrument dated as of January 29, 1999 of Nextera
Enterprises, Inc.
10.41(1) Tax Deed of Covenant dated as of January 29, 1999 by and
among Nextera Enterprises, Inc. and the persons listed on
the Schedule thereto.
10.42(1) Charge of Shares dated as of January 29, 1999 by the persons
listed on Schedule I thereto in favor of Nextera
Enterprises, Inc.
10.43(1) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000.
10.44(1) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000.
10.45(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.46(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.47(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.48(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.49(1) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $22,966,411.50 dated as of
December 31, 1997.
10.50(2) First Amendment to Amended and Restated Debenture of Nextera
Enterprises, Inc. dated as of April 15, 1999.
</TABLE>
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<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.51(1) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $24,933,543.66 dated as of
December 31, 1997.
10.52(2) First Amendment to Amended and Restated Debenture of Nextera
Enterprises, Inc. dated as of April 15, 1999.
10.53(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr.
10.54(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin.
10.55(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney.
10.56(2) Letter dated April 6, 1999 from Nextera Enterprises, Inc.,
to Michael P. Muldowney amending terms of Employment
Agreement.
10.57(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.
10.58(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.
10.59(1) Noncompete, Non-solicitation, Proprietary Information,
Confidentiality and Inventions Agreement dated as of August
31, 1998 between Roger Brossy and Nextera Enterprises,
L.L.C.
10.60(1) Agreement dated as of December 31, 1998 by and between
Lexecon Inc. and Andrew M. Rosenfield.
10.61(1) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Daniel R.
Fischel.
10.62(1) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Dennis W.
Carlton.
10.63(1) Promissory Note of Gresham Brebach, Jr. dated January 2,
1998 in the principal amount of $576,000 in favor of Nextera
Enterprises Holdings, L.L.C.
10.64(1) Promissory Note of Michael Muldowney dated January 2, 1998
in the principal amount of $72,000 in favor of Nextera
Enterprises Holdings, L.L.C.
10.65(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C.
21.1(1) List of Subsidiaries.
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants.
23.1.4(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.5(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors.
23.1.6(2) Consent of Farkouh, Furman & Faccio, Independent Auditors.
23.1.7(2) Consent of Grant Thornton.
23.1.8(2) Consent of Ernst & Young LLP, Independent Auditors
23.1.9(2) Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
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<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
23.2(2) Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1(1) Power of Attorney.
24.2(1) Power of Attorney.
27.1(2) Financial Data Schedule.
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statements.
All required Financial Statements are included in the Prospectus.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 5 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lexington, State of Massachusetts, on April 16, 1999.
NEXTERA ENTERPRISES, INC.
By: /s/GRESHAM T. BREBACH, JR.
------------------------------------
Gresham T. Brebach, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement on Form S-1 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ GRESHAM T. BREBACH, JR. President, Chief Executive April 16, 1999
- ----------------------------------------------------- Officer and Chairman of the
Gresham T. Brebach, Jr. Board of Directors (Principal
Executive Officer)
/s/ MICHAEL P. MULDOWNEY Chief Financial Officer April 16, 1999
- ----------------------------------------------------- (Principal Financial and
Michael P. Muldowney Accounting Officer)
/s/ RONALD K. BOHLIN Chief Operating Officer and April 16, 1999
- ----------------------------------------------------- Director
Ronald K. Bohlin
ROGER BROSSY* Director April 16, 1999
- -----------------------------------------------------
Roger Brossy
RALPH FINERMAN* Director April 16, 1999
- -----------------------------------------------------
Ralph Finerman
STEVEN B. FINK* Director April 16, 1999
- -----------------------------------------------------
Steven B. Fink
STANLEY E. MARON* Director April 16, 1999
- -----------------------------------------------------
Stanley E. Maron
RICHARD V. SANDLER* Director April 16, 1999
- -----------------------------------------------------
Richard V. Sandler
MICHAEL D. ROSE* Director April 16, 1999
- -----------------------------------------------------
Michael D. Rose
</TABLE>
*By: /s/ GRESHAM T. BREBACH,
JR.
Gresham T. Brebach,
Jr.
Attorney-in-Fact
II-12
<PAGE> 195
SCHEDULE II
NEXTERA ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS ACQUISITIONS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1997
Allowance for uncollectible
accounts.................. $ -- $ -- 100,000 $ -- $ 100,000
Year ended December 31, 1998
Allowance for uncollectible
accounts.................. $100,000 304,000 863,000 -- $1,267,000
</TABLE>
S-1
<PAGE> 196
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
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<S> <C> <C>
1.1(2) Form of Underwriting Agreement..............................
3.1(1) Amended and Restated Certificate of Incorporation...........
3.2(1) Amended and Restated Bylaws.................................
4.1(2) Form of Class A Common Stock Certificate....................
5.1(2) Opinion of Latham & Watkins.................................
10.1(1) 1998 Equity Participation Plan..............................
10.2(2) Nextera/Lexecon Limited Purpose Stock Option Plan...........
10.3(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto.......................
10.4(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company...........................................
10.5(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto...............................................
10.6(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company.............
10.7(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto.....................................
10.8(1) First Amendment to Purchase Agreement dated as of September
30, 1998 by and among Nextera Enterprises, L.L.C., Pyramid
Imaging, Inc., the former shareholders of Pyramid Imaging,
Inc. listed on the signature pages thereto and Nextera
Enterprises, Inc. ..........................................
10.9(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust Company...
10.10(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C. ...............................
10.11(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company...................
</TABLE>
<PAGE> 197
<TABLE>
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<S> <C> <C>
10.12(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto..............................
10.13(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc. ................................
10.14(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.............
10.15(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto.....................................
10.16(1) Escrow Agreement dated as of August 31, 1998 by and among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.............
10.17(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto.......................
10.18(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and the individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A (previously
filed as Exhibit 4.3 to this Registration Statement as filed
with the Commission on September 18, 1998)..................
10.19(1) First Amendment to Stockholders Agreement dated as of
December 15, 1998 by and among Nextera Enterprises, L.L.C.,
Nextera Enterprises, Inc. and the individuals and other
parties listed on the signature pages thereto (previously
filed as Exhibit 4.4 to Amendment No. 2 to this Registration
Statement as filed with the Commission on January 21,
1999).......................................................
10.20(1) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc.
(previously filed as Exhibit 4.5 to Amendment No. 2 to this
Registration Statement as filed with the Commission on
January 21, 1999) ..........................................
10.21(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc. .......................................................
10.22(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc. ......
10.23(1) Consent and Amendment dated as of December 31, 1998 to the
Securities Purchase Agreement dated as of August 31, 1998 by
and among Nextera Enterprises, L.L.C., Nextera Funding,
Inc., Nextera Enterprises, Inc. and Knowledge Universe,
Inc. .......................................................
10.24(1) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding,
Inc. .......................................................
10.25(1) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe,
Inc. .......................................................
10.26(1) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc. .....
</TABLE>
<PAGE> 198
<TABLE>
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<S> <C> <C>
10.27(1) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto.....................................................
10.28(1) Letter agreement dated as of December 31, 1998 by and among
Nextera Enterprises, Inc., Knowledge Universe, Inc. and the
individuals listed on the signature page thereto............
10.29(1) Warrant to Purchase Class A Common Stock of Nextera
Enterprises, Inc. dated as of December 31, 1998 issued to
Knowledge Universe, Inc. ...................................
10.30(1) Senior Secured Note dated January 28, 1999 of Nextera
Enterprises, Inc. in favor of Nextera Funding, Inc. ........
10.31(2) Amended and Restated Security and Pledge Agreement by and
between Nextera Enterprises, Inc. and Nextera Funding,
Inc. .......................................................
10.32(2) Amended and Restated Security and Pledge Agreement by and
between Pyramid Imaging, Inc. and Nextera Funding, Inc. ....
10.33(2) Amended and Restated Security and Pledge Agreement by and
between The Planning Technologies Group, L.L.C. and Nextera
Funding, Inc. ..............................................
10.34(2) Amended and Restated Security and Pledge Agreement by and
between Nextera Business Performance Solutions Group, Inc.
and Nextera Funding, Inc. ..................................
10.35(2) Amended and Restated Security and Pledge Agreement by and
between Sibson & Company, LLC and Nextera Funding, Inc. ....
10.36(2) Amendment to Subsidiary Guaranty by each of the corporations
listed on Annex A Attached thereto..........................
10.37(2) Second Amendment to Securities Purchase Agreement dated as
of April 15, 1999 by and among Nextera Enterprises, Inc.,
Knowledge Universe, Inc. and Nextera Funding, Inc. .........
10.38(1) Agreement relating to the sale and purchase of the whole of
the issued share capital of The Alexander Corporation
Limited dated as of January 29, 1999 by and among Nextera
Enterprises, Inc. and the parties listed on Schedule I
thereto.....................................................
10.39(1) Supplemental Deferred Consideration Agreement dated as of
January 29, 1999 by and among Nextera Enterprises, Inc.,
Graham Alexander and Arthur Morgan..........................
10.40(1) Loan Note Instrument dated as of January 29, 1999 of Nextera
Enterprises, Inc. ..........................................
10.41(1) Tax Deed of Covenant dated as of January 29, 1999 by and
among Nextera Enterprises, Inc. and the persons listed on
the Schedule thereto........................................
10.42(1) Charge of Shares dated as of January 29, 1999 by the persons
listed on Schedule I thereto in favor of Nextera
Enterprises, Inc. ..........................................
10.43(1) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000.................
10.44(1) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000.................
10.45(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.......................................
10.46(1) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.......................................
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
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BY
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EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.47(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.......................................
10.48(1) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.......................................
10.49(1) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $22,966,411.50 dated as of
December 31, 1997...........................................
10.50(2) First Amendment to Amended and Restated Debenture of Nextera
Enterprises, Inc. dated as of April 15, 1999................
10.51(1) Amended and Restated Debenture of Nextera Enterprises, Inc.
in the principal amount of $24,933,543.66 dated as of
December 31, 1997...........................................
10.52(2) First Amendment to Amended and Restated Debenture of Nextera
Enterprises, Inc. dated as of April 15, 1999................
10.53(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr. ....................................
10.54(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin......................................................
10.55(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney...................................................
10.56(2) Letter dated April 6, 1999 from Nextera Enterprises, Inc.,
to Michael P. Muldowney amending terms of Employment
Agreement...................................................
10.57(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.......................................................
10.58(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.........................
10.59(1) Noncompete, Non-solicitation, Proprietary Information,
Confidentiality and Inventions Agreement dated as of August
31, 1998 between Roger Brossy and Nextera Enterprises,
L.L.C.......................................................
10.60(1) Agreement dated as of December 31, 1998 by and between
Lexecon Inc. and Andrew M. Rosenfield.......................
10.61(1) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Daniel R.
Fischel.....................................................
10.62(1) Confidentiality and Proprietary Rights Agreement dated as of
December 31, 1998 between Lexecon Inc. and Dennis W.
Carlton.....................................................
10.63(1) Promissory Note of Gresham Brebach, Jr. dated January 2,
1998 in the principal amount of $576,000 in favor of Nextera
Enterprises Holdings, L.L.C.................................
10.64(1) Promissory Note of Michael Muldowney dated January 2, 1998
in the principal amount of $72,000 in favor of Nextera
Enterprises Holdings, L.L.C.................................
10.65(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C.................................
21.1(1) List of Subsidiaries........................................
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors..........
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors..........
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants.................................................
23.1.4(2) Consent of Ernst & Young LLP, Independent Auditors..........
23.1.5(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors....................................................
23.1.6(2) Consent of Farkouh, Furman & Faccio, Independent Auditors...
</TABLE>
<PAGE> 200
<TABLE>
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<S> <C> <C>
23.1.7(2) Consent of Grant Thornton...................................
23.1.8(2) Consent of Ernst & Young LLP, Independent Auditors..........
23.1.9(2) Consent of Ernst & Young LLP, Independent Auditors..........
23.2(2) Consent of Latham & Watkins (contained in Exhibit 5.1)......
24.1(1) Power of Attorney...........................................
24.2(1) Power of Attorney...........................................
27.1(2) Financial Data Schedule.....................................
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
[__________] Shares(1)
NEXTERA ENTERPRISES, INC.
Class A Common Stock
UNDERWRITING AGREEMENT
[__________], 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Nextera Enterprises, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS") [_______________] shares of the Class A Common
Stock, $0.001 par value per share, of the Company (the "FIRM SHARES"). The
Company also proposes to issue and sell to the several Underwriters not more
than an additional [_______] shares of its Class A Common Stock, $0.001 par
value per share (the "ADDITIONAL SHARES"), if requested by the Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter referred to collectively as the "SHARES". The shares of Class A
Common Stock and Class B Common Stock of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "COMMON STOCK".
- --------
(1) Insert number of shares to be sold (not including green shoe).
1
<PAGE> 2
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(B) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
[______________] Firm Shares and (ii) each Underwriter agrees, severally and not
jointly, to purchase from the Company at a price per Share of $[______] (the
"PURCHASE PRICE") the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to an aggregate of [_______] Additional
Shares from the Company at the Purchase Price. Additional Shares may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. The Underwriters may exercise their right
to purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and such
notice shall specify the aggregate number of Additional Shares to be purchased
pursuant to such exercise and the date for payment and delivery thereof, which
date shall be a business day (i) no earlier than two business days after such
notice has been given (and, in any event, no earlier than the Closing Date (as
hereinafter defined)) and (ii) no later than ten business days after such notice
has been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number
2
<PAGE> 3
of Additional Shares to be purchased from the Company as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I bears to
the total number of Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan, (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and (iii) the Company
may issue shares of Class A Common Stock in connection with acquisitions,
provided that the terms of such issuance provide that such Class A Common Stock
shall not be resold prior to the expiration of the 180 day period referenced in
the preceding sentence. The Company also agrees not to file any registration
statement (other than a registration statement on Form S-8 with respect to
shares of Class A Common Stock issued or issuable under the Company's 1998
Equity Participation Plan) with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. The Company
shall, prior to or concurrently with the execution of this Agreement, deliver an
agreement executed by (i) each of the directors and officers of the Company and
(ii) all stockholders of the Company except those listed on Annex I hereto to
the effect that such person will not, during the period commencing on the date
such person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
The Company hereby confirms its engagement of BT Alex. Brown ("BTAB")
as, and BTAB hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter", within the meaning of Section (b)(15)
of Rule 2720 of the By-laws of the National Association of
3
<PAGE> 4
Securities Dealers, Inc. with respect to the offering and sale of the Shares.
BTAB, solely in its capacity as the qualified independent underwriter and not
otherwise, is referred to herein as the "QIU". As compensation for the services
of the QIU hereunder, the Company agrees to pay the QIU $5,000 on the Closing
Date. The price at which the Shares will be sold to the public shall not be
higher than the maximum price recommended by the QIU.
SECTION 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Company, with any transfer
taxes thereon duly paid by the Company, to Donaldson, Lufkin & Jenrette
Securities Corporation through the facilities of The Depository Trust Company
("DTC"), for the respective accounts of the several Underwriters, against
payment to the Company of the Purchase Price therefore by wire transfer of
Federal or other funds immediately available in New York City. The certificates
representing the Shares shall be made available for inspection not later than
9:30 A.M., New York City time, on the business day prior to the Closing Date or
the applicable Option Closing Date (as defined below), as the case may be, at
the office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The
time and date of delivery and payment for the Firm Shares shall be 9:00 A.M.,
New York City time, on [________], 1999 or such other time on the same or such
other date as Donaldson, Lufkin & Jenrette Securities Corporation and the
Company shall agree in writing. The time and date of delivery and payment for
the Firm Shares are hereinafter referred to as the "CLOSING DATE". The time and
date of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as
the "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Testa, Hurwitz & Thibeault, LLP, High
Street Tower, 125 High Street, Boston, Massachusetts 02110 and the Shares shall
be
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delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you five (5) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
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<PAGE> 6
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period beginning on
the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act, and to advise you in writing when such
statement has been so made available.
(h) During the period of three years after the date of this Agreement, to
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<PAGE> 7
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its Subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Company's obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses (subject to
the provisions of clause (iv) below, other than the fees and expenses of counsel
to the Underwriters) in connection with the preparation, printing, filing and
distribution of the Registration Statement (including financial statements and
exhibits), any preliminary prospectus, the Prospectus and all amendments and
supplements to any of the foregoing, including the mailing and delivering of
copies thereof to the Underwriters and dealers in the quantities specified
herein during the period specified in Section 5(d) hereof, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and reasonable fees
and disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto) (not to exceed
$30,000), (v) the filing fees and disbursements of counsel for the Underwriters
in connection with the review and clearance of the offering of the Shares by the
National Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of the registration statement on Form
8-A relating to the Common Stock and all costs and expenses incident to the
listing of the Shares on the Nasdaq National Market, (vii) the cost of printing
certificates representing the Shares, (viii) the costs and charges of any
transfer agent, registrar and/or depositary, (ix) the reasonable fees and
expenses of the QIU (including the reasonable fees and disbursements of counsel
to the QIU, not to exceed $5,000), and (x) all other costs and expenses incident
to the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National
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<PAGE> 8
Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) will comply in all material respects with the Act and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements
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<PAGE> 9
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for use
therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its Subsidiaries has been duly incorporated
or formed, as applicable, is validly existing as a corporation or limited
liability company, as applicable, in good standing under the laws of its
jurisdiction of incorporation and has the corporate or limited liability company
power and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and each is duly qualified and is in
good standing as a foreign corporation or limited liability company, as
applicable, authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole.
Each of Nextera Business Performance Solutions Group, Inc., The Planning
Technologies Group, Inc., Pyramid Imaging, Inc., Timaeus, Inc., Critias, Inc.,
Sibson & Company, L.P., Sibson Canada Inc., Lexecon Inc. and the Alexander
Corporation Limited (together, the "Current Subsidiaries") is a direct or
indirect wholly-owned subsidiary of the Company, and there are no other direct
or indirect subsidiaries of the Company.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any subsidiary of the Company (each, a "SUBSIDIARY") relating to
or entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any Subsidiary, except as otherwise disclosed in
the Registration Statement.
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<PAGE> 10
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares to be issued and
sold by the Company have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock, limited liability
company interests or limited partnership interests, as applicable, of each of
the Subsidiaries have been duly authorized and validly issued and are fully paid
and non-assessable, and are owned by the Company, directly or indirectly through
one or more Subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of the Subsidiaries is in violation of
its respective charter, limited liability company agreement or limited
partnership agreement, as applicable, or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and the Subsidiaries, taken as a whole, to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company and the Current Subsidiaries, the compliance by the Company and the
Current Subsidiaries with all the provisions hereof and the consummation of the
transactions contemplated hereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as have been obtained and are in full
force and effect, or as may be required under the securities or Blue Sky laws of
the various states), (ii) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter, limited liability
company agreement or limited partnership agreement, as applicable, or by-laws of
the Company or any Subsidiary or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and
Subsidiaries, taken as a whole, to which the Company or any of the Subsidiaries
is a party or by which the Company or any of the Subsidiaries or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction
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over the Company, any of the Subsidiaries or their respective property or (iv)
result in the suspension, termination or revocation of any Authorization (as
defined below) of the Company or any of the Subsidiaries or any other material
impairment of the rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of the Subsidiaries is or, to the Company's
knowledge, could be a party or to which any of their respective property is or,
to the Company's knowledge, could be subject that are required to be described
in the Registration Statement or the Prospectus and are not so described; nor
are there any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not so described or
filed as required.
(l) Neither the Company nor any of the Subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and the Subsidiaries, taken as
a whole.
(m) Each of the Company and the Subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and the Subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such
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Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of the Subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and the Subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Ernst & Young LLP are independent public accountants with respect to
the Company, Symmetrix, Inc., SiGMA Consulting, LLC, Pyramid Imaging, Inc., and
Lexecon Inc. as required by the Act. BDO Seidman are independent public
accountants with respect to Symmetrix, Inc. as required by the Act.
Pricewaterhouse Coopers LLP are independent public accountants with respect to
Symmetrix, Inc. as required by the Act. Harte Carucci & Driscoll, P.C. are
independent public accountants with respect to The Planning Technologies Group,
Inc. as required by the Act. Farkouh, Furman & Faccio are independent public
accountants with respect to Sibson & Company, L.P. as required by the Act. Grant
Thornton are independent chartered accountants with respect to Sibson Canada,
Inc. as required by the Act.
(q) The consolidated financial statements of the Company and its
Subsidiaries included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), together with related schedules and notes,
present fairly the consolidated financial position, results of operations and
changes in financial position of the Company and its Subsidiaries on the basis
stated therein at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with generally accepted accounting principles the information
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required to be stated therein; the consolidated financial statements of the
Subsidiaries and their subsidiaries included in the Registration Statement and
the Prospectus (and any amendment or supplement thereto), together with related
schedules and notes, present fairly the consolidated financial position, results
of operations and changes in financial position of the Company and its
Subsidiaries on the basis stated therein at the respective dates or for the
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared in
good faith on the basis of the assumptions described in the Registration
Statement and such assumptions are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances referred to
therein. The unaudited pro forma combined financial statements of the Company
and its Subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its Subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the transactions contemplated by the Registration Statement and the Prospectus.
Such unaudited pro forma combined financial statements have been prepared in
accordance with the applicable requirements of Rule 11-02 of Regulation S-X
promulgated by the Commission. The other pro forma financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any supplement or amendment thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with the unaudited pro
forma combined financial statements.
(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) Except as described in the Registration Statement, there are no
contracts, agreements or understandings between the Company or any Current
Subsidiary and any person granting such person the right to require the Company
or any Current Subsidiary to file a registration statement under the Act with
respect to any securities of the Company or any Subsidiary or to require the
Company or any Subsidiary to include such securities with the Shares registered
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pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and the
Subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of the Subsidiaries
and (iii) neither the Company nor any of the Subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) The Company and the Subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("intellectual property") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of operation of the
Company and the Subsidiaries, taken as a whole; and, neither the Company nor any
of the Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of such intellectual property
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole.
(v) No relationship, direct or indirect, exists between or among the
Company or any of the Subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of the Subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(w) The transactions described in the Prospectus under the caption "The
Company--The Exchange Transaction" (the "EXCHANGE TRANSACTION") qualifies as a
tax-free incorporation under Section 351 of the Internal Revenue Code of 1986,
as amended (the "CODE"); and as a result thereof, the Company has not (a)
recognized income for federal, foreign, state or local tax purposes, nor (b)
succeeded to any federal, foreign, state or local tax liability of any other
entity or person, whether by reason of transferee liability or otherwise.
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(x) Each certificate signed by any officer of the Company or any Current
Subsidiary and delivered to the Underwriters or counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
SECTION 7. Indemnification. (a) The Company and the Current
Subsidiaries, jointly and severally, agree to indemnify and hold harmless each
Underwriter, its directors, its officers and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company and the Current Subsidiaries to such
Underwriter but only with reference to information relating to such Underwriter
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<PAGE> 16
furnished in writing to the Company by such Underwriter through you expressly
for use in the Registration Statement (or any amendment thereto), the Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act and
(ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and all persons, if any, who control the Company
within the meaning of either such Section, and all such fees and expenses shall
be reimbursed as they are incurred. In the case of any such separate firm for
the Underwriters, their officers and directors and such control persons of any
Underwriters, such firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation. In the case of any such separate firm for the
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<PAGE> 17
Company and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Subsidiaries on the one hand and the Underwriters on the other
hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company and the Subsidiaries on
the one hand and the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Subsidiaries on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(after deducting underwriting discounts and commissions, but before deducting
expenses) received by the Company, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Subsidiaries on the one
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<PAGE> 18
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Subsidiaries on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Current Subsidiaries and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7(d) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 8. Indemnification of QIU. (a) The Company and the Current
Subsidiaries, jointly and severally, agree to indemnify and hold harmless the
QIU, its directors, its officers and each person, if any, who controls the QIU
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) related to, based upon or arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the
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<PAGE> 19
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) the QIU's activities as QIU under its engagement pursuant to
Section 2 hereof, except in the case of this clause (ii) insofar as any such
losses, claims, damages, liabilities or judgments are found in a final judgment
by a court of competent jurisdiction, not subject to further appeal, to have
resulted solely from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) (the "QIU
INDEMNIFIED PARTY"), the QIU Indemnified Party shall promptly notify the Company
in writing and the Company shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the QIU Indemnified Party
and the payment of all fees and expenses of such counsel, as incurred. Any QIU
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company, (ii) the Company shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the QIU Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the QIU Indemnified Party and the Company, and the QIU Indemnified
Party shall have been advised by such counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of the QIU Indemnified Party). In
any such case, the Company shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all QIU Indemnified Parties, which firm shall be
designated by the QIU, and all such fees and expenses shall be reimbursed as
they are incurred. The Company and the Current Subsidiaries, jointly and
severally, shall indemnify and hold harmless the QIU Indemnified Party from and
against any and all losses, claims, damages, liabilities and judgments by reason
of any settlement of any action (i) effected with its written consent or (ii)
effected without its written consent if the settlement is entered into more than
twenty business days after the Company shall have received a request from the
QIU Indemnified Party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Company) and,
prior to the date of such settlement, the Company shall have failed to comply
with such reimbursement request. Neither the Company nor any Current Subsidiary
shall, without the prior written consent of the QIU Indemnified Party, effect
any
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<PAGE> 20
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the QIU Indemnified
Party is or could have been a party and indemnity or contribution may be or
could have been sought hereunder by the QIU Indemnified Party, unless such
settlement, compromise or judgment (i) includes an unconditional release of the
QIU Indemnified Party from all liability on claims that are or could have been
the subject matter of such action and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act, by or on behalf of the
QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 8 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the Company,
and the Subsidiaries, jointly and severally, in lieu of indemnifying such QIU
Indemnified Party, shall contribute to the amount paid or payable by such QIU
Indemnified Party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Subsidiaries on the one hand and the
QIU on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause 8(c)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(c)(i) above but also the relative fault of the Company and the
Subsidiaries on the one hand and the QIU on the other hand in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Subsidiaries on the one hand and the QIU on the other hand shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company as set forth in the table on the
cover page of the Prospectus, and the fee received by the QIU pursuant to
Section 2 hereof, bear to the sum of such total net proceeds and such fee. The
relative fault of the Company and the Subsidiaries on the one hand and the QIU
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the QIU and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission and whether the QIU's activities as QIU under its engagement pursuant
to Section 2 hereof involved any willful misconduct or gross negligence on the
part of the QIU.
The Company, the Current Subsidiaries and the QIU agree that it would
not be just and equitable if contribution pursuant to this Section 8(c) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately
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<PAGE> 21
preceding paragraph. The amount paid or payable by a QIU Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such QIU
Indemnified Party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Gresham T. Brebach, Jr. and Michael Muldowney, in their
capacities as the President and Chief Financial Officer of the Company,
respectively, confirming the matters set forth in Sections 6(t), 9(a) and 9(b)
and that the Company has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or satisfied
by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and the Subsidiaries, taken as
a whole,
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(ii) there shall not have been any change or any development involving a
prospective change in the capital stock or in the long-term debt of the Company
or any of the Subsidiaries and (iii) neither the Company nor any of the
Subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Latham &
Watkins, counsel for the Company, to the effect that:
(i) each of the Company and its Subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties;
(ii) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company and each Current Subsidiary;
(iv) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(v) the Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending its
effectiveness under the Act has been issued and no proceedings therefor
have been initiated or are contemplated by the Commission;
(vi) the statements under the captions "The Company,"
"Description of Capital Stock," "Underwriting," "Business - Legal
Proceedings," "Management - Employment Agreements" and "Certain
Transactions" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such
legal matters, documents and proceedings;
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<PAGE> 23
(vii) the execution, delivery and performance of this Agreement by
each of the Company and each Current Subsidiary, and the compliance by
the Company and each Current Subsidiary with all the provisions hereof
and the consummation of the transactions contemplated hereby, including
the issuance and sale of the Shares by the Company pursuant hereto, will
not (A) result in the violation by such entity of its certificate of
incorporation or bylaws or any federal statute, rule or regulation known
to such counsel to be applicable to the Company (other than federal or
state securities laws, which are specifically addressed elsewhere
herein) or in the breach of or a default under any agreement filed as an
exhibit to the Registration Statement or any other agreement or court
order identified to such counsel by an officer of the Company as being
material to the Company and the Current Subsidiaries, taken as a whole,
(B) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except
such as have been obtained under the Act and such as may be required
under state securities law in connection with the purchase and
distribution of such shares by the Underwriters), or (C) to the
knowledge of such counsel after due inquiry, result in the suspension,
termination or revocation of any Authorization of the Company or any
Current Subsidiary or any other impairment of the rights of the holder
of any such Authorization;
(viii) to the knowledge of such counsel after due inquiry, except as
set forth in the Registration Statement, there are no pending or
threatened legal or governmental proceedings that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(ix) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended;
(x) to such counsel's knowledge after due inquiry, except as
described in the Registration Statement, there are no contracts,
agreements or understandings between the Company or any of its
Subsidiaries and any person granting such person the right to require
the Company or any of its Subsidiaries to file a registration statement
under the Act with respect to any securities of the Company or to
require the Company to include such
23
<PAGE> 24
securities with the Shares registered pursuant to the Registration
Statement; and
(xi) the Registration Statement and the Prospectus and any
supplement or amendment thereto comply as to form in all material
respects with the requirements for registration statements on Form S-1
under the Act and the rules and regulations of the Commission
thereunder, it being understood, however, that such counsel need express
no opinion with respect to the financial statements or schedules or
other financial data included in, or omitted from, the Registration
Statement or the Prospectus; in addition, such counsel shall state that
they have participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and your representatives, at which
the contents of the Registration Statement and the Prospectus and
related matters were discussed and, although such counsel need not pass
upon, nor assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
the Prospectus and need not make any independent check or verification
thereof, all except as set forth in paragraphs (iv) and (vi) above, that
no facts have come to the attention of such counsel that cause such
counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus, as amended or supplemented, if applicable, contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; it being understood that
such counsel need express no belief with respect to the financial
statements or schedules or other financial and statistical data included
in, or omitted from, the Registration Statement or the Prospectus.
The opinion of Latham & Watkins described in Section 9(e) above shall be
rendered to you at the request of the Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Maron &
Sandler, counsel for the Company, to the effect that:
(i) each of the Company and its Subsidiaries has been duly
incorporated or formed, as applicable, is validly existing as a
corporation or limited liability company, as applicable, in good
standing under the laws of its jurisdiction of incorporation and has the
corporate or limited
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liability company power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its
properties;
(ii) each of the Company and its Subsidiaries is duly qualified
and is in good standing as a foreign corporation or limited liability
company, as applicable, authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company
and its Subsidiaries, taken as a whole;
(iii) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement will
be validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company and each Current Subsidiary;
(v) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights; such
shares have been offered and issued in compliance with all applicable
federal and state securities laws;
(vi) all of the outstanding shares of capital stock or
membership interests, as applicable, of each of the Company's
Subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable, and, except as disclosed in the Registration
Statement, are owned by the Company, directly or indirectly through one
or more Subsidiaries, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) all of the equity and voting capital of Nextera
Enterprises, L.L.C. was transferred to the Company pursuant to the
Exchange Transaction. The Exchange Transaction qualifies as a tax-free
incorporation under Section 351 of the Code and, as a result thereof,
the Company has not (a) recognized income for federal, foreign, state or
local
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<PAGE> 26
tax purposes, nor (b) succeeded to any federal, foreign, state or local
tax liability of any other entity or person, whether by reason of
transferee liability or otherwise.
(ix) the statements under the captions "the Company," "Description
of Capital Stock," "Underwriting," "Business - Legal Proceedings,"
"Management - Employment Agreements," "Certain Transactions" and "Risk
Factors - Control by Knowledge Universe or its Affiliates," insofar as
such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings;
(x) to the knowledge of such counsel after due inquiry, and except
as set forth in the Registration Statement, there are no legal or
governmental proceedings pending or threatened to which the Company or
any of its Subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(xi) to such counsel's knowledge after due inquiry, except as
described in the Registration Statement, there are no contracts,
agreements or understandings between the Company or any of its
Subsidiaries and any person granting such person the right to require
the Company or any of its Subsidiaries to file a registration statement
under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement;
(xii) the Registration Statement and the Prospectus and any
supplement or amendment thereto comply as to form in all material
respects with the requirements for registration statements on Form S-1
under the Act and the rules and regulations of the Commission
thereunder, it being understood, however, that such counsel need express
no opinion with respect to the financial statements or schedules or
other financial data included in, or omitted from, the Registration
Statement or the Prospectus; in addition, such counsel shall state that
they have participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company,
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<PAGE> 27
and your representatives, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and,
although such counsel need not pass upon, nor assume any responsibility
for, the accuracy, completeness or fairness of the statements contained
in the Registration Statement and the Prospectus and need not make any
independent check or verification thereof, all except as set forth in
paragraphs (vii) and (ix) above, that no facts have come to the
attention of such counsel that cause such counsel to believe that the
Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as amended or
supplemented, if applicable, contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express no belief
with respect to the financial statements or schedules or other financial
and statistical data included in, or omitted from, the Registration
Statement or the Prospectus.
The opinion of Maron & Sandler described in Section 9(f) above shall be
rendered to you at the request of the Company and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters,
as to the matters referred to in Sections 9(e)(ii), 9(e)(iii) (but only with
respect to the Company), 9(e)(vi) (but only with respect to the statements under
the caption "Description of Capital Stock" and "Underwriting") and 9(e)(xvii).
In giving such opinions with respect to the matters covered by Section
9(e)(xvii), counsel for the Company and the Underwriters may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, Harte Carucci &
Driscoll, P.C., Farkouh, Furman & Faccio and Grant Thornton, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
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<PAGE> 28
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company shall not have failed on or prior to the Closing Date to
perform or comply in any material respect with any of the agreements herein
contained and required to be performed or complied with by the Company on or
prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company and each Current Subsidiary, the due authorization
and issuance of such Additional Shares and other matters related to the issuance
of such Additional Shares.
SECTION 10. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects, or will materially and
adversely affect, the business, prospects, financial condition or results of
operations of the Company and the Subsidiaries, taken as a whole, (iv) the
declaration of a banking moratorium by either federal or New York State
authorities or (v) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
28
<PAGE> 29
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 11. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Nextera
29
<PAGE> 30
Enterprises, Inc., One Cranberry Hill, Lexington, Massachusetts 02421
and (ii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, any QIU Indemnified Party,
the Company, the officers or directors of the Company or any person controlling
the Company, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company and the Current Subsidiaries
agree, jointly and severally, to reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company and the Current Subsidiaries shall be liable for all
expenses which the Company has agreed to pay pursuant to Section 5(i) hereof.
The Company and the Current Subsidiaries also agree, jointly and severally, to
reimburse the several Underwriters, their directors and officers, any persons
controlling any of the Underwriters and the QIU Indemnified Parties for any and
all reasonable fees and expenses (including, without limitation, the reasonable
fees and disbursements of counsel) incurred by them in connection with enforcing
their rights hereunder (including, without limitation, pursuant to Section 7
hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Current
Subsidiaries, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the QIU Indemnified Parties, the
Company's directors and the Company's officers who sign the Registration
Statement and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Shares from any of the several
Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
30
<PAGE> 31
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Current Subsidiaries and the several Underwriters.
Very truly yours,
NEXTERA ENTERPRISES, INC.
By:________________________________________
Title:_____________________________________
NEXTERA BUSINESS PERFORMANCE SOLUTIONS
GROUP, INC.
By:________________________________________
Title:_____________________________________
THE PLANNING TECHNOLOGIES
GROUP, INC.
By:________________________________________
Title:_____________________________________
PYRAMID IMAGING, INC.
By:________________________________________
Title:_____________________________________
32
<PAGE> 33
SIBSON & COMPANY, LLC
By:________________________________________
Title:_____________________________________
SIBSON ACQUISITION CO.
By:________________________________________
Title:_____________________________________
SIBSON CANADA CO.
By:________________________________________
Title:_____________________________________
LEXECON INC.
By:________________________________________
Title:_____________________________________
[ALEXANDER GROUP INC.]
By:________________________________________
Title:_____________________________________
33
<PAGE> 34
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:__________________________
34
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
Underwriters Number of Firm Shares
to be Purchased
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation
BancBoston Robertson Stephens
BT Alex. Brown
NationsBanc Montgomery Securities LLC
Thomas Weisel Partners LLC
Total
</TABLE>
<PAGE> 36
Annex I
All stockholders of the Company
ii
<PAGE> 1
EXHIBIT 4.1
1998
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER__________ __________SHARES
NEXTERA ENTERPRISES, INC.
AUTHORIZED CAPITAL STOCK: 64,300,000 SHARES - PAR VALUE $0.0001 PER SHARE
<TABLE>
<CAPTION>
<S> <C>
50,000,000 SHARES CLASS A COMMON STOCK 10,000,000 SHARES SERIES A PREFERRED STOCK
4,300,000 SHARES CLASS B COMMON STOCK
</TABLE>
SEE REVERSE SIDE FOR STATEMENT OF RESTRICTIONS
CLASS A CUSIP 65332E 10 1
THIS CERTIFIES THAT ________________________________ is the registered holder of
_____________________________Shares of Class A Common Stock transferable only on
the books of the Corporation by the holder hereof in person or by Attorney upon
surrender of this Certificate properly endorsed.
The Corporation will furnish at its principal office, without charge to each
stockholder who so requests, a statement of the powers, designations,
preferences and relative participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal hereunto affixed
this _________ day of___________A.D._____
[SEAL]
________________________ ________________________
SECRETARY PRESIDENT
<PAGE> 2
For value received ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------/
/
- ------------------------------------/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
represented by the within certificate and, if required, do hereby irrevocably
constitute and appoint ________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation, with
full power of substitution in the premises.
Dated
-----------------------------
In presence of
--------------------------------, --------------------------------
THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND
APPLICABLE STATE SECURITIES LAWS AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS (X) THE SALE OR
TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (Y) THE
SALE OR TRANSFER IS IN COMPLIANCE WITH RULE
144 UNDER THE ACT, OR (Z) THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO
THE COMPANY) STATING THAT THE SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT
AND APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND VOTING SET FORTH
IN A STOCKHOLDERS AGREEMENT DATED AS OF
AUGUST 31, 1998. A COPY OF SUCH AGREEMENT MAY
BE OBTAINED FROM THE COMPANY UPON REQUEST.
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF LATHAM & WATKINS]
April 16, 1999
Nextera Enterprises, Inc.
One Cranberry Hill
Lexington, Massachusetts 02421
Re: Registration Statement No. 333-63789: 13,225,000 shares of Class A
Common Stock, par value $0.001 per share
Ladies and Gentlemen:
In connection with the registration of 13,225,000 shares of Class A common
stock, par value $0.001 per share (the "Shares"), under the Securities Act of
1933, as amended (the "Act"), by Nextera Enterprises, Inc., a Delaware
corporation (the "Company"), on Form S-1 filed with the Securities and Exchange
Commission (the "Commission") on September 18, 1998 (File No. 333-63789), as
amended by Amendment No. 1 filed with the Commission on December 4, 1998,
Amendment No. 2 filed with the Commission on January 21, 1999, Amendment No. 3
filed with the Commission on February 24, 1999, Amendment No. 4 filed with the
Commission on March 15, 1999, and Amendment No. 5 filed with the Commission on
April 16, 1999, (collectively, the "Registration Statement"), you have requested
our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Shares, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
<PAGE> 2
LATHAM & WATKINS
Nextera Enterprises, Inc.
April 16, 1999
Page 2
We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of any
other laws.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 10.2
THE NEXTERA/LEXECON LIMITED PURPOSE STOCK OPTION PLAN
OF
NEXTERA ENTERPRISES, INC.
Nextera Enterprises, Inc., a Delaware corporation, has adopted The
Nextera/Lexecon Limited Purpose Stock Option Plan (the "Plan"), effective March
18, 1999 for the benefit of eligible employees and consultants.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for key Employees and Consultants
(as such terms are defined below) to further the growth, development and
financial success of the Company by personally benefiting through the ownership
of Company stock.
(2) To enable the Company to obtain and retain the services of key
Employees and Consultants considered essential to the long range success of the
Company by offering them an opportunity to own stock in the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the entity that conducts
the general administration of the Plan as provided herein, and shall refer to
the Committee (or a delegate of the Committee under Section 7.5) unless the
Board has assumed the authority for administration of the Plan generally as
provided in Section 7.1.
1.3. Award Limit. "Award Limit" shall mean 110,205 shares of Class A
Common Stock, as adjusted pursuant to Section 8.3 of the Plan.
1.4. Board. "Board" shall mean the Board of Directors of the Company.
1.5. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 7.1.
1.7. Class A Common Stock. "Class A Common Stock" shall mean the Class A
Common Stock of the Company, par value $0.001 per share, and any equity security
of the Company issued or authorized to be issued in the future, but excluding
any preferred stock and any warrants, options or other rights to purchase Class
A Common Stock.
1.8. Common Stock. "Common Stock" shall mean the Class A Common Stock of
the Company, par value $0.001 per share, and the Class B Common Stock of the
Company,
<PAGE> 2
par value $0.001 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any preferred stock and any
warrants, options or other rights to purchase Common Stock.
1.9. Company. "Company" shall mean Nextera Enterprises, Inc., a Delaware
corporation.
1.10. Consultant. "Consultant" shall mean any consultant or adviser if:
(a) the consultant or adviser renders bona fide services to
Lexecon;
(b) the services rendered by the consultant or adviser are not
in connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a
market for the Company's securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with Lexecon to render such services.
1.11. Director. "Director" shall mean a member of the Board.
1.12. Disability. "Disability" shall mean, with respect to any Optionee,
(i) the suffering of any mental or physical illness, disability or incapacity
that shall in all material aspects preclude such Optionee from performing his or
her employment or consultant duties, or (ii) the absence of such Optionee from
his or her employment or consultant duties by reason of any mental or physical
illness, disability or incapacity for a period of ninety (90) days during any
one hundred twenty (120) day period; provided, however, in either case, that
such illness, disability or incapacity shall be reasonably determined to be of a
permanent nature by a licensed, board certified physician.
1.13. DRO. "DRO" shall mean a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
1.14. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of Lexecon.
1.15. Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
1.16. Fair Market Value. "Fair Market Value" of a share of Class A
Common Stock as of a given date shall be (a) the average closing price of a
share of Class A Common Stock on the principal exchange on which shares of Class
A Common Stock are then trading, if any (or as reported on any composite index
which includes such principal exchange), on the ten most current trading days
immediately prior to such date, or (b) if Class A Common Stock is not traded on
an exchange but is quoted on NASDAQ or a successor quotation system, the average
mean between the closing representative bid and asked prices for the Class A
Common Stock on the ten (10) most recent trading days immediately prior to such
date as reported by NASDAQ or such successor quotation system; or (c) if Class A
Common Stock is not publicly traded on an
2
<PAGE> 3
exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Class A Common Stock as established by the
Administrator acting in good faith. The Administrator shall determine the Fair
Market Value at least once each calendar quarter and such determination shall
apply until the Administrator has made another determination of Fair Market
Value.
1.17. Independent Director. "Independent Director" shall mean a member
of the Board who is not an Employee of the Company.
1.18. Lexecon. "Lexecon" shall mean Lexecon Inc., an Illinois
corporation. Lexecon is a Subsidiary of the Company.
1.19. Option. "Option" shall mean a stock option granted under the Plan
(collectively, "Options").
1.20. Option Agreement. "Option Agreement" shall mean a written
agreement in the form attached hereto as Exhibit A and as executed by an
authorized officer of the Company and the Optionee.
1.21. Optionee. "Optionee" shall mean a person who has been granted an
Option.
1.22. Plan. "Plan" shall mean The Nextera/Lexecon Limited Purpose Stock
Option Plan.
1.23. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.
1.24. Section 162(m) Participant. "Section 162(m) Participant" shall
mean any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.25. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.26. Subsidiary. "Subsidiary" shall mean (a) any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain, (b) any partnership in
which the Company is a general partner, (c) any limited liability company in
which the Company is a managing member, or (d) any partnership or limited
liability company in which the Company possesses a 50% or greater interest in
the total capital or total income of such partnership.
1.27. Termination for Cause. "Termination for Cause" shall mean the time
when the employee-employer or Consultant-employer relationship between an
Optionee and the Company or any Subsidiary is terminated for cause, as
termination for cause is defined in the
3
<PAGE> 4
Optionee's noncompetition/confidentiality, employment or consultancy agreement;
provided however, that if termination for cause is not therein defined, the
following shall constitute "Cause" for the termination of the Optionee's
employee-employer or Consultant-client relationship:
(a) material dishonest statements or acts of the Optionee with
respect to the Company or any affiliate of the Company;
(b) indictment of the Optionee for (i) a felony or (ii) any
misdemeanor involving moral turpitude, deceit, dishonesty or fraud
("indictment," for these purposes, meaning an indictment, probable cause
hearing or any other procedure pursuant to which an initial
determination of probable or reasonable cause with respect to such
offense is made);
(c) willful misconduct by the Optionee after three (3) days
written notice and an opportunity to cure;
(d) gross negligence, or willful failure or refusal of the
Optionee to comply with explicit directions of the Board after fifteen
(15) days written notice and an opportunity to cure.
In making any determination under this Section 1.27 the Board shall act
fairly and in good faith and shall give the Optionee an opportunity to appear
and be heard at a meeting of the Board or any committee thereof and present
evidence on his behalf.
1.28. Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of an Optionee as a Consultant to Lexecon is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Administrator, in its reasonable discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a Termination for Cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a Consultant's
service at any time for any reason whatsoever, with or without cause, except to
the extent expressly provided otherwise in writing.
1.29. Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between an Optionee and Lexecon
is terminated for any reason, with or without cause, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement; but excluding (a) terminations where there is a simultaneous
reemployment or continuing employment of an Optionee by the Company or any
Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of
4
<PAGE> 5
Employment, including, but not by way of limitation, the question of whether a
Termination of Employment resulted from a Termination for Cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Employment.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options shall be Class A
Common Stock, initially shares of the Company's Class A Common Stock,
par value $0.001 per share. The aggregate number of such shares which
may be issued upon exercise of such Options under the Plan shall not
exceed 2,644,920. The shares of Class A Common Stock issuable upon
exercise of such Options may be either previously authorized but
unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to
Options, granted under the Plan to any individual in any calendar year
shall not exceed the Award Limit. To the extent required by Section
162(m) of the Code, shares subject to Options which are canceled
continue to be counted against the Award Limit.
ARTICLE III.
GENERAL PROVISIONS
3.1. Option Agreement. Each Option shall be evidenced by an Option
Agreement. Option Agreements evidencing Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. No Option granted under
this plan shall be an "incentive stock option" within the meaning of Section 422
of the Code.
3.2. Provisions Applicable to Section 162(m) Participants. The
Committee, in its discretion, may determine whether an Option is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Option granted to any individual
who is then subject to Section 16 of the Exchange Act, shall be subject to any
additional limitations set forth in any applicable exemptive rule under Section
16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange
Act) that are requirements for the application of such exemptive rule. To the
extent permitted by applicable law, the Plan and Options granted hereunder shall
be deemed amended to the extent necessary to conform to such applicable
exemptive rule.
5
<PAGE> 6
3.4. Consideration. In consideration of the granting of an Option under
the Plan, the Optionee shall agree, in the Option Agreement, to render faithful
and efficient services to the Company or a Subsidiary.
3.5. At-Will Employment. Nothing in the Plan or in any Option Agreement
hereunder shall confer upon any Optionee any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Optionee at any time for any reason whatsoever, with or without cause,
except to the extent expressly provided otherwise in a written employment
agreement between the Optionee and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS
4.1. Eligibility. Any Employee or Consultant selected by the Committee
pursuant to Section 4.2(a)(i) shall be eligible to be granted an Option.
4.2. Granting of Options to Employees and Consultants.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and
select from among the key Employees or Consultants (including
Employees or Consultants who have previously received Options
under the Plan) such of them as in its opinion should be granted
Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or Consultants;
(iii) Determine whether such Options are to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code
shall include, but not be limited to, such terms and conditions
as may be necessary to satisfy the applicable provisions of
Section 162(m) of the Code.
6
<PAGE> 7
(b) Upon the selection of a key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant
of the Option as it deems appropriate.
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each
Option granted to Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than the par value of a
share of Class A Common Stock, unless otherwise permitted by applicable state
law and, in the case of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price shall
not be less than 100% of the Fair Market Value of a share of Class A Common
Stock on the date the Option is granted.
5.2. Option Term. The term of an Option granted to an Employee or
Consultant shall be set by the Committee in its discretion; provided, however,
that:
(a) No Option may have a term that extends beyond the expiration
of ten (10) years from the date the Option was granted;
(b) The Committee may extend the term of any outstanding Option
in connection with any Termination of Employment or Termination of
Consultancy of the Optionee, or (subject to Section 8.2) amend any other
term or condition of such Option relating to such a termination; and
(c) Unless otherwise permitted by applicable securities laws, in
the event of an Optionee's Termination of Employment or Termination of
Consultancy for any reason except death, Disability or Termination for
Cause, the Optionee shall have at least sixty (60) days from the date of
such Termination of Employment or Termination of Consultancy to exercise
the Option, and in the event of an Optionee's Termination of Employment
or Termination of Consultancy due to the Optionee's death or Disability,
the Optionee shall have at least one hundred eighty (180) days from the
date of such Termination of Employment or Termination of Consultancy to
exercise the Option. Notwithstanding the forgoing, if an Optionee's
Termination of Employment or Termination of Consultancy also qualifies
as a Termination for Cause, the Company, in its discretion, may
terminate the Optionee's right to exercise his or her Options on the
date of such termination or such other time as the Committee (or the
Board in the case of Options granted to Independent Directors), in its
discretion, shall deem appropriate.
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5.3. Option Vesting
(a) The period during which the right to exercise, in whole or
in part, an Option granted to an Employee or a Consultant vests in the
Optionee shall be set by the Committee and the Committee may determine
that an Option may not be exercised in whole or in part for a specified
period after it is granted; provided, however, that, unless the
Committee otherwise provides in the terms of the Option Agreement or
otherwise, no Option shall be exercisable by any Optionee who is then
subject to Section 16 of the Exchange Act within the period ending six
months and one day after the date the Option is granted. At any time
after grant of an Option, the Committee may, in its sole and absolute
discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option granted to an Employee or
Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant
which is unexercisable at Termination of Employment or Termination of
Constancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Committee either in the Option
Agreement or by action of the Committee following the grant of the
Option; provided, however that if an Optionee's employment, in the case
of an Employee, or provision of services, in the case of a Consultant,
is terminated (i) by reason of death or Disability or (ii) by the
Company under circumstances which do not constitute Termination for
Cause, the Option shall become exercisable with respect to one-hundred
percent (100%) of the Class A Common Stock subject to such Option.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in whole
or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion of the
Option;
(b) Such representations and documents as the Administrator, in
its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Administrator
may, in its absolute discretion, also take whatever additional actions
it deems appropriate to effect such compliance including, without
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limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 8.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is
exercised. However, the Administrator, may in its discretion (i) allow a
delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Class A Common Stock which have been
owned by the Holder for at least six months, duly endorsed for transfer
to the Company with a Fair Market Value on the date of delivery equal to
the aggregate exercise price of the Option or exercised portion thereof;
(iii) allow payment, in whole or in part, through the delivery of a full
recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator; (iv)
allow payment through any combination of the consideration provided in
the foregoing subparagraphs (ii) and (iii). In the case of a promissory
note, the Administrator may also prescribe the form of such note and the
security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by
law.
6.3. Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in
its absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to
time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the
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Administrator may be in the form of consideration used by the Holder to
pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders. Optionees shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Optionees.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Option Agreement and may be referred to on the certificates evidencing such
shares.
6.6. Additional Limitations on Exercise of Options. Optionees may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII.
ADMINISTRATION
7.1. Compensation Committee. Prior to the Company's initial registration
of Class A Common Stock under Section 12 of the Exchange Act, the Compensation
Committee shall consist of the entire Board. Following such registration, the
Compensation Committee (or another committee or a subcommittee of the Board
assuming the functions of the Committee under the Plan) shall consist solely of
two or more Independent Directors appointed by and holding office at the
pleasure of the Board, each of whom is both a "non-employee director" as defined
by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the
Code. Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.
7.2. Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Option Agreements, and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Option Agreement
provided that the rights or obligations of the Optionee of the Option that is
the subject of any such Option Agreement are not affected adversely. Any such
grant under the Plan need not be the same with respect to each Optionee. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan except with
respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
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7.3. Majority Rule; Unanimous Written Consent. The Committee shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
7.4. Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Options, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
7.5. Delegation of Authority to Grant Options. The Committee may, but
need not, delegate from time to time some or all of its authority to grant
Options under the Plan to a committee consisting of one or more members of the
Committee or of one or more officers of the Company; provided, however, that the
Committee may not delegate its authority to grant Options to individuals (i) who
are subject on the date of the grant to the reporting rules under Section 16(a)
of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 7.5 shall serve in such capacity at the pleasure of the
Committee.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1. Not Transferable. No Option under the Plan may be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent of the Administrator, pursuant to a
DRO, unless and until such Option has been exercised, or the shares underlying
such Option have been issued, and all restrictions applicable to such shares
have lapsed. No Option or interest or right therein shall be liable for the
debts, contracts or engagements of the Optionee or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
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During the lifetime of the Optionee, only he may exercise an Option (or
any portion thereof) granted to him under the Plan, unless it has been disposed
of with the consent of the Administrator pursuant to a DRO. After the death of
the Optionee, any exercisable portion of an Option may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable Option
Agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
8.2. Amendment, Suspension or Termination of the Plan. Except as
otherwise provided in this Section 8.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
8.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination of
the Plan shall, without the consent of the Optionee alter or impair any rights
or obligations under any Option theretofore granted, unless the Option itself
otherwise expressly so provides. No Options may be granted during any period of
suspension or after termination of the Plan.
8.3. Changes in Class A Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 8.3 (d), in the event that the
Administrator determines that any dividend or other distribution
(whether in the form of cash, Class A Common Stock, other securities, or
other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of
the assets of the Company, or exchange of Class A Common Stock or other
securities of the Company, issuance of warrants or other rights to
purchase Class A Common Stock or other securities of the Company, or
other similar corporate transaction or event, in the Administrator's
sole discretion, affects the Class A Common Stock such that an
adjustment is determined by the Administrator to be appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to an
Option, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of
(i) the number and kind of shares of Class A Common
Stock (or other securities or property) with respect to which
Options may be granted (including, but not limited to,
adjustments of the limitations in Section 2.1 on the maximum
number and kind of shares which may be issued and adjustments of
the Award Limit),
(ii) the number and kind of shares of Class A Common
Stock (or other securities or property) subject to outstanding
Options, and
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(iii) the grant or exercise price with respect to any
Option.
(b) Subject to Sections 8.3(d) and (e), in the event of any
transaction or event described in Section 8.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate
of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Administrator, in its sole and absolute discretion, and
on such terms and conditions as it deems appropriate, either by the
terms of the Option or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the Optionee's
request, is hereby authorized to take any one or more of the following
actions whenever the Administrator determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or
with respect to any Option under the Plan, to facilitate such
transactions or events or to give effect to such changes in laws,
regulations or principles:
(i) To provide for either the purchase of any such
Option for an amount of cash equal to the amount that could have
been attained upon the exercise of such Option or realization of
the Optionee's rights had such Option been currently exercisable
or payable or fully vested or the replacement of such Option
with other rights or property selected by the Administrator in
its sole discretion;
(ii) To provide that the Option cannot vest, be
exercised or become payable after such event;
(iii) To provide that such Option shall be exercisable
as to all shares covered thereby, notwithstanding anything to
the contrary in Section 5.3 or the provisions of such Option;
(iv) To provide that such Option be assumed by the
successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options, rights
or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) To make adjustments in the number and type of shares
of Class A Common Stock (or other securities or property)
subject to outstanding Options, and/or in the terms and
conditions of (including the grant or exercise price), and the
criteria included in, outstanding Options, and Options which may
be granted in the future.
(c) Subject to Sections 8.3(d), 3.2 and 3.3, the Administrator
may, in its discretion, include such further provisions and limitations
in any Option, agreement or certificate, as it may deem equitable and in
the best interests of the Company.
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(d) With respect to Options which are granted to Section 162(m)
Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C), no adjustment or action
described in this Section 8.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would
cause such Option to fail to so qualify under Section 162(m)(4)(C), or
any successor provisions thereto. Furthermore, no such adjustment or
action shall be authorized to the extent such adjustment or action would
result in short-swing profits liability under Section 16 or violate the
exemptive conditions of Rule 16b-3 unless the Administrator determines
that the Option is not to comply with such exemptive conditions. The
number of shares of Class A Common Stock subject to any Option shall
always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the Company
becomes a party to a transaction that is intended to qualify for
"pooling of interests" accounting treatment and, but for one or more of
the provisions of this Plan or any Option Agreement would so qualify,
then this Plan and any Option Agreement shall be interpreted so as to
preserve such accounting treatment, and to the extent that any provision
of the Plan or any Option Agreement would disqualify the transaction
from pooling of interests accounting treatment (including, if
applicable, an entire Option Agreement), then such provision shall be
null and void. All determinations to be made in connection with the
preceding sentence shall be made by the independent accounting firm
whose opinion with respect to "pooling of interests" treatment is
required as a condition to the Company's consummation of such
transaction.
(f) The existence of the Plan, the Option Agreement and the
Options granted hereunder shall not affect or restrict in any way the
right or power of the Company or the shareholders of the Company to make
or authorize any adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants
or rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Class A
Common Stock or the rights thereof or which are convertible into or
exchangeable for Class A Common Stock, or the dissolution or liquidation
of the company, or any sale or transfer of all or any part of its assets
or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8.4. Tax Withholding. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Optionee of any
sums required by federal, state or local tax law to be withheld with respect to
the issuance, vesting, exercise or payment of any Option.
8.5. Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Option
granted under the Plan. The terms and conditions of any such loan shall be set
by the Committee.
8.6. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Options under the Plan, the
Administrator shall have the right
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to provide, in the terms of Options made under the Plan, or to require an
Optionee to agree by separate written instrument, that (a) (i) any proceeds,
gains or other economic benefit actually or constructively received by the
Optionee upon any receipt or exercise of the Option, or upon the receipt or
resale of any Class A Common Stock underlying the Option, must be paid to the
Company, and (ii) the Option shall terminate and any unexercised portion of the
Option (whether or not vested) shall be forfeited, if (b) (i) a Termination of
Employment or Termination of Consultancy occurs prior to a specified date, or
within a specified time period following receipt or exercise of the Option, or
(ii) the Optionee at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the
Administrator.
8.7. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
8.8. Lock-Up in Connection with Initial Public Offering. Each Option
Agreement issued pursuant to this Plan prior to the initial public offering of
the Company's Common Stock shall include provisions substantially similar to the
following:
"To induce the underwriters that may participate in an initial
public offering (the "Initial Public Offering") of the Company's Common
Stock to continue their efforts in connection with the Initial Public
Offering, the undersigned, during the period commencing on the date
hereof and ending 180 days after the date of the final prospectus
relating to the Initial Public Offering:
(i) agrees not to (x) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock
(including, without limitation, shares of Common Stock or
securities convertible into or exercisable or exchangeable for
Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the
Securities and Exchange Commission) or (y) enter into any swap
or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any
Common Stock (regardless of whether any of the transactions
described in clause (x) or (y) is to be settled by the delivery
of Common Stock, or such other securities, in cash or
otherwise), without prior written consent of the lead managing
underwriter of such Initial Public Offering;
(ii) agrees not to make any demand for, or exercise any
right with
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<PAGE> 16
respect to, the registration of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable
for Common Stock, without the prior written consent of [the lead
underwriter]; and
(iii) authorizes the Company to cause the transfer agent
to decline to transfer and/or to note stop transfer restrictions
on the transfer books and records of the Company with respect to
any shares of Common Stock and any securities convertible into
or exercisable or exchangeable for Common Stock for which the
undersigned is the record holder and, in the case of any such
shares or securities for which the undersigned is the beneficial
but not the record holder, agrees to cause the record holder to
cause the transfer agent to decline to transfer and/or to note
stop transfer restrictions on such books and records with
respect to such shares or securities.
Notwithstanding the foregoing, the restrictions set forth in clauses
(i), (ii) and (iii) above shall not apply to any transfer of Common
Stock to a "Controlled Affiliate" or pursuant to a "Qualified Transfer"
(as each such term is defined in the Company's Amended and Restated
Certificate of Incorporation); provided that prior to any such transfer
the transferee agrees in writing to be bound by the provisions of this
Section ___.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into the agreements set forth in this
Section, and that, upon request, the undersigned will execute any
additional documents necessary or desirable in connection with the
enforcement hereof. All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of the undersigned and
any obligations of the undersigned shall be binding upon the heirs,
personal representatives, successors, and assigns of the undersigned."
8.9. Compliance with Laws. The Plan, the granting and vesting of Options
under the Plan and the issuance and delivery of shares of Class A Common Stock
and the payment of money under the Plan or under Options granted hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
8.10. Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.
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8.11. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Nextera Enterprises, Inc. as of December 30, 1998.
/s/ Stanley E. Maron
----------------------------------------
Stanley E. Maron
Secretary
<PAGE> 1
EXHIBIT 10.31
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
This AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated
as of March 30, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Agreement"), is made by NEXTERA ENTERPRISES,
INC., a Delaware corporation (the "Grantor"), in favor of NEXTERA FUNDING, INC.,
a Delaware corporation (in its individual capacity, "Funding"), as agent (in
such capacity, the "Agent") for the benefit of itself and Knowledge Universe,
Inc., a Delaware corporation ("KU", together with Funding, the "Secured
Parties", and individually, each a "Secured Party").
RECITALS:
WHEREAS, Funding entered into a Securities Purchase Agreement
dated as of August 31, 1998 (as the same may be amended, supplemented or other-
wise modified from time to time, the "Securities Purchase Agreement") with
Nextera Enterprises, L.L.C. ("Nextera LLC").
WHEREAS, Nextera LLC and Funding entered into the Security and
Pledge Agreement, dated as of August 31, 1998 (the "Original Security and Pledge
Agreement"), pursuant to which Nextera LLC pledged and granted to Funding a
security interest in and lien on the Collateral (as defined therein).
WHEREAS, in connection with the dissolution of Nextera LLC
pursuant to the Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera LLC, the Grantor, the shareholders of SC2, Inc., the shareholders
of Sibson & Company, Inc. and certain shareholders of Sibson Acquisition Co.,
the ownership interests in Nextera LLC were transferred to the Grantor on
December 31, 1998.
WHEREAS, the Grantor is the owner of the shares (the "Pledged
Shares") of stock described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "Pledged Debt")
described in Part II of said Schedule I and issued by the obligors named
therein.
WHEREAS, in connection with the execution of the Consent and
Amendment, dated as of December 31, 1998 (as the same may be amended, supple-
mented or otherwise modified from time to time) among Nextera LLC, Funding, the
Grantor and KU and the Assignment Agreement, dated as of December 31, 1998 (as
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the same may be amended, supplemented or otherwise modified from time to time)
by and between Funding and KU and in order to induce KU to purchase certain
Notes pursuant to the Securities Purchase Agreement, the Grantor (formerly
Nextera LLC) and Funding would like to amend and restate the Original Security
and Pledge Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Original Security and Pledge Agreement is hereby amended and restated in its
entirety as follows:
SECTION 1. Definitions. As used herein, capitalized terms
defined in the Securities Purchase Agreement and not otherwise defined herein
are used herein as so defined. The following terms shall have the following
meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in
Section 9-106 of the UCC.
"Agent" shall mean Nextera Funding, Inc. in its capacity as
agent for the benefit of the Secured Parties, or its successor.
"Agreement" shall mean this Pledge and Security Agreement, as
the same may from time to time be amended, supplemented or otherwise
modified.
"Chattel Paper" shall mean "chattel paper" as such term is
defined in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer
software, computer printouts, customer lists, blueprints, technical
specifications, manuals, and similar items which relate to any Collat-
eral other than such items obtained under license or franchise agree-
ments which prohibit assignment or disclosure of such items.
"Contracts" shall mean all contracts to which the Grantor now
is, or hereafter will be, bound, or a party, beneficiary or assignee,
and
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all other instruments, agreements and documents executed and delivered
with respect to such contracts, and all revenues, rentals, Proceeds and
other sums of money due and to become due from any of the foregoing, as
the same may be modified, supplemented or amended from time to time in
accordance with their terms.
"Deposit Accounts" shall mean any deposit account, including
without limitation, "deposit accounts" as such term is defined in
Section 9-105(1)(e) of the UCC and any other deposit account, together
with any funds, instruments or other items credited to any such account
from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(1)(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures,
vehicles, motor vehicles, and any manuals, instructions, blueprints,
computer software and similar items which relate to the above, and any
and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all improvements thereon and
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"Fixtures" shall mean "fixtures" as such term is defined in Sec-
tion 9-313 of the UCC.
"Funding" shall mean Nextera Funding, Inc., a Delaware
corporation, in its individual capacity, and its successors and assigns.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC, including, without
limitation, all trademarks, trademark applications, trademark registra-
tions, tradenames, fictitious business names, business names, company
names, business identifiers, prints, labels, trade styles and service
marks (whether or not registered), including logos and/or designs,
copyrights, patents, patent applications, goodwill of the Grantor's
business symbolized by any of the foregoing, trade secrets, license
rights, license agreements, permits, franchises, and any rights
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to tax refunds to which the Grantor is now or hereafter may be entitled.
"Hedging Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar interest
rate or currency exchange agreements or other interest rate or currency
hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined
in Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including
without limitation the insurance policies listed on Schedule II attached
hereto.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC, including without limitation, all goods
(whether such goods are in the possession of the Grantor or of a bailee
or other Person for sale, lease, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, compo-
nents, supplies, materials or consigned or returned or repossessed
goods), including without limitation, all such goods whether raw, in
process or finished, all materials usable in processing the same and all
documents of title covering any inventory, including but not limited to
work in process, materials used or consumed in Grantor's business, now
owned or hereafter acquired or manufactured by the Grantor and held for
sale in the ordinary course of its business; all present and future
substitutions therefor, parts and accessories thereof and all additions
thereto; and all proceeds thereof and products of such inventory in any
form whatsoever.
"KU" shall mean Knowledge Universe, Inc., a Delaware
corporation, and its successors and assigns.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, if title thereto is governed by a certificate
of title ownership.
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"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, trust or other enterprise
or any government or political subdivision or agency, department or
instrumentality thereof.
"Pledged Debt" shall have the meaning specified in the second
recital to this Agreement.
"Pledged Shares" shall have the meaning specified in the second
recital to this Agreement.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and
all rights in respect of the Account Debtor, including without
limitation, all such rights in which the Grantor has any right, title or
interest by reason of the purchase thereof by the Grantor, and includ-
ing without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible, note, contract,
invoice, purchase order, draft, acceptance, intercompany account,
security agreement, or other evidence of indebtedness or security,
together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement
granting a security interest in such collateral, (b) all goods, the sale
of which gave rise to any of the foregoing, including, without
limitation, all rights in any returned or repossessed goods and unpaid
seller's rights, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, and (d) all powers of attorney for the
execution of any evidence of indebtedness or security or other writing
in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets
or cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the
control of the Grantor or any computer bureau or agent from time to time
acting for the Grantor or otherwise, (c) all evidences
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<PAGE> 6
of the filing of financing statements and the registration of other
instruments in connection therewith and amendments, supplements or other
modifications thereto, notices to other creditors or secured parties,
and certificates, acknowledgments, or other writings, including without
limitation lien search reports, from filing or other registration
officers, (d) all credit information, reports and memoranda relating
thereto, and (e) all other written or non-written forms of information
related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations,
liabilities (including, without limitation, contingent obligations) and
indebtedness of every nature of the Grantor, now existing or hereafter
incurred, arising under or in connection with the Securities Purchase
Agreement, any Note, any other Financing Document or this Agreement and
(b) in the case of Funding only, all other obligations, liabilities of
every kind, nature or description, direct or indirect, primary or
secondary, joint or several, absolute or contingent of the Grantor to
the Agent or any Secured Party whether due or to become due and whether
now existing or hereafter incurred and whether similar or dissimilar to
the obligations described in clause (a) hereof, and including without
limitation all consumer or commercial transactions, all purchase money
and nonpurchase money transactions, all overdrafts, all letters of
credit, all lines of credit and all other extensions of credit,
regardless of how they may be evidenced.
"Secured Parties" shall mean, collectively, Funding and KU; and
"Secured Party" shall mean, individually, each of Funding and KU.
"Securities Purchase Agreement" shall have the meaning specified
in the first recital to this Agreement.
"Security Collateral" shall mean:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
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(iii) all additional shares of stock from time to time
acquired by the Grantor in any manner, and the certificates representing
such additional shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distrib-
uted in respect of or in exchange for any or all of such shares; and
(iv) all additional indebtedness from time to time owed to
the Grantor and the instruments evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in ex-
change for any or all of such indebtedness.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2. Grant of Security Interests. As security for the
prompt and complete payment and performance in full of all the Secured Obliga-
tions, the Grantor hereby confirms and grants to the Agent for the benefit of
the Secured Parties a security interest in and lien on all of the Grantor's
right, title and interest in, to and under the following, in each case, whether
now owned or existing or hereafter acquired or arising, and wherever located
(all of which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Collateral Records;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Hedging Agreements;
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(k) all Instruments;
(l) all Insurance Policies;
(m) all Inventory;
(n) all Money;
(o) all Motor Vehicles;
(p) all Receivables;
(q) all Receivables Records;
(r) all other tangible and intangible personal property;
(s) all of the Security Collateral; and
(t) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing.
SECTION 3. Grantor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
for the benefit of the Secured Parties of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither the Agent nor any
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement and shall be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Security Collateral. All certificates or
instruments representing or evidencing the Security Collateral shall be
delivered to and held by or on behalf of the Agent for the benefit of the
Secured Parties pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Agent. If
any Event of Default shall have occurred and be continuing, the Agent shall have
the right, at any time in its discretion and without
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notice to the Grantor, to transfer to or to register in the name of the Agent
for the benefit of the Secured Parties or any of its nominees any or all of the
Security Collateral, subject only to the revocable rights specified in Section
10(a). In addition, the Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Security Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Grantor repre-
sents and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule III hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and the originals of all chattel paper that
evidence Receivables, are located at its address specified in Section 19. The
originals of all chattel paper that evidence Receivables have been delivered to
the Agent for the benefit of the Secured Parties. Except for Receivables listed
on Schedule IV attached hereto, none of the Receivables is evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
except for Permitted Liens. No effective financing statement or other document
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent for
the benefit of the Secured Parties relating to this Agreement and except as set
forth on Schedule 6.11 to the Securities Purchase Agreement. The Grantor has the
trade names listed on Schedule V attached hereto.
(c) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuers thereof, and is not in default.
(e) The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the respective issuers thereof
indicated on Schedule I. The Pledged Debt is outstanding in the principal
amount indicated on Schedule I.
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(f) This Agreement and the pledge of the Security Collateral
pursuant hereto create a valid and perfected security interest in the
Collateral, securing the payment of the Secured Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
(g) No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (i) for the pledge by
the Grantor of the Security Collateral pursuant to this Agreement, for the grant
by the Grantor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by the Grantor, (ii) for the
perfection or maintenance of the pledge and security interest created hereby or
(iii) for the exercise by the Agent for the benefit of the Secured Parties of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally).
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
(j) The Grantor has, independently and without reliance upon
the Agent and based on such documents and information as it has deemed appropri-
ate, made its own credit analysis and decision to enter into this Agreement.
SECTION 6. Further Assurances. (a) The Grantor agrees that from
time to time, at the expense of the Grantor, the Grantor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Agent may reasonably request, in
order to perfect and protect any pledge or security interest granted or
purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will: (i) as reasonably
requested by the Agent, mark conspicuously each document included in the
Inventory and each chattel paper included in the Receivables, each Contract
and, at the request of the Agent, each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Contract or Collateral is subject
to the pledge and security interest granted hereby; (ii) if any Collateral shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Agent
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for the benefit of the Secured Parties hereunder such note or instrument or
chattel paper duly indorsed and accompanied by duly executed instruments of
transfer, all in form and substance satisfactory to the Agent; and (iii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as the
Agent may request, in order to perfect and preserve the pledge and security
interest granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 7. As to Equipment and Inventory.
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business or movement of
other Equipment valued not greater than $300,000 in the ordinary course of
business in connection with rendering services to Grantor's clients) at the
places therefor specified in Section 5(a) or, upon 30 days' prior written
notice to the Agent, at such other places in jurisdiction where all action
required by Section 6 shall have been taken with respect to the Equipment and
Inventory.
(b) The Grantor shall cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Agent a statement respecting any loss or damage to any
of the Equipment in excess of $500,000.
(c) The Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment
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and Inventory. In producing the Inventory, the Grantor shall comply with all
requirements of the Fair Labor Standards Act.
SECTION 8. Insurance. (a) The Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent for the benefit
of the Secured Parties and the Grantor as their respective interests may appear
and each policy for property damage insurance shall provide for all losses
(except for losses of less than $50,000 per occurrence) to be paid directly to
the Agent for the benefit of the Secured Parties. Each such policy shall in
addition (i) name the Grantor and the Agent for the benefit of the Secured
Parties as insured parties thereunder (without any representation or warranty by
or obligation upon the Agent) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the Agent
for the benefit of the Secured Parties notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (iii) provide that there
shall be no recourse against the Agent for payment of premiums or other amounts
with respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Agent by the insurer.
The Grantor shall, if so requested by the Agent, deliver to the Agent original
or duplicate policies of such insurance and, as often as the Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance.
(b) Reimbursement under any liability insurance maintained
by the Grantor pursuant to this Section 8 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 8 shall be paid to
the Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of
any Event of Default, or (ii) the actual or constructive total loss (in excess
of $50,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by the
Agent for the benefit of the Secured Parties as specified in Section 15(b).
SECTION 9. Place of Perfection; Records; Collection of
Receivables. (a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of
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all chattel paper that evidenced Receivables, at the location therefor specified
in Section 5(a) or, upon 30 days' prior written notice to the Agent, at any
other locations in a jurisdiction where all actions required by Section 6 shall
have been taken with respect to the Receivables. The Grantor will hold and
preserve such records and chattel paper and will permit representatives of the
Agent at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect, at its own expense, all amounts due or to
become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take and, at the Agent's direction, shall take such
action as the Grantor or the Agent may deem reasonably necessary or advisable to
enforce collection of the Receivables; provided, however, that, upon the
occurrence and during the continuance of any Event of Default, the Agent shall
have the right at any time, upon written notice to the Grantor of its intention
to do so, to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent for
the benefit of the Secured Parties and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the Agent
for the benefit of the Secured Parties hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent for the
benefit of the Secured Parties in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, applied as
provided by Section 15(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default or event which, with the giving of notice or the lapse of time,
or both, would become an Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Security Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the
Securities Purchase Agreement; provided, however, that the Grantor
shall not exer-
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cise or refrain from exercising any such right if, in the Agent's
judgment, such action would have a material adverse effect on the value
of the Security Collateral or any part thereof, and, provided, further,
that the Grantor shall give the Agent at least five days' written notice
of the manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right.
(ii) The Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the
Security Collateral, provided, however, that any and all
(A) dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Security Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or
in exchange for, any Security Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the Agent for the benefit of the Secured Parties, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Security Collateral in the same form
as so received (with any necessary indorsement or assignment).
(iii) The Agent shall execute and deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and
retain pursuant to paragraph (ii) above.
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(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
(i) All rights of the Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 10(a)(i)
shall, upon notice to the Grantor by the Agent, cease and (y) to receive
the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 10(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Agent for the benefit of the Secured Parties who shall thereupon
have the sole right to exercise or refrain from exercising such voting
and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are
received by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the Agent for the
benefit of the Secured Parties, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Agent as Security
Collateral in the same form as so received (with any necessary in-
dorsement).
SECTION 11. Transfers and Other Liens; Additional Shares.
(a) The Grantor shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, except Inventory in the ordinary course of business and
Equipment that is obsolete or no longer used in the Grantor's business, or (ii)
create or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement and except for Permitted Liens.
(b) The Grantor agrees that it will (i) cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of each issuer of the Pledged Shares.
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SECTION 12. Agent Appointed Attorney-in-Fact. The Grantor hereby
irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, upon the occurrence
and during the continuance of any Event of Default, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Agent for the benefit of the Secured Parties pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent for the
benefit of the Secured Parties with respect to any of the Collateral.
SECTION 13. Agent May Perform. If the Grantor fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Grantor under Section l7(b).
SECTION 14. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interests of the Secured Parties in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither the Agent nor
any Secured Party shall have any duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or not the
Agent or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent and each
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is ac-
corded treatment substantially equal to that which the Agent and each Secured
Party, as applicable, accord its own property.
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SECTION 15. Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Agent for the benefit of the Secured Parties may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of New York at that time (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent and
make it available to Agent for the benefit of the Secured Parties at a place to
be designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by Agent for the benefit of the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to Agent for the benefit of the Secured Parties pursuant
to Section 17) in whole or in part by the Agent for the benefit of the Secured
Parties, all or any part of the Secured Obligations in such order as the Agent
shall elect. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Agent for the benefit of the Secured Parties may
exercise any and all rights and remedies of the Grantor in connection with the
Collateral.
(d) All payments received by the Grantor in connection with
the Collateral shall be received in trust for the Agent for the benefit of the
Secured
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Parties, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Agent for the benefit of the Secured Parties in the
same form as so received (with any necessary indorsement).
SECTION 16. Registration Rights. If the Agent shall determine to
exercise its right to sell all or any of the Security Collateral pursuant to
Section 15, the Grantor agrees that, upon request of the Agent, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Security Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earning statement which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law. The Grantor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Agent or any Secured Party by reason of the
failure by the Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Agent for the
benefit of the Secured Parties shall demand compliance with this Section.
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SECTION 17. Indemnity and Expenses. (a) The Grantor agrees to
indemnify the Agent and the Secured Parties from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from the Agent's
or the Secured Parties' gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent for the benefit of the Secured Parties hereunder
or (iv) the failure by the Grantor to perform or observe any of the provisions
hereof.
SECTION 18. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 19. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at One
Cranberry Hill, Lexington, MA 02421, Attention: Michael Muldowney, and if to the
Agent, at the address specified for Funding in the Securities Purchase
Agreement, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 20. Continuing Security Interest; Assignments under
Securities Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of (x) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (y) the
expiration or termination of the Commitments, (ii) be binding upon the Grantor,
its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Agent for the benefit of the Secured Parties, and their
respective successors, transferees and assigns. Without limiting the
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generality of the foregoing clause (iii), each of Funding and KU may assign or
otherwise transfer all or any portion of its rights and obligations under the
Securities Purchase Agreement (including, without limitation, all or any portion
of its Commitment, amounts owing to it and any Note held by it) to any other
person or entity, and such other person or entity shall thereupon assume and
become vested, to the extent set forth in the agreement evidencing such
assignment or transfer, with all the benefits and obligations in respect thereof
assumed by or granted to Funding or KU, as the case may be, herein or otherwise.
Upon the later of (i) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (ii) the
expiration or termination of the Commitments, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination, the Agent will, at the Grantor's expense,
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
SECTION 21. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Securities Purchase Agreement, terms used in
Article 9 of the Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
NEXTERA ENTERPRISES, INC.
By /s/ MICHAEL MULDOWNEY
------------------------
Name: Michael Muldowney
Title: CFO
<PAGE> 1
Exhibit 10.32
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
This AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated
as of March 30, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Agreement"), is made by PYRAMID IMAGING, INC.,
a California corporation (the "Grantor"), in favor of NEXTERA FUNDING, INC., a
Delaware corporation (in its individual capacity, "Funding"), as agent (in such
capacity, the "Agent") for the benefit of itself and Knowledge Universe, Inc., a
Delaware corporation ("KU", together with Funding, the "Secured Parties", and
individually, each a "Secured Party").
RECITALS:
WHEREAS, Funding entered into a Securities Purchase Agreement
dated as of August 31, 1998 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Securities Purchase Agreement") with
Nextera Enterprises, L.L.C. ("Nextera LLC").
WHEREAS, the Grantor is the owner of the shares (the "Pledged
Shares") of stock described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "Pledged Debt")
described in Part II of said Schedule I and issued by the obligors named
therein.
WHEREAS, the Grantor and Funding entered into the Security and
Pledge Agreement, dated as of August 31, 1998 (the "Original Security and Pledge
Agreement"), pursuant to which Grantor pledged and granted to Funding a security
interest in and lien on the Collateral (as defined therein).
WHEREAS, in connection with the execution of the Consent and
Amendment, dated as of December 31, 1998 (as the same may be amended,
supplemented or otherwise modified from time to time) among Nextera LLC,
Funding, Nextera Enterprises, Inc. and KU and the Assignment Agreement, dated as
of December 31, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time) by and between Funding and KU and in order to induce
KU to purchase certain Notes pursuant to the Securities Purchase Agreement, the
Grantor and Funding would like to amend and restate the Original Security and
Pledge Agreement in its entirety.
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NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Original Security and Pledge Agreement is hereby amended and restated in its
entirety as follows:
SECTION 1. Definitions. As used herein, capitalized terms
defined in the Securities Purchase Agreement and not otherwise defined herein
are used herein as so defined. The following terms shall have the following
meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in
Section 9-106 of the UCC.
"Agent" shall mean Nextera Funding Inc. in its capacity as agent
for the benefit of the Secured Parties, or its successor.
"Agreement" shall mean this Pledge and Security Agreement, as
the same may from time to time be amended, supplemented or otherwise
modified.
"Chattel Paper" shall mean "chattel paper" as such term is
defined in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer
software, computer printouts, customer lists, blueprints, technical
specifications, manuals, and similar items which relate to any
Collateral other than such items obtained under license or franchise
agree ments which prohibit assignment or disclosure of such items.
"Contracts" shall mean all contracts to which the Grantor now
is, or hereafter will be, bound, or a party, beneficiary or assignee,
and all other instruments, agreements and documents executed and
delivered with respect to such contracts, and all revenues, rentals,
Proceeds and other sums of money due and to become due from any of the
foregoing, as the same may be modified, supplemented or amended from
time to time in accordance with their terms.
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<PAGE> 3
"Deposit Accounts" shall mean any deposit account, including
without limitation, "deposit accounts" as such term is defined in
Section 9-105(1)(e) of the UCC and any other deposit account, together
with any funds, instruments or other items credited to any such account
from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(1)(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures,
vehicles, motor vehicles, and any manuals, instructions, blueprints,
computer software and similar items which relate to the above, and any
and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all improvements thereon and
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"Fixtures" shall mean "fixtures" as such term is defined in
Section 9-313 of the UCC.
"Funding" shall mean Nextera Funding, Inc., a Delaware
corporation, in its individual capacity, and its successors and assigns.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC, including, without
limitation, all trademarks, trademark applications, trademark
registrations, tradenames, fictitious business names, business names,
company names, business identifiers, prints, labels, trade styles and
service marks (whether or not registered), including logos and/or
designs, copyrights, patents, patent applications, goodwill of the
Grantor's business symbolized by any of the foregoing, trade secrets,
license rights, license agreements, permits, franchises, and any rights
to tax refunds to which the Grantor is now or hereafter may be entitled.
"Hedging Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar
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<PAGE> 4
interest rate or currency exchange agreements or other interest rate or
currency hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined
in Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including
without limitation the insurance policies listed on Schedule II attached
hereto.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC, including without limitation, all goods
(whether such goods are in the possession of the Grantor or of a bailee
or other Person for sale, lease, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts,
components, supplies, materials or consigned or returned or repossessed
goods), including without limitation, all such goods whether raw, in
process or finished, all materials usable in processing the same and all
documents of title covering any inventory, including but not limited to
work in process, materials used or consumed in Grantor's business, now
owned or hereafter acquired or manufactured by the Grantor and held for
sale in the ordinary course of its business; all present and future
substitutions therefor, parts and accessories thereof and all additions
thereto; and all proceeds thereof and products of such inventory in any
form whatsoever.
"KU" shall mean Knowledge Universe, Inc., a Delaware
corporation, and its successors and assigns.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, if title thereto is governed by a certificate
of title ownership.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, trust or other enterprise
or any government or political subdivision or agency, department or
instrumentality thereof.
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"Pledged Debt" shall have the meaning specified in the second
recital to this Agreement.
"Pledged Shares" shall have the meaning specified in the second
recital to this Agreement.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and
all rights in respect of the Account Debtor, including without
limitation, all such rights in which the Grantor has any right, title or
interest by reason of the purchase thereof by the Grantor, and including
without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible, note, contract,
invoice, purchase order, draft, acceptance, intercompany account,
security agreement, or other evidence of indebtedness or security,
together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement
granting a security interest in such collateral, (b) all goods, the sale
of which gave rise to any of the foregoing, including, without
limitation, all rights in any returned or repossessed goods and unpaid
seller's rights, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, and (d) all powers of attorney for the
execution of any evidence of indebtedness or security or other writing
in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets
or cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the
control of the Grantor or any computer bureau or agent from time to time
acting for the Grantor or otherwise, (c) all evidences of the filing of
financing statements and the registration of other instruments in
connection therewith and amendments, supplements or other modifications
thereto, notices to other creditors or secured parties, and
certificates, acknowledgments, or other writings, including without
limitation lien search reports, from filing or other registra-
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tion officers, (d) all credit information, reports and memoranda
relating thereto, and (e) all other written or non-written forms of
information related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations,
liabilities (including, without limitation, contingent obligations) and
indebtedness of every nature of the Grantor, now existing or hereafter
in curred, arising under or in connection with the Securities Purchase
Agreement, any Note, any other Financing Document or this Agreement and
(b) in the case of Funding only, all other obligations, liabilities of
every kind, nature or description, direct or indirect, primary or
secondary, joint or several, absolute or contingent of the Grantor to
the Agent or any Secured Party whether due or to become due and whether
now existing or hereafter incurred and whether similar or dissimilar to
the obligations described in clause (a) hereof, and including without
limitation all consumer or commercial transactions, all purchase money
and nonpurchase money transactions, all overdrafts, all letters of
credit, all lines of credit and all other extensions of credit,
regardless of how they may be evidenced.
"Secured Parties" shall mean, collectively, Funding and KU; and
"Secured Party" shall mean, individually, each of Funding and KU.
"Securities Purchase Agreement" shall have the meaning specified
in the first recital to this Agreement.
"Security Collateral" shall mean:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
(iii) all additional shares of stock from time to time
acquired by the Grantor in any manner, and the certificates representing
such additional shares, and all dividends, cash, instruments and other
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property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(iv) all additional indebtedness from time to time owed to
the Grantor and the instruments evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2. Grant of Security Interests. As security for the
prompt and complete payment and performance in full of all the Secured
Obligations, the Grantor hereby confirms and grants to the Agent for the benefit
of the Secured Parties a security interest in and lien on all of the Grantor's
right, title and interest in, to and under the following, in each case, whether
now owned or existing or hereafter acquired or arising, and wherever located
(all of which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Collateral Records;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Hedging Agreements;
(k) all Instruments;
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(l) all Insurance Policies;
(m) all Inventory;
(n) all Money;
(o) all Motor Vehicles;
(p) all Receivables;
(q) all Receivables Records;
(r) all other tangible and intangible personal property;
(s) all of the Security Collateral; and
(t) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing.
SECTION 3. Grantor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
for the benefit of the Secured Parties of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither the Agent nor any
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement and shall be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Security Collateral. All certificates
or instruments representing or evidencing the Security Collateral shall be
delivered to and held by or on behalf of the Agent for the benefit of the
Secured Parties pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Agent. If
any Event of Default shall have occurred and be continuing, the Agent shall have
the right, at any time in its discretion and without notice to the Grantor, to
transfer to or to register in the name of the Agent for the benefit of the
Secured Parties or any of its nominees any or all of the Security
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<PAGE> 9
Collateral, subject only to the revocable rights specified in Section 10(a). In
addition, the Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Security Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule III hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and the originals of all chattel paper that
evidence Receivables, are located at its address specified in Section 19. The
originals of all chattel paper that evidence Receivables have been delivered to
the Agent for the benefit of the Secured Parties. Except for Receivables listed
on Schedule IV attached hereto, none of the Receivables is evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
except for Permitted Liens. No effective financing statement or other document
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent for
the benefit of the Secured Parties relating to this Agreement and except as set
forth on Schedule 6.11 to the Securities Purchase Agreement. The Grantor has the
trade names listed on Schedule V attached hereto.
(c) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuers thereof, and is not in default.
(e) The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the respective issuers thereof
indicated on Schedule I. The Pledged Debt is outstanding in the principal amount
indicated on Schedule I.
(f) This Agreement and the pledge of the Security Collateral
pursuant hereto create a valid and perfected security interest in the
Collateral,
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securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken.
(g) No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (i) for the pledge by
the Grantor of the Security Collateral pursuant to this Agreement, for the grant
by the Grantor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by the Grantor, (ii) for the
perfection or maintenance of the pledge and security interest created hereby or
(iii) for the exercise by the Agent for the benefit of the Secured Parties of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally).
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
(j) The Grantor has, independently and without reliance upon
the Agent and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
SECTION 6. Further Assurances. (a) The Grantor agrees that
from time to time, at the expense of the Grantor, the Grantor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent may reasonably
request, in order to perfect and protect any pledge or security interest granted
or purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will: (i) as reasonably
requested by the Agent, mark conspicuously each document included in the
Inventory and each chattel paper included in the Receivables, each Contract
and, at the request of the Agent, each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Contract or Collateral is subject
to the pledge and security interest granted hereby; (ii) if any Collateral shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Agent for the benefit of the Secured Parties hereunder such
note or instrument or chattel paper duly indorsed and accompanied by duly
executed instruments of transfer, all in
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form and substance satisfactory to the Agent; and (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Agent may
request, in order to perfect and preserve the pledge and security interest
granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 7. As to Equipment and Inventory.
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business or movement of
other Equipment valued not greater than $300,000 in the ordinary course of
business in connection with rendering services to Grantor's clients) at the
places therefor specified in Section 5(a) or, upon 30 days' prior written notice
to the Agent, at such other places in jurisdiction where all action required by
Section 6 shall have been taken with respect to the Equipment and Inventory.
(b) The Grantor shall cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Agent a statement respecting any loss or damage to any
of the Equipment in excess of $500,000.
(c) The Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory. In producing the Inventory, the Grantor shall comply
with all requirements of the Fair Labor Standards Act.
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SECTION 8. Insurance. (a) The Grantor shall, at its own
expense, maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent for the benefit
of the Secured Parties and the Grantor as their respective interests may appear
and each policy for property damage insurance shall provide for all losses
(except for losses of less than $50,000 per occurrence) to be paid directly to
the Agent for the benefit of the Secured Parties. Each such policy shall in
addition (i) name the Grantor and the Agent for the benefit of the Secured
Parties as insured parties thereunder (without any representation or warranty by
or obligation upon the Agent) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the Agent
for the benefit of the Secured Parties notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (iii) provide that there
shall be no recourse against the Agent for payment of premiums or other amounts
with respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Agent by the insurer.
The Grantor shall, if so requested by the Agent, deliver to the Agent original
or duplicate policies of such insurance and, as often as the Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance.
(b) Reimbursement under any liability insurance maintained
by the Grantor pursuant to this Section 8 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 8 shall be paid to
the Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of
any Event of Default, or (ii) the actual or constructive total loss (in excess
of $50,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by the
Agent for the benefit of the Secured Parties as specified in Section 15(b).
SECTION 9. Place of Perfection; Records; Collection of
Receivables. (a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all chattel paper that evidenced Receivables,
at the location therefor specified in Section 5(a) or, upon 30 days' prior
written notice to the Agent, at any other locations in a jurisdiction where all
actions required by Section 6 shall have been taken with
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respect to the Receivables. The Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Agent at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect, at its own expense, all amounts due or to
become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take and, at the Agent's direction, shall take such
action as the Grantor or the Agent may deem reasonably necessary or advisable to
enforce collection of the Receivables; provided, however, that, upon the
occurrence and during the continuance of any Event of Default, the Agent shall
have the right at any time, upon written notice to the Grantor of its intention
to do so, to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent for
the benefit of the Secured Parties and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the Agent
for the benefit of the Secured Parties hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent for the
benefit of the Secured Parties in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, applied as
provided by Section 15(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as
no Event of Default or event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default shall have occurred and be
continuing:
(i) The Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Security Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the
Securities Purchase Agreement; provided, however, that the Grantor shall
not exercise or refrain from exercising any such right if, in the
Agent's judgment, such action would have a material adverse effect on
the value of the Security Collateral or any part thereof, and, provided,
further, that
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the Grantor shall give the Agent at least five days' written notice of
the manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right.
(ii) The Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the
Security Collateral, provided, however, that any and all
(A) dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Security Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or
in exchange for, any Security Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the Agent for the benefit of the Secured Parties, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Security Collateral in the same
form as so received (with any necessary indorsement or assignment).
(iii) The Agent shall execute and deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and
retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
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(i) All rights of the Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 10(a)(i)
shall, upon notice to the Grantor by the Agent, cease and (y) to receive
the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 10(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Agent for the benefit of the Secured Parties who shall thereupon
have the sole right to exercise or refrain from exercising such voting
and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are
received by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the Agent for the
benefit of the Secured Parties, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Agent as Security
Collateral in the same form as so received (with any necessary
indorsement).
SECTION 11. Transfers and Other Liens; Additional Shares.
(a) The Grantor shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, except Inventory in the ordinary course of business and
Equipment that is obsolete or no longer used in the Grantor's business, or (ii)
create or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement and except for Permitted Liens.
(b) The Grantor agrees that it will (i) cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of each issuer of the Pledged Shares.
SECTION 12. Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, upon the occurrence
and during the continuance of any Event of Default, to take any action and to
execute any
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instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Agent for the benefit of the Secured Parties pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent for the
benefit of the Secured Parties with respect to any of the Collateral.
SECTION 13. Agent May Perform. If the Grantor fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Grantor under Section l7(b).
SECTION 14. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interests of the Secured Parties in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither the Agent nor
any Secured Party shall have any duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or not the
Agent or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent and each
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Agent and each Secured
Party, as applicable, accord its own property.
SECTION 15. Remedies. If any Event of Default shall have
occurred and be continuing:
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(a) The Agent for the benefit of the Secured Parties may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of New York at that time (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent and
make it available to Agent for the benefit of the Secured Parties at a place to
be designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by Agent for the benefit of the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to Agent for the benefit of the Secured Parties pursuant
to Section 17) in whole or in part by the Agent for the benefit of the Secured
Parties, all or any part of the Secured Obligations in such order as the Agent
shall elect. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Agent for the benefit of the Secured Parties may
exercise any and all rights and remedies of the Grantor in connection with the
Collateral.
(d) All payments received by the Grantor in connection with
the Collateral shall be received in trust for the Agent for the benefit of the
Secured Parties, shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the Agent for the benefit of the Secured Parties in
the same form as so received (with any necessary indorsement).
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SECTION 16. Registration Rights. If the Agent shall determine
to exercise its right to sell all or any of the Security Collateral pursuant to
Section 15, the Grantor agrees that, upon request of the Agent, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Security Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earning statement which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law. The Grantor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Agent or any Secured Party by reason of the
failure by the Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Agent for the
benefit of the Secured Parties shall demand compliance with this Section.
SECTION 17. Indemnity and Expenses. (a) The Grantor agrees to
indemnify the Agent and the Secured Parties from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement),
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except claims, losses or liabilities resulting from the Agent's or the Secured
Parties' gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent for the benefit of the Secured Parties hereunder
or (iv) the failure by the Grantor to perform or observe any of the provisions
hereof.
SECTION 18. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 19. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at One
Cranberry Hill, Lexington, MA 02421, Attention: Michael Muldowney, and if to the
Agent, at the address specified for Funding in the Securities Purchase
Agreement, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 20. Continuing Security Interest; Assignments under
Securities Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of (x) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (y) the
expiration or termination of the Commitments, (ii) be binding upon the Grantor,
its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Agent for the benefit of the Secured Parties, and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (iii), Each of Funding and KU may assign or otherwise
transfer all or any portion of its rights and obligations under the Securities
Purchase Agreement (including, without limitation, all or any portion of its
Commitment, amounts owing to it and any Note held by it) to any other person or
entity, and
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such other person or entity shall thereupon assume and become vested, to the
extent set forth in the agreement evidencing such assignment or transfer, with
all the benefits and obligations in respect thereof assumed by or granted to
Funding or KU, as the case may be, herein or otherwise. Upon the later of (i)
the payment in full of the principal of and all accrued interests on the Notes
and all fees in connection therewith and (ii) the expiration or termination of
the Commitments, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Grantor. Upon any such termination,
the Agent will, at the Grantor's expense, execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination.
SECTION 21. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Securities Purchase Agreement, terms used in
Article 9 of the Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
PYRAMID IMAGING, INC.
By /s/ MICHAEL MULDOWNEY
--------------------------
Name: Michael Muldowney
Title:
<PAGE> 1
Exhibit 10.33
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
This AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated
as of March 30, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Agreement"), is made by THE PLANNING
TECHNOLOGIES GROUP, L.L.C., a Delaware limited liability company (the
"Grantor"), in favor of NEXTERA FUNDING, INC., a Delaware corporation (in its
individual capacity, "Funding"), as agent (in such capacity, the "Agent") for
the benefit of itself and Knowledge Universe, Inc., a Delaware corporation
("KU", together with Funding, the "Secured Parties", and individually, each a
"Secured Party").
RECITALS:
WHEREAS, Funding entered into a Securities Purchase Agreement
dated as of August 31, 1998 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Securities Purchase Agreement") with
Nextera Enterprises, L.L.C. ("Nextera LLC").
WHEREAS, the Grantor is the owner of the shares (the "Pledged
Shares") of stock described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "Pledged Debt")
described in Part II of said Schedule I and issued by the obligors named
therein.
WHEREAS, the Grantor and Funding entered into the Security and
Pledge Agreement, dated as of August 31, 1998 (the "Original Security and Pledge
Agreement"), pursuant to which Grantor pledged and granted to Funding a security
interest in and lien on the Collateral (as defined therein).
WHEREAS, in connection with the execution of the Consent and
Amendment, dated as of December 31, 1998 (as the same may be amended,
supplemented or otherwise modified from time to time) among Nextera LLC,
Funding, Nextera Enterprises, Inc. and KU and the Assignment Agreement, dated as
of December 31, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time) by and between Funding and KU and in order to induce
KU to purchase certain Notes pursuant to the Securities Purchase Agreement, the
Grantor and Funding would like to amend and restate the Original Security and
Pledge Agreement in its entirety.
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NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Original Security and Pledge Agreement is hereby amended and restated in its
entirety as follows:
SECTION 1. Definitions. As used herein, capitalized terms
defined in the Securities Purchase Agreement and not otherwise defined herein
are used herein as so defined. The following terms shall have the following
meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in
Section 9-106 of the UCC.
"Agent" shall mean Nextera Funding Inc. in its capacity as agent
for the benefit of the Secured Parties, or its successor.
"Agreement" shall mean this Pledge and Security Agreement, as
the same may from time to time be amended, supplemented or otherwise
modified.
"Chattel Paper" shall mean "chattel paper" as such term is
defined in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer
software, computer printouts, customer lists, blueprints, technical
specifications, manuals, and similar items which relate to any
Collateral other than such items obtained under license or franchise
agreements which prohibit assignment or disclosure of such items.
"Contracts" shall mean all contracts to which the Grantor now
is, or hereafter will be, bound, or a party, beneficiary or assignee,
and all other instruments, agreements and documents executed and
delivered with respect to such contracts, and all revenues, rentals,
Proceeds and other sums of money due and to become due from any of the
foregoing, as the same may be modified, supplemented or amended from
time to time in accordance with their terms.
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"Deposit Accounts" shall mean any deposit account, including
without limitation, "deposit accounts" as such term is defined in
Section 9-105(1)(e) of the UCC and any other deposit account, together
with any funds, instruments or other items credited to any such account
from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(1)(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures,
vehicles, motor vehicles, and any manuals, instructions, blueprints,
computer software and similar items which relate to the above, and any
and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all improvements thereon and
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"Fixtures" shall mean "fixtures" as such term is defined in
Section 9-313 of the UCC.
"Funding" shall mean Nextera Funding, Inc., a Delaware
corporation, in its individual capacity, and its successors and assigns.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC, including, without
limitation, all trademarks, trademark applications, trademark
registrations, tradenames, fictitious business names, business names,
company names, business identifiers, prints, labels, trade styles and
service marks (whether or not registered), including logos and/or
designs, copyrights, patents, patent applications, goodwill of the
Grantor's business symbolized by any of the foregoing, trade secrets,
license rights, license agreements, permits, franchises, and any rights
to tax refunds to which the Grantor is now or hereafter may be entitled.
"Hedging Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar
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interest rate or currency exchange agreements or other interest rate or
currency hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined
in Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including
without limitation the insurance policies listed on Schedule II attached
hereto.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC, including without limitation, all goods
(whether such goods are in the possession of the Grantor or of a bailee
or other Person for sale, lease, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts,
components, supplies, materials or consigned or returned or repossessed
goods), including without limitation, all such goods whether raw, in
process or finished, all materials usable in processing the same and all
documents of title covering any inventory, including but not limited to
work in process, materials used or consumed in Grantor's business, now
owned or hereafter acquired or manufactured by the Grantor and held for
sale in the ordinary course of its business; all present and future
substitutions therefor, parts and accessories thereof and all additions
thereto; and all proceeds thereof and products of such inventory in any
form whatsoever.
"KU" shall mean Knowledge Universe, Inc., a Delaware
corporation, and its successors and assigns.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, if title thereto is governed by a certificate
of title ownership.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, trust or other enterprise
or any government or political subdivision or agency, department or
instrumentality thereof.
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"Pledged Debt" shall have the meaning specified in the second
recital to this Agreement.
"Pledged Shares" shall have the meaning specified in the second
recital to this Agreement.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and
all rights in respect of the Account Debtor, including without
limitation, all such rights in which the Grantor has any right, title or
interest by reason of the purchase thereof by the Grantor, and including
without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible, note, contract,
invoice, purchase order, draft, acceptance, intercompany account,
security agreement, or other evidence of indebtedness or security,
together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement
granting a security interest in such collateral, (b) all goods, the sale
of which gave rise to any of the foregoing, including, without
limitation, all rights in any returned or repossessed goods and unpaid
seller's rights, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, and (d) all powers of attorney for the
execution of any evidence of indebtedness or security or other writing
in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets
or cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the
control of the Grantor or any computer bureau or agent from time to time
acting for the Grantor or otherwise, (c) all evidences of the filing of
financing statements and the registration of other instruments in
connection therewith and amendments, supplements or other modifications
thereto, notices to other creditors or secured parties, and
certificates, acknowledgments, or other writings, including without
limitation lien search reports, from filing or other registra-
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tion officers, (d) all credit information, reports and memoranda
relating thereto, and (e) all other written or non-written forms of
information related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations,
liabilities (including, without limitation, contingent obligations) and
indebtedness of every nature of the Grantor, now existing or hereafter
incurred, arising under or in connection with the Securities Purchase
Agreement, any Note, any other Financing Document or this Agreement and
(b) in the case of Funding only, all other obligations, liabilities of
every kind, nature or description, direct or indirect, primary or
secondary, joint or several, absolute or contingent of the Grantor to
the Agent or any Secured Party whether due or to become due and whether
now existing or hereafter incurred and whether similar or dissimilar to
the obligations described in clause (a) hereof, and including without
limitation all consumer or commercial transactions, all purchase money
and nonpurchase money transactions, all overdrafts, all letters of
credit, all lines of credit and all other extensions of credit,
regardless of how they may be evidenced.
"Secured Parties" shall mean, collectively, Funding and KU; and
"Secured Party" shall mean, individually, each of Funding and KU.
"Securities Purchase Agreement" shall have the meaning specified
in the first recital to this Agreement.
"Security Collateral" shall mean:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
(iii) all additional shares of stock from time to time
acquired by the Grantor in any manner, and the certificates representing
such additional shares, and all dividends, cash, instruments and other
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property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(iv) all additional indebtedness from time to time owed to
the Grantor and the instruments evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2. Grant of Security Interests. As security for the
prompt and complete payment and performance in full of all the Secured
Obligations, the Grantor hereby confirms and grants to the Agent for the benefit
of the Secured Parties a security interest in and lien on all of the Grantor's
right, title and interest in, to and under the following, in each case, whether
now owned or existing or hereafter acquired or arising, and wherever located
(all of which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Collateral Records;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Hedging Agreements;
(k) all Instruments;
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(l) all Insurance Policies;
(m) all Inventory;
(n) all Money;
(o) all Motor Vehicles;
(p) all Receivables;
(q) all Receivables Records;
(r) all other tangible and intangible personal property;
(s) all of the Security Collateral; and
(t) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing.
SECTION 3. Grantor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
for the benefit of the Secured Parties of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither the Agent nor any
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement and shall be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Security Collateral. All certificates or
instruments representing or evidencing the Security Collateral shall be
delivered to and held by or on behalf of the Agent for the benefit of the
Secured Parties pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Agent. If
any Event of Default shall have occurred and be continuing, the Agent shall have
the right, at any time in its discretion and without notice to the Grantor, to
transfer to or to register in the name of the Agent for the benefit of the
Secured Parties or any of its nominees any or all of the Security
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<PAGE> 9
Collateral, subject only to the revocable rights specified in Section 10(a). In
addition, the Agent shall have the right at any time to exchange certificates
or instruments representing or evidencing Security Collateral for certificates
or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule III hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and the originals of all chattel paper that
evidence Receivables, are located at its address specified in Section 19. The
originals of all chattel paper that evidence Receivables have been delivered to
the Agent for the benefit of the Secured Parties. Except for Receivables listed
on Schedule IV attached hereto, none of the Receivables is evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
except for Permitted Liens. No effective financing statement or other document
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent for
the benefit of the Secured Parties relating to this Agreement and except as set
forth on Schedule 6.11 to the Securities Purchase Agreement. The Grantor has the
trade names listed on Schedule V attached hereto.
(c) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuers thereof, and is not in default.
(e) The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the respective issuers thereof
indicated on Schedule I. The Pledged Debt is outstanding in the principal
amount indicated on Schedule I.
(f) This Agreement and the pledge of the Security Collateral
pursuant hereto create a valid and perfected security interest in the
Collateral,
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securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken.
(g) No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (i) for the pledge by
the Grantor of the Security Collateral pursuant to this Agreement, for the grant
by the Grantor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by the Grantor, (ii) for the
perfection or maintenance of the pledge and security interest created hereby or
(iii) for the exercise by the Agent for the benefit of the Secured Parties of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally).
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
(j) The Grantor has, independently and without reliance upon
the Agent and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
SECTION 6. Further Assurances. (a) The Grantor agrees that from
time to time, at the expense of the Grantor, the Grantor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Agent may reasonably request, in
order to perfect and protect any pledge or security interest granted or
purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will: (i) as reasonably
requested by the Agent, mark conspicuously each document included in the
Inventory and each chattel paper included in the Receivables, each Contract and,
at the request of the Agent, each of its records pertaining to the Collateral
with a legend, in form and substance satisfactory to the Agent, indicating that
such document, chattel paper, Contract or Collateral is subject to the pledge
and security interest granted hereby; (ii) if any Collateral shall be evidenced
by a promissory note or other instrument or chattel paper, deliver and pledge to
the Agent for the benefit of the Secured Parties hereunder such note or
instrument or chattel paper duly indorsed and accompanied by duly executed
instruments of transfer, all in
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form and substance satisfactory to the Agent; and (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Agent may
request, in order to perfect and preserve the pledge and security interest
granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 7. As to Equipment and Inventory.
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business or movement of
other Equipment valued not greater than $300,000 in the ordinary course of
business in connection with rendering services to Grantor's clients) at the
places therefor specified in Section 5(a) or, upon 30 days' prior written notice
to the Agent, at such other places in jurisdiction where all action required by
Section 6 shall have been taken with respect to the Equipment and Inventory.
(b) The Grantor shall cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Agent a statement respecting any loss or damage to any
of the Equipment in excess of $500,000.
(c) The Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory. In producing the Inventory, the Grantor shall comply
with all requirements of the Fair Labor Standards Act.
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SECTION 8. Insurance. (a) The Grantor shall, at its own
expense, maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent for the benefit
of the Secured Parties and the Grantor as their respective interests may appear
and each policy for property damage insurance shall provide for all losses
(except for losses of less than $50,000 per occurrence) to be paid directly to
the Agent for the benefit of the Secured Parties. Each such policy shall in
addition (i) name the Grantor and the Agent for the benefit of the Secured
Parties as insured parties thereunder (without any representation or warranty by
or obligation upon the Agent) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the Agent
for the benefit of the Secured Parties notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (iii) provide that there
shall be no recourse against the Agent for payment of premiums or other amounts
with respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Agent by the insurer.
The Grantor shall, if so requested by the Agent, deliver to the Agent original
or duplicate policies of such insurance and, as often as the Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance.
(b) Reimbursement under any liability insurance maintained
by the Grantor pursuant to this Section 8 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 8 shall be paid to
the Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of
any Event of Default, or (ii) the actual or constructive total loss (in excess
of $50,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by the
Agent for the benefit of the Secured Parties as specified in Section 15(b).
SECTION 9. Place of Perfection; Records; Collection of
Receivables. (a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all chattel paper that evidenced Receivables,
at the location therefor specified in Section 5(a) or, upon 30 days' prior
written notice to the Agent, at any other locations in a jurisdiction where all
actions required by Section 6 shall have been taken with
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respect to the Receivables. The Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Agent at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect, at its own expense, all amounts due or to
become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take and, at the Agent's direction, shall take such
action as the Grantor or the Agent may deem reasonably necessary or advisable to
enforce collection of the Receivables; provided, however, that, upon the
occurrence and during the continuance of any Event of Default, the Agent shall
have the right at any time, upon written notice to the Grantor of its intention
to do so, to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent for
the benefit of the Secured Parties and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the Agent
for the benefit of the Secured Parties hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent for the
benefit of the Secured Parties in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, applied as
provided by Section 15(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as
no Event of Default or event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default shall have occurred and be
continuing:
(i) The Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Security Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the
Securities Purchase Agreement; provided, however, that the Grantor shall
not exercise or refrain from exercising any such right if, in the
Agent's judgment, such action would have a material adverse effect on
the value of the Security Collateral or any part thereof, and, provided,
further, that
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the Grantor shall give the Agent at least five days' written notice of
the manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right.
(ii) The Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the
Security Collateral, provided, however, that any and all
(A) dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Security Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or
in exchange for, any Security Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the Agent for the benefit of the Secured Parties, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Security Collateral in the same form
as so received (with any necessary indorsement or assignment).
(iii) The Agent shall execute and deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and
retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
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(i) All rights of the Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 10(a)(i)
shall, upon notice to the Grantor by the Agent, cease and (y) to receive
the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 10(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Agent for the benefit of the Secured Parties who shall thereupon
have the sole right to exercise or refrain from exercising such voting
and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are
received by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the Agent for the
benefit of the Secured Parties, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Agent as Security
Collateral in the same form as so received (with any necessary
indorsement).
SECTION 11. Transfers and Other Liens; Additional Shares.
(a) The Grantor shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, except Inventory in the ordinary course of business and
Equipment that is obsolete or no longer used in the Grantor's business, or (ii)
create or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement and except for Permitted Liens.
(b) The Grantor agrees that it will (i) cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of each issuer of the Pledged Shares.
SECTION 12. Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, upon the occurrence
and during the continuance of any Event of Default, to take any action and to
execute any
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<PAGE> 16
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Agent for the benefit of the Secured Parties pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent for the
benefit of the Secured Parties with respect to any of the Collateral.
SECTION 13. Agent May Perform. If the Grantor fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Grantor under Section l7(b).
SECTION 14. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interests of the Secured Parties in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither the Agent nor
any Secured Party shall have any duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or not the
Agent or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent and each
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Agent and each Secured
Party, as applicable, accord its own property.
SECTION 15. Remedies. If any Event of Default shall have
occurred and be continuing:
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<PAGE> 17
(a) The Agent for the benefit of the Secured Parties may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of New York at that time (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent and
make it available to Agent for the benefit of the Secured Parties at a place to
be designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by Agent for the benefit of the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to Agent for the benefit of the Secured Parties pursuant
to Section 17) in whole or in part by the Agent for the benefit of the Secured
Parties, all or any part of the Secured Obligations in such order as the Agent
shall elect. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Agent for the benefit of the Secured Parties may
exercise any and all rights and remedies of the Grantor in connection with the
Collateral.
(d) All payments received by the Grantor in connection with
the Collateral shall be received in trust for the Agent for the benefit of the
Secured Parties, shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the Agent for the benefit of the Secured Parties in
the same form as so received (with any necessary indorsement).
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SECTION 16. Registration Rights. If the Agent shall determine
to exercise its right to sell all or any of the Security Collateral pursuant to
Section 15, the Grantor agrees that, upon request of the Agent, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Security Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earning statement which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law. The Grantor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Agent or any Secured Party by reason of the
failure by the Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Agent for the
benefit of the Secured Parties shall demand compliance with this Section.
SECTION 17. Indemnity and Expenses. (a) The Grantor agrees to
indemnify the Agent and the Secured Parties from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement),
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except claims, losses or liabilities resulting from the Agent's or the Secured
Parties' gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent for the benefit of the Secured Parties hereunder
or (iv) the failure by the Grantor to perform or observe any of the provisions
hereof.
SECTION 18. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 19. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at One
Cranberry Hill, Lexington, MA 02421, Attention: Michael Muldowney, and if to the
Agent, at the address specified for Funding in the Securities Purchase
Agreement, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 20. Continuing Security Interest; Assignments under
Securities Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of (x) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (y) the
expiration or termination of the Commitments, (ii) be binding upon the Grantor,
its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Agent for the benefit of the Secured Parties, and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (iii), Each of Funding and KU may assign or otherwise
transfer all or any portion of its rights and obligations under the Securities
Purchase Agreement (including, without limitation, all or any portion of its
Commitment, amounts owing to it and any Note held by it) to any other person or
entity, and
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such other person or entity shall thereupon assume and become vested, to the
extent set forth in the agreement evidencing such assignment or transfer, with
all the benefits and obligations in respect thereof assumed by or granted to
Funding or KU, as the case may be, herein or otherwise. Upon the later of (i)
the payment in full of the principal of and all accrued interests on the Notes
and all fees in connection therewith and (ii) the expiration or termination of
the Commitments, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Grantor. Upon any such termination,
the Agent will, at the Grantor's expense, execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination.
SECTION 21. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Securities Purchase Agreement, terms used in
Article 9 of the Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
THE PLANNING TECHNOLOGIES
GROUP, L.L.C.
By: Nextera Enterprises, Inc.,
as its Member
By /s/ MICHAEL MULDOWNEY
------------------------
Name: Michael Muldowney
Title: CFO
<PAGE> 1
EXHIBIT 10.34
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
This AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated
as of March 30, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Agreement"), is made by NEXTERA BUSINESS
PERFORMANCE SOLUTIONS GROUP, INC., a Massachusetts corporation (the "Grantor"),
in favor of NEXTERA FUNDING, INC., a Delaware corporation (in its individual
capacity, "Funding"), as agent (in such capacity, the "Agent") for the benefit
of itself and Knowledge Universe, Inc., a Delaware corporation ("KU", together
with Funding, the "Secured Parties", and individually, each a "Secured Party").
RECITALS:
WHEREAS, Funding entered into a Securities Purchase Agreement
dated as of August 31, 1998 (as the same may be amended, supplemented or other-
wise modified from time to time, the "Securities Purchase Agreement") with
Nextera Enterprises, L.L.C. ("Nextera LLC").
WHEREAS, Symmetrix, Inc., a Massachusetts corporation
("Symmetrix"), and Funding entered into the Security and Pledge Agreement, dated
as of August 31, 1998 (the "Original Security and Pledge Agreement"), pursuant
to which Symmetrix pledged and granted to Funding a security interest in and
lien on the Collateral (as defined therein).
WHEREAS, Symmetrix amended its name to Nextera Business
Performance Solutions Group, Inc., effective as of January 1, 1999.
WHEREAS, the Grantor is the owner of the shares (the "Pledged
Shares") of stock described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "Pledged Debt")
described in Part II of said Schedule I and issued by the obligors named
therein.
WHEREAS, in connection with the execution of the Consent and
Amendment, dated as of December 31, 1998 (as the same may be amended, supple-
mented or otherwise modified from time to time) among Nextera LLC, Funding,
Nextera Enterprises, Inc. and KU and the Assignment Agreement, dated as of
December 31, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time) by and between Funding and KU and in order to induce
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KU to purchase certain Notes pursuant to the Securities Purchase Agreement, the
Grantor and Funding would like to amend and restate the Original Security and
Pledge Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Original Security and Pledge Agreement is hereby amended and restated in its
entirety as follows:
SECTION 1. Definitions. As used herein, capitalized terms
defined in the Securities Purchase Agreement and not otherwise defined herein
are used herein as so defined. The following terms shall have the following
meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in
Section 9-106 of the UCC.
"Agent" shall mean Nextera Funding Inc. in its capacity as agent
for the benefit of the Secured Parties, or its successor.
"Agreement" shall mean this Pledge and Security Agreement, as
the same may from time to time be amended, supplemented or otherwise
modified.
"Chattel Paper" shall mean "chattel paper" as such term is
defined in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer
software, computer printouts, customer lists, blueprints, technical
specifications, manuals, and similar items which relate to any Collat-
eral other than such items obtained under license or franchise agree-
ments which prohibit assignment or disclosure of such items.
"Contracts" shall mean all contracts to which the Grantor now
is, or hereafter will be, bound, or a party, beneficiary or assignee,
and all other instruments, agreements and documents executed and deliv
ered with respect to such contracts, and all revenues, rentals, Proceeds
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and other sums of money due and to become due from any of the foregoing,
as the same may be modified, supplemented or amended from time to time
in accordance with their terms.
"Deposit Accounts" shall mean any deposit account, including
without limitation, "deposit accounts" as such term is defined in
Section 9-105(1)(e) of the UCC and any other deposit account, together
with any funds, instruments or other items credited to any such account
from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(1)(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures,
vehicles, motor vehicles, and any manuals, instructions, blueprints,
computer software and similar items which relate to the above, and any
and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all improvements thereon and
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"Fixtures" shall mean "fixtures" as such term is defined in Sec-
tion 9-313 of the UCC.
"Funding" shall mean Nextera Funding, Inc., a Delaware
corporation, in its individual capacity, and its successors and assigns.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC, including, without
limitation, all trademarks, trademark applications, trademark registra-
tions, tradenames, fictitious business names, business names, company
names, business identifiers, prints, labels, trade styles and service
marks (whether or not registered), including logos and/or designs,
copyrights, patents, patent applications, goodwill of the Grantor's
business symbolized by any of the foregoing, trade secrets, license
rights, license agreements, permits, franchises, and any rights to tax
refunds to which the Grantor is now or hereafter may be entitled.
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"Hedging Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar interest
rate or currency exchange agreements or other interest rate or currency
hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined
in Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including
without limitation the insurance policies listed on Schedule II attached
hereto.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC, including without limitation, all goods
(whether such goods are in the possession of the Grantor or of a bailee
or other Person for sale, lease, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts,
components, supplies, materials or consigned or returned or repossessed
goods), including without limitation, all such goods whether raw, in
process or finished, all materials usable in processing the same and all
documents of title covering any inventory, including but not limited to
work in process, materials used or consumed in Grantor's business, now
owned or hereafter acquired or manufactured by the Grantor and held for
sale in the ordinary course of its business; all present and future
substitutions therefor, parts and accessories thereof and all additions
thereto; and all proceeds thereof and products of such inventory in any
form whatsoever.
"KU" shall mean Knowledge Universe, Inc., a Delaware
corporation, and its successors and assigns.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, if title thereto is governed by a certificate
of title ownership.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, trust or other enterprise
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or any government or political subdivision or agency, department or
instrumentality thereof.
"Pledged Debt" shall have the meaning specified in the second
recital to this Agreement.
"Pledged Shares" shall have the meaning specified in the second
recital to this Agreement.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and
all rights in respect of the Account Debtor, including without
limitation, all such rights in which the Grantor has any right, title or
interest by reason of the purchase thereof by the Grantor, and including
without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible, note, contract,
invoice, purchase order, draft, acceptance, intercompany account,
security agreement, or other evidence of indebtedness or security,
together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement
granting a security interest in such collateral, (b) all goods, the sale
of which gave rise to any of the foregoing, including, without
limitation, all rights in any returned or repossessed goods and unpaid
seller's rights, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, and (d) all powers of attorney for the
execution of any evidence of indebtedness or security or other writing
in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets
or cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the
control of the Grantor or any computer bureau or agent from time to time
acting for the Grantor or otherwise, (c) all evidences of the filing of
financing statements and the registration of other instruments in
connection therewith and amendments, supplements or
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<PAGE> 6
other modifications thereto, notices to other creditors or secured
parties, and certificates, acknowledgments, or other writings, including
without limitation lien search reports, from filing or other
registration officers, (d) all credit information, reports and memoranda
relating thereto, and (e) all other written or non-written forms of
information related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations,
liabilities (including, without limitation, contingent obligations) and
indebtedness of every nature of the Grantor, now existing or hereafter
incurred, arising under or in connection with the Securities Purchase
Agreement, any Note, any other Financing Document or this Agree ment and
(b) in the case of Funding only, all other obligations, liabilities of
every kind, nature or description, direct or indirect, primary or
secondary, joint or several, absolute or contingent of the Grantor to
the Agent or any Secured Party whether due or to become due and whether
now existing or hereafter incurred and whether similar or dissimilar to
the obligations described in clause (a) hereof, and including without
limitation all consumer or commercial transactions, all purchase money
and nonpurchase money transactions, all overdrafts, all letters of
credit, all lines of credit and all other extensions of credit,
regardless of how they may be evidenced.
"Secured Parties" shall mean, collectively, Funding and KU; and
"Secured Party" shall mean, individually, each of Funding and KU.
"Securities Purchase Agreement" shall have the meaning specified
in the first recital to this Agreement.
"Security Collateral" shall mean:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
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(iii) all additional shares of stock from time to time
acquired by the Grantor in any manner, and the certificates representing
such additional shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(iv) all additional indebtedness from time to time owed to
the Grantor and the instruments evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2. Grant of Security Interests. As security for the
prompt and complete payment and performance in full of all the Secured
Obligations, the Grantor hereby confirms and grants to the Agent for the benefit
of the Secured Parties a security interest in and lien on all of the Grantor's
right, title and interest in, to and under the following, in each case, whether
now owned or existing or hereafter acquired or arising, and wherever located
(all of which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Collateral Records;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Hedging Agreements;
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(k) all Instruments;
(l) all Insurance Policies;
(m) all Inventory;
(n) all Money;
(o) all Motor Vehicles;
(p) all Receivables;
(q) all Receivables Records;
(r) all other tangible and intangible personal property;
(s) all of the Security Collateral; and
(t) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing.
SECTION 3. Grantor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
for the benefit of the Secured Parties of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither the Agent nor any
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement and shall be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Security Collateral. All certificates
or instruments representing or evidencing the Security Collateral shall be
delivered to and held by or on behalf of the Agent for the benefit of the
Secured Parties pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Agent. If
any Event of Default shall have occurred and be continuing, the Agent shall have
the right, at any time in its discretion and without
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<PAGE> 9
notice to the Grantor, to transfer to or to register in the name of the Agent
for the benefit of the Secured Parties or any of its nominees any or all of the
Security Collateral, subject only to the revocable rights specified in Section
10(a). In addition, the Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Security Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule III hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and the originals of all chattel paper that
evidence Receivables, are located at its address specified in Section 19. The
originals of all chattel paper that evidence Receivables have been delivered to
the Agent for the benefit of the Secured Parties. Except for Receivables listed
on Schedule IV attached hereto, none of the Receivables is evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
except for Permitted Liens. No effective financing statement or other document
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent for
the benefit of the Secured Parties relating to this Agreement and except as set
forth on Schedule 6.11 to the Securities Purchase Agreement. The Grantor has the
trade names listed on Schedule V attached hereto.
(c) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuers thereof, and is not in default.
(e) The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the respective issuers thereof
indicated on Schedule I. The Pledged Debt is outstanding in the principal
amount indicated on Schedule I.
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(f) This Agreement and the pledge of the Security Collateral
pursuant hereto create a valid and perfected security interest in the
Collateral, securing the payment of the Secured Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
(g) No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (i) for the pledge by
the Grantor of the Security Collateral pursuant to this Agreement, for the grant
by the Grantor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by the Grantor, (ii) for the
perfection or maintenance of the pledge and security interest created hereby or
(iii) for the exercise by the Agent for the benefit of the Secured Parties of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally).
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
(j) The Grantor has, independently and without reliance upon
the Agent and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
SECTION 6. Further Assurances. (a) The Grantor agrees that
from time to time, at the expense of the Grantor, the Grantor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent may reasonably
request, in order to perfect and protect any pledge or security interest granted
or purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will: (i) as reasonably
requested by the Agent, mark conspicuously each document included in the
Inventory and each chattel paper included in the Receivables, each Contract
and, at the request of the Agent, each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Contract or Collateral is subject
to the pledge and security interest granted hereby; (ii) if any Collateral shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Agent
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for the benefit of the Secured Parties hereunder such note or instrument or
chattel paper duly indorsed and accompanied by duly executed instruments of
transfer, all in form and substance satisfactory to the Agent; and (iii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as the
Agent may request, in order to perfect and preserve the pledge and security
interest granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 7. As to Equipment and Inventory.
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business or movement of
other Equipment valued not greater than $300,000 in the ordinary course of
business in connection with rendering services to Grantor's clients) at the
places therefor specified in Section 5(a) or, upon 30 days' prior written
notice to the Agent, at such other places in jurisdiction where all action
required by Section 6 shall have been taken with respect to the Equipment and
Inventory.
(b) The Grantor shall cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Agent a statement respecting any loss or damage to any
of the Equipment in excess of $500,000.
(c) The Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment
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and Inventory. In producing the Inventory, the Grantor shall comply with all
requirements of the Fair Labor Standards Act.
SECTION 8. Insurance. (a) The Grantor shall, at its own
expense, maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent for the benefit
of the Secured Parties and the Grantor as their respective interests may appear
and each policy for property damage insurance shall provide for all losses
(except for losses of less than $50,000 per occurrence) to be paid directly to
the Agent for the benefit of the Secured Parties. Each such policy shall in
addition (i) name the Grantor and the Agent for the benefit of the Secured
Parties as insured parties thereunder (without any representation or warranty by
or obligation upon the Agent) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the Agent
for the benefit of the Secured Parties notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (iii) provide that there
shall be no recourse against the Agent for payment of premiums or other amounts
with respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Agent by the insurer.
The Grantor shall, if so requested by the Agent, deliver to the Agent original
or duplicate policies of such insurance and, as often as the Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance.
(b) Reimbursement under any liability insurance maintained
by the Grantor pursuant to this Section 8 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 8 shall be paid to
the Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of
any Event of Default, or (ii) the actual or constructive total loss (in excess
of $50,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by the
Agent for the benefit of the Secured Parties as specified in Section 15(b).
SECTION 9. Place of Perfection; Records; Collection of
Receivables. (a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of
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all chattel paper that evidenced Receivables, at the location therefor specified
in Section 5(a) or, upon 30 days' prior written notice to the Agent, at any
other locations in a jurisdiction where all actions required by Section 6 shall
have been taken with respect to the Receivables. The Grantor will hold and
preserve such records and chattel paper and will permit representatives of the
Agent at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect, at its own expense, all amounts due or to
become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take and, at the Agent's direction, shall take such
action as the Grantor or the Agent may deem reasonably necessary or advisable to
enforce collection of the Receivables; provided, however, that, upon the
occurrence and during the continuance of any Event of Default, the Agent shall
have the right at any time, upon written notice to the Grantor of its intention
to do so, to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent for
the benefit of the Secured Parties and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the Agent
for the benefit of the Secured Parties hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent for the
benefit of the Secured Parties in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, applied as
provided by Section 15(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as
no Event of Default or event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default shall have occurred and be
continuing:
(i) The Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Security Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the
Securities Purchase Agreement; provided, however, that the Grantor
shall not exercise
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or refrain from exercising any such right if, in the Agent's judgment,
such action would have a material adverse effect on the value of the
Security Collateral or any part thereof, and, provided, further, that
the Grantor shall give the Agent at least five days' written notice of
the manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right.
(ii) The Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the
Security Collateral, provided, however, that any and all
(A) dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Security Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or
in exchange for, any Security Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the Agent for the benefit of the Secured Parties, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Security Collateral in the same form
as so received (with any necessary indorsement or assignment).
(iii) The Agent shall execute and deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and
retain pursuant to paragraph (ii) above.
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(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
(i) All rights of the Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 10(a)(i)
shall, upon notice to the Grantor by the Agent, cease and (y) to receive
the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 10(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Agent for the benefit of the Secured Parties who shall thereupon
have the sole right to exercise or refrain from exercising such voting
and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are
received by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the Agent for the
benefit of the Secured Parties, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Agent as Security
Collateral in the same form as so received (with any necessary
indorsement).
SECTION 11. Transfers and Other Liens; Additional Shares.
(a) The Grantor shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, except Inventory in the ordinary course of business and
Equipment that is obsolete or no longer used in the Grantor's business, or (ii)
create or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement and except for Permitted Liens.
(b) The Grantor agrees that it will (i) cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of each issuer of the Pledged Shares.
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SECTION 12. Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, upon the occurrence
and during the continuance of any Event of Default, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Agent for the benefit of the Secured Parties pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent for the
benefit of the Secured Parties with respect to any of the Collateral.
SECTION 13. Agent May Perform. If the Grantor fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Grantor under Section l7(b).
SECTION 14. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interests of the Secured Parties in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither the Agent nor
any Secured Party shall have any duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or not the
Agent or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent and each
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Agent and each Secured
Party, as applicable, accord its own property.
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SECTION 15. Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Agent for the benefit of the Secured Parties may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of New York at that time (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent and
make it available to Agent for the benefit of the Secured Parties at a place to
be designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by Agent for the benefit of the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to Agent for the benefit of the Secured Parties pursuant
to Section 17) in whole or in part by the Agent for the benefit of the Secured
Parties, all or any part of the Secured Obligations in such order as the Agent
shall elect. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Agent for the benefit of the Secured Parties may
exercise any and all rights and remedies of the Grantor in connection with the
Collateral.
(d) All payments received by the Grantor in connection with
the Collateral shall be received in trust for the Agent for the benefit of the
Secured
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Parties, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Agent for the benefit of the Secured Parties in the
same form as so received (with any necessary indorsement).
SECTION 16. Registration Rights. If the Agent shall determine
to exercise its right to sell all or any of the Security Collateral pursuant to
Section 15, the Grantor agrees that, upon request of the Agent, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Security Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earning statement which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law. The Grantor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Agent or any Secured Party by reason of the
failure by the Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Agent for the
benefit of the Secured Parties shall demand compliance with this Section.
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SECTION 17. Indemnity and Expenses. (a) The Grantor agrees to
indemnify the Agent and the Secured Parties from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from the Agent's
or the Secured Parties' gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preserva tion, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent for the benefit of the Secured Parties hereunder
or (iv) the failure by the Grantor to perform or observe any of the provisions
hereof.
SECTION 18. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 19. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at One
Cranberry Hill, Lexington, MA 02421, Attention: Michael Muldowney, and if to the
Agent, at the address specified for Funding in the Securities Purchase
Agreement, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 20. Continuing Security Interest; Assignments under
Securities Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of (x) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (y) the
expiration or termination of the Commitments, (ii) be binding upon the Grantor,
its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Agent for the benefit of the Secured Parties, and their
respective successors, transferees and assigns. Without limiting the
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generality of the foregoing clause (iii), Each of Funding and KU may assign or
otherwise transfer all or any portion of its rights and obligations under the
Securities Purchase Agreement (including, without limitation, all or any portion
of its Commitment, amounts owing to it and any Note held by it) to any other
person or entity, and such other person or entity shall thereupon assume and
become vested, to the extent set forth in the agreement evidencing such
assignment or transfer, with all the benefits and obligations in respect thereof
assumed by or granted to Funding or KU, as the case may be, herein or otherwise.
Upon the later of (i) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (ii) the
expiration or termination of the Commitments, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination, the Agent will, at the Grantor's expense,
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
SECTION 21. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Securities Purchase Agreement, terms used in
Article 9 of the Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
NEXTERA BUSINESS
PERFORMANCE SOLUTIONS
GROUP, INC.
By /s/ MICHAEL MULDOWNEY
-------------------------
Name: Michael Muldowney
Title: CFO
<PAGE> 1
Exhibit 10.35
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
This AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated
as of March 30, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Agreement"), is made by SIBSON & COMPANY, LLC,
a Delaware limited liability company (the "Grantor" ), in favor of NEXTERA
FUNDING, INC., a Delaware corporation (in its individual capacity, "Funding"),
as agent (in such capacity, the "Agent") for the benefit of itself and Knowledge
Universe, Inc., a Delaware corporation ("KU", together with Funding, the
"Secured Parties", and individually, each a "Secured Party").
RECITALS:
WHEREAS, Funding entered into a Securities Purchase Agreement
dated as of August 31, 1998 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Securities Purchase Agreement") with
Nextera Enterprises, L.L.C. ("Nextera LLC").
WHEREAS, SC/NE, LLC, a Delaware limited liability company
("SC/NE"), and Funding entered into the Security and Pledge Agreement, dated as
of August 31, 1998 (the "Original Security and Pledge Agreement"), pursuant to
which SC/NE pledged and granted to Funding a security interest in and lien on
the Collateral (as defined therein).
WHEREAS, SC/NE amended its name to Sibson & Company, LLC on
September 2, 1998.
WHEREAS, the Grantor is the owner of the shares (the "Pledged
Shares") of stock described in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness (the "Pledged Debt")
described in Part II of said Schedule I and issued by the obligors named
therein.
WHEREAS, in connection with the execution of the Consent and
Amendment, dated as of December 31, 1998 (as the same may be amended,
supplemented or otherwise modified from time to time) among Nextera LLC,
Funding, Nextera Enterprises, Inc. and KU and the Assignment Agreement, dated as
of December 31, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time) by and between Funding and KU and in order to induce
KU to purchase certain Notes pursuant to the Securities Purchase Agreement, the
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Grantor and Funding would like to amend and restate the Original Security and
Pledge Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Original Security and Pledge Agreement is hereby amended and restated in its
entirety as follows:
SECTION 1. Definitions. As used herein, capitalized terms
defined in the Securities Purchase Agreement and not otherwise defined herein
are used herein as so defined. The following terms shall have the following
meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in
Section 9-106 of the UCC.
"Agent" shall mean Nextera Funding Inc. in its capacity as agent
for the benefit of the Secured Parties, or its successor.
"Agreement" shall mean this Pledge and Security Agreement, as
the same may from time to time be amended, supplemented or otherwise
modified.
"Chattel Paper" shall mean "chattel paper" as such term is
defined in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer
software, computer printouts, customer lists, blueprints, technical
specifications, manuals, and similar items which relate to any
Collateral other than such items obtained under license or franchise
agreements which prohibit assignment or disclosure of such items.
"Contracts" shall mean all contracts to which the Grantor now
is, or hereafter will be, bound, or a party, beneficiary or assignee,
and all other instruments, agreements and documents executed and
delivered with respect to such contracts, and all revenues, rentals,
Proceeds and other sums of money due and to become due from any of the
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foregoing, as the same may be modified, supplemented or amended from
time to time in accordance with their terms.
"Deposit Accounts" shall mean any deposit account, including
without limitation, "deposit accounts" as such term is defined in
Section 9-105(1)(e) of the UCC and any other deposit account, together
with any funds, instruments or other items credited to any such account
from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(1)(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures,
vehicles, motor vehicles, and any manuals, instructions, blue prints,
computer software and similar items which relate to the above, and any
and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all improvements thereon and
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"Fixtures" shall mean "fixtures" as such term is defined in
Section 9-313 of the UCC.
"Funding" shall mean Nextera Funding, Inc., a Delaware
corporation, in its individual capacity, and its successors and assigns.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC, including, without
limitation, all trademarks, trademark applications, trademark
registrations, tradenames, fictitious business names, business names,
company names, business identifiers, prints, labels, trade styles and
service marks (whether or not registered), including logos and/or de
signs, copyrights, patents, patent applications, goodwill of the
Grantor's business symbolized by any of the foregoing, trade secrets,
license rights, license agreements, permits, franchises, and any rights
to tax refunds to which the Grantor is now or hereafter may be
entitled.
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"Hedging Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar interest
rate or currency exchange agreements or other interest rate or currency
hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined
in Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including
without limitation the insurance policies listed on Schedule II attached
hereto.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC, including without limitation, all goods
(whether such goods are in the possession of the Grantor or of a bailee
or other Person for sale, lease, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, compo-
nents, supplies, materials or consigned or returned or repossessed
goods), including without limitation, all such goods whether raw, in
process or finished, all materials usable in processing the same and all
documents of title covering any inventory, including but not limited to
work in process, materials used or consumed in Grantor's business, now
owned or hereafter acquired or manufactured by the Grantor and held for
sale in the ordinary course of its business; all present and future
substitutions therefor, parts and accessories thereof and all additions
thereto; and all proceeds thereof and products of such inventory in any
form whatsoever.
"KU" shall mean Knowledge Universe, Inc., a Delaware
corporation, and its successors and assigns.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, if title thereto is governed by a certificate
of title ownership.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, trust or other enterprise
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or any government or political subdivision or agency, department or
instrumentality thereof.
"Pledged Debt" shall have the meaning specified in the second
recital to this Agreement.
"Pledged Shares" shall have the meaning specified in the second
recital to this Agreement.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and
all rights in respect of the Account Debtor, including without
limitation, all such rights in which the Grantor has any right, title or
interest by reason of the purchase thereof by the Grantor, and including
without limitation all such rights constituting or evidenced by any
Account, Chattel Paper, Instrument, General Intangible, note, contract,
invoice, purchase order, draft, acceptance, intercompany account,
security agreement, or other evidence of indebtedness or security,
together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement
granting a security interest in such collateral, (b) all goods, the sale
of which gave rise to any of the foregoing, including, without
limitation, all rights in any returned or repossessed goods and unpaid
seller's rights, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, and (d) all powers of attorney for the
execution of any evidence of indebtedness or security or other writing
in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets
or cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the
control of the Grantor or any computer bureau or agent from time to time
acting for the Grantor or otherwise, (c) all evidences of the filing of
financing statements and the registration of other instruments in
connection therewith and amendments, sup-
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plements or other modifications thereto, notices to other creditors or
secured parties, and certificates, acknowledgments, or other writings,
including without limitation lien search reports, from filing or other
registration officers, (d) all credit information, reports and memoranda
relating thereto, and (e) all other written or non-written forms of
information related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations,
liabilities (including, without limitation, contingent obligations) and
indebtedness of every nature of the Grantor, now existing or hereafter
incurred, arising under or in connection with the Securities Purchase
Agreement, any Note, any other Financing Document or this Agreement and
(b) in the case of Funding only, all other obligations, liabilities of
every kind, nature or description, direct or indirect, primary or
secondary, joint or several, absolute or contingent of the Grantor to
the Agent or any Secured Party whether due or to become due and whether
now existing or hereafter incurred and whether similar or dissimilar to
the obligations described in clause (a) hereof, and including without
limitation all consumer or commercial transactions, all purchase money
and nonpurchase money transactions, all overdrafts, all letters of
credit, all lines of credit and all other extensions of credit,
regardless of how they may be evidenced.
"Secured Parties" shall mean, collectively, Funding and KU; and
"Secured Party" shall mean, individually, each of Funding and KU.
"Securities Purchase Agreement" shall have the meaning specified
in the first recital to this Agreement.
"Security Collateral" shall mean:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
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(iii) all additional shares of stock from time to time
acquired by the Grantor in any manner, and the certificates representing
such additional shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(iv) all additional indebtedness from time to time owed to
the Grantor and the instruments evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2. Grant of Security Interests. As security for the
prompt and complete payment and performance in full of all the Secured
Obligations, the Grantor hereby confirms and grants to the Agent for the benefit
of the Secured Parties a security interest in and lien on all of the Grantor's
right, title and interest in, to and under the following, in each case, whether
now owned or existing or hereafter acquired or arising, and wherever located
(all of which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Collateral Records;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
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(j) all Hedging Agreements;
(k) all Instruments;
(l) all Insurance Policies;
(m) all Inventory;
(n) all Money;
(o) all Motor Vehicles;
(p) all Receivables;
(q) all Receivables Records;
(r) all other tangible and intangible personal property;
(s) all of the Security Collateral; and
(t) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing.
SECTION 3. Grantor Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
for the benefit of the Secured Parties of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither the Agent nor any
Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement and shall be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Security Collateral. All certificates or
instruments representing or evidencing the Security Collateral shall be
delivered to and held by or on behalf of the Agent for the benefit of the
Secured Parties pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and sub-
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stance satisfactory to the Agent. If any Event of Default shall have occurred
and be continuing, the Agent shall have the right, at any time in its discretion
and without notice to the Grantor, to transfer to or to register in the name of
the Agent for the benefit of the Secured Parties or any of its nominees any or
all of the Security Collateral, subject only to the revocable rights specified
in Section 10(a). In addition, the Agent shall have the right at any time to
exchange certificates or instruments representing or evidencing Security
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule III hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and the originals of all chattel paper that
evidence Receivables, are located at its address specified in Section 19. The
originals of all chattel paper that evidence Receivables have been delivered to
the Agent for the benefit of the Secured Parties. Except for Receivables listed
on Schedule IV attached hereto, none of the Receivables is evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
except for Permitted Liens. No effective financing statement or other document
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent for
the benefit of the Secured Parties relating to this Agreement and except as set
forth on Schedule 6.11 to the Securities Purchase Agreement. The Grantor has the
trade names listed on Schedule V attached hereto.
(c) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuers thereof, and is not in default.
(e) The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the respective issuers thereof
indicated on
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Schedule I. The Pledged Debt is outstanding in the principal amount indicated on
Schedule I.
(f) This Agreement and the pledge of the Security Collateral
pursuant hereto create a valid and perfected security interest in the
Collateral, securing the payment of the Secured Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
(g) No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required (i) for the pledge by the
Grantor of the Security Collateral pursuant to this Agreement, for the grant by
the Grantor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by the Grantor, (ii) for the
perfection or maintenance of the pledge and security interest created hereby or
(iii) for the exercise by the Agent for the benefit of the Secured Parties of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement (except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally).
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
(j) The Grantor has, independently and without reliance upon
the Agent and based on such documents and information as it has deemed appropri-
ate, made its own credit analysis and decision to enter into this Agreement.
SECTION 6. Further Assurances. (a) The Grantor agrees that from
time to time, at the expense of the Grantor, the Grantor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Agent may reasonably request, in
order to perfect and protect any pledge or security interest granted or
purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will: (i) as reasonably
requested by the Agent, mark conspicuously each document included in the
Inventory and each chattel paper included in the Receivables, each Contract and,
at the request of the Agent, each of its records pertaining to the Collateral
with a legend, in form and substance satisfactory to the Agent, indicating that
such document, chattel paper, Contract or Collateral is subject
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to the pledge and security interest granted hereby; (ii) if any Collateral shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Agent for the benefit of the Secured Parties hereunder such
note or instrument or chattel paper duly indorsed and accompanied by duly
executed instruments of transfer, all in form and substance satisfactory to the
Agent; and (iii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as the Agent may request, in order to perfect and preserve the
pledge and security interest granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 7. As to Equipment and Inventory.
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business or movement of
other Equipment valued not greater than $300,000 in the ordinary course of
business in connection with rendering services to Grantor's clients) at the
places therefor specified in Section 5(a) or, upon 30 days' prior written
notice to the Agent, at such other places in jurisdiction where all action
required by Section 6 shall have been taken with respect to the Equipment and
Inventory.
(b) The Grantor shall cause the Equipment to be maintained
and preserved in the same condition, repair and working order as when new,
ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Agent a statement respecting any loss or damage to any
of the Equipment in excess of $500,000.
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(c) The Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory. In producing the Inventory, the Grantor shall comply
with all requirements of the Fair Labor Standards Act.
SECTION 8. Insurance. (a) The Grantor shall, at its own
expense, maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent for the benefit
of the Secured Parties and the Grantor as their respective interests may appear
and each policy for property damage insurance shall provide for all losses
(except for losses of less than $50,000 per occurrence) to be paid directly to
the Agent for the benefit of the Secured Parties. Each such policy shall in
addition (i) name the Grantor and the Agent for the benefit of the Secured
Parties as insured parties thereunder (without any representation or warranty by
or obligation upon the Agent) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the Agent
for the benefit of the Secured Parties notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (iii) provide that there
shall be no recourse against the Agent for payment of premiums or other amounts
with respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Agent by the insurer.
The Grantor shall, if so requested by the Agent, deliver to the Agent original
or duplicate policies of such insurance and, as often as the Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance.
(b) Reimbursement under any liability insurance maintained
by the Grantor pursuant to this Section 8 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 8 shall be paid to
the Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of
any Event of Default, or (ii) the actual or constructive total loss (in excess
of $50,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by the
Agent for the benefit of the Secured Parties as specified in Section 15(b).
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SECTION 9. Place of Perfection; Records; Collection of
Receivables. (a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all chattel paper that evidenced Receivables,
at the location therefor specified in Section 5(a) or, upon 30 days' prior
written notice to the Agent, at any other locations in a jurisdiction where all
actions required by Section 6 shall have been taken with respect to the
Receivables. The Grantor will hold and preserve such records and chattel paper
and will permit representatives of the Agent at any time during normal business
hours to inspect and make abstracts from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect, at its own expense, all amounts due or to
become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take and, at the Agent's direction, shall take such
action as the Grantor or the Agent may deem reasonably necessary or advisable to
enforce collection of the Receivables; provided, however, that, upon the
occurrence and during the continuance of any Event of Default, the Agent shall
have the right at any time, upon written notice to the Grantor of its intention
to do so, to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent for
the benefit of the Secured Parties and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Agent referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the Agent
for the benefit of the Secured Parties hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent for the
benefit of the Secured Parties in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, applied as
provided by Section 15(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as
no Event of Default or event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default shall have occurred and be
continuing:
(i) The Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
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pertaining to the Security Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the
Securities Purchase Agreement; provided, however, that the Grantor shall
not exercise or refrain from exercising any such right if, in the
Agent's judgment, such action would have a material adverse effect on
the value of the Security Collateral or any part thereof, and, provided,
further, that the Grantor shall give the Agent at least five days'
written notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right.
(ii) The Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the
Security Collateral, provided, however, that any and all
(A) dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in
respect of, or in exchange for, any Security Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Security Collateral in
connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or
in exchange for, any Security Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the Agent for the benefit of the Secured Parties, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Security Collateral in the same
form as so received (with any necessary indorsement or assignment).
(iii) The Agent shall execute and deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and
retain pursuant to paragraph (ii) above.
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(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
(i) All rights of the Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 10(a)(i)
shall, upon notice to the Grantor by the Agent, cease and (y) to receive
the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 10(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Agent for the benefit of the Secured Parties who shall thereupon
have the sole right to exercise or refrain from exercising such voting
and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are
received by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the Agent for the
benefit of the Secured Parties, shall be segregated from other funds of
the Grantor and shall be forthwith paid over to the Agent as Security
Collateral in the same form as so received (with any necessary
indorsement).
SECTION 11. Transfers and Other Liens; Additional Shares.
(a) The Grantor shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, except Inventory in the ordinary course of business and
Equipment that is obsolete or no longer used in the Grantor's business, or (ii)
create or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement and except for Permitted Liens.
(b) The Grantor agrees that it will (i) cause each issuer of
the Pledged Shares not to issue any stock or other securities in addition to or
in substitution for the Pledged Shares issued by such issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other securities
of each issuer of the Pledged Shares.
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SECTION 12. Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, upon the occurrence
and during the continuance of any Event of Default, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Agent for the benefit of the Secured Parties pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent for the
benefit of the Secured Parties with respect to any of the Collateral.
SECTION 13. Agent May Perform. If the Grantor fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Grantor under Section l7(b).
SECTION 14. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interests of the Secured Parties in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither the Agent nor
any Secured Party shall have any duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or not the
Agent or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent and each
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is ac-
corded treatment substantially equal to that which the Agent and each Secured
Party, as applicable, accord its own property.
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SECTION 15. Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Agent for the benefit of the Secured Parties may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in the
State of New York at that time (the "Code") (whether or not the Code applies to
the affected Collateral), and also may (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent and
make it available to Agent for the benefit of the Secured Parties at a place to
be designated by the Agent which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. The Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by Agent for the benefit of the Secured Parties in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to Agent for the benefit of the Secured Parties pursuant
to Section 17) in whole or in part by the Agent for the benefit of the Secured
Parties, all or any part of the Secured Obligations in such order as the Agent
shall elect. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Agent for the benefit of the Secured Parties may
exercise any and all rights and remedies of the Grantor in connection with the
Collateral.
(d) All payments received by the Grantor in connection with
the Collateral shall be received in trust for the Agent for the benefit of the
Secured
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Parties, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Agent for the benefit of the Secured Parties in the
same form as so received (with any necessary indorsement).
SECTION 16. Registration Rights. If the Agent shall determine
to exercise its right to sell all or any of the Security Collateral pursuant to
Section 15, the Grantor agrees that, upon request of the Agent, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Security Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earning statement which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law. The Grantor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Agent or any Secured Party by reason of the
failure by the Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Agent for the
benefit of the Secured Parties shall demand compliance with this Section.
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SECTION 17. Indemnity and Expenses. (a) The Grantor agrees to
indemnify the Agent and the Secured Parties from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from the Agent's
or the Secured Parties' gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent for the benefit of the Secured Parties hereunder
or (iv) the failure by the Grantor to perform or observe any of the provisions
hereof.
SECTION 18. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 19. Addresses for Notices. All notices and other commu-
nications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at One
Cranberry Hill, Lexington, MA 02421, Attention: Michael Muldowney, and if to the
Agent, at the address specified for Funding in the Securities Purchase
Agreement, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or cabled,
be effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 20. Continuing Security Interest; Assignments under
Securities Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of (x) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (y) the
expiration or termination of the Commitments, (ii) be binding upon the Grantor,
its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Agent for the benefit of the Secured Parties, and their
respective successors, transferees and assigns. Without limiting the
19
<PAGE> 20
generality of the foregoing clause (iii), Each of Funding and KU may assign or
otherwise transfer all or any portion of its rights and obligations under the
Securities Purchase Agreement (including, without limitation, all or any portion
of its Commitment, amounts owing to it and any Note held by it) to any other
person or entity, and such other person or entity shall thereupon assume and
become vested, to the extent set forth in the agreement evidencing such
assignment or transfer, with all the benefits and obligations in respect thereof
assumed by or granted to Funding or KU, as the case may be, herein or otherwise.
Upon the later of (i) the payment in full of the principal of and all accrued
interests on the Notes and all fees in connection therewith and (ii) the
expiration or termination of the Commitments, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination, the Agent will, at the Grantor's expense,
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
SECTION 21. Governing Law; Terms. This Agreement shall be gov-
erned by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Securities Purchase Agreement, terms used in
Article 9 of the Code are used herein as therein defined.
20
<PAGE> 21
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
SIBSON & COMPANY, LLC
By: Nextera Enterprises, Inc.,
as its Member
By /s/ MICHAEL MULDOWNEY
------------------------
Name: Michael Muldowney
Title: CFO
<PAGE> 1
Exhibit 10.36
AMENDMENT TO SUBSIDIARY GUARANTY
AMENDMENT, dated as of March 30, 1999, to SUBSIDIARY GUARANTY
(the "Subsidiary Guaranty"), dated as of August 31, 1998, by each of the
corporations party thereto or party to Annex A attached thereto (each, a "Subsid
iary Guarantor").
For good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Subsidiary Guarantors jointly and severally
agree as follows:
1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings ascribed to such
terms in the Subsidiary Guaranty.
2. Amendment. The first paragraph of the recitals to the
Subsid iary Guaranty is hereby deleted in its entirety and the following
substituted therefor:
WHEREAS, Nextera Enterprises, Inc. (formerly known as
Nextera Enterprises, L.L.C.) (the "Company") has entered into a
Securities Purchase Agreement, dated as of August 31, 1998 (as amended
by the Consent and Amendment, dated as of December 31, 1998, among
Nextera Enterprises, L.L.C., Nextera Funding, Inc. ("DLJ Bridge"), the
Company and Knowledge Universe, Inc., and as further amended,
supplemented or other wise modified from time to time, the "Securities
Purchase Agreement") with DLJ Bridge pursuant to which DLJ Bridge has
agreed, subject to the terms and conditions set forth therein, to
purchase up to $77,500,000 principal amount of the Company's promissory
notes;
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 2
IN WITNESS WHEREOF, the Subsidiary Guarantors have caused this
Amendment to Subsidiary Guaranty to be duly executed as of the date first above
written.
PYRAMID IMAGING, INC.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title: Secretary
THE PLANNING TECHNOLOGIES
GROUP, L.L.C.
By: Nextera Enterprises, Inc.,
as its Member
/s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title: Chief Financial Officer
SIBSON & COMPANY, LLC
By: Nextera Enterprises, Inc.,
as its Member
/s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title: Chief Financial Officer
NEXTERA BUSINESS PERFORMANCE
SOLUTIONS GROUP, INC.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title:
<PAGE> 3
LEXECON INC.
By: /s/ ANDREW M. ROSENFIELD
------------------------------------
Name: Andrew M. Rosenfield
Title: Chairman
SCANADA, INC.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title:
TIMAEUS, INC.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title:
CRITIAS, INC.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title:
<PAGE> 4
SIBSON INTERNATIONAL, LLC
By: Sibson & Company, LLC,
as its Member
/s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title: Chief Financial Officer
SIBSON CANADA CO.
By: /s/ MICHAEL MULDOWNEY
------------------------------------
Name: Michael Muldowney
Title:
THE ALEXANDER CORPORATION
LIMITED
By: /s/ DOUGLAS J. TORMEY
------------------------------------
Name: Douglas J. Tormey
Title: Director & Secretary
SIBSON UK LIMITED
By: /s/ DOUGLAS J. TORMEY
------------------------------------
Name: Douglas J. Tormey
Title: Director & Secretary
<PAGE> 1
EXHIBIT 10.37
SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENT
This SECOND AMENDMENT dated as of April 15, 1999 (this
"Amendment") to SECURITIES PURCHASE AGREEMENT dated as of August 31, 1998 (as
amended by the Consent and Amendment dated as of December 31, 1998 and as the
same may further be amended, supplemented or otherwise modified from time to
time, the "Purchase Agreement") among Nextera Enterprises, Inc. (the "Company"),
Knowledge Universe, Inc. ("KU") and Nextera Funding, Inc. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company has requested the Purchaser to amend certain
provisions of the Purchase Agreement upon the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, the undersigned hereby agree as follows:
Section 1. Defined Terms. Terms defined in the Purchase Agreement
and used herein shall have the meanings given to them in the Purchase Agreement.
Section 2. Amendment. Notwithstanding anything to the contrary
set forth in the Financing Documents, Section 1.1 of the Purchase Agreement is
hereby amended by changing the definition of "Maturity Date" from "April 30,
1999" to "May 31, 1999" for all purposes of such agreements.
Section 3. Effective Date. This Amendment shall become effective
on the date (the "Effective Date") on which all parties hereto have duly
executed and delivered this Amendment.
Section 4. Representations and Warranties. The Company hereby
represents and warrants that (a) each of the representations and warranties made
by the Company in the Financing Documents is true and correct as of the
Effective Date, before and after giving effect to this Amendment, as if made on
and as of the Effective Date (unless such representations and warranties are
stated to relate to a specific earlier date, in which case such representations
and warranties shall be true
<PAGE> 2
and correct in all material respects as of such earlier date) and (b) after
giving effect to this Amendment, no Default or Event of Default shall have
occurred and be continuing.
Section 5. Miscellaneous.
(a) No Other Amendment; Continuing Effect. Except as
expressly amended hereby, all of the terms and provisions of the Financing
Documents are and shall remain in full force and effect.
(b) Expenses. The Company agrees to pay and reimburse
Purchaser for all of its costs and expenses of legal counsel in connection with
this Amendment.
(c) Counterparts. This Amendment may be executed in any
number of counterparts by the parties hereto, all of which taken together shall
constitute one and the same instrument and any of the parties hereto may execute
this Amendment by signing any such counterpart. This Amendment may be delivered
by facsimile transmission of the relevant signature pages hereof.
(d) New York Law; Submission to Jurisdiction; Waiver of
Jury Trial. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
2
<PAGE> 3
(e) Headings Descriptive. The headings of the several
Sections and subsections of this Amendment are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision.
(f) Severability. In case any provision in or
obligation under this Amendment shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
(g) No Waiver, Cumulative Remedies. No failure or delay
or course of dealing on the part of Purchaser in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have caused this Amendment to
be executed and delivered by their duly authorized officers as of the date first
above written.
NEXTERA ENTERPRISES, INC.
By: /s/ Stanley E. Maron
-------------------------------------
Name: Stanley E. Maron
Title: Secretary
KNOWLEDGE UNIVERSE, INC.
By: /s/ Stanley E. Maron
-------------------------------------
Name: Stanley E. Maron
Title: Secretary
NEXTERA FUNDING, INC.
By: /s/ Cameron Fleming
-------------------------------------
Name: Cameron Fleming
Title: Vice President
4
<PAGE> 1
EXHIBIT 10.50
FIRST AMENDMENT TO
AMENDED AND RESTATED DEBENTURE
THIS FIRST AMENDMENT TO AMENDED AND RESTATED DEBENTURE (the
"Amendment") is entered into effective as of April 15, 1999 (the "Effective
Date") by and among Nextera Enterprises, Inc., a Delaware corporation
("Borrower") and Knowledge Universe, Inc., a Delaware corporation, Gresham
Brebach, Jr., Ronald Bohlin, Debra Bergevine, Michael Muldowney, and David
Fritts (collectively, the "Lenders"), and is made with reference to the
following:
RECITALS
A. As of March 20, 1997, Nextera Enterprises, L.L.C., a Delaware limited
liability company ("NE LLC") issued a Debenture to Nextera Enterprises Holdings,
L.L.C., a Delaware limited liability company ("NEH LLC") in the amount of
$23,000,000 (the "Debenture").
B. On April 30, 1998, NEH LLC distributed and assigned the Debenture to its
members. On August 5, 1998, Knowledge Universe, L.L.C. contributed and assigned
its interest in the Debenture to Knowledge Universe, Inc. ("KU Inc.").
C. On December 31, 1998, the membership interests in NE LLC were contributed
to Borrower, NE LLC was dissolved, all of the assets of NE LLC were distributed
to Borrower, all of the obligations of NE LLC, including, but not limited to,
the Debenture, were assumed by Borrower, and the Debenture was amended and
restated (the "Amended And Restated Debenture").
D. The terms of the Amended And Restated Debenture provide, inter alia, that:
(i) if the bridge loan from Nextera Funding, Inc. to Borrower (the "Bridge
Loan") is not paid in full on or before April 30, 1999, the interest rate on the
Debenture (or dividend rate if converted to preferred stock) will increase to
two percent over the Bridge Loan rate as it may vary from time to time; and (ii)
the Debenture (or preferred stock if converted) will convert to current cash
interest (or dividend) payments three months after the Bridge Loan is paid in
full.
E. Lenders and Borrower have agreed to amend the Amended And Restated
Debenture so as to change the April 30, 1999 date referenced in Recital D above
to May 31, 1999.
1
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Section 10 of the Amended And Restated Debenture is deleted in its
entirety and new Section 10 is added to read as follows:
"10. If the Bridge Loan has not been paid in full on or before May
31, 1999, then on June 1, 1999 the interest rate on this Debenture (or dividend
rate if this Debenture has been converted into Exchanged Preferred Stock) shall
increase to a rate which is two percentage points in excess of the Bridge Loan
rate as it may vary from time to time."
IN WITNESS WHEREOF, Borrower and Lenders, intending to be legally
bound hereby, have caused this First Amendment To Amended And Restated Debenture
to be duly executed effective as of April 15, 1999.
"BORROWER"
Nextera Enterprises, Inc., a Delaware corporation
By: /s/ Stanley E. Maron
-------------------------------------------
Stanley E. Maron
Its Secretary
"LENDERS"
Knowledge Universe, Inc., a Delaware corporation
By: /s/ Stanley E. Maron
-------------------------------------------
Stanley E. Maron
Its Secretary
[Signatures continued on next page]
2
<PAGE> 3
[Signatures continued from prior page]
/s/ Gresham Brenbach, Jr.
-------------------------------------------
Gresham Brebach, Jr.
/s/ Ronald Bohlin
-------------------------------------------
Ronald Bohlin
/s/ Debra Bergevine
-------------------------------------------
Debra Bergevine
/s/ Michael Muldowney
-------------------------------------------
Michael Muldowney
/s/ David Fritts
-------------------------------------------
David Fritts
3
<PAGE> 4
Schedule "A"
<TABLE>
<CAPTION>
Lenders Percentage Ownership
------- --------------------
<S> <C>
Knowledge Universe, Inc. 98.29057%
Gresham Brebach, Jr. 1.16976%
Ronald Bohlin 0.10085%
Debra Bergevine 0.14638%
Michael Muldowney 0.14622%
David Fritts 0.14622%
---------
100%
</TABLE>
Schedule "B"
Schedule of Advances
<TABLE>
<CAPTION>
Date Amount of Advance Principal Balance
- ---- ----------------- -----------------
<S> <C> <C>
3/20/97 $ 728,640 $ 728,640
4/18/97 $ 230,000 $ 958,640
5/19/97 $ 276,000 $ 1,234,640
6/17/97 $ 276,000 $ 1,510,640
7/23/97 $13,800,000 $15,310,640
8/15/97 $ 920,000 $16,230,640
9/9/97 $ 165,600 $16,396,240
9/30/97 $ 276,000 $16,672,240
10/14/97 $ 276,000 $16,948,240
11/4/97 $ 276,000 $17,224,240
11/21/97 $ 920,000 $18,144,240
1/5/98 $ 4,799,330.50 $22,943,570.50
4/10/98 $ 22,841 $22,966,411.50
----------- --------------
</TABLE>
4
<PAGE> 1
EXHIBIT 10.52
FIRST AMENDMENT TO
AMENDED AND RESTATED DEBENTURE
THIS FIRST AMENDMENT TO AMENDED AND RESTATED DEBENTURE (the
"Amendment") is entered into effective as of April 15, 1999 (the "Effective
Date") by and among Nextera Enterprises, Inc., a Delaware corporation
("Borrower") and Knowledge Universe, Inc., a Delaware corporation, Gresham
Brebach, Jr., Ronald Bohlin, Debra Bergevine, Michael Muldowney, and David
Fritts (collectively, the "Lenders"), and is made with reference to the
following:
RECITALS
A. As of January 5, 1998, Nextera Enterprises, L.L.C., a Delaware limited
liability company ("NE LLC") issued a Debenture to Nextera Enterprises Holdings,
L.L.C., a Delaware limited liability company ("NEH LLC") in the amount of
$24,970,000 (the "Debenture").
B. On April 30, 1998, NEH LLC distributed and assigned the Debenture to its
members. On August 5, 1998, Knowledge Universe, L.L.C. contributed and assigned
its interest in the Debenture to Knowledge Universe, Inc. ("KU Inc.").
C. On December 31, 1998, the membership interests in NE LLC were contributed
to Borrower, NE LLC was dissolved, all of the assets of NE LLC were distributed
to Borrower, all of the obligations of NE LLC, including, but not limited to,
the Debenture, were assumed by Borrower, and the Debenture was amended and
restated (the "Amended And Restated Debenture").
D. The terms of the Amended And Restated Debenture provide, inter alia, that:
(i) if the bridge loan from Nextera Funding, Inc. to Borrower (the "Bridge
Loan") is not paid in full on or before April 30, 1999, the interest rate on the
Debenture (or dividend rate if converted to preferred stock) will increase to
two percent over the Bridge Loan rate as it may vary from time to time; and (ii)
the Debenture (or preferred stock if converted) will convert to current cash
interest (or dividend) payments three months after the Bridge Loan is paid in
full.
E. Lenders and Borrower have agreed to amend the Amended And Restated
Debenture so as to change the April 30, 1999 date referenced in Recital D above
to May 31, 1999.
1
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Section 10 of the Amended And Restated Debenture is deleted in its
entirety and new Section 10 is added to read as follows:
"10. If the Bridge Loan has not been paid in full on or before May
31, 1999, then on June 1, 1999 the interest rate on this Debenture (or dividend
rate if this Debenture has been converted into Exchanged Preferred Stock) shall
increase to a rate which is two percentage points in excess of the Bridge Loan
rate as it may vary from time to time."
IN WITNESS WHEREOF, Borrower and Lenders, intending to be legally
bound hereby, have caused this First Amendment To Amended And Restated Debenture
to be duly executed effective as of April 15, 1999.
"BORROWER"
Nextera Enterprises, Inc., a Delaware corporation
By: /s/ Stanley E. Maron
-------------------------------------------
Stanley E. Maron
Its Secretary
"LENDERS"
Knowledge Universe, Inc., a Delaware corporation
By: /s/ Stanley E. Maron
-------------------------------------------
Stanley E. Maron
Its Secretary
[Signatures continued on next page]
2
<PAGE> 3
[Signatures continued from prior page]
/s/ Gresham Brebach, Jr.
-------------------------------------------
Gresham Brebach, Jr.
/s/ Ronald Bohlin
-------------------------------------------
Ronald Bohlin
/s/ Debra Bergevine
-------------------------------------------
Debra Bergevine
/s/ Michael Muldowney
-------------------------------------------
Michael Muldowney
/s/ David Fritts
-------------------------------------------
David Fritts
3
<PAGE> 4
Schedule "A"
<TABLE>
<CAPTION>
Lenders Percentage Ownership
------- --------------------
<S> <C>
Knowledge Universe, Inc. 98.29057%
Gresham Brebach, Jr. 1.16976%
Ronald Bohlin 0.10085%
Debra Bergevine 0.14638%
Michael Muldowney 0.14622%
David Fritts 0.14622%
---------
100%
</TABLE>
Schedule "B"
Schedule of Advances
<TABLE>
<CAPTION>
Date Amount of Advance Principal Balance
- ---- ----------------- -----------------
<S> <C> <C>
3/20/97 $ 728,640 $ 728,640
4/18/97 $ 230,000 $ 958,640
5/19/97 $ 276,000 $ 1,234,640
6/17/97 $ 276,000 $ 1,510,640
7/23/97 $13,800,000 $15,310,640
8/15/97 $ 920,000 $16,230,640
9/9/97 $ 165,600 $16,396,240
9/30/97 $ 276,000 $16,672,240
10/14/97 $ 276,000 $16,948,240
11/4/97 $ 276,000 $17,224,240
11/21/97 $ 920,000 $18,144,240
1/5/98 $ 4,799,330.50 $22,943,570.50
4/10/98 $ 22,841 $22,966,411.50
----------- --------------
</TABLE>
4
<PAGE> 1
EXHIBIT 10.56
[NEXTERA LETTERHEAD]
GRESHAM T. BREBACH, JR.
President and
Chief Executive Officer
Nextera Enterprises
April 6, 1999
Mr. Michael Muldowney
47 Miller Hill Road
Dover, MA 02030
Dear Mr. Muldowney,
Pursuant to your original offer letter dated April 15th, 1997, and in light of
your performance and contributions, we have decided to offer you a one (1) year
renewal term for the period May 1st, 1999 through April 30th, 2000.
All terms from your offer letter and last year's renewal agreement dated
February 2, 1998 remain in effect, according to the following provisions:
- You will remain in the capacity of Chief Financial Officer.
- Your new base salary will be revised to $191,000 per annum (effective
1/1/99)
- Your bonus eligibility remains at 30% of base.
I look forward to the challenge of the year ahead and appreciate your valuable
contribution.
Sincerely yours,
/s/ GRESHAM T. BREBACH, JR.
- ----------------------------
Gresham T. Brebach, Jr.
President & CEO
<PAGE> 1
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 19, 1999, in Amendment No. 5 to the Registration Statement No.
333-63789 (Form S-1) and related Prospectus of Nextera Enterprises, Inc. for the
registration of 11,500,000 shares of its Class A common stock.
Our audits also included the financial statement schedule of Nextera
Enterprises, Inc. included in Amendment No. 5 to the Registration Statement.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the schedule based on our audit. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 30, 1998, with respect to the 1997 financial
statements of Symmetrix, Inc., included in Amendment No. 5 to the Registration
Statement No. 333-63789 (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of 11,500,000 shares of its Class A
common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Pre-effective Amendment No. 5 to the Registration Statement of our report dated
July 19, 1996, relating to the May 31, 1996 consolidated financial statements of
Symmetrix, Inc. and Subsidiaries, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ B.D.O. SEIDMAN, LLP
Boston, Massachusetts
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 31, 1998, with respect to the financial
statements of SiGMA Consulting, LLC, included in Amendment No. 5 to the
Registration Statement No. 333-63789 (Form S-1) and related Prospectus of
Nextera Enterprises, Inc., for the registration of 11,500,000 shares of its
Class A common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1998, except for Note 8 which is April 4,
1998, with respect to the financial statements of The Planning Technologies
Group, Inc., included in the Pre-effective Amendment No. 5 to the Registration
Statement (Form S-1) and related Prospectus of Nextera Enterprises, Inc., for
the registration of shares of its Class A common stock.
/s/ HARTE CARUCCI & DRISCOLL, P.C.
Woburn, Massachusetts
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 29, 1998 with respect to the financial
statements of Sibson & Company, L.P., and Subsidiaries, included in the
Pre-effective Amendment No. 5 to the Registration Statement (Form S-1) and
related Prospectus of Nextera Enterprises, Inc., for the registration of shares
of its Class A common stock.
/s/ FARKOUH, FURMAN & FACCIO
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 1, 1998 with respect to the financial
statements of Sibson Canada, Inc., included in the Pre-effective Amendment No. 5
to the Registration Statement (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of shares of its Class A common stock.
/s/ GRANT THORNTON
Chartered Accountants
Toronto, Ontario
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 2, 1999, with respect to the financial
statements of Lexecon Inc., included in Amendment No. 5 to the Registration
Statement No. 333-63789 (Form S-1) and related Prospectus of Nextera
Enterprises, Inc., for the registration of 11,500,000 shares of its Class A
common stock.
/s/ Ernst & Young LLP
Chicago, Illinois
April 14, 1999
<PAGE> 1
EXHIBIT 23.1.9
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 25, 1998, with respect to the 1997 financial
statements Pyramid Imaging, Inc., included in Amendment No. 5 to the
Registration Statement No. 333-63789 (Form S-1) and related Prospectus of
Nextera Enterprises, Inc., for the registration of 11,500,000 shares of its
Class A common stock.
/s/ Ernst & Young LLP
San Francisco, California
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, AND NOTES THERETO, INCLUDED IN THE
COMPANY'S REGISTRATION STATEMENT, TO WHICH THIS SCHEDULE IS AN EXHIBIT, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> FEB-26-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 554 1,496
<SECURITIES> 0 0
<RECEIVABLES> 2,302 32,361
<ALLOWANCES> 100 1,267
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,619 42,517
<PP&E> 1,311 9,332
<DEPRECIATION> 130 1,276
<TOTAL-ASSETS> 22,655 176,691
<CURRENT-LIABILITIES> 4,954 108,278
<BONDS> 0 0
0 0
0 0
<COMMON> 19,747 31,660
<OTHER-SE> (3,015) (20,170)
<TOTAL-LIABILITY-AND-EQUITY> 16,732 176,691
<SALES> 7,998 67,590
<TOTAL-REVENUES> 7,998 67,590
<CGS> 4,718 44,985
<TOTAL-COSTS> 5,561 26,123
<OTHER-EXPENSES> 0 6,671
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32 6,723
<INCOME-PRETAX> (2,313) (16,912)
<INCOME-TAX> 702 243
<INCOME-CONTINUING> (3,015) (17,155)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,015) (14,997)
<EPS-PRIMARY> (0.74) (1.14)
<EPS-DILUTED> (0.74) (1.14)
</TABLE>
