<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
REGISTRATION NO. 333-63789
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTERA ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8742 95-4700410
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL P. MULDOWNEY
CHIEF FINANCIAL OFFICER
NEXTERA ENTERPRISES, INC.
ONE CRANBERRY HILL
LEXINGTON, MA 02421
(781) 778-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DAVID A. HAHN, ESQ. MARK H. BURNETT, ESQ.
HOWARD L. ARMSTRONG, ESQ. MICHAEL A. CONZA, ESQ.
LATHAM & WATKINS TESTA, HURWITZ & THIBEAULT, LLP
701 "B" STREET, SUITE 2100 HIGH STREET TOWER
SAN DIEGO, CA 92101 125 HIGH STREET
(619) 236-1234 BOSTON, MA 02110
(617) 248-7000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------
Class A Common Stock, $.001 par value............... $87,000,000 $25,665
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1999
PROSPECTUS
, 1999
[ ] SHARES
[NEXTERA ENTERPRISES, INC. LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $0.001 per
share (the "Class A Common Stock"), offered hereby (the "Offering") are being
sold by Nextera Enterprises, Inc. ("Nextera" or the "Company"). The Class A
Common Stock and the Company's Class B Common Stock, par value $0.001 per share,
(the "Class B Common Stock" and together with the Class A Common Stock, the
"Common Stock"), are substantially identical except with respect to voting power
and conversion rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share, on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Each share
of Class B Common Stock is convertible into one share of Class A Common Stock
under certain circumstances. See "Description of Capital Stock." After the
Offering, Knowledge Enterprises, Inc. ("Knowledge Enterprises") will hold
approximately % of the combined voting power of the outstanding Common
Stock.
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently anticipated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "NXRA."
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $
Total(3)........................ $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters, 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 $ , payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of additional shares at the Price to Public less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE> 3
[GRAPHIC]
Graphic entitled "Nextera's Value Proposition" depicts a large triangle in
the center of the graphic with inward-pointing arrows placed along each side of
the center triangle. The top of the large triangle contains the words "Clients
Enhance Business Performance Through. . ." The center of the large triangle is
divided into three sections. The leftmost section contains the words "Dynamic
Strategic Management." The middle section contains the words "High Performance
Business Processes." The rightmost section contains the words "Organizational
Development." The bottom of the large triangle contains the words "Applying
Emerging Technologies to" with the following three 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) improve
business processes to achieve higher levels of operational performance, (iii)
improve the capabilities of their organizations, and (iv) apply technology to
support innovative approaches to conducting business. Nextera brings together
complementary services drawn from its four practice areas and delivers these
services through client-focused teams that consist of individuals with the
competencies needed to address all aspects of a client's consulting needs.
Nextera employs a business model in which business units independently manage
their operations while participating in Nextera's programs for cross-company
joint marketing and opportunity management, sharing best practices, locating
needed expertise, and leveraging the Company's knowledge base.
2
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. These forward-looking statements speak only as of
the date of this Prospectus, or, if specified, as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
------------------------
Lexecon is a registered service mark and Nextera, Sibson, Pyramid Imaging,
Nextera Business Performance Solutions Group, Symmetrix, SiGMA, and The Planning
Technologies Group are service marks used by the Company in providing services.
This Prospectus also includes names, trademarks, service marks and registered
trademarks and service marks of companies other than the Company, which names,
trademarks, service marks and registered trademarks and service marks are the
property of such companies.
3
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, and the Historical Financial Statements and Notes thereto,
and the Unaudited Pro Forma Combined Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Class A Common Stock offered hereby
involves a high degree of risk. See "Risk Factors" beginning on page 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. and Lexecon Inc. (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 preference shares of a Canadian subsidiary of the
Company (the "Exchangeable Shares") for Class A Common Stock (see "The
Company--Exchangeable Preference 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 and
balanced perspective and integrated solutions critical to solving the
multi-disciplinary problems organizations are currently facing. In order to
solve such problems, organizations are demanding that third-party providers have
experience in a breadth of practice areas.
The Company's portfolio of practice areas includes Strategy and Research
Services, Operations Improvement 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 as well as providing focused research on a number of
issues of client concern. The Operations Improvement 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.
5
<PAGE> 7
Nextera's flexible delivery model, which is designed to bring together
required expertise in business strategy and research, operations improvement,
organizational design and information technology 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 and services, entertainment,
financial services, health care, insurance, manufacturing, professional
services, retail and technology. Representative clients include The Chubb
Corporation, International Business Machines Corporation, Levi Strauss & Co.,
Mead Johnson & Company, National Broadcasting Company, Inc. and SmithKline
Beecham, PLC.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and internal growth to provide a balanced perspective on the
problems and issues facing its clients in today's competitive environment. Since
inception, the Company has built competencies in its four practice areas
primarily through acquisitions and, to a lesser extent, through internal growth.
Each Acquired Company maintains a business focus which complements the
businesses of the other Acquired Companies, enabling synergies to be realized
across all of Nextera's practice areas.
The Company's objective is to be a leading provider of consulting services
in its four practice areas. Nextera intends to achieve this objective by: (i)
expanding service offerings through selective acquisitions; (ii) leveraging
cross-selling opportunities to expand the scope of engagements; (iii) attracting
and retaining key personnel who will enhance and complement the Company's
service capabilities; (iv) building a common identity for the services the
Company provides by marketing the Nextera brand name; and (v) expanding
Nextera's international presence.
The Company is a Delaware corporation and maintains its principal executive
office at One Cranberry Hill, Lexington, Massachusetts 02421. The Company's
telephone number is (781) 778-4400.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the Company............ shares
Common Stock to be outstanding after the Offering:(1)
Class A Common Stock.............................. shares(2)
Class B Common Stock.............................. shares
Total Common Stock........................... shares
Use of proceeds........................................ To repay certain outstanding
indebtedness, including indebtedness to
an affiliate of the Company; to pay
accrued management fees to Knowledge
Universe, Inc. ("KU, Inc."), an
affiliate of the Company; to pay certain
other fees; and for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................. NXRA
</TABLE>
- ------------------------------
(1) The Class A Common Stock and the Class B Common Stock are substantially
identical except with respect to voting power and conversion rights. The
Class A Common Stock entitles its holders to one vote per share, and the
Class B Common Stock entitles its holders to ten votes per share, on all
matters submitted to a vote of the Company's stockholders, including in
connection with the election of the Board of Directors. Each share of Class
B Common Stock is convertible into one share of Class A Common Stock under
certain circumstances. See "Risk Factors--Control by Knowledge Enterprises,
Inc." and "Description of Capital Stock."
(2) Excludes (i) shares of Class A Common Stock reserved for
issuance under the Company's 1998 Equity Participation Plan (the "1998
Equity Participation Plan") pursuant to which options to purchase
shares will be outstanding upon the closing of the Offering, see
"Management--Employee Benefit Plans," (ii) 581,760 shares of Class A Common
Stock issuable upon exercise of options issued and reserved for issuance to
certain non-stockholder key executives of Lexecon Inc. ("Lexecon"), see
"Management's Discussion and Analysis--Certain Fourth Quarter Bonuses,"
(iii) 1,450,240 shares of Class A Common Stock reserved for issuance to the
former stockholders of Lexecon, see "Management's Discussion and
Analysis--Acquisitions," (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) shares of Class A Common Stock issuable upon conversion of the
outstanding shares of the Company's Class B Common Stock. Assumes
the exchange of all Exchangeable Shares for shares of Class A Common
Stock. See "The Company--Exchangeable Preference Shares."
6
<PAGE> 8
SUMMARY CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------- --------------------------------------
PERIOD FROM
FEBRUARY 26, 1997 FOR THE FOR THE
(DATE OF INCEPTION) NINE MONTHS FOR THE NINE MONTHS
THROUGH ENDED YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $ 7,998 $39,581 $105,275 $98,417
Gross profit................... 3,280 12,002 40,936 43,157
Income (loss) from
operations(2)................ (2,281) (4,574) 4,572 5,098
Net loss....................... (3,015) (9,093) (4,265) (5,200)
Net loss per unit, basic and
diluted(3)................... $ (0.74) $ (0.66) $ (0.34) $ (0.25)
Weighted average units
outstanding, basic and
diluted...................... 4,061 13,835 12,609 20,882
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(4) AS ADJUSTED(4)(5)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,563 $ 4,919
Working capital (deficit).............................. (34,112) (61,775)
Total assets........................................... 116,230 188,885
Total short-term debt.................................. 42,777 73,923
Total long-term debt................................... 52,704 52,704
Total stockholders' equity (deficit)................... (2,291) 30,346
</TABLE>
- ------------------------------
(1) The summary pro forma combined statement of operations data for the year
ended December 31, 1997 and for the nine months ended September 30, 1998 are
presented as if the acquisitions of the Acquired Companies had been
consummated as of January 1, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisitions" and
Unaudited Pro Forma Combined Financial Statements.
(2) Income (loss) from operations for the nine months ended September 30, 1998
includes $967,000 of restructuring costs related to Nextera Business
Performance Solutions Group, Inc. ("Business Performance Solutions"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(4) Pro forma to give effect to the Lexecon Acquisition as if it had been
completed on September 30, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisitions" and
Unaudited Pro Forma Combined Financial Statements.
(5) Pro forma as adjusted to give effect to (i) the sale of shares of
Class A Common Stock at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and Offering expenses payable by the Company, and (ii) the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
7
<PAGE> 9
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Class A Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Limited Combined Operating History. Nextera was formed in February 1997 and
has grown substantially since its inception, principally through the
acquisitions of the Acquired Companies. Although the Acquired Companies have
been in operation for some time, the Company has a limited history of combined
operations. Consequently, the historical and pro forma information herein may
not be indicative of Nextera's financial condition and future performance. There
can be no assurances that the Company will not encounter financial, managerial
or other difficulties as a result of its lack of combined operating history.
Further, the success of Nextera's acquisitions will depend on a number of
factors, including the Company's ability to integrate the businesses and
operations of the Acquired Companies, to retain certain key employees of the
Acquired Companies and to preserve and expand the businesses and operations of
the Acquired Companies. There can be no assurance that Nextera will be able to
successfully integrate and operate the businesses of the Acquired Companies or
that the Company will not experience losses as a result of these acquisitions.
Failure to achieve the anticipated benefits of these acquisitions or to
successfully integrate the operations of the Acquired Companies could materially
adversely affect the business, operating results and financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Acquisitions."
Net Losses and Equity Deficit. The Company has been in existence since
February 1997. On an historical basis, for the period from February 26, 1997
through December 31, 1997 and for the nine months ended September 30, 1998,
Nextera experienced net losses of $3.0 million and $9.1 million, respectively.
On a pro forma basis, Nextera experienced net losses for the year ended December
31, 1997 and the nine months ended September 30, 1998 of $4.3 million and $5.2
million, respectively. In addition, on an historical basis, the Company had an
accumulated stockholders' equity deficit of $2.3 million as of September 30,
1998. There can be no assurance that Nextera will achieve or sustain
profitability in the future.
Management of Growth. Nextera has experienced a period of rapid growth that
has challenged, and will likely continue to challenge, the Company's managerial
and other resources. Since the Company's inception in February 1997 through
September 30, 1998, the number of consultants employed by the Company, on a pro
forma basis including Lexecon, has increased to 436 and the scope of Nextera's
geographic coverage has expanded significantly. Nextera intends to hire
additional consultants through acquisitions and its own recruiting efforts and
expects its geographic coverage to continue to grow in the future. The Company's
success in managing its growth will depend on its ability to continue to enhance
its operating, financial and management information systems and to recruit,
develop, motivate and manage effectively its expanding work force. For example,
Nextera is in the process of integrating a new financial reporting system, and
any failure or significant delay in achieving the integration of such system or
complications with respect to the change to such system could materially
adversely affect the Company. In addition, Nextera's future success will depend
in large part on its ability to continue to set rates and fees competitively and
to maintain high employee utilization rates and project quality, particularly if
the average size or number of the Company's projects increases. If Nextera is
unable to manage growth or new employees effectively or if its personnel are
unable to achieve anticipated performance or utilization levels, the Company's
services, its ability to retain key personnel, and its business, operating
results and financial condition could be materially adversely affected. There
can be no assurance that Nextera will be able to effectively manage its growth
or that the Company's business will continue to expand. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy" and "--Human Resources."
Operational, Financial and Accounting Risks of Acquisitions. Since its
inception, Nextera has significantly expanded through acquisitions and expects
to pursue additional acquisitions in order to enhance its
8
<PAGE> 10
service offerings and client base, expand its geographic presence and obtain
experienced consultants. The timing, magnitude and success of the Company's
acquisition efforts and the related capital expenditures and commitments cannot
be predicted. Nextera competes for acquisitions with companies that have
significantly greater financial and management resources than the Company, which
may lead to limited acquisition opportunities for Nextera and may result in
higher purchase prices or transaction costs. There can be no assurance that the
Company will be able to integrate successfully any acquired businesses without
substantial expense, delays or other operational or financial costs or problems,
including costs in pursuing and negotiating with acquisition candidates, or that
it will be able to identify, acquire or profitably manage additional businesses
or acquisitions. Acquisitions may involve certain risks, including significant
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances and legal liabilities. Client satisfaction
or performance problems at a single acquired firm could have a material adverse
impact on the reputation of Nextera as a whole. Further, there can be no
assurance that the Company's future acquired businesses will achieve expected
results or generate anticipated revenues or earnings. In order to pursue
additional acquisitions, Nextera may also require debt or equity financing that
may not be available on terms favorable to the Company, if at all, and may
result in dilution to the holders of Class A Common Stock. Nextera will be
unable to account for future acquisitions under the pooling-of-interests method
of accounting. Accordingly, the Company will be required to account for
acquisitions under the purchase method of accounting, which may result in
substantial additional annual non-cash amortization charges for goodwill and
other intangible assets in Nextera's statements of operations. In addition, the
Company could be required to make substantial cash payments related to any such
acquisition. Any of these factors could materially adversely affect Nextera's
business, operating results and financial condition. See "--Substantial Amount
of Goodwill 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 Enterprises, Inc. After the Offering, Knowledge
Enterprises will own shares of Class A Common Stock and
shares of Class B Common Stock, which together will represent % of the
voting power of the outstanding Common Stock. The Class A Common Stock entitles
its holders to one vote per share, and the Class B Common Stock entitles its
holders to ten votes per share, on all matters submitted to a vote of Nextera's
stockholders, including in connection with the election of the Board of
Directors. Accordingly, Knowledge Enterprises will be able to elect all of the
Company's directors, except for 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,
9
<PAGE> 11
Inc. (collectively, "Sibson") as amended in connection with the Lexecon
Acquisition (the "Stockholders Agreement"), and determine the disposition of all
matters submitted to a vote of Nextera's stockholders, including mergers,
transactions involving a change in control of the Company and other corporate
transactions and the terms thereof. 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 KU, Inc. and Knowledge Universe,
L.L.C. ("Knowledge Universe") is the sole stockholder of KU, Inc. Knowledge
Enterprises currently holds businesses whose primary customers are other
businesses, including career workforce management, business consulting and
informational meetings and conferences. 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 and
Knowledge Enterprises may form, invest in or acquire other businesses which are
involved in these and related areas, among others, which businesses may be
operated under the control of Knowledge Enterprises independently of Nextera.
There can be no assurance that conflicts of interest between Knowledge
Enterprises and the Company will not arise or that any such conflict of interest
will be resolved in a manner favorable to Nextera, including potential
competitive business activities, indemnity arrangements, registration rights,
sales or distributions by Knowledge Enterprises of Nextera's Class A Common
Stock and Class B Common Stock and the exercise by Knowledge Enterprises of its
ability to control the management and affairs of the Company.
The Company was founded in February 1997 by entities which the Company
believes were under the direct or indirect control of Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken. Subsequent to the formation of the
Company, ownership of the Common Stock originally held by such founding entities
was transferred to Knowledge Enterprises. See "The Company." Knowledge Universe
controls, directly or indirectly, Knowledge Enterprises. Knowledge Universe is
governed by a Board of Directors which consists of Lawrence J. Ellison, Michael
R. Milken and Lowell J. Milken. The Company believes that through their
positions as directors and through ownership or voting control of various
intermediary entities, Lawrence J. Ellison, Michael R. Milken and Lowell J.
Milken may each be deemed to have the power to control Knowledge Universe. As a
result, the Company believes that Lawrence J. Ellison, Michael R. Milken and
Lowell J. Milken may each be deemed to have the power to direct the voting and
disposition of, and to share beneficial ownership of, any shares of Common Stock
owned by Knowledge Enterprises. On February 24, 1998, without admitting or
denying any liability, Michael R. Milken consented to the entry of a final
judgment in the U.S. District Court for the Southern District of New York in
Securities and Exchange Commission v. Michael R. Milken et al., which judgment
was entered on February 26, 1998, restraining and enjoining Michael R. Milken
from associating with any broker, dealer, investment advisor, investment
company, or municipal securities dealer and from violating Section 15(a) of the
Exchange Act. On March 11, 1991, in the action entitled In the Matter of Michael
R. Milken, the Securities and Exchange Commission instituted a proceeding
pursuant to Section 15(b)(6) of the Exchange Act and ordered that Michael R.
Milken be barred from association with any broker, dealer, investment advisor,
investment company, or municipal securities dealer. On April 24, 1990, Michael
R. Milken consented to the entry of a final judgment in the U.S. District Court
for the Southern District of New York in Securities and Exchange Commission v.
Drexel Burnham Lambert Incorporated, et al., restraining and enjoining Michael
R. Milken from engaging in transactions, acts, practices and courses of business
which constitute or would constitute violations of, or which aid and abet or
would aid and abet violations of Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d),
14(e), 15(c)(3) and 17(a)(1) of the Exchange Act, and Regulations T and X and
Rules 10b-5, 10b-6, 13d-1, 13d-2, 14c-3, 15c3-1, 17a-3 and 17a-4 promulgated
thereunder and Section 17(a) of the Securities Act of 1933, as amended. Lowell
J. Milken is the brother of Michael R. Milken.
Any change in Nextera's relationship with Knowledge Enterprises or
Knowledge Universe could materially adversely affect the Company's business,
operating results and financial condition. See "The
10
<PAGE> 12
Company--Transfer to Knowledge Enterprises," "Management--Board of Directors,"
"Certain Transactions," "Principal Stockholders" and "Description of Capital
Stock."
Variability and Seasonality of Quarterly Operating Results. Nextera may
experience fluctuations in its future quarterly operating results. Variations in
the Company's net revenues and operating results from quarter-to-quarter may be
caused by such factors as the number of active client projects, termination of
major client projects, the number of business days in a quarter, hiring,
integration and utilization of consultants and other employees, the mix and
timing of client projects, re-evaluation of progress on and completion of client
projects, variations in utilization rates and average billing rates for
consultants, the accuracy of estimates of resources required to complete ongoing
projects, the integration of acquired entities, and the length of Nextera's
sales cycle. Because a relatively high percentage of the Company's expenses is
relatively fixed, a variation in the number or timing of client projects,
particularly at or near the end of any quarter, may cause significant variations
in operating results from quarter-to-quarter and could result in losses to
Nextera for any particular fiscal period. Events such as write-offs of
uncollectable accounts, the unanticipated termination of a major project or the
completion during a single quarter of several major client projects without
deploying consultants to new engagements could result in the Company's
underutilization of consultants which could, in turn, materially adversely
affect Nextera's business, operating results and financial condition. To the
extent that increases in the numbers of consultants are not followed by
corresponding increases in net revenues, the operating results of the Company
could be materially adversely affected. In addition, it is difficult for Nextera
to forecast the timing of revenues because project cycles depend on factors such
as the size and scope of consulting projects and circumstances specific to each
client. Because the Company's consultants only generate revenues when they are
engaged on client projects, Nextera's operating results are adversely affected
when its consultants cannot perform services for clients due to vacations, sick
days, holidays, inclement weather, training schedules or other reasons. In
particular, the Company can be expected to generate a smaller proportion of its
net revenues and realize lower operating income during the fourth quarter of the
year due to the number of holidays in that quarter. Given the foregoing factors,
Nextera believes that quarter-to-quarter comparisons of its operating results
are not necessarily meaningful and that the results for one quarter should not
be relied upon as an indication of future performance. Demand for Nextera's
services is significantly affected by the general level of economic activity.
When economic activity slows, clients may delay or cancel plans that involve the
hiring of consultants. The Company is unable to predict the level of economic
activity at any particular time, and fluctuations in the general economy could
materially adversely affect Nextera's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Substantial Amount of Goodwill and Other Intangible Assets. As of September
30, 1998, on a pro forma basis reflecting the Lexecon Acquisition, the Company's
intangible assets, net of accumulated amortization, were approximately $136.2
million, of which approximately $58.8 million was attributable to the Lexecon
Acquisition. As a result of the acquisitions of the Acquired Companies,
intangible assets are being amortized by Nextera on a straight-line basis over 5
years for intangibles relating to personnel and over 40 years for all other
intangibles, including goodwill. Future acquisitions by Nextera are expected to
result in additional goodwill and intangible assets. The amount amortized in a
particular period constitutes a non-cash expense that reduces the Company's net
income. In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS No.
121"), the Company 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 "--Risks Related to
Acquisitions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Acquisitions."
Concentration of Net Revenues Within a Relatively Limited Number of Clients
and Industries. Nextera has in the past derived, and may in the future derive, a
significant portion of its net revenues from a relatively limited number of
clients. For example, for the year ended December 31, 1997 and for the nine
months ended
11
<PAGE> 13
September 30, 1998, on a pro forma basis, the Company's ten largest clients
accounted for approximately 24%, and 28% of its net revenues, respectively. For
the year ended December 31, 1997 and for the nine months ended September 30,
1998, on a pro forma basis, the Company's largest client during such period
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, health care and professional services industries accounted
for approximately 27%, 12% and 12%, respectively, of Nextera's pro forma net
revenues for the nine months ended September 30, 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. 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. In the event of the loss of any such personnel,
there can be no assurance that the Company would be able to prevent the
unauthorized disclosure or use of its technical knowledge, practices or
procedures by such personnel. Nextera generally does not maintain key person
life insurance coverage for employees. See "Business--Human Resources" and
"Management."
Project Risks. The Company's client engagements often involve projects that
are critical to the operation of a client's business and provide benefits that
may be difficult to quantify. Nextera's failure or inability to meet a client's
expectations in the performance of its services could result in a client's
refusal to pay or give rise to claims against the Company or damage Nextera's
reputation, any of which could materially adversely affect its business,
operating results and financial condition. There can be no assurance that the
Company will not fail to satisfy certain clients' expectations.
Fixed Price Contracts. Nextera has undertaken and expects in the future to
undertake certain projects under fixed-price or capped-fee billing arrangements,
which are distinguishable from the Company's principal
12
<PAGE> 14
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 year ended December
31, 1997 and for the nine months ended September 30, 1998, respectively. The
failure of Nextera to complete such fixed-price or capped-fee projects within
budget or below the cap would expose the Company to risks associated with
potentially unrecoverable cost overruns, which could materially adversely affect
Nextera's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Effect of Changing Laws and Regulations. For the year ended December 31,
1997 and the nine months ended September 30, 1998, Nextera derived approximately
30% and 24%, respectively, of its pro forma net revenues from economic and
litigation consulting services related to antitrust matters, mergers and
acquisitions and other securities matters. A substantial portion of these net
revenues were derived from engagements relating to United States antitrust and
securities laws. Changes in these laws, changes in judicial interpretations of
these laws or less vigorous enforcement of these laws by the United States
Department of Justice, the United States Federal Trade Commission or other
federal agencies as a result of changes in philosophy, political decisions,
priorities or other reasons could materially reduce the magnitude, scope, number
or duration of engagements available to the Company in this area. In addition,
adverse changes in general economic conditions or conditions influencing merger
and acquisition activity, could have an adverse impact on engagements in which
Nextera assists clients in connection with proposed mergers and acquisitions.
Any reductions in the number of the Company's securities, antitrust and mergers
and acquisitions consulting engagements could materially adversely affect
Nextera's business, operating results and financial condition.
Absence of Written Contracts. Nextera derives a significant portion of its
net revenues from client projects involving significant dollar values.
Accordingly, the cancellation, delay or significant reduction in the scope of a
large engagement could materially adversely affect the Company's business,
operating results and financial condition. Clients engage the Company on a
project-by-project basis, often without a written contract, and a client can
generally terminate an engagement with little or no notice to Nextera and
without penalty. As a result, Nextera believes that the number of clients or the
number and size of its existing projects are not reliable indicators or measures
of future net revenues. The Company has in the past provided, and is likely in
the future to provide, services to clients without a written contract. When a
client defers, modifies or cancels a project, Nextera must be able to rapidly
deploy its consultants to other projects in order to minimize the
underutilization of employees and the resulting adverse impact on operating
results. In addition, the Company's operating expenses are relatively fixed and
cannot be reduced on short notice to compensate for unanticipated variations in
the number or size of projects in progress. As a result, any termination,
significant reduction or modification of its business relationships with any of
its significant clients or with a number of smaller clients could materially
adversely affect Nextera's business, operating results and financial condition.
Competition. The consulting services industry includes a large number of
competitors, is subject to rapid change and is highly competitive. Nextera
believes that the principal competitive factors in the consulting services
industry are reputation, industry expertise, analytical ability and price.
Nextera also believes that its ability to compete depends in part on a number of
factors outside of its control, including the ability of its competitors to
hire, retain and compensate consultants, offer lower-priced services, respond to
client requirements, and develop advanced services or technology. Nextera's
primary competitors include participants from a variety of market segments,
including general management consulting companies, boutique management
consulting firms that provide specialized services or focus on certain
industries, "Big Five" and other accounting firms, economic consulting firms,
technical and economic advisory firms, individual academics, systems consulting
and implementation firms, application software firms, service groups of computer
equipment companies, outsourcing companies, and systems integration companies.
Many of these competitors have significantly greater financial, technical, and
marketing resources, and greater name recognition than Nextera. In addition,
many of these competitors have been operating for a significantly longer period
of time than the Company and have established long-term client relationships.
Nextera also competes with its clients' internal resources, particularly where
the resources represent a fixed cost to the client. Such 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
13
<PAGE> 15
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 5% of its net
revenues on a pro forma basis from clients outside of the United States for the
year ended December 31, 1997 and the nine months ended September 30, 1998,
respectively. The Company has engaged in projects in Canada and the United
Kingdom and intends to continue to seek an increasing number of foreign
engagements. One of the components of Nextera's growth strategy is to expand its
international presence and seek additional business outside the United States.
Nextera's international business operations are and will be subject to a number
of risks, including difficulties in managing foreign operations, enforcing
agreements and collecting receivables through foreign legal systems; longer
payment cycles; fluctuations in the value of foreign currencies; and unexpected
regulatory, economic or political changes in foreign markets. The relationship
between non-dollar denominated revenues and dollar denominated expenses may
subject the Company to significant foreign exchange risks. In addition, Nextera
may in the future acquire an interest in entities that operate in countries
where the repatriation or conversion of currency is restricted. There can be no
assurance that these factors will not materially adversely affect the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Growth Strategy."
Rapid Technological Change. Nextera's success will depend in part on its
ability to develop business consulting and strategic information technology
solutions that keep pace with continuing changes in information processing
technology and the effect of such changes on client needs and preferences. Part
of the Company's strategy is to focus on business performance solutions, which
include strategic/knowledge management systems and enabling technologies. There
can be no assurance that Nextera will be successful in adequately addressing
developments in IT on a timely basis or that, if these developments are
addressed, the Company will be successful in the marketplace. In addition, there
can be no assurance that products or \technologies developed by others or
changing client preferences will not render Nextera's services uncompetitive or
obsolete. The Company's failure to identify or address these developments could
materially adversely affect Nextera's business, operating results and financial
condition.
Year 2000 Risks. Many currently installed computer systems are coded to
accept only two digit entries in the date code field. These date code fields
need to be modified or upgraded to accept four digit entries to distinguish 21st
century dates from 20th century dates. Many organizations are expending
significant resources to modify or upgrade their computer systems for such "Year
2000" compliance. These expenditures may result in reduced funds available to
purchase the types of services offered by the Company as resources that might
otherwise be directed towards the purchase of outside consulting services are
utilized for Year 2000 compliance. Any such reduction in the purchase of the
types of services offered by Nextera could materially adversely affect the
Company's business, operating results and financial condition.
The Year 2000 issue affects the Company's internal systems, including IT
and non-IT systems. Nextera has completed an assessment of its IT systems for
Year 2000 compliance. The Company relies upon microprocessor-based personal
computers and commercially available applications software. The Company is in
the process of upgrading its existing computer software and IT systems. The
Company is reviewing its utility systems (heat, light, telephones, etc.) and
other non-IT systems for the impact of Year 2000. Additionally, should the
Company undertake future acquisitions, the Year 2000 risks that affect the
Company can be expected to similarly affect such acquisition candidates. The
Company intends to review the systems of all acquisition candidates for Year
2000 compliance. However, the failure to correct a material Year 2000 problem
either within the Company, within a vendor or supplier or within an acquisition
candidate could result in an interruption in, or a failure of, certain normal
business activities or operations of the Company. Such interruptions or failures
could materially adversely affect the Company's business, operating results and
financial condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's
14
<PAGE> 16
business, operating results or financial condition. The Company intends to take
continuous steps to identify Year 2000 problems related to its vendors and to
formulate a system of working with key third-parties to understand their ability
to continue providing services and products through the change to Year 2000. The
Company intends to work directly with its key vendors, including financial
institutions and utility-providers, and partner with them if necessary, to avoid
any business interruptions.
The Company believes the most likely worst case scenario related to Year
2000 risks is a material business interruption that leads to client
dissatisfaction and the termination of a project or projects by dissatisfied
clients. Such an interruption in services could occur due to a breakdown in any
number of the Company's computer systems and applications and non-IT systems, or
the systems of third-parties. Examples are failures in the Company's application
software, computer chips embedded in equipment, supply of materials from its
suppliers, or lack of adequate telecommunications, power, or other utilities.
Any such failure could prevent the Company from being able to deliver its
services as expected, which could materially adversely affect the Company's
business, operating results and financial condition.
The cost of the Company's Year 2000 compliance assessment and upgrade is
being funded from current operations. As of December 31, 1998, the cost to the
Company of its Year 2000 identification, assessment, remediation and testing
efforts, as well as currently anticipated costs to be incurred by the Company
with respect to Year 2000 issues of third parties, was expected to be less than
$200,000. Because of the uncertainty associated with Year 2000 failures, it is
not possible at present to quantify the cost of corrective actions. The Company
will continue to consider the likelihood of a material business interruption due
to the Year 2000 issue, and, if necessary, implement appropriate contingency
plans. Since the Company has adopted a plan to address these Year 2000 issues,
it has not developed a comprehensive contingency plan should these issues fail
to be completed successfully or in their entirety. However, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time. There
can be no assurance that unexpected Year 2000 compliance problems of either the
Company or its vendors, customers and service providers will not materially
adversely affect the Company's business, operating results and financial
condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failure of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service liability brought against
Nextera related to its Year 2000 consulting could result in substantial cost to
the Company and divert management's attention from Nextera's operations, which
could materially adversely affect the Company's business, operating results and
financial condition.
Anti-Takeover Effect of Certain Charter and Bylaw Provisions. The Company's
Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and Bylaws, as well as Delaware corporate law, contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Nextera. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Class
A Common Stock. The Certificate of Incorporation authorizes the Company's Board
of Directors to issue shares of Preferred Stock of Nextera, in one or more
series, and to establish the rights and preferences (including the
convertibility of such shares of Preferred Stock into shares of Class A Common
Stock) of any series of Preferred Stock so issued. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Class A Common Stock. Such provisions also may inhibit fluctuations in the
market price of the Class A Common Stock that could result from takeover
attempts. Additionally, the Certificate of Incorporation provides that any
action required or permitted to be taken by stockholders of Nextera must be
effected at 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
15
<PAGE> 17
to require that the Board of Directors call a special meeting. The Bylaws
require stockholders to comply with special advance notice procedures in order
to make a proposal or director nomination which such stockholder desires to
present at any annual or special meeting of stockholders (the "Stockholder
Notice Procedure"). The Stockholder Notice Procedure provides that only persons
who are nominated by, or at the direction of, the Company's notice of meeting,
the Board of Directors or by a stockholder who has given timely written notice
to the Secretary of the Company prior to the meeting at which directors are to
be elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Company's notice of meeting, the Board of Directors or by a
stockholder who has given timely written notice to the Secretary of the Company
of such stockholder's intention to bring such business before such meeting. In
addition, under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the nomination or proposal is made. If the chairman of a meeting
determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted. The foregoing provisions and requirements could make it
difficult for stockholders to effect certain corporate actions.
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within the
previous three years, did own) 15% or more of the corporation's voting stock.
This statute contains provisions enabling a corporation to avoid the statute's
restrictions if the stockholders holding a majority of the corporation's voting
stock approve an amendment to the corporation's certificate of incorporation or
bylaws. Neither the Company's Certificate of Incorporation nor Bylaws contain
such a provision, and the Company does not presently intend to submit such a
provision to its stockholders. The Company does not believe that Knowledge
Enterprises or its affiliates should be considered interested stockholders
subject to the provisions of Section 203. See "--Control by Knowledge
Enterprises, Inc." and "Description of Capital Stock."
Intellectual Property Rights. Nextera's success is dependent in part upon
certain methodologies and other proprietary intellectual property rights.
Nextera relies upon a combination of nondisclosure, confidentiality (including
confidentiality agreements with employees), license, employment, and client
agreements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom Nextera
licenses intellectual property. In addition, Nextera generally limits the
distribution of its proprietary information. There can be no assurance, however,
that the steps taken by Nextera to protect its intellectual property rights will
be adequate to deter misappropriation of proprietary information or that the
Company will be able to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights or that competitors will not be able to
develop similar or functionally equivalent methodologies. Furthermore, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries, and no assurance can be given that foreign copyright and
trade secret laws will adequately protect the Company's intellectual property
rights. Although Nextera believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, there can be no
assurance that Nextera's employees will not misappropriate the intellectual
property of others. Accordingly, the Company is subject to the risk of claims
alleging infringement of third-party intellectual property rights. Any such
claims could require Nextera to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of asserted infringement, any of which
could materially adversely affect the Company's business, operating results and
financial condition. The Company presently holds no patents or registered
copyrights.
16
<PAGE> 18
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Class A Common Stock.
Consequently, the initial public offering price per share will be determined by
negotiations between Nextera and the representatives of the Underwriters and may
not be indicative of the market price of the Class A Common Stock after the
Offering. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price per share. Application has been
made for quotation of the Class A Common Stock on the Nasdaq National Market;
however, there can be no assurance that an active trading market will develop
and be sustained after the Offering. In the absence of a public trading market,
investors may be unable to liquidate their investments in the Company. The
market price of the Class A Common Stock may fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
adverse circumstances affecting the introduction or market acceptance of new
services offered by Nextera, announcements of new services by competitors,
changes in earnings estimates by analysts, changes in accounting principles,
sales of Class A Common Stock or Class B Common Stock by existing holders, the
depth and liquidity of the market for Class A Common Stock, loss of key
personnel, general market conditions and other factors. Equity securities of
entities with businesses similar to the Company's are subject to greater
volatility than the general market. In addition, the stock market from time to
time has experienced broad price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. These broad market fluctuations, as well as shortfalls in operating
results as compared to securities analysts' expectations or changes in such
analysts' projections or recommendations, and general economic market
conditions, may materially and adversely affect the market price of the Class A
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, class action litigation has often been instituted
against such a company. Any such litigation brought against the Company could
result in substantial costs and a diversion of management's attention and
resources, which could materially adversely affect Nextera's business, operating
results and financial condition.
Dilution. Purchasers of shares of Class A Common Stock in the Offering will
experience an immediate dilution of $ per share in the pro forma net
tangible book value per share of Class A Common Stock after the Offering. To the
extent outstanding options and warrants to purchase Class A Common Stock are
exercised, there will be further dilution. There can be no assurance that the
Company will not require additional funds to support its working capital
requirements or for other purposes, in which case Nextera may seek to raise such
additional funds through public or private debt or equity financing or from
other sources. There can be no assurance that such additional financing will be
available or that, if available, such financing will be obtained on terms
favorable to the Company and would not result in additional dilution of
Nextera's stockholders. See "Dilution."
Shares Eligible for Future Sale. Sales of significant amounts of Common
Stock in the public market after the Offering or the perception that such sales
will occur could materially adversely affect the market price of the Class A
Common Stock or the future ability of the Company to raise capital through an
offering of its equity securities. Of the shares of Common Stock to be
outstanding upon completion of the Offering, the shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless such shares are purchased by "affiliates" of Nextera within
the meaning of Rule 144 ("Rule 144") under the Securities Act.
The remaining shares of Common Stock (including Class A
Common Stock issuable upon exchange of the Exchangeable Shares) held by existing
stockholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Directors, officers and certain
stockholders of the Company holding an aggregate of shares of
Class A Common Stock and shares of Class B Common Stock have
agreed that they will not sell, directly or indirectly, any Common Stock,
subject to certain exceptions, without the prior consent of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") for a period of 180 days from the date
of this Prospectus (the "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
17
<PAGE> 19
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 shares of Class A Common Stock are
subject to the Lexecon Lock-up Agreements. In addition, Nextera's Certificate of
Incorporation provides that each holder of Common Stock, other than the holders
of the shares of Class A Common Stock acquired in the Offering, agrees not to
sell, directly or indirectly, any Common Stock, subject to certain exceptions,
without the prior consent of DLJ for a period of 180 days from the date of this
Prospectus. Subject to these Lock-up Agreements and the foregoing provisions of
the Company's Certificate of Incorporation, additional shares of Class A Common
Stock (including Class A Common Stock issuable upon conversion of Class B Common
Stock and the exchange of the Exchangeable Shares) will be available for sale in
the public market (subject in certain circumstances to compliance with certain
volume and other restrictions under Rule 144) as follows: (i)
shares will be eligible for sale 180 days after the date of this Prospectus; and
(ii) shares will become eligible thereafter for sale under Rule
144 upon the expiration of the applicable one-year holding periods and the
restrictions imposed by the Stockholders Agreement and the Lexecon Lock-up
Agreements. In addition, if the restrictions of the Lock-up Agreements and the
foregoing provisions of the Company's Certificate of Incorporation were waived
in full on the date hereof: (i) shares of Common Stock would
become eligible for sale in the public market from and after the date of this
Prospectus; and (ii) additional shares of Common Stock would
become eligible for sale in the public market 90 days after the date of this
Prospectus.
Following the date of this Prospectus, Nextera intends to register on one
or more registration statements on Form S-8 approximately shares
of Class A Common Stock issuable under the 1998 Equity Participation Plan. Of
the shares of Class A Common Stock issuable under the 1998 Equity
Participation Plan, shares were subject to outstanding options as of
September 1, 1998, of which will be exercisable at the time of
the Offering.
Upon completion of the Offering, the holders of shares of Class A
Common Stock and shares of Class B Common Stock (after conversion to Class A
Common Stock) will be entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares of Class A Common Stock to be registered and sold in the
public market, such sales could materially adversely affect the market price of
the Class A Common Stock. In addition, if the Company is required, pursuant to
such registration rights, to include shares held by such persons in a
registration statement which Nextera files to raise additional capital, the
inclusion of such shares could adversely affect the Company's ability to raise
needed capital. See "Management--Employee Benefit Plans," "Principal
Stockholders" and "Shares Eligible for Future Sale."
18
<PAGE> 20
THE COMPANY
The organizational structure of the Company and its subsidiaries is as
follows:
[CHART]
Chart indicating the organizational structure of the Company depicts four
boxes. The top box contains the words "Nextera Enterprises, Inc." above the word
"("Nextera")." Below the top box is a line leading to a second box with the
number "100%" next to the line. The second box contains the words "Sibson
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 a fourth box with the number 100% next to the line. The fourth
box contains the words "Lexecon 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 Knowledge Universe. In connection
with the commencement of their respective employment, Gresham T. Brebach, Jr.,
the Company's President, Chief Executive Officer and Chairman of the Board of
Directors, Ronald K. Bohlin, the Company's Chief Operating Officer and Director,
Michael P. Muldowney, the Company's Chief Financial Officer, Debra I. Bergevine,
the Company's Vice President, Marketing, and certain additional individuals
became members of NEH. See "Certain Transactions--Investments in the Company."
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 Knowledge Universe, Messrs. Brebach, Bohlin and Muldowney, Ms.
Bergevine, one other employee and one former employee of Nextera LLC. The March
Debenture is subordinate to the January Debenture. The interest on the principal
amount of the Debentures is deemed to have begun to accrue on the date the
respective redesignated capital contributions were originally contributed to
Nextera LLC. See Note 9 of Notes to the Company's Consolidated Financial
Statements. The Debentures were amended in connection with the Lexecon
Acquisition with respect to future interest rate provisions and conversion into
preferred stock on substantially equivalent terms. See "Certain
Transactions--Amendment of the Debentures."
19
<PAGE> 21
Transfer to Knowledge Enterprises. Effective August 5, 1998, Knowledge
Universe contributed all of its Class A Common Units and Class B Common Units of
Nextera LLC and all of its other interests in Nextera LLC, including its
interest in the Debentures and its rights under a management agreement with
Nextera LLC, to KU, Inc. in exchange for shares of its capital stock. Effective
August 7, 1998, KU, Inc. and EDU contributed all of their Class A Common Units
and Class B Common Units of Nextera LLC to Knowledge Enterprises in exchange for
capital stock of Knowledge Enterprises (the "KE Transaction"). See "Certain
Transactions--Management Agreement" and "Principal Stockholders."
Exchangeable Preference Shares. In connection with the Sibson Acquisitions,
Nextera LLC formed Sibson Canada Co., a wholly owned Canadian subsidiary, which
issued the Exchangeable Shares to the holders of capital stock of Sibson Canada,
Inc. The holders of Exchangeable Shares may exchange such shares at any time for
an aggregate of shares of Class A Common Stock. The Exchangeable Shares are
designed to provide an opportunity for the shareholders of Sibson Canada, Inc.
to achieve a Canadian tax deferral in certain circumstances. The holders of
Exchangeable Shares are entitled to dividend and other rights equivalent to
shares of Class A Common Stock but are not entitled to vote on matters submitted
to the holders of Class A Common Stock until such time as the holders of
Exchangeable Shares exchange such shares for Class A Common Stock.
Exchange Transaction. On December 31, 1998 and in connection with the
Lexecon Acquisition, all of the members of Nextera LLC (the "Members") other
than the two entities that owned Sibson & Company, L.P. prior to its acquisition
by Nextera LLC (together, the "Sibson Entities"), 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.
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to Nextera from the sale of the shares
offered by the Company pursuant to the Offering are estimated to be
approximately $ million ($ million if the Underwriters' over-allotment
option is exercised in full), at an assumed offering price of $ per share
after deducting the estimated underwriting discounts and commissions and
Offering expenses payable by the Company. The principal purposes of the Offering
are to create a public market for the Class A Common Stock, enhance Nextera's
ability to use its Class A Common Stock as a means of attracting, motivating and
retaining key employees, facilitate the Company's future access to public equity
markets, repay indebtedness, and obtain additional working capital. Nextera
intends to use the net proceeds from the Offering as follows:
(i) approximately $ million to repay outstanding principal and
interest under a $77.5 million credit facility entered into effective
August 31, 1998 and amended on December 31, 1998 (the "Bridge Loan") which
bears interest at 12% per annum, and matures on April 30, 1999. Under the
Bridge Loan, the Company borrowed $38.0 million to finance the Sibson
Acquisitions, $31.1 million to finance the Lexecon Acquisition, $4.2
million to finance the payment of bonuses to certain non-stockholder key
executives of Lexecon, and $2.2 million for general corporate purposes,
including working capital. See "Certain Transactions--Bridge Loan
Amendment." KU, Inc. holds a note from the Company with a principal amount
of $37.5 million and an affiliate of DLJ 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 $ to pay accrued management fees to KU, Inc.
See "Certain Transactions--Management Agreement."
(iii) approximately $ to pay certain fees which were incurred
in connection with the amendment to the Bridge Loan. See "Underwriting."
(iv) the remaining net proceeds for general corporate purposes.
Pending such uses, Nextera intends to invest the net proceeds from the
Offering in short-term, investment-grade, interest-bearing securities. Although
Nextera examines potential acquisition opportunities from time to time, the
Company has no current plans, commitments, agreements or understandings with
respect to any material acquisitions or investments as of the date of this
Prospectus, and no portion of the net proceeds has been allocated for any
specific material acquisition or investment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
Nextera has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain all future earnings, if any, for use in
the operation and development of its business and, therefore, does not expect to
declare or pay any cash dividends on its Common Stock in the foreseeable future.
The payment of dividends in the future, if any, will be at the discretion of the
Board of Directors.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of Nextera as of
September 30, 1998 on (i) a pro forma basis to give effect to the Lexecon
Acquisition and the Exchange Transaction as if each had been completed on
September 30, 1998 and (ii) a pro forma as adjusted basis to give effect to the
sale of shares of Class A Common Stock offered hereby and the
application of the estimated net proceeds of the Offering at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and Offering expenses payable by the Company. See "Use
of Proceeds." The information set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and the related Notes thereto
and the Unaudited Pro Forma Combined Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt....................................... $ 73,923 $
Total long-term debt........................................ 52,704
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding, pro forma
and pro forma as adjusted.............................. -- --
Class A Common Stock, $0.001 par value; 50,000,000 shares
authorized, shares issued and outstanding, pro
forma, and shares issued and outstanding, pro
forma as adjusted(1)................................... 42,454
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, shares issued and outstanding, pro
forma and pro forma as adjusted........................
Additional paid-in capital................................ -- --
Accumulated deficit....................................... (12,108)
-------- ------
Total stockholders' equity (deficit)................... $ 30,346 $
-------- ------
Total capitalization.............................. $156,973 $
======== ======
</TABLE>
- ------------------------------
(1) Excludes (i) shares of Class A Common Stock reserved for issuance
under the 1998 Equity Participation Plan pursuant to which options to
purchase shares will be outstanding upon the closing of the
Offering, see "Management--Employee Benefit Plans," (ii) 581,760 shares of
Class A Common Stock issuable upon exercise of options issued and reserved
for issuance to certain non-stockholder key executives of Lexecon, see
"Management's Discussion and Analysis--Certain Fourth Quarter Bonuses,"
(iii) 1,450,240 shares of Class A Common Stock reserved for issuance to the
former stockholders of Lexecon, see "Management's Discussion and
Analysis--Acquisitions," (iv) 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 (v) shares of Class A Common
Stock issuable upon conversion of the shares of the Company's
Class B Common Stock. See "Description of Capital Stock." Assumes the
exchange of all Exchangeable Shares for shares of Class A Common
Stock. See "The Company--Exchangeable Preference Shares."
22
<PAGE> 24
DILUTION
As of September 30, 1998, the pro forma net tangible book value of Nextera
was $ , or $ per share of Common Stock. Pro forma net tangible book
value per share gives effect to the Lexecon Acquisition and is equal to the
amount of total pro forma tangible assets less total pro forma liabilities,
divided by the total pro forma number of shares of Common Stock outstanding.
After giving effect to the sale of the shares of Class A Common Stock
offered hereby at an assumed initial public offering price of $ per share,
and after deducting the estimated underwriting discounts and commissions and
Offering expenses payable by the Company, the pro forma net tangible book value
of Nextera as of September 30, 1998 would have been $ , or $ per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $ per share of Common Stock to existing stockholders
and an immediate dilution of $ per share of Common Stock to new
stockholders. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
Offering............................................... $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
Offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998, the difference between the existing stockholders and new stockholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to Nextera and the average price paid per share by
existing stockholders and by new stockholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
New stockholders
--------- ----- ------ ------
Total......................... 100.0% $ 100.0%
========= ===== ====== ======
</TABLE>
The foregoing tables and calculations assume (i) no exercise of the
Underwriters' over-allotment option, (ii) no exercise of options to purchase
shares of Class A Common Stock at a weighted average exercise
price of $ per share granted under the 1998 Equity Participation Plan
outstanding as of September 30, 1998, (iii) no exercise of options to purchase
581,760 shares of Class A Common Stock issuable upon exercise of options issued
and reserved for issuance to certain non-stockholder key executives of Lexecon
at an exercise price of $1.50 per share, (iv) no issuance of 1,450,240 shares of
Class A Common Stock reserved for issuance to the former stockholders of
Lexecon, and (v) no exercise of warrants to purchase 250,000 shares of Class A
Common Stock issuable upon exercise of certain warrants issued in connection
with the Lexecon Acquisition at an exercise price of $ per share
(assuming an Offering price of $ per share). 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--Acquisitions," and
"--Certain Fourth Quarter Bonuses," "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 is qualified by reference to and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The Statements of Operations Data presented below for the period from February
26, 1997 (date of inception) through December 31, 1997 and the Balance Sheet
Data as of December 31, 1997 have been derived from the Company's Consolidated
Financial Statements included elsewhere in this Prospectus, which have been
audited by Ernst & Young LLP, whose report with respect thereto is included
elsewhere in this Prospectus. The Statements of Operations Data for the nine
months ended September 30, 1998 and the Balance Sheet Data as of September 30,
1998 have been derived from the unaudited financial statements of Nextera. In
the opinion of management, the unaudited financial statements include all
adjustments (consisting only of normal and recurring adjustments and adjustments
related to the Company's equity recapitalization) necessary for a fair
presentation of its financial position and operating results for such periods.
The Statement of Operations data for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998 or any other future period. See the Company's Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
The unaudited pro forma Statements of Operations Data for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 combine the
historical statements of operations of Nextera and the Acquired Companies as if
such acquisitions had been completed on the first day of each period presented.
The unaudited pro forma Balance Sheet Data as of September 30, 1998 combines the
historical balance sheets of the Company and Lexecon as if the Lexecon
Acquisition had been completed on September 30, 1998. This pro forma data should
be read in conjunction with the respective Historical Financial Statements of
Nextera and the Acquired Companies (including the Notes thereto), the Unaudited
Pro Forma Combined Financial Statements (including the Notes thereto),
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and other financial information of Nextera and the Acquired
Companies appearing elsewhere herein. The pro forma statements may not be
indicative of the results that would have actually been obtained had the
acquisitions reflected therein occurred on the dates indicated or which may be
obtained in the future.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
---------------------------------------- --------------------------------------
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE FOR THE FOR THE
THROUGH NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................................. $ 7,998 $39,581 $105,275 $ 98,417
Cost of revenues.............................. 4,718 27,579 64,339 55,260
------- ------- -------- --------
Gross profit.................................. 3,280 12,002 40,936 43,157
Selling, general and administrative
expenses.................................... 5,306 14,575 27,510 33,609
Compensation expense.......................... -- -- 4,126 --
Amortization expense.......................... 255 1,034 4,728 3,483
Restructuring costs(2)........................ -- 967 -- 967
------- ------- -------- --------
Income (loss) from operations................. (2,281) (4,574) 4,572 5,098
Interest income (expense), net................ (32) (4,319) (8,416) (10,127)
------- ------- -------- --------
Loss before provision for income taxes........ (2,313) (8,893) (3,844) (5,029)
Provision for income taxes.................... 702 200 421 171
------- ------- -------- --------
Net loss...................................... $(3,015) $(9,093) $ (4,265) $ (5,200)
======= ======= ======== ========
Net loss per share, basic and diluted(3)...... $ (0.74) $ (0.66) $ (0.34) $ (0.25)
Weighted average shares outstanding, basic and
diluted..................................... 4,061 13,835 12,609 20,882
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
AS OF ------------------------------
DECEMBER 31, 1997 HISTORICAL PRO FORMA(4)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 554 $ 1,563 $ 4,919
Working capital (deficit)................................. (335) (34,112) (61,775)
Total assets.............................................. 22,655 116,230 188,885
Total short-term debt..................................... 1,833 42,777 73,923
Total long-term debt...................................... 969 52,704 52,704
Total stockholders' equity (deficit)...................... 16,732 (2,291) 30,346
</TABLE>
- ------------------------------
(1) The pro forma selected combined statement of operations data for the year
ended December 31, 1997 and for the nine months ended September 30, 1998 are
presented as if the acquisitions of the Acquired Companies had been
consummated as of January 1, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisitions" and
Unaudited Pro Forma Combined Financial Statements.
(2) Restructuring costs related to Business Performance Solutions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements for
information concerning the computation of historical net loss per share.
(4) Pro forma to give effect to the Lexecon Acquisition (including the amendment
to the Bridge Loan) as if it had been completed on September 30, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Unaudited Pro Forma Combined Financial Statements.
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.
Nextera will be unable to account for future acquisitions under the
pooling-of-interests method of accounting. Accordingly, the Company will be
required to account for acquisitions under the purchase method of accounting,
which may result in substantial additional annual non-cash amortization charges
for goodwill and other intangible assets in Nextera's statements of operations.
Intangible assets are being amortized by Nextera on a straight-line basis over 5
years for intangibles relating to personnel and over 40 years for all other
intangibles, including goodwill. In accordance with SFAS No. 121, the Company
will periodically evaluate whether recent events and circumstances have occurred
that indicate the acquired goodwill may warrant revision.
Nextera is affiliated with Knowledge Enterprises and KU, Inc. and from
time-to-time has been engaged on an arm's-length basis to provide consulting
services for Knowledge Universe, KU, Inc. and their 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 KU, Inc. are engaged in acquiring and
operating companies in a broad range of areas relating to career management,
technology and education, and the improvement of individual and corporate
performance, including companies which focus on the provision of human capital,
training, educational and advisory services to individuals, companies and other
organizations. Nextera expects to benefit from its association with KU, Inc. and
Knowledge Enterprises through increased access to prospective client contacts
and other business opportunities and the potential ability of KU, Inc. and
Knowledge Enterprises to enhance the Company's market exposure, although there
can be no assurance that these expected benefits will be realized.
The Company generates net revenues by providing business and IT consulting
services primarily under time and materials, fixed-price or capped-fee billing
arrangements. Under time and materials billing arrangements, revenues are
recognized as the services are performed. Revenues on fixed-price and capped-fee
contracts are recognized using the percentage of completion method of accounting
and are adjusted monthly for the cumulative impact of any revision in estimates.
The Company determines the percentage of completion
25
<PAGE> 27
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 year ended December 31, 1997 and for the nine months ended September 30,
1998, respectively. See "Risk Factors--Fixed Price Contracts." The Company
believes that the majority of its work will continue to be performed under time
and materials billing arrangements. Net revenues exclude reimbursable expenses
charged to clients. The Company typically bills on a monthly basis to monitor
client satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's net revenues are derived from clients located
in the United States and Canada. The Company's 10 largest clients accounted for
approximately 24% and 28% of pro forma net revenues for the year ended December
31, 1997 and for the nine months ended September 30, 1998, respectively. For the
year ended December 31, 1997 and the nine months ended September 30, 1998, none
of the Company's clients individually accounted for 10% or more of the Company's
pro forma net revenues. See "Risk Factors--Concentration of Revenues."
Gross profit is derived from net revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. Nextera's financial
performance is primarily based upon billing margin (billable daily rate less the
consultant's daily cost) and personnel utilization rates (billable days divided
by paid days). The Company monitors its engagements to manage billing and
utilization rates. The Company derives a substantial majority of its net
revenues from engagements billed on a time and materials basis. The Company is
generally able to pass increases in its cost of revenues along to its clients to
the extent that the Company bills engagements on a time and materials basis. The
Company generally is unable to pass along increases in its cost of revenues with
respect to engagements billed on a fixed price or capped-fee basis. Generally,
clients are billed for expenses incurred by Nextera on the clients' behalf. In
addition, Nextera closely monitors and attempts to control expenses that are not
passed through to its clients. Incentive compensation expenses paid to
consultants have a large variable component relating to net revenues and profit
and, therefore, vary based upon the Company's ability to achieve its operating
objectives.
Selling, general and administrative expenses consist of salaries and
benefits of certain senior management and other administrative personnel and
training, marketing and promotional costs. These expenses are associated with
the Company's development of new business and with the Company's management,
finance, recruiting, marketing and administrative activities. Incentive
compensation expenses for certain senior management also have a significant
variable component relating to net revenues and profit and, therefore, vary
based upon the Company's ability to achieve its operating objectives.
Through December 31, 1998, the Company and certain of its subsidiaries were
treated as partnerships for federal and state income tax purposes and all items
of income, expense and tax credits were passed through to their respective
equity holders. Business Performance Solutions (formerly named Symmetrix, Inc.
("Symmetrix")), and Pyramid Imaging, Inc. ("Pyramid"), two of the Company's
wholly owned subsidiaries, were subject to income taxes for periods ended prior
to January 1, 1999. Accordingly, the Company's provision for income taxes for
periods ended through September 30, 1998 reflect the accrued tax liabilities of
these two subsidiaries only. As of September 30, 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 January, 1, 1999, 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 January 1, 1999, 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.
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
26
<PAGE> 28
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 2,810,900 shares of Class A Common Stock (including the Exchangeable
Shares).
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
certain additional shares of Class A Common Stock to be determined based on the
Offering price 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 Offering price is $ or higher to a maximum of 1,450,240 shares if
the Offering price is $ 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 $ per
share, which will require the Company to pay approximately $ million in
cash to the former stockholders of Lexecon. Nextera's obligation to effect the
foregoing redemption of the Reserved Shares was guaranteed by KU, Inc. in
consideration for the
27
<PAGE> 29
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."
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations for the
periods indicated. This information for quarterly periods has been prepared on
the same basis as the Consolidated Financial Statements and, in the opinion of
the Company's management, reflects all adjustments (consisting only of normal
and recurring adjustments and adjustments related to the Company's equity
recapitalization) necessary for the fair presentation of the information for the
periods presented.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION) FOR THE THREE MONTHS ENDED
THROUGH ------------------------------------------------------------------------------
DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997(1) 1997 1997 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 7,998 $ -- $ 3,039 $4,959 $ 8,186 $13,909 $17,486
Cost of revenues........... 4,718 -- 1,851 2,867 5,623 9,315 12,641
------- ----- ------- ------ ------- ------- -------
Gross profit............. 3,280 -- 1,188 2,092 2,563 4,594 4,845
Operating expenses:
Selling, general and
administrative
expenses............... 5,306 987 1,848 2,471 2,886 4,410 7,279
Amortization expense..... 255 -- 101 154 224 344 466
Restructuring costs(2)... -- -- -- -- -- -- 967
------- ----- ------- ------ ------- ------- -------
Loss from operations..... (2,281) (987) (761) (533) (547) (160) (3,867)
Interest income
(expense), net......... (32) 3 8 (43) (1,567) (1,104) (1,648)
------- ----- ------- ------ ------- ------- -------
Loss before provision for
income taxes........... (2,313) (984) (753) (576) (2,114) (1,264) (5,515)
Provision for income
taxes.................. 702 -- 280 422 125 75 --
------- ----- ------- ------ ------- ------- -------
Net loss................... $(3,015) $(984) $(1,033) $ (998) $(2,239) $(1,339) $(5,515)
======= ===== ======= ====== ======= ======= =======
</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.
28
<PAGE> 30
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 THREE MONTHS ENDED
THROUGH ------------------------------------------------------------------------------
DECEMBER 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1997 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... 100% -- 100% 100% 100% 100% 100%
Cost of revenues........... 59 -- 61 58 69 67 72
---- ---- ---- ---- ---- --- ---
Gross profit............. 41 39 42 31 33 28
Selling, general and
administrative
expenses............... 66 61 50 35 32 42
Amortization expense..... 3 3 3 3 2 3
Restructuring costs...... -- -- -- -- -- 6
---- ---- ---- ---- ---- --- ---
Loss from operations..... (29) (25) (11) (7) (1) (22)
Interest income (expense),
net...................... 0 0 (1) (19) (8) (9)
---- ---- ---- ---- ---- --- ---
Loss before provision for
income taxes........... (29) (25) (12) (26) (9) (32)
Provision for income
taxes.................... 9 9 8 1 1 --
---- ---- ---- ---- ---- --- ---
Net loss................. (38%) (34%) (20%) (27%) (10%) (32%)
==== ==== ==== ==== ==== === ===
</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 September 30, 1998 versus the three months ended June 30,
1998, (ii) the three months ended June 30, 1998 versus the three months ended
March 31, 1998, and (iii) 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 completed after September 30, 1998,
the following period-to-period comparisons do not reflect the Lexecon
Acquisition.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED JUNE
30, 1998
Net Revenues. Net revenues increased 25.7% to $17.5 million for the three
months ended September 30, 1998 from $13.9 million for the three months ended
June 30, 1998. This increase was due primarily to the net revenues generated by
Sibson which was acquired effective August 31, 1998, partially offset by a
decrease in revenues resulting principally from a reduction reflected during the
quarter in the estimated percentage completion of an ongoing fixed fee 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 reflected
during the quarter in the estimated percentage completion of a fixed fee
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
29
<PAGE> 31
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 Class A 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. The Company
expects to incur an additional $0.3 million for severance and termination costs
in the three months ended December 31, 1998 which were not accrued as costs in
the third quarter of 1998 pursuant to EITF 94-3.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED MARCH 31,
1998
Net Revenues. Net revenues increased 69.9% to $13.9 million for the three
months ended June 30, 1998 from $8.2 million for the three months ended March
31, 1998. This increase was due predominately to the net revenues generated by
PTG and Pyramid, which were acquired effective March 31, 1998, and to a lesser
extent from higher utilization rates and greater business levels at Symmetrix.
No net revenues from PTG or Pyramid were recorded by Nextera in the three months
ended March 31, 1998.
Gross Profit. Gross profit increased 79.2% to $4.6 million for the three
months ended June 30, 1998 from $2.6 million for the three months ended March
31, 1998. Gross margin increased to 33.0% for the three months ended June 30,
1998 from 31.3% for the three months ended March 31, 1998. The increase in gross
margin was due primarily to the addition of PTG and Pyramid and, to a lesser
extent, more effective utilization of consultants on billable projects and a
lower utilization of outside contractors, which decreased cost of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 52.8% 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.
30
<PAGE> 32
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND THREE MONTHS ENDED DECEMBER
31, 1997
Net Revenues. Net revenues increased 65.1% to $8.2 million for the three
months ended March 31, 1998 from $5.0 million for the three months ended
December 31, 1997. This increase was due to the net revenues generated from
SiGMA, which was acquired under the purchase method of accounting on January 5,
1998, partially offset by reserves taken on a fixed fee contract which has now
been completed. No net revenues from SiGMA were recorded by Nextera for the
three months ended December 31, 1997.
Gross Profit. Gross profit increased 22.5% to $2.6 million for the three
months ended March 31, 1998 from $2.1 million for the three months ended
December 31, 1997. Gross margin decreased to 31.3% for the three months ended
March 31, 1998 from 42.2% for the three months ended December 31, 1997. The
decrease in gross margin was primarily due to a $0.5 million reserve adjustment
on a fixed-fee contract taken in the three months ended March 31, 1998,
partially offset by increased gross profit generated from SiGMA. 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 FOURTH QUARTER BONUSES
In December 1998, the Company entered into agreements with certain
non-stockholder key executives of Lexecon under which payments totaling $4.2
million in cash were made and fully-vested options (the "Vested Options") to
purchase 384,000 shares of Class A Common Stock at an exercise price of $1.50
per share were granted. 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 Offering
price of the Class A Common Stock, ranging from a minimum of 31,560 shares if
such Offering price is $ or higher, to a maximum of 197,760 shares if
the Offering price is $ 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 $ per share,
which will require the Company to pay approximately $ million in cash
to such non-stockholder key executives of Lexecon. The Company recorded
compensation expense of $6.6 million in the fourth quarter of 1998, which
represented the cash paid plus the difference between the fair market value of
the Class A Common Stock on the date of grant and the exercise price of the
Vested Options. The Company will incur additional compensation expense related
to the Reserved Options at the time the number of shares of Class A Common Stock
subject to the Reserved Options is determined.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through the
proceeds of equity issuances and borrowings. Nextera LLC initially issued common
and preferred equity units between February 1997 and April 1998 for total
proceeds of approximately $50.0 million. On April 30, 1998, in connection with
the recapitalization of Nextera LLC, the preferred units and a portion of the
common units were converted into the Debentures. The Debentures accrue interest
at 10% per annum, and interest on the principal amount of the Debentures was
deemed to have begun to accrue on the date the respective equity capital
contributions
31
<PAGE> 33
were originally made. The total Debentures outstanding, including accrued
interest, at September 30, 1998 was $51.9 million. 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
and to provide that, in the event the Bridge Loan remains unpaid following its
maturity, the interest rate will increase to 200 basis points over the interest
rate on the Bridge Loan. See "Certain Transactions--Investments in the Company"
and Note 12 of Notes to the Company's Consolidated Financial Statements.
As of September 30, 1998, the Company had utilized $64.1 million in
connection with acquisitions. Cash used by operations totaled $4.5 million and
$4.9 million for the period from February 26, 1997 (date of inception) through
December 31, 1997 and the nine months ended September 30, 1998, respectively.
On August 31, 1998, the Company entered into the Bridge Loan, which was
amended on December 31, 1998 in connection with the Lexecon Acquisition. The
Bridge Loan is secured by substantially all of the Company's assets and contains
certain restrictive covenants. The Bridge Loan provides for financing in the
amount of $77.5 million, of which $38.0 million was used to finance the Sibson
Acquisitions, $31.1 million was used to finance the Lexecon Acquisition, $4.2
million was used to finance the payment of bonuses to certain non-stockholder
key executives of Lexecon and $2.2 million was used for general corporate
purposes, including working capital. The Bridge Loan bears interest at 12% per
annum and matures on April 30, 1998. Prior to December 31, 1998, the Bridge Loan
bore interest at the rate of LIBOR plus 450 basis points. As of December 31,
1998, $75.5 million was outstanding under the Bridge Loan, which will be repaid
with a portion of the net proceeds of the Offering. See "Use of Proceeds,"
"Certain Transactions--Bridge Loan Amendment" and "Underwriting." Principally as
a result of the Bridge Loan, as of September 30, 1998, on a pro forma basis
reflecting the Lexecon Acquisition (including the Bridge Loan) as if it had
occurred on September 30, 1998, the Company had a working capital deficit of
$61.8 million.
Net cash used in operating activities was $4.9 million for the nine months
ended September 30, 1998. The primary components of the net cash used in
operations were a net loss of $9.1 million, an increase in accounts and notes
receivable of $1.8 million, which were partially offset by depreciation and
amortization of $1.7 million, an increase in accounts payable and accrued
liabilities of $4.4 million, and an increase in accrued interest related to the
Debentures of $1.3 million.
Net cash used in investing activities was $65.0 million for the nine months
ended September 30, 1998. The primary components of the net cash used in
investing activities were (i) the acquisition of SiGMA in January 1998, the
acquisition of PTG effective in March 1998, the acquisition of Pyramid effective
in March 1998, and the Sibson Acquisitions totalling $64.5 million, exclusive of
$0.4 million of cash acquired and (ii) expenditures of $0.9 million for
furniture, equipment and leasehold improvements. See Note 1 of Notes to the
Company's Consolidated Financial Statements.
Nextera, through the Acquired Companies, had an aggregate of $9.0 million
under credit facilities (collectively, the "Credit Facilities") as of September
30, 1998. Interest rates on the Credit Facilities are based on prime or
commercial paper interest rates plus margins varying from 0% to 3%. The Credit
Facilities are secured by substantially all of the assets of the applicable
borrower. Collectively, on a pro forma basis, $4.4 million was outstanding under
the Company's Credit Facilities at September 30, 1998 and bore interest at a
weighted average rate of 8.8%. Certain of the Credit Facilities contain
restrictive covenants relating to maintenance of financial ratios, operating
restrictions, and restrictions of the payment of dividends from certain Acquired
Companies to Nextera. However, the Credit Facilities do not restrict the
incurrence of indebtedness by Nextera at the parent company level. The Company
intends to consolidate these Credit Facilities in a new credit arrangement,
however there can be no assurances that such new credit arrangement will be
obtained, and if so, when and on what terms.
The Company believes that the working capital generated from the net
proceeds from the Offering, together with available borrowings under the Credit
Facilities and cash flow expected to be generated from operations, will be
sufficient to finance the Company's currently anticipated capital requirements
for at least the next twelve months. There can be no assurance, however, that
the Company's actual needs will not exceed anticipated levels or that the
Company will generate sufficient net revenues to fund its operations in the
absence of other sources. There also can be no assurance that any additional
required financing will be
32
<PAGE> 34
available through additional bank borrowings, debt or equity offerings or
otherwise, or that if such financing is available, that it will be available on
terms favorable to the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are coded to accept only two
digit entries in the date code field. These date code fields need to be modified
or upgraded to accept four digit entries to distinguish 21st century dates from
20th century dates. Many organizations are expending significant resources to
modify or upgrade their computer systems for such "Year 2000" compliance. These
expenditures may result in reduced funds available to purchase the types of
services offered by the Company as resources that might otherwise be directed
towards the purchase of outside consulting services are utilized for Year 2000
compliance. Any such reduction in the purchase of the types of services offered
by Nextera could materially adversely affect the Company's business, operating
results and financial condition.
The Year 2000 issue affects the Company's internal systems, including IT
and non-IT systems. Nextera has completed an assessment of its IT systems for
Year 2000 compliance. The Company relies upon microprocessor-based personal
computers and commercially available applications software. The Company is in
the process of upgrading its existing computer software and IT systems. The
Company is reviewing its utility systems (heat, light, telephones, etc.) and
other non-IT systems for the impact of Year 2000. Additionally, should the
Company undertake future acquisitions, the Year 2000 risks that affect the
Company can be expected to similarly affect such acquisition candidates. The
Company intends to review the systems of all acquisition candidates for Year
2000 compliance. However, the failure to correct a material Year 2000 problem
either within the Company, within a vendor or supplier or within an acquisition
candidate could result in an interruption in, or a failure of, certain normal
business activities or operations of the Company. Such interruptions or failures
could materially adversely affect the Company's business, operating results and
financial condition.
The Company depends on smooth and timely interactions with its vendors,
clients and other third parties. Any unexpected costs or disruption in the
operations or activities of such vendors, clients or other third parties as a
result of Year 2000 compliance issues within such entities could materially
adversely affect Nextera's business, operating results or financial condition.
The Company intends to take continuous steps to identify Year 2000 problems
related to its vendors and to formulate a system of working with key
third-parties to understand their ability to continue providing services and
products through the change to Year 2000. The 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
33
<PAGE> 35
or its vendors, customers and service providers will not materially adversely
affect the Company's business, operating results and financial condition.
The Company has in the past and may in the future perform services related
to the planning, implementation and testing of Year 2000 compliance work for its
clients. Failure to timely or accurately perform these services could cause a
client to experience failures of one or more key systems or result in
miscalculations causing material disruptions of one or more of a client's
operations, including an inability to process transactions or engage in business
activities. Disruptions in a client's operations and the variability of
definitions of "compliance" with the Year 2000 could lead to lawsuits against
the Company. The outcome of such lawsuits and the impact on the Company are not
estimable at this time. A claim for product or service liability brought against
Nextera related to its Year 2000 consulting could result in substantial cost to
the Company and divert management's attention from Nextera's operations, which
could materially adversely affect the Company's business, operating results and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). The Company will adopt
the provisions of Statement 130 during fiscal year 1998. At that time, the
Company will be required to disclose comprehensive income. Comprehensive income
is generally defined as all changes in members' equity (deficit) exclusive of
transactions with owners such as capital investments and dividends.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement 131"), which is required to be adopted for years beginning after
December 15, 1997. Management of the Company believes that they operate in only
one segment and accordingly does not expect the adoption of Statement 131 to
have a material impact on the Company's financial statement disclosures.
34
<PAGE> 36
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, Operations Improvement 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 as well as providing focused research on a number of
issues of client concern. The Operations Improvement 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 and services, entertainment, financial
services, health care, insurance, manufacturing, professional services, retail
and technology. Representative clients include The Chubb Corporation,
International Business Machines Corporation, Levi Strauss & Co., Mead Johnson &
Company, National Broadcasting Company, Inc. and SmithKline Beecham, PLC.
The Company was founded in February 1997 by executives with extensive
experience at major consulting firms and industry-leading companies. The Company
has focused on building its portfolio of practice areas through selective
acquisitions and, to a lesser extent, internal growth to provide a balanced
perspective on the problems and issues facing its clients in today's competitive
environment. As of September 30, 1998, on a pro forma basis including Lexecon,
Nextera had 613 employees, including 436 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-making and resource utilization. With the advent of the
Internet and electronic commerce, technology is
35
<PAGE> 37
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 balanced approach to providing services to address effectively
multi-disciplinary business problems. For example, service providers oriented
around strategy formulation and market assessment often provide some expertise
in addressing operational or organizational issues, but typically do not address
IT issues or opportunities.
Given the rapidly changing nature of today's business environment,
traditional approaches do not provide the broad perspective or range of
expertise required for a comprehensive examination of the causes of business
problems. Consequently, consulting service providers employing traditional
approaches do not offer the types of balanced and integrated solutions critical
to solving the multi-disciplinary problems that organizations currently face. In
order to solve such problems, organizations are demanding that third-party
service providers have experience in a breadth of practice areas. For example,
organizations increasingly seek assistance not only to formulate strategy, but
also to implement strategic processes that support ongoing strategic decision-
making. As a result, organizations now demand highly-participative, fact-driven
strategic management processes that focus on strategic objectives and explicitly
link business processes, human capital, and IT strategies.
NEXTERA ADVANTAGE
Through its portfolio of practice areas, Nextera offers a broad range of
complementary services that assist clients in achieving enhanced business
performance by anticipating and addressing their complex, multi-disciplinary
consulting needs. The Company helps organizations develop dynamic business
strategies, redesign operational processes, and enhance organizational
effectiveness needed to achieve their visions and goals. The Company's flexible
delivery model, which is designed to bring together required expertise in
business strategy and research, operations improvement, organizational design,
and IT consulting, enables Nextera to solve its
36
<PAGE> 38
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, Operations Improvement 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 balanced 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. On a pro forma basis including Lexecon, 51% of the
Company's consultants have more than 10 years of consulting, technical or
industry experience and 52% have either doctorate or master's degrees.
Long-term Client Relationships. The Company has established long-term
relationships with numerous clients, many of whom are Fortune 500 companies.
Through these relationships, the Company gains in-depth knowledge of its
clients' businesses and industries, which facilitates the Company's
identification of other complementary services and the ability to offer timely
services to these clients. As a result of these long-term relationships, the
Company has amassed significant expertise in a wide range of industries,
including the financial services, health care, utilities, and manufacturing
industries.
Flexible Delivery Model. Nextera's flexible delivery model enables it to
provide timely and unbiased perspectives on client problems and implement
multi-disciplinary solutions. Initially, the Company is able to deliver services
in any of its practice areas and then expand the scope of its engagements to
include complementary or follow-on services in other practice areas. Nextera
delivers its services through Client Service Teams with the support of Affinity
Groups. For each engagement, Nextera establishes a Client Service Team managed
by a senior-level client service director and comprised of consultants who are
selected to provide the appropriate combination of industry experience,
functional expertise, and geographic coverage. Client service teams enhance
overall client satisfaction by enabling the senior-level client service director
to provide a single point of contact for the client and the overall team to take
a multi-disciplinary approach to engagements. Client Service Teams are supported
by Affinity Groups, which are comprised of individuals from across the Company's
practice areas as well as third-party practitioners. Affinity Group members draw
from their respective client work, industry experience, and expertise to share
knowledge and experiences and develop methodologies and tools used in the
delivery of services.
Proprietary Information System and Scaleable Infrastructure. Nextera has
developed and is expanding its proprietary information system that facilitates
synergies across its practice areas. 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
37
<PAGE> 39
for consultants achieved by the Acquired Companies by retaining certain key
cultural elements of each Acquired Company. Toward this end, Nextera's
compensation and incentive programs are designed to give all consultants the
ability to become equity participants in the Company. Stability among the
Company's consultants leads to consistency in the composition of Client Service
Teams and a reduced learning curve on new projects for existing clients.
GROWTH STRATEGY
The Company's objective is to be a leading provider of consulting services
in its four practice areas. The key elements of the Company's growth strategy
include:
Expand Service Offerings through Selective Acquisitions. Nextera intends to
continue to take advantage of the highly fragmented nature of the consulting
industry by acquiring select complementary consulting businesses. The Company is
developing its business around its practice areas and intends to broaden and
enhance its substantive expertise, service offerings, and geographic coverage
through strategic acquisitions. For example, to capitalize on the growth in
electronic commerce, the Company intends to evaluate potential acquisitions
designed to strengthen its capabilities in this area. From time to time, the
Company may also evaluate selective potential acquisitions outside these
practice areas if justified by client needs and market demand.
Leverage Cross-selling Opportunities. Nextera intends to provide additional
services and expand the scope of engagements during delivery to include
follow-on complementary activities. The Company believes that its integrated
approach to its portfolio of practice areas and its ability to cross-sell will
significantly enhance its ability to establish, sustain, and expand
relationships with clients. The Company's close working relationship with its
clients affords it the opportunity to become aware of, and to help define,
additional project opportunities and to market additional capabilities to its
clients. Client service opportunities are disseminated and coordinated on-line
through Nextera's Business Development System, a proprietary NextNet application
providing company-wide access and the identification and sharing of sales,
marketing, and other business data.
Attract and Retain Key Personnel. The Company intends to attract and retain
consultants who will enhance and complement the Company's service capabilities
by fostering a creative, innovative, collaborative work environment and through
competitive compensation and incentive programs. Nextera has a national
recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting firms, IT and process
consulting firms, technology companies, and from the industries that the Company
serves. Nextera's broad client base and flexible delivery model provide its
consultants diverse client experiences for professional growth. The Company
offers its consultants the opportunity to become equity participants in the
Company and has implemented policies and programs designed to accommodate
individual needs. For example, Nextera employs a "virtual office" concept to
provide travel and relocation flexibility where appropriate.
Market the Nextera Brand Name. Nextera intends to continue to build a
common identity for the services it provides under the Nextera brand name. The
Company actively promotes its name and capabilities through its sales and
marketing activities. The Company believes that using a common brand name for
its services enhances its visibility and recognition in the market and improves
its ability to compete for new and expanded business. Nextera also believes that
its association with Knowledge Enterprises and Knowledge Universe will increase
the Company's market exposure and provide prospective client contacts and other
business opportunities.
Expand International Presence. The Company intends to expand its
international presence through the growth of existing practices and selective
acquisitions of complementary consulting businesses in international markets.
The Company believes that clients will increasingly demand a global presence
from consulting service providers and Nextera intends to expand internationally
to participate in the market for global consulting services and to generate new
opportunities. Nextera's geographic priority is to expand its service offerings
in Europe within the Company's existing portfolio of practice areas.
38
<PAGE> 40
SERVICE OFFERINGS
The Company's portfolio of practice areas enables it to provide a breadth
and balance of services to its clients. By offering clients a combination of
business strategy, operations improvement, organizational design, and IT
consulting services, Nextera helps clients identify and examine business
problems and develop and implement the strategic, organizational, and
operational initiatives needed to solve such problems and sustain performance
improvement. Each of the Company's practice areas has a well-articulated
perspective that not 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 Operations Improvement
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 and leverageable organizational
structures. Finally, the Information Technology Consulting Services practice
area develops IT infrastructure and applications that enable clients to conduct
business in new ways, supports the redesigned business processes and aids
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
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.
Operations Improvement 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 leverage
from their human capital by identifying the impact on their workforce of various
strategies. The Company also assists in developing new organizational designs by
establishing programs for personnel selection, recruitment, development, and
succession, identifying the drivers of business performance, and helping
organizations achieve critical focus from their workforce through programs to
enhance "business literacy." The Company also helps clients communicate and
implement organizational changes designed to respond to new opportunities or
competitive threats and establish reward programs for broad employee groups,
managers and executives. For example,
39
<PAGE> 41
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 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 "Practice 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 "Operations
Improvement 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 "virtual
office" concept for its consultants, maintains an office in Rochester, New York
and a development
40
<PAGE> 42
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 Inc. 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
agencies, and is located in Chicago, Illinois.
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 28% of its net revenues for the year ended
December 31, 1997 and the nine months ended September 30, 1998, respectively,
and no client in either such period accounted for 10% or more of the Company's
pro forma net revenues. Nextera has served a broad range of clients, including
the following:
<TABLE>
<S> <C> <C>
ENTERTAINMENT/TECHNOLOGY/ FINANCIAL SERVICES/INSURANCE PROFESSIONAL SERVICES
COMMUNICATIONS BancBoston Robertson Stephens Inc. Ernst & Young LLP
BellSouth Corporation The Chubb Corporation PricewaterhouseCoopers LLP
GTE Corporation Fleet Financial Group, Inc.
International Business ING Capital Corporation MANUFACTURING
Machines Corporation Massachusetts Mutual Life Insurance American Business Products
National Broadcasting Metropolitan Life Insurance Company BE Aerospace
Company, Inc. NationsBanc Montgomery Securities LLC Rockwell International
Nelson Information, Inc. PaineWebber Group Inc. Corporation
Scientific-Atlanta, Inc. Wells Fargo & Company
HEALTH CARE
CONSUMER PRODUCTS/SERVICES RETAIL Olsten Corporation
Mead Johnson & Company Levi Strauss & Co. Pfizer Inc
Qualex, Inc. Polo Ralph Lauren Prudential HealthCare
SmithKline Beecham, PLC
</TABLE>
41
<PAGE> 43
Recent representative client engagements 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.
Operations Improvement Services. A subsidiary of a Fortune 500 company
retained Nextera to redesign its finance function by addressing issues of
organizational effectiveness and technology support. Working closely with the
client's financial management, the Company clarified the goals and role of the
finance function and analyzed the organizational factors and systems critical to
achieving such redesign. Nextera initiated a comprehensive solution that
modified the finance processes and standardized the client's general ledger and
financial reporting requirements. These initiatives were followed by the
Company's examination and conversion of the chart of accounts used by various
financial subsystems to conform to the new standardized accounting and reporting
requirements. Nextera also assisted the client in a broad variety of 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 leverage over the process.
Nextera then helped the client develop employee incentive programs tailored to
each facility's process and geared toward the leverage points that could drive
productivity, quality, and cost performance in that facility. In addition,
Nextera developed a comprehensive communication program to introduce and
implement the new programs. The Company believes that the introduction of these
programs contributed to improved quality and productivity, decreased employee
turnover and absenteeism, and reduced overtime costs.
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
42
<PAGE> 44
capabilities by providing faster delivery, enabling personalized distributions
to customers and generating increased feedback on customer preferences.
FLEXIBLE DELIVERY MODEL
Nextera's flexible delivery model provides clients with the full range of
the Company's expertise through a structured multi-disciplinary approach that
focuses on the needs and problems of each individual client. The Company's
breadth of expertise enables it to deliver services initially in any of its four
practice areas and expand the scope of its engagements to include complementary
or follow-on services in other practice areas. Nextera delivers its services
through Client Service Teams with the support of Affinity Groups. The key
elements of Nextera's flexible delivery model are as follows:
Client Service Teams. For each engagement, Nextera establishes a Client
Service Team managed by a senior-level client service director and comprised of
consultants who are selected to provide the appropriate combination of industry
experience, functional expertise, and geographic coverage. Client service teams
enhance overall client satisfaction by enabling the senior-level client service
director to provide a single point of contact for the client and the overall
team to take a multi-disciplinary approach to engagements. In addition, Client
Service Teams increase visibility of potential opportunities and enhance the
Company's ability to establish strong relationships with the client's senior
executives. As a result, the Client Service Team develops an in-depth
understanding of the client's needs and focuses the Company's various service
capabilities to meet such needs, providing substantial value to the client.
Client Service Teams emphasize the Company's diverse capabilities to clients and
regularly cross-market across its practice areas.
Affinity Groups. Client Service Teams are supported by Affinity Groups,
which are comprised of individuals from across the Company's practice areas as
well as independent consultants, specialists and 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.
43
<PAGE> 45
MANAGEMENT INFORMATION SYSTEM
Nextera is investing in NextNet to improve individual and organizational
performance through shared business information and knowledge. NextNet provides
the backbone and architecture for a collection of integrated applications
accessed through a common web-based user interface. NextNet facilitates rapid
delivery responsiveness by identifying the most qualified resources available
for each client engagement and encourages collaboration around resolution of
client problems, increasing quality, and expertise. The Company also utilizes
NextNet to help integrate newly acquired companies into the Company's portfolio
of practice areas and rapidly adopt Nextera's business practices and procedures.
The initial NextNet application areas are the Nextera Business Development
System, the NextHR Employee Management System, and an integrated financial
system. The Business Development System, which is updated weekly by engagement
managers of each Acquired Company, provides company-wide management of all sales
leads and business opportunities and enhances Nextera's ability to set
priorities and manage future business. The first release of the NextHR Employee
Management System will provide skills and expertise location, staffing requests,
and job posting information. A company-wide, third-party financial management
system is being implemented and will be integrated with other NextNet
applications.
In addition to its application focus, NextNet offers an interactive
environment through which user groups can share knowledge throughout the
Company. Using NextNet, members of Client Service Teams and Affinity Groups
share timely information, tools, methodologies, and insights, which are
delivered to each consultant's personalized home page, creating a focused,
interactive environment.
NextNet has been developed to have a flexible application architecture
capable of expanding and supporting applications in response to the Company's
growth and changing needs. A high-performance SQL database drives the data
elements of NextNet, while a full-text search engine enables knowledge
management services. Application logic is built using the latest web-development
tools, and the applications are delivered through an integrated browser
interface.
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 September 30, 1998, on a pro forma basis including Lexecon, the
Company had 613 employees, including 436 consultants.
Consulting Personnel. On a pro forma basis including Lexecon, 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. On a pro forma basis including Lexecon, 11 of the
Company's senior consulting executives have founded and managed successful
management and IT consulting firms. On a pro forma basis including Lexecon, 51%
of Nextera's consultants have more than 10 years of consulting, technical or
industry experience and 52% have either doctorate or master's degrees. This
flexibility in staffing engagements enhances Nextera's ability to apply its
resources as needed to meet the demands of its clients.
Recruiting. Nextera seeks to hire consultants who not only have strong
analytical skills but also are creative, intellectually curious, and driven to
develop expertise in new practice areas and industries. The Company has a
national recruiting program aimed at hiring entry-level consultants as well as
consultants with experience at major management consulting, IT and process
consulting firms, technology companies, and from the industries that Nextera
serves. Entry-level consultants are recruited from leading 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
44
<PAGE> 46
consultant's individual contributions and the Acquired Company's performance.
See "Management--Bonus Plans."
Training and Career Development. The Company has a career enhancement
program that offers its consultants career enrichment opportunities and access
to individualized training. Career development programs are specific to the
needs of each Acquired Company and all employees receive a combination of
orientation training, skills enhancement training, mentoring, and periodic
briefings. Nextera's flexible staffing methods are supported by its NextHR
Employee Management System to provide the Company's consultants with diverse and
challenging client experiences.
Outside Consultants and Independent Contractors. Through Lexecon, the
Company maintains affiliate relationships with distinguished academics. These
individuals are engaged by Nextera to give expert testimony or to participate in
client engagements. When necessary, the Company supplements its consultants on
certain engagements with independent contractors. The Company believes that its
practice of retaining independent contractors on a per-engagement basis provides
it with greater flexibility in providing specialized skills and adjusting
consultant levels in response to changes in demand for its services.
COMPETITION
The consulting services industry includes a large number of competitors, is
subject to rapid change, and is highly competitive. Nextera believes that the
principal competitive factors in the consulting services industry are
reputation, industry expertise, analytical ability, service, and price. The
Company believes it competes favorably with respect to these factors. Nextera
also believes that its ability to compete depends in part on a number of factors
outside of its control, including the ability of its competitors to hire, retain
and compensate consultants, offer lower-priced services, respond to client
requirements, and develop advanced services or technology. Nextera's primary
competitors include participants from a variety of market segments, including
general management consulting companies, boutique management consulting firms
that provide specialized services or focus on certain industries, "Big Five" and
other accounting firms, economic consulting firms, technical and 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,
45
<PAGE> 47
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.
46
<PAGE> 48
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 December 31, 1998, and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers
Gresham T. Brebach, Jr. ........................ 58 President, Chief Executive Officer,
and Chairman of the Board of Directors
Ronald K. Bohlin................................ 47 Chief Operating Officer and Director
Michael P. Muldowney............................ 35 Chief Financial Officer
Debra I. Bergevine.............................. 48 Vice President, Marketing
Robert F. Staley, Jr............................ 45 Chief Technology Officer
Roger Brossy.................................... 39 Director and Managing Director, Sibson
Ralph Finerman.................................. 63 Director
Steven B. Fink(1)(2)............................ 47 Director
Stanley E. Maron(2)............................. 50 Director
Michael D. Rose(1).............................. 56 Director
Richard V. Sandler(2)........................... 50 Director
Other Senior Managers
Michael Martindale.............................. 54 Managing Director, Business Performance
Solutions
Michael J. Shepherd............................. 35 Managing Director, Pyramid
Mason S. Tenaglia............................... 42 Managing Director, PTG
Andrew M. Rosenfield............................ 47 Chairman, Lexecon
Dennis W. Carlton............................... 47 President, Lexecon
Daniel R. Fischel............................... 47 Principal, Lexecon
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Gresham T. Brebach, Jr. currently serves as President, Chief Executive
Officer, and Chairman of the Board of Directors of the Company, positions he has
held since its inception. Prior to founding the Company, Mr. Brebach was
Executive Vice President of Renaissance Solutions, Inc. from January 1995 to
February 1997 and was a self-employed consultant from September 1994 to December
1994. Mr. Brebach was Senior Vice President of Digital Equipment Corporation
from March 1993 to August 1994 and a Director of McKinsey & Co., a management
consulting firm, from December 1989 to March 1993. In 1988, Mr. Brebach founded
ICG, Inc., an IT consulting firm, and operated such firm until it was acquired
by McKinsey & Co. in December 1989. Prior to such time, Mr. Brebach was Managing
Partner of Andersen Consulting, North America, a leading systems integration and
consulting firm, from 1986 to 1988. Mr. Brebach also serves as a director of
Aspen Technology.
Ronald K. Bohlin currently serves as Chief Operating Officer and a Director
of the Company, positions he has held since its inception. Prior to founding the
Company, Mr. Bohlin was Senior Vice President of Renaissance Solutions from
November 1994 to February 1997. Mr. Bohlin was Vice President, Strategic
Services of Digital Equipment Corporation from October 1993 to November 1994,
Vice President, Corporate Marketing of Analog Devices, Inc. from February 1992
to October 1993, and a Principal of McKinsey & Co. from 1981 to 1992.
Michael P. Muldowney joined the Company in May 1997 as Vice President,
Finance and currently serves as Chief Financial Officer, a position he has held
since May 1998. Mr. Muldowney is a certified public
47
<PAGE> 49
accountant and, prior to joining the Company, Mr. Muldowney was Corporate
Controller as well as a Principal of Mercer Management Consulting, Inc.,
("Mercer"), from 1992 to May 1997, and held various other financial management
positions with Mercer from 1989 to 1992. Mr. Muldowney was a Senior Auditor of
Marsh & McLennan Companies, Inc. from 1986 to 1989.
Debra I. Bergevine currently serves as Vice President, Marketing of the
Company, a position she has held since April 1997. Prior to joining Nextera, Ms.
Bergevine was Director of Marketing & Investor Relations of Renaissance
Solutions, Inc. from March 1995 to April 1997. Ms. Bergevine served as Director
of Marketing and in various other management capacities with Digital Equipment
Corporation from 1980 to 1995.
Robert F. Staley, Jr. currently serves as Chief Technology Officer of the
Company, a position he has held since April 1997. Prior to joining Nextera, Mr.
Staley was a Managing Consultant of Renaissance Solutions, Inc. from March 1995
to March 1997. Mr. Staley served as the head of the Database Technology Group
of, as well as holding various other managerial and technical positions with,
Lotus Development Corporation from 1986 to March 1995.
Roger Brossy currently serves as a Director of the Company, a position he
has held since August 1998. Mr. Brossy was elected as a Director of the Company
pursuant to a stockholders agreement. See "Certain Transactions--Stockholders
Agreement." Mr. Brossy also serves as Managing Director, Sibson, and has held
various management and consulting positions with Sibson since 1985. From 1981 to
1985, Mr. Brossy was a consultant with Hay Associates, a human resources
consulting firm.
Ralph Finerman currently serves as a Director of the Company, a position he
has held since August 1998. Mr. Finerman is the President of RFG Financial
Group, Inc., a financial consulting firm, a position he has held since 1994.
From 1983 to 1994, Mr. Finerman was in private practice as a certified public
accountant and attorney.
Steven B. Fink currently serves as a Director of the Company, a position he
has held since its inception. Mr. Fink is Vice Chairman of Knowledge Universe, a
position he has held since January 1995, and serves as an officer or director of
other privately-held affiliates of Knowledge Universe. From December 1993 to
December 1996, Mr. Fink was Vice President of MC Group, an investment advisory
and business consulting firm. Mr. Fink was President of East West Capital, an
investment advisory firm, from 1989 to December 1993. Mr. Fink is a director of
Spring Group, PLC, a business consulting firm.
Stanley E. Maron currently serves as a Director of the Company, a position
he has held since its inception. Mr. Maron also currently serves as a Director
of Knowledge Universe. Mr. Maron is a senior partner in the law firm of Maron &
Sandler, a Professional Corporation, which was formed in September 1994. Mr.
Maron specializes in corporate and tax law. Prior to forming Maron & Sandler,
Mr. Maron was a senior partner of Buchalter, Nemer, Fields & Younger, a law
firm, which he joined as an associate in 1975.
Michael D. Rose currently serves as a Director of the Company, a position
he has held since October 1998. Mr. Rose also currently serves as a director of
Knowledge Universe. Mr. Rose served as Chairman of the Board of Directors of
Promus Hotel Corporation from April 1995 through December 1997 and has continued
to serve as a Director since December 1997. Mr. Rose was Chairman of the Board
of Directors of Harrah's Entertainment, Inc. from June 1995 to December 1996.
From November 1989 to June 1995, Mr. Rose was Chairman of the Board of Directors
of The Promus Companies, Incorporated and also served as its Chief Executive
Officer from November 1989 to April 1994. Mr. Rose is also a Director of Ashland
Inc., First Tennessee National Corporation, General Mills, Inc., Stein Mart,
Inc., FelCor Lodging Trust, Inc., ResortQuest International, Inc. and Darden
Restaurants, Inc.
Richard V. Sandler currently serves as a Director of the Company, a
position he has held since its inception. Mr. Sandler also currently serves as
President of EDU. Mr. Sandler is a senior partner in the law firm of Maron &
Sandler, a Professional Corporation, which was formed in September 1994. Mr.
Sandler specializes in general securities and business law. Prior to forming
Maron & Sandler, Mr. Sandler was a partner of Victor & Sandler, a law firm.
48
<PAGE> 50
Michael Martindale 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. Martindale held various management positions with Rank Xerox and Xerox
Corporation from 1979 to 1991.
Michael J. Shepherd currently serves as Managing Director, Pyramid and has
held various management positions with Pyramid since January 1993. Prior to
co-founding Pyramid, Mr. Shepherd held various management positions with
Andersen Consulting and Booz Allen & Hamilton, a business consulting firm.
Mason S. Tenaglia currently serves as Managing Director, PTG and has held
various management positions with PTG since 1990. Prior to co-founding PTG, Mr.
Tenaglia was Sr. Vice President of MicroMentor, Inc., a consulting and executive
development firm, from 1986 to 1989.
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 Enterprises, Inc." 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.
49
<PAGE> 51
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Fink and Rose. There are no Compensation Committee interlocks.
DIRECTOR COMPENSATION
Directors are reimbursed for all expenses incurred in connection with
attendance at Board of Directors and Committee meetings, but do not otherwise
receive any compensation for services as a director. Following the Offering,
Nextera intends to evaluate director compensation and may implement a more
extensive program for directors who are not employed by the Company. Messrs.
Maron and Sandler bill the Company at their respective hourly rates for legal
services for time spent in connection with attendance at Board of Directors and
Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued for the
period from February 26, 1997 through December 31, 1997 and for the year ended
December 31, 1998 for the Company's Chief Executive Officer and its four other
most highly compensated executive officers whose compensation exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
FISCAL --------------------- OPTIONS
YEAR SALARY BONUS(1) (# OF SHARES)(2)
<S> <C> <C> <C> <C>
Gresham T. Brebach, Jr........................... 1998 $667,335 --
Chief Executive Officer 1997 611,837(3) $100,000 --
Ronald K. Bohlin................................. 1998 425,004 --
Chief Operating Officer 1997 362,509(4) 65,000 --
Michael P. Muldowney............................. 1998 181,417 --
Chief Financial Officer 1997 116,666 24,000 --
Debra I. Bergevine............................... 1998 175,958 --
Vice President, Marketing 1997 113,333 18,000 --
Robert F. Staley, Jr............................. 1998 175,958 --
Chief Technology Officer 1997 124,924 20,000 60,000
</TABLE>
- ------------------------------
(1) Bonuses for the year ended December 31, 1998 have not yet been determined.
(2) All options are for Class A Common Stock.
(3) Includes $ consisting of guaranteed bonus amounts earned in 1997.
(4) Includes $ consisting of guaranteed bonus amounts earned in 1997.
BONUS PLANS
As a key component of the annual compensation program, the Company has
implemented a bonus plan designed to recognize individual and Acquired Company
performance. The bonus plan is funded by the performance of each Acquired
Company (other than Sibson and Lexecon) and is intended to complement base
compensation while providing incentive and recognition for exceptional
individual and team efforts in meeting and exceeding such Acquired Company's
operating targets. All employees with three months or more of service are
eligible to participate. Employee target bonus percentages range from 10% to 50%
of the individual's base salary, dependent on their classification. Bonus
calculations are dependent upon an
50
<PAGE> 52
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>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL 1998 ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach, Jr.... -- -- -- -- -- --
Ronald K. Bohlin.......... -- -- -- -- -- --
Michael P. Muldowney...... -- -- -- -- -- --
Debra I. Bergevine........ -- -- -- -- -- --
Robert F. Staley, Jr......
</TABLE>
- ------------------------------
(1) The potential realizable values are based on an assumption that the stock
price of the Company's Class A Common Stock will appreciate at the annual
rate shown (compounded annually) from the date of grant until the end of the
option term. The Board of Directors has determined that the fair market
value of the Company's Class A Common Stock on the date of grant was $
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.
51
<PAGE> 53
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............................. -- -- -- --
Robert F. Staley, Jr...........................
</TABLE>
- ------------------------------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
fair market value at December 31, 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 shares of Class A Common Stock and shares of Class
B Common Stock), subject to the Company's right to repurchase at original cost
up to (i) 80% of such interests in the event Mr. Brebach is terminated or leaves
the employ of the Company prior to one year after commencement of employment,
(ii) 60% of such interests in the event Mr. Brebach is terminated or leaves the
employ of the Company after one year but prior to two years after commencement
of employment, (iii) 40% of such interests in the event Mr. Brebach is
terminated or leaves the employ of the Company after two years but prior to
three years after commencement of employment, and (iv) 20% of such interests in
the event Mr. Brebach is terminated or leaves the employ of the Company after
three years but prior to four years after commencement of employment. The
Company's right to repurchase any portion of Mr. Brebach's interests in the
Company shall terminate if Mr. Brebach leaves the employ of the Company prior to
March 3, 2000 for any reason other than death, disability, cause, voluntary
termination, or if the Company elects not to extend the term past March 3, 2000.
The Brebach Agreement also provides that in the event the Company terminates Mr.
Brebach's employment, other than for cause, retirement, disability or death, the
Company shall (i) pay Mr. Brebach the balance of his base salary to which he
would have been entitled to receive through the end of the then applicable term
and (ii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term or until Mr.
Brebach is employed elsewhere. The Brebach Agreement provides that a change of
control of the Company shall have no effect on Mr. Brebach's financial interests
pursuant to the Brebach Agreement. Mr. Brebach is also subject to
noncompetition, nondisclosure, post-employment cooperation, and nonsolicitation
covenants.
The Company has an employment agreement with Ronald K. Bohlin dated April
1, 1997 (the "Bohlin Agreement"). The Bohlin Agreement provides for an initial
term of three years. Such initial term may be extended for an additional period
of two years with 90 days written notice prior to the expiration of the initial
term. Pursuant to the Bohlin Agreement, Mr. Bohlin is employed as the Company's
Chief Operating Officer and receives a minimum annual base salary of $350,000, a
guaranteed annual bonus of $100,000, and an
52
<PAGE> 54
additional annual bonus of up to 25% of his base salary, in an amount to be
determined by the Board of Directors of the Company, as well as benefits under
the Company's benefit plans. Pursuant to the Bohlin Agreement, Mr. Bohlin
purchased Class A Common Units of NEH at an aggregate purchase price of $20,000
(which units were ultimately converted into shares of Class A Common
Stock and shares of Class B Common Stock), subject to the Company's right
to repurchase at original cost up to (i) 80% of such interests in the event Mr.
Bohlin is terminated or leaves the employ of the Company prior to one year after
commencement of employment, (ii) 60% of such interests in the event Mr. Bohlin
is terminated or leaves the employ of the Company after one year but prior to
two years after commencement of employment, (iii) 40% of such interests in the
event Mr. Bohlin is terminated or leaves the employ of the Company after two
years but prior to three years after commencement of employment, and (iv) 20% of
such interests in the event Mr. Bohlin is terminated or leaves the employ of the
Company after three years but prior to four years after commencement of
employment. The Company's right to repurchase any portion of Mr. Bohlin's
interests in the Company shall terminate if Mr. Bohlin leaves the employ of the
Company prior to April 1, 2000 for any reason other than death, disability,
cause, voluntary termination, or if the Company elects not to extend the term
past April 1, 2000. The Bohlin Agreement also provides that in the event the
Company terminates Mr. Bohlin's employment prior to April 1, 2000, other than
for cause, retirement, disability or death, the Company shall (i) pay Mr. Bohlin
the balance of his base salary to which he would have been entitled to receive
through the end of the then applicable term and (ii) continue to provide
benefits upon the same terms and conditions then in effect on the date of
termination through the then applicable term or until Mr. Bohlin is employed
elsewhere. The Bohlin Agreement provides that a change of control of the Company
shall have no effect on Mr. Bohlin's financial interests pursuant to the Bohlin
Agreement. Mr. Bohlin is also subject to noncompetition, nondisclosure,
post-employment cooperation, and nonsolicitation covenants.
The Company entered into an employment agreement with Michael P. Muldowney
dated April 25, 1997 (the "Muldowney Agreement"). The Muldowney Agreement
provides for a term of one year, renewable by the Company for additional periods
of one year each upon at least 90 days prior notice to Mr. Muldowney. The
Company has renewed the Muldowney Agreement for an additional one year period.
Pursuant to the Muldowney Agreement, Mr. Muldowney is employed as the Company's
Chief Financial Officer and receives a minimum annual base salary of $182,000
and an annual bonus of up to 30% of his base salary, in an amount to be
determined by the Board of Directors of the Company, as well as benefits under
the Company's benefit plans. Pursuant to the Muldowney Agreement, Mr. Muldowney
purchased Class A Common Units of NEH at an aggregate purchase price of $5,000
(which units were ultimately converted into shares of Class A Common Stock
and shares of Class B Common Stock), subject to the Company's right to
repurchase such shares at fair market value, provided that in the event Mr.
Muldowney voluntarily terminates his employment or is dismissed for cause prior
to April 25, 2000, the Company has the right to repurchase such shares at cost.
Mr. Muldowney is also subject to noncompetition, nondisclosure, and
nonsolicitation covenants.
The Company entered into an at-will employment agreement with Debra I.
Bergevine dated March 25, 1997 (the "Bergevine Agreement"). Pursuant to the
Bergevine Agreement, Ms. Bergevine is employed as the Company's Vice President,
Marketing and receives a minimum annual base salary of $170,000 and an annual
bonus of up to 20% of her base salary, in an amount to be determined by the
Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Bergevine Agreement, Ms. Bergevine purchased
Class A Common Units of NEH at an aggregate purchase price of $5,000 (which
units were ultimately converted into shares of Class A Common Stock and
shares of Class B Common Stock), subject to the Company's right to
repurchase such shares at its then fair market value, provided that in the event
Ms. Bergevine voluntarily terminates her employment or is dismissed for cause
prior to March 25, 2000, the Company has the right to repurchase such shares at
cost. Ms. Bergevine is also subject to noncompetition, nondisclosure, and
nonsolicitation covenants.
The Company entered into an at-will employment agreement with Robert F.
Staley, Jr. dated March 25, 1997 (the "Staley Agreement"). Pursuant to the
Staley Agreement, Mr. Staley is employed as the Company's Chief Technology
Officer and receives a minimum annual base salary of $170,000 and an annual
bonus of up to 15% of his base salary, in an amount to be determined by the
Board of Directors of the Company, as well as benefits under the Company's
benefit plans. Pursuant to the Staley Agreement, Mr. Staley received options to
53
<PAGE> 55
purchase shares Class A Common Stock at an exercise price of per
share. These options vest in equal annual installments over four years. Mr.
Staley is also subject to noncompetition, nondisclosure, and nonsolicitation
covenants.
Sibson LLC entered into an employment agreement with Roger Brossy dated
August 31, 1998 (the "Brossy Agreement"). The Brossy Agreement provides for a
term of two years, as well as automatic renewal on each subsequent anniversary
for subsequent one-year terms unless either Mr. Brossy or Sibson LLC gives
written notice to the other not less than sixty days prior to such anniversary.
Pursuant to the Brossy Agreement, Mr. Brossy receives a minimum annual base
salary of $250,000, an initial annual target bonus equal to 60% of his annual
base salary pursuant to Sibson LLC's Annual Incentive Plan, as well as benefits
under Sibson LLC's benefit plans. Pursuant to the Brossy Agreement, Mr. Brossy
purchased 1,554 shares of Class A Common Stock at a price of $0.14 per share.
The Brossy Agreement also provides that upon Sibson LLC's termination of Mr.
Brossy's employment, other than for cause, retirement, disability or death,
Sibson LLC shall (i) pay Mr. Brossy the balance of his base salary and a
pro-rata share of the applicable bonus to which he would have been entitled to
receive through the end of the then applicable term (ii) cause any options
granted to Mr. Brossy under the Company's 1998 Equity Participation Plan to vest
to the extent of 50% of the remaining unvested portion of such options, and
(iii) continue to provide benefits upon the same terms and conditions then in
effect on the date of termination through the then applicable term. Mr. Brossy
is also subject to a Noncompete, Non-Solicitation, Proprietary Information,
Confidentiality and Inventions Agreement.
EMPLOYEE BENEFIT PLANS
1998 Equity Participation Plan. Nextera's 1998 Equity Participation Plan
provides incentives for officers, key employees and consultants of the Company
and its subsidiaries through granting of options, restricted stock and other
awards ("Awards"). In addition to Awards made to officers, key employees or
consultants, the 1998 Equity Participation Plan permits the granting of options
("Director Options") to the Company's independent non-employee directors.
Under the 1998 Equity Participation Plan, not more than
shares of Class A Common Stock (or the equivalent in other equity securities)
are authorized for issuance upon exercise of options, stock appreciation rights
("SARs"), and other Awards, or upon vesting of restricted or deferred stock
awards. The maximum number of shares which may be subject to options or stock
appreciation rights granted under the 1998 Equity Participation Plan to any
individual in any calendar year cannot exceed . As of September
1, 1998, options to purchase shares of Class A Common Stock were
outstanding under the 1998 Equity Participation Plan.
Prior to the closing of the Offering, the Board of Directors of the Company
will administer the 1998 Equity Participation Plan. After the closing of the
Offering, the Compensation Committee of the Board or another committee thereof
(the "Committee") will administer the 1998 Equity Participation Plan with
respect to grants to key employees or consultants of the Company and the full
Board of Directors will administer the 1998 Equity Participation Plan with
respect to Director Options. The Committee will consist of at least two members
of the Board of Directors, each of whom is a "non-employee director" for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3") and, with respect to options and SARs which are intended to
constitute performance-based compensation under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), an "outside director" for the
purposes of Section 162(m) of the Code. Subject to the terms and conditions of
the 1998 Equity Participation Plan, the Board of Directors or Committee has the
authority to select the persons to whom Awards are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof, and
to make all other determinations and to take all other actions necessary or
advisable for the administration of the 1998 Equity Participation Plan. The
Board of Directors or Committee may delegate to certain officers of the Company
its authority to select the persons to whom Awards are to be made, to determine
the number of shares to be subject thereto and the terms and conditions thereof.
In addition, the Board of Directors has discretion to determine the terms and
conditions of Director Options and to interpret and administer the 1998 Equity
Participation Plan with respect to Director Options. The Committee (and the
Board of Directors) are
54
<PAGE> 56
also authorized to adopt, amend and rescind rules relating to the administration
of the 1998 Equity Participation Plan.
Options, SARs, restricted stock and other Awards under the 1998 Equity
Participation Plan may be granted to individuals who are then officers or other
key employees of the Company or any of its present or future subsidiaries. Such
Awards also may be granted to consultants of the Company selected by the Board
of Directors or Committee for participation in the 1998 Equity Participation
Plan. Independent directors of the Company may be granted NQSOs (as defined
herein) by the Board of Directors. The Committee may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof to key employees and consultants. Each Award will be set
forth in a separate agreement with the person receiving the Award and will
indicate the type, terms and conditions of the Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Class A Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (in the discretion of the
Board of Directors) in one or more installments after the grant date, subject to
the participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Board of Directors and/or the Company. NQSOs may be granted for a term of up to
ten (10) years, as specified by the Board of Directors.
Incentive Stock Options ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Class A Common Stock on the date of
grant, may only be granted to key employees, must expire within a specified
period of time following the Optionee's 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.
55
<PAGE> 57
Dividend Equivalents may be granted to any key employee or consultant by
the Board of Directors or the Committee. The amount of the Dividend Equivalents
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, Deferred
Stock, Performance Awards, SARs or other Awards held by the participant.
Performance Awards may be granted to any key employee or consultant by the
Committee. Generally, these Awards will be based upon specific performance
targets and may be paid in cash or in Class A Common Stock or in a combination
of both. Performance Awards may also include bonuses which may be granted by the
Committee which may be payable in cash or in Class A Common Stock or in a
combination of both.
Stock Payments may be received by any key employee or consultant selected
by the Committee in the manner determined from time to time by the Committee.
The number of shares of Class A Common Stock or an option or other right to
purchase Class A Common Stock shall be determined by the Committee, and may be
based upon performance criteria as determined by the Committee.
The 1998 Equity Participation Plan prohibits any participant in the plan
from, without the prior written consent of the representatives of the
Underwriters and subject to certain exceptions, selling or otherwise disposing
of any shares of Class A Common Stock or options to acquire shares of Class A
Common Stock during the 180-day period following the date of this Prospectus.
Retirement Plans. Nextera and certain subsidiaries sponsor retirement
savings plans (the "Retirement Plans") under Section 401(k) of the Code for the
benefit of employees meeting certain minimum service requirements. Eligible
employees may elect to contribute to the plan subject to limitations established
by the Code. The trustees of the Retirement Plans select investment
opportunities from which participants may choose to contribute. The Company
matches up to 25% of the first 4% of eligible participant contributions for
employees of PTG, Pyramid, and the Company's Executive Officers and
administrative personnel. The Company has agreed to match 25% of total
contributions (subject to the limitations of the Code) for individuals who were
active employees of Business Performance Solutions as of December 31, 1998.
Other contributions are made at the discretion of the Company. On a pro forma
basis, the Company made contributions to the Retirement Plans of $406,804 for
the year ended December 31, 1997.
Sibson LLC maintains a defined contribution profit-sharing plan (the
"Profit-Sharing Plan") providing retirement benefits to eligible employees of
Sibson LLC. Contributions by the Company to the Profit-Sharing Plan are at the
discretion of the management of Sibson LLC, subject to overall budgetary control
by Nextera. Participants are eligible to make elective deferral contributions,
without matching by Sibson LLC. Sibson LLC may also make qualified non-elective
contributions. For the year ended December 31, 1997 on a pro forma basis, Sibson
LLC contributed $1.5 million to the Profit-Sharing Plan. Sibson LLC intends to
make additional contributions to the Profit-Sharing Plan in the future as
determined by Sibson management.
Other. The Company maintains customary health and benefit plans for its
employees. In addition, Sibson LLC currently provides post-retirement medical
benefits for Sibson LLC employees who retire after age 50 with at least 15 years
of service. Any such Sibson retiree may elect to receive medical coverage under
Sibson LLC's medical program until the earlier of age 65 or the retiree's death.
Sibson LLC pays 75% of the annual cost of the comprehensive medical coverage and
the retiree pays the remaining 25%. In connection with the Sibson Acquisitions,
the Company committed to maintain this post-retirement medical coverage (and all
other Sibson employee benefit programs) through December 31, 1999, subject to
certain limited exceptions, and the termination of applicable employment
agreements.
56
<PAGE> 58
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, KU, Inc. 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,
KU, Inc. 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 KU, Inc. 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 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 KU, Inc. to finance the Lexecon Acquisition, $4.2
million to finance the payment of bonuses to certain non-stockholder key
executives of Lexecon and $2.2 million for general corporate purposes, including
working capital.
Management Agreement. Effective March 1, 1997, Nextera entered into an oral
agreement with Knowledge Universe whereby Knowledge Universe provided certain
management and advisory services to the Company, for which the Company agreed to
pay a management fee of $10,000 per month to Knowledge Universe. Such agreement
was subsequently transferred to KU, Inc. in August 1998. In January 1999, the
Company also paid a supplemental management fee of $1.5 million to KU, Inc. for
additional services rendered by Knowledge Universe and KU, Inc. to the Company
in 1998. Accrued management fees of approximately $ will be paid from the
proceeds of the Offering. See "Use of Proceeds." Said agreement was terminated
effective as of the date of this Prospectus.
Engagement of the Company by Knowledge Universe or its Affiliates. The
Company was engaged by Knowledge Universe to perform certain reviews and render
advice in connection with potential acquisitions of third-parties by Knowledge
Universe. The total amount billed to Knowledge Universe by the Company in
connection with this engagement amounted to approximately $200,000 in 1998. In
addition, the Company was engaged by Knowledge Universe at various times to
provide advice relating to general business strategy and human resources. The
amount billed to Knowledge Universe by the Company in connection with these
engagements amounted to approximately $437,000 in 1998.
The Company was engaged at various times by Productivity Point
International, LLC ("PPI"), an affiliate of Knowledge Universe, to provide
strategy, business operations and IT advice. The total amount billed to PPI by
the Company in connection with these engagements amounted to approximately
$450,000 in 1998. In addition, the Company was engaged at various times by TEC
Worldwide, Inc. ("TEC"), an affiliate of Knowledge Universe, to provide
strategy, business operations and IT advice. The total amount billed to TEC by
the Company in connection with these engagements amounted to approximately
$81,000 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.
57
<PAGE> 59
Investments in the Company. From February 26, 1997 through April 30, 1998,
Knowledge Universe purchased Class A Common Units of NEH for aggregate
consideration of $ (net of a subsequent redemption), which were ultimately
converted into shares of Class A Common Stock and shares of
Class B Common Stock. Also during this period, EDU purchased Class A Common
Units of NEH for aggregate consideration of $ , which were ultimately
converted into shares of Class A Common Stock and shares of Class B
Common Stock. Pursuant to the KE Transaction, ownership of the Class A Common
Stock and Class B Common Stock arising out of the foregoing transactions was
transferred to Knowledge Enterprises. See "The Company--Transfer to Knowledge
Enterprises." During the same period, Knowledge Universe purchased Class B
Preferred Units of NEH for aggregate consideration of $47.1 million, which were
ultimately converted into a 98.1% interest in the Debentures.
Between January 2, 1998 and April 30, 1998, Messrs. Brebach, Bohlin, and
Muldowney and Ms. Bergevine purchased Class A Common Units of NEH, which
purchases were in addition to the Common Stock purchased pursuant to their
respective employment agreements. Mr. Brebach purchased Class A Common Units of
NEH for aggregate consideration of $ , which units were ultimately
converted into shares of Class A Common Stock and shares of Class
B Common Stock. Mr. Bohlin purchased Class A Common Units of NEH for aggregate
consideration of $ , which units were ultimately converted into
shares of Class A Common Stock and shares of Class B Common Stock.
Mr. Muldowney purchased Class A Common Units of NEH for aggregate consideration
of $ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Ms. Bergevine purchased
Class A Common Units of NEH for aggregate consideration of $ , which units
were ultimately converted into shares of Class A Common Stock and
shares of Class B Common Stock.
On , EDU contributed $25,000 to Nextera LLC in exchange for
Class A Common Units of Nextera LLC, which were subsequently redeemed for
$25,000.
On December 31, 1997, Nextera LLC issued a warrant to NEH (the "Warrant")
to purchase Class A Common Units at an exercise price of per unit.
Effective April 30, 1998, the Warrant was amended to provide for the issuance of
Class B Common Units. The Warrant was exchanged for Class B Common
Units which were ultimately converted into shares of Class B Common
Stock.
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 Knowledge Universe, 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
$ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Mr. Bohlin purchased
units for aggregate consideration of $ , which units were ultimately
converted into shares of Class A Common Stock and shares of Class
B Common Stock. Mr. Muldowney purchased units for aggregate consideration of
$ , which units were ultimately converted into shares of Class A
Common Stock and shares of Class B Common Stock. Ms. Bergevine purchased
units for aggregate consideration of $ , which units were ultimately
converted into shares of Class A Common Stock and shares of Class
B Common Stock.
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 shares of Class A Common Stock in exchange for
his equity interest in the Sibson Entities.
58
<PAGE> 60
Amendment of the Debentures. Effective December 31, 1998, the Company, KU,
Inc., Messrs. Brebach, Bohlin and Muldowney, Ms. Bergevine and one other
employee of the Company amended the Debentures in connection with the Lexecon
Acquisition (the "Debenture Amendment"). The Debenture Amendment provides that
in the event the Bridge Loan remains unpaid following its maturity, the interest
rate will increase to two points over the interest rate on the Bridge Loan. In
addition, as required by the terms of the Bridge Loan, if an event of default
occurs under the Bridge Loan, the Debentures must either be (i) moved up in the
Company's capital structure to a holding company level or (ii) at KU, Inc.'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, KU, Inc. 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 to be issued to such persons in connection with the Lexecon
Acquisition at a price of $ 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 KU, Inc. to provide the
Guaranty, the Company issued KU, Inc. 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, provided,
however, if such initial public offering does not occur by August 31, 2000, the
exercise price will be $ per share, as adjusted for stock splits, stock
dividends and similar transactions. The Guaranty Warrants expire on December 31,
2003. See "Description of Capital Stock--Warrants."
Stockholders Agreement. In connection with the Sibson Acquisitions and the
Lexecon Acquisition the Company, Nextera LLC and the stockholders of the Company
prior to the Offering entered into the Stockholders Agreement, including an
amendment thereto, to set forth various agreements among the stockholders and
the Company. The Stockholders Agreement provides that the stockholders are
required to vote their shares of Common Stock to elect Sibson's manager/senior
managing principal to the Company's Board of Directors. This requirement
continues until such time that (i) the Company's consolidated net revenues
generated by Sibson LLC fall below 15% of the Company's total consolidated net
revenues for any fiscal year and (ii) the earnings before interest, taxes,
depreciation and amortization ("EBITDA") generated by Sibson LLC falls below 15%
of the Company's total consolidated EBITDA less corporate headquarters expense
for such fiscal year. Pursuant to this provision, Roger Brossy was appointed to
the Board of Directors. The Stockholders Agreement also provides that the
stockholders are required to vote their shares of Common Stock to elect one
designee of the former stockholders of Lexecon until December 31, 2000. The
former stockholders of Lexecon have not yet exercised their right pursuant to
this provision.
The Stockholders Agreement also provides that the Company will not enter
into related transactions in excess of $2 million with any affiliate of the
Company without the prior approval of a majority of the Company's Board of
Directors who are not and, within the past five years, have not been directly or
indirectly affiliated with such affiliate and do not receive any compensation
from, or own any equity interest in, such affiliate. The Stockholders Agreement
also provides that Knowledge Enterprises, Messrs. Brebach, Bohlin and Muldowney,
Ms. Bergevine, and certain other individuals will not sell or otherwise dispose
of their shares for a six-month period following the Offering, and that
subsequent to such six-month period, those stockholders will not sell or
otherwise dispose of more than one-third of such shares in the subsequent
12-month period and more than two-thirds of such shares in the subsequent
24-month period. , , , , and shares of
Common Stock held by Knowledge Enterprises, Messrs. Brebach, Bohlin, and
Muldowney and Ms. Bergevine, respectively, are subject to this provision. In
addition, the Stockholders Agreement provides certain registration rights. See
"Shares Eligible for Future Sale--Registration Rights."
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
59
<PAGE> 61
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 $322,000 for legal services
rendered to the Company.
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.
60
<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 31, 1998, after giving effect to
the Exchange Transaction, by (i) each person known to the Company to
beneficially own more than five percent of any class of the outstanding Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer of
the Company, and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated, all shares are owned directly and the
indicated person has sole voting and investment power. Unless otherwise
indicated, the address of the persons named below is care of Nextera
Enterprises, Inc., One Cranberry Hill, Lexington, MA 02421.
<TABLE>
<CAPTION>
CLASS B BENEFICIAL OWNERSHIP
CLASS A COMMON STOCK COMMON STOCK(1) AFTER THE OFFERING(2)(3)
------------------------------------------ ------------------------- --------------------------
SHARES PERCENT PERCENT OF
BENEFICIALLY OWNED PERCENT SHARES COMMON
NAME OF OWNED PRIOR TO PRIOR TO OWNED AFTER BENEFICIALLY PERCENT OF PERCENT OF STOCK
BENEFICIAL OWNER OFFERING(2) OFFERING(3) OFFERING(3) OWNED CLASS VOTING POWER OUTSTANDING
<S> <C> <C> <C> <C> <C> <C> <C>
Gresham T. Brebach,
Jr................... 2.7% 4.5%
Ronald K Bohlin........ 1.2 2.0
Michael P. Muldowney... * *
Debra I. Bergevine..... * *
Robert F. Staley,
Jr.(4)............... * -- --
Roger Brossy........... 1.2
Ralph Finerman......... -- --
Steven B. Fink......... -- -- -- --
Stanley E. Maron....... -- -- -- --
Michael D. Rose........ -- -- -- --
Richard V. Sandler..... -- -- -- --
Daniel R. Fischel...... 5.2 -- --
Andrew M. Rosenfield... 5.2 -- --
Knowledge Enterprises,
Inc.(5).............. 52.4 89.9
All directors and
executive officers as
a group (11
persons)............. 6.1% 7.7% % %
</TABLE>
- ------------------------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Class A
or Class B Common Stock, as applicable.
(1) No shares of Class B Common Stock will be sold in the Offering.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership of
any other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(3) Based on (i) shares of Class A Common Stock outstanding prior
to the Offering and shares of Class A Common Stock
outstanding after the Offering, (ii) shares of Class B Common Stock
outstanding both prior to and after the Offering, and (iii) in each case,
includes shares of Class A Common Stock issuable upon the exchange of
the Exchangeable Shares.
(4) Represents shares of Class A Common Stock issuable pursuant to
options that were exercisable December 31, 1998 or within 60 days of such
date.
(5) The Company believes that through ownership or voting control of various
intermediate entities, Lawrence J. Ellison, Michael R. Milken, and Lowell J.
Milken may each be deemed to have the power to direct the voting and
disposition of, and to share beneficial ownership of, any shares of Common
Stock
61
<PAGE> 63
owned by Knowledge Enterprises. The Company believes that Lawrence J.
Ellison, Michael R. Milken, and Lowell J. Milken may be deemed to be a group
within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Lawrence J. Ellison is Chairman and Chief
Executive Officer of Oracle Corporation. Michael R. Milken is a director of
Knowledge Universe and the brother of Lowell J. Milken. On February 24,
1998, without admitting or denying any liability, Michael R. Milken
consented to the entry of a final judgment in the U.S. District Court for
the Southern District of New York in Securities and Exchange Commission v.
Michael R. Milken et al., which judgment was entered on February 26, 1998,
restraining and enjoining Michael R. Milken from associating with any
broker, dealer, investment advisor, investment company, or municipal
securities dealer and from violating Section 15(a) of the Exchange Act. On
March 11, 1991, in the action entitled In the Matter of Michael R. Milken,
the Securities and Exchange Commission instituted a proceeding pursuant to
Section 15(b)(6) of the Exchange Act and ordered that Michael R. Milken be
barred from association with any broker, dealer, investment advisor,
investment company, or municipal securities dealer. On April 24, 1990,
Michael R. Milken consented to the entry of a final judgment in the U.S.
District Court for the Southern District of New York in Securities and
Exchange Commission v. Drexel Burnham Lambert Incorporated, et al.,
restraining and enjoining Michael R. Milken from engaging in transactions,
acts, practices and courses of business which constitute or would constitute
violations of, or which aid and abet or would aid and abet violations of
Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d), 14(e), 15(c)(3), and 17(a)(1) of
the Exchange Act, and Regulations T and X and Rules 10b-5, 10b-6, 13d-1,
13d-2, 14c-3, 15c3-1, 17a-3, and 17a-4 promulgated thereunder and Section
17(a) of the Securities Act of 1933, as amended. Lowell J. Milken is a
director of Knowledge Universe.
62
<PAGE> 64
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 December 31, 1998, there were shares of Class A Common Stock issued
and outstanding (including the Exchangeable Shares) which were held by 77
stockholders (including the holders of Exchangeable Shares), of Class B
Common Stock issued and outstanding which were held by 17 shareholders and no
shares of Preferred Stock issued and outstanding. In addition, there were
holders of options to acquire an aggregate of shares of Class A Common
Stock. All outstanding shares of Common Stock are, and the shares of Class A
Common Stock offered hereby will be, upon payment therefor, fully paid and
nonassessable.
COMMON STOCK
Voting Rights. The Class A Common Stock entitles its holders to one vote
per share, and the Class B Common Stock entitles its holders to ten votes per
share on all matters submitted to a vote of the Company's stockholders,
including in connection with the election of the Board of Directors. Holders of
Class A Common Stock and Class B Common Stock vote together as a single class on
all matters presented to the stockholders for their vote or approval, except as
may be required by Delaware law or as otherwise expressly specified in the
Certificate of Incorporation. The Company, by action of its Board of Directors
and the affirmative vote of the holders of a majority of the voting power of the
Class A Common Stock and Class B Common Stock, voting together as a class, may
increase or decrease the number of authorized shares of Class A Common Stock or
Preferred Stock. The Company, by action of its Board of Directors and the
affirmative vote of both (i) the holders of a majority of the voting power of
the Class A Common Stock and Class B Common Stock, voting together as a class,
and (ii) the holders of a majority of the voting power of the Class B Common
Stock, voting as a separate class, may increase or decrease the number of
authorized shares of Class B Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate, when and if declared by the
Board of Directors, out of legally available funds. The Company may not make any
dividend or distribution with respect to any class of Common Stock unless at the
same time the Company makes a ratable dividend or distribution with respect to
each outstanding share of Common Stock regardless of class. In the case of a
stock dividend or other distribution payable in shares of a class of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class.
Split, Subdivision or Combination. None of the Class A Common Stock or the
Class B Common Stock may be subdivided, consolidated, reclassified or otherwise
changed in any manner unless the other class is subdivided, consolidated,
reclassified or otherwise changed in the same proportion.
Conversion Rights. The Class A Common Stock has no conversion rights. Each
share of Class B Common Stock is convertible at any time, at the option of the
holder, into one share of Class A Common Stock. Each share of Class B Common
Stock shall convert automatically into one share of Class A Common Stock upon
its sale, assignment, pledge, gift or other transfer (an "Assignment" or to
"Assign"), other than (a) to a Controlled Affiliate of the transferor; or (b)
pursuant to a Qualified Transfer (as defined below). The term "Controlled
Affiliate" means, with respect to a transferor, any individual or entity that is
controlled directly or indirectly (by ownership of voting securities, contract
or otherwise) by such transferor. "Qualified Transfer" means (i) any transfer of
shares of Class B Common Stock by will or pursuant to the laws of descent and
distribution to any member or members of a stockholder's Family, (ii) any
transfer of shares of Class B Common Stock by a stockholder to a domestic trust
created for the sole benefit of one or more of the stockholder or any member or
members of the stockholder's Family, (iii) any transfer of shares of Class B
Common Stock from a trust described in clause (ii) above to the stockholder (or
former stockholder) who transferred shares of Class B Common Stock to such
trust, (iv) any transfer to a domestic limited partnership or a domestic limited
liability company if there are no partners or members of such limited
partnership or
63
<PAGE> 65
limited liability company other than a stockholder and members of a
stockholder's Family; (v) any transfer of Class B Common Stock from a limited
partnership or limited liability company described in clause (iv) above to a
stockholder (or former stockholder) who transferred Class B Common Stock to such
limited partnership or limited liability company; and (vi) any transfer of
shares of Class B Common Stock from one holder of Class B Common Stock to
another holder of Class B Common Stock as of August 31, 1998. "Family" means a
person's spouse, lineal descendants, parents, siblings, and lineal descendants
of siblings. Any such relationship by legal adoption shall be included.
Upon any Assignment of Class B Common Stock by Knowledge Enterprises, other
than to a Controlled Affiliate or pursuant to a Qualified Transfer, a
proportionate amount of the Class B Common Stock held by the other holders of
Class B Common Stock will also automatically convert into Class A Common Stock.
For example, if Knowledge Enterprises Assigns 25% of its Class B Common Stock to
a third party who is not an Affiliate and not pursuant to a Qualified Transfer,
then those shares of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis and 25% of the Class B Common Stock held by
each other holder of Class B Common Stock will automatically convert into Class
A Common Stock on a one-to-one basis.
In the event that a group comprised of one or more of Michael R. Milken,
Lawrence J. Ellison or Lowell J. Milken cease to control, directly or indirectly
(through the ownership of voting securities, contract or otherwise), Knowledge
Enterprises or any other person or entity that owns any or all of the shares of
Class B Common Stock owned by Knowledge Enterprises on the date hereof, then all
shares of Class B Common Stock shall automatically convert into shares of Class
A Common Stock.
Notwithstanding the foregoing, (i) these automatic conversion provisions
shall not apply in the case of a merger or similar transaction by the Company in
which all the outstanding shares of Common Stock of the Company regardless of
class are purchased by the acquiror, and (ii) any holder of Class B Common Stock
may pledge his shares of Class B Common Stock to a financial institution (the
"Pledgee") pursuant to a bona fide pledge of such shares as collateral security
for indebtedness due to the Pledgee, and, if the Pledgee forecloses or takes
similar action, such pledged shares of Class B Common Stock shall be converted
automatically into shares of Class A Common Stock.
Merger. Upon the merger or consolidation of the Company, holders of each
class of Common Stock will be entitled to receive equal per share payments or
distributions, except that in any transaction in which shares of capital stock
are distributed, such shares may differ only to the extent that the Class A
Common Stock and the Class B Common Stock differ as provided in the Company's
Certificate of Incorporation.
Liquidation Rights. Upon any dissolution or liquidation of the Company, the
holders of the Class A Common Stock and Class B Common Stock will be entitled to
receive ratably all assets of the Company available for distribution to
stockholders, subject to any preferential rights of any then outstanding shares
of Preferred Stock.
Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. The rights of holders of
Class A Common Stock and Class B Common Stock are subject to the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
The Certificate of Incorporation provides that each holder of shares of
Common Stock, other than shares of Common Stock acquired in the Offering,
agrees, subject to certain exceptions, not to (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, each
holder of shares of Common Stock, other than shares of Common Stock
64
<PAGE> 66
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 KU, Inc. 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
Acquisition Co., a wholly owned Canadian subsidiary, which issued Exchangeable
Shares to the holders of capital stock of Sibson Canada, Inc. The holders of
Exchangeable Shares may exchange such shares at any time for an aggregate of
shares of Class A Common Stock. The Exchangeable Shares are designed
to provide an opportunity for the shareholders of Sibson Canada, Inc. to achieve
a Canadian tax deferral in certain circumstances. The holders of Exchangeable
Shares are entitled to dividend and other rights equivalent to shares of Class A
Common Stock but are not entitled to vote on matters submitted to the holders of
Class A Common Stock until such time as the holders of Exchangeable Shares
exchange such shares for Class A Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE INCORPORATION
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate of
Incorporation and Bylaws. This summary does not purport to be complete and is
qualified in its entirety by reference to the DGCL, the Certificate of
Incorporation and the Bylaws.
Certain provisions of the Certificate of Incorporation and the Bylaws could
have anti-takeover effects. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the policies
formulated by the Board of Directors. In addition, these provisions are intended
to ensure that the Board will have sufficient time to act in what the Board of
Directors believes to be the best interests of the Company and its stockholders.
These provisions also are designed to reduce the vulnerability of the Company to
an unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights.
65
<PAGE> 67
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 believes that Knowledge Enterprises, which will have % of the combined
voting power of the outstanding Common Stock upon consummation of the Offering,
is not such an "interested stockholder."
No Stockholder Action by Written Consent; Special Meetings. The Certificate
of Incorporation provides that stockholder action can only be taken at an annual
or special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Bylaws provide that special meetings of
stockholders may be called only by the Board of Directors, its Chairman or the
President of the Company. Stockholders are not permitted to call a special
meeting of stockholders or to require that the Board of Directors call a special
meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company. The
Stockholder Notice Procedure provides that only persons who are nominated by, or
at the direction of, the Company's notice of meeting, the Board of Directors or
by a stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure also provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of, the
Company's notice of meeting, the Board of Directors or by a stockholder who has
given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, if a stockholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the stockholder
must submit written notice to the Company not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting (or if
the date of the annual meeting is not within 30 days before or after such
anniversary date, then, to be timely, notice must be delivered not more than 90
nor less than 60 days prior to such annual meeting or the 10th day after the
earlier of (i) the date notice of the meeting was mailed or (ii) the date a
public announcement of the date of such meeting is first made). In addition,
under the Stockholder Notice Procedure, a stockholder's notice to the Company
proposing to nominate a person for election as a director or relating to the
conduct of business other than the
66
<PAGE> 68
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.
67
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have
shares of Class A Common Stock and shares of Class B Common Stock
outstanding, assuming no exercise of the Underwriters' over-allotment option and
no exercise of outstanding options to purchase Class A Common Stock. Of these
shares, the shares of Class A Common Stock sold in the Offering
are freely tradable without restriction or further registration under the
Securities Act, except that any shares held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally be sold only in compliance with the limitations of Rule 144 described
below.
SALE OF RESTRICTED SHARES
The remaining shares of Common Stock (including Class A Common Stock
issuable upon exchange of the Exchangeable Shares) are "restricted securities"
as defined under Rule 144. Restricted Securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under the Securities Act. Additionally, Nextera's Certificate of Incorporation
provides that each holder of Common Stock, other than the holders of the shares
of Common Stock acquired in the Offering, agrees not to sell, directly or
indirectly, any Common Stock, subject to certain exceptions, without the prior
consent of DLJ for a period of 180 days from the date of this Prospectus.
Subject to the Lock-up Agreements described below and the foregoing provisions
of the Company's Certificate of Incorporation, additional shares of Class A
Common Stock (including Class A Common Stock issuable upon conversion of Class B
Common Stock and the exchange of the Exchangeable Shares) will be available for
sale in the public market (subject in certain circumstances to compliance with
certain volume and other restrictions under Rule 144) as follows: (i)
shares will be eligible for sale 180 days after the date of this
Prospectus; and (ii) shares will become eligible thereafter for
sale under Rule 144 upon the expiration of the applicable one-year holding
periods and the restrictions imposed by the Stockholders Agreement and the
Lexecon Lock-up Agreements. In addition, if the restrictions of the Lock-up
Agreements described below and the foregoing provisions of the Company's
Certificate of Incorporation were waived in full on the date hereof: (i)
shares of Common Stock would be eligible for sale in the public
market from and after the date of this Prospectus, and (ii)
additional shares of Common Stock would become eligible for sale in the public
market 90 days after the date of this Prospectus.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Class A
Common Stock (approximately shares as of the date of this
Prospectus) or (ii) the average weekly trading volume in the Class A Common
Stock during the four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
OPTIONS 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
are exercisable. Following the Offering, the Company intends to
file a Registration Statement on Form S-8 under the Securities Act to register
the
68
<PAGE> 70
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. Such Registration Statement will become effective
immediately upon filing; however, consistent with the terms of the 1998 Equity
Participation Plan, holders of options will be unable to sell any shares of
Class A Common Stock received upon the exercise of options granted thereunder
until the expiration of 180 days after the date of this Prospectus without the
prior written consent of DLJ. Shares covered by such Registration Statement will
be eligible for sale in the public market after the effective date of such
Registration, subject to Rule 144 limitations applicable to affiliates as well
as to the limitations on sale and vesting described above.
REGISTRATION RIGHTS
Stockholders holding an aggregate of shares of Class A
Common Stock (including shares of Class A Common Stock issuable upon conversion
of Class B Common Stock and exchange of the Exchangeable Shares) ("Holders") are
entitled to certain registration rights under the Stockholders Agreement.
Commencing 180 days after the Offering, Knowledge Enterprises or an affiliate
that then owns an equity interest in the Company may make a one-time written
request of the Company for registration with the Securities and Exchange
Commission (a "Demand Registration") of all or part of its Class A Common Stock
of the Company, provided, however, that the Company need not effect a Demand
Registration unless it includes at least 10% of the Company's issued and
outstanding Common Stock. The Company may defer such Demand Registration for a
single period not to exceed 180 days, if the Board of Directors determines in
the exercise of its reasonable judgment that effecting such Demand Registration
at such time would have a material adverse effect on the Company. In addition,
Holders who together hold at least 10% of the issued and outstanding Common
Stock of the Company may make a one-time written request of the Company for a
Demand Registration on the same terms as those applicable to Knowledge
Enterprises as set forth above.
The Stockholders Agreement also provides piggyback registration rights to
Holders for their shares of Class A Common Stock ("Registrable Securities"). The
Company must provide prior written notice to those Holders whenever it proposes
to register any Common Stock (or securities convertible into or exchangeable
for, or options to purchase, Common Stock) with the Securities and Exchange
Commission on a form that would permit the registration of Registrable
Securities. The Company will register in such registration all Registrable
Securities requested to be included, provided that if, in the opinion of the
applicable underwriter, the number of securities proposed to be included is
greater that what could be sold without having a material impact on the
offering, the Company will include securities in the following priority: (i)
first, the Common Stock the Company proposes to sell, and (ii) second, the
Registrable Securities requested to be included in such registration by the
holders of Registrable Securities pro rata based on the number of Registrable
Securities that each such stockholder shall have requested to include therein.
The Stockholders Agreement further provides that the Company will bear all
expenses incident to the Company's performance of its registration obligations,
other than the costs or expenses of any selling stockholders for underwriters'
commissions, brokerage fees or transfer taxes, or the fees and expenses of any
counsel, accountants or other representative retained by any selling
stockholder. The Company is obligated, however, to reimburse the selling
stockholders in each Demand Registration for the reasonable fees of one counsel
up to $25,000.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Class A
Common Stock, and no precise prediction can be made as to the effect, if any,
that market sales of shares of Class A Common Stock or the availability of
shares of Class A Common Stock for sale will have on the market price of the
Class A Common Stock prevailing from time to time. Nevertheless, the sale of
substantial amounts of the Class A Common Stock in the public market could
adversely affect prevailing market prices and could impair the Company's future
ability to raise capital through the sale of its equity securities.
69
<PAGE> 71
LOCK-UP AGREEMENTS
All directors, officers and stockholders of the Company have agreed that
they will not, without the prior written consent of DLJ and subject to certain
exceptions, sell or otherwise dispose of any shares of Common Stock or options
to acquire shares of Common Stock during the 180-day period following the date
of this Prospectus. The Company has agreed not to sell or otherwise dispose of
any shares of Class A Common Stock during the 180-day period following the date
of this Prospectus without the prior written consent of DLJ, except the Company
may (i) issue, and grant options to purchase, shares of Class A Common Stock
under the 1998 Equity Participation Plan and (ii) issue shares of Class A Common
Stock in connection with acquisitions, if the terms of such issuance provide
that such Class A Common Stock shall not be resold prior to the expiration of
such 180-day period. DLJ may release any or all shares from 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 shares of Class A Common Stock are subject
to the Lexecon Lock-up Agreements.
70
<PAGE> 72
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, and NationsBanc
Montgomery Securities LLC (collectively, the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Class A
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
BT Alex. Brown Incorporated.................................
NationsBanc Montgomery Securities LLC.......................
Total.............................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Class A Common Stock offered
hereby (other than those shares covered by the over-allotment option described
below) if any are purchased.
The Underwriters initially propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain dealers
(including the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
initial offering of the Class A Common Stock, the public offering price and
other selling terms may be changed by the Representatives at any time without
notice. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of
Class A Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover over-allotments, if any, made in connection with the Offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares proportionate to such Underwriter's underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Effective August 31, 1998, the Company and Nextera Funding, Inc., an
affiliate of DLJ, entered into the Bridge Loan which provided for a $40 million
credit facility bearing interest at the rate of LIBOR plus 450 basis points per
annum and maturing on March 1, 1999. Effective December 31, 1998, the Bridge
Loan was amended to change the interest rate to 12% per annum commencing on
December 31, 1998 and extend the maturity date to April 30, 1999 and the Company
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 Company borrowed $38.0 million from Nextera
Funding, Inc. under the Bridge Loan to finance the Sibson Acquisitions. The
indebtedness incurred under the Bridge Loan will be repaid with a portion of the
net proceeds from the Offering. As a result of such arrangements, the Conduct
Rules of the National Association of Securities Dealers, Inc. require that the
initial public offering price of the Class A Common Stock be no higher than that
71
<PAGE> 73
recommended by a qualified independent underwriter, as defined in Rule 2720 of
the Conduct Rules. BT Alex. Brown Incorporated, one of the Representatives of
the Underwriters, will serve as the qualified independent underwriter and has
assumed the responsibilities of acting as qualified independent underwriter in
pricing the Class A Common Stock offered hereby and conducting "due diligence"
in respect thereto. BT Alex. Brown Incorporated will receive a fee of $5,000
from the Company as compensation to act as qualified independent underwriter.
DLJ and the Company are parties to a letter agreement dated August 31,
1998, as supplemented on December 31, 1998 (the "Engagement Letter"). Pursuant
to the Engagement Letter, DLJ has the right to act as the Company's lead
placement agent, lead initial purchaser or lead managing underwriter in the
event that the Company determines to sell its securities with the services of an
outside financial advisor or investment bank during the period ending August 31,
1999. In addition, in connection with the Bridge Loan Amendment and in payment
for certain consent and extension fees, DLJ will receive a cash fee of $750,000
at the earlier of the closing of the Offering or April 30, 1999.
Each of the Company, its executive officers and directors and shareholders
of the Company has agreed, subject to certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or (ii) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Class A Common Stock (regardless of whether
any of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Class A Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJ. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain shareholders of the Company has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock without DLJ's prior
written consent.
Prior to the Offering, there has been no established trading market for the
Class A Common Stock. The initial public offering price for the shares of Class
A Common Stock offered hereby will be determined by negotiation among the
Company and the Representatives. The factors to be considered in determining the
initial public offering price include the history of and the prospects for the
industry in which the Company competes, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Class A
Common Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Class A Common Stock offered hereby may not be offered
or sold, directly or indirectly, nor may this Prospectus or any other offering
material or advertisements in connection with the offer and sale of any such
shares of Class A Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Class A Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the Class
A Common Stock. Specifically, the Underwriters may overallot the 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
72
<PAGE> 74
maintain the market price of the Class A Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
LEGAL MATTERS
The legality of the issuance of the Class A Common Stock offered hereby
will be passed upon for the Company by Latham & Watkins, San Diego, California
and certain other matters will be passed upon for the Company by Maron &
Sandler, Los Angeles, California. See "Management--Directors, Executive Officers
and Other Senior Managers," "--Board Committees" and "Certain
Transactions--Retention of Maron & Sandler" for information concerning Maron &
Sandler's relationship with the Company. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements and schedule of Nextera Enterprises,
L.L.C. at December 31, 1997 and for the period from February 26, 1997 to
December 31, 1997, the Consolidated Financial Statements of Symmetrix, Inc. and
Subsidiaries at May 31, 1997, and for the year ended May 31, 1997, and for the
period from June 1, 1997 to July 30, 1997 and the Financial Statements of SiGMA
Consulting, LLC at December 31, 1996 and 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The Consolidated Financial Statements of Symmetrix, Inc. and Subsidiaries
at May 31, 1996 and for the year then ended appearing in this Prospectus and the
Registration Statement have been audited by BDO Seidman, LLP, independent
auditors, as indicated in their reports with respect thereto, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The Consolidated Financial Statements of Symmetrix, Inc. and Subsidiaries
for the year ended May 31, 1995 appearing in this Prospectus and the
Registration Statement have been so included in reliance on the report of
Pricewaterhouse LLP, independent accountants given upon the authority of such
firm as experts in auditing and accounting.
The Financial Statements of PTG at December 31, 1996 and 1997 and the years
then ended appearing in this Prospectus and the Registration Statement have been
audited by Harte Carucci & Driscoll, P.C., independent auditors, as indicated in
their reports with respect thereto, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Consolidated Financial Statements of Sibson & Company, L.P. and
Subsidiaries at December 31, 1996 and 1997 and August 31, 1998 and for each of
the three 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 reports given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Sibson Canada, Inc. at December 31, 1997 and
for the year then ended appearing in this Prospectus and the Registration
Statement have been audited by Grant Thornton, independent auditors, as
indicated in their reports with respect thereto, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Pyramid Imaging, Inc. at December 31, 1997 and
the year then ended appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
73
<PAGE> 75
The Financial Statements of Lexecon Inc. at December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997 appearing in
this Prospectus and Registration Statement have been audited by Ernst Young LLP,
independent auditors, as set forth in their report thereon, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Class A
Common Stock being offered in the Offering. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements made in this Prospectus as to the
contents of any contract, agreement or any other document referred to herein are
not necessarily complete; with respect to each such contract, agreement or
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference to
the Registration Statement exhibits filed as a part thereof. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Commission's principle office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of either of them or any part thereof may be
obtained from such office upon payment of fees prescribed by the Commission. The
Registration Statement, including the exhibits and schedules thereto, are also
available on the Commission's Web Site at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
will make available copies of quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
74
<PAGE> 76
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS:
Consolidated Financial Statements of Nextera Enterprises,
L.L.C.
Report of Ernst & Young LLP, Independent Auditors...... F-4
Consolidated Balance Sheets -- December 31, 1997 and
September 30, 1998 (unaudited)........................ F-5
Consolidated Statements of Operations -- For the period
February 26, 1997 (date of inception) through December
31, 1997, for the period February 26, 1997 through
September 30, 1997 (unaudited) and for the nine months
ended September 30, 1998 (unaudited).................. F-6
Consolidated Statements of Members' Equity
(Deficit) -- For the period February 26, 1997 (date of
inception) through December 31, 1997 and for the nine
months ended September 30, 1998 (unaudited)........... F-7
Consolidated Statements of Cash Flows -- For the period
February 26, 1997 (date of inception) through December
31, 1997, for the period February 26, 1997 through
September 30, 1997 (unaudited) and for the nine months
ended September 30, 1998 (unaudited).................. F-8
Notes to Consolidated Financial Statements............. F-9
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:
Consolidated Financial Statements of Symmetrix, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-18
Consolidated Balance Sheets -- May 31, 1997 and July
30, 1997.............................................. F-19
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-20
Consolidated Statements of Cash Flows -- For the year
ended May 31, 1997 and for the period June 1, 1997
through July 30, 1997................................. F-21
Notes to Consolidated Financial Statements............. F-22
Consolidated Financial Statements of Symmetrix, Inc.
Independent Auditors' Report........................... F-28
Consolidated Balance Sheet -- May 31, 1996............. F-29
Consolidated Statement of Operations -- For the year
ended May 31, 1996.................................... F-30
Consolidated Statement of Changes in Stockholders'
Equity -- For the year ended May 31, 1996............. F-31
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1996.................................... F-32
Notes to Consolidated Financial Statements............. F-33
Consolidated Financial Statements of Symmetrix, Inc.
Report of PricewaterhouseCoopers LLP, Independent
Accountants........................................... F-40
Consolidated Statement of Operations -- For the year
ended May 31, 1995.................................... F-41
Consolidated Statement of Stockholders' Equity -- For
the year ended May 31, 1995........................... F-42
Consolidated Statement of Cash Flows -- For the year
ended May 31, 1995.................................... F-43
Notes to Consolidated Financial Statements............. F-44
Financial Statements of SiGMA Consulting, LLC
Report of Ernst & Young LLP, Independent Auditors...... F-49
Balance Sheets -- December 31, 1996 and 1997........... F-50
Statements of Operations -- For the years ended
December 31, 1995, 1996 and 1997...................... F-51
Statements of Equity -- For the years ended December
31, 1995, 1996 and 1997............................... F-52
Statements of Cash Flows -- For the years ended
December 31, 1995, 1996 and 1997...................... F-53
Notes to Financial Statements.......................... F-54
</TABLE>
F-1
<PAGE> 77
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES
(CONTINUED):
Financial Statements of The Planning Technologies Group,
Inc.
Report of Independent Auditors......................... F-57
Balance Sheets -- December 31, 1996 and 1997 and March
31, 1998 (unaudited).................................. F-58
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-59
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-60
Notes to Financial Statements.......................... F-61
Financial Statements of Sibson & Company, L.P. and
Subsidiaries
Report of Independent Auditors......................... F-64
Consolidated Balance Sheets -- December 31, 1996 and
1997 and August 31, 1998.............................. F-65
Consolidated Statements of Income and Partners'
Capital -- For the years ended December 31, 1995, 1996
and 1997 and for the eight months ended August 31,
1997 and 1998......................................... F-66
Consolidated Statements of Cash Flows -- For the years
ended December 31, 1995, 1996 and 1997 and for the
eight months ended August 31, 1998.................... F-67
Notes to Consolidated Financial Statements............. F-68
Financial Statements of Sibson Canada, Inc.
Report of Independent Auditors......................... F-74
Balance Sheets -- December 31, 1997 and June 30,
1998.................................................. F-75
Statements of Operations and Retained Earnings -- For
the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998 (unaudited)....... F-76
Statements of Changes in Financial Position -- For the
year ended December 31, 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited).............. F-77
Notes to Financial Statements.......................... F-78
Financial Statements of Pyramid Imaging, Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-82
Balance Sheet -- December 31, 1997..................... F-83
Statement of Operations for the year ended December 31,
1997.................................................. F-84
Statement of Shareholders' Equity for the year ended
December 31, 1997..................................... F-85
Statement of Cash Flows for the year ended December 31,
1997.................................................. F-86
Notes to Financial Statements.......................... F-87
Financial Statements of Lexecon Inc.
Report of Ernst & Young LLP, Independent Auditors...... F-93
Balance Sheets -- December 31, 1996 and 1997 and
September 30, 1998 (unaudited)........................ F-94
Statements of Income for the years ended December 31,
1995, 1996 and 1997 and for the nine months ended
September 30, 1998 (unaudited)........................ F-95
Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and the nine months
ended September 30, 1998 (unaudited).................. F-96
Statements of Cash Flows for the years ended December
31, 1995, 1996, and 1997 and for the nine months ended
September 30, 1998 (unaudited)........................ F-97
Notes to Financial Statements.......................... F-98
</TABLE>
F-2
<PAGE> 78
NEXTERA ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Basis of Presentation.................................. PF-1
Unaudited Pro Forma Combined Balance Sheet -- September
30, 1998.............................................. PF-2
Unaudited Pro Forma Combined Statement of
Operations -- For the period February 26, 1997 (date
of inception) through December 31, 1997............... PF-3
Unaudited Pro Forma Combined Statement of
Operations -- For the nine months ended September 30,
1998.................................................. PF-4
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ PF-5
</TABLE>
F-3
<PAGE> 79
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nextera Enterprises, L.L.C.
We have audited the accompanying consolidated balance sheet of Nextera
Enterprises, L.L.C. (the Company) as of December 31, 1997, and the related
consolidated statements of operations, members' equity and cash flows for the
period from February 26, 1997 (date of inception) through December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nextera
Enterprises, L.L.C. at December 31, 1997, and the results of its operations and
its cash flows for the period from February 26, 1997 (date of inception) through
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1998, except for Note 12,
as to which the date is August 31, 1998
F-4
<PAGE> 80
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 554 $ 1,563
Accounts receivable, net of allowance for doubtful
accounts of $100 at December 31, 1997 and $996 at
September 30, 1998.................................... 2,202 25,484
Costs and estimated earnings in excess of billings....... 856 1,678
Due from affiliate....................................... 225 199
Due from officers........................................ -- 849
Prepaid expenses and other current assets................ 368 1,932
Income tax receivable.................................... 414 --
------- --------
Total current assets................................ 4,619 31,705
Long-term receivable....................................... 532 --
Property and equipment, net................................ 1,181 4,988
Intangible assets, net of accumulated amortization of $255
at December 31, 1997 and $1,289 at September 30, 1998.... 15,762 77,406
Other assets............................................... 561 2,131
------- --------
Total assets........................................ $22,655 $116,230
======= ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.................... $ 2,284 $ 19,073
Notes payable to bank.................................... 1,687 42,677
Deferred revenue......................................... 747 2,687
Due to affiliate......................................... 90 1,280
Current portion of long-term debt........................ 146 100
------- --------
Total current liabilities........................... 4,954 65,817
Long-term debt............................................. 969 788
Debentures due to affiliates, including accrued interest
thereon.................................................. -- 51,916
Class B Preferred Units, no par value, 25,000,000 units
authorized, no units issued and outstanding.............. -- --
Members' equity (deficit):
Class A Common Units, no par value, 15,000,000 units
authorized, 7,898,800 and 14,280,567 units issued and
outstanding at December 31, 1997 and September 30,
1998, respectively.................................... 19,747 9,817
Class B Common Units, no par value, zero and 4,300,000
units authorized, issued and outstanding at December
31, 1997 and September 30, 1998, respectively......... -- --
Retained earnings (deficit).............................. (3,015) (12,108)
------- --------
Total members' equity (deficit)..................... 16,732 (2,291)
------- --------
Total liabilities and members' equity (deficit)..... $22,655 $116,230
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 81
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, 1997 FEBRUARY 26, 1997 FOR THE
(DATE OF INCEPTION) (DATE OF INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON UNIT DATA)
<S> <C> <C> <C>
Net revenues.................................. $ 7,998 $ 3,039 $ 39,581
Cost of revenues.............................. 4,718 1,851 27,579
------- ------- --------
Gross profit............................. 3,280 1,188 12,002
Selling, general and administrative
expenses.................................... 5,306 2,835 14,575
Amortization expense.......................... 255 101 1,034
Restructuring costs........................... -- -- 967
------- ------- --------
Loss from operations..................... (2,281) (1,748) (4,574)
Interest income............................... 37 11 --
Interest expense.............................. (69) -- (4,319)
------- ------- --------
Loss before provision for income taxes... (2,313) (1,737) (8,893)
Provision for income taxes.................... 702 280 200
------- ------- --------
Net loss................................. $(3,015) $(2,017) $ (9,093)
======= ======= ========
Net loss per common unit, basic and diluted... $ (0.74) $ (0.81) $ (0.66)
======= ======= ========
Weighted average common units outstanding,
basic and diluted........................... 4,061 2,486 13,835
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 82
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B TOTAL
COMMON UNITS COMMON UNITS PREFERRED UNITS RETAINED MEMBERS'
---------------------- ---------------------- ---------------------- EARNINGS EQUITY
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT (DEFICIT) (DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A Common
Units..................... 7,898,800 $ 19,747 -- $ -- -- $ -- $ -- $ 19,747
Net loss.................... -- -- -- -- -- -- (3,015) (3,015)
----------- -------- ----------- -------- ----------- -------- -------- --------
Balance at December 31,
1997...................... 7,898,800 19,747 -- -- -- -- (3,015) 16,732
Issuance of Class A Common
Units..................... 2,101,200 5,230 -- -- -- -- -- 5,230
Issuance of Class A Common
Units in connection with
acquired businesses....... 4,280,567 7,817 -- -- -- -- -- 7,817
Recapitalization of Units... -- (22,977) -- -- 22,977,000 22,977 -- --
Exchange of warrant for
Class B Common Units...... -- -- 4,300,000 -- -- -- -- --
Issuance of Class B
Preferred Units........... -- -- -- -- 24,993,000 24,993 -- 24,993
Redemption of Class B
Preferred Units in
exchange for 10%
Debentures................ -- -- -- -- (47,970,000) (47,970) -- (47,970)
Net loss (unaudited)........ -- -- -- -- -- -- (9,093) (9,093)
----------- -------- ----------- -------- ----------- -------- -------- --------
Balance at September 30,
1998 (unaudited).......... 14,280,567 $ 9,817 4,300,000 $ -- -- $ -- $(12,108) $ (2,291)
=========== ======== =========== ======== =========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 83
NEXTERA ENTERPRISES, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, 1997 FEBRUARY 26, 1997 FOR THE
(DATE OF INCEPTION) (DATE OF INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (3,015) $(2,017) $ (9,093)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............. 417 244 1,726
Deferred income taxes..................... 702 -- --
Change in operating assets and
liabilities, net of effect of acquired
businesses:
Accounts receivable..................... 425 460 (1,818)
Due from affiliate...................... (225) -- 74
Due to affiliate........................ 90 -- 1,190
Prepaid expenses and other current
assets............................... (272) (257) (154)
Income tax receivable................... -- -- 414
Accounts payable and accrued expenses... 517 1,407 4,279
Costs and estimated earnings in excess
of billings.......................... (761) (584) (780)
Deferred revenue........................ (2,403) (3,274) 598
Other................................... 45 (372) (1,330)
-------- ------- --------
Net cash used in operating
activities...................... (4,480) (4,393) (4,894)
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........... (955) (375) (893)
Acquisition of businesses, net of cash
acquired.................................. (15,321) (15,321) (64,072)
-------- ------- --------
Net cash used in investing
activities...................... (16,276) (15,696) (64,965)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A Common
Units..................................... 19,747 19,747 5,230
Proceeds from issuance of Class B Preferred
Units..................................... -- -- 24,993
Due from officers............................ -- -- (849)
Borrowings (repayments) under note payable to
bank and affiliates....................... 1,606 744 41,799
Repayments of long-term debt................. (43) (16) (305)
Other........................................ -- -- --
-------- ------- --------
Net cash provided by financing
activities...................... 21,310 20,475 70,868
-------- ------- --------
Net increase in cash and cash equivalents.... 554 386 1,009
Cash and cash equivalents at beginning of
period.................................... -- -- 554
-------- ------- --------
Cash and cash equivalents at end of period... $ 554 $ 386 $ 1,563
======== ======= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest..... $ 113 $ 12 $ 107
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 84
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Nextera Enterprises, L.L.C. ("Nextera" or the "Company") provides
leading-edge business strategy, operations improvement, organizational design,
and information technology ("IT") consulting services primarily to Fortune 500
and other multinational companies. The Company provides services in four
practice areas, which enables it to offer a breadth and balance of services that
assist clients in achieving enhanced business performance by anticipating and
addressing their complex, multi-disciplinary consulting needs.
Nextera was formed on February 26, 1997. The Company shall continue to
exist until December 31, 2020, unless earlier dissolved pursuant to Nextera's
Operating Agreement. As of April 30, 1998, the majority member of the Company is
Knowledge Universe, L.L.C.
Acquisitions
Effective July 30, 1997, the Company acquired Symmetrix, Inc.
("Symmetrix"), a management consulting and information technology consulting
company, for cash of approximately $15,500,000. The acquisition was accounted
for under the purchase method of accounting; accordingly, the purchase price was
allocated to the underlying assets and liabilities based on their respective
estimated fair values at the date of the acquisition. Correspondingly,
Symmetrix' results of operations subsequent to the acquisition have been
included in the Company's results of operations.
The following information presents the unaudited pro forma condensed
results of operations for the year ended December 31, 1997 as if the Symmetrix
acquisition had occurred on January 1, 1997. The pro forma adjustments include
additional amortization expense of approximately $357,000. The pro forma results
are presented for information purposes only and are not necessarily indicative
of the future results of operations of the Company or the results of operations
of the Company had the acquisition occurred on January 1, 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER COMMON UNIT DATA)
<S> <C>
Net revenues........................ $12,328
Net loss............................ (7,529)
Net loss per common unit............ $ (1.85)
</TABLE>
Subsequent to December 31, 1997, the Company acquired the assets or stock
of the following businesses:
<TABLE>
<CAPTION>
EFFECTIVE DATE
ACQUIRED COMPANY OF ACQUISITION
<S> <C>
SiGMA Consulting, LLC....................... January 5, 1998
Pyramid Imaging, Inc. ...................... March 31, 1998
The Planning Technologies Group, Inc. ...... March 31, 1998
</TABLE>
The aggregate purchase price was $26,565,000, which consisted of
$25,877,000 in cash and the issuance of 1,469,667 Class A Common Units valued at
an average of $0.47 per unit, as well as the assumption of certain liabilities.
One of the acquisition agreements contains an earn-out provision providing for
the payment of up to an additional $800,000 in cash and 53,333 Class A Common
Units of the Company upon the achievement of certain revenue and pretax profit
targets. The Company's goodwill will be adjusted for any additional
consideration earned.
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the underlying
assets and liabilities based on their respective estimated fair values at the
date of the acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
F-9
<PAGE> 85
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Statements (Unaudited)
The balance sheet at September 30, 1998, and the statements of operations,
members' equity (deficit) and cash flows for the period from February 26, 1997
(inception) to September 30, 1997 and the nine months ended September 30, 1998
are unaudited, and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5-7 years
Equipment......................................... 3-5 years
Software.......................................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property.
Intangible Assets
Intangible assets consist principally of the cost in excess of assets
acquired resulting from acquisitions and are being amortized on a straight-line
basis over 5 years for intangibles relating to personnel and over 40 years for
all other intangibles. The Company periodically evaluates the carrying value of
intangible assets for impairment. Any impairment is charged to expense in the
period in which the impairment is incurred.
F-10
<PAGE> 86
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Goodwill..................................... $14,917
Intangibles related to personnel............. 1,100
-------
16,017
Less: accumulated depreciation............... (255)
-------
Intangible assets, net....................... $15,762
-------
</TABLE>
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to three significant customers accounted for
36%, 20% and 10% of net revenues during 1997. Two significant customers
accounted for 51% and 21% of receivables, net of related deferred revenue, at
December 31, 1997.
Basic and Diluted Earnings Per Common Unit
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the
presentation of two amounts, basic earnings per common unit and diluted earnings
per common unit. Earnings per common unit excludes any dilutive effects of
options, warrants and convertible securities. For the period ended December 31,
1997, basic and diluted earnings per common unit are the same due to the
antidilutive effect of potential common units outstanding.
Income Taxes
Nextera is treated as a partnership for federal and state income tax
purposes. Therefore, all items of income, expense, and tax credit are passed
through to the individual unit holders. Accordingly, no provision for income
taxes is required for Nextera. Symmetrix, the Company's wholly owned subsidiary,
is subject to income taxes and reports its income tax provision using the
liability method in accordance with Financial Accounting Standards Board
Statement 109, Accounting for Income Taxes ("Statement 109"). Under Statement
109, deferred income taxes are provided for differences between the financial
reporting and tax bases of assets and liabilities at income tax rates expected
to be in effect when the taxes are actually paid or recovered.
Effect of Recent Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). The Company will adopt
the provisions of Statement 130 during fiscal year 1998. At that time, the
Company will be required to disclose comprehensive income. Comprehensive income
is generally defined as all changes in members' equity (deficit) exclusive of
transactions with owners such as capital investments and dividends. Management
of the Company does not
F-11
<PAGE> 87
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expect the adoption of Statement 130 will have a material impact on the
Company's financial statement disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement 131"), which is required to be adopted for years beginning after
December 15, 1997. Management of the Company believes that they operate in only
one segment and accordingly does not expect the adoption of Statement 131 will
have a material impact on the Company's financial statement disclosures.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Equipment............................................ $ 663
Software............................................. 55
Furniture and fixtures............................... 371
Leasehold improvements............................... 222
------
1,311
Less: accumulated depreciation....................... 130
------
Property and equipment, net.......................... $1,181
======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Trade accounts payable............................... $ 720
Accrued payroll...................................... 837
Accrued medical...................................... 94
Compensated absences................................. 156
Other................................................ 477
------
$2,284
======
</TABLE>
5. FINANCING ARRANGEMENTS
Notes Payable to Bank
The Company has a $1,800,000 unsecured line of credit with a bank that
expires on November 30, 1998. Borrowings under the line bear interest at the
bank's prime rate plus 1.0% (9.5% at December 31, 1997) and are limited to a
percentage of specified trade receivables. The agreement provides for an annual
commitment fee of 0.5% of the unused line. At December 31, 1997, the Company had
$1,637,000 outstanding under the line and an additional $163,000 available. On
January 1, 1998, the Company increased its unsecured line of credit with the
bank to $2,000,000. The line contains restrictive covenants relating to
maintenance of financial ratios, operating restrictions and restrictions on the
payment of dividends.
Symmetrix has a $150,000 unsecured line of credit with a bank that expires
on August 31, 1998. Borrowings under the line bear interest at the bank's prime
rate plus 1.0% (9.5% at December 31, 1997). The agreement provides for drawdowns
through August 31, 1998 with the line declining by $6,250 per month beginning on
September 1, 1996. As of December 31, 1997, the Company had borrowings
outstanding of $50,000 under the line of credit.
F-12
<PAGE> 88
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Unsecured notes payable to former stockholders and employees
of Symmetrix, issued in connection with the acquisition of
common stock of Symmetrix. Interest accrues at the lower
of 10.0% or prime (8.5% at December 31, 1997), payable in
bi-annual installments with principal ranging from $1,152
to $7,560, through July 2002.............................. $ 172
Unsecured note payable to a former stockholder of Symmetrix
issued in connection with a non-compete agreement. Annual
payments of $120,000 are due through May 2010. Interest
accrues annually at 8.7%.................................. 915
Other....................................................... 28
------
1,115
Less: current portion....................................... 146
------
Long-term debt.............................................. $ 969
======
</TABLE>
Annual maturities of long-term debt for the years ending after December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $ 146
1999................................................ 100
2000................................................ 79
2001................................................ 57
2002 and thereafter................................. 733
------
$1,115
======
</TABLE>
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Deferred:
Federal................................... $596
State..................................... 106
----
Total deferred tax provision...... $702
====
</TABLE>
F-13
<PAGE> 89
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Deferred tax asset:
Reserves........................................... $ 60
Other accrued liabilities.......................... 363
Net operating loss carryforwards................... 2,327
------
Deferred tax asset.............................. 2,750
Valuation allowance................................ 2,716
------
Net deferred tax asset............................. 34
Deferred tax liability: depreciation............... (34)
------
Total deferred tax asset................... $ 0
======
</TABLE>
Symmetrix has approximately $5,819,000 of pre-acquisition net operating
loss carryforwards which expire through the year 2012. The net operating loss
carryforwards arose principally as a result of disqualifying dispositions of
Symmetrix' previously outstanding stock options. As a result of ownership
changes, these net operating losses are subject to limitations under the
Internal Revenue Code.
The reconciliation of the consolidated effective tax rate of the Company is
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1997
<S> <C>
Tax (benefit) at statutory rate...................... (34)%
State taxes (benefit), net of federal benefit........ (6)
Permanent differences................................ 3
Loss treated as partnership flow-through for tax
purposes........................................... 54
Other................................................ 13
---
Income tax provision................................. 30%
===
</TABLE>
7. RELATED PARTY TRANSACTIONS
During 1997, the Company entered into a professional services contract with
Productivity Point International, Inc. ("PPI"), a subsidiary of Knowledge
Universe, L.L.C. Revenues from PPI were $225,000 through December 31, 1997. At
December 31, 1997, $225,000 was due from PPI.
On July 31, 1995, Symmetrix entered into a four year non-compete agreement
("Agreement") with its then majority stockholder ("Stockholder") in conjunction
with the Stockholder's sale of his holdings in Symmetrix' common stock to a
non-affiliated third party. Symmetrix capitalized the value of the Agreement,
$986,000, and is amortizing the amount on a straight-line basis over the life of
the Agreement. At December 31, 1997, the carrying amount was $390,000 and was
included in other assets on the consolidated balance sheet.
In connection with an equity recapitalization, $47,970,000 was recorded as
debentures due to affiliates (see Note 9).
Management fees of $90,000 due to Knowledge Universe, L.L.C. were incurred,
but remain unpaid, for the period ended December 31, 1997.
F-14
<PAGE> 90
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company leases its office facility under an operating lease which
expires in April 2002 and has a 5-year renewal option. The lease requires
payments for additional expenses such as taxes, maintenance and utilities. Total
facility rent expense for the period from February 26, 1997 (date of inception)
through December 31, 1997 was approximately $449,000.
Future minimum lease payments under noncancelable operating leases
consisted of the following (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1998.............................................. $ 887
1999.............................................. 887
2000.............................................. 887
2001.............................................. 887
2002 and thereafter............................... 296
------
Total minimum lease payments.............. $3,844
======
</TABLE>
9. MEMBERS' EQUITY
The accompanying financial statements reflect the Company's historical
equity structure which is described below. As of April 30, 1998, the Company
amended and restated its capital structure (see Recapitalization below).
Historical
As of December 31, 1997, the Company was authorized to issue two classes of
Units: Class A Common Units and Class B Preferred Units, to be owned by unit
holders of the limited liability company ("Members"). Each Class A Common Member
had one vote per Class A Common Unit owned by such Member. The Class B Preferred
Units were non-voting. At December 31, 1997, the Company had a warrant
outstanding to purchase 5,000,000 Class A Common Units at an exercise price of
$2.50 per unit, with an expiration date of August 1, 2002 (the "Warrant"). At
any time after May 1, 2002, or upon the exercise of the Warrant, the Class B
Preferred Members have the right to require the Company to redeem all of their
Class B Preferred Units for an amount equal to their adjusted capital balances.
The Class B Preferred Units also had a liquidation preference equal to their
Undistributed Return, as defined in the amended and restated Nextera operating
agreement. The Company had a right to approve or disapprove any proposed
transfer of Units.
Recapitalization
During the period from January 1, 1998 through April 30, 1998, $30,223,000
of additional capital was contributed, bringing the total contributed capital to
$49,970,000. As of April 30, 1998, the Company undertook a recapitalization,
which was unanimously approved by all of the Members of the Company. The net
result of the recapitalization was the redesignation of $47,970,000 of capital
as debentures. As a result of the recapitalization transactions, the Company
issued two debentures with principal amounts of $24,970,000 and $23,000,000,
respectively. Both debentures are due on May 1, 2002. The debentures accrue
interest at a rate of 10% retroactive to the date the initial capital was
funded. Accordingly, for the six months ended June 30, 1998, the Company
incurred approximately $793,000 of interest expense pursuant to the
recapitalization related to the period ended December 31, 1997. The stated value
of the 10,000,000 Class A Common Units was reduced to $0.20 per unit from $2.50
per unit.
In addition, pursuant to the recapitalization, the Warrant to acquire
5,000,000 Class A Common Units was amended to provide that the units subject to
the Warrant were changed to a new class of authorized Class B Common Units. The
Class B Common Units have the same economic characteristics as the Class A
Common Units, except that each Class B Common Member has ten votes per Class B
Common Unit owned
F-15
<PAGE> 91
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by such member. The warrant was contributed to the Company in exchange for
4,300,000 Class B Common Units on April 30, 1998.
Employee Equity Participation Plan
In 1997, the Company established its Employee Equity Participation Plan
("EPP"), whereby the Board of Directors may make discretionary awards of stock
appreciation rights ("SAR") to employees of the Company. At the exercise date,
the Company may settle its SAR obligations by making either cash payments or
issuing Class A Common Units equal to the amount of the underlying appreciated
value of the Company's Class A Common Unit from the initial grant date. The
exercise of the SAR is limited by the provisions of each applicable employee
agreement, however, the exercise period cannot exceed seven years. For the
period ended December 31, 1997, 450,000 SARs were granted under the EPP, at an
initial price of $5.00. The Company recognized no compensation expense relating
to the SARs during the period ended December 31, 1997. Pursuant to the EPP,
4,500,000 SARs have been reserved for issuance.
Subsequent to December 31, 1997, the Board of Directors approved the
conversion of all existing SARs into options pursuant to the provisions of the
EPP. The exercise price of the options was $5.00, which was equal to or exceeded
the fair value on the date of the conversion.
10. BASIC AND DILUTED EARNINGS PER COMMON UNIT
The following table sets forth the reconciliation of the numerator and
denominator of the net loss per common unit computation:
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 26, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER COMMON UNIT DATA)
<S> <C>
Net loss.................................. $(3,015)
Weighted average common units
outstanding............................. 4,061
Net loss per common unit.................. $ (0.74)
=======
</TABLE>
11. RETIREMENT SAVINGS PLAN
The Company's subsidiary sponsors a Retirement Savings Plan (the
"Retirement Plan") under Section 401(k) of the Internal Revenue Code for the
benefit all of its employees meeting certain minimum service requirements.
Eligible employees may elect to contribute to the Retirement Plan subject to
limitations established by the Internal Revenue Code. The trustees of the plan
select investment opportunities from which participants may choose to
contribute. Matching contributions are made at the discretion of the Company.
There were no contributions to the Retirement Plan by the Company for the period
from February 26, 1997 (date of inception) through December 31, 1997.
12. SUBSEQUENT EVENTS
Effective August 31, 1998, the Company acquired the assets and assumed
certain liabilities of Sibson & Company, L.P. and Sibson Canada, Inc.
(collectively, "Sibson") for cash of $37,375,000 and 2,810,900 Class A Common
Units (including the Exchangeable Shares, defined below). The acquisition of
Sibson was accounted for under the purchase method of accounting; accordingly,
the purchase price was allocated to the underlying assets and liabilities based
on their respective estimated fair values at the date of the acquisition. In
accordance with an agreement entered into in connection with the Sibson
Acquisitions, the Company is required to operate in corporate form prior to the
effectiveness of a Registration Statement, but in any event prior to March 31,
1999.
In connection with the acquisition of Sibson, the Company formed a wholly
owned Canadian subsidiary, Sibson Acquisition Co., which issued 197,813
Exchangeable Preference Shares ("Exchangeable Shares") to the holders of capital
stock of Sibson Canada, Inc. The Exchangeable Shares are exchangeable at any
time by
F-16
<PAGE> 92
NEXTERA ENTERPRISES, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the holders thereof for Class A Common Units. The holders of Exchangeable Shares
are entitled to dividend and other rights equivalent to holders of Class A
Common Units but are not entitled to vote on matters submitted to the holders of
Class A Common Units until such time as the holders of Exchangeable Shares
exchange such shares for Class A Common Units.
Also, in connection with the acquisition of Sibson, the Company secured a
$40,000,000 revolving credit facility (the "Bridge Loan"), which bears interest
at the rate of LIBOR plus 450 basis points per annum (10.2% at August 31, 1998)
and matures on February 28, 1999. The Bridge Loan is secured by substantially
all of the Company's assets and contains certain restrictive covenants. As of
August 31, 1998, $38,000,000 was outstanding under the Bridge Loan.
F-17
<PAGE> 93
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-18
<PAGE> 94
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-19
<PAGE> 95
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEAR ENDED JUNE 1, 1997
MAY 31, THROUGH
1997 JULY 30, 1997
(IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $15,052 $ 2,381
Cost of revenues............................................ 13,529 1,994
------- -------
Gross profit........................................... 1,523 387
Selling, general and administrative expenses................ 6,584 887
Compensation expense--repurchase of stock options........... -- (4,126)
------- -------
Loss from operations................................... (5,061) (4,626)
Gain on sale of investment.................................. 1,884 --
Interest income............................................. 53 8
Interest expense............................................ (116) (37)
------- -------
Net loss............................................... (3,240) (4,655)
Accumulated deficit at beginning of period.................. 1,028 (2,212)
------- -------
Accumulated deficit at end of period........................ $(2,212) $(6,867)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 96
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-21
<PAGE> 97
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-22
<PAGE> 98
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-23
<PAGE> 99
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-24
<PAGE> 100
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-25
<PAGE> 101
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-26
<PAGE> 102
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-27
<PAGE> 103
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-28
<PAGE> 104
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-29
<PAGE> 105
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-30
<PAGE> 106
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------------- CAPITAL IN CURRENCY TOTAL
NUMBER OF EXCESS OF RETAINED TREASURY TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE PAR EARNINGS STOCK ADJUSTMENT EQUITY
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1995... 1,877,215 $ 18 $ 1,345 $1,162 $(318) $ 12 $2,219
Shares contributed by
shareholder............. (595,294) (6) 6 -- -- -- 0
Purchase and retirement of
shares.................. (15,000) -- (38) -- -- -- (38)
Retirement of treasury
stock................... (50,000) -- (318) -- 318 -- --
Foreign currency
translation
adjustment.............. -- -- -- -- -- (12) (12)
Net loss.................. -- -- -- (134) -- -- (134)
---------- ---- ------- ------ ----- ---- ------
Balance at May 31, 1996... 1,216,921 $ 12 $ 995 $1,028 -- -- $2,035
========== ==== ======= ====== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 107
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-32
<PAGE> 108
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-33
<PAGE> 109
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-34
<PAGE> 110
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-35
<PAGE> 111
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-36
<PAGE> 112
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-37
<PAGE> 113
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
During the year ended May 31, 1996, the Company purchased 15,000 shares of
its common stock from a former employee for $38,250. Notes payable in the amount
of $30,600 were issued in connection with the purchase of the shares. In
addition, during the year ended May 31, 1996 the 15,000 shares purchased above,
and the 50,000 shares of common stock held as treasury stock at May 31, 1995, as
well as the 595,294 shares contributed above, were canceled and common stock and
additional paid-in capital were accordingly reduced by $6,604 and $349,439,
respectively.
Stock Option Plan
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees. The plan provided for a maximum of 1,415,298 shares of
common stock of the Company to be granted over ten years from the date the Plan
was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for the stockholders having ownership in excess of 10%). The non-qualified
options are exercisable in accordance with the terms agreed for each option
granted.
During the year ended May 31, 1996, the Company amended the Plan. Stock
option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
<S> <C> <C> <C> <C>
Outstanding, May 31, 1995................. 311,600 $2.80 - $6.85
Granted................................... 1,010,408 2.55
Canceled.................................. (251,600) 2.80-6.85
Redeemed.................................. (77,350) 2.55
------------- ---------------
Outstanding, May 31, 1996................. 993,058 $2.80 - $2.90
============= ===============
</TABLE>
With respect to the redemption of 77,350 stock options during the year
ended May 31, 1996, the Company recognized $197,243 of compensation expense.
At May 31, 1996, 473,379 options were exercisable and 142,041 shares were
available for future grant. In addition, an additional 280,199 shares are
available for grant if the Company meets certain growth targets in accordance
with a Preemptive Rights Agreement.
11. RETIREMENT SAVINGS PLAN
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit of all
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the Retirement Plan subject to limitations established by
the Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. There were no
contributions to the plan by the Company during the year ended May 31, 1996.
F-38
<PAGE> 114
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-39
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Symmetrix, Inc.
In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material respects,
the results of operations and the cash flows of Symmetrix, Inc. and Subsidiaries
for the year ended May 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 21, 1995
F-40
<PAGE> 116
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C>
Revenues.................................................... $20,080
Cost of revenues............................................ 9,942
-------
Gross profit.............................................. 10,138
Selling, general and administrative expenses................ 10,115
-------
Income from operations................................. 23
Interest expense............................................ (24)
Interest income............................................. 51
-------
Income before provision for income taxes............... 50
Provision for income taxes.................................. 222
-------
Net loss............................................... $ (172)
=======
Net loss per share, basic and diluted....................... $ (0.10)
=======
Weighted average shares outstanding, basic and diluted...... 1,785
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 117
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
-------------------- CAPITAL IN CURRENCY TOTAL
NUMBER PAR EXCESS OF RETAINED TREASURY TRANSLATION STOCKHOLDERS'
OF SHARES VALUE OF PAR EARNINGS STOCK ADJUSTMENT EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1994.......... 1,832,215 $ 19 $ 1,344 $ 1,334 $ (284) $ -- $ 2,413
Acquisition of treasury
stock........................ -- -- -- -- (34) -- (34)
Foreign currency translation... -- -- -- -- -- 12 12
Net loss....................... -- -- -- (172) -- -- (172)
--------- -------- ---------- ---------- --------- -------- ----------
Balance at May 31, 1995.......... 1,832,215 $ 19 $ 1,344 $ 1,162 $ (318) $ 12 $ 2,219
========= ======== ========== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 118
SYMMETRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (172)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 206
Deferred income taxes.................................. (4)
Change in operating assets and liabilities:
Accounts receivable.................................. 116
Other current assets................................. 52
Income taxes receivable.............................. 123
Other assets......................................... (14)
Accounts payable and accrued expenses................ 197
Deferred revenue..................................... (287)
------
Net cash provided by operating activities......... 217
Cash flows from investing activities:
Purchase of fixed assets.................................. (64)
------
Net cash used in investing activities............. (64)
Cash flows from financing activities:
Repayments under capital leases........................... (46)
Repayments of notes payable............................... (63)
Purchase of treasury stock................................ (34)
Proceeds from transfer of partnership interests........... 125
------
Net cash used in financing activities............. (18)
Effect of exchange rate fluctuations on cash and cash
equivalents............................................... 12
------
Net increase in cash and cash equivalents......... 147
Cash and cash equivalents, beginning of year.............. 1,541
------
Cash and cash equivalents, end of year.................... $1,688
======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 39
======
Taxes.................................................. $ 104
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 119
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. THE COMPANY
Symmetrix, Inc. ("Symmetrix" or the "Company"), offers enhanced services in
acquisition due diligence, customer profitability, information technology
strategy assessment and design, construction, and deployment of complete
business systems. Symmetrix primarily offers its services to the financial
services, health care and insurance industries.
On May 26, 1994, Symmetrix Capital Partners I Limited Partnership (the
"Partnership") was formed for the purpose of making investments in entities that
could benefit from the Company's management services. In the absence of any
dissolution events, as defined in the partnership agreement, the Partnership
shall continue in existence until December 31, 2009, unless otherwise extended.
The Company is the general partner and a Class B Limited Partner. As of May 31,
1995, the Company had provided 74% of the Partnership's capital. During fiscal
year 1995, certain Class B Limited Partners were admitted in place of a portion
of the Company's investment as a Class B Limited Partner. A total of $125,000
was paid to the Company in return for this portion of the Company's Class B
Limited Partnership interest. To date, the Partnership has not generated any
income, loss or expenses.
On January 1, 1995, Symmetrix European Holdings, Inc. ("Symmetrix
Holdings") (a Delaware corporation company) and Symmetrix Europe, SA ("Symmetrix
Europe") (a French corporation) were formed for the purpose of conducting
business in Europe. The Company holds 80% of the outstanding stock of Symmetrix
Holdings, which holds 99.9% of the outstanding stock of Symmetrix Europe.
Activity for these subsidiaries has been consolidated into the Company's
financial statements for the year ended May 31, 1995.
The Partnership, Symmetrix Holdings and Symmetrix Europe have calendar
year-ends and thus for purposes of consolidation, the accounts of these
subsidiaries are based on a period which corresponds with the fiscal period of
the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operation are translated
into U.S. dollars at the exchange rate in effect as of the balance sheet date
and revenues and expenses are translated at average exchange rates during the
period. The resultant translation adjustment is reflected as a separate
component of stockholders' equity on the balance sheet. Transaction gains and
losses are reflected in the consolidated statement of operations.
F-44
<PAGE> 120
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues recognized. Revenues include reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposit
accounts. The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's investments
consist of an overnight repurchase agreement that is managed by a financial
institution with a strong credit rating. Accordingly, the investment is subject
to minimal credit and market risk.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 5-7 years
Equipment................................................... 3-5 years
Software.................................................... 3 years
</TABLE>
Amortization expense related to equipment under capital leases was $18,934
for the year ended May 31, 1995.
Concentration of Credit Risk and Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Sales to two significant customers accounted for 26%
and 12%, respectively, of revenues for the year ended May 31, 1995.
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carryforwards. Deferred tax expense represents the change in the deferred tax
asset or liability balances.
F-45
<PAGE> 121
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
3. PROFIT SHARING PLAN
Commencing in 1990, the Company made distributions to employees under a
discretionary profit sharing plan. Profit sharing expense was $396,716 in 1995.
4. TREASURY STOCK
During 1995, the Company purchased 5,000 shares of its common stock from a
former employee for $34,262. During 1994, the Company purchased 45,000 shares of
its common stock from three former employees (the "1994 shares") for $283,500.
Notes payable in the amount of $226,800 were issued in connection with the
purchase of the 1994 shares. The shares have been held in treasury at cost and
it is the Company's intention that these shares be available for issuance under
the 1988 Stock Option Plan.
5. STOCK OPTIONS
The Company established the 1988 Stock Option Plan (the "Plan"), which
provided for the granting of incentive stock options and non-qualified stock
options to employees of the Company. The Plan currently provides for a maximum
of 516,800 shares of common stock of the Company to be granted over ten years
from the date the Plan was adopted.
Incentive stock options may be issued under the Plan at an option price not
less than the fair market value at the date of grant as determined by the Board
of Directors (110% of fair market value in the case of stockholders having
ownership in excess of 10%). Non-qualified stock options may be issued under the
Plan at an option price as determined by the Board of Directors at the date of
the grant.
The incentive stock options are exercisable for a period not to exceed ten
years from the date of grant (five years in the case of incentive stock options
for stockholders having ownership in excess of 10%). The non-qualified options
are exercisable in accordance with the terms agreed for each option granted.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
<S> <C> <C>
Outstanding, May 31, 1994.................... 318,700 $2.80-$6.80
Granted.................................... 4,000 6.85
Forfeited.................................. (11,100) 6.30
------- -----------
Outstanding, May 31, 1995.................... 311,600 $2.80-$6.85
======= ===========
</TABLE>
At May 31, 1995, 205,000 options were exercisable and 205,200 shares were
available for future grant.
F-46
<PAGE> 122
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
6. INCOME TAXES
The provision (benefit) for federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Current:
Federal.............................................. $173
State................................................ 53
Deferred:
Federal.............................................. (3)
State................................................ (1)
----
$222
====
</TABLE>
The Company has gross deferred tax assets at May 31, 1995 of approximately
$401,000, net of a valuation reserve of $156,500 described below. The Company
has gross deferred tax liabilities at May 31, 1995 of approximately $8,000.
Deferred income taxes reflect the effect of temporary differences between
the tax basis of assets and liabilities and the reported amounts of assets and
liabilities for financial reporting purposes net of any valuation allowances.
The components of deferred taxes consist primarily of temporary differences
arising from accrued expenses and deferred revenue that are deductible or
taxable in future tax reporting periods.
The following is a reconciliation between the amount of reported income tax
expense and the amount computed using the statutory rate of 35% for fiscal 1995:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1995
(IN THOUSANDS)
<S> <C>
Statutory federal rate................................. $ 18
State taxes, net of federal benefit.................... 34
Valuation allowance.................................... 156
Permanent differences.................................. 14
----
$222
====
</TABLE>
Symmetrix Europe reported a net operating loss of approximately $447,000
which expires in the year 2000. The Company has recorded a full valuation
allowance at May 31, 1995 on the deferred tax asset, and therefore no benefit
for the loss carryforward has been recognized since realization of these future
benefits is not sufficiently assured.
7. RELATED PARTY TRANSACTIONS
The Company entered into a contract with Olympic Manufacturing Group, Inc.
("Olympic"), in which the Company has an investment as of May 31, 1995. The
Company bills Olympic on a monthly basis at cost for the time and materials
incurred on the project. The total costs reimbursed on the project were
approximately $80,000 for the year ended May 31, 1995.
Interest expense of $24,215 was related to loans from former shareholders.
F-47
<PAGE> 123
SYMMETRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1995
8. LEASES
The Company leases office space under a noncancelable operating lease. The
Company amended the lease on January 11, 1994 for additional space. The lease
expired in 1995 and the Company exercised an option to extend the lease for two
years. The lease requires the Company to pay a proportionate share of the
building operating costs and real estate taxes that exceed a base amount as
additional rent. Rental expense under the operating leases was approximately
$734,300 for the year ended May 31, 1995. Future minimum lease payments under
the operating lease as of May 31, 1995 consist of approximately $778,000 due in
fiscal year 1996 and approximately $713,000 due in fiscal year 1997.
Additionally, the Company leases certain office and computer equipment under
capital leases. At May 31, 1995, capital lease obligations, including interest,
are $17,591.
F-48
<PAGE> 124
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SiGMA Consulting, LLC
We have audited the accompanying balance sheets of SiGMA Consulting, LLC
(the Company) as of December 31, 1996 and 1997, and the related statements of
income, members' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SiGMA Consulting, LLC at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 31, 1998
F-49
<PAGE> 125
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-50
<PAGE> 126
SIGMA CONSULTING, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $5,617 $7,455 $10,051
Cost of revenues............................................ 4,946 5,431 7,552
------ ------ -------
Gross profit...................................... 671 2,024 2,499
Selling, general and administrative expenses................ 780 1,092 1,151
------ ------ -------
Income (loss) from operations..................... (109) 932 1,348
Interest income............................................. (2) (4) (7)
Interest expense............................................ 19 37 34
------ ------ -------
Net income (loss)................................. $ (126) $ 899 $ 1,321
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 127
SIGMA CONSULTING, LLC
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK MEMBER UNITS
---------------- ----------------- RETAINED TOTAL
SHARES AMOUNT UNITS AMOUNT EARNINGS EQUITY
(IN THOUSANDS, EXCEPT SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... 9,500 $ 1 -- $ -- $ 326 $ 327
Net loss......................... -- -- -- -- (121) (121)
------ --- ------- ---- ------ ------
Balance at December 31, 1995....... 9,500 1 -- -- 205 206
Reorganization as an LLC......... (9,500) (1) 100,503 206 (205) --
Dividends........................ -- -- -- -- (56) (56)
Net income....................... -- -- -- -- 899 899
------ --- ------- ---- ------ ------
Balance at December 31, 1996....... -- -- 100,503 206 843 1,049
Redemption of member units....... -- -- (12,366) (2) (312) (314)
Dividends........................ -- -- -- -- (790) (790)
Net income....................... -- -- -- -- 1,321 1,321
------ --- ------- ---- ------ ------
Balance at December 31, 1997....... 0 $ 0 88,137 $204 $1,062 $1,266
====== === ======= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 128
SIGMA CONSULTING, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(126) $ 899 $ 1,321
Adjustments to reconcile net (loss) income to net cash
provided by
(used in) operating activities:
Depreciation........................................... 17 21 43
Change in operating assets and liabilities:
Accounts receivable.................................. (392) (607) (1,100)
Costs and estimated earnings in excess of billings... 36 48 (17)
Overdraft liability.................................. (231) 102 55
Accounts payable and accrued expenses................ 172 (149) 899
Due from affiliate................................... (48) 14 (14)
Deferred revenue..................................... 218 (368) 389
Other................................................ (13) 7 (27)
----- ----- -------
Net cash provided by (used in) operating
activities...................................... (367) (33) 1,549
----- ----- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (33) (15) (53)
----- ----- -------
Net cash used in investing activities............. (33) (15) (53)
----- ----- -------
Cash flows from financing activities:
Redemption of members' units.............................. -- -- (315)
Due to affiliate.......................................... -- 130 (130)
Proceeds from (repayments of) note payable................ 400 (26) (375)
Dividends................................................. -- (56) (676)
----- ----- -------
Net cash provided by (used in) financing
activities...................................... 400 48 (1,496)
----- ----- -------
Net change in cash........................................ -- -- --
Cash at beginning of year................................. -- -- --
----- ----- -------
Cash at end of year....................................... $ -- $ -- $ --
===== ===== =======
Non-cash transactions:
Capital lease obligations................................. $ -- $ -- $ 98
===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 129
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
SiGMA Consulting, LLC ("SiGMA" or the "Company") offers consulting services
focusing on change management and helping organizations improve core business
processes, including product development, manufacturing and distribution, sales,
and enterprise management. SiGMA primarily offers its services to the
manufacturing, high technology, entertainment, and transportation industries.
Effective January 1, 1996, SiGMA was formed as a successor company to SiGMA
Consulting, Inc. The results of operations for the twelve month period ended
December 31, 1995 are for SiGMA Consulting, Inc. Upon formation, the assets and
liabilities previously held by SiGMA Consulting, Inc. were assumed by SiGMA.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company primarily derives its revenues from consulting services under
time and materials, capped-fee and fixed-price billing arrangements. Under time
and material arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenue recognized in excess of amounts billed from
fixed-price contracts. Deferred revenue represents billings in excess of
revenues recognized. Net revenues exclude reimbursable expenses charged to
clients.
Property and Equipment
Property and equipment are stated at cost. Depreciation has been provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures........................... 5-7 years
Equipment........................................ 3-5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property, whichever is shorter.
Financial Instruments
The carrying value of financial instruments such as accounts receivable,
accounts payable and accrued expenses and notes payable to bank approximate
their fair values based on the short-term maturities of these instruments.
F-54
<PAGE> 130
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. Revenues from three significant customers accounted
for 62%, 49% and 49% of net revenues for the years ended December 31, 1995, 1996
and 1997, respectively. Two customers accounted for 31% and 52% of total
receivables, as of December 31, 1996 and 1997, respectively.
Income Taxes
The Company is treated as a partnership for federal and state income tax
purposes. Therefore, all items of income, expense, and tax credit are passed
through to the individual unit holders. Accordingly, no provision for income
taxes is required. No tax provision was recorded for the year ended December 31,
1995 for SiGMA Consulting, Inc. as the Company was in a net loss position.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment.................................................. $101 $ 250
Furniture and fixtures..................................... 9 12
Leasehold improvements..................................... 2 2
---- -----
112 264
Less: accumulated depreciation............................. 57 100
---- -----
Property and equipment, net................................ $ 55 $ 164
==== =====
</TABLE>
Equipment includes an asset acquired under a capital lease for $98,000 in
1997.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable.................................... $ 49 $ 37
Accrued pension........................................... 125 162
Accrued bonuses........................................... -- 664
Accrued contractor fees................................... 10 201
Other..................................................... 8 27
---- ------
$192 $1,091
==== ======
</TABLE>
5. FINANCING ARRANGEMENTS
Note Payable to Bank
The Company had a line of credit with a bank, providing the lesser of
$1,000,000 or 75% of eligible trade receivables. The line of credit was secured
by substantially all of the assets of the Company and expired in
F-55
<PAGE> 131
SIGMA CONSULTING, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
February 1998. Borrowings under the line bear interest at the bank's prime rate
plus 0.75% (9.25% at December 31, 1996 and 1997).
In February 1998, the Company renewed its line of credit with the bank
("New Line"), which will provide the lesser of $1,000,000 or 65% of eligible
trade receivables. The New Line is secured by substantially all of the assets of
the Company and has no expiration date. Borrowings under the line bear interest
at the bank's prime rate plus 0.75%.
6. EMPLOYEE BENEFITS
The Company sponsors a Retirement Savings Plan (the "Retirement Plan")
under Section 401(k) of the Internal Revenue Code for the benefit all employees
meeting certain minimum service requirements. Eligible employees may elect to
contribute to the Retirement Plan subject to limitations established by the
Internal Revenue Code. The trustees of the Retirement Plan select investment
opportunities from which participants may choose to contribute. Matching
contributions are made at the discretion of the Company. The total cost
recognized under the Retirement Plan during the years ended December 31, 1995,
1996 and 1997 amounted to approximately $177,000, $224,000 and $303,000,
respectively.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company paid legal fees totaling $34,000 on the behalf of
certain members of the Company. At December 31, 1997, this amount was included
on the balance sheet as due from affiliate.
During 1996, the Company received advances totaling $130,000 from certain
members of the Company. At December 31, 1996, this amount was included on the
balance sheet as a due to affiliate. The advances were non-interest bearing and
were repaid in 1997.
During 1995, the Company made a non-interest bearing $40,000 loan to a
shareholder. At December 31, 1996, $34,000 was outstanding, which was repaid in
1997.
8. SUBSEQUENT EVENT
Effective January 5, 1998, the Company agreed to be acquired by Nextera
Enterprises, L.L.C. for cash of $10,000,000 and 669,000 Class A Common Units, as
well as the assumption of certain liabilities.
F-56
<PAGE> 132
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-57
<PAGE> 133
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-58
<PAGE> 134
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-59
<PAGE> 135
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-60
<PAGE> 136
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-61
<PAGE> 137
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments.
Concentration of Significant Customers
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. Sales to three
significant customers accounted for 32%, 29% and 20%, respectively, of net
revenues for the year ended December 31, 1997.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter "S"
of the Internal Revenue Code. Accordingly, no provision for federal income taxes
has been provided in the financial statements as all income of the Company is
taxed directly to the shareholders.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................... $240 $291
Furniture and fixtures...................................... 89 90
---- ----
329 381
Less: accumulated depreciation.............................. 104 155
---- ----
Property and equipment, net................................. $225 $226
==== ====
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued profit sharing contribution......................... $100 $116
Accrued bonuses............................................. 92 441
Other....................................................... 4 7
---- ----
$196 $564
==== ====
</TABLE>
5. COMMITMENTS
The Company leases its facilities under an operating lease, which expires
in the year 2001. Rent expense charged to operations for the years ended
December 31, 1996 and 1997 was $163,264 and $176,618, respectively.
The Company is currently leasing vehicles under operating leases expiring
September 2000. Lease expense charged to operations for the years ended December
31, 1996 and 1997 was $18,950 and $21,843, respectively. Also, the Company has
an operating lease for certain equipment. Lease expense for this
F-62
<PAGE> 138
THE PLANNING TECHNOLOGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equipment charged to operations for the years ended December 31, 1996 and 1997,
was $0 and $2,500, respectively.
Minimum future payments under the operating leases having remaining terms
in excess of one year as of December 31, 1997 for each of the next five years
and in the aggregate are (in thousands):
<TABLE>
<S> <C>
Year ended December 31:
1998............................................ $ 194
1999............................................ 191
2000............................................ 183
2001............................................ 148
2002............................................ --
--------
$ 716
========
</TABLE>
6. STOCKHOLDER'S EQUITY
During 1997, the Company issued ten shares of common stock to an employee
of the company. Accordingly, common stock has been increased by $10.00 per share
and additional paid-in-capital has been increased by $53,600, representing the
excess of the cost over the stated value of the common stock issued.
At December 31, 1996 and 1997, the Company had 126 and 136 shares of no par
value common stock issued and outstanding, respectively. Common shares are
voting and dividends are paid at the discretion of the Board of Directors. All
common shares are restricted from transfer with the Company being offered the
first right to repurchase all of the shares proposed, but not less than all, at
the book value per share, as defined by the Company. Within one (1) year of
termination, the stockholder may elect to require the Company to purchase all
(but not less than all) of the shares of the stock.
7. PROFIT SHARING PLAN
The Company sponsors a combination profit sharing 401(k) plan that covers
all eligible employees. The 401(k) provision allows the employee to make
contributions to the plan based on the percent of pre-tax earnings chosen by the
employee up to a maximum of 15% of gross wages. Any Company contributions to the
profit sharing plan are at the discretion of the Board of Directors. The Company
contributed $99,607 and $116,854 to the profit sharing plan in 1996 and 1997,
respectively.
8. SUBSEQUENT EVENTS
Effective March 31, 1998, the Company sold substantially all of its assets
to and certain liabilities were assumed by Nextera Enterprises, L.L.C.
("Nextera") in exchange for cash of $6,710,000 and 214,000 Class A Common Units
of Nextera.
F-63
<PAGE> 139
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 three 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
three 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 closed 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-64
<PAGE> 140
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ 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-65
<PAGE> 141
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE
EIGHT
MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
----------------------------- 1998
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................................... $24,833 $29,178 $34,650 $29,192
Cost of revenues................................. 18,569 21,674 25,629 21,637
------- ------- ------- -------
Gross profit........................... 6,264 7,504 9,021 7,555
Selling, general and administrative expenses..... 5,444 6,769 7,575 6,394
------- ------- ------- -------
Income from operations................. 820 735 1,446 1,161
Interest income.................................. 68 65 95 51
Interest expense................................. (133) (94) (86) (146)
Post retirement healthcare cost.................. (137) (135) (140) (96)
Other income (expense)........................... 8 33 8 (5)
------- ------- ------- -------
Net income............................. 626 604 1,323 965
Partners' capital at beginning of period......... 2,774 3,650 4,139 5,082
Partners' capital contributions.................. 294 118 334 27
Partners' capital withdrawals.................... (44) (233) (714) (964)
------- ------- ------- -------
Partners' capital end of period.................. $ 3,650 $ 4,139 $ 5,082 $ 5,110
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-66
<PAGE> 142
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE EIGHT
DECEMBER 31, MONTHS ENDED
----------------------------- AUGUST 31,
1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 626 $ 604 $ 1,323 $ 965
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 366 470 505 574
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....................................... (8) (53) (8) 13
Changes in operating assets and liabilities:
Accounts receivable............................. (809) (2,178) (444) (4,201)
Prepaid expenses and other assets............... 164 155 206 (193)
Accounts payable, accrued expenses and taxes.... (40) 36 320 347
Commissions payable............................. 85 32 (628) 155
Accrued postretirement healthcare benefit....... 134 128 131 96
Fee advances payable............................ 241 709 9 (516)
Profit sharing plan payable..................... 294 205 153 (53)
Accrued compensation............................ 3 1,013 1,212 127
Other current liabilities....................... (110) 4 (4) 126
------- ------- ------- -------
Net cash provided by (used in) operating
activities.................................. 946 1,125 2,774 (2,553)
------- ------- ------- -------
Cash flows from investing activities:
Purchase of fixed assets............................... (193) (409) (704) (1,158)
Proceeds from sale of furniture, fixtures and
equipment............................................ 8 53 8 69
Other.................................................. -- (47) (104) (56)
------- ------- ------- -------
Net cash (used in) investing activities....... (185) (403) (800) (1,145)
------- ------- ------- -------
Cash flows from financing activities:
(Decrease) or increase in cash overdraft............... 278 172 (724) 1,060
Notes receivable from affiliates, net.................. 199 246 (36) 109
Proceeds from limited partners' capital
contributions........................................ 20
Proceeds from general partner capital contributions.... 165 109
Partners' capital withdrawals.......................... (44) (233) (513) (964)
Payment of capitalized lease obligations............... (170) (203) (207) (313)
Proceeds from revolving line of credit................. 3,100 3,850 2,350 5,400
Repayment of revolving line of credit.................. (4,100) (3,850) (2,350) (2,850)
------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................. (552) (18) (1,371) 2,442
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents..... 209 704 603 (1,256)
Cash and cash equivalents at beginning of period......... 117 326 1,030 1,633
------- ------- ------- -------
Cash and cash equivalents at end of period............... $ 326 $ 1,030 $ 1,633 $ 377
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 133 $ 92 $ 79 $ 135
======= ======= ======= =======
Supplemental schedule of noncash investing and financing
activities:
Employees purchase of limited partnership interests
funded through notes receivable........................ $ 19 $ 66 $ 24 $ --
======= ======= ======= =======
General partners' capital contributions funded through
note receivable........................................ $ 90 $ 52 $ 201 $ 27
======= ======= ======= =======
Capital lease obligations incurred for fixed assets...... $ 327 $ 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-67
<PAGE> 143
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-68
<PAGE> 144
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 ($34,500 at December 31, 1995,
$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, 1995, 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. ($145,000 at December 31, 1995
and $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 ($211,333 at August 31, 1995,
$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-69
<PAGE> 145
SIBSON & COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. FIXED ASSETS
Fixed assets consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- AUGUST 31,
1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Furniture and office equipment.............. $ 457 $ 572 $1,030 $1,681
Telephone equipment......................... 185 195 253 315
Computer equipment.......................... 462 742 1,094 1,850
Leasehold improvements...................... 122 227 379 482
Artwork..................................... 15 19 33
Automobile.................................. -- -- -- 9
------ ------ ------ ------
1,226 1,751 2,775 4,370
Less: accumulated depreciation.............. (429) (790) (1,168) (1,475)
------ ------ ------ ------
Fixed assets, net........................... $ 797 $ 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 as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AUGUST 31,
1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current portion................................... $192 $178 $275 $ 447
Long-term portion................................. 272 199 288 561
---- ---- ---- ------
Total............................................. $464 $377 $563 $1,008
==== ==== ==== ======
</TABLE>
F-70
<PAGE> 146
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 fiscal years ending
after August 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING AUGUST 31:
<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 $1,210,306, $1,390,965, and $1,546,641
for the years ended December 31, 1995, 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-71
<PAGE> 147
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,
--------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 46 $ 47 $ 46
Interest cost......................................... 57 54 59
Amortization of net transition liability over 20
years............................................... 34 34 35
---- ---- ----
Net post-retirement healthcare benefit cost........... $137 $135 $140
==== ==== ====
</TABLE>
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,
-----------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated post-retirement healthcare benefit
obligations:
Active participants.................................... $ 423 $ 395 $ 414
Fully eligible participants............................ 46 86 60
Retirees............................................... 305 321 299
----- ----- -----
774 802 773
Unrecognized transition obligation..................... (650) (616) (582)
----- ----- -----
124 186 191
Unrecognized net gain care benefit cost.................. 10 76 202
----- ----- -----
Accrued post-retirement healthcare benefit liability..... $ 134 $ 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-72
<PAGE> 148
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
$1,439,435 net of sublease income of $162,440 in 1995, $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-73
<PAGE> 149
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-74
<PAGE> 150
SIBSON CANADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 63 $ --
Receivables............................................... 1,145 1,314
Prepaids.................................................. 26 105
------ ------
Total current assets.............................. 1,234 1,419
Equipment, net.............................................. 46 51
------ ------
Total assets...................................... $1,280 $1,470
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ -- $ 302
Payables and accruals..................................... 80 336
Bonus payable............................................. 506 91
License fee payable....................................... 160 10
Income taxes payable...................................... 30 61
Deferred income........................................... 51 51
------ ------
Total current liabilities......................... 827 851
Due to shareholders......................................... 93 93
Shareholders' equity:
Capital stock............................................. 137 137
Retained earnings......................................... 223 389
------ ------
Total shareholders' equity........................ 360 526
------ ------
Total liabilities and shareholders' equity........ $1,280 $1,470
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 151
SIBSON CANADA, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS ENDED JUNE 30,
YEAR ENDED ------------------------------------
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Net revenues.............................. $4,077 $2,025 $2,045
Cost of revenues.......................... 2,864 1,131 1,213
------ ------ ------
Gross profit......................... 1,213 894 832
Selling, general and administrative....... 1,054 524 582
------ ------ ------
Income before income taxes........... 159 370 250
Income taxes.............................. 51 120 84
------ ------ ------
Net income........................... $ 108 $ 250 $ 166
====== ====== ======
Retained earnings, beginning of period.... $ 115 $ 115 $ 223
Retained earnings, end of period.......... $ 223 $ 365 $ 389
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 152
SIBSON CANADA, INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS ENDED JUNE 30,
YEAR ENDED ----------------------------------
DECEMBER 31, 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 108 $ 250 $ 166
Depreciation........................... 16 9 7
Change in operating assets and
liabilities:
Trade receivables.................... (385) (594) (7)
Shareholders receivables............. (61) -- (25)
Other receivables.................... (26) -- (137)
Prepaids............................. 3 (13) (80)
Payables and accruals................ (98) 107 256
Bonus payable........................ 506 232 (415)
License fee payable.................. 84 89 (150)
Income taxes payable................. 51 91 32
Deferred income...................... 51 -- --
----- ----- -----
Net cash provided by (used in)
operating activities............ 249 171 (353)
----- ----- -----
Cash flows from investing activities:
Purchase of equipment.................. (9) (5) (12)
----- ----- -----
Net cash used in investing
activities...................... (9) (5) (12)
----- ----- -----
Net increase (decrease) in cash............. 240 166 (365)
Cash (bank indebtedness) at beginning of
period.................................... (177) (177) 63
----- ----- -----
Cash (bank indebtedness) at end of period... $ 63 $ (11) $(302)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 153
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
Sibson Canada, Inc. (the "Company") provides human capital consulting
services including human resource strategies, outsourcing assessments,
organizational designs, rewards and incentives programs, performance management
processes and systems, and executive coaching services. The Company also serves
sales and marketing organizations with sales strategy, selling process, sales
channel and selling effectiveness consulting.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada. See Note 10 for
differences between these principles and those generally accepted in the United
States. All amounts in the financial statements are expressed in Canadian
dollars.
Interim Financial Statements (Unaudited)
The balance sheet at June 30, 1998, and the statements of operations and
retained earnings and changes in financial position for the six months ended
June 30, 1998 and 1997 are unaudited, and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's financial position, results of operations
and cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
The company derives its revenues from consulting services under time and
materials billing arrangements. Revenues are recognized as services are
provided. Deferred income relates to funds received from clients for future
projects.
Depreciation
Rates and bases of depreciation applied to write-off the cost less
estimated salvage value of property and equipment over their estimated lives are
as follows:
<TABLE>
<S> <C>
Furniture and
fixtures.............. 20%, declining balance
Office equipment........ 20%, declining balance
Computer hardware....... 30%, declining balance
Computer software....... 30%, declining balance
</TABLE>
Translation of Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are
translated at year-end exchange rates and revenue and expenses are translated at
average rates. Translation gains and losses are included in earnings.
F-78
<PAGE> 154
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments
The carrying values of the financial assets and liabilities approximate
their fair values based on the short-term maturities of these instruments.
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS OF
CANADIAN DOLLARS)
<S> <C>
Trade.................................................... $ 1,039
Shareholders............................................. 74
Income taxes............................................. --
Other.................................................... 32
--------
$ 1,145
========
</TABLE>
4. EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS OF
CANADIAN DOLLARS)
<S> <C>
Furniture and fixtures................................. $ 8
Office equipment....................................... 14
Computer hardware...................................... 89
Computer software...................................... 32
-------
143
Less: accumulated depreciation......................... 97
-------
Property and equipment, net............................ $ 46
=======
</TABLE>
5. BANK INDEBTEDNESS
As of December 31, 1997, the Company has an authorized bank line of credit
of $289,000 of which there have been no drawdowns. Any loan balance outstanding
bears interest at the bank prime rate plus 1% per annum and is payable on
demand. As security, the Company has provided a registered general assignment of
book debts, a registered general security agreement, an assignment of fire
insurance and key man life insurance.
6. LICENSE FEE
The Company has entered into an agreement with Sibson & Co., L.P., to pay
5% of its revenues in exchange for support services and the right to use the
name. The agreement is automatically renewed on an annual basis unless written
notice is provided by either party indicating they wish to terminate the
agreement. The license fee expense for the year ended December 31, 1997 is
$175,892 of which $160,410 remains payable at year-end.
F-79
<PAGE> 155
SIBSON CANADA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. DUE TO SHAREHOLDERS
Amounts due to shareholders are non-interest bearing and due on demand. The
amounts are classified as long-term as it is not the intention of the
shareholders to demand repayment in the upcoming year.
8. CAPITAL STOCK
Common shares, unlimited number authorized, 1,307 issued for proceeds of
$104,001; Class A common shares, unlimited number authorized, 230 issued for
proceeds of $32,890.
Holders of Class A common shares are entitled to a dividend per share equal
to the amount of any declared common share dividend per share, convertible to
common shares at the option of the holder upon approval by the Board of
Directors and upon payment to the company of additional amounts of money, if
any, as specified in the resolution approving the conversion.
9. COMMITMENTS
The Company has entered into agreements to lease its premises and various
pieces of office and computer equipment. The current premises lease expires
October 1998, and a new lease has been entered into subsequent to year end for a
further 10 year period. The equipment leases are for various periods to 2001.
Minimum commitments for each of the next five years and thereafter are as
follows (in thousands of Canadian dollars):
<TABLE>
<S> <C>
1998........................................... $249
1999........................................... 181
2000........................................... 180
2001........................................... 149
2002........................................... 119
Thereafter..................................... 708
</TABLE>
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accounting principles utilized in the preparation of these financial
statements conform in all material respects with those generally accepted in the
United States ("US GAAP"), except as indicated below.
The statement of changes in financial position included herein was prepared
in accordance with Canadian generally accepted accounting principles. Under US
GAAP, the bank indebtedness position would be reported as a financing item
rather than being included in the cash position. The 1997 statement of changes
in financial position would disclose a decrease in financing of $177,391, and
cash at the beginning of the year at $0.
11. SUBSEQUENT EVENTS
On August 17, 1998, the Company and one of its corporate shareholders
continued as Nova Scotia corporations. Subsequently, the Company, the corporate
shareholder and a newly incorporated unlimited liability company, were
amalgamated under the laws of Nova Scotia and continued operating as Sibson
Canada Co.
Effective August 31, 1998, all of the Company's Shareholders sold all of
their stock to Nextera Enterprises, L.L.C. in exchange for cash of US$2,611,000
and 197,813 Exchangeable Preference Shares. The Exchangeable Preference Shares
are exchangeable at any time by the holders thereof for Class A Common Stock of
Nextera Enterprises, L.L.C.
F-80
<PAGE> 156
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-81
<PAGE> 157
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 income, 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-82
<PAGE> 158
PYRAMID IMAGING, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Current assets:
Cash...................................................... $ 2
Trade accounts receivable, net of $50 allowance for
doubtful accounts...................................... 1,926
Prepaid taxes............................................. 234
Inventory................................................. 28
Prepaid expenses and other current assets................. 38
Deferred income taxes -- current.......................... 42
------
Total current assets........................................ 2,270
Property and equipment, net................................. 361
Deferred income taxes -- noncurrent......................... 36
Other....................................................... 11
------
Total assets...................................... $2,678
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 789
Accrued expenses.......................................... 117
Line of credit............................................ 203
Distributions payable to shareholders..................... 150
Customer deposits......................................... 26
------
Total current liabilities................................... 1,285
Shareholders' equity:
Voting common stock, no par value; 10,000 shares
authorized, 3,000 shares issued and outstanding........ 530
Retained earnings......................................... 863
------
Total shareholders' equity.................................. 1,393
------
Total liabilities and shareholders' equity........ $2,678
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 159
PYRAMID IMAGING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C>
Net revenues.............................................. $ 6,925
Cost of revenues.......................................... 4,360
-------
Gross profit............................................ 2,565
Selling, general and administrative....................... 2,714
-------
Loss from operations.................................... (149)
Interest income........................................... 23
Interest expense.......................................... (15)
Other expenses............................................ (20)
-------
Loss before taxes....................................... (161)
Income tax benefit........................................ 60
-------
Net loss................................................ $ (101)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE> 160
PYRAMID IMAGING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK TOTAL
------------------- RETAINED SHAREHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
--------- ------ -------- -------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<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
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE> 161
PYRAMID IMAGING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1997
------------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net loss.................................................... $ (101)
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 206
Deferred income taxes.................................. (64)
Loss on disposal of equipment.......................... 21
Changes in operating assets and liabilities:
Accounts receivable.................................. 223
Prepaid taxes........................................ (234)
Inventories.......................................... 45
Prepaid expenses and other assets.................... (24)
Accounts payable..................................... (15)
Accrued expenses..................................... 100
Accrued income taxes payable......................... (409)
Interest payable..................................... (15)
Sales tax payable.................................... (61)
Customer deposits.................................... 21
-------
Net cash used in operating activities....................... (307)
Investing activities:
Purchases of property and equipment.................... (300)
Repayments on receivables from shareholders............ 20
-------
Net cash used in investing activities................ (280)
Financing activities:
Proceeds from borrowings under line of credit.......... 2,779
Repayments on borrowings under line of credit.......... (2,576)
Repayments of loans to shareholders.................... (250)
-------
Net cash used in financing activities................ (47)
-------
Net decrease in cash and cash equivalents................... (634)
Cash at beginning of year................................... 636
-------
Cash at end of year......................................... $ 2
=======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes........................................... $ 625
=======
Interest............................................... $ 15
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE> 162
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pyramid Imaging, Inc. (the "Company") was formed in 1993 with offices in
San Francisco, California; New York, New York; and Dallas, Texas. The Company
provides strategic consulting, business process re-engineering, custom software
development, application frameworks and component software solutions for
companies involved in transaction processing, investment banking and human
resources.
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-87
<PAGE> 163
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-88
<PAGE> 164
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-89
<PAGE> 165
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>
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 consisted of the following (in thousands).
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998........................................................ $20
1999........................................................ 20
2000........................................................ 8
---
$48
===
</TABLE>
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
F-90
<PAGE> 166
PYRAMID IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-91
<PAGE> 167
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-92
<PAGE> 168
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Lexecon Inc.
We have audited the accompanying balance sheets of Lexecon Inc. as of
December 31, 1997 and 1996, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lexecon Inc. at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
October 7, 1998,
except for the third paragraph of Note 11, as to which the date is
December 31, 1998
F-93
<PAGE> 169
LEXECON INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 57 $ 15 $ 3,356
Accounts receivable, less allowance for doubtful accounts
of $221 in 1996 and $200 in 1997 and 1998............. 8,144 10,578 8,895
Loans and advances....................................... 40 179 30
Prepaid expenses......................................... 239 169 75
------- ------- -------
Total current assets............................. 8,480 10,941 12,356
Fixed assets, net.......................................... 1,320 1,265 1,198
Deferred income tax benefit................................ 12 12 18
Deposits................................................... 70 70 70
Prepaid expenses........................................... 353 203 261
------- ------- -------
Total assets..................................... $10,235 $12,491 $13,903
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable -- Bank..................................... $ 1,550 $ 1,600 $ --
Current maturities of long-term obligations.............. 218 200 --
Accounts payable......................................... 276 487 551
Accrued expenses......................................... 955 877 5,616
Deferred income tax liability............................ 116 143 46
------- ------- -------
Total current liabilities........................ 3,115 3,307 6,213
Long-term obligations, net of current maturities........... 200 -- --
Deferred rent.............................................. 783 842 887
Lease termination fee...................................... 160 143 128
Security deposits.......................................... 45 45 45
Shareholders' equity:
Common stock, no par value, $17.50 stated value, 12
shares authorized, 1 share issued and outstanding..... 18 18 18
Additional paid-in capital............................... 85 85 85
Retained earnings........................................ 5,829 8,051 6,527
------- ------- -------
Total shareholders' equity....................... 5,932 8,154 6,630
------- ------- -------
Total liabilities and shareholders' equity....... $10,235 $12,491 $13,903
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE> 170
LEXECON INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------- SEPTEMBER 30,
1995 1996 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenues................................ $25,418 $27,061 $31,974 $ 25,754
Cost of services............................ 17,261 20,734 24,055 22,959
------- ------- ------- --------
Gross profit................................ 8,157 6,327 7,919 2,795
General and administrative.................. 5,491 5,247 5,660 4,384
------- ------- ------- --------
Income (loss) from operations............... 2,666 1,080 2,259 (1,589)
Interest expense............................ (250) (123) (63) (26)
Interest income............................. 56 49 53 62
------- ------- ------- --------
Income (loss) before income taxes........... 2,472 1,006 2,249 (1,553)
Provision for income taxes.................. 43 25 27 (29)
------- ------- ------- --------
Net income (loss)........................... $ 2,429 $ 981 $ 2,222 $ (1,524)
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE> 171
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, 1994............ 1,000 $18 $85 $ 2,419 $ 2,522
Net income.............................. -- -- -- 2,429 2,429
----- --- --- ------- -------
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 (unaudited).................... -- -- -- (1,524) (1,524)
----- --- --- ------- -------
Balance at September 30, 1998
(unaudited)........................... 1,000 $18 $85 $ 6,527 $ 6,630
===== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 172
LEXECON INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- -------------------
1995 1996 1997 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)........................... $ 2,429 $ 981 $ 2,222 $(1,524)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation........................... 488 490 489 357
Deferred rent.......................... 65 65 59 45
Deferred taxes......................... 42 25 27 (103)
Security deposits...................... 45 -- -- --
Provision for doubtful accounts........ 82 73 (20) --
(Gain) loss on sale of property and
equipment............................ -- (3) -- 8
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable............... (568) 727 (2,412) 1,683
Loans and advances................ 79 (3) (139) 149
Prepaid expenses.................. (51) (405) 219 37
Increase (decrease) in:
Accounts payable and accrued
expenses........................ (454) 144 131 4,803
Deferred compensation............. (2,001) (1,998) -- --
Lease termination fee............. (13) (16) (16) (15)
------- ------- ------- -------
Net cash provided by operating activities... 143 80 560 5,440
Cash flows from:
Investing activities
Capital expenditures paid in cash...... (433) (512) (434) (304)
Proceeds from sale of property and
equipment............................ 10 15 -- 5
Proceeds from sale of investment....... 318 -- -- --
------- ------- ------- -------
Net cash used in investing
activities...................... (105) (497) (434) (299)
Financing activities
Borrowings on long-term obligations.... -- 600 -- --
Cash paid on long-term obligations..... (118) (237) (218) (200)
Borrowings on notes payable -- Bank.... 1,500 1,550 1,600 --
Cash paid on notes payable -- Bank..... (1,500) (1,500) (1,550) (1,600)
------- ------- ------- -------
Net cash (used) provided by
financing activities............ (118) 413 (168) (1,800)
------- ------- ------- -------
Net decrease in cash and cash equivalents... (80) (4) (42) 3,341
Cash and cash equivalents at beginning of
period.................................... 141 61 57 15
------- ------- ------- -------
Cash and cash equivalents at end of
period.................................... $ 61 $ 57 $ 15 3,356
======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest.... $ 310 $ 65 $ 63 $ 27
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 173
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Description of Business
Lexecon Inc. (the Company or Lexecon) is an economics consulting firm that
provides a full range of economic consulting services including economic,
financial and statistical analysis, and expert testimony. The Company's services
are predominately used in matters relating to complex litigation and regulatory
proceedings. Lexecon's clients include a broad range of domestic and
international corporations and government and regulatory agencies.
2. 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.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the useful life of the assets
generally five 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.
Deferred Income Taxes
Deferred income taxes, representing 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.
F-98
<PAGE> 174
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net Income Per Share
In 1997, the Company adopted SFAS No. 128, Earnings per Share. This
statement requires the Company to disclose diluted net income per common share
including the dilutive effect of stock options in addition to basic net income
per common share. The adoption of this statement had no impact on net income per
share.
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. In 1997, one client comprised approximately 18% of net revenues. No
client comprised more than 10% of net revenue in 1996 and 1995. 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
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $ 66 $148 $221
Charge to cost and expenses........................... 147 88 41
Amounts written off................................... (65) (15) (62)
---- ---- ----
Balance at end of year................................ $148 $221 $200
==== ==== ====
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Furniture fixtures and equipment......................... $ 3,716 $ 4,150
Leasehold improvements................................... 1,507 1,507
------- -------
5,223 5,657
Less: accumulated depreciation and amortization.......... (3,903) (4,392)
------- -------
$ 1,320 $ 1,265
======= =======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Salaries and payroll taxes.................................. $691 $420
Profit-sharing contribution................................. 215 267
Current portion of lease termination fee.................... 15 16
Other....................................................... 34 174
---- ----
$955 $877
==== ====
</TABLE>
F-99
<PAGE> 175
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE -- BANK
The Company has a line of credit which permits borrowings of up to $2.0
million with interest at the bank's base rate, as defined (8.5% at December 31,
1997), plus .25% and is secured by the Company's accounts receivable and other
sundry assets. The Company incurs an annual fee of .5% for the unused portion of
the line of credit. 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, 1997, in the amount of $500,000, which was issued in lieu of a security
deposit on the Company's leased office space.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Capital lease payable in monthly installments of $2
including principal and interest at 9.9%. Final payment
due in December 1997...................................... $ 18 $ --
Note payable in monthly installments of $17 plus interest at
7.94%. Final payment due in December 1998................. 400 200
---- ----
418 200
Less: Current maturities.................................... 218 200
---- ----
$200 $ --
==== ====
</TABLE>
7. 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.
The future minimum lease payments under noncancelable operating leases are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1998................................................. $ 558
1999................................................. 481
2000................................................. 462
2001................................................. 599
2002................................................. 698
Thereafter........................................... 2,933
------
$5,731
======
</TABLE>
Rent expense under operating leases for the years ended December 31, 1997,
1996, and 1995 amounted to approximately $617,000, $617,000, and $586,000,
respectively.
Deferred rent represents the excess of amortization of rent expense 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
F-100
<PAGE> 176
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of this obligation, discounted at 8.00%, in the amount of $205,334 was changed
to expense as of December 31, 1994. The unamortized discount is reflected on the
balance sheet as lease termination fee.
8. 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, 1997, 1996, and 1995 amounted to $267,804,
$251,561, and $225,161, respectively.
9. 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 $6,000,000 payable in annual
installments of $2,000,000 beginning in 1994 with interest on the unpaid balance
at 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 nonshareholder in a participation pool aggregating
12% of the value of the Company in excess of book value.
On an annual basis, the Company pays discretionary bonuses to employees
which are authorized by the Board of Directors. In addition, pursuant to a
shareholders agreement, see Note 10, the shareholders are entitled to receive
annual bonuses based on income, as defined. Bonus expense including employees
and shareholders for the years ended December 31, 1997, 1996, and 1995 was
$11,387,300, $9,136,600, and $5,623,200, respectively, and is included in cost
of services on the statement of income.
10. 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.
During the period ended December 31, 1991, the Company entered into a Suite
License Agreement with Metro-Chicago Sports Stadium Joint Venture. The agreement
provides for total payments of $675,000, payable $135,000 annually during 1994
through 1998. 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.
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.
F-101
<PAGE> 177
LEXECON INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
On September 1, 1998, the Company renewed its Suite License Agreement, see
Note 10. 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.
On September 25, 1998, the Company entered into a capital lease for new
computer hardware and software. The lease provides for annual payments of
approximately $372,000 through 2001.
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 shares 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 stockholder of the Company entered into a Service Agreement
with the Company.
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-102
<PAGE> 178
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Financial Statements assume the
exchange of (the "Exchange Transaction") Class A Common Units and Class B Common
Units of Nextera Enterprises, L.L.C. ("Nextera LLC") and certain other
securities for shares of Class A Common Stock and Class B Common Stock of
Nextera Enterprises, Inc. ("Nextera" or the "Company"). After the Exchange
Transaction, the Company will hold, directly or indirectly, all of the
membership interests in Nextera LLC. See "The Company -- Exchange Transaction."
The following Unaudited Pro Forma Combined Financial Statements give effect
to the Company's acquisitions of (i) Nextera Business Performance Solutions
Group, Inc. ("Business Performance Solutions"), formerly named Symmetrix, Inc.,
effective July 30, 1997, (ii) SiGMA Consulting, LLC ("SiGMA") effective January
5, 1998, (iii) The Planning Technologies Group, Inc. ("PTG") effective March 31,
1998, (iv) Pyramid Imaging, Inc. ("Pyramid") effective March 31, 1998, (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 other than Symmetrix, which had a May 31 fiscal year end for periods
prior to its acquisition by the Company, has a December 31 fiscal year end.
The following Unaudited Pro Forma Combined Balance Sheet of the Company at
September 30, 1998 has been prepared to give effect to the Lexecon Acquisition
as if it had occurred on September 30, 1998. The Unaudited Pro Forma Combined
Balance Sheet is also 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 September 30, 1998.
The following Unaudited Pro Forma Combined Statements of Operations of the
Company for the year ended December 31, 1997 and the nine months ended September
30, 1998 have been prepared to give effect to (i) the acquisitions of the
Acquired Companies as of January 1, 1997 and (ii) the Offering and the
application of the estimated net proceeds therefrom, including the repayment of
certain indebtedness, as if such transactions had occurred as of January 1,
1997.
The Unaudited Pro Forma Combined Financial Statements may not be indicative
of the results that would have been obtained if the transactions reflected
therein had occurred on the dates indicated or which may be realized in the
future. The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the Historical Financial Statements of Nextera LLC and the
Acquired Companies included elsewhere in this Prospectus.
PF-1
<PAGE> 179
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ----------------------------------------------------
ACQUISITION
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA OFFERING PRO FORMA
(A) (B) (C) COMBINED ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 1,563 $ 3,356 $ -- $ 4,919 $ (D) $
Accounts receivable, net................ 25,484 8,925 34,409
Costs and estimated earnings in excess
of billings.......................... 1,678 -- 1,678
Due from affiliates..................... 199 -- 199
Due from officers....................... 849 -- 849
Prepaid expenses and other current
assets............................... 1,932 74 2,006
-------- ------- ------- -------- -------- --------
Total current assets................. 31,705 12,355 -- 44,060
Property and equipment, net............... 4,988 1,198 6,186
Intangible assets, net of accumulated
amortization............................ 77,406 -- 58,754 136,160
Other assets.............................. 2,131 348 2,479
-------- ------- ------- -------- -------- --------
Total assets......................... $116,230 $13,901 $58,754 $188,885 $ $
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses... $ 19,073 $ 7,272 $ 1,600 $ 27,945 $ $
Notes payable to bank................... 42,677 -- -- 42,677 (D)
Notes payable to related party.......... -- -- 31,146 31,146 (D)
Deferred revenue........................ 2,687 -- 2,687
Due to affiliate........................ 1,280 -- 1,280 (D)
Current portion of long-term debt....... 100 -- 100
-------- ------- ------- -------- -------- --------
Total current liabilities............ 65,817 7,272 32,746 105,835
Long-term debt............................ 788 -- 788
Debentures due to affiliates, including
accrued interest thereon................ 51,916 -- 51,916 (D)
Stockholders' equity:
Equity.................................. 9,817 102 32,535 42,454 (D)
Retained earnings (deficit)............. (12,108) 6,527 (6,527) (12,108)
-------- ------- ------- -------- -------- --------
Total stockholders' equity
(deficit).......................... (2,291) 6,629 26,008 30,346
-------- ------- ------- -------- -------- --------
Total liabilities and stockholders'
equity (deficit)................... $116,230 $13,901 $58,754 $188,885 $ $
======== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-2
<PAGE> 180
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ----------------------------------------------------
PRO FORMA
COMPANY ACQUISITIONS ACQUISITION PRO FORMA OFFERING AS ADJUSTED
(E) (F) ADJUSTMENTS COMBINED ADJUSTMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 7,998 $97,277 $ $105,275 $ $
Cost of revenues........... 4,718 70,492 (10,871)(G) 64,339
------- ------- ------- -------- --- -------
Gross profit.......... 3,280 26,785 10,871 40,936
------- ------- ------- -------- --- -------
Selling, general and
administrative
expenses................. 5,306 22,204 27,510
Compensation expense --
repurchase of stock
options.................. -- 4,126(H) 4,126
Amortization expense....... 255 -- 4,473(I) 4,728
------- ------- ------- -------- --- -------
Income (loss) from
operations.......... (2,281) 455 6,398 4,572
------- ------- ------- -------- --- -------
Interest income (expense),
net...................... (32) (86) (8,298)(J) (8,416) (K)
------- ------- ------- -------- --- -------
Loss before income tax
expense (benefit)... (2,313) 369 (1,900) (3,844)
------- ------- ------- -------- --- -------
Income tax expense
(benefit)................ 702(L) (281)(L) 421
------- ------- ------- -------- --- -------
Net loss.............. $(3,015) $ 650 $(1,900) $ (4,265) $ $
======= ======= ======= ======== === =======
Net loss per common share,
basic and diluted........ $ (0.74) $ (0.34) $
======= ======== =======
Weighted average common
shares outstanding, basic
and diluted.............. 4,061 12,609
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-3
<PAGE> 181
NEXTERA ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -----------------------------------------------------
ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
(M) (N)
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $39,581 $58,836 $ $98,417 $ $
Cost of revenues........ 27,579 39,741 (12,060)(G) 55,260
------- ------- ------- ------- ------- -------
Gross profit....... 12,002 19,095 12,060 43,157
------- ------- ------- ------- ------- -------
Selling, general and
administrative
expenses.............. 14,575 19,034 -- 33,609
Amortization expense.... 1,034 -- 2,449(O) 3,483
Restructuring costs..... 967 -- -- 967
------- ------- ------- ------- ------- -------
Income (loss) from
operations....... (4,574) 61 9,611 5,098
------- ------- ------- ------- ------- -------
Interest income
(expense), net........ (4,319) 35 (5,843)(J) (10,127)(K)
------- ------- ------- ------- ------- -------
Income (loss)
before income tax
expense
(benefit)........ (8,893) 96 3,768 (5,029)
------- ------- ------- ------- ------- -------
Income tax expense
(benefit)............. 200(L) (29)(L) 171
------- ------- ------- ------- ------- -------
Net income
(loss)........... $(9,093) $ 125 $ 3,768 $(5,200) $ $
======= ======= ======= ======= ======= =======
Net income (loss) per
common share, basic
and diluted........... $ (0.66) $ (0.25) $
======= ======= =======
Weighted average common
shares outstanding,
basic and diluted..... 13,835 20,882
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
PF-4
<PAGE> 182
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) Represents the historical consolidated balance sheet of the Company as
of September 30, 1998.
(B) Represents the historical consolidated balance sheets of Lexecon as of
September 30, 1998.
(C) Represents the adjustments to record the purchase price of the Lexecon
Acquisition. The purchase price consisted of $31,146,000 in cash, 4,266,240
shares of common stock at an assumed value of $32,637,000, and $1,600,000 in
related acquisition costs. Common stock included as a component of purchase
price includes 1,450,240 shares of common stock, the maximum number of
additional shares which may be issued to the sellers of Lexecon, subject to
adjustment depending on the timing of the Offering and the per share price of
Class A Common Stock in the Offering. Acquisition costs included as a component
of purchase price includes $1,000,000, the estimated fair value of warrants to
purchase 250,000 shares of the Company's Class A Common Stock issued to KU, Inc.
in connection with KU, Inc.'s guarantee of the Company's contingent obligations
to the former stockholders of Lexecon. The excess purchase price over net assets
acquired was allocated as $1,500,000 to intangibles related to personnel and
$57,254,000 as goodwill.
(D) Represents the adjustments to record the Offering and the application
of the estimated net proceeds therefrom, including the repayment of certain
indebtedness. See "Use of Proceeds."
(E) Represents the historical consolidated statement of operations of the
Company for the period from February 26, 1997 (date of inception) through
December 31, 1997.
(F) Represents historical statement of operations data of Symmetrix from
January 1, 1997 until the Company's acquisition of Symmetrix was completed
effective July 30, 1997, and the historical statements of operations of SiGMA,
Pyramid, PTG, Sibson and Lexecon for the year ended December 31, 1997. The
Company's statement of operations for the period ended December 31, 1997
reflects the results of operations of Symmetrix for periods after July 30, 1997.
Revenues and expenses of Sibson Canada, Inc. have been translated from Canadian
dollars to U.S. dollars at the average exchange rate in effect for the period.
(G) In connection with the Sibson Acquisitions, 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, 1997 (and the interim period ended September 30,
1998) and the amount that would have been based on the new formulas set forth in
the respective employment agreements.
(H) Compensation expense -- repurchase of stock options resulted from the
cancellation and repurchase of all of outstanding options to purchase Symmetrix
stock in connection with its acquisition by the Company.
(I) Represents the adjustments to amortization expense to reflect the
allocation of the purchase price for the Symmetrix acquisition for the seven
months ended July 30, 1997 and the acquisitions of the other Acquired Companies
for the year ended December 31, 1997, in each case using 5 years for intangibles
related to personnel and 40 years for goodwill.
(J) Represents the adjustments to record the interest expense for the year
ended December 31, 1997 and the nine months ended September 30, 1998, resulting
from the $38,000,000 borrowing incurred in connection with the Sibson
acquisitions and from the $31,146,000 borrowing incurred in connection with the
Lexecon Acquisition. The borrowings bear interest at the assumed rate of 12% per
annum and mature on April 30, 1999.
(K) Represents the adjustments to eliminate the interest expense for the
indebtedness repaid with a portion of the estimated net proceeds from the
Offering.
(L) The pro forma tax provisions for the year ended December 31, 1997 and
the nine months ended September 30, 1998 are recorded for Symmetrix and Pyramid,
which are taxable operating units, and are
PF-5
<PAGE> 183
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based upon pro forma income for the year ended December 31, 1997 and the nine
months ended September 30, 1998, applied to the effective tax rate of both
entities.
(M) Represents the historical consolidated statement of operations of the
Company for the nine months ended September 30, 1998. The Company's statement of
operations for the nine months ended September 30, 1998 reflects the results of
operations of Business Performance Solutions 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.
(N) 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 for the eight months ended August 31, 1998
and the historical statement of income for Lexecon for the nine months ended
September 30, 1998.
(O) Represents the adjustments to amortization expense to reflect the
allocation of the purchase price for the PTG and Pyramid acquisitions for the
three months ended March 31, 1998, the Sibson Acquisitions for the eight months
ended August 31, 1998, and the Lexecon Acquisition for the nine months ended
September 30, 1998, in each case using 5 years for intangibles related to
personnel and 40 years for goodwill.
PF-6
<PAGE> 184
- ------------------------------------------------------------
- ------------------------------------------------------------
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................................... 35
Management................................. 47
Certain Transactions....................... 57
Principal Stockholders..................... 61
Description of Capital Stock............... 63
Shares Eligible for Future Sale............ 68
Underwriting............................... 71
Legal Matters.............................. 73
Experts.................................... 73
Available Information...................... 74
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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
SHARES
NEXTERA ENTERPRISES, INC. LOGO
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
BT ALEXS BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 185
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Class A Common Stock.
All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing and engraving expenses.............................
Blue Sky fees and expenses..................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
--------
TOTAL............................................. $
========
</TABLE>
- ------------------------------
All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors and officers to the fullest extent
permitted by Delaware law. Delaware law permits, but does not require, a
corporation to indemnify officers, directors, employees or agents and expressly
provides that the indemnification provided for under Delaware law shall not be
deemed exclusive of any indemnification right under any bylaw, vote of
stockholders or disinterested directors, or otherwise. Delaware law permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of the Company, provided that each such person acted in good faith and in
a manner that he or she reasonably believed was in or not opposed to the
Company's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware law does
not allow indemnification of directors in the case of an action by or in the
right of the Company (including stockholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court.
The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.
The Company maintains directors' and officers' liability insurance covering
its executive officers and directors. The policies have limits of up to
$ in the aggregate, subject to retentions of up to $ in the
aggregate.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On March 20, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This
II-1
<PAGE> 186
transaction was undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the Securities
Act.
(b) On March 20, 1997, Nextera LLC issued Class A Common Units to
EDU for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(c) On April 9, 1997, Nextera LLC issued a warrant to NEH (the "Warrant")
to purchase Class A Common Units of Nextera LLC at an exercise price
of $ per unit in connection with the initial capitalization of Nextera LLC.
The Warrant had an expiration date of August 1, 2002. On April 30, 1998, Nextera
LLC amended the Warrant to provide for the issuance of Class B Common Units upon
exercise of the Warrant rather than Class A Common Units. On April 30, 1998, the
Warrant was exchanged for Class B Common Units. These transactions were
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(d) On April 18, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(e) On May 19, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(f) On June 17, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(g) On July 23, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(h) On July 23, 1997, Nextera LLC issued Class A Common Units to
EDU for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(i) On August 15, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(j) On September 9, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(k) On September 30, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(l) On October 14, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
II-2
<PAGE> 187
(m) On November 4, 1997, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(n) On November 21, 1997, Nextera LLC issued to NEH Class A
Common Units for consideration of $ and Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(o) On January 5, 1998, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(p) On January 5, 1998, Nextera LLC issued Class A Common Units
to SiGMA Consulting, LLC in exchange for all of the issued and outstanding
ownership units of SiGMA Consulting, LLC. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Rule 506 of Regulation D promulgated under the Securities Act.
(q) On January 29, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(r) On February 11, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(s) On February 13, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(t) On February 26, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(u) Effective March 31, 1998, Nextera LLC issued Class A Common
Units to The Planning Technologies Group, Inc. as a part of the purchase price
for the assets of The Planning Technologies Group, Inc. This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Rule 506 of Regulation D under the Securities
Act.
(v) Effective March 31, 1998, Nextera LLC issued an aggregate of
Class A Common Units to the former stockholders of Pyramid Imaging,
Inc. as a part of the purchase price for all of the issued and outstanding
capital stock of Pyramid Imaging, Inc. This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(w) On April 7, 1998, Nextera LLC issued to NEH Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(x) On April 8, 1998, Nextera LLC issued to NEH Class B Preferred
Units for consideration of $ . This transaction was undertaken in
reliance upon the exemption from the registration requirements of the Securities
Act afforded by Section 4(2) of the Securities Act.
(y) On April 10, 1998, Nextera LLC issued to NEH Class A Common
Units for consideration of $ and Class B Preferred Units for
consideration of $ . This transaction was
II-3
<PAGE> 188
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(z) On April 30, 1998, Nextera LLC issued to NEH Class B
Preferred Units for consideration of $ . This transaction was
undertaken in reliance upon the exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
(aa) Effective as of April 30, 1998, approximately $48.0 million of Nextera
LLC's contributed capital was redesignated as debt in the form of two debentures
issued to NEH. The first debenture is dated March 20, 1997 with a principal
amount of $23.0 million, which matures on May 1, 2002 and bears interest at a
rate of 10% per annum. The second debenture is dated January 5, 1998 with a
principal amount of $25.0 million, which matures on May 1, 2002 and bears
interest at a rate of 10% per annum. This transaction was undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Securities Act.
(bb) On August 31, 1998, Nextera LLC issued to Gresham T. Brebach, Jr.
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(cc) On August 31, 1998, Nextera LLC issued to Ronald K. Bohlin
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(dd) On August 31, 1998, Nextera LLC issued to Michael P. Muldowney
Class A Common Units and Class B Common Units for aggregate
consideration of $800. This transaction was undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
(ee) On August 31, 1998, Nextera LLC issued to Debra I. Bergevine
Class A Common Units and Class B Common Units for aggregate
consideration of $ . This transaction was undertaken in reliance upon
the exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(ff) On August 31, 1998, Nextera LLC issued to David Fritts Class
A Common Units and Class B Common Units for aggregate consideration of
$ . This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(gg) On August 31, 1998, Nextera LLC issued to Belden Menkus Class A Common
Units and Class B Common Units for aggregate consideration of
$ . This transaction was undertaken in reliance upon the exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(hh) Effective August 31, 1998, Nextera LLC issued an aggregate of Class A
Common Units to Sibson & Company, Inc. and SC2, Inc. as a part of the purchase
price for the assets of Sibson & Company, L.P.
(ii) Effective August 31, 1998, Nextera LLC issued an aggregate of Class A
Common Units to certain employees pursuant to employment agreements between
SC/NE, LLC and such employees, each dated as of August 31, 1998, for aggregate
consideration of $ . These transactions were undertaken in reliance
upon the exemption from the registration requirements of the Securities Act
afforded by Rule 506 of Regulation D under the Securities Act.
(jj) Effective December 31, 1998, the Company issued shares of
Class A Common Stock and shares of Class B Common Stock to the
former members of Nextera LLC other than the Sibson Entities in exchange for
Class A Common Units of Nextera LLC and
II-4
<PAGE> 189
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.
(kk) Effective December 31, 1998, the Company issued 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 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.
(ll) Effective December 31, 1998, the Company issued shares
of Class A Common Stock and agreed to issue up to 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.
(mm) Effective December 31, 1998, the Company granted to certain employees
of Lexecon fully-exercisable options to purchase shares of Class
A Common Stock at an exercise price of $ per share as a signing bonus to
such employees in connection with employment agreements entered into between
such employees and Nextera at the time of the Lexecon Transaction. 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 issued a warrant to purchase
shares of Class A Common Stock to KU, Inc. in return for the Guaranty
by KU, Inc. 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.
(oo) From April 1, 1997, through December 31, 1998, Nextera LLC granted to
certain employees options to purchase Class A Common Units at an
exercise price of $ per unit under the Amended and Restated Employee Equity
Participation Plan of Nextera LLC (the "Nextera LLC Equity Participation Plan").
From January 7, 1998 through September 14, 1998, Nextera LLC granted to certain
employees options to purchase Class A Common Units at an exercise
price of $ per unit under the Nextera LLC Equity Participation Plan. Each of
the options vest 25% each year over a four-year period. These transactions were
undertaken in reliance upon the exemptions from the registration requirements of
the Securities Act afforded by Rule 701 under the Securities Act or Section 4(2)
of the Securities Act.
(pp) Effective December 31, 1998, the Company agreed in connection with the
Lexecon transaction to grant options to purchase a total of
shares of Class A Common Stock to certain employees and
consultants of Lexecon under the 1998 Plan. Each of the options will vest at the
rate of one-third each year over a three year period. The exercise price of each
option will equal $ per share or % of the price 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.
(qq) Effective , the Company issued a total of options
to purchase Class A Common Stock under the 1998 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.
II-5
<PAGE> 190
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
1.1(3) Form of Underwriting Agreement.
3.1(2) Amended and Restated Certificate of Incorporation.
3.2(2) Amended and Restated Bylaws.
4.1(3) Form of Class A Common Stock Certificate.
4.2(3) Form of Class B Common Stock Certificate.
4.3(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A.
4.4(2) 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.
4.5(2) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc.
4.6(3) Warrant Agreement dated as of December 31, 1998 by and
between Nextera Enterprises, Inc. and Knowledge Universe,
Inc.
5.1(3) Opinion of Latham & Watkins.
10.1(1) Form of 1998 Equity Participation Plan.
10.2(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto.
10.3(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company.
10.4(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto.
10.5(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.6(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto.
10.7(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.
10.8(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust Company.
</TABLE>
II-6
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.9(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C.
10.10(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company.
10.11(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto.
10.12(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc.
10.13(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.14(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto.
10.15(1) Escrow Agreement dated as of August 31, 1998 by an among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company.
10.16(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto.
10.17(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc.
10.18(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc.
10.19(2) 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.
10.20(2) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding, Inc.
10.21(2) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe, Inc.
10.22(2) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc.
10.23(2) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto.
10.24(2) 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>
II-7
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
10.25(2) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000.
10.26(2) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000.
10.27(2) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.28(2) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.29(2) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000.
10.30(2) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000.
10.31(3) Amendment to Debenture in the principal amount of
$23,000,000 dated as of December 31, 1997.
10.32(3) Amendment to Debenture in the principal amount of
$24,970,000 dated as of December 31, 1997.
10.33(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr.
10.34(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin.
10.35(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney.
10.36(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C.
10.37(1) Employment Agreement dated as of March 25, 1997 by and
between Robert F. Staley and Education Technology
Consulting, L.L.C.
10.38(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC.
10.39(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.
10.40(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.
10.41(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.
10.42(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C.
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants.
23.1.4(2) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.1.5(2) Consent of Ernst & Young LLP, Independent Auditors.
23.1.6(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors.
</TABLE>
II-8
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
23.1.7(2) Consent of Farkouh, Furman & Faccio, Independent Auditors.
23.1.8(2) Consent of Grant Thornton.
23.1.9(2) Consent of Ernst & Young LLP, Independent Auditors
23.1.10(2) Consent of Ernst & Young LLP, Independent Auditors
23.2(3) Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1(1) Power of Attorney.
24.2(1) Power of Attorney.
27.1(2) Financial Data Schedule.
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statements.
All required Financial Statements are included in the Prospectus.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being 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-9
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 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 January 21, 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. 2 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 January 21, 1999
- ----------------------------------------------------- Officer and Chairman of the
Gresham T. Brebach, Jr. Board of Directors (Principal
Executive Officer)
/s/ MICHAEL P. MULDOWNEY Chief Financial Officer January 21, 1999
- ----------------------------------------------------- (Principal Financial and
Michael P. Muldowney Accounting Officer)
/s/ RONALD K. BOHLIN Chief Operating Officer and January 21, 1999
- ----------------------------------------------------- Director
Ronald K. Bohlin
ROGER BROSSY* Director January 21, 1999
- -----------------------------------------------------
Roger Brossy
RALPH FINERMAN* Director January 21, 1999
- -----------------------------------------------------
Ralph Finerman
STEVEN B. FINK* Director January 21, 1999
- -----------------------------------------------------
Steven B. Fink
STANLEY E. MARON* Director January 21 1999
- -----------------------------------------------------
Stanley E. Maron
RICHARD V. SANDLER* Director January 21, 1999
- -----------------------------------------------------
Richard V. Sandler
MICHAEL D. ROSE* Director January 21, 1999
- -----------------------------------------------------
Michael D. Rose
</TABLE>
*By: /s/ GRESHAM T. BREBACH, JR.
-------------------------------
Gresham T. Brebach, Jr.
Attorney-in-Fact
II-10
<PAGE> 195
SCHEDULE II
NEXTERA ENTERPRISES, L.L.C.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Period ended December 31, 1997
Reserves and allowances deducted from asset
accounts..................................
Allowance for uncollectible accounts... $ -- $100,000 $ -- $100,000
</TABLE>
S-1
<PAGE> 196
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
1.1(3) Form of Underwriting Agreement. ............................
3.1(2) Amended and Restated Certificate of Incorporation. .........
3.2(2) Amended and Restated Bylaws. ...............................
4.1(3) Form of Class A Common Stock Certificate. ..................
4.2(3) Form of Class B Common Stock Certificate. ..................
4.3(1) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises, Inc.
and individuals and other parties listed on the Table of
Stockholders attached thereto as Schedule A. ...............
4.4(2) 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. .............
4.5(2) Letter dated December 15, 1998 from Nextera Enterprises,
Inc. to certain stockholders of Nextera Enterprises, Inc....
4.6(3) Warrant Agreement by and between Nextera Enterprises, Inc.
and Knowledge Universe, Inc. ...............................
5.1(3) Opinion of Latham & Watkins. ...............................
10.1(1) Form of 1998 Equity Participation Plan. ....................
10.2(1) Stock Purchase Agreement dated as of July 30, 1997 by and
among Nextera Enterprises, L.L.C., Symmetrix, Inc. and the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto. .....................
10.3(1) Escrow Agreement dated as of July 30, 1997 by and among
Nextera Enterprises, L.L.C., Symmetrix, Inc., the
stockholders and certain option holders of Symmetrix, Inc.
listed on the signature pages thereto and State Street Bank
and Trust Company. .........................................
10.4(1) Purchase Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, and the
members of SiGMA Consulting, LLC listed on the signature
pages thereto. .............................................
10.5(1) Escrow Agreement dated as of January 5, 1998 by and among
SGM Consulting, L.L.C., Nextera Enterprises, L.L.C., Nextera
Enterprises Holdings, L.L.C., SiGMA Consulting, LLC, the
members of SiGMA Consulting, LLC listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.6(1) Purchase Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc. and the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto. ...................................
10.7(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. ..........................................
10.8(1) Escrow Agreement dated as of March 31, 1998 by and among
Nextera Enterprises, L.L.C., Pyramid Imaging, Inc., the
stockholders of Pyramid Imaging, Inc. listed on the
signature pages thereto and Chase Manhattan Trust
Company. ...................................................
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.9(1) Asset Purchase Agreement dated as of March 31, 1998 by and
among The Planning Technologies Group, Inc., the
shareholders of The Planning Technologies Group, Inc. listed
on the signature pages thereto, The Planning Technologies
Group, L.L.C., Nextera Enterprises, L.L.C. and Nextera
Enterprises Holdings, L.L.C. ...............................
10.10(1) Escrow Agreement dated as of March 31, 1998 by and among The
Planning Technologies Group, LLC, Nextera Enterprises,
L.L.C., Nextera Enterprises Holdings, L.L.C., The Planning
Technologies Group, Inc., the shareholders of The Planning
Technologies Group, Inc. listed on the signature pages
thereto and Chase Manhattan Trust Company. .................
10.11(1) Asset Purchase Agreement dated as of August 31, 1998 by and
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc., SC2, Inc., and the
shareholders of Sibson & Company, Inc. and SC2, Inc. listed
on the signature pages thereto. ............................
10.12(1) First Amendment to Asset Purchase Agreement dated as of
August 31, 1998 by and among SC/NE, LLC, Nextera
Enterprises, L.L.C., Sibson & Company, L.P., Sibson &
Company, Inc. and SC2, Inc. ................................
10.13(1) Escrow Agreement dated as of August 31, 1998 by and among
SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson & Company,
L.P., Sibson & Company, Inc., SC2, Inc., the shareholders of
Sibson & Company, Inc. and SC2, Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.14(1) Share Purchase Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Sibson Acquisition Co.
and the shareholders of Sibson Canada Inc. listed on the
signature pages thereto. ...................................
10.15(1) Escrow Agreement dated as of August 31, 1998 by an among
Nextera Enterprises, L.L.C., Sibson Acquisition Co., the
shareholders of Sibson Canada Inc. listed on the signature
pages thereto and Chase Manhattan Trust Company. ...........
10.16(1) Share Exchange Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., and the shareholders of
Sibson & Company, Inc., SC2, Inc. and Sibson Canada, Inc.
listed on the signature pages thereto. .....................
10.17(1) Securities Purchase Agreement dated as of August 31, 1998
between Nextera Enterprises, L.L.C. and Nextera Funding,
Inc. .......................................................
10.18(1) Senior Secured Note dated September 1, 1998 of Nextera
Enterprises, L.L.C. in favor of Nextera Funding, Inc. ......
10.19(2) 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. .......................................................
10.20(2) Assumption Agreement dated as of December 31, 1998 by
Nextera Enterprises, Inc. in favor of Nextera Funding,
Inc. .......................................................
10.21(2) Assignment Agreement dated as of December 31, 1998 by and
between Nextera Funding, Inc. and Knowledge Universe,
Inc. .......................................................
10.22(2) Senior Secured Note dated December 31, 1998 of Nextera
Enterprises, Inc. in favor of Knowledge Universe, Inc. .....
</TABLE>
<PAGE> 198
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
10.23(2) Contribution Agreement dated as of December 31, 1998 by and
among Nextera Enterprises, Inc., Lexecon Inc. and the
shareholders of Lexecon Inc. listed on the signature pages
thereto. ...................................................
10.24(2) 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. ..........
10.25(2) Debenture of Nextera Enterprises, L.L.C. dated March 20,
1997 in the principal amount of $23,000,000. ...............
10.26(2) Debenture of Nextera Enterprises, L.L.C. dated January 5,
1998 in the principal amount of $24,970,000. ...............
10.27(2) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000. .....................................
10.28(2) Assignment effective April 30, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000. .....................................
10.29(2) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $23,000,000. .....................................
10.30(2) Assignment effective August 5, 1998 with respect to
Debenture of Nextera Enterprises, L.L.C. in the principal
amount of $24,970,000. .....................................
10.31(3) Amendment dated as of December 31, 1997 to Debenture of
Nextera Enterprises, L.L.C. ................................
10.32(3) Amendment dated as of December 31, 1997 to Debenture of
Nextera Enterprises, L.L.C. ................................
10.33(1) Employment Agreement dated as of March 3, 1997 by and
between Education Technology Consulting Holdings, L.L.C. and
Gresham T. Brebach, Jr. ....................................
10.34(1) Employment Agreement dated as of April 1, 1997 by and
between Nextera Enterprises Holdings, L.L.C. and Ronald K.
Bohlin. ....................................................
10.35(1) Employment Agreement dated as of April 15, 1997 by and
between Nextera Enterprises, L.L.C. and Michael P.
Muldowney. .................................................
10.36(1) Employment Agreement dated as of April 25, 1997 by and
between Debra Bergevine and Education Technology Consulting,
L.L.C. .....................................................
10.37(1) Employment Agreement dated as of March 25, 1997 by and
between Robert F. Staley and Education Technology
Consulting, L.L.C. .........................................
10.38(1) Employment Agreement dated as of August 31, 1998 by and
between Roger Brossy and SC/NE, LLC. .......................
10.39(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. .....................................................
10.40(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. ...............................
10.41(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. ...............................
10.42(1) Promissory Note of Debra Bergevine dated January 2, 1998 in
the principal amount of $62,000 in favor of Nextera
Enterprises Holdings, L.L.C. ...............................
23.1.1(2) Consent of Ernst & Young LLP, Independent Auditors. ........
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<S> <C> <C>
23.1.2(2) Consent of Ernst & Young LLP, Independent Auditors. ........
23.1.3(2) Consent of BDO Seidman, LLP, Independent Certified Public
Accountants. ...............................................
23.1.4(2) Consent of PricewaterhouseCoopers LLP, Independent
Accountants. ...............................................
23.1.5(2) Consent of Ernst & Young LLP, Independent Auditors. ........
23.1.6(2) Consent of Harte Carucci & Driscoll, P.C., Independent
Auditors. ..................................................
23.1.7(2) Consent of Farkouh, Furman & Faccio, Independent
Auditors. ..................................................
23.1.8(2) Consent of Grant Thornton. .................................
23.1.9(2) Consent of Ernst & Young, LLP, Independent Auditors. .......
23.1.10(2) Consent of Ernst & Young, LLP, Independent Auditors. .......
23.2(3) Consent of Latham & Watkins (contained in Exhibit 5.1). ....
24.1(1) Power of Attorney. .........................................
24.2(1) Power of Attorney. .........................................
27.1(2) Financial Data Schedule. ...................................
</TABLE>
- ------------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF CERTIFICATE
OF INCORPORATION BEFORE PAYMENT OF
ANY PART OF THE CAPITAL
OF
NEXTERA ENTERPRISES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "Corporation")
is:
NEXTERA ENTERPRISES, INC.
2. The Corporation has not received any payment for any of its
stock.
3. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on July 20, 1998.
4. This Amended and Restated Certificate of Incorporation amends
and restates the Certificate of Incorporation of the Corporation, as now in
effect. This Amended and Restated Certificate of Incorporation was duly adopted,
pursuant to Section 241 of the General Corporation Law of the State of Delaware,
by the sole incorporator, no directors having been named in the Certificate of
Incorporation and no directors having been elected.
5. The Certificate of Incorporation is hereby amended and
restated in its entirety as follows:
"AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEXTERA ENTERPRISES, INC.
ARTICLE ONE
NAME
The name of the corporation (hereinafter the "Corporation") is
NEXTERA ENTERPRISES, INC.
ARTICLE TWO
REGISTERED OFFICE
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
<PAGE> 2
Street, in the City of Wilmington, County of New Castle, 19801; and the name of
the registered agent of the Corporation in the State of Delaware is The
Corporation Trust Company.
ARTICLE THREE
PURPOSE
The nature of the business and of the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law. The
Corporation shall possess and exercise all the powers and privileges granted by
the General Corporation Law, by any other law or by this Amended and Restated
Certificate of Incorporation, together with any powers incidental thereto as far
as such powers and privileges are necessary or convenient to the conduct,
promotion or attainment of the purposes of the Corporation.
ARTICLE FOUR
CAPITAL STRUCTURE
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 64,300,000 shares, consisting of three classes of
capital stock:
(a) 50,000,000 shares of Class A Common Stock, par value $0.001
per share (the "Class A Common Stock");
(b) 4,300,000 shares of 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"); and
(c) 10,000,000 shares of Preferred Stock, par value $0.001 per
share (the "Preferred Stock").
ARTICLE FIVE
COMMON STOCK
5.1 Identical Rights. Except as otherwise set forth in this ARTICLE
FIVE, the rights and privileges of the Common Stock shall be identical,
including, without limitation, the right to participate ratably in dividends and
other distributions (including distributions upon liquidation, dissolution or
other winding up of the Corporation), payable in cash, stock or property, except
that in the case of dividends or distributions 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. In addition,
neither the shares of Class A Common Stock nor the shares of Class B Common
Stock may be subdivided, consolidated, reclassified or otherwise changed unless
concurrently the shares of the other class of Common Stock are subdivided,
consolidated, reclassified or otherwise changed in the same proportion and the
same manner. The Corporation may not make any dividend or distribution with
respect to any class of Common Stock unless at the same time the Corporation
makes a ratable dividend or distribution with
2
<PAGE> 3
respect to each outstanding share of Common Stock regardless of class. 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
Corporation may designate and issue from time to time.
5.2 Voting Rights. The holders of the Common Stock shall vote as a
single class on all matters submitted to a vote of the stockholders to which the
holders of Common Stock are entitled to vote, except as may be required by
Delaware law or as otherwise expressly specified in this Amended and Restated
Certificate of Incorporation. Each share of Class A Common Stock shall be
entitled to one vote and each share of Class B Common Stock shall be entitled to
ten votes. The Corporation, by action of its Board of Directors and the
affirmative vote of the holders of a majority of the voting power of the capital
stock of the Corporation entitled to vote, may increase or decrease the number
of authorized shares of Common Stock or Preferred Stock of the Corporation (but
not below the number of shares of Common Stock or Preferred Stock, respectively,
then outstanding) irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law; provided, however, that any increase or decrease the
number of authorized shares of Class B Common Stock shall in addition to the
foregoing, require the affirmative vote of the holders of a majority of the
voting power of the Class B Common Stock, voting as a separate class.
5.3 Conversion Rights.
(a) Voluntary Conversion. Each share of Class B Common Stock is
convertible into one fully paid and non-assessable share of Class A
Common Stock at any time at the option of the holder. In order to
exercise the conversion privilege, the holder of any shares of Class B
Common Stock to be converted shall present and surrender the certificate
or certificates representing such shares during usual business hours at
the principal executive offices of the Corporation, or if any agent for
the registration of transfer of shares of Class B Common Stock is then
duly appointed and acting (said agent being hereinafter called the
"Transfer Agent"), then at the office of the Transfer Agent, accompanied
by written notice that the holder elects to convert the shares of Class
B Common Stock represented by such certificate or certificates, to the
extent specified in such notice. Such notice shall also state the name
or names (with addresses) in which the certificate or certificates for
shares of Class A Common Stock which shall be issuable on such
conversion shall be issued. If required by the Corporation, any
certificate for shares of Class B Common Stock surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation and the Transfer Agent, duly executed by
the holder of such shares or his or her duly authorized representative.
As promptly as practicable after the receipt of such notice and the
surrender of the certificate or certificates representing such shares of
Class B Common Stock as aforesaid, the Corporation shall issue and
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Class A
Common Stock issuable upon the conversion of such shares. Each
conversion of shares of Class B Common Stock shall be deemed to have
been effected on the date on which such notice shall have been received
by the Corporation or the Transfer Agent, as applicable, and the
certificate or certificates representing such shares shall have been
surrendered (subject to receipt by the Corporation or the Transfer
Agent, as applicable, within thirty (30) days thereafter of any required
instruments of transfer as aforesaid), and the person or persons in
whose name or names any certificate or certificates for shares of Class
A Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder or holders of record of the shares
represented thereby.
(b) Automatic Conversion.
3
<PAGE> 4
(i) Each share of Class B Common Stock shall convert
automatically into one fully paid and non-assessable share of Class A
Common Stock immediately prior to 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). For purposes of this Section 5.3(b), the
term "Controlled Affiliate" shall mean, with respect to a transferor,
any individual or entity that is controlled directly or indirectly (by
ownership of voting securities, contract or otherwise) by such
transferor. "Qualified Transfer" means (i) any transfer of shares of
Class B Common Stock by will or pursuant to the laws of descent and
distribution to any member or members of a stockholder's Family, (ii)
any transfer of shares of Class B Common Stock by a stockholder to a
domestic trust created for the sole benefit of one or more of the
stockholder or any member or members of the stockholder's Family, (iii)
any transfer of shares of Class B Common Stock from a trust described in
clause (ii) above to the stockholder (or former stockholder) who
transferred shares of Class B Common Stock to such trust, (iv) any
transfer to a domestic limited partnership or a domestic limited
liability company if there are no partners or members of such limited
partnership or 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.
(ii) Upon any Assignment of Class B Common Stock by
Knowledge Enterprises, Inc. ("KE"), 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 fully paid and non-assessable shares of
Class A Common Stock. For example, if KE Assigns 25% of its Class B
Common Stock to a third party who is not a Controlled 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.
(iii) In the event that a group comprised of one or more
of Michael R. Milken, Lawrence J. Ellison or Lowell J. Milken ceases to
control, directly or indirectly (through the ownership of voting
securities, contract or otherwise), KE or any other Person that owns any
or all of the shares of Class B Common Stock owned by KE on the date
hereof, then all Class B Common Stock shall automatically convert into
fully paid and non-assessable shares of Class A Common Stock.
Notwithstanding the foregoing, 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 fully paid and
non-assessable shares of Class A Common Stock immediately prior to such
foreclosure or similar action.
4
<PAGE> 5
(c) Unconverted Shares. If less than all of the shares of Class
B Common Stock evidenced by a certificate or certificates surrendered to
the Corporation (in accordance with such procedures as the Board of
Directors may determine) are converted, the Corporation shall execute
and deliver to or upon the written order of the holder of such
certificate or certificates a new certificate or certificates evidencing
the number of shares of Class B Common Stock which are not converted
without charge to the holder.
(d) Converted Shares. Any share of Class B Common Stock
converted pursuant to this Article Five shall thereupon be retired and
may not be reissued.
(e) Class A Common Stock. The Class A Common Stock has no
conversion rights.
5.4 Reservation. The Corporation hereby reserves, and shall at all
times reserve and keep available, out of its authorized and unissued shares of
Class A Common Stock, for the purposes of effecting conversions, such number of
duly authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock. The Corporation covenants that all the shares of Class A Common Stock so
issuable shall, when so issued, be duly and validly issued, fully paid and
non-assessable. The Corporation shall take all such action as may be necessary
to assure that all such shares of Class A Common Stock may be so issued without
violation of any applicable law or regulation.
5.5 Merger. Upon the merger or consolidation of the Corporation,
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 to the extent that the
Class A Common Stock and the Class B Common Stock differ as provided in this
Amended and Restated Certificate of Incorporation.
5.6 Liquidation. Upon any dissolution or liquidation of the
Corporation, the holders of the Class A Common Stock and Class B Common Stock
will be entitled to receive ratably all assets of the Corporation available for
distribution to stockholders, subject to any preferential rights of any then
outstanding shares of Preferred Stock.
ARTICLE SIX
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated in the resolution or
resolutions providing for the establishment of such series adopted by the Board
of Directors of the Corporation as hereinafter provided. Except as otherwise
expressly stated in the resolution or resolutions providing for the
establishment of a series of Preferred Stock, any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise expressly provided by law.
Authority is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred Stock in one or
more series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, if any including, without
limitation, dividend rights, conversion rights, redemption and sinking
5
<PAGE> 6
fund privileges, and liquidation preferences, as shall be stated in such
resolution or resolutions, all to the fullest extent permitted by the General
Corporation Law. Without limiting the generality of the foregoing, the
resolution or resolutions providing for the establishment of any series of
Preferred Stock may, to the extent permitted by law, provide that such series
shall be superior to, rank equally with or be junior to the Preferred Stock of
any other series. Except as otherwise expressly provided in the resolution or
resolutions providing for the establishment of any series of Preferred Stock, no
vote of the holders of shares of Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Amended and Restated
Certificate of Incorporation.
ARTICLE SEVEN
BOARD OF DIRECTORS
7.1 Number of Directors. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors consisting of
not less than seven nor more than thirteen directors, the exact number of
directors to be determined from time to time solely by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors.
7.2 Removal. No director (other than directors elected by one or more
series of Preferred Stock) may be removed from office by the stockholders except
for cause and, in addition to any other vote required by law, upon the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
7.3 Limitation of Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that this provision shall
not eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under section 174 of the General Corporation Law
or (d) for any transaction from which the director derived any improper personal
benefits.
If the General Corporation Law is amended after approval by the
stockholders of this ARTICLE SEVEN to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law, as so amended. No amendment to
or repeal of this provision shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment.
ARTICLE EIGHT
CORPORATE GOVERNANCE
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation and for the further definition
of the powers of the Corporation and its directors and stockholders:
1. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws of the Corporation.
6
<PAGE> 7
2. The stockholders may adopt, amend, alter, repeal or rescind
the by-laws of the Corporation only with, in addition to any other vote
required by law, the affirmative vote of the holders of not less than 66
2/3% of the total voting power of all outstanding securities of the
Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
3. Elections of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
4. Any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken only upon the vote of
stockholders at an annual or special meeting duly noticed and called in
accordance with the General Corporation Law, and may not be taken by
written consent of stockholders without a meeting.
5. Special meetings of stockholders may be called by the Board
of Directors, the Chairman of the Board of Directors or the President of
the Corporation and may not be called by any other person.
Notwithstanding the foregoing, whenever holders of one or more series of
Preferred Stock shall have the right, voting separately as a series, to
elect directors, such holders may call special meetings of such holders
pursuant to the certificate of designation for such series.
ARTICLE NINE
STOCKHOLDER LOCK-UP
Until the date that is 180 days after the date of the final prospectus
relating to the Corporation's initial public offering of equity securities (the
"Initial Public Offering"), each holder of shares of Common Stock, other than
shares of Common Stock acquired in such Initial Public Offering, hereby:
(a) 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 such holder 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 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 the prior written consent of the lead managing
underwriter of such Initial Public Offering;
(b) agrees not to make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock, without the prior written consent of the lead managing
underwriter of such Initial Public Offering; and
7
<PAGE> 8
(c) authorizes the Corporation to cause the transfer agent to
decline to transfer and/or to note stop transfer restrictions on the
transfer books and records of the Corporation with respect to any shares
of Common Stock and any securities convertible into or exercisable or
exchangeable for Common Stock for which the holder is the record holder
and, in the case of any shares or securities for which the holder if the
beneficial but not the record holder, agrees 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 (a), (b),
and (c) above shall not apply to any Assignment to a Controlled Affiliate or any
Qualified Transfer; provided that in connection with any such transfer the
transferee agrees to be bound by the terms of the lock-up restrictions set forth
in clauses (a), (b) and (c) above for the remainder of the 180 day period
described above.
ARTICLE TEN
AMENDMENT
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, and other provisions authorized by the
laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this ARTICLE TEN."
8
<PAGE> 9
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, which restates and amends the provisions of the Certificate of
Incorporation of the Corporation, and which has been duly adopted by the sole
incorporator in accordance with Section 241 of the General Corporation Law, has
been executed this 23rd day of December, 1998.
/s/ REESE ELLA DAY
----------------------
Reese Ella Day
9
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
NEXTERA ENTERPRISES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES................................................................1
Section 1. REGISTERED OFFICES.................................................1
Section 2. OTHER OFFICES......................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..............................................1
Section 1. PLACE OF MEETINGS..................................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS.....................................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF......................1
Section 4. VOTING.............................................................2
Section 5. PROXIES............................................................2
Section 6. SPECIAL MEETINGS...................................................2
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.....................3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.....................4
ARTICLE III DIRECTORS............................................................5
Section 1. THE NUMBER OF DIRECTORS............................................5
Section 2. VACANCIES..........................................................5
Section 3. REMOVAL............................................................5
Section 4. POWERS.............................................................6
Section 5. PLACE OF DIRECTORS' MEETINGS.......................................6
Section 6. REGULAR MEETINGS...................................................6
Section 7. SPECIAL MEETINGS...................................................6
Section 8. QUORUM.............................................................6
Section 9. ACTION WITHOUT MEETING.............................................6
Section 10. TELEPHONIC MEETINGS...............................................7
Section 11. COMMITTEES OF DIRECTORS...........................................7
Section 12. MINUTES OF COMMITTEE MEETINGS.....................................8
Section 13. COMPENSATION OF DIRECTORS.........................................8
ARTICLE IV OFFICERS..............................................................8
Section 1. OFFICERS...........................................................8
Section 2. ELECTION OF OFFICERS...............................................9
Section 3. SUBORDINATE OFFICERS...............................................9
Section 4. COMPENSATION OF OFFICERS...........................................9
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES..............................9
Section 6. CHAIRMAN OF THE BOARD..............................................9
Section 7. PRESIDENT..........................................................9
Section 8. VICE PRESIDENTS...................................................10
Section 9. SECRETARY.........................................................10
Section 10. ASSISTANT SECRETARY..............................................10
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER.............................10
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER...................11
ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS.............................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI INDEMNIFICATION OF EMPLOYEES AND AGENTS..............................15
ARTICLE VII CERTIFICATES OF STOCK...............................................15
Section 1. CERTIFICATES......................................................15
Section 2. SIGNATURES ON CERTIFICATES........................................15
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES................16
Section 4. LOST CERTIFICATES.................................................16
Section 5. TRANSFERS OF STOCK................................................16
Section 6. FIXED RECORD DATE.................................................17
Section 7. REGISTERED STOCKHOLDERS...........................................17
ARTICLE VIII GENERAL PROVISIONS.................................................17
Section 1. DIVIDENDS.........................................................17
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES...........................17
Section 3. CHECKS............................................................18
Section 4. FISCAL YEAR.......................................................18
Section 5. CORPORATE SEAL....................................................18
Section 6. MANNER OF GIVING NOTICE...........................................18
Section 7. WAIVER OF NOTICE..................................................18
ARTICLE IX AMENDMENTS...........................................................19
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS............................19
</TABLE>
ii
<PAGE> 4
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of
the voting power of the shares of capital stock of the corporation issued and
outstanding and entitled to vote at any meeting of stockholders, the holders of
which are present in person or represented by proxy, shall constitute a quorum
for the transaction of business except as otherwise provided by law, by the
Amended and Restated Certificate of Incorporation, or by these Bylaws. A quorum,
once established, shall not be broken by the withdrawal of enough votes to leave
less than a quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting power of the shares of
capital stock represented in person or by proxy at such meeting may adjourn the
meeting from time to time, without notice other than announcement at the meeting
of the time and place of the adjourned meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
1
<PAGE> 5
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in all
matters other than the election of directors, the vote of the holders of stock
representing a majority of the voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the Amended and Restated Certificate
of Incorporation, or these Bylaws, or any rule, regulation or statutory
provision applicable to the corporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him/her by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless said instrument provides for a longer
period. All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose, or purposes, unless otherwise prescribed by statute or by the
Amended and Restated Certificate of Incorporation, may be called by the Chairman
of the Board or the President and shall be called by the President or the
Secretary at the request in writing of the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
2
<PAGE> 6
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (1) of this
By-Law, the stockholder must have given timely notice thereof in writing to the
Secretary of the corporation and such other business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the corporation
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is not within 30 days before or after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
close of business on the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the earlier of (i) the day on which notice of
the meeting was mailed or (ii) the date public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14A-11 thereunder (including such
person's written consent to
3
<PAGE> 7
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, 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; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder and of such beneficial owner, as they appear on the corporation's
books, and (ii) the class and number of shares of the corporation which are
owned beneficially and of record by such stockholder and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER
LIST. The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
4
<PAGE> 8
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS.
The number of directors (other than directors elected by one or more
series of Preferred Stock) which shall constitute the entire Board shall be not
less than seven nor more than thirteen directors, the exact number of directors
to be determined from time to time solely by resolution adopted by the
affirmative vote of a majority of the directors. The directors need not be
stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his/her successor is duly elected and qualified.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason of
death, resignation, removal, or otherwise, and newly created directorships
resulting from any increase in the number of directors may be filled (other than
directors elected by one or more series of Preferred Stock) solely by a majority
of the directors then in office (although less than a quorum) or by a sole
remaining director. Each director so chosen shall hold office until such
director's successor shall have been duly elected and qualified or until such
director's earlier death, resignation, disqualification or removal. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the entire Board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. REMOVAL. No director may be removed from office by the
stockholders except for cause with the affirmative vote of the holders of
two-thirds (66 2/3%) of all outstanding securities of the corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
5
<PAGE> 9
Section 4. POWERS. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not directed or required by statute, by the Amended and Restated
Certificate of Incorporation or by these Bylaws to be exercised or done by the
stockholders.
Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may hold their
meetings and have one or more offices, and keep the books of the corporation
outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on forty-eight
hours' notice to each director, either personally or by mail, telecopier, or
other means of electronic transmission at the address of such director on the
books and records of the corporation; special meetings shall be called by the
President or the Secretary in like manner and on like notice on the written
request of two directors.
Section 8. QUORUM. At all meetings of the Board of Directors a majority
of the then authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Amended and Restated Certificate of Incorporation or by these
Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Amended and Restated Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all
6
<PAGE> 10
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Amended and Restated Certificate of Incorporation or these Bylaws, members of
the Board of Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors, or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each such committee to consist of one or more of the
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he/she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Amended and Restated Certificate
of Incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Amended and
Restated Certificate
7
<PAGE> 11
of Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Amended and Restated Certificate of Incorporation or these Bylaws, the Board
of Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be chosen by
the Board of Directors and shall include a Chairman of the Board of Directors or
a President, or both, and a Secretary. The corporation may also have at the
discretion of the Board of Directors such other officers as are desired,
including a Vice-Chairman of the Board of Directors, a Chief Executive Officer,
a Chief Financial Officer or Treasurer, one or more Vice Presidents, one or more
Assistant Secretaries and Assistant Chief Financial Officers or Treasurers, and
such other officers as may be appointed in accordance with the provisions of
Section 3 hereof. In the event there are two or more Vice Presidents, then one
or more may be designated as an Executive Vice President, Senior Vice President
or other similar or dissimilar title. At the time of the election of officers,
the directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Amended and Restated
Certificate of Incorporation or these Bylaws otherwise provide.
8
<PAGE> 12
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the members of the
Board of Directors. If the office of any officer or officers becomes vacant for
any reason, the vacancy shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him/her by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He/she shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He/she shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and Chief
9
<PAGE> 13
Executive Officer of corporations, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He/she shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or these Bylaws. He/she
shall keep in safe custody the seal of the corporation, and when authorized by
the Board, affix the same to any instrument requiring it, and when so affixed it
shall be attested by his/her signature or by the signature of an Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by
his/her signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief Financial
Officer or Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
10
<PAGE> 14
moneys and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He/she shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his/her transactions as Chief
Financial Officer or Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he/she shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his/her office and for the restoration to the corporation, in case of
his/her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his/her
possession or under his/her control belonging to the corporation.
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER. The
Assistant Chief Financial Officer or Treasurer, or if there shall be more than
one, the Assistant Chief Financial Officers or Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Chief Financial Officer or Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
Treasurer, perform the duties and exercise the powers of the Chief Financial
Officer or Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he/she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts
11
<PAGE> 15
paid in settlement actually and reasonably incurred by him/her in connection
with such action or suit or proceeding if he/she acted in good faith and in a
manner he/she reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his/her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his/her conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he/she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him/her in connection with the defense
or settlement of such action or suit if he/she acted in good faith and in a
manner he/she reasonably believed in or not opposed to the best interests of the
corporation except that no such indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he/she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him/her
in connection therewith.
12
<PAGE> 16
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by
a court) shall made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he/she has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil
or criminal, administrative or investigative action, suit or proceeding shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he/she is
not entitled to be indemnified by the corporation as authorized in this Article
V. Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity while holding
such office.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him/her and incurred by him/her in any such
13
<PAGE> 17
capacity, or arising out of his/her status as such, whether or not the
corporation would have the power to indemnify him/her against such liability
under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article V with
respect to the resulting or surviving corporation as he/she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
references to serving at the request of the "corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he/she reasonably believed to
be in the best interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner not opposed to the best
interests of the "corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
14
<PAGE> 18
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify every person who was or is
a party or is or was threatened to be made a party to any action, suit, or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he/she is or was an employee or agent of the corporation or,
while an employee or agent of the corporation, is or was serving at the request
of the corporation as an employee or agent or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him/her in connection with
such action, suit or proceeding, to the extent permitted by applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation shall
be entitled to have a certificate signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Chief Financial Officer or
Treasurer of the corporation, certifying the number of shares represented by the
certificate owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he/she were such officer, transfer agent, or registrar at the
date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class,
15
<PAGE> 19
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
shall be set forth in full or summarized on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock;
provided that, except as otherwise provided in section 202 of the General
Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests 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.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his/her legal representative, to advertise the same in such
manner as it shall require and/or to give the corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof,
16
<PAGE> 20
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date which shall not be more
than 60 nor less than ten days before the date of such meeting, nor more than 60
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Amended and Restated Certificate
of Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Amended and Restated Certificate of Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment of
any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
17
<PAGE> 21
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions of
the Amended and Restated Certificate of Incorporation, or of these Bylaws, or
any rule, regulation or statutory provision applicable to the corporation,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given (unless
otherwise provided) in writing, by mail, addressed to such director or
stockholder, at his/her address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by mail, telecopier, or other means of electronic
transmission at the address of such director on the books and records of the
corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the Amended and Restated Certificate of Incorporation or
of these Bylaws, or any rule, regulation or statutory provision applicable to
the corporation, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws may be
altered, amended or repealed or new Bylaws may be adopted by the Board of
Directors, when such
18
<PAGE> 22
power is conferred upon the Board of Directors by the Amended and Restated
Certificate of Incorporation, or by the affirmative vote of not less than 66
2/3% of the total voting power of all outstanding securities of the corporation
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 alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE> 23
CERTIFICATE OF SECRETARY
I, Stanley E. Maron, do hereby certify:
(1) That I am the duly elected and acting Secretary of Nextera
Enterprises, Inc., a Delaware corporation (the "Corporation"); and
(2) That the foregoing Amended and Restated Bylaws constitute the
bylaws of the Corporation as duly adopted by the unanimous written consent of
the Board of Directors of the Corporation as of December 31, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 31st
day of December 1998.
/s/ STANLEY E. MARON
---------------------------
Secretary
20
<PAGE> 1
EXHIBIT 4.4
FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
This First Amendment to Stockholders Agreement (the "Amendment"), dated
as of December 15, 1998, is entered into by and among Nextera Enterprises,
L.L.C., a Delaware limited liability company ("Nextera"), Nextera Enterprises,
Inc., a Delaware corporation (the "Company"), and the individuals and other
parties listed on the signature pages hereof and their permitted successors and
assigns (each a "Stockholder" and collectively, the "Stockholders").
A. Nextera, the Company and the Stockholders have entered into a
Stockholders Agreement dated as of August 31, 1998 (the "Stockholders
Agreement"). Section 12.1 of the Stockholders Agreement provides that the
Stockholders Agreement may be amended by an instrument in writing signed by
Nextera or the Company, Stockholders holding a majority of the Subject Shares
and Stockholders holding a majority of the Subject Shares held by Sibson
Persons. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Stockholders Agreement.
B. The Company has signed a non-binding letter of intent with Lexecon
Inc., an Illinois corporation ("Lexecon"), relating to a possible transaction
whereby the holders of all of the outstanding capital stock of Lexecon (the
"Lexecon Persons") may contribute such stock to the Company in exchange for,
among other things, the issuance by the Company of shares of its Class A Common
Stock and/or options to purchase shares of Class A Common Stock ("Options") to
the Lexecon Persons (the "Lexecon Transaction"). The Company also may issue
shares of its Class A Common Stock and/or Options to certain Lexecon employees
in connection with the Lexecon Transaction.
C. The Company, from time to time, may desire to issue additional shares
of its Common Stock in connection with other transactions.
D. The parties desire to amend the Stockholders Agreement to permit the
Company to add additional parties to the Stockholders Agreement as Stockholders
in connection with the Lexecon Transaction and other transactions and to reflect
certain other matters as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency is hereby acknowledged, the parties agree as follows:
1. Additional Stockholders. Section 12.1 of the Stockholders Agreement
is hereby deleted and replaced in its entirety with the following:
"12.1 Amendments. This Agreement may not be amended except by an
instrument in writing signed by Nextera or the Company, Stockholders holding a
majority of the Subject Shares and Stockholders holding a majority of the
Subject Shares held by Sibson Persons; provided, however, that this Agreement
may be amended solely to add additional parties to this Agreement as
Stockholders by (i) the affirmative vote of a majority of the members of the
Board of Directors of the Company (from and after the consummation of the
Incorporation Transaction)
<PAGE> 2
or the affirmative vote of a majority of the members of the governing body of
Nextera (prior to the consummation of the Incorporation Transaction), and (ii)
the execution of signature pages or such other documentation as may be required
by the Company or Nextera by each additional Stockholder party. Nextera or the
Company shall have the power to amend Schedule A to this Agreement from time to
time to reflect amendments adding parties as Stockholders."
2. Lexecon Board Representative. The following new section 7.1 is added
to the Stockholders Agreement effective as of the closing of the Lexecon
Transaction:
"7.1 Lexecon Board Representative. Until the second anniversary
of the closing of the Lexecon Transaction, the Stockholders shall be required to
elect one person that is designated by the Lexecon Persons (the "Lexecon
Designee") to the Board of Directors of the Company and each Stockholder agrees
to vote his Subject Shares to effectuate the same. The Lexecon Designee shall be
Andy Rosenfield until a successor is designated in a notice to the Company
signed by Lexecon Persons holding at least a majority of the shares of Class A
Common Stock held by all Lexecon Persons. Following the second anniversary of
the closing of the Lexecon Transaction, the Stockholders shall have no
obligation to elect the Lexecon Designee to the Board of Directors of the
Company. This Section 7.1 shall be effective only upon the closing of the
Lexecon Transaction."
3. Typographical Corrections. The last two words of the first sentence
of Section 1.3 of the Stockholders Agreement are hereby corrected to read
"Operating Agreement." The reference to "holders of Class A Common Stock being
entitled to ten votes per share" in clause (i) in the parenthetical at the end
of Section 17 is hereby corrected to read "holders of Class B Common Stock being
entitled to ten votes per share."
4. Full Force and Effect. Except as expressly amended by this Amendment,
the Stockholders Agreement shall continue in full force and effect. In the event
of any conflict or inconsistency between the Stockholders Agreement and this
Amendment, the terms of this Amendment shall govern.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
2
<PAGE> 3
IN WITNESS WHEREOF, this Amendment has been executed and
delivered as of the date first written above.
"NEXTERA":
NEXTERA ENTERPRISES, L.L.C.,
a Delaware limited liability company
By: /s/ Michael P. Muldowney
------------------------------------
Name: Michael P. Muldowney
Title: Chief Financial Officer
NEXTERA ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Michael P. Muldowney
------------------------------------
Name: Michael P. Muldowney
Title: Vice President
3
<PAGE> 4
"STOCKHOLDERS"
KNOWLEDGE ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Ralph Finerman
-------------------------------
Ralph Finerman
Its Secretary
/s/ Gresham Brebach, Jr. /s/ Debra Bergevine
- -------------------------------- ------------------------------------
Gresham Brebach, Jr. Debra Bergevine
/s/ Ronald Bohlin
- -------------------------------- ------------------------------------
Ronald Bohlin David Fritts
/s/ Michael Muldowney /s/ Belden Menkus
- -------------------------------- ------------------------------------
Michael Muldowney Belden Menkus
/s/ Patrick Flynn
- -------------------------------- ------------------------------------
Dwight Gertz Patrick Flynn
- -------------------------------- ------------------------------------
Jacob H. Brooks Charles Blackburn
- -------------------------------- ------------------------------------
Martin G. Glavin Douglas Stein
- -------------------------------- ------------------------------------
Herbert J. Guck Glenn Van Straatum
- -------------------------------- ------------------------------------
Michael Martindale Iain McNeil
/s/ John Robosson /s/ Dion C. Smith
- -------------------------------- ------------------------------------
John Robosson Dion C. Smith
4
<PAGE> 5
/s/ Ravinder Bhaskaran /s/ Michael J. Shepherd
- -------------------------------- ------------------------------------
Ravinder Bhaskaran Michael J. Shepherd
/s/ Ramesh Vasudevan /s/ Padmini Vasudevan
- -------------------------------- ------------------------------------
Ramesh Vasudevan Padmini Vasudevan
/s/ Mason S. Tenaglia
- -------------------------------- ------------------------------------
Mason S. Tenaglia Daniel Gilmore
/s/ Joseph Axelrod
- -------------------------------- ------------------------------------
Douglas Ferguson Joseph Axelrod
/s/ John Balkcom /s/ Mark Blessington
- -------------------------------- ------------------------------------
John Balkcom Mark Blessington
/s/ Frederick (Ted) Briggs /s/ Roger Brossy
- -------------------------------- ------------------------------------
Frederick (Ted) Briggs Roger Brossy
/s/ Seymour Burchman /s/ Pamela Cohen
- -------------------------------- ------------------------------------
Seymour Burchman Pamela Cohen
/s/ Glenn Dalton /s/ Barbara Dewey
- -------------------------------- ------------------------------------
Glenn Dalton Barbara Dewey
/s/ Donald Gallo /s/ Donald Gough
- -------------------------------- ------------------------------------
Donald Gallo Donald Gough
/s/ Elizabeth Hawk
- -------------------------------- ------------------------------------
Elizabeth Hawk Myrna Hellerman
/s/ James Kochanski /s/ Steven Landberg
- -------------------------------- ------------------------------------
James Kochanski Steven Landberg
5
<PAGE> 6
/s/ Peter LeBlanc /s/ William O'Connell
- -------------------------------- ------------------------------------
Peter LeBlanc William O'Connell
/s/ Vincent Perro /s/ Jude Rich
- -------------------------------- ------------------------------------
Vincent Perro Jude Rich
/s/ Karen Roche /s/ Anne Saunier
- -------------------------------- ------------------------------------
Karen Roche Anne Saunier
/s/ Richard Semler /s/ Stephen Strelsin
- -------------------------------- ------------------------------------
Richard Semler Stephen Strelsin
/s/ Gerard Thomas /s/ Douglas Tormey
- -------------------------------- ------------------------------------
Gerard (Chip) Thomas Douglas Tormey
/s/ Susan Annunzio Tynan /s/ Michael McInerney
- -------------------------------- ------------------------------------
Susan Annunzio Tynan Michael McInerney
/s/ Fred Mendelsohn
- --------------------------------
Fred Mendelsohn
6
<PAGE> 7
MATTHEW D. GOUGH TRUST
By: /s/ Donald Gough
-------------------------------
Donald Gough, as Trustee
By: /s/ Brandon E. Gough
-------------------------------
Brandon E. Gough, as Trustee
JEREMY P. GOUGH TRUST
By: /s/ Donald Gough
-------------------------------
Donald Gough, as Trustee
By: /s/ Brandon E. Gough
-------------------------------
Brandon E. Gough, as Trustee
BRANDON E. GOUGH TRUST
By: /s/ Donald Gough
-------------------------------
Donald Gough, as Trustee
By: /s/ Brandon E. Gough
-------------------------------
Brandon E. Gough, as Trustee
MYRNA HELLERMAN TRUST NO. 1
By:
-------------------------------
Richard L. Manning, as Trustee
7
<PAGE> 8
MYRNA HELLERMAN TRUST NO. 2
By:
-------------------------------
Richard L. Manning, as Trustee
MYRNA HELLERMAN TRUST NO. 1
By:
-------------------------------
Richard L. Manning, as Trustee
CHLOE ANN LEBLANC TRUST
By: /s/ Peter LeBlanc
-------------------------------
Peter LeBlanc, as Trustee
THE ALEXANDRA V. PERRO QUALIFIED
SUBCHAPTER S. TRUST
By:
-------------------------------
Fred Farkouh, as Trustee
By:
-------------------------------
Karin M. Perro, as Trustee
8
<PAGE> 9
THE SIENNA M. PERRO QUALIFIED
SUBCHAPTER S. TRUST
By:
-------------------------------
Fred Farkouh, as Trustee
By:
-------------------------------
Karin M. Perro, as Trustee
LEAH TRUST
By: /s/ Lauren J. Strelsin
-------------------------------
Lauren J. Strelsin, as Trustee
MARK BLESSINGTON TRUST
By:
-------------------------------
Mark Blessington, as Trustee
9
<PAGE> 1
EXHIBIT 4.5
NEXTERA ENTERPRISES, INC.
December 28, 1998
Sibson Persons
c/o Roger Brossy
Sibson & Company
10960 Wilshire Blvd.
Suite 1990
Los Angeles, California 90024
Dear Roger:
This letter will serve to set forth in writing our agreement relating to
certain matters associated with the Stockholders Agreement dated August 31,
1998, by and among Nextera Enterprises, Inc., Nextera Enterprises, L.L.C., and
the individuals and other parties listed on the signature pages thereof, and the
First Amendment To Stockholders Agreement dated December 15, 1998 (collectively,
the "Stockholders Agreement"). All terms used herein which are not otherwise
defined herein shall have the same meaning as set forth in the Stockholders
Agreement.
The First Amendment replaces Section 12.1 of the Stockholders Agreement
with a new Section 12.1 which provides that the Stockholders Agreement may be
amended solely to add additional parties to the Stockholders Agreement as
Stockholders upon the affirmative vote of a majority of the members of the Board
of Directors of the Company. Notwithstanding the foregoing, the Company agrees
that it will not add additional parties to the Stockholders Agreement without
the consent of Stockholders holding a majority of the Shares held by Sibson
Persons, other than as follows:
1. Those persons who receive stock of the Company in
connection with the transaction involving the contribution of the
stock of Lexecon Inc. to the Company (the "Lexecon Transaction")
<PAGE> 2
and those persons who exercise stock options that are received in connection
with the Lexecon Transaction may be added to the Stockholders Agreement as
Stockholders without the consent of the Sibson Persons.
2. Those persons who receive stock of the Company in connection with the
transaction involving the purchase of the stock of The Alexander Corporation
Limited by the Company (the "Alexander Transaction") and those persons who
exercise stock options that are received in connection with the Alexander
Transaction may be added to the Stockholders Agreement as Stockholders without
the consent of the Sibson Persons.
3. Those persons who receive stock of the Company in connection with the
provisions of the Share Purchase Agreement dated August 31, 1998, by and between
Sibson Acquisition, Co. and the holders of the shares of Sibson Canada Inc. (the
"Sibson Canada Transaction") and those persons who exercise stock options that
are received in connection with the Sibson Canada Transaction may be added to
the Stockholders Agreement as Stockholders without the consent of the Sibson
Persons.
4. Those persons who exercise stock options that are issued pursuant to
a corporate stock option plan that replaces any plan of Nextera LLC that was in
existence on September 1, 1998, may be added to the Stockholders Agreement as
Stockholders without the consent of the Sibson Persons.
Sincerely,
Nextera Enterprises, Inc.,
a Delaware corporation
By: /s/ Stanley E. Maron
-----------------------------------
Stanley E. Maron
Its Secretary
<PAGE> 1
EXHIBIT 10.19
CONSENT AND AMENDMENT
CONSENT AND AMENDMENT (this "Consent and Amendment"), dated as of
December 31, 1998, to the SECURITIES PURCHASE AGREEMENT dated as of August 31,
1998 (as the same may be amended, supplemented or otherwise modified from time
to time, the "Purchase Agreement") among Nextera Enterprises L.L.C. (the
"Company"), Nextera Funding, Inc. (the "Purchaser"), Nextera Enterprises, Inc.
("Newco") and Knowledge Universe, Inc.. ("KU").
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; and
WHEREAS, the Company has requested the Purchaser to consent to certain
transactions 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:
1. Defined Terms. Terms defined in the Purchase Agreement and used
herein shall have the meanings given to them in the Purchase Agreement.
2. Consents. Purchaser is willing to consent to the following upon and
subject to the terms and conditions set forth below:
(a) The contribution by the Company of its membership interest in
SGM Consulting LLC (d/b/a Sigma Consulting) ("SGM") and the subsequent
liquidation of SGM into Symmetrix, Inc. pursuant to the Contribution
Agreement dated as of December 31, 1998 among SGM and the Company.
Symmetrix shall subsequently change its name on or after January 1, 1999
to "Nextera Business Performance Solutions Group, Inc."
(b) The transfer of all the ownership interests in the Company to
Newco on the date hereof and the subsequent dissolution of the Company
<PAGE> 2
pursuant to the Share Exchange Agreement dated as of August 31, 1998 by
and among the Company, Newco, the shareholders of Sibson & Company,
Inc., the shareholders of SC2, Inc. and certain shareholders of Sibson
Acquisition Co.
(c) In connection with the Contribution Agreement dated as of
December 31, 1998 by and among the Company, Lexecon Inc. ("Lexecon") and
the shareholders of Lexecon identified on Exhibit A thereto, the
shareholders of all of the outstanding capital stock of Lexecon will
contribute such stock to the Company in exchange for (i) the issuance by
the Company of 2,816,000 shares of its Class A Common Stock and (ii)
$31,152,000 in cash.
3. Amendments. (a) Section 1.1 of the Purchase Agreement is hereby
amended by adding at the end of the definition of "Commitment" the following:
"and the KU Commitment".
(b) Section 1.1 of the Purchase Agreement is hereby amended by
changing the definition of "Company" from "Nextera Enterprises, L.L.C., a
Delaware limited liability company" to "Nextera Enterprises, Inc., a Delaware
corporation".
(c) Section 1.1 of the Purchase Agreement is hereby amended by
adding at the end of the definition of "Engagement Letter" the following: "and
the letter agreement dated as of December 31, 1998 between the Company and
DLJSC".
(d) Section 1.1 of the Purchase Agreement is hereby amended by
changing the definition of "Maturity Date" from "March 1, 1999" to "April 30,
1999".
(e) Section 1.1 of the Purchase Agreement is hereby amended to
add the following definitions in the proper alphabetical order:
"Consent and Amendment" means the Consent and Amendment dated as
of December 31, 1998 among Nextera Enterprises L.L.C., Nextera Funding, Inc.,
Nextera Enterprises, Inc. and Knowledge Universe, Inc.
"KU" mean Knowledge Universe, Inc.
"KU Commitment" means the obligation of KU to purchase Notes
hereunder in an aggregate principal amount of up to $37,500,000 to be the first
funds
2
<PAGE> 3
advanced pursuant to the Second Takedown and to be used in connection with the
Lexecon Acquisition.
"Lexecon Acquisition" means the acquisition by the Company of the
stock Lexecon Inc. as described in the Consent and Amendment.
(f) Section 2.1 of the Purchase Agreement is hereby amended by
changing the reference to "and Purchaser agrees to purchase, Notes in an
aggregate amount not to exceed $40,000,000" to the following: "and Purchaser and
KU each agree to purchase, Notes in the aggregate amount not to exceed
$77,500,000".
(g) Section 2.6 of the Purchase Agreement is hereby amended by
adding at the end of the first sentence of clause (b) the following: ";
provided, however, that notwithstanding anything to the contrary in this Section
2.6(b), on and after December 31, 1998 the interest shall be payable at the rate
of 12% per annum."
(h) Section 5.2(a) of the Purchase Agreement is hereby amended by
deleting the phase "Delphi Acquisition" and substituting in lieu thereof the
phrase "Lexecon Acquisition".
(i) Article 6 of the Purchase Agreement is hereby amended to add
the following new section: "Section 6.21 KU Debt. The documents evidencing the
KU Debt shall be amended (as so amended, the "KU Documents") by the Company and
KU by no later than January 15, 1998 to provide that the obligations covered
thereunder shall, upon the occurrence of any notice of Default from Purchaser
hereunder, either be (i) moved up in the Company's capital structure to a
holding company level or at KU's election, (ii) exchanged for preferred stock of
the Company on terms essentially equivalent to those of the KU Debt and with a
liquidation preference until all amounts owed to the Purchaser are paid in full
at which time the terms can change, and such KU Documents shall be satisfactory
to the Purchaser in its sole discretion."
(j) Section 6.1 of the Purchase Agreement is hereby amended
(including grammatically as necessary) to add the following new subsection (l):
"(l) promptly at the end of each calendar month, monthly financial data of the
Company and its Subsidiaries for the preceding month (including without
limitation, income statements, balance sheets and backlog on a consolidated and
business unit basis) in form and substance satisfactory to Purchaser."
3
<PAGE> 4
4. Effective Date. This Consent and Amendment shall become effective on
the date (the "Effective Date") on which:
(a) the Company and the Purchaser shall have duly executed and
delivered to the Purchaser this Consent and Amendment and all other documents
required by Purchaser to be executed in connection with this Consent and
Amendment, including, without limitation, those items listed on Schedule I
hereto;
(b) KU shall have entered into an Assignment Agreement with the
Purchaser in form and substance satisfactory to the Purchaser, the form of which
is attached hereto;
(c) KU shall have provided evidence satisfactory to the Purchaser
of its willingness to fund up to $37,500,000 pursuant to the Purchase Agreement
in connection with the Second Takedown and that such funds shall be used first
in connection with the Second Takedown;
(d) Purchaser shall have received executed copies of one or more
favorable opinions of counsel for each of the Company and KU, in form and
substance satisfactory to Purchaser, dated as of the date hereof with respect
to, among other things, the enforceability, validity and binding effect of this
Consent and Amendment and the Assignment Agreement; and
(e) Purchaser shall have received an originally executed copy of
that certain letter agreement among DLJSC, the Company and the other parties
thereto (the "Letter Agreement").
5. Covenant. Purchaser agrees to amend the Financing Documents by
January 8, 1999 as may be reasonably necessary to reflect KU's status as secured
party thereunder.
6. No Other Amendments; Confirmation. Except as expressly amended
hereby, the provisions of the Purchase Agreement and other Financing Documents
are and shall remain in full force and effect.
7. Governing Law. This Consent and Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
4
<PAGE> 5
8. Counterparts. This Consent and Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. This Consent and Amendment may be delivered by facsimile
transmission of the relevant signature pages hereof.
9. Representations and Warranties. The Company hereby represents and
warrants that (a) each of the representations and warranties in Section 3 of the
Purchase Agreement shall be, after giving effect to this Consent and Amendment,
true and correct in all material respects as if made on and as of the date of
the Initial Takedown (unless such representations and warranties are stated to
relate to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date) and (b) after giving effect to this Consent and Amendment, no Default or
Event of Default shall have occurred and be continuing.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have caused this Consent and
Amendment to be executed and delivered by their duly authorized officers as of
the date first above written.
NEXTERA FUNDING, INC.
By: /s/ Cameron Fleming
-------------------------------
Name: Cameron Fleming
Title: Vice President
NEXTERA ENTERPRISES, L.L.C.
By: /s/ Stanley E. Maron
-------------------------------
Name: Stanley E. Maron
Title: Secretary
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
6
<PAGE> 7
Schedule I
1) Assignment Agreement between Purchaser and KU.
2) Secured Note by Newco in favor of KU in the aggregate amount of up to
$37,500,000.
3) Assumption Agreement entered into by Newco in favor of the Purchaser.
4) UCC-1 and UCC-3 financing statements as required by the transactions
described in the Consent and Amendment.
7
<PAGE> 1
EXHIBIT 10.20
ASSUMPTION AGREEMENT
This ASSUMPTION AGREEMENT (this "Agreement") dated as of December 31,
1998, is made by Nextera Enterprises, Inc., a Delaware corporation ("Nextera
Inc."), in favor of Nextera Funding, Inc. ("Funding"). All capitalized terms not
defined herein shall have the meaning ascribed to them in the Securities
Purchase Agreement (as defined below).
WITNESSETH:
WHEREAS, pursuant to the Securities Purchase Agreement dated as of
August 31, 1998, as amended (the "Securities Purchase Agreement") between
Nextera Enterprises, L.L.C. ("Nextera LLC") and Funding, Funding agreed to
purchase certain Notes from Nextera LLC in an aggregate amount not to exceed the
Commitment (as defined therein), subject to the terms and conditions set forth
therein;
WHEREAS, pursuant to the Pledge and Security Agreement dated as of
August 31, 1998 (the "Security and Pledge Agreement"), Nextera LLC has granted
to Funding a security interest in the Collateral (as such term is defined in the
Security and Pledge Agreement);
WHEREAS, all the ownership interests of Nextera LLC will be transferred
directly or indirectly to Nextera Inc. on the date hereof; and
WHEREAS, Nextera Inc. has agreed to assume all of the obligations of
Nextera LLC under the Financing Documents (as such term is defined in the
Securities Purchase Agreement);
NOW THEREFORE, IT IS AGREED:
SECTION 1. Assumption of Obligations. (a) By executing and delivering
this Agreement, Nextera Inc. hereby becomes a party to each of the Securities
Purchase Agreement, Security and Pledge Agreement, the Notes and each Financing
Document with the same force and effect as if originally named therein. Nextera
Inc. hereby expressly assumes as of the date hereof all obligations (including,
without limitation, the Secured Obligations as defined in the Security and
Pledge Agreement) of Nextera LLC under the Financing Documents and confirms and
ratifies the granting of the security interest in the Collateral in favor of
Funding made
<PAGE> 2
pursuant to the Security and Pledge Agreement. Nextera Inc. also assumes, from
and after the date hereof, the punctual performance and observance of all of the
covenants and conditions of each Financing Document to be performed or observed
by Nextera LLC thereunder, and to be bound in all respects by the terms of such
Financing Document, as if Nextera Inc. was a signatory party thereto.
(b) Nextera Inc. hereby represents and warrants that each of the
representations and warranties set forth in each Financing Document applicable
to Nextera LLC is true and correct on and as of the date hereof (after giving
effect to this Assumption Agreement).
SECTION 2. Miscellaneous. (a) Except as herein set forth, each Financing
Document is in all respects ratified and confirmed and shall remain in full
force and effect.
(b) THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed as of the day and year first above written.
NEXTERA ENTERPRISES, INC.
By: /s/ Stanley E. Maron
-------------------------------
Name: Stanley E. Maron
Title: Secretary
2
<PAGE> 1
EXHIBIT 10.21
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated as of December 31, 1998 (this "AGREEMENT"),
by and between Nextera Funding, Inc. ("ASSIGNOR") and Knowledge Universe, Inc.
("ASSIGNEE").
W I T N E S S E T H :
WHEREAS, Assignor is party to the Securities Purchase Agreement, dated
as of August 31, 1998, (as it may be from time to time amended, supplemented or
otherwise modified, the "PURCHASE AGREEMENT"; the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and between
Nextera Enterprises, L.L.C. and Nextera Funding, Inc.; and
WHEREAS, Assignor desires to sell and assign to Assignee, and Assignee
desires to purchase and assume from Assignor, certain rights and obligations of
Assignor under the Purchase Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants herein
contained, the parties hereto agree as follows:
SECTION 1. ASSIGNMENT AND ASSUMPTION
Subject to the terms and conditions hereof, as of the date hereof,
Assignor sells and assigns to Assignee, without recourse, representation or
warranty (except as expressly set forth herein), and Assignee purchases and
assumes from Assignor, the dollar amount of the Commitment specified on Schedule
I in all of the rights and obligations with respect to the commitments specified
in Section 2.1 of the Purchase Agreement and the other Financing Documents (the
"ASSIGNED SHARE"). In consideration of such assignment, Assignee hereby agrees
either to pay to Assignor or fund directly to Nextera Enterprises, Inc. on the
date hereof the principal amount of any outstanding commitments included within
the Assigned Share (such principal amount referred to herein as the "PURCHASE
PRICE"), such payment to be made by wire transfer of immediately available
funds. Upon the date hereof: (a) the Assignee shall have the rights and
obligations of a "Holder" to the extent of the Assigned Share and shall
thereafter be a party to the Purchase Agreement and a "Holder" for all purposes
of the Financing Documents; Assignor shall, to the extent of the Assigned Share,
relinquish its rights and be released from its obligations under the Purchase
Agreement. It is understood and agreed that Purchaser shall constitute the
"Majority Holder" for all purposes of the Purchase Agreement and the Financing
Documents.
<PAGE> 2
SECTION 2. CONDITIONS TO EFFECTIVENESS
Notwithstanding anything herein to the contrary, this Assignment
Agreement shall not be deemed to be effective until each of the following
conditions are satisfied, as determined in the reasonable judgment of the
Assignor: (I) the execution of a counterpart hereof by each of Assignor and
Assignee; (II) the payment of the Purchase Price; (III) Assignor shall have
received originally executed copies of one or more favorable opinions of counsel
for Assignee, in form and substance satisfactory to Assignor, dated as of the
date hereof with respect to, among other things, the enforceability, validity
and binding effect of this Assignment Agreement.
SECTION 3. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS
(a) Assignor represents and warrants to Assignee that Assignor is the
legal and beneficial owner of the Assigned Share, free and clear of any adverse
claim.
(b) Assignee represents and warrants to Assignor that it has acquired
the Assigned Share for its own account in the ordinary course of its business
and without a view to distribution of the Notes within the meaning of the
Securities Act or the Exchange Act or other federal securities laws; it has
received, reviewed and approved a copy of the Purchase Agreement (including all
Exhibits and Schedules thereto); and it has received from Assignor such
financial information regarding Company and its Subsidiaries as is available to
Assignor and as Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the assignment evidenced by this Agreement, and
that it has made and shall continue to make its own appraisal of the
creditworthiness of Company and its Subsidiaries. Assignor shall have no duty or
responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Assignee or to provide Assignee
with any other credit or other information with respect thereto, whether coming
into its possession before the making of the Initial Takedown or at any time or
times thereafter, and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to Assignee.
(c) Each party to this Agreement represents and warrants to the other
party hereto that it has full power and authority to enter into this Agreement
and to perform its obligations hereunder in accordance with the provisions
hereof, that this Agreement has been duly authorized, executed and delivered by
such party and that this Agreement constitutes a legal, valid and binding
obligation of such party, enforceable against such party in accordance with its
terms, except as enforceability
2
<PAGE> 3
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and by general
principles of equity.
(d) Assignor shall not be responsible to Assignee for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of any of the Financing Documents or for any representations,
warranties, recitals or statements made therein or made in any written or oral
statements or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made by Assignor to Assignee or
by or on behalf of Company or any of its Subsidiaries to Assignor or Assignee in
connection with the Financing Documents and the transactions contemplated
thereby or for the financial condition or business affairs of Company or any
other Person liable for the payment of any obligations, nor shall Assignor be
required to ascertain or inquire as to the performance or observance of any of
the terms, conditions, provisions, covenants or agreements contained in any of
the Financing Documents or as to the use of the proceeds of the Notes or as to
the existence or possible existence of any Event of Default or Default.
SECTION 4. MISCELLANEOUS
Assignor and Assignee each agrees from time to time, upon request of
such other party, to take such additional actions and to execute and deliver
such additional documents and instruments as such other party may reasonably
request to effect the transactions contemplated by, and to carry out the intent
of, this Agreement. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party (including, if applicable, any party required to evidence its consent
to or acceptance of this Agreement) against whom enforcement of such change,
waiver, discharge or termination is sought. Any notice or other communication
herein required or permitted to be given shall be given pursuant to Section 9.1
of the Purchase Agreement, and all for purposes thereof, the notice address of
Assignee shall be the address as set forth on Schedule I. In case any provision
in or obligation under this Agreement 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. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns. This Agreement may be
executed in one or more counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
3
<PAGE> 4
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the Effective Date by their respective
officers thereunto duly authorized.
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
5
<PAGE> 6
SCHEDULE I TO
ASSIGNMENT AGREEMENT
1. Assigned Share: $37,500,000
2. Assignee Notice Instructions:
Knowledge Universe, L.L.C.
844 Moraga Drive
Los Angeles, California 90049
Attention: Stanley Maron
6
<PAGE> 1
EXHIBIT 10.22
NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT
HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE
WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES PURCHASE AGREEMENT
DATED AS AUGUST 31, 1998, AS AMENDED, A COPY OF WHICH MAY BE OBTAINED FROM
NEXTERA ENTERPRISES, INC. AT ITS PRINCIPAL EXECUTIVE OFFICE.
No. 1 $37,500,000
NEXTERA ENTERPRISES, INC.
Senior Secured Note
NEXTERA ENTERPRISES, INC. (the "Company"), for value received hereby
promises to pay to KNOWLEDGE UNIVERSE, INC., a Delaware corporation (the
"Holder"), the principal sum of thirty-seven million and five-hundred thousand
dollars ($37,500,000), in lawful money of the United States of America and in
immediately available funds, on April 30, 1999 and to pay interest on the unpaid
principal amount, in like money and funds, for the period commencing on the date
of this Note until payment in full of the principal sum hereof has been made, at
the rates per annum and on the dates provided in the Agreement (as defined
below).
This Senior Secured Note is one of a duly authorized issue of Senior
Secured Notes of the Company (the "Notes") referred to in the Securities
Purchase Agreement dated as of August 31, 1998, as amended, between the Company
and the Holder (as the same may be amended, restated or otherwise modified from
time to time in accordance with its terms, the "Agreement"). Capitalized terms
used in this Note have the respective meanings assigned to them in the
Agreement.
<PAGE> 2
This Note is entitled to the benefit and security of the Security
Documents.
The Notes are transferable and assignable to one or more purchasers in
accordance with the limitations set forth in the Agreement. The Company agrees
to issue from time to time replacement Notes in the form hereof to facilitate
such transfers and assignments.
The Company shall keep at its principal office a register (the
"Register") in which shall be entered the names and addresses of the registered
holders of the Notes and particulars of the respective Notes held by them and of
all transfers of such Notes. References to the "Holder" or "Holders" shall mean
the Person listed in the Register as the payee of any Note. The ownership of the
Notes shall be proven by the Register.
Upon the occurrence of an Event of Default, the principal hereof and
accrued interest hereon shall become, or may be declared to be, forthwith due
and payable in the manner, upon the conditions and with the effect provided in
the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW). THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: December 31, 1998
NEXTERA ENTERPRISES, INC.
By: /s/ Stanley E. Maron
-------------------------------
Name: Stanley E. Maron
Title: Secretary
<PAGE> 1
EXHIBIT 10.23
CONTRIBUTION AGREEMENT
by and among
NEXTERA ENTERPRISES, INC.
as "Nextera,"
LEXECON INC.
as "Lexecon,"
and
the Shareholders of Lexecon identified on Exhibit A hereto
as the "Shareholders"
December 31, 1998
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS............................................................................1
1.1. DEFINED TERMS....................................................................1
1.2. OTHER DEFINED TERMS..............................................................4
2. TRANSACTION............................................................................7
2.1. CONTRIBUTION OF LEXECON SHARES; CONSIDERATION....................................7
2.2. TIME AND PLACE OF CLOSING.......................................................10
2.3. FURTHER ASSURANCES..............................................................10
2.4. TRANSFER TAXES..................................................................10
2.5. ADJUSTMENTS TO TRANSACTION CONSIDERATION........................................10
2.6. DISTRIBUTION OF CERTAIN ASSETS AND CERTAIN LIABILITIES..........................13
2.7. CONVEYANCES AT CLOSING..........................................................13
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....................................14
3.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................14
3.2. ORGANIZATION AND QUALIFICATIONS OF LEXECON......................................14
3.3. SHARES OF LEXECON; BENEFICIAL OWNERSHIP.........................................15
3.4. NO SUBSIDIARIES.................................................................15
3.5. AUTHORITY OF LEXECON............................................................15
3.6. REAL AND PERSONAL PROPERTY......................................................16
3.7. FINANCIAL STATEMENTS............................................................17
3.8. TAXES...........................................................................17
3.9. ACCOUNTS RECEIVABLE.............................................................20
3.10. ABSENCE OF CERTAIN CHANGES......................................................20
3.11. BANKING RELATIONS...............................................................22
3.12. INTELLECTUAL PROPERTY...........................................................22
3.13. CONTRACTS ......................................................................23
3.14. LITIGATION .....................................................................24
3.15. COMPLIANCE WITH LAWS............................................................24
3.16. INSURANCE ......................................................................25
3.17. POWERS OF ATTORNEY..............................................................25
3.18. FINDER'S FEE ...................................................................25
3.19. PERMITS: BURDENSOME AGREEMENTS..................................................25
3.20. LEXECON RECORDS; COPIES OF DOCUMENTS............................................25
3.21. TRANSACTIONS WITH INTERESTED PERSONS............................................25
3.22. EMPLOYEE BENEFIT PROGRAMS.......................................................26
3.23. ENVIRONMENTAL MATTERS...........................................................29
3.24. DIRECTORS AND OFFICERS..........................................................30
3.25. EMPLOYEES; LABOR MATTERS........................................................30
3.26. CLIENTS ........................................................................31
3.27. CLIENT REVENUES ................................................................31
3.28. YEAR 2000 COMPLIANCE............................................................31
3.29. EQUITY REPURCHASE...............................................................32
3.30. DISTRIBUTION ...................................................................32
3.31. DISCLOSURE .....................................................................32
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....................................32
4.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................32
4.2. OWNERSHIP OF SHARES AND OPTIONS.................................................33
4.3. AUTHORITY.......................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.4. FINDER'S FEE....................................................................33
4.5. AGREEMENTS......................................................................33
4.6. EXPERIENCE; ACCREDITED INVESTOR.................................................34
4.7. INVESTMENT......................................................................34
4.8. NO PUBLIC MARKET................................................................34
4.9. ACCESS TO DATA..................................................................34
4.10. RESIDENCE ......................................................................35
4.11. PERSONAL ARTWORK. ..............................................................35
5. REPRESENTATIONS AND WARRANTIES OF NEXTERA.............................................35
5.1. MAKING OF REPRESENTATIONS AND WARRANTIES........................................35
5.2. ORGANIZATION OF NEXTERA AND SUBSIDIARIES........................................35
5.3. SHARES OF NEXTERA...............................................................36
5.4. SUBSIDIARIES; LIQUIDATION OF NEXTERA LLC........................................37
5.5. AUTHORITY.......................................................................37
5.6. LITIGATION......................................................................38
5.7. FINDER'S FEE....................................................................38
5.8. FINANCIAL STATEMENTS............................................................38
5.9. TAXES...........................................................................39
5.10. ABSENCE OF CERTAIN CHANGES......................................................40
5.11. COMPLIANCE WITH LAWS............................................................42
5.12. INTELLECTUAL PROPERTY...........................................................42
5.13. INSURANCE ......................................................................42
5.14. TRANSACTIONS WITH INTERESTED PERSONS............................................42
5.15. NEXTERA RECORDS; SHARE EXCHANGE AGREEMENT; COPIES OF DOCUMENTS..................43
5.16. ENVIRONMENTAL MATTERS...........................................................43
5.17. YEAR 2000 COMPLIANCE............................................................44
5.18. CLIENTS.........................................................................45
5.19. INITIAL PUBLIC OFFERING MATERIALS...............................................45
6. COVENANTS OF SHAREHOLDERS NOT TO COMPETE; RIGHT OF REPURCHASE.'.......................46
6.1. COVENANT OF SHAREHOLDERS........................................................46
6.2. RIGHT OF REPURCHASE.............................................................47
6.3. RIGHT OF FIRST REFUSAL..........................................................49
7. OTHER COVENANTS.......................................................................50
7.1. AUTHORIZATION AND CONSENT FROM OTHERS...........................................50
7.2. CONSUMMATION OF AGREEMENT.......................................................50
7.3. COOPERATION.....................................................................50
7.4. [INTENTIONALLY OMITTED].........................................................50
7.5. TAX RETURNS.....................................................................50
7.6. OPTION POOL.....................................................................50
7.7. BOOKS AND RECORDS; TAX MATTERS..................................................51
7.8. RELEASE OF PERSONAL GUARANTEES..................................................51
7.9. LEXECON BOARD OF DIRECTORS/OPERATING COMMITTEE..................................51
7.10. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE ...................................52
7.11. MILBERG ACTION..................................................................52
7.12. TERMINATION OF THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT................52
7.13. LEXECON INSURANCE...............................................................52
7.14. SPECIAL TAG-ALONG RIGHTS........................................................52
7.15. CERTAIN TRANSACTIONS............................................................53
8. CONDITIONS............................................................................53
8.1. CONDITIONS TO THE OBLIGATIONS OF NEXTERA........................................53
8.2. CONDITIONS TO OBLIGATIONS OF LEXECON AND THE SHAREHOLDERS.......................54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING..........................................55
9.1. SURVIVAL OF WARRANTIES.........................................................55
10. INDEMNIFICATION.......................................................................55
10.1. INDEMNIFICATION BY THE SHAREHOLDERS............................................55
10.2. LIMITATIONS ON INDEMNIFICATION BY THE SHAREHOLDERS.............................56
10.3. INDEMNIFICATION BY NEXTERA.....................................................57
10.4. LIMITATION ON INDEMNIFICATION BY NEXTERA.......................................57
10.5. NOTICE OF CLAIMS; DISPUTE OF CLAIMS; DEFENSE OF CLAIMS.........................57
10.6. SATISFACTION OF INDEMNIFICATION OBLIGATIONS; RELEASE OF HOLDBACK AMOUNT........59
11. MISCELLANEOUS.........................................................................61
11.1. FEES AND EXPENSES..............................................................61
11.2. GOVERNING LAW .................................................................61
11.3. NOTICES .......................................................................61
11.4. ENTIRE AGREEMENT...............................................................62
11.5. ASSIGNABILITY; BINDING EFFECT..................................................62
11.6. CAPTIONS AND GENDER............................................................62
11.7. EXECUTION IN COUNTERPARTS......................................................63
11.8. AMENDMENTS ....................................................................63
11.9. PUBLICITY AND DISCLOSURES......................................................63
11.10. SPECIFIC PERFORMANCE...........................................................63
11.11. AMBIGUITIES IN DRAFTING........................................................63
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT
This Contribution Agreement (the "Agreement") is entered into as of
December 31, 1998 by and among Nextera Enterprises, Inc., a Delaware corporation
("Nextera"), Lexecon Inc., an Illinois corporation ("Lexecon"), and the holders
of Lexecon's capital stock (identified on Exhibit A as and herein collectively
referred to as the "Shareholders" and individually as a "Shareholder").
WITNESSETH
WHEREAS, the Shareholders own of record and beneficially all of the
issued and outstanding capital stock of Lexecon, consisting of 1,000 shares of
Common Stock (said shares referred to herein as the "Shares");
WHEREAS, the Shareholders desire to contribute all of the Shares to
Nextera in exchange for Class A Common Stock of Nextera and cash pursuant to,
and subject to the terms and conditions of, this Agreement;
WHEREAS, certain members of Nextera Enterprises, L.L.C. ("Nextera LLC")
have agreed to contribute their membership interests to Nextera in exchange for
Class A Common Stock and Class B Common Stock of Nextera and the shareholders of
each of Sibson & Company, Inc. and SC2, Inc. (together, the "Sibson Entities")
have agreed to contribute their shares of the Sibson Entities to Nextera in
exchange for Class A Common Stock of Nextera in connection with that certain
Share Exchange Agreement dated as of August 31, 1998 by and among Nextera LLC,
Nextera, the shareholders of the Sibson Entities and certain shareholders of
Sibson Acquisition Co. (the "Share Exchange Agreement"); and
WHEREAS the contributions of the Shareholders hereunder shall be
contemporaneous with the Exchange Transaction (as such term is defined in the
Share Exchange Agreement) in a transaction intended to meet the requirements of
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto agree
as follows:
SECTION 1. DEFINITIONS.
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
<PAGE> 6
"Affiliate" shall mean, when used with reference to a specified Person,
(i) any Person who directly or indirectly controls, is controlled by or is under
common control with the specified Person, (ii) any Person who is a director,
officer, partner or trustee of, or serves in a similar capacity with respect to,
the specified Person, or for which the specified Person is a director, officer,
partner or trustee or serves in a similar capacity, (iii) any Person who,
directly or indirectly, is the beneficial owner of 10% or more of any class of
equity securities of the specified Person, or of which the specified Person,
directly or indirectly, is the owner of 10% or more of any class of equity
securities, or (iv) any relative of the specified Person.
"Contract" shall mean with respect to any Person, any agreement,
contract, note, loan, evidence of indebtedness, purchase order, letter of
credit, indenture, security or pledge agreement, franchise agreement,
undertaking, covenant not to compete, confidentiality agreement, employment
agreement, lease, license agreement, instrument, obligation or commitment to
which such Person is a party or is bound and which relates to such Person's
business or assets, whether oral or written.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"Damages" shall mean any and all damages, Liabilities, losses,
diminution in value, Taxes, fines, penalties, costs, and expenses (including,
without limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all reasonable
amounts paid in investigation, defense or settlement of the foregoing).
"Default" shall mean (1) a breach of or default under any Contract, (2)
the occurrence of an event that with the passage of time or the giving of notice
or both would constitute a breach of or default under any Contract, or (3) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"Liabilities" shall mean any direct or indirect liability, indebtedness,
obligation, expense, claim, guaranty or endorsement of or by any person of any
type, whether accrued, absolute, contingent, matured, unmatured or other.
"Lexecon Disclosure Schedule" shall mean a schedule delivered by Lexecon
and the Shareholders to Nextera as of the date hereof which sets forth the
exceptions to the representations and warranties contained in Sections 3 and 4
hereof and certain other information called for by this Agreement. Unless
otherwise specified or the context otherwise requires, each reference in this
Agreement to any numbered schedule is a reference to that numbered schedule
which is included in the Lexecon Disclosure
2
<PAGE> 7
Schedule. An item disclosed in one section of the Lexecon Disclosure Schedule
which is relevant to another section of the Lexecon Disclosure Schedule shall be
deemed disclosed in such other section, but only if a person reading such item
would reasonably conclude that such item is relevant to the other section.
"Material Adverse Effect" shall mean with respect to any entity any
material adverse effect or change in the financial condition, business, results
of operations, assets, liabilities or operations of such entity and its
Subsidiaries taken as a whole or on the ability of such entity to consummate the
transactions contemplated hereby.
"Milberg Liabilities" means all Liabilities associated with the Milberg
Actions, including without limitation, all expenses and burdens of litigation
and any judgments or settlements payable with respect thereto, any and all
lawsuits or other Liabilities that may in the future arise out of the Milberg
Actions and/or the facts which gave rise to the Milberg Actions and any Taxes
arising out of the foregoing, including the distribution of the Milberg Actions
to the Shareholders or their designees or as a result of any judgment or
settlement paid or payable or received or receivable with respect thereto.
"Net Book Value" shall mean total assets minus total liabilities.
"Nextera Disclosure Schedule" shall mean a schedule delivered by Nextera
to the Shareholders as of the date hereof which sets forth the exceptions to the
representations and warranties contained in Section 5 hereof and certain other
information called for by this Agreement. Unless otherwise specified or the
context otherwise requires, each reference in this Agreement to any numbered
schedule is a reference to that numbered schedule which is included in the
Nextera Disclosure Schedule. An item disclosed in one section of the Nextera
Disclosure Schedule which is relevant to another section of the Nextera
Disclosure Schedule shall be deemed disclosed in such other section, but only if
a person reading such item would reasonably conclude that such item is relevant
to the other section.
"Nextera Subsidiaries" shall mean the Subsidiaries of Nextera LLC.
"Permitted Encumbrances" shall mean (a) liens for current taxes or other
governmental assessments or charges not yet due and payable, and (b)
materialmen's, mechanics, workmen's, repairmen's, employees', carriers',
warehousemen's and other like liens incurred in the ordinary course of business,
so long as such liens do not individually or in the aggregate, materially impair
the value of the assets or property subject thereto.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization.
3
<PAGE> 8
"Regulations" shall mean any laws, statutes, ordinances, regulations,
rules, court decisions, agency guidelines, principles of law and orders of any
foreign, federal, state or local government and any other governmental
department or agency, including without limitation Environmental Laws, energy,
motor vehicle safety, public utility, zoning, building and health codes, and
occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Subsidiary" shall mean with respect to any entity (a) any corporation
in an unbroken chain of corporations beginning with such entity if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain, (b) any partnership in
which the entity is a general partner, (c) any limited liability company in
which the entity is a managing member, or (d) any partnership or limited
liability company in which the entity possesses, directly or indirectly, a 50%
or greater interest in the total capital or total income of such partnership or
limited liability company.
"to the knowledge of Lexecon" or a similar phrase, shall mean the actual
knowledge of the Shareholders and/or Mark Zumbach (without investigation).
"to the knowledge of Nextera" or a similar phrase, shall mean the actual
knowledge of Gresham T. Brebach, Jr., Ronald K. Bohlin, Michael P. Muldowney,
Stanley E. Maron and/or Steven B. Fink (without investigation).
"Working Capital" shall mean current assets minus current liabilities.
1.2. Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
1998 Plan....................................... 7.6
Acceptance Notice............................... 6.2
Actual Adjustment Amount........................ 2.5(c)
Adjustment Amount............................... 2.5(a)
Agreement....................................... Introduction
Appraisal Notice................................ 10.6(d)
Approvals....................................... 3.19
Arbitrator...................................... 2.5(e)
Board........................................... 10.6(d)
Claim........................................... 10.5(a)
Claim Notice.................................... 10.5(a)
Claim Response.................................. 10.5(a)
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Clients......................................... 3.26
Closing......................................... 2.2
Closing Amount.................................. 2.1(b)
Closing Date.................................... 2.2
Closing Balance Sheet........................... 2.5(c)
Closing Holdback Amount......................... 2.1(c)
Closing Working Capital......................... 2.5(a)
Code............................................ Recitals
Commission...................................... 5.19
Competitor...................................... 6.3
Competitor Notice............................... 6.3
Contingent Amount............................... 2.1(d)
Covenant Claim.................................. 10.1(e)
Covered Transaction............................. 7.14
Eligible Persons................................ 6.2
Employee Options................................ 7.6
Employee Program................................ 3.22(m)
Environmental Law............................... 3.23(e)
Excluded Liability Claim........................ 10.1(d)
ERISA........................................... 3.22(c)
ERISA Affiliate................................. 3.22(m)
Escrow Account.................................. 2.1(d)
Fair Market Value............................... 10.6(d)
Fraud Claims.................................... 10.1(a)
GAAP............................................ 2.5
General Claims.................................. 10.1(f)
Guarantee Claims................................ 10.3
Guarantees...................................... 7.8
Hazardous Material.............................. 3.23(e)
Hazardous Waste................................. 3.23(e)
Holdback Amount................................. 2.1(c)
Holdback Deficiency Amount...................... 2.1(d)
Initial Public Offering......................... 2.1(d)
Intellectual Property........................... 3.12(a)
Interim Balance Sheet........................... 2.5
IRS............................................. 3.22(b)
Leased Real Property............................ 3.6(a)
Lexecon......................................... Introduction
Lexecon Articles................................ 3.2
Lexecon Audited Financial Statements............ 3.7(a)
Lexecon Balance Sheet........................... 3.7(a)
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Lexecon Balance Sheet Date...................... 3.7(a)
Lexecon Financial Statements.................... 3.7(a)
Lexecon Indemnification Percentage.............. 10.2(c)
Lexecon Interim Financial Statements............ 3.7
Lexecon Notice.................................. 6.3
Lexecon Organizational Documents................ 3.2
LLC Operating Agreement......................... 5.2(b)
maintains (ERISA) .............................. 3.22(m)
Milberg Actions................................. 2.6(a)
Milberg Assets.................................. 2.6(a)
Milberg Liabilities............................. 2.6(a)
Multiemployer Plan.............................. 3.22(m)
NBV Adjustment Amount........................... 2.5(a)
Net Book Value.................................. 2.5(a)(ii)
Nextera......................................... Introduction
Nextera Audited Financial Statements............ 5.8(a)
Nextera Balance Sheet........................... 5.8(a)
Nextera Certificate............................. 5.2(a)
Nextera Class A Stock........................... 2.1(b)
Nextera Clients................................. 5.18
Nextera Financial Statements.................... 5.8(a)
Nextera Indemnified Party....................... 10.1
Nextera Intellectual Property................... 5.12
Nextera Interim Financial Statements............ 5.8(a)
Nextera LLC..................................... Recitals
Nextera Organizational Documents................ 5.2(a)
Ownership Claims................................ 10.1(b)
Ownership Date.................................. 5.2
PCBs............................................ 3.23(c)
Preliminary Adjustment Amount................... 2.5(b)
Preliminary Closing Balance Sheet............... 2.5(b)
Redemption Price................................ 2.1(d)
Repurchase Appraisal Notice..................... 6.2
Repurchase Notice............................... 6.2
Repurchase Option............................... 6.2
Repurchase Valuation Notice..................... 6.2
Transaction Consideration....................... 2.1(e)
Representatives................................. 7.4(a)
Retiree Welfare Benefit Plans................... 3.22(g)
S-1............................................. 5.18
Securities Act.................................. 2.1(d)
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Service Agreement............................... 6.1(d)
Shareholder..................................... Introduction
Shareholder Indemnified Party................... 10.3
Shareholder Representative...................... 11.8
Share Exchange Agreement........................ Recitals
Shares.......................................... Recitals
Sibson Entities................................. Recitals
Signing Bonuses................................. 2.5(a)
Special Tag-Along Right......................... 7.13
Stockholders Agreement.......................... 8.1(e)
Target Working Capital.......................... 2.5
Tax (Taxes)..................................... 3.8(a)
Tax Claims...................................... 10.1(c)
Tax Returns..................................... 3.8(b)
Unredeemed Shares............................... 2.1(d)
Valuation Notice................................ 10.6(d)
WC Adjustment Amount............................ 2.5(a)
</TABLE>
SECTION 2. TRANSACTION.
2.1. Contribution of Lexecon Shares; Consideration.
(a) Transfer of Shares. At the Closing (as defined below), in
return for the cash and issuance of Nextera Class A Stock in accordance with
subsections (b) and (d) below and in reliance upon the representations and
warranties of Nextera herein contained and made at the Closing and subject to
the satisfaction of all of the conditions contained herein, each Shareholder
shall deliver or cause to be delivered to Nextera certificates representing all
of the Shares owned by such Shareholder, as set forth on Exhibit A. Such
certificates shall be presented with assignments duly executed in blank (or the
equivalent), with such other documents as may reasonably be required by Nextera
to effect a valid transfer of such Shares by such Shareholder, free and clear of
any and all liens, encumbrances, charges or claims.
(b) Consideration for Shares at Closing. In return for the
contribution from the Shareholders to Nextera of the Shares and in reliance upon
the representations and warranties of Lexecon and the Shareholders herein
contained and made at the Closing and subject to the satisfaction of all of the
conditions contained herein, Nextera agrees that at the Closing, it will (i)
deliver to the Shareholders an aggregate of Thirty One Million One Hundred Forty
Five Thousand Nine Hundred Fifty Three Dollars ($31,145,953) in the form of a
demand promissory note bearing 5% interest and payable to the Shareholder
Representative (it being understood that such amount includes a Preliminary
Adjustment Amount of Six Thousand Forty Seven Dollars ($6,047) but is
7
<PAGE> 12
subject to subsequent adjustment pursuant to the other provisions of Section
2.5), and (ii) issue to the Shareholders an aggregate amount of 2,816,000 shares
of Class A Common Stock of Nextera ("Nextera Class A Stock"), which shall be
distributed in the amounts set forth opposite the name of each Shareholder on
Exhibit A. The cash and Nextera Class A Stock specified in clauses (i) and (ii)
of the previous sentence are referred to herein collectively as the "Closing
Amount."
(c) Holdback Amount. As security for the obligations of the
Shareholders under Section 10 of this Agreement, the Shareholders hereby
instruct Nextera to retain and holdback (i) 1,408,000 shares of Nextera Class A
Stock otherwise issuable as a part of the Closing Amount pursuant to Section
2.1(b) above (the "Closing Holdback Amount"), and (ii) (A) if the Contingent
Amount (as defined below) is issued on or before the first anniversary of the
Closing, then fifty percent (50%) of the Nextera Class A Stock otherwise
issuable as the Contingent Amount pursuant to Section 2.1(d) below, or (B) if
the Contingent Amount is issued after the first anniversary of the Closing Date,
then twenty-five percent (25%) of the Nextera Class A Stock otherwise issuable
as the Contingent Amount pursuant to Section 2.1(d) below (the Nextera Class A
Stock referred to in clauses (i) and (ii) above hereinafter being collectively
referred to as the "Holdback Amount").
The shares of Nextera Class A Stock to be held by Nextera
pursuant to clause (i) of the preceding paragraph shall be issued in the names
of the Shareholders according to the relevant percentages set forth opposite
each Shareholder's name on Exhibit A and the shares of Nextera Class A Stock to
be held by Nextera pursuant to clause (ii) of the preceding paragraph shall be
issued in the names and according to the percentages specified in writing by the
Shareholder Representative, but such certificates shall not be delivered to
them. Such shares of Nextera Class A Stock shall be deemed to be the property of
the Shareholders and shall not be deemed to be contingent consideration, but
rather are being held back by Nextera as security for the indemnification
obligations of the Shareholders hereunder. Any and all dividends and
distributions which are declared and/or paid following the Closing with respect
to such Nextera Class A Stock shall be included in the Holdback Amount and upon
the release of the Nextera Class A Stock from the Holdback Amount to the
Shareholders, the Shareholders shall be entitled to receive such dividends and
distributions in respect of such released Nextera Class A Stock.
(d) Contingent Amount. As additional consideration for
the contribution of the Shares, Nextera shall reserve for issuance to the
Shareholders up to 1,450,240 shares of Nextera Class A Stock (as may be
appropriately adjusted for stock splits, stock dividends and similar
transactions which may occur after the date of this Agreement) to be issued to
the Shareholders based on percentages specified in writing by the Shareholder
Representative as follows (the "Contingent Amount"):
8
<PAGE> 13
(i) In the event that an Initial Public Offering (as
defined below) occurs on or before February 29, 2000, the precise amount of
Nextera Class A Stock to be issued to the Shareholders shall be determined in
accordance with Exhibit B attached hereto. Subject to the Holdback Amount
described in Section 2.1(c) above, any issuance of Nextera Class A Stock to the
Shareholders under this subsection (i) shall be made promptly following the
Initial Public Offering.
(ii) In the event that an Initial Public Offering does
not occur by February 29, 2000, then Nextera shall (a) issue the full amount of
1,450,240 shares of Nextera Class A Stock; and (b) contemporaneously with the
issuance of such Nextera Class A Stock redeem the full amount of Nextera Class A
Stock at a per share redemption price of $7.65 (such amount being appropriately
adjusted for any adjustments made to the Contingent Amount for stock splits,
stock dividends and similar transactions, and such amount as so adjusted being
referred to herein as the "Redemption Price"). The issuance to the Shareholders
and contemporaneous redemption of Nextera Class A Stock under this subsection
(ii) shall be made no later than April 1, 2000; provided that 25% of the cash
redemption amount otherwise payable to the Shareholders shall be deemed to be
part of the Holdback Amount and shall be deposited into an escrow account with a
bank or other third party on terms mutually acceptable to the Shareholder
Representative and Nextera (the "Escrow Account"). Notwithstanding the
foregoing, if (x) at the time of a required redemption under this Section
2.1(d)(ii) there are any unresolved Claims as to which Nextera has delivered a
Claim Notice and (y) the Closing Holdback Amount then retained by Nextera is
less than the then estimated amount of the Damages associated with such
unresolved Claims as promptly agreed in good faith by Nextera and the
Shareholder Representative (the amount of the difference between the Closing
Holdback Amount and such estimated amount of Damages being referred to as the
"Holdback Deficiency Amount"), then Nextera, in its sole discretion, may elect
not to redeem that portion of the Nextera Class A Stock having a value equal to
the estimated amount of the Holdback Deficiency Amount (the "Unredeemed
Shares"); provided, however, that (i) the Unredeemed Shares shall remain in the
Holdback Amount, (ii) for purposes of (x) determining the number of Unredeemed
Shares needed to satisfy the Holdback Deficiency Amount under this Section
2.1(d)(ii) and (y) Section 10.6(a), each of the Unredeemed Shares shall be
valued at the greater of Fair Market Value or the Redemption Price, and (iii)
any Unredeemed Shares that are not used to satisfy indemnification obligations
in accordance with Section 10.6(a) shall be promptly redeemed at the Redemption
Price and the proceeds (plus interest at 5% per annum from April 1, 2000)
released to the Shareholders or deposited into the Escrow Account (as
appropriate).
As used herein, an "Initial Public Offering" shall mean Nextera's
first underwritten initial public offering of Nextera Class A Stock under the
Securities Act of 1933, as amended (the "Securities Act") after the date hereof,
that results in Nextera
9
<PAGE> 14
Class A Stock being listed for trading on a national securities exchange or
being authorized for trading on the Nasdaq National Market System at such time.
Any issuance of Nextera Class A Stock to the Shareholders
under this Section 2.1(d) shall be allocated to each Shareholder based on
percentages specified in writing by the Shareholder Representative.
(e) Transaction Consideration. As used herein the term
"Transaction Consideration" shall mean the Closing Amount and the Contingent
Amount (including that portion of the Closing Amount and the Contingent Amount
held as a part of the Holdback Amount).
2.2. Time and Place of Closing. The closing of the contribution
and exchange and other transactions provided for in this Agreement (the
"Closing") shall be held at the offices of Maron & Sandler in Los Angeles,
California on December 31, 1998 (the "Closing Date") effective as of the close
of business on the Closing Date or at such other date and location as may be
mutually agreed upon by the parties. The Closing shall be simultaneous with the
"Closing" under the Share Exchange Agreement.
2.3. Further Assurances. The Shareholders from time to time after
the Closing at the request of Nextera and without further consideration shall
execute and deliver further instruments of transfer and assignment and take such
other action as Nextera may reasonably require to more effectively transfer and
assign to, and vest in, Nextera the Shares and all rights thereto, and to fully
implement the provisions of this Agreement. Nextera from time to time after the
Closing at the request of the Shareholders and without further consideration
shall execute and deliver further instruments of transfer and assignment and
take such other action as the Shareholders may reasonably require to more
effectively transfer and assign to, and vest in, the Shareholders the shares of
Nextera Class A Stock required to be delivered hereunder, and all rights
thereto, and to fully implement the provisions of this Agreement.
2.4. Transfer Taxes. All transfer Taxes, fees and duties under
applicable law incurred in connection with the contribution and transfer of the
Shares and the issuance of the Nextera Class A Stock under this Agreement (but,
in any event, excluding income Taxes), if any, will be borne and paid equally by
Nextera, on the one hand, and the Shareholders, on the other hand.
2.5. Adjustments to Transaction Consideration. Subject to the
exceptions described below, the amount of the cash portion of the Closing Amount
to be delivered at the Closing is premised upon Lexecon having (A) $6,400,000 of
Working Capital as of the Closing (the "Target Working Capital"), and (B) a Net
Book Value as of the Closing equal to or greater than the Net Book Value set
forth on the Balance Sheet of Lexecon as
10
<PAGE> 15
of September 30, 1998 (the "Interim Balance Sheet") attached hereto as a part of
the Lexecon Interim Financial Statements in Schedule 3.7.
(a) Adjustment Amount. The "Adjustment Amount" shall be
calculated as set forth below:
(i) As used herein, "NBV Adjustment Amount" shall mean Net
Book Value of Lexecon as of the Closing minus Net Book Value of Lexecon as set
forth on the Interim Balance Sheet (but in no event shall the NBV Adjustment
Amount be greater than zero); provided, however, that there shall be excluded
from the calculation of the NBV Adjustment Amount any reduction in Net Book
Value from the date of the Lexecon Interim Financial Statements through the
Closing Date arising from normal changes as a result of operations in the
ordinary course of Lexecon's business, none of which changes as a result of
operations may be materially adverse to Lexecon. For purposes of this Section
2.5(a)(i), the following shall be deemed to be in the ordinary course of
Lexecon's business (and not materially adverse): (A) the payment of bonuses to
employees of Lexecon which are in accordance with past practice; (B) the
incurrence of debt to pay such bonuses to employees and Shareholders; and (C)
the payment of bonuses to the Shareholders; provided, however, that the payment
of such bonuses and incurrence of debt in the preceding clauses (A), (B) and (C)
may not cause the Closing Working Capital (as defined below) to fall below the
Target Working Capital); and
(ii) As used herein, "WC Adjustment Amount" means the
amount of the Working Capital of Lexecon as of the Closing (the "Closing Working
Capital") minus the Target Working Capital.
The Adjustment Amount shall equal the sum of the NBV Adjustment
Amount and the WC Adjustment Amount; provided that if the NBV Adjustment Amount
and the WC Adjustment Amount are both negative numbers, the Adjustment Amount
shall be the greater of such amounts (in absolute value terms) as opposed to the
sum of such amounts.
If the Adjustment Amount is a negative number, then the
Shareholders shall pay to Nextera the Adjustment Amount. If the Adjustment
Amount is a positive number, then Nextera shall pay to the Shareholders the
Adjustment Amount.
All calculations under, and financial statements prepared for,
this Section 2.5 shall be in accordance with generally accepted accounting
principles ("GAAP") and using the same accounting principles and interpretations
used to prepare the Interim Balance Sheet (to the extent such principles and
interpretations are consistent with GAAP). In making such calculations and
preparing such financial statements , (a) Lexecon shall be deemed to be an "S
Corporation" and (b) the following shall be deemed to be fully-accrued as
current liabilities of Lexecon to the extent not actually paid prior to
11
<PAGE> 16
the Closing: (x) all amounts payable by Lexecon with respect to legal,
accounting and other fees and expenses in connection with this Agreement and the
transactions contemplated hereby on behalf of itself and the Shareholders and
(y) all bonus amounts payable to the Shareholders or non-Shareholder senior
executives of Lexecon, other than the "signing bonuses" (including cash and
stock options) payable to the non-Shareholder executives and professional staff
of Lexecon pursuant to the terms of their new employment or service agreements
being entered into in connection with the Closing (the "Signing Bonuses").
(b) Preliminary Determination by Lexecon. Not less than two (2)
business days prior to the Closing, Lexecon shall prepare and deliver to Nextera
a forecasted balance sheet of Lexecon as of the Closing reflecting Lexecon's
forecast of (i) the Net Book Value as of the Closing, (ii) the Closing Working
Capital, and (iii) a reasonably detailed written estimate of the Adjustment
Amount (such estimate being the "Preliminary Adjustment Amount"). Without
limiting the rights of the parties in connection with the final determination of
the Adjustment Amount under this Section 2.5, the cash portion of the Closing
Amount shall be reduced or increased (as the case may be) by the Preliminary
Adjustment Amount, if any, as determined by Lexecon.
(c) Post-Closing Determination by Nextera. Within sixty (60) days
after the Closing, Nextera shall prepare and deliver to the Shareholder
Representative a balance sheet of Lexecon as of the Closing (the "Closing
Balance Sheet") reflecting Nextera's determination of (i) the Net Book Value as
of the Closing, (ii) the Closing Working Capital, and (iii) a reasonably
detailed calculation of the Adjustment Amount. The Adjustment Amount calculated
by Nextera (if agreed to by the Shareholder Representative) or the Adjustment
Amount determined by the Arbitrator under subsection (e) below is referred to
herein as the "Actual Adjustment Amount."
(d) Settlement. Any amount owed by the Shareholders to Nextera as
a result of the Actual Adjustment Amount (taking into account payments made in
respect of the Preliminary Adjustment Amount) shall promptly be paid to Nextera,
together with interest at the rate of five percent (5%) per annum from the
Closing Date. Any amount owed by Nextera to the Shareholders as a result of the
Actual Adjustment Amount (taking into account payments made in respect of the
Preliminary Adjustment Amount) shall promptly be paid to the Shareholders (to a
bank account specified in writing by the Shareholder Representative), together
with interest at the rate of five percent (5%) per annum from the Closing Date.
(e) Disputed Adjustment Amount. If the Shareholders disagree with
the amount determined by Nextera to be the Adjustment Amount, the Shareholder
Representative shall notify Nextera in writing of such disagreement within
twenty (20) business days of his receipt of the Closing Balance Sheet. Nextera
and the Shareholder Representative shall use their commercially reasonable
efforts for a period of ten (10)
12
<PAGE> 17
business days following the notice of disagreement to resolve any disagreement.
If at the end of such period, Nextera and the Shareholder Representative are
unable to resolve the disagreement, a mutually agreed upon independent public
accounting firm (the "Arbitrator") shall be retained to make a final and binding
determination of the Adjustment Amount, at which time any amounts payable by
Nextera or the Shareholders shall promptly be paid to the other in the manner
set forth in subsection (d) and according to the Arbitrator's determination. The
determination of the Arbitrator shall be final, binding and conclusive on the
parties. The fees and expenses of the Arbitrator shall be borne equally by
Nextera, on the one hand, and the Shareholders, on the other hand.
(f) Other Matters. Notwithstanding anything contained in this
Agreement to the contrary, the Shareholders shall not have any liability to
Nextera, Lexecon or any other Person or entity (whether as a purchase price
adjustment, indemnity obligation or otherwise) arising from, or relating to,
Lexecon's conversion from the cash to accrual method of tax accounting in
connection with the transactions contemplated by this Agreement.
2.6.2.6. Distribution of Certain Assets and Certain Liabilities.
Lexecon and/or its Shareholders prior to the date hereof has engaged in certain
lawsuits as a plaintiff and/or a defendant involving the law firm of Milberg
Weiss Bershad Hynes & Lerach LLP (the "Milberg Actions"). On December 30, 1998,
Lexecon Enterprises, Inc. and Lexecon entered into and made effective the
transactions set forth in the letter agreement attached hereto as Exhibit C.
2.7. Conveyances at Closing.
(a) Instruments and Possession. Subject to the terms and
conditions contained herein, to effect the contribution and transfer referred to
in Section 2.1 hereof, the Shareholders will, at the Closing, execute and
deliver to Nextera or cause to be executed and delivered to Nextera:
(i) certificates representing all of the Shares
accompanied by assignments duly executed in blank; and
(ii) such other instruments as shall be reasonably
requested by Nextera to vest in Nextera title in and to the Shares in accordance
with the provisions hereof.
(b) Form of Instruments. To the extent that a form of any
document to be delivered thereunder to Nextera is not attached as an Exhibit
hereto, such documents shall be in form and substance, and shall be executed and
delivered in a manner, reasonably satisfactory to Nextera. To the extent that a
form of any document to be delivered thereunder to the Shareholders is not
attached as an Exhibit hereto, such
13
<PAGE> 18
documents shall be in form and substance, and shall be executed and delivered in
a manner, reasonably satisfactory to the Shareholders.
(c) Issuance and Payment of Closing Amount. Subject to the
terms of this Agreement, Nextera shall deliver to the Shareholders the Closing
Amount as described above.
(d) Certificates; Opinions. The Shareholders and Nextera
shall deliver or cause to be delivered the certificates, opinions of counsel and
other matters described in Section 8.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
3.1. Making of Representations and Warranties. As a material inducement
to Nextera to enter into this Agreement and consummate the transactions
contemplated hereby and except as set forth on the Lexecon Disclosure Schedule,
each of the Shareholders severally, but not jointly, hereby makes to Nextera the
representations and warranties contained in this Section 3; provided, however,
that no Shareholder shall have any right of indemnity or contribution from
Lexecon with respect to any breach of representation or warranty thereunder.
Nextera is relying on the truth and accuracy of the representations and
warranties made by the Shareholders in this Agreement, and the Shareholders
shall be liable for breach of such representations and warranties to the extent
set forth in Section 10 notwithstanding any due diligence investigation
conducted by Nextera or any knowledge or information which Nextera may have as
of the date of this Agreement.
3.2. Organization and Qualifications of Lexecon. Lexecon is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois with corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of Lexecon's Articles of Incorporation, as
amended to date, certified by the Illinois Secretary of State (the "Lexecon
Articles"), and except as set forth on Schedule 3.2, the copies of Lexecon's
By-Laws, as amended to date, certified by Lexecon's Secretary (together with
Lexecon Articles, the "Lexecon Organizational Documents"), and heretofore
delivered to Nextera's counsel, are complete and correct, and no amendments
thereto are pending. Lexecon is not in violation of any term of the Lexecon
Organizational Documents. Except as set forth on Schedule 3.2, Lexecon is duly
qualified or authorized to do business as a corporation and is in good standing
under the laws of each jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification or authorization, except
where the failure to be so qualified or authorized would not have a Material
Adverse Effect.
14
<PAGE> 19
3.3. Shares of Lexecon; Beneficial Ownership. The authorized capital
stock of Lexecon consists of 12,000 shares of Common Stock, of which 1,000
shares are duly and validly issued, outstanding, fully paid and non-assessable.
Each Shareholder owns of record and beneficially the number of the Shares set
forth opposite each Shareholder's name in Exhibit A. Other than as set forth on
Schedule 3.3, there are no outstanding options, warrants, rights, commitments,
preemptive rights or agreements of any kind for the issuance or sale of, or
outstanding securities convertible into, any additional shares of capital stock
of any class of Lexecon. None of Lexecon's capital stock has been issued in
violation of any federal or state law. Other than as set forth on Schedule 3.3,
there are no voting trusts, voting agreements, proxies or other agreements,
instruments or undertakings with respect to the voting of the Shares to which
Lexecon or any of the Shareholders is a party.
3.4 No Subsidiaries. Lexecon has no Subsidiaries or investments in any
other corporation or business organization.
3.5. Authority of Lexecon. Lexecon has full right, authority and
corporate power to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by Lexecon pursuant to this Agreement
and to carry out the transactions contemplated hereby or thereby. The execution,
delivery and performance by Lexecon of this Agreement and each such other
agreement, document and instrument to which Lexecon is a party have been duly
authorized by all necessary action of Lexecon and no other action on the part of
Lexecon or the Shareholders is required in connection therewith.
This Agreement and each agreement, document and instrument executed and
delivered by Lexecon pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Lexecon
enforceable against Lexecon in accordance with their terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject to the effect of
general principles of equity, including, without limitation, the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law. The execution, delivery
and performance by Lexecon of this Agreement and each such agreement, document
and instrument:
(i) does not and will not violate any provision of the
Lexecon Organizational Documents;
(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to Lexecon or require
Lexecon to obtain any approval, consent or waiver of, or make any filing with,
any governmental entity that has not been obtained or made; and
15
<PAGE> 20
(iii) except as set forth in Schedule 3.5, does not and
will not result in a breach of, constitute a default under, accelerate any
obligation under, require any approval, consent or waiver under, or give rise to
a right of termination of any indenture or loan or credit agreement or any other
material Contract, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which Lexecon is a party or by
which the property of Lexecon is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of Lexecon's assets or the Shares, except where such breach
default, acceleration or exercise of right of termination would not have a
Material Adverse Effect.
3.6. Real and Personal Property.
(a) Real Property. Lexecon does not own any real property. All of
the real property leased by Lexecon is identified on Schedule 3.6(a) (herein
referred to as the "Leased Real Property").
(i) Leases. All leases of Leased Real Property are
identified on Schedule 3.6(a), and true and complete copies thereof have been
delivered or made available to Nextera. Each of said leases has been duly
authorized and executed by Lexecon and is in full force and effect and binding
and enforceable against Lexecon and, to the knowledge of Lexecon, the other
parties thereto. Lexecon is not in default under any material provision of any
of said leases, nor has any event occurred which, with notice or the passage of
time, or both, would give rise to such a default. To the knowledge of Lexecon,
the other party to each of said leases is not in default under any material
provision of any of said leases and there is no event which, with notice or the
passage of time, or both, would give rise to such a default.
(ii) Condition of Leased Real Property. Except as set
forth in Schedule 3.6(a) or 3.23, to the knowledge of Lexecon, (1) there are no
material defects in the physical condition of any of the Leased Real Property
and (2) all such Leased Real Property is in good operating condition and repair
(ordinary wear and tear excepted).
(iii) Compliance with the Law. Lexecon has not received
any notice from any governmental authority of any material violation of any
Regulations, license, permit or authorization issued with respect to the Leased
Real Property that has not been heretofore corrected. Lexecon has not received
any notice of any real estate tax deficiency or assessment and is not aware of
any proposed deficiency, claim or assessment with respect to any of the Leased
Real Property, or any pending or threatened condemnation thereof.
(b) Personal Property. Schedule 3.6(b) contains lists of certain
quarterly additions of depreciable property, including all material machinery
and
16
<PAGE> 21
equipment of Lexecon. Except as specifically disclosed in said Schedule or in
the Lexecon Balance Sheet (as defined below), and except for Permitted
Encumbrances, Lexecon owns (or has a valid right to use under a written lease or
rental agreement) all of its personal property free of any mortgage, pledge,
lien, conditional sale agreement, security title, encumbrance or other charge.
Except as otherwise specified in Schedule 3.6(b) hereto, all leasehold
improvements, furnishings, machinery and equipment of Lexecon presently
necessary to the conduct of the business of Lexecon as such business is
currently being conducted are in good operating condition and repair (ordinary
wear and tear excepted).
3.7. Financial Statements.
(a) Lexecon has delivered to Nextera the following financial
statements, copies of which are attached hereto as Schedule 3.7: (i) the balance
sheet of Lexecon for its fiscal year ended December 31, 1997, and statements of
income and retained earnings for the year then ended each as audited by Ernst &
Young LLP (the "Lexecon Audited Financial Statements"), and (ii) unaudited
balance sheet of Lexecon as of September 30, 1998 (the "Lexecon Interim Balance
Sheet") and unaudited statements of profit and loss of Lexecon for the nine
months ended September 30, 1998 (the "Lexecon Interim Financial Statements" and
together with the Lexecon Audited Financial Statements, the "Lexecon Financial
Statements"). The December 31, 1997 balance sheet is hereinafter referred to as
the "Lexecon Balance Sheet." To the knowledge of Lexecon, the Lexecon Financial
Statements have been prepared in accordance with GAAP (provided that the Lexecon
Interim Financial Statements (i) are subject to normal year-end adjustments and
(ii) lack footnotes and other presentation items) applied consistently during
the period covered thereby, and present fairly in all material respects the
consolidated financial condition of Lexecon at the date of said statements and
the consolidated results of its operations for the periods covered thereby.
(b) To the knowledge of Lexecon, except as set forth on Schedule
3.7, as of the Closing, Lexecon does not have any material Liabilities which
would be required by GAAP to be stated or adequately reserved against on a
balance sheet or the notes thereto, except Liabilities (i) stated or adequately
reserved against on the Lexecon Interim Balance Sheet or the Lexecon Balance
Sheet (or referenced in the notes thereto), (ii) incurred in the ordinary course
of business of Lexecon, (iii) disclosed in the Lexecon Disclosure Schedule, or
(iv) future performance obligations under Contracts, none of which relates to
any default, breach of warranty, tort infringement, or violation of any
Regulations or Court Orders.
3.8. Taxes.
(a) As used in this Agreement, the terms "Tax" and "Taxes" mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net
17
<PAGE> 22
income, gross income, gross receipts, sales, use, VAT, service, service use, ad
valorem, transfer, franchise, profits, license, lease, withholding, social
security, payroll, employment, excise, estimated, severance, stamp, recording,
occupation, real and personal property, gift, windfall profits or other taxes,
customs duties, fees, assessments or charges of any kind whatsoever, whether
computed on a separate, consolidated, unitary, combined or other basis, together
with any interest, fines, penalties, additions to tax or other additional
amounts imposed thereon or with respect thereto imposed by any taxing authority
(domestic or foreign). The terms "Tax" and "Taxes" include any liability of
Lexecon or any current or former Subsidiary of Lexecon for the payment of any
amounts of any of the foregoing types as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of Lexecon or any current or former
Subsidiary of Lexecon for payment of such amounts was determined or taken into
account with reference to the liability of any other person.
(b) All returns, declarations, reports, estimates,
statements, schedules or other information or documents with respect to Taxes
(collectively, "Tax Returns") required to be filed by or with respect to Lexecon
or any current or former Subsidiary of Lexecon have been timely filed (giving
effect to extensions granted with respect thereto), and all such Tax Returns are
true, correct, and complete in all material respects.
(c) Each of Lexecon and any current or former Subsidiary
of Lexecon has timely paid all Taxes due from it or claimed to be due from it by
any federal, state, local, foreign or other taxing authority, other than Taxes
being contested in good faith and set forth on Schedule 3.8.
(d) There are no liens for Taxes upon any of the assets
of, or interests in Lexecon, except liens for taxes not yet due and payable.
(e) No Tax Returns of Lexecon have been audited by the
relevant taxing authority. No deficiency for any Taxes has been proposed,
asserted or assessed against Lexecon that has not been resolved and paid in
full. There are no outstanding waivers, extensions, or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns that have been given by Lexecon (including the time for
filing of Tax Returns or paying Taxes), and Lexecon has no pending written
requests for any such waivers, extensions, or comparable consents.
(f) No audit or other proceeding by any federal, state,
local or foreign court, governmental, regulatory, administrative or similar
authority is presently pending with respect to any Taxes or Tax Return Lexecon,
and Lexecon has not received written notice of any pending audits or
proceedings.
18
<PAGE> 23
(g) Lexecon has established adequate reserves in
accordance with generally accepted accounting principles for all Taxes not yet
due and payable, which reserves are set forth in the Lexecon Audited Financial
Statements.
(h) Lexecon has not received a ruling from any taxing
authority or signed an agreement with any taxing authority that could reasonably
be expected to have a Material Adverse Effect on Lexecon or the assets of
Lexecon.
(i) Lexecon has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441, 1442, 1445 and 1446 of the Code or similar provisions under any
applicable state and foreign laws) and has, within the time and the manner
prescribed by law, paid over to the proper governmental authorities all amounts
so withheld.
(j) Neither Lexecon nor any Subsidiary of Lexecon is a
party to, bound by or has any obligation under any Tax sharing allocation or
indemnity agreement or similar contract or arrangement.
(k) Lexecon is, and has been at all times since May 1,
1991, properly characterized as an "S Corporation" for federal and applicable
state and local income tax purposes. As of the Effective Date of Lexecon's
election to be characterized as an "S Corporation" for federal and applicable
state and local income tax purposes, the amount of gain, if any, inherent in
Lexecon's assets sold, distributed or otherwise transferred since the effective
date of the election subject to income tax as a result of such sale(s),
distribution(s) or transfer(s) pursuant to Code Section 1374 and the applicable
state counterparts thereof is set forth on Schedule 3.8.
(l) No power of attorney granted by Lexecon with respect
to any Taxes is currently in force.
(m) Lexecon is not subject to any joint venture,
partnership or other arrangement or contract that is treated as a partnership
for U.S. federal income tax purposes.
(n) To the knowledge of Lexecon, there is no expectation
that any taxing authority may claim or assess any material amount of Taxes
payable by Lexecon for any period ending prior to the Closing Date and there are
no facts of which Lexecon or the Shareholders are aware which would constitute
grounds for the assessment of any material amount of Taxes payable by Lexecon
for any period ending prior to the Closing Date.
(o) Lexecon and each Shareholder is a "United States
person" within the meaning of Section 7701 of the Code.
19
<PAGE> 24
(p) Schedule 3.8 sets forth each state, local and foreign
jurisdiction in which Lexecon is required, or has within the six year period
ending on the Closing Date been required, to file or be included in a Tax
Return. No written claim has ever been received by Lexecon or any current or
former Subsidiary of Lexecon from a taxing authority in a jurisdiction where
Lexecon or any current or former Subsidiary of Lexecon does not pay Taxes or
file Tax Returns that Lexecon or any current or former Subsidiary of Lexecon is
or may be subject to Taxes assessed by such jurisdiction, and, to the knowledge
of Lexecon, no such claim has been threatened by a taxing authority.
(q) Except as set forth on Schedule 3.8, Lexecon has not
agreed, nor is it (or will it be immediately following the Closing as a result
of any of the transactions contemplated by this Agreement) required, to make any
adjustment under Section 481 of the Code by reason of a change in accounting
method or otherwise.
(r) Lexecon has not entered into any installment sale
contract pursuant to Section 453 of the Code whereby the installments have not
been fully collected, nor has Lexecon entered into an interest rate swap,
currency swap, or similar transaction.
(s) Neither Lexecon nor any Shareholder has received a
written notice of tax lien with respect to the Shares.
(t) Lexecon will not incur any Taxes as a result of the
distributions of the Milberg Actions to the Shareholders nor will Lexecon incur
any Taxes as a result of any judgments or settlements paid or payable or
received or receivable with respect thereto or with respect to any and all
lawsuits or other claims that may arise in the future out of the Milberg Actions
and/or facts which gave rise to the Milberg Actions.
3.9.Accounts Receivable. To the knowledge of Lexecon, and except as set
forth on Schedule 3.9 attached hereto, the accounts receivable of Lexecon shown
or reflected on the Lexecon Interim Balance Sheet or existing at the date of
this Agreement (less the reserve for bad debts set forth on the Lexecon Interim
Balance Sheet or existing at the date hereof) are valid and enforceable claims,
fully collectible and subject to no set off or counterclaim and reflect amounts
due or owing to Lexecon for services performed prior to such date in the
ordinary course of business. Except as set forth on Schedule 3.9 or, Lexecon has
no accounts or loans receivable from any Affiliate of Lexecon or from any
Shareholder, director, officer or employee of Lexecon other than obligations of
such Persons to reimburse personal expenses incurred in the ordinary course of
business.
3.10. Absence of Certain Changes. Except as disclosed in Schedule 3.10
attached hereto or as contemplated by this Agreement, since September 30, 1998,
there has not been:
(a) Any change in the business, properties, assets,
results of operations, financial condition, or liabilities of Lexecon, which
change by itself or in
20
<PAGE> 25
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has been materially adverse with respect to Lexecon;
(b) Any contingent liability incurred by Lexecon as
guarantor or surety with respect to the obligations of others, or any compromise
or forgiveness of any material debt owing to Lexecon, or any written waiver of
any material claim or right of Lexecon;
(c) Any mortgage, encumbrance or lien (other than
Permitted Encumbrances) placed on any of the properties of Lexecon which remains
in existence on the date hereof or will remain on the Closing Date;
(d) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any of the properties or assets of Lexecon other than in the ordinary course of
business;
(e) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties, assets
or business of Lexecon;
(f) Any declaration, setting aside or payment of any
dividend by Lexecon, or the making of any other distribution in respect of the
equity interests of Lexecon, or any direct or indirect redemption, purchase or
other acquisition by Lexecon of its equity interests;
(g) Any claim of unfair labor practices involving Lexecon;
any change in the compensation payable or to become payable by Lexecon to any of
its officers, employees, agents or independent contractors other than normal
merit increases in accordance with its usual practices; or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors other than bonuses in accordance with Lexecon's usual
practices and other than the Signing Bonuses;
(h) Any change in the officers or senior management of
Lexecon;
(i) Any payment or discharge of a material lien or
liability of Lexecon which was not shown on the Lexecon Balance Sheet or
incurred in the ordinary course of business thereafter;
(j) Any change in accounting methods or practices, credit
practices or collection policies used by Lexecon;
(k) Any other transaction entered into by Lexecon other
than transactions in the ordinary course of business; or
21
<PAGE> 26
(l) Any agreement or understanding whether in writing or
otherwise, for Lexecon to take any of the actions specified in paragraphs (a)
through (k) above.
3.11. Banking Relations. All of the banking arrangements which Lexecon
has with any banking institution are described in Schedule 3.11 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.) and the person or persons authorized in respect thereof.
3.12. Intellectual Property.
(a) Except as described in Schedule 3.12, Lexecon has
ownership of, or license to use, all material patent, copyright, trade secret,
trademark, or other proprietary rights used or to be used in the business of
Lexecon as presently conducted (collectively, "Intellectual Property"). To the
knowledge of Lexecon, there are no claims or demands of any other person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of Lexecon
in respect thereof.
(b) All material patents, patent applications, trademarks,
trademark applications and registrations and registered copyrights which are
used or to be used by Lexecon in its business as presently conducted are listed
in Schedule 3.12.
(c) All material licenses or other agreements under which
Lexecon is granted rights in Intellectual Property are listed in Schedule 3.12,
other than licenses of generally commercially available third party software
that has not been materially modified by Lexecon. Except as indicated in
Schedule 3.12, all such material licenses or other agreements listed are in full
force and effect, there is no material default by Lexecon or, to the knowledge
of Lexecon, any other party thereto. True and complete copies of all such
material licenses or other agreements, and any amendments thereto, have been
provided to Nextera.
(d) All material licenses or other material agreements
under which Lexecon has granted rights to others in Intellectual Property owned
or licensed by Lexecon are listed in Schedule 3.12. Except as indicated in
Schedule 3.12, all such licenses or other agreements are in full force and
effect, there is no material default by Lexecon or, to the knowledge of Lexecon,
any other party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Nextera.
(e) To the knowledge of Lexecon, the present business,
activities and products of Lexecon do not infringe any intellectual property
rights of any other person. To the knowledge of Lexecon, no proceeding charging
Lexecon with infringement of any adversely held intellectual property has been
filed or is threatened to be filed. To the
22
<PAGE> 27
knowledge of Lexecon, there exists no unexpired patent or patent application
which includes claims that would be infringed by or otherwise adversely affect
the activities or business of Lexecon. To the knowledge of Lexecon, Lexecon is
not making unauthorized use of any confidential information or trade secrets of
any person, including without limitation, any former employer of any past or
present employee of Lexecon.
3.13. Contracts.
(a) Contracts. Except for Contracts, commitments, plans,
agreements and licenses described in Schedule 3.13 or contemplated by this
Agreement, Lexecon is not a party to or subject to:
(i) Contracts not made in the ordinary course of business;
(ii) Employment contracts and severance agreements,
including without limitation Contracts (A) to employ or terminate executive
officers or other personnel and other contracts with present or former officers,
directors or shareholders of Lexecon or (B) that will result in the payment by,
or the creation of any Liability to pay on behalf of Nextera or Lexecon any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel following termination of employment or otherwise as
a result of the consummation of the transactions contemplated by this Agreement;
(iii) Written Contracts with customers or clients of
Lexecon entered into since January 1, 1996;
(iv) Labor or union contracts;
(v) Distribution, franchise, license (other than "off the
shelf" software licenses), technical assistance, sales, consulting, agency or
advertising contracts involving Lexecon involving payments or receivables in
excess of $100,000 in 1997 or the first nine months of 1998 (other than client
contracts);
(vi) Options with respect to any property, real or
personal, whether Lexecon shall be the grantor or grantee thereunder;
(vii) Contracts which by their terms require payments by
Lexecon in 1999 in excess of $100,000;
(viii) Contracts or commitments relating to commission
arrangements with others;
(ix) Promissory notes, loans, agreements, indentures,
evidences of indebtedness, letters of credit, guarantees, or other instruments
relating to borrowed
23
<PAGE> 28
money, whether Lexecon shall be the borrower, lender or guarantor thereunder or
whereby any assets are pledged (excluding credit provided by Lexecon in the
ordinary course of business to its customers);
(x) Confidentiality agreements and Contracts containing
covenants limiting the freedom of Lexecon or, to the knowledge of Lexecon, any
officer, director, or shareholder of Lexecon, to engage in any line of business
or compete with any Person, other than Contracts or engagements between Lexecon
and its clients entered into in the ordinary course of business which may
contain provisions intended to prevent Lexecon from being subject to potential
conflicts of interest;
(xi) Any material Contract to supply services to the
United States, state or local government or any agency or department thereof
since January 1, 1996, other than client Contracts described in clause (iii)
above or oral client engagements;
(xii) Leases of real property;
(xiii) Leases of personal property involving future
payments in excess of $20,000 or not cancelable (without Liability) within 45
calendar days.
Lexecon has delivered to Nextera, or upon Nextera's
request provided Nextera with access to, accurate and complete copies of all of
the Contracts listed on Schedule 3.13, including all amendments and supplements
thereto. Schedule 3.13 contains an accurate description of the material
obligations of Lexecon under all material oral Contracts of the type described
above (other than oral client engagements).
(b) Absence of Defaults. Lexecon has fulfilled all of its
material obligations under such Contracts. To the knowledge of Lexecon, all
other parties to such Contracts are currently in compliance in all material
respects with the provisions thereof, no party is in Default thereunder and no
notice of any claim of Default has been given to Lexecon or the Shareholders.
3.14.Litigation. Except as set forth on Schedule 3.14, there is no
litigation or governmental or administrative proceeding or investigation pending
or, to the knowledge of Lexecon, threatened against Lexecon or its Affiliates.
Except as set forth on Schedule 3.14, there are no material written claims
pending or, to the knowledge of Lexecon, material oral claims pending or
material claims threatened (whether oral or in writing), against Lexecon for
malpractice, adjustment of pricing or billing, or breach of the terms of any
client engagement.
3.15. Compliance with Laws. Lexecon is in compliance with all applicable
Regulations and Court Orders promulgated by any federal, state, municipal
entity, agency, court or other governmental authority which apply to Lexecon or
to the conduct
24
<PAGE> 29
of its business, except where noncompliance with such Regulations or Court
Orders would not have a Material Adverse Effect. During the three (3) years
prior to the Closing Date, Lexecon has not received notice of a violation or
alleged material violation of any such Regulations or Court Orders.
3.16. Insurance. The physical properties, assets and business of Lexecon
are insured to the extent disclosed in Schedule 3.16 attached hereto and all
such insurance policies and arrangements are disclosed in said Schedule. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and Lexecon is in compliance in all
material respects with the terms thereof. To the knowledge of Lexecon, said
insurance is adequate and customary for the business engaged in by Lexecon and
is sufficient for compliance by Lexecon with all requirements of law and all
agreements and leases to which Lexecon is a party.
3.17. Powers of Attorney. Neither Lexecon or any of the Shareholders has
any outstanding power of attorney with respect to or affecting any transaction
contemplated by this Agreement.
3.18. Finder's Fee. Lexecon has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
3.19. Permits: Burdensome Agreements. Schedule 3.19 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for Lexecon to conduct its business. Lexecon has obtained
all such Approvals, which are valid and in full force and effect, and is
operating in compliance therewith, other than where such failure to obtain
Approvals or operating in compliance therewith would not have a Material Adverse
Effect. Except as disclosed in Schedule 3.19 or in any other Schedule hereto,
Lexecon is not subject to or bound by any agreement with a regulatory body or
court, judgment, decree or order which may materially and adversely affect its
business or prospects, its condition, financial or otherwise, or any of its
assets or properties.
3.20. Lexecon Records; Copies of Documents. The copies of the corporate
records of Lexecon, as made available to Nextera or its counsel for review, are
true and complete copies of the originals of such documents. Lexecon has made
available for inspection by Nextera and its counsel true and correct copies of
all documents referred to in this Section or in the Schedules delivered to
Nextera pursuant to this Agreement.
3.21. Transactions with Interested Persons. None of Lexecon, any
Shareholder, or any director of Lexecon or, to the knowledge of Lexecon, any
officer or supervisory employee of Lexecon, owns directly or indirectly on an
individual or joint basis any
25
<PAGE> 30
material interest in, or serves as an officer or director or in another similar
capacity of, any competitor or supplier of Lexecon, or any organization which
has a material Contract or arrangement with Lexecon.
3.22.Employee Benefit Programs.
(a) Schedule 3.22(a) lists each material Employee Program (as
defined below) that is maintained (as defined below) by Lexecon as of the
Closing Date.
(b) Each Employee Program which has ever been maintained by
Lexecon and which has at any time been intended to qualify under Section 401(a)
of the Code, and each associated trust which at any time has been intended to be
exempt from taxation pursuant to Section 501(a) of the Code is the subject of a
favorable determination, opinion or approval letter from the Internal Revenue
Service ("IRS") regarding its qualification or exemption from taxation, as
applicable, under such section and has, in fact, been qualified or tax exempt,
as applicable, under the applicable section of the Code through and including
the Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). To the knowledge of Lexecon, no event or omission has
occurred which will cause any such Employee Program to lose its qualification
under the applicable Code section.
(c) Lexecon does not know and has no reason to know of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by Lexecon. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any Employee Program. With respect to any Employee
Program ever maintained by Lexecon, for all periods for which the applicable
statute of limitations has not expired, to the knowledge of Lexecon, there has
occurred no "prohibited transaction," as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of
the Code, or any material violation of, or material breach of any duty under,
ERISA or other applicable law (including, without limitation, any health care
continuation requirements (under part 6 of subtitle B of Title I or ERISA, or
otherwise) or any other tax law requirements, or conditions to favorable tax
treatment, applicable to such plan), which could result, directly or indirectly,
in any taxes, penalties or other material liability to Lexecon or Nextera.
(d) Neither Lexecon nor any ERISA Affiliate (as defined below)
has ever (i) maintained any Employee Program which has been subject to Title IV
of ERISA; (ii) maintained any Multiemployer Plan (as defined below); or (iii)
except as set forth on Schedule 3.22(d), provided health care or any other
non-pension benefits to any employees after their employment is terminated
(other than as required by part 6 of subtitle B of title I of ERISA or benefits
that continue for a brief period of time after
26
<PAGE> 31
termination of employment, for example for the balance of the month in which an
employee terminates), or has promised to provide such post-termination benefits.
(e) With respect to each Employee Program maintained by Lexecon
within the three years preceding the Closing, complete and correct copies of the
following documents (if applicable to such Employee Program) have previously
been delivered or made available to Nextera: (i) all documents embodying or
governing such Employee Program (including, without limitation, documents
relating to any health care continuation requirements), and any funding medium
for the Employee Program (including, without limitation, trust agreements) as
they may have been amended; (ii) the most recent IRS determination, opinion or
approval letter with respect to such Employee Program under Code Sections 401
and 501(a), and any applications for determination or approval subsequently
filed with the IRS; (iii) the three most recently filed IRS Forms 5500, with all
applicable schedules and accountants' opinions attached thereto; (iv) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (v)
any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program; and (vi) any documents evidencing any loan to
an Employee Program that is a leveraged employee stock ownership plan.
(f) Neither Lexecon nor any ERISA Affiliate has any announced
plan or legally binding commitment to create any additional Employee Program
which is intended to cover employees or former employees of Lexecon or any ERISA
Affiliate (with respect to their relationship with such entities) or to amend or
modify any existing Employee Program which covers or has covered employees or
former employees of Lexecon or any ERISA Affiliate (with respect to their
relationship with such entities).
(g) Schedule 3.22(g) sets forth all plans, policies, contracts,
agreements or similar arrangements that impose any obligation on Lexecon or any
ERISA Affiliate to provide any retiree medical benefits or any other "welfare
plan" (as defined in Section 3(1) of ERISA) benefits for retirees (collectively,
"Retiree Welfare Benefit Plans"). Except as set forth on Schedule 3.22(g), no
representative of Lexecon or any ERISA Affiliate has made any commitment
(whether written or oral) to any employee or former employee of Lexecon or any
ERISA Affiliate to maintain any such Retiree Welfare Benefit Plan or any
benefits thereunder.
(h) No event has occurred in connection with which Lexecon or
any Employee Program, directly or indirectly, could be subject to any material
liability (A) under any Regulations or Court Orders order relating to any
Employee Programs or (B) pursuant to any obligation of Lexecon to indemnify any
person against liability incurred under any such Regulations or Court Orders as
they relate to the Employee Programs.
27
<PAGE> 32
(i) Except as set forth on Schedule 3.22(i), neither the
execution and delivery of this Agreement by Lexecon nor the consummation of the
transactions contemplated hereby will result in the acceleration or creation of
any rights of any person to benefits under any Employee Program (including,
without limitation, the acceleration of the vesting or exercisability of any
stock options, the acceleration of the vesting of any restricted stock, or the
acceleration or creation of any rights under any severance, parachute or change
in control agreement).
(j) Each Employee Program and related trust agreement or other
funding instrument, as applicable, which covers or has covered employees or
former employees is legally valid and binding and in full force and effect.
(k) There is no contract, agreement, plan or arrangement
covering any employee or former employee of Lexecon that, individually or
collectively, provides for the payment by Lexecon of any amount that is not
deductible under Section 162(a)(1) or 404 of the Code.
(l) All contributions required to be made by Lexecon or any
ERISA Affiliate with respect to any Employee Program due as of any date through
and including the Closing Date have been made when due.
(m) For purposes of this Section:
(i) "Employee Program" means (A) any employee benefit plan
within the meaning of ERISA Section 3(3), including, but not limited to, any
multiple employer welfare arrangement (within the meaning of ERISA Section
3(4)), plan to which more than one unaffiliated employer contributes and any
employee benefit plan (such as a foreign or excess benefit plan) which is not
subject to ERISA; and (B) any employment, consulting, severance or other similar
contract, arrangement or policy, any stock option plan, bonus or incentive award
plan, deferred compensation agreement, supplemental income arrangement, vacation
plan, any employee benefit arrangement described in Code Section 501(c)(9), and
any other employee benefit plan, agreement, and arrangement not described in (A)
above. In the case of an Employee Program funded through a trust described in
Code Section 501(a), each reference to such Employee Program shall include a
reference to such trust.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement or
under applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity, or their spouses, dependents, or beneficiaries.
28
<PAGE> 33
(iii) An entity is an "ERISA Affiliate" of Lexecon if it
would have ever been considered a single employer with Lexecon under ERISA
Section 4001(b) or part of the same "controlled group" as Lexecon or any of its
Subsidiaries for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements as defined
in Section 4001(a)(3) or Section 3(37) of ERISA.
3.23. Environmental Matters. Except as set forth on Schedule 3.23:
(a) (i) Lexecon has never generated, transported, used, stored,
treated, disposed of, or managed any Hazardous Waste (as defined below), other
than that which is used in an ordinary office environment; (ii) to the knowledge
of Lexecon, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by Lexecon, or has ever been located
in the soil or groundwater at any such site; (iii) to the knowledge of Lexecon,
no Hazardous Material has ever been transported from any site presently or
formerly owned, operated, leased, or used by Lexecon for treatment, storage, or
disposal at any other place; (iv) to the knowledge of Lexecon, Lexecon does not
presently own, operate, lease, or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) to the knowledge of Lexecon, no lien has ever been imposed by any
governmental agency on any property, facility, machinery, or equipment owned,
operated, leased, or used by Lexecon in connection with the presence of any
Hazardous Material.
(b) (i) Lexecon has no material liability under, nor has it ever
violated in any material respect, any Environmental Law (as defined below); (ii)
Lexecon and, to Lexecon's knowledge, any property owned, operated, leased, or
used by it, and any facilities and operations thereon, are presently in material
compliance with all applicable Environmental Laws; (iii) Lexecon has never
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) Lexecon has no reason to believe that any of the
items enumerated in clause (iii) of this subsection will be forthcoming.
(c) To the knowledge of Lexecon, no site owned, operated, leased,
or used by Lexecon contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls ("PCBs") or equipment containing PCBs; or any urea
formaldehyde foam insulation.
29
<PAGE> 34
(d) Lexecon has provided to Nextera copies of all
documents, records, and information in Lexecon's possession concerning any
material environmental or health and safety matter relevant to Lexecon, whether
generated by Lexecon or others, including without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 3.23, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted; and (iv)
"Lexecon" shall mean and include Lexecon and all other entities for whose
conduct Lexecon is or may be held responsible under any Environmental Law.
3.24. Directors and Officers. Schedule 3.24 hereto contains a true and
complete list of all current members of the board of directors and each of the
officers of Lexecon. In addition, Schedule 3.24 hereto contains a list of all
managers, employees and consultants of Lexecon who, individually, have received
or are scheduled to receive compensation from Lexecon for the fiscal years
ending December 31, 1997 and December 31, 1998, in excess of $200,000. In each
case such Schedule includes the current job title and aggregate annual
compensation of each such individual.
3.25. Employees; Labor Matters. As of December 1, 1998, Lexecon employed
a total of approximately 107 full-time employees and 7 part-time employees. To
the knowledge of Lexecon, neither Lexecon nor any Shareholder has received any
direct and overt threat or notice that any officer or other person who renders
services for Lexecon in a professional or administrative capacity intends to
terminate his or her employment with Lexecon following the Closing. Except as
set forth on Schedule 3.25, Lexecon is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, neither Lexecon nor Nextera will by reason of the
transactions contemplated under this Agreement or anything done prior to the
Closing be liable to any of said employees for so-called "severance pay" or any
other similar payments. Lexecon has no policy, practice, plan or program of
paying severance pay or any form of severance compensation in connection with
the termination of employment,
30
<PAGE> 35
except as set forth in Schedule 3.25. Lexecon is in compliance with all
applicable Regulations respecting labor, employment, fair employment practices,
work place safety and health, terms and conditions of employment, and wages and
hours, except where failure to comply would not have a Material Adverse Effect
on Lexecon. Except as set forth on Schedule 3.25, there are no charges of
employment discrimination or unfair labor practices, nor are there any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations which are existing, pending or, to the knowledge of Lexecon,
threatened against or involving Lexecon. To the knowledge of Lexecon, no
question concerning union representation exists respecting any employees of
Lexecon. Except as set forth on Schedule 3.25, there are no material grievances,
complaints or charges that have been filed against Lexecon under any dispute
resolution procedure (including, but not limited to, any proceedings under any
dispute resolution procedure under any collective bargaining agreement), and
there is no arbitration or similar proceeding pending and, to the knowledge of
Lexecon, no claim therefor has been asserted. No collective bargaining agreement
is in effect or is currently being or is about to be negotiated by Lexecon.
Lexecon has not received any information indicating that any of its employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency.
3.26. Clients. Schedule 3.26 sets forth any client or customer which
accounted for more than $500,000 in revenue for Lexecon for the twelve months
ending December 31, 1997 and more than $500,000 in revenue for the nine months
ended September 30, 1998 (collectively, the "Clients"). None of the Shareholders
or Mark Zumbach has received written notice, or direct and overt oral notice,
from any Client that such Client intends to terminate or materially reduce its
business relationship with Lexecon after the Closing for any reason including as
a result of the Closing of the transactions contemplated by this Agreement (it
being understood however that none of the Shareholders or Mark Zumbach have made
inquiries of the Clients in this regard).
3.27. Client Revenues. Schedule 3.27 sets forth, as of the date hereof,
a summary of billings by client project for September, October and November of
1998.
3.28. Year 2000 Compliance. Except as set forth on Schedule 3.28 or as
would not have a Material Adverse Effect, Lexecon has all systems and software
solutions necessary or appropriate to address and accommodate Year 2000 computer
systems issues, and Lexecon's software programs, systems and applications used
in the operation of its business have been tested and are fully capable of
providing accurate results using data having date ranges spanning the years 1999
and 2000. Without limiting the generality of the foregoing, except as set forth
on Schedule 3.28 or as would not have a Material Adverse Effect, all of
Lexecon's software programs, systems and applications are able to:
31
<PAGE> 36
(a) Consistently handle date information before, during and
after January 1, 2000, including but not limited to accepting date input,
providing date output, and performing calculations on dates or portions of
dates;
(b) Function accurately and without interruption before, during
and after January 1, 2000 (including leap year computations), without any change
in operations associated with the advent of the new century;
(c) Respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed defined and predetermined manner; and
(d) Store and provide output of date information in ways that
are unambiguous as to century.
3.29. Equity Repurchase. Except as set forth on Schedule 3.29, Lexecon
has not redeemed or repurchased any of its shares of capital stock since
December 31, 1997. Lexecon has no obligations or liabilities, whether absolute,
contingent or otherwise, related to or arising out of any redemption or
repurchase of its shares of capital stock.
3.30. Distribution. Lexecon has entered into and made effective the
transactions set forth in the letter agreement attached as Exhibit C hereto on
December 30, 1998.
3.31. Disclosure. The representations, warranties and statements
contained in this Agreement and in the exhibits and schedules hereto do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
4.1. Making of Representations and Warranties. As a material inducement
to Nextera to enter into this Agreement and consummate the transactions
contemplated hereby, each Shareholder hereby severally, but not jointly, makes
to Nextera each of the representations and warranties set forth in this Section
4 with respect to such Shareholder. No Shareholder shall have any right of
indemnity or contribution from Lexecon with respect to the breach of any
representation or warranty hereunder. Nextera is relying on the truth and
accuracy of the representations and warranties made by the Shareholders in this
Agreement, and the Shareholders shall be liable for breach of such
representations and warranties to the extent set forth in Section 10
notwithstanding any due diligence investigation conducted by Nextera or any
knowledge or information which Nextera may have as of the date of this
Agreement.
32
<PAGE> 37
4.2. Ownership of Shares and Options. Such Shareholder owns of record
and beneficially the number of the Shares set forth opposite such Shareholder's
name in Exhibit A. Such Shares are, and when delivered by such Shareholder to
Nextera pursuant to this Agreement will be, free and clear of any and all liens,
encumbrances, charges or claims.
4.3. Authority. Such Shareholder has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Shareholder
pursuant to this Agreement and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument executed
and delivered by such Shareholder pursuant to this Agreement constitutes a valid
and binding obligation of such Shareholder, enforceable in accordance with their
respective terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject to the effect of general principles of equity,
including, without limitation, the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law, and such Shareholder has full power and
authority to transfer, sell and deliver the Shares to Nextera pursuant to this
Agreement. The execution, delivery and performance of this Agreement and each
such agreement, document and instrument:
(i) does not and will not violate any provision of any laws of
the United States or any state or other jurisdiction applicable to such
Shareholder, or require such Shareholder to obtain any approval, consent or
waiver from, or make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of, any indenture or loan or credit agreement or any other material
agreement, Contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Shareholder is a party or by which the property of such Shareholder
is bound or affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any assets of
Lexecon or on Shares owned by such Shareholder.
4.4. Finder's Fee. Such Shareholder has not incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement.
4.5. Agreements. Other than as set forth on Schedule 4.5 and except for
agreements unrelated to the business of Lexecon (so long as any such agreements
could not be deemed to have an adverse effect on Lexecon, except as a result of
time
33
<PAGE> 38
commitments to other endeavors referred to in such Shareholder's Service
Agreement or Confidentiality and Proprietary Rights Agreement), each such
Shareholder is not a party to any non-competition, trade secret or
confidentiality agreement with any party other than Lexecon, other than any such
agreement that may be entered into in connection with such Shareholder's
affiliation with Lexecon. There are no agreements or arrangements not contained
herein or disclosed in a Schedule hereto, to which such Shareholder is a party
relating to the business of Lexecon or to such Shareholder's rights and
obligations as a shareholder, director or officer of Lexecon. Except as set
forth on Schedule 4.5, such Shareholder does not own, directly or indirectly, on
an individual or joint basis, any material interest in, or serve as an officer
or director of, any customer, competitor or supplier of Lexecon, or any
organization which has a contract or arrangement with Lexecon.
4.6. Experience; Accredited Investor. Each Shareholder has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to Nextera so that he is capable of evaluating
the merits and risks of acquiring the Nextera Class A Stock as partial
consideration for the Shares and has the capacity to protect his own interests.
Each Shareholder must bear the economic risk of holding the Nextera Class A
Stock indefinitely unless such securities are registered pursuant to the
Securities Act, or an exemption from registration is available for the
disposition thereof. Each Shareholder understands that there is no assurance
that any exemption from registration under the Securities Act will be available.
Each Shareholder is an "accredited investor" as defined in Rule 501 under the
Securities Act.
4.7. Investment. Such Shareholder is acquiring the Nextera Class A Stock
for such Shareholder's own account for investment only, and not with the view
Ito, or for resale in connection with, any distribution thereof. It understands
that the Nextera Class A Stock acquired have not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Shareholder's representations as express herein.
4.8. No Public Market. Such Shareholder understands that no public
market now exists for any of the securities issued by Nextera and Nextera has
not made any assurances that a public market will ever exist for such
securities.
4.9. Access to Data. Such Shareholder has received and read the Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws of
Nextera, Nextera's financial statements and all other documents that the
Shareholders reasonably have requested of Nextera, and has had an opportunity to
discuss Nextera's business, management and financial affairs with its
management. Such Shareholder has also had an opportunity to ask questions of and
receive answers from officers of Nextera regarding the terms and conditions of
acquiring the Nextera Class A Stock, which questions were
34
<PAGE> 39
answered to such Shareholder's satisfaction. Notwithstanding the foregoing, the
Shareholders are not relying on any representation, warranty or statement made
by Nextera or any officer or Affiliate thereof, except as expressly set forth in
Section 5 hereof.
4.10. Residence. The residence of the Shareholder in which its
investment decision was made is located at the address of the Shareholder set
forth on the signature page hereto.
4.11. Personal Artwork. Each Shareholder has paid for any artwork he
claims to own on Lexecon's premises. Lexecon has not paid for any such artwork
on behalf of any Shareholder.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF NEXTERA.
5.1. Making of Representations and Warranties. As a material inducement
to the Shareholders to enter into this Agreement and consummate the transactions
contemplated hereby, and except as set forth on the Nextera Disclosure Schedule,
Nextera hereby makes the representations and warranties to the Shareholders
contained in this Section 5. The Shareholders are relying on the truth and
accuracy of the representations and warranties made by Nextera in this Agreement
and Nextera shall be liable for breach of such representations and warranties to
the extent set forth in Section 10 notwithstanding any due diligence
investigation conducted by Lexecon or the Shareholders or any knowledge or
information which Lexecon or the Shareholders may have as of the date of this
Agreement. Anything contained in this Section 5 to the contrary notwithstanding,
any representation or warranty made in this Section 5 with respect to any
Nextera Subsidiary insofar as it relates to (i) any period prior to the date
that such Nextera Subsidiary became owned by Nextera LLC (the "Ownership Date")
or (ii) any acts, omissions, facts or circumstances which occurred or existed
prior to the Ownership Date, shall be deemed to be made "to the knowledge of
Nextera."
5.2. Organization of Nextera and Subsidiaries.
(a) Nextera is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is currently conducted or proposed to be conducted. The copies of
Nextera's Amended and Restated Certificate of Incorporation (the "Nextera
Certificate"), and of the Nextera's Amended and Restated Bylaws, as amended to
date, certified by Nextera's Secretary (together with the Nextera Certificate,
the "Nextera Organizational Documents"), and attached hereto as Exhibit D, are
complete and correct, and no amendments thereto are pending. Nextera is
35
<PAGE> 40
not in violation of any term of the Nextera Organizational Documents. Nextera is
not qualified to do business as a foreign corporation in any jurisdiction.
(b) Nextera LLC is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of Delaware
with power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is currently conducted or proposed to be conducted. The
copies of Nextera LLC's Amended and Restated Limited Liability Company
Agreement, as amended to date (the "LLC Operating Agreement"), certified by
Nextera's Secretary, and heretofore delivered to Lexecon's counsel, are complete
and correct, and no amendments thereto are pending. Nextera LLC is not in
violation of any term of Nextera LLC Operating Agreement. Nextera LLC is duly
qualified to do business as a foreign corporation and in good standing to do
business in each jurisdiction in which the nature or leasing of its properties
makes such qualification necessary, other than where the failure to be duly
qualified or have such good standing, as the case maybe, would not have a
Material Adverse Effect on Nextera, Nextera LLC and the Nextera Subsidiaries
taken together as a whole.
(c) Each of the Nextera Subsidiaries is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with corporate or limited
liability company (as applicable) power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. Except as set forth on Schedule 5.2, each of the
Nextera Subsidiaries is duly qualified to do business as a foreign corporation
or limited liability company (as applicable) and in good standing to do business
in each jurisdiction in which the nature or leasing of its properties makes such
qualification necessary, other than where the failure to be duly qualified or
have such good standing, as the case may be, would not have a Material Adverse
Effect on Nextera, Nextera LLC and the Nextera Subsidiaries taken together as a
whole.
5.3. Shares of Nextera. As of the Closing Date, the authorized capital
stock of Nextera consists of 50,000,000 shares of Nextera Class A Stock, of
which 16,811,740 shares upon consummation of the transactions contemplated by
this Agreement (excluding shares of Nextera Class A Stock issuable as the
Contingent Amount) and the Share Exchange Agreement will be duly and validly
issued, outstanding, fully paid and non-assessable and 4,300,000 shares of Class
B Common Stock, of which 4,274,630 shares upon consummation of the transactions
contemplated by this Agreement and the Share Exchange Agreement will be duly and
validly issued, outstanding, fully paid and non-assessable and 10,000,000 shares
of Preferred Stock, of which no shares upon consummation of the transactions
contemplated by this Agreement and the Share Exchange Agreement will be duly and
validly issued, outstanding, fully paid and non-assessable. Other than as set
forth on Schedule 5.3, there are no outstanding options,
36
<PAGE> 41
warrants, rights, commitments, preemptive rights or agreements of any kind for
the issuance or sale of, or outstanding securities convertible into, any
additional shares of capital stock of any class of Nextera. None of Nextera's
capital stock has been issued in violation of any federal or state law. Other
than the Stockholder's Agreement or as set forth on Schedule 5.3, there are no
voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Shares to which Nextera is a
party. All of the shares of Nextera Class A Stock issued and to be issued as
part of the Transaction Consideration are and will be duly and validly issued,
fully paid, and non-assessable as of the date of issuance pursuant to this
Agreement and not subject to any preemptive rights of other persons, whether
statutory, contractual or otherwise.
5.4. Subsidiaries; Liquidation of Nextera LLC.
(a) Other than as described on Schedule 5.4, Nextera LLC has no
Subsidiaries and does not own an equity interest in any other corporation or
business organization. Other than as described on Schedule 5.4, Nextera LLC
owns, directly or indirectly, 100% of each of the Nextera Subsidiaries.
(b) Nextera has no Subsidiaries and does not own an equity
interest in any other corporation or business organization. After the closing of
the transactions contemplated by this Agreement and the Share Exchange
Agreement, Nextera will own, directly or indirectly, 100% of Nextera LLC and,
except as disclosed on Schedule 5.4, 100% of each of the Nextera Subsidiaries.
(c) Nextera LLC will be liquidated on or promptly after the
Closing Date.
5.5. Authority. Nextera has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by Nextera pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Nextera of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Nextera and no
other action on the part of Nextera is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Nextera pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Nextera, as
applicable, enforceable in accordance with their terms, subject to the effect of
any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject to the effect of general
principles of equity, including, without limitation, the possible unavailability
of specific performance or injunctive relief, regardless of whether considered
in a proceeding in equity or at law. The execution, delivery and performance by
Nextera of this Agreement and each such agreement, document and instrument:
37
<PAGE> 42
(i) does not and will not violate any provision of the
Nextera Organizational Documents;
(ii) does not and will not violate any laws of the United
States or of any state or any other jurisdiction applicable to Nextera or
Nextera LLC or require Nextera, Nextera LLC or the Nextera Subsidiaries to
obtain any approval, consent or waiver of, or make any filing with, any
governmental entity which has not been obtained or made; and
(iii) except as set forth on Schedule 5.5, does not and
will not result in a breach of, constitute a default under, require any approval
consent or waiver under, accelerate any obligation under, or give rise to a
right of termination of any indenture, loan or credit agreement, or other
material Contract permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which Nextera, Nextera LLC or the
Nextera Subsidiaries is a party, except where such breach default, acceleration
or exercise of right of termination would not have a Material Adverse Effect.
5.6. Litigation. Except as set forth on Schedule 5.6, there is no
litigation or governmental or administrative proceeding or investigation pending
or, to the knowledge of Nextera, threatened against Nextera, Nextera LLC or the
Nextera Subsidiaries.
5.7. Finder's Fee. None of Nextera, Nextera LLC or the Nextera
Subsidiaries has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
5.8. Financial Statements.
(a) Nextera has delivered to the Shareholders the following
financial statements, copies of which are attached hereto as Schedule 5.8: a
consolidated balance sheet of Nextera LLC and the Nextera Subsidiaries and a
consolidated statement of profit and loss of Nextera LLC as of December 31, 1997
as audited by Ernst & Young LLP (the "Nextera Audited Financial Statements"), an
unaudited balance sheet of Nextera LLC and the Nextera Subsidiaries as of
September 30, 1998 (the "Nextera Interim Balance Sheet") and an unaudited
statement of profit and loss of Nextera LLC for the nine months ended September
30, 1998 (the "Nextera Interim Financial Statements") and together with the
Nextera Audited Financial Statements, the "Nextera Financial Statements"). The
December 31, 1997 balance sheet is hereinafter referred to as the "Nextera
Balance Sheet." To the knowledge of Nextera, the Nextera Financial Statements
have been prepared in accordance with GAAP (provided that the Nextera Interim
Financial Statement (i) are subject to normal year-end adjustments and (ii) lack
footnotes and other presentation items) applied consistently during the period
covered thereby, and present fairly in all material respects the consolidated
financial condition of Nextera at the date of
38
<PAGE> 43
said statements and the consolidated results of its operations for the period
covered thereby.
(b) To the knowledge of Nextera, except as set forth on Schedule
5.8, as of the Closing, none of Nextera, Nextera LLC or the Nextera Subsidiaries
has any material Liabilities which would be required by GAAP to be stated or
adequately reserved against on a balance sheet or the notes thereto, except
Liabilities (i) stated or adequately reserved against on the Nextera Interim
Balance Sheet or the Nextera Balance Sheet (or referenced in the notes thereto),
(ii) incurred in the ordinary course of business of Nextera, Nextera LLC or the
Nextera Subsidiaries, (iii) disclosed in the Nextera Disclosure Schedule, or
(iv) future performance obligations under Contracts, none of which relates to
any default, breach of warranty, tort infringement, or violation of any
Regulations or Court Orders.
(c) To the knowledge of Nextera, and except as set forth on
Schedule 5.8(c) attached hereto, the accounts receivable of Nextera shown or
reflected on the Nextera Interim Balance Sheet or existing at the date of this
Agreement (less the reserve for bad debts set forth on the Nextera Interim
Balance Sheet or existing at the date hereof) are valid and enforceable claims,
fully collectible and subject to no set off or counterclaim and reflect amounts
due or owing to Nextera for services performed prior to such date in the
ordinary course of business. Except as set forth on Schedule 5.8(c), Nextera has
no accounts or loans receivable from any Affiliate of Nextera or from any
Shareholder, director, officer or employee of Nextera other than obligations of
such Persons to reimburse personal expenses incurred in the ordinary course of
business.
5.9. Taxes.
(a) Except as set forth in Schedule 5.9, all Tax Returns filed
or required to be filed by Nextera, Nextera LLC or any of the Nextera
Subsidiaries have been timely filed (giving effect to extensions granted with
respect thereto), and all such Tax Returns are true, correct, and complete in
all material respects.
(b) Except as set forth in Schedule 5.9, Nextera, Nextera LLC
and the Nextera Subsidiaries have timely paid all Taxes due from them or claimed
to be due from them by any federal, state, local, foreign or other taxing
authority.
(c) There are no liens for Taxes upon any of the assets of
Nextera, Nextera LLC or any of the Subsidiaries of Nextera, or interests in
Nextera, Nextera LLC or any of the Nextera Subsidiaries, except liens for taxes
not yet due and payable.
(d) No deficiency for any Taxes has been proposed, asserted or
assessed against Nextera, Nextera LLC or any of the Nextera Subsidiaries that
has not been resolved and paid in full.
39
<PAGE> 44
(e) Nextera, Nextera LLC and each of the Nextera Subsidiaries
have complied in all respects with all applicable Regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding of
Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar
provisions under any applicable state and foreign laws) and have, within the
time and the manner prescribed by law, paid over to the proper governmental
authorities all amounts so withheld.
(f) Except as set forth in Schedule 5.9, no Tax Returns of
Nextera, Nextera LLC or any of the Nextera Subsidiaries have been audited by the
relevant taxing authority. No deficiency for any Taxes has been proposed,
asserted or assessed against Nextera, Nextera LLC or any of the Nextera
Subsidiaries that has not been resolved and paid in full. There are no
outstanding waivers, extensions, or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns of Nextera, Nextera LLC or any of the Nextera Subsidiaries (including
the time for filing of Tax Returns or paying Taxes), and neither Nextera,
Nextera LLC, nor any of the Subsidiaries has pending written requests for any
such waivers, extensions, or comparable consents.
(g) Except as set forth in Schedule 5.9, no audit or other
proceeding by any federal, state, local or foreign court, governmental
regulatory, administrative or similar authority is presently pending with
respect to any Taxes or Tax Returns of Nextera, Nextera LLC or any of the
Nextera Subsidiaries and neither Nextera, Nextera LLC nor any of the Nextera
Subsidiaries has received written notice of any pending audits or proceedings.
(h) Except as set forth in Schedule 5.9, neither Nextera,
Nextera LLC nor any of the Nextera Subsidiaries has received a ruling from any
taxing authority or signed an agreement with any taxing authority that could
reasonably be expected to have a Material Adverse Effect on Nextera, Nextera
LLC, or any of the Nextera Subsidiaries or the assets of Nextera, Nextera LLC or
any of the Nextera Subsidiaries.
5.10. Absence of Certain Changes. Except as disclosed in Schedule 5.10
attached hereto or as contemplated by this Agreement and except for matters that
would not have a Material Adverse Effect on Nextera, Nextera LLC and the Nextera
Subsidiaries taken together as a whole, since [September 30, 1998], there has
not been:
(a) Any change in the business, properties, assets, results of
operations, financial condition or liabilities of Nextera, Nextera LLC or the
Nextera Subsidiaries;
(b) Any contingent liability incurred by Nextera, Nextera LLC or
the Nextera Subsidiaries as guarantor or otherwise with respect to the
obligations of others or
40
<PAGE> 45
any compromise or forgiveness of any material claim owing to, or written waiver
of any material claim or right of, Nextera, Nextera LLC or the Nextera
Subsidiaries;
(c) Any mortgage, encumbrance or lien placed on any of the
properties of Nextera, Nextera LLC or the Nextera Subsidiaries which remains in
existence on the date hereof or will remain on the Closing Date;
(d) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Nextera, Nextera LLC or the Nextera Subsidiaries other
than in the ordinary course of business;
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Nextera;
(f) Any declaration, setting aside or payment of any dividend by
Nextera, Nextera LLC or the Nextera Subsidiaries or the making of any other
distribution in respect of the equity interests of Nextera, or any direct or
indirect redemption, purchase or other acquisition by Nextera of its respective
membership interests;
(g) Any claim of unfair labor practices involving Nextera,
Nextera LLC or the Nextera Subsidiaries; any change in the compensation payable
or to become payable by Nextera to any of their officers, employees, agents or
independent contractors other than normal merit increases in accordance with its
usual practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors other than bonuses in
accordance with their usual practices;
(h) Any change in the officers or senior management of Nextera,
Nextera LLC or the Nextera Subsidiaries;
(i) Any payment or discharge of a material lien or liability of
Nextera, Nextera LLC or the Nextera Subsidiaries which was not shown on the
Nextera Balance Sheet or incurred in the ordinary course of business thereafter;
(j) Any change in accounting methods or practices, credit
practices or collection policies used by Nextera, Nextera LLC or the Nextera
Subsidiaries;
(k) Any other transaction entered into by Nextera, Nextera LLC
or the Nextera Subsidiaries other than transactions in the ordinary course of
business; or
(l) Any agreement or understanding whether in writing or
otherwise, for Nextera, Nextera LLC or the Nextera Subsidiaries to take any of
the actions specified in paragraphs (a) through (k) above.
41
<PAGE> 46
5.11. Compliance with Laws. Each of Nextera, Nextera LLC and the Nextera
Subsidiaries is in compliance with all applicable Regulations and Court Orders
promulgated by any federal, state, municipal entity, agency, court or other
governmental authority which apply to Nextera, Nextera LLC or the Nextera
Subsidiaries or to the conduct of their businesses, except where noncompliance
with such Regulations or Court Orders would not have a Material Adverse Effect
on Nextera, Nextera LLC and the Nextera Subsidiaries taken together as a whole.
None of Nextera, Nextera LLC or the Nextera Subsidiaries has not received notice
of a violation or alleged violation of any such Regulations or Court Orders.
5.12. Intellectual Property.
(a) Each of Nextera, Nextera LLC and the Nextera Subsidiaries use
intellectual property in their businesses ("Nextera Intellectual Property"). To
the knowledge of Nextera, there are no claims or demands of any other person
pertaining to any material Nextera Intellectual Property and no proceedings have
been instituted, or are pending or threatened, which challenge the rights of
Nextera, Nextera LLC or the Nextera Subsidiaries to any material Nextera
Intellectual Property.
(b) To the knowledge of Nextera, the present business,
activities of Nextera, Nextera LLC and the Nextera Subsidiaries do not infringe
any intellectual property rights of any other person. To the knowledge of
Nextera, no proceeding charging Nextera, Nextera LLC or the Nextera Subsidiaries
with infringement of any adversely held intellectual property has been filed or
is threatened to be filed. To the knowledge of Nextera, there exists no
unexpired patent or patent application which includes claims that would be
infringed by or otherwise adversely affect the activities or business of
Nextera, Nextera LLC or the Nextera Subsidiaries. To the knowledge of Nextera,
none of Nextera, Nextera LLC or the Nextera Subsidiaries is making unauthorized
use of any confidential information or trade secrets of any person, including
without limitation, any former employer of any past or present employee of
Nextera, Nextera LLC or the Nextera Subsidiaries.
5.13. Insurance. The physical properties, assets and business of
Nextera, Nextera LLC and the Nextera Subsidiaries are insured under insurance
that is adequate and customary for the business engaged in by Nextera, Nextera
LLC and the Nextera Subsidiaries and sufficient for compliance by them with all
requirements of law and all agreements and leases to which they are parties.
Such insurance policies and arrangements are in full force and effect, all
premiums with respect thereto are currently paid, and Nextera, Nextera LLC and
the Nextera Subsidiaries are in compliance in all material respects with the
terms thereof.
5.14. Transactions with Interested Persons. Other than as set forth on
Schedule 5.14, none of Nextera, Nextera LLC, any Nextera Subsidiary, or to the
knowledge of
42
<PAGE> 47
Nextera, any shareholder of Nextera, member of Nextera LLC, officer, supervisory
employee or director of Nextera, Nextera LLC or the Nextera Subsidiaries owns
directly or indirectly on an individual or joint basis any material interest in,
or serves as an officer or director or in another similar capacity of, any
competitor or supplier of Nextera, Nextera LLC or the Nextera Subsidiaries, or
any organization which has a material Contract or arrangement with Nextera,
Nextera LLC or any Nextera Subsidiary.
5.15. Nextera Records; Share Exchange Agreement; Copies of Documents.
The copies of the corporate records of Nextera and the organizational documents
of Nextera LLC, as made available to Lexecon or its counsel for review, are
correct and complete copies of the originals of such documents. The Share
Exchange Agreement, a copy of which has been provided to Lexecon and its
counsel, has not been amended or modified. Nextera has made available for
inspection by Lexecon and its counsel correct and complete copies of all
documents referred to in this Section or in the Schedules delivered to Lexecon
pursuant to this Agreement.
5.16. Environmental Matters.
(a) (i) None of Nextera, Nextera LLC nor any Nextera Subsidiary
has ever generated, transported, used, stored, treated, disposed of, or managed
any Hazardous Waste (as defined below), other than that which is used in an
ordinary office environment; (ii) to the knowledge of Nextera, no Hazardous
Material has ever been or is threatened to be spilled, released, or disposed of
at any site presently or formerly owned, operated, leased, or used by Nextera,
Nextera LLC or any Nextera Subsidiary, or has ever been located in the soil or
groundwater at any such site; (iii) to the knowledge of Nextera, no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary for
treatment, storage, or disposal at any other place; (iv) to the knowledge of
Nextera, none of Nextera, Nextera LLC or any Nextera Subsidiary presently owns,
operates, leases, or uses, nor has it previously owned, operated, leased, or
used any site on which underground storage tanks are or were located; and (v) to
the knowledge of Nextera, no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary in connection
with the presence of any Hazardous Material.
(b) (i) Nextera has no material liability under, nor has it ever
violated in any material respect, any Environmental Law; (ii) Nextera, Nextera
LLC and each Nextera Subsidiary and, to Nextera's knowledge, any property owned,
operated, leased, or used by any of them, and any facilities and operations
thereon, are presently in material compliance with all applicable Environmental
Laws; (iii) none of Nextera, Nextera LLC or any Nextera Subsidiary has ever
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice,
43
<PAGE> 48
demand letter, administrative inquiry, or formal or informal complaint or claim
with respect to any environmental or health and safety matter or the enforcement
of any Environmental Law; and (iv) Nextera has no reason to believe that any of
the items enumerated in clause (iii) of this subsection will be forthcoming.
(c) To the knowledge of Nextera, no site owned, operated,
leased, or used by Nextera, Nextera LLC or any Nextera Subsidiary contains any
asbestos or asbestos-containing material, any PCBs or equipment containing PCBs;
or any urea formaldehyde foam insulation.
(d) Nextera has provided to Lexecon copies of all documents,
records, and information in the possession of Nextera or Nextera LLC concerning
any material environmental or health and safety matter relevant to Nextera,
Nextera LLC or Nextera Subsidiaries, whether generated by Nextera, Nextera LLC
or others, including without limitation, environmental audits, environmental
risk assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
(e) For purposes of this Section 5.16, (i) "Nextera" shall mean
and include Nextera and all other entities for whose conduct Nextera is or may
be held responsible under any Environmental Law; (ii) "Nextera LLC" shall mean
and include Nextera and all other entities for whose conduct Nextera LLC is or
may be held responsible under any Environmental Law; and (iii) "Nextera
Subsidiary" shall mean and include each Nextera Subsidiary and all other
entities for whose conduct the Nextera Subsidiaries are or may be held
responsible under any Environmental Law.
5.17. Year 2000 Compliance. Except as set forth on Schedule 5.17 or as
would not have a Material Adverse Effect, Nextera, Nextera LLC and the Nextera
Subsidiaries have all systems and software solutions necessary or appropriate to
address and accommodate Year 2000 computer systems issues, and their software
programs, systems and applications used in the operation of their businesses
have been tested and are fully capable of providing accurate results using data
having date ranges spanning the years 1999 and 2000. Without limiting the
generality of the foregoing, except as set forth on Schedule 5.17 or as would
not have a Material Adverse Effect, all of such software programs, systems and
applications are able to:
(a) Consistently handle date information before, during and after
January 1, 2000, including but not limited to accepting date input, providing
date output, and performing calculations on dates or portions of dates;
44
<PAGE> 49
(b) Function accurately and without interruption before, during
and after January 1, 2000 (including leap year computations), without any change
in operations associated with the advent of the new century;
(c) Respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed defined and predetermined manner; and
(d) Store and provide output of date information in ways that
are unambiguous as to century.
5.18. Clients. Schedule 5.18 sets forth any client or customer which
accounted for more than $500,000 in revenue for Nextera LLC and the Nextera
Subsidiaries for the twelve months ending December 31, 1997 and more than
$500,000 in revenue for the nine months ended September 30, 1998 (collectively,
the "Nextera Clients"). To the knowledge of Nextera, Nextera has not received
written notice, or direct and overt oral notice, from any Client that such
Client intends to terminate or materially reduce its business relationship with
Nextera, Nextera LLC or the Nextera Subsidiaries after the Closing for any
reason including as a result of the Closing of the transaction contemplated by
this Agreement (it being understood that Nextera has not made any inquiries in
this regard).
5.19 Initial Public Offering Materials. Nextera is currently pursuing an
initial public offering of its Class A Common Stock. Nextera has provided to
Lexecon (i) all documents filed with the Securities and Exchange Commission (the
"Commission") (including, without limitation, a Form S-1 Registration Statement
and Pre-Effective Amendment No. 1 thereof) (collectively, the "S-1"), and (ii)
all written correspondence or other written communications to or from the
Commission (including all supplemental materials attached thereto). The
Shareholders acknowledge that Nextera is not representing that an initial public
offering will occur. The Shareholders further acknowledge that the S-1 is an
incomplete work in process that was not prepared for purposes of this
transaction, and except with respect to the specific sections of the S-1
referenced below, Nextera is not making any representation or warranty with
respect to the accuracy or completeness of the S-1. With respect to the sections
of the Pre-Effective Amendment No. 1 to the S-1 entitled The Company (pages 18 -
19), Selected Consolidated and Proforma Combined Financial Data (page 23),
Certain Transactions (pages 53 - 55), Principal Stockholders (pages 56 - 57),
and Financial Statements (pages F1 - F80), Nextera represents and warrants that
to the knowledge of Nextera the information contained in such sections was a
correct and accurate summary in all material respects of the matters covered
thereby as of the date of filing of the Pre-Effective Amendment No. 1 to the
S-1, subject to the following qualifications: (a) such sections do not
contemplate any of the transactions governed by or entered into in connection
with this Agreement, (b) there are "blanks" in various sections where factual
information has not been completed, and (c) all financial statements and
information are
45
<PAGE> 50
subject to revision in response to comments made by the Commission as part of
the registration process.
SECTION 6. COVENANTS OF SHAREHOLDERS NOT TO COMPETE; RIGHT OF REPURCHASE.
6.1. Covenant of Shareholders. As a material inducement to Nextera to
acquire the Shares in accordance with the terms and conditions of this Agreement
and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, each Shareholder hereby agrees as follows:
(a) Such Shareholder acknowledges and agrees that he has
technical expertise associated with the business of Lexecon and is well known in
the industry. In addition, such Shareholder has valuable business contacts with
clients and potential clients of Lexecon and with professionals in the industry.
If such Shareholder breaches the covenants contained in this Section, Nextera
will be deprived of the benefits it has bargained for pursuant to this
Agreement. Since such Shareholder has the ability to compete with Nextera and
Lexecon in the operation of Lexecon's business, Nextera would not have entered
into this Agreement unless such Shareholder agreed to the provisions of this
Section 6.
(b) Such Shareholder will not directly or indirectly on such
Shareholder's own behalf or on behalf of any other person, firm or entity (i)
engage in; (ii) own or control any interest in (except as a passive investor of
less than 5% of the publicly traded stock of a publicly held company); (iii) act
as a director, officer, manager, employee, trustee, agent, partner, joint
venturer, participant, consultant of or be obligated to, or be connected in any
advisory, business or ownership capacity (except as a passive investor of less
than 5% of the publicly traded stock of a publicly held company) with; (iv) lend
credit or money for the purpose of the establishing or operating; or (v) allow
such Shareholder's name or reputation to be used by any firm, corporation,
partnership, trust or other business enterprise directly or indirectly engaged
in, any business that is competitive with the business of Lexecon in any
geographic territory within which the business of Lexecon has been conducted.
(c) Such Shareholder shall not directly or indirectly,
individually, or together with, or through any other person, firm, corporation,
or entity: (i) in any manner disparage Lexecon or its employees or Affiliates so
as to discourage any person or entity which is or has been a customer or
supplier of Lexecon from continuing its business relationship with Lexecon, (ii)
approach, counsel, or attempt to induce any person who is then in the employ of
or an independent contractor of Lexecon, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
46
<PAGE> 51
(d) In the case of each Shareholder signing a Service Agreement
with Lexecon in the form attached hereto as Exhibit E hereto (the "Service
Agreement"), the covenants and agreements of such Shareholder set forth in
subsections (b) and (c) above shall apply for so long as such Shareholder serves
Lexecon according to the terms of such Service Agreement and for a period of one
year thereafter, unless such Shareholder voluntarily terminates his Service
Agreement or Nextera terminates such Shareholder's Service Agreement for "Cause"
or "Disability" (as such terms are defined in such Service Agreement), in which
case the covenants and agreements of such Shareholder in subsections (b) and (c)
above shall terminate upon the later of (i) the date that is four years from the
Closing Date or (ii) the date that is one year from the termination of such
Service Agreement. In the case of each Shareholder who is signing a
Confidentiality and Proprietary Rights Agreement attached as Exhibit I hereto,
the covenants and agreements of such Shareholder set forth in subsections (b)
and (c) above shall terminate on the date that is four years from the Closing
Date.
(e) Notwithstanding anything in this Section 6.1 to the contrary,
the Shareholders may contact or solicit clients or customers of Lexecon
following the lapse of the applicable time periods specified in Sections 6.1(d)
above.
6.2. Right of Repurchase. Prior to an Initial Public Offering, Nextera
shall have the right, but not an obligation, to repurchase all or any portion of
the Nextera Class A Stock (and/or options to purchase Nextera Class A Stock) of
each Shareholder for Fair Market Value (as determined in accordance with Section
10.6(d) except with respect to the notice provisions thereof) according to the
following terms and conditions (the "Repurchase Option"):
(a) With respect to any Shareholder, Nextera may exercise the
Repurchase Option if (i) such Shareholder breaches the covenants contained in
Section 6.1 hereof and (ii) Nextera delivers a Repurchase Notice (as defined
below) within six months after obtaining knowledge of such breach.
(b) With respect to any Shareholder, Nextera may exercise the
Repurchase Option if (i) such Shareholder becomes an employee of, or consultant
to, a competitor of Nextera or its Subsidiaries and (ii) Nextera delivers a
Repurchase Notice within six months after obtaining knowledge of such fact.
(c) With respect to any Shareholder who is required to execute a
Service Agreement in connection with this Agreement, Nextera may exercise the
Repurchase Option if (i) such Shareholder has breached any of the covenants of
Appendix A to his Service Agreement, (ii) Nextera delivers a Repurchase Notice
within six months after obtaining knowledge of such breach and (iii) such
Shareholder does not cure to Nextera's satisfaction the alleged breach within 30
days after the receipt of Nextera's notice.
47
<PAGE> 52
(d) With respect to any Shareholder who is required to execute a
Confidentiality and Proprietary Rights Agreement in connection with this
Agreement, Nextera may exercise the Repurchase Option if such Shareholder has
breached any of the covenants of his Confidentiality and Proprietary Rights
Agreement, (ii) Nextera delivers a Repurchase Notice within six months after
obtaining knowledge of such breach and (iii) such Shareholder does not cure to
Nextera's satisfaction the alleged breach within 30 days after the receipt of
Nextera's notice.
If Nextera so elects to exercise the Repurchase Option in whole
or in part with respect to any Shareholder, it shall give written notice of such
exercise (the "Repurchase Notice") to such Shareholder (or his estate or legal
representative, as the case may be). The Board shall give notice (the
"Repurchase Valuation Notice") of the Fair Market Value to such Shareholder (or
his estate or legal representative, as the case may be) within thirty (30) days
of the Repurchase Notice. If (i) the Fair Market Value is determined under
clauses (i) or (ii) of Sections 10.6(d) or (ii) such Shareholder (or his estate
or legal representative, as the case may be) does not dispute the Board's
determination of Fair Market Value under clause (iii) of Section 10.6(d) within
the time period specified below for giving the Repurchase Appraisal Notice, then
Nextera shall pay to such Shareholder (or his estate or legal representative, as
the case may be), in cash and within (30) thirty days of the date of the
Repurchase Valuation Notice, the Fair Market Value of the shares of Nextera
Class A Stock being repurchased and such Shareholder (or his estate or legal
representative) shall deliver to Nextera the certificates representing such
shares duly endorsed for transfer, free and clear of any and all liens,
encumbrances, charges or claims. If the Fair Market Value is determined under
clause (iii) of Section 10.6(d) and such Shareholder (or his estate or legal
representative, as the case may be) disputes the Board's determination of Fair
Market Value as set forth in the Repurchase Valuation Notice, then such
Shareholder (or his estate or legal representative, as the case may be) shall so
notify the Board in writing (the "Repurchase Appraisal Notice") within five (5)
business days of receipt of the Repurchase Valuation Notice. Any dispute by such
Shareholder under this Section 6.2 shall be resolved according to Section
10.6(d), provided that each reference in Section 10.6(d) to the "Shareholder
Representative" or the "Shareholders" shall be deemed to be the disputing
Shareholder under this Section.
In the event that Nextera exercises the Repurchase Option under
Section 6.2(b) above, Nextera shall, within ten (10) days after such repurchase,
offer in writing to sell to the Eligible Persons (as defined below) all of the
repurchased shares of Nextera Class A Stock at the same price paid by Nextera to
the applicable Shareholder (or his estate or legal representative, as the case
may be). Each Eligible Person shall have the right (but not the obligation) to
purchase his percentage of such Nextera Class A Stock set forth below; provided
that the other Eligible Persons shall have the right to acquire (on a pro rata
basis) any portion of such Nextera Class A Stock which an Eligible Person elects
not to purchase. In order to exercise the purchase rights of the Eligible
Persons, the
48
<PAGE> 53
Shareholder Representative shall deliver a written notice to the Company (the
"Acceptance Notice"), specifying the number, if any, of shares of such Nextera
Class A Stock which the Eligible Persons have elected to purchase, within thirty
(30) days after his receipt of Nextera's written offer and, in the event that
one or more Eligible Persons has elected to purchase a portion of the Option,
the closing of such re-sale shall occur within thirty (30) days after delivery
of the Acceptance Notice. "Eligible Persons" shall mean those of the
Shareholders who hold Nextera Class A Stock on the date of the Repurchase
Notice. The number of shares of Nextera Class A Stock which any Eligible Person
is entitled to purchase shall be calculated pro rata based on the following
weighting system: Rosenfield (30%) Carlton (30%), Fischel (30%) and Landes
(10%). Any of the foregoing individuals who are not Eligible Persons on the
determination date shall be eliminated from the pool, with the result that the
pro rata portions of the remaining Eligible Persons shall be increased
proportionately to total 100%.
The Repurchase Option, and the purchase rights of Eligible Persons,
shall also apply to shares of Nextera Class A Stock (and options to purchase
Nextera Class A Stock) which any Shareholder acquires from any other person.
The Repurchase Option shall terminate upon an Initial Public Offering.
Nextera covenants and agrees that the repurchase rights and other
provisions of this Section 6.2 override the provisions of Section 4.4 of the
Stockholders Agreement (which are not applicable to the Shareholders).
6.3. Right of First Refusal. Each Shareholder that is signing a
Confidentiality and Proprietary Rights Agreement agrees that if he finalizes the
material terms of employment or engagement with any commercial enterprise that
engages in business that is competitive with Lexecon (a "Competitor") at any
time within four years after the Closing Date, such Shareholder shall give a
written notice (the "Competitor Notice") to Lexecon describing fully the
proposed terms of such arrangement, and the name and address of the Competitor.
Lexecon shall have the right to employ or engage such Shareholder on
substantially equivalent terms as set forth in the Competitor Notice by delivery
of a notice of exercise of its right of first refusal (the "Lexecon Notice")
within forty-five days after the date the Competitor Notice is delivered to
Lexecon. Upon receipt of the Lexecon Notice, such Shareholder agrees to cease
all discussions and negotiations with the Competitor and any other Competitors.
Nothing in this Section 6.1 shall permit any Shareholder to negotiate with
Competitors during any period in which the covenants and agreements of such
Shareholder set forth in Sections 6.1(b) and 6.1(c) above are in effect.
49
<PAGE> 54
SECTION 7. OTHER COVENANTS.
7.1. Authorization and Consent from Others. Prior to the Closing Date,
the Shareholders and Lexecon will attempt to obtain the authorizations, consents
and permits of others set forth on Exhibit F required to permit the consummation
by the Shareholders and Lexecon of the transactions contemplated by this
Agreement.
7.2. Consummation of Agreement. Nextera, Lexecon and each of the
Shareholders shall use their commercially reasonable efforts to perform and
fulfill all conditions and obligations on their parts to be performed and
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
7.3. Cooperation. Lexecon and each of the Shareholders shall cooperate
with all reasonable requests of Nextera and Nextera's counsel in connection with
the consummation of the transactions contemplated hereby. Nextera shall
cooperate with all reasonable requests of Lexecon's and the Shareholders'
counsel in connection with the consummation of the transactions contemplated
hereby.
7.4. [Intentionally Omitted]
7.5. Tax Returns. The Shareholders shall be responsible for Tax Returns
of Lexecon for the period from January 1, 1998 through the end of the day which
is the day prior to the Closing Date. Lexecon shall be responsible for all of
its Tax Returns for all periods beginning on the Closing Date and thereafter.
The parties shall cooperate in all reasonable respects with each other to permit
Lexecon and its Subsidiaries in accordance with applicable law to promptly
prepare and file on or before the due date or any extension thereof all federal,
state and local Tax Returns relating to Lexecon and/or its Subsidiaries and
shall cooperate with respect to all tax matters, including, but not limited to,
any federal or state tax audit. The parties shall treat the transactions
contemplated under this Agreement and the Share Exchange Agreement as a single,
integrated transaction which is intended to satisfy the requirements of Code
Section 351 (and any corresponding provisions of state, local or foreign tax
law) in which no gain or loss is intended to be recognized for Tax purposes by
the Shareholders as a result of the receipt of the Nextera Class A Stock
pursuant hereto, and shall file all Tax Returns and other filings in a manner
consistent with such treatment.
7.6. Option Pool. Nextera agrees to grant to employees of Lexecon and
new hires options to purchase shares of Nextera Class A Stock (the "Employee
Options") in accordance with the term sheet attached as Exhibit G hereto. Such
options will be issued under Nextera's 1998 Equity Participation Plan (the "1998
Plan"), a copy of which is attached hereto as Exhibit H. Each of Rosenfield,
Fischel and Carlton shall be granted Employee Options having a Black-Scholes
value (computed in accordance with such
50
<PAGE> 55
term sheet) of $366,666. The allocation of the other Employee Options shall be
mutually agreed by Nextera and the Shareholder Representative.
7.7. Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will cooperate
with and make available to the other parties, during normal business hours, all
books and records, information and employees (without substantial disruption of
employment) which are necessary or useful in connection with any tax inquiry,
audit, investigation or dispute, any litigation or investigation or any other
matter requiring any such books and records, information or employees for any
reasonable business purpose. The party requesting any such books and records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such books and records, information or employees. All
information received pursuant to this Section 7.10(a) shall be subject to the
terms of the Confidentiality and Nondisclosure Agreement previously entered into
between the parties.
(b) Cooperation and Records Retention. The Shareholders and
Nextera shall (i) each provide the other with such assistance as may reasonably
be requested in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the others with
any records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the others with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the others for any period. Without limiting the generality of the foregoing, the
Shareholders and Nextera shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing and shall not destroy or otherwise dispose of any such records without
first providing the other parties with a reasonable opportunity to review and
copy the same.
7.8. Release of Personal Guarantees. Nextera agrees to use its
commercially reasonable efforts (a) to have the Shareholders released from
personal guarantees of the obligations of Lexecon (the "Guarantees"), (b) to
provide for a replacement Letter of Credit with respect to Lexecon's office
lease and (c) to cause to be returned to Lexecon the existing Letter of Credit
with respect to Lexecon's office lease.
7.9. Lexecon Board of Directors/Operating Committee. Nextera agrees that
Lexecon's business affairs will be managed, subject to the determinations of
Nextera's
51
<PAGE> 56
Board of Directors, by Lexecon's Board of Directors/Operating Committee to be
formed effective with the Closing. Lexecon's Board of Directors/Operating
Committee shall consist of Andrew M. Rosenfield, Daniel R. Fischel, Dennis W.
Carlton (all of whom shall be entitled to remain in such position as long as
they are fulfilling their obligations under their Service Agreements or
Confidentiality and Proprietary Rights Agreements), Gresham T. Brebach, Jr. and
Steven Fink.
7.10. Directors' and Officers' Liability Insurance. Nextera has provided
Lexecon with a copy of the directors' and executive officers' liability
insurance policy currently maintained by Nextera. Nextera agrees that it or an
Affiliate will maintain such directors' and executive officers' liability
insurance, or such substitute coverage as approved by the Board of Directors of
Nextera, in the event that (and for so long as) any Shareholder or Gary Becker
is a director of Nextera. For so long as any of the Shareholders serves as a
director or officer of Lexecon, Nextera shall (i) use all commercially
reasonable efforts to afford them coverage under the directors' and officers'
liability insurance policy of Nextera (or an Affiliate) then in effect and (ii)
provide (or cause Lexecon to provide) indemnification rights at least as
favorable as those currently in effect at Lexecon. Nextera's obligation to
provide the above-referenced insurance coverage shall be subject to the
Shareholders providing any cooperation as reasonably requested by the insurance
carriers.
7.11. Milberg Action. As an accommodation to the Shareholders, Lexecon
will remain a party to the Milberg Action until Lexecon's involvement as a party
to the Milberg Action is no longer necessary as mutually determined in good
faith by the Shareholders and the Board of Directors of Lexecon.
7.12. Termination of Third Amended and Restated Shareholders Agreement.
As of the Closing, Lexecon and the Shareholders agree that the Third Amended and
Restated Shareholders Agreement dated December 21, 1990 by and among Lexecon and
the Shareholders shall be terminated and be of no further force or effect.
7.13. Lexecon Insurance. Subject to obtaining any cooperation of the
Shareholders as reasonably required by the insurance carrier, for so long as any
Shareholder is an employee, consultant or service provider to Lexecon, Nextera
shall use commercially reasonable efforts to either (a) continue Lexecon's
existing malpractice, errors and omissions insurance or (b) replace such
insurance with other policies (including tail coverage) offering coverage
substantially similar to (or greater than) that currently in effect.
7.14. Special Tag-Along Rights. Promptly following the Closing, Nextera
shall take all actions necessary to allow the Shareholders to participate in the
"Special Tag-Along Right" in Section 6.2 of the Stockholders Agreement (and, in
the event that Nextera is unable to obtain any necessary stockholder consents to
such action, Nextera
52
<PAGE> 57
and the Shareholders shall develop and enter into a reasonably satisfactory
alternative arrangements).
7.15. Certain Transactions. Prior to completing an Initial Public
Offering, Nextera shall not enter into any "Covered Transaction" (as hereinafter
defined) with any Affiliate without the prior approval of the Shareholder
Representative. A "Covered Transaction" shall mean (i) any transaction or
related series of transactions between Nextera or any subsidiary of Nextera and
an Affiliate (including Affiliates of such Affiliate) which involves, in the
aggregate, a transaction sum in excess of $2,000,000 or (ii) any transaction
between Nextera or any subsidiary of Nextera and an Affiliate (including
Affiliates of such Affiliate) if such transaction, when taken together with all
other transactions between Nextera and such Affiliate (including all Affiliates
of such Affiliate) during any period of 24 consecutive months, involves, in the
aggregate, a total transaction sum or value in excess of $2,000,000.
SECTION 8. CONDITIONS.
8.1. Conditions to the Obligations of Nextera. The obligation of Nextera
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Service Agreements. Andrew M. Rosenfield shall have executed
and delivered to Nextera a Service Agreement, substantially in the form attached
hereto as Exhibit E.
(b) Confidentiality and Proprietary Rights Agreement. Each of
Daniel R. Fischel, Dennis W. Carlton and William M. Landes shall have executed
and delivered to Nextera a Confidentiality and Proprietary Rights Agreement,
substantially in the form attached hereto as Exhibit I.
(c) Opinion of Counsel. On the Closing Date, Nextera shall have
received from Kirkland & Ellis, as counsel for Lexecon and the Shareholders, an
opinion as of said date, in the form attached hereto as Exhibit J.
(d) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(e) Stockholders Agreement. Each of the Shareholders shall have
executed the Supplement to Stockholders Agreement in the form attached hereto as
Exhibit K whereby each Shareholder shall agree to be bound by the terms of that
certain Stockholders Agreement dated as of August 31, 1998, as amended, by and
among Nextera LLC, Nextera and the other individuals and entities listed on the
signature pages thereto (the "Stockholders Agreement"), a copy of which is
attached hereto as Exhibit L.
53
<PAGE> 58
(f) Release. Each of the Shareholders shall have executed a
Release in the form attached hereto as Exhibit M and each of the persons listed
on Schedule 8.1 shall have executed a Release in the form attached hereto as
Exhibit N.
(g) Lock Up. Each of the Shareholders shall have executed a
Lock-Up Agreement in the form attached hereto as Exhibit O.
(h) Supplemental Letter Agreements. Each of the individuals
listed on Schedule 8.1 shall have entered into a Supplemental Letter Agreement
with Lexecon in the form attached hereto as Exhibit P, including the annexes
attached thereto.
(i) Execution of Agreements. The Shareholders and Lexecon shall
have executed and delivered this Agreement and the other agreements and
documents to be delivered in connection with the transactions contemplated by
this Agreement.
(j) Simultaneous Contributions. The closing of the transactions
contemplated by the Share Exchange Agreement shall occur simultaneously with the
Closing.
8.2. Conditions to Obligations of Lexecon and the Shareholders. The
obligation of the Shareholders to consummate this Agreement and the transactions
contemplated hereby is subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
(a) No Litigation. There shall be no temporary or permanent
injunction or other order issued by any court of competent jurisdiction
prohibiting the transactions contemplated hereunder.
(b) Opinion of Counsel. On the Closing Date, the Shareholders
shall have received from Maron & Sandler, counsel for Nextera, an opinion as of
said date, in form attached hereto as Exhibit Q.
(c) Execution of Agreements. Nextera shall have executed and
delivered this Agreement and the other agreements and documents (including,
without limitation, stock certificates and option grants) to be delivered in
connection with the transactions contemplated to this Agreement.
(d) Simultaneous Contributions. The closing of the transactions
contemplated by the Share Exchange Agreement shall occur simultaneously with the
Closing.
54
<PAGE> 59
SECTION 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
9.1. Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein are material, shall be deemed to
have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations
and warranties shall expire on the same dates as and to the extent that the
rights to indemnification with respect thereto under Section 10 shall expire.
SECTION 10. INDEMNIFICATION.
10.1. Indemnification by the Shareholders. The Shareholders severally,
but not jointly, agree subsequent to the Closing to indemnify and hold Lexecon,
Nextera and their respective subsidiaries and Affiliates and persons serving as
officers, directors, partners, managers, stockholders, members, employees and
agents thereof (other than the Shareholders) (individually a "Nextera
Indemnified Party" and collectively the "Nextera Indemnified Parties") harmless
from and against any Damages which may be sustained or suffered by any of them
arising out of or based upon any of the following matters:
(a) fraud, intentional misrepresentation or deliberate and
willful breach of any representations or warranties of Lexecon or the
Shareholders under this Agreement or in any certificate, schedule or exhibit
delivered pursuant hereto (collectively, "Fraud Claims");
(b) any breach of any representation or warranty set forth in
Sections 3.3 or 4.2 of this Agreement (collectively, "Ownership Claims");
(c) any Liability of Lexecon or the Shareholders for Taxes
arising from the activities of Lexecon and all events and transactions prior to
the Closing or breach of the representations and warranties set forth in
Sections 3.8 or 3.22 hereof or breach of covenant with respect to Taxes or tax
related matters (collectively, "Tax Claims");
(d) the Milberg Liabilities and any breach of Sections 3.8(t) or
3.30 (claims for which are referred to herein as "Excluded Liability Claims");
(e) any breach of the covenants of the Shareholders contained in
this Agreement ("Covenant Claims"); and
(f) other than Fraud Claims, Ownership Claims, Tax Claims,
Covenant Claims or Excluded Liability Claims, any other breach of any
representation or warranty of the Shareholders under this Agreement or in any
schedule or exhibit delivered pursuant hereto, or by reason of any claim, action
or proceeding asserted or
55
<PAGE> 60
instituted growing out of any matter or thing constituting a breach of such
representations, warranties or covenants (collectively, "General Claims").
10.2. Limitations on Indemnification by the Shareholders. Anything
contained in this Agreement to the contrary notwithstanding, the liability of
the Shareholders to provide any indemnification to any Nextera Indemnified Party
and right of Nextera Indemnified Parties to indemnification under Section 10.1
shall be subject to the following provisions:
(a) Other than Fraud Claims, Ownership Claims, Tax Claims,
Covenant Claims and Excluded Liability Claims, no claims for indemnification
shall be made under this Agreement against any Shareholder after the date which
is eighteen (18) months following the Closing.
(b) No claims for indemnification shall be made under this
Agreement against any Shareholder, and no indemnification shall be payable to
any Nextera Indemnified Party, with respect to any Tax Claim after expiration of
all applicable statutes of limitation with respect to the Tax that is the
subject of the indemnification claim taking into account any extensions thereof
with respect to collection of the Tax.
(c) The aggregate amount to be payable to all Nextera
Indemnified Parties by each Shareholder for claims for indemnification hereunder
shall in no event exceed such Shareholder's Lexecon Indemnification Percentage
(as defined below) of $40,000,000, provided that no Shareholder shall be
required to pay to any Nextera Indemnified Party cash in an amount greater than
the sum of (i) the cash consideration paid to such Shareholder under this
Agreement (including the cash portions of the Closing Amount and Holdback Amount
as adjusted pursuant to Section 2.5) and (ii) the cash consideration received,
directly or indirectly, by such Shareholder upon the sale, transfer or other
disposition of the Nextera Class A Units received by Shareholder under this
Agreement. The "Lexecon Indemnification Percentage" of each Shareholder for this
purpose shall be the percentage labeled "Lexecon Indemnification Percentage" set
forth opposite each Shareholder's name on Exhibit A.
(d) The Shareholders shall have no obligation for claims for
indemnification hereunder until aggregate claims for indemnification hereunder
exceed $625,000, in which case the Shareholders shall be obligated for
indemnification of claims in excess of a $250,000 deductible; provided, however,
that this clause (d) shall not apply in connection with the calculation or the
payment of the Adjustment Amount.
(e) Notwithstanding the foregoing, claims for indemnification
with respect to Fraud Claims, Ownership Claims, Tax Claims (except with respect
to subsection (b) above), Covenant Claims and Excluded Liability Claims shall
not be subject to any of the limitations or restrictions contained in this
Section 10.2.
56
<PAGE> 61
10.3. Indemnification by Nextera. Nextera agrees to indemnify and hold
the Shareholders (individually a "Shareholder Indemnified Party" and
collectively the "Shareholder Indemnified Parties") harmless from and against
any Damages which may be sustained or suffered by any of them arising out of or
based upon (a) any breach of any representation, warranty or covenant made by
Nextera in this Agreement or in any certificate delivered by Nextera hereunder,
(b) by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing constituting such a breach or (c) any Liabilities
(including reasonable attorney's fees) resulting from any of the obligations of
the Shareholders under the Guarantees after the Closing ("Guarantee Claims").
10.4. Limitation on Indemnification by Nextera. Notwithstanding the
foregoing, (a) no indemnification claims shall be made under this Agreement
against Nextera with respect to claims asserted pursuant to Section 10.3 above
after the date which is eighteen (18) months after the Closing, (b) the
aggregate amount to be payable by Nextera pursuant to Section 10.3 shall not
exceed $40,000,000, and (c) Nextera shall have no obligation for indemnification
hereunder until aggregate claims for indemnification hereunder exceed $625,000,
in which case Nextera shall be obligated for indemnification of claims in excess
of a $250,000 deductible. The foregoing notwithstanding, the following claims
for indemnification shall not be subject to any of the limitations set forth in
this Section 10.4: (i) Guarantee Claims; (ii) claims with respect to any breach
by Nextera of any covenant contained in this Agreement and (iii) claims with
respect to fraud, intentional misrepresentation or the deliberate and willful
breach of any representations or warranties of Nextera under this Agreement or
in any certificate, schedule or exhibit delivered pursuant hereto made under
this Agreement.
10.5. Notice of Claims; Dispute of Claims; Defense of Claims.
(a) If any claim for indemnification hereunder (a "Claim) is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the indemnified party shall give written notice (a "Claim
Notice") to the indemnifying party as soon as reasonably practicable after the
indemnified party becomes aware of any fact, condition or event which may give
rise to a Claim, including a claim or liability asserted by a third party, but
the failure to do so shall not relieve the indemnifying party from any liability
except to the extent that it is prejudiced by the failure or delay in giving
such notice. The Claim Notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within twenty (20) days after receiving the Claim Notice the indemnifying party
shall give written notice (a "Claim Response") to the indemnified party stating
whether it disputes the Claim and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice in a Claim Response that it disputes the Claim within twenty (20)
days after receipt of the Claim Notice, it shall be deemed to have accepted and
agreed to the Claim, which shall become immediately due and payable.
57
<PAGE> 62
(b) If the indemnifying party gives notice in a Claim Response
that it disputes the Claim within twenty (20) days after receipt of the Claim
Notice and the subject Claim is with respect to a third party claim or
liability, the indemnifying party shall be entitled to direct the defense
against a third party claim or liability as set forth in subsection (c) below.
If the Claim is not with respect to a third party claim or liability, the
parties shall negotiate in good faith a settlement of such Claim for a period of
twenty (20) days. If no such settlement is reached within sixty (20) days after
the indemnified party's receipt of the Claim Response, the Claim shall be
referred to the American Arbitration Association, to be settled by binding
arbitration in Los Angeles, California, in accordance with the commercial
arbitration rules of the Association. The fees and expenses of the arbitrator
shall be borne equally by the Shareholders and Nextera. The determination of the
arbitrator as to the amount, if any, of the Claim which is properly allowable
shall be conclusive and binding upon the parties hereto and judgment may be
entered thereon in any court having jurisdiction thereof, including, without
limitation, any Superior Court in the State of California. The arbitrator shall
have the authority to award to the prevailing party reasonable costs and
expenses including attorney's fees and the cost of arbitration.
(c) Provided the indemnifying party provides a timely Claim
Response in accordance with subsection (a) above, the indemnifying party shall
be entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised in writing by counsel that representation of both parties by the same
counsel would violate applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no such notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party in a timely Claim Response, or if
such good faith and diligent defense is not being or ceases to be conducted by
the indemnifying party, the indemnified party shall have the right, at the
expense of the indemnifying party, to undertake the defense of such claim or
liability (with counsel selected by the indemnified party), and to compromise or
settle it with the indemnifying party's consent, such consent not to be
unreasonably withheld or delayed. The indemnifying party shall be liable for any
settlement (subject to any right of appeal), and the indemnifying party agrees
to indemnify and hold harmless an indemnified party from and against any Damages
by reason of such settlement or judgment.
58
<PAGE> 63
10.6. Satisfaction of Indemnification Obligations; Release of Holdback
Amount.
(a) Any indemnification obligations of the Shareholders under
this Section 10 shall be satisfied in the form of 35% cash and 65% Nextera Class
A Stock, with such stock valued at its Fair Market Value on the date of payment
as set forth in subsection (d) below. Subject to the limitations of Sections
10.5 and 10.2 above, to the extent any indemnifying party is unable to tender
Nextera Class A Stock in accordance with the foregoing percentage formula, the
deficit shall be paid in the form of cash. In order to satisfy the
indemnification obligations of the Shareholders due in the form of Nextera Class
A Stock, Nextera shall proceed first directly against the Holdback Amount, if
any, and then directly against the Shareholders.
(b) Nextera agrees to deliver to the Shareholders no later than
the day which is twelve (12) months after the Closing one-half of the number of
shares of Nextera Class A Stock from the Holdback Amount, unless there remains
unresolved any Claims as to which Nextera has delivered a Claim Notice, in which
event that portion of the Holdback Amount that is equal to 100% of the estimated
Damages associated with such unresolved Claims (as promptly agreed in good faith
by Nextera and the Shareholder Representative) shall continue to be held by
Nextera until all such Claims have been satisfied or otherwise resolved pursuant
to Section 10 hereof. Nextera agrees to deliver to the Shareholders no later
than the day which is eighteen (18) months after the Closing the remaining
Holdback Amount, unless there exist unresolved any Claims as to which Nextera
has delivered a Claim Notice in which event that portion of the Holdback Amount
that is equal to 100% of the estimated Damages associated with such unresolved
Claims (as promptly agreed in good faith by Nextera and the Shareholders
Representative) shall continue to be held by Nextera until all such Claims have
been satisfied or otherwise resolved pursuant to Section 10 hereof.
(c) Each of the Shareholders acknowledges and agrees that
Nextera's claims for indemnification shall not be limited to the Holdback Amount
and that the Holdback Amount shall not be Nextera's exclusive source of
indemnification from the Shareholders pursuant to Section 10. Each of the
Shareholders agree that Nextera may take any and all action or exercise any
remedy available to it by appropriate legal proceedings to collect any Damages
to which it is entitled under this Section 10.
(d) The "Fair Market Value" of a share of Nextera Class A Stock
as of a given date shall be (i) the average closing price of a share of Nextera
Class A Stock on the principal exchange on which shares of Nextera Class A Stock
are then trading, if any (or as reported on any composite index which includes
such principal exchange), on the ten most current trading days immediately prior
to such date, or (ii) if Nextera Class A Stock is not traded on an exchange but
is quoted on NASDAQ or a successor quotation system, the average mean between
59
<PAGE> 64
the closing representative bid and asked prices for the Nextera Class A Stock on
the ten (10) most recent trading days immediately prior to such date as reported
by NASDAQ or such successor quotation system; or (iii) if Nextera Class A Stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the Fair Market Value of a share of Nextera Class A Stock as
established by the Board of Directors of Nextera (the "Board") acting in good
faith and the Board shall notify the Shareholder Representative in writing of
its determination (the "Valuation Notice"). If the Shareholder Representative
disputes the Fair Market Value as determined by the Board, then the Shareholder
Representative shall so notify the Board in writing (the "Appraisal Notice")
within five (5) business days of delivery of the Valuation Notice. Within
fifteen (15) business days of the delivery of the Appraisal Notice, the Board
and the Shareholder Representative shall each appoint a professional appraiser
to determine the Fair Market Value. Each appraiser shall have at least five (5)
years experience in appraising companies similar to Nextera. The two appraisers
shall within the succeeding twenty (20) day period after their selection,
attempt to reach agreement on the Fair Market Value. If the appraisers reach
such agreement, their agreement shall be final and binding on the parties. If
the appraisers fail to agree to agree, they shall within ten (10) days
thereafter select a third appraiser with the same qualification requirements,
and the three (3) appraisers shall establish the Fair Market Value by majority
vote within the succeeding twenty (20) day period and such determination of the
Fair Market Value shall be final and binding on the parties. In all events, the
appraisers selected shall be unaffiliated with and otherwise independent of
Nextera, Lexecon, the Shareholders, and their Affiliates. If the Fair Market
Value as determined by the appraisers is not at least five percent (5%) greater
than the value as determined by the Board, then the Shareholders shall pay all
costs associated with the appraisers. If the Fair Market Value as determined by
the appraisers is at least five percent (5%) greater than the value as
determined by the Board, then Nextera shall pay for all costs associated with
the appraisers. The "Fair Market Value" of an option to purchase a share of
Nextera Class A Stock shall be equal to the Fair Market Value of the share less
the option exercise price.
60
<PAGE> 65
SECTION 11. MISCELLANEOUS.
11.1. Fees and Expenses. Each party shall bear its own fees, commissions
and expenses incurred in connection with the negotiation and the consummation of
the transactions contemplated by this Agreement; provided that Lexecon will pay
the reasonable fees and out-of-pocket expenses of the Shareholders incurred in
connection with the transactions contemplated herein.
11.2. Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of California without regard to its
conflict of laws provisions.
11.3. Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
TO NEXTERA: Nextera Enterprises, Inc.
One Cranberry Hill
Lexington, MA 02173
Attention: Gresham T. Brebach, Jr.
Fax: (781) 778-4500
With a copy to: Latham & Watkins
701 "B" Street, Suite 2100
San Diego, CA 92101
Attention: David A. Hahn, Esq.
Fax: (619) 696-7419
With an additional copy to: Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
Attention: Stanley E. Maron, Esq.
Fax: (310) 440-3690
TO LEXECON: Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attention: Andrew Rosenfield
Fax: (312) 322-0218
61
<PAGE> 66
With a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Jeffrey T. Sheffield, Esq.
Fax: (312) 861-2200
TO ANY SHAREHOLDER: c/o Lexecon Inc.
332 S. Michigan Ave., Suite 1300
Chicago, IL 60604
Attention: [Name of Shareholder]
Fax: (312) 322-0218
With a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Jeffrey T. Sheffield, Esq.
Fax: (312) 861-2200
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.4. Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, reflects the entire agreement of the parties with respect to
its subject matter, and supersedes all previous written or oral negotiations,
commitments and writings. No promises, representations, understandings,
warranties and agreements have been made by any of the parties hereto except as
referred to herein or in such Schedules and Exhibits; and all inducements to the
making of this Agreement relied upon by either party hereto have been expressed
herein or in such Schedules or Exhibits.
11.5. Assignability; Binding Effect. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned by any party without the
prior written consent of the other parties; provided, however, that (i) the
Shareholder Representative may consent on behalf of each of the Shareholders and
(ii) although Nextera represents that it has no intention to do so as of the
date hereof, Nextera may, without the consent of the other parties, assign all
such rights to a Subsidiary, to any Affiliate of Nextera or to a successor in
interest to Nextera (including any Person that acquires Lexecon) which shall
assume all obligations and liabilities of Nextera under this Agreement so long
as Nextera remains primarily liable under this Agreement. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other Person shall have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
11.6. Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision
62
<PAGE> 67
hereof. The use in this Agreement of the masculine pronoun in reference to a
party hereto shall be deemed to include the feminine or neuter, as the context
may require.
11.7. Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.8. Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance; provided that the Shareholder
Representative (as defined below) may consent to any such amendment or
modification or waiver on behalf of the Shareholders; provided further that the
Shareholder Representative may not enter into any such amendment or modification
or waive any condition or covenant that materially and adversely affects any
Shareholder differently than all other Shareholders affected thereby without the
consent of such Shareholder. Each of the Shareholders hereby designate Andrew M.
Rosenfield (the "Shareholder Representative") to act for and represent them in
those matters with respect to which this Agreement specifies that the
Shareholder Representative shall so act, including, without limitation, entering
into any amendment to this Agreement, and Andrew M. Rosenfield hereby accepts
such designation. Anything herein to the contrary notwithstanding, any
amendment, modification or waiver to be given by the Shareholders under this
Agreement may be given by the Shareholder Representative.
11.9. Publicity and Disclosures. No press releases or public disclosure,
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Nextera and Lexecon, except as required by law.
11.10. Specific Performance. The parties agree that it would be
difficult to measure Damages which might result from a breach of this Agreement
by the Shareholders and that money damages would be an inadequate remedy for
such a breach. Accordingly, if there is a breach or proposed breach of any
provision of this Agreement by the Shareholders, Nextera shall be entitled, in
addition to any other remedies which it may have, to an injunction or other
appropriate equitable relief to restrain such breach without having to show or
prove actual damage to Nextera.
11.11. Ambiguities in Drafting. Any presumption that an ambiguity in
this Agreement should be construed against the document drafter or author is
hereby waived and shall not apply with respect to any document interpretation.
63
<PAGE> 68
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
64
<PAGE> 69
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives, as of the date first written
above.
NEXTERA:
NEXTERA ENTERPRISES, INC., a
Delaware corporation
By: /s/ Stanley E. Maron
--------------------------------------
Name: Stanley E. Maron
Title: Secretary
LEXECON:
LEXECON INC., an Illinois corporation
By: /s/ Andrew M. Rosenfield
--------------------------------------
Name: Andrew M. Rosenfield
Title: Treasurer
SHAREHOLDERS: SPOUSES:
/s/ Dennis W. Carlton /s/ Jane B. Carlton
- ----------------------------- ---------------------------------------------
Dennis W. Carlton
Residence: Illinois
/s/ Daniel R. Fischel /s/ Phyllis R. Fischel
- ----------------------------- ---------------------------------------------
Daniel R. Fischel
Residence: Illinois
/s/ William M. Landes /s/ Elisabeth M. Landes
- ----------------------------- ---------------------------------------------
William M. Landes
Residence: Illinois
/s/ Andrew M. Rosenfield /s/ Betsy R. Rosenfield
- ----------------------------- ---------------------------------------------
Andrew M. Rosenfield
Residence: Illinois
65
<PAGE> 1
EXHIBIT 10.24
Reference is made to the Contribution Agreement (the "Contribution
Agreement") dated as of December 31, 1998 by and among Nextera Enterprises, Inc.
("Nextera"), Lexecon, Inc. ("Lexecon") and Dennis W. Carlton, Daniel R. Fischel,
William M. Landes and Andrew M. Rosenfield (together the "Shareholders"). Terms
used herein without definition shall have the meanings assigned to them in the
Contribution Agreement.
Knowledge Universe, Inc. ("KU") unconditionally covenants and agrees
that if for any reason Nextera fails to redeem all or any portion of the
Contingent Shares if and when required under Section 2.1(d)(ii) of the
Contribution Agreement (the Contingent Shares as to which any such failure to
redeem has occurred being referred to herein as the "Default Shares"), then KU
shall pay to the Shareholders on or prior to April 5, 2000 (or, if later, the
third business day after the redemption payment is scheduled to be made under
Section 2(d)(ii) of the Contribution Agreement) an amount in cash equal to the
aggregate Redemption Price (as calculated under Section 2.1(d)(ii) of the
Contribution Agreement) for the Default Shares; provided that 25% of such amount
shall be deposited into the Escrow Account as and to the extent required under
the Contribution Agreement. To the extent of any payment made by KU to the
Shareholders under this paragraph, KU shall succeed to the rights of the
Shareholders against Nextera under Section 2(d)(ii) and/or of a creditor of
Nextera.
The Shareholders agree and acknowledge that Nextera may issue to KU
warrants to purchase 250,000 shares of Nextera Class A Common Stock in
consideration of KU's willingness to enter into this Agreement. The warrants
shall have a per share exercise price equal to 80% of the price to the public in
the Initial Public Offering; provided, however, if the Initial Public Offering
does not occur by August 31, 2000 the exercise price shall be equal to $7.65 (as
may be appropriately adjusted for stock splits, stock dividends and similar
transactions which may occur after the date of this Agreement). However, KU
agrees and acknowledges that its obligations to the Shareholders hereunder are
not contingent on KU's receipt of such warrants (or the terms thereof).
KU also agrees to take all commercially reasonable actions (including
consenting to an amendment of the Stockholders Agreement) to implement the
arrangements set forth in Section 7.14 of the Contribution Agreement (Special
Tag-Along Rights).
December 31, 1998
KNOWLEDGE UNIVERSE, INC. /s/ Dennis W. Carlton
----------------------------------
Dennis W. Carlton
By: /s/ Stanley E. Maron /s/ Daniel R. Fischel
---------------------------- ----------------------------------
Its: Secretary Daniel R. Fischel
---------------------------
NEXTERA ENTERPRISES, INC. /s/ William M. Landes
----------------------------------
William M. Landes
By: /s/ Stanley E. Maron /s/ Andrew M. Rosenfield
---------------------------- ----------------------------------
Its: Secretary Andrew M. Rosenfield
---------------------------
<PAGE> 1
EXHIBIT 10.25
$23,000,000.00 March 20, 1997
DEBENTURE
1. For value received, Nextera Enterprises, L.L.C., a Delaware limited
liability company ("Borrower"), promises to pay to the order of Nextera
Enterprises Holdings, L.L.C., a Delaware limited liability company, or its
assigns ("Lender"), the principal sum of Twenty-Three Million Dollars
($23,000,000.00) or such lesser sum as shall be advanced by Lender to Borrower
hereunder from time to time (the "Principal Amount"). Interest shall accrue from
the date hereof on the outstanding principal at ten percent (10%) per annum,
compounded quarterly, based on the calendar year, but in no case shall the
interest rate exceed the maximum rate allowed by law.
2. Lender shall record the amount and date of each advance hereunder on
Schedule "A" attached hereto.
3. The Maturity Obligations shall be due and payable on May 1, 2002 (the
"Maturity Date"). As used herein, "Maturity Obligations" shall mean the entire
outstanding principal amount, together with all accrued but unpaid interest
thereon, and all other sums due and unpaid hereunder.
4. All payments due under this Debenture are payable in lawful money of
the United States of America at Lender's office at 844 Moraga Drive, Los
Angeles, California 90049 or at such other place as Lender or other holder
hereof shall notify Borrower in writing.
5. All payments received by Lender on this Debenture shall be applied by
Lender as follows: first, to the payment of accrued and unpaid interest; and
second, to the reduction of the principal amount.
1
<PAGE> 2
6. Any portion of the principal amount, or interest unpaid at maturity,
or when the entire amount of this Debenture is otherwise due and payable, shall
thereafter accrue interest at a rate of fifteen percent (15%) per annum (the
"Delinquency Rate"). The Delinquency Rate shall be effective both before and
after any judgment as may be rendered in a court of competent jurisdiction
provided, however, that if such Delinquency Rate is deemed to be interest in
excess of the amount permitted to be charged to Borrowers under applicable law,
Lender shall be entitled to collect a Delinquency Rate only at the highest rate
permitted by law, and any interest actually collected by Lender in excess of
such lawful amount shall be deemed a payment in reduction of the principal
amount then outstanding under this Debenture and shall be so applied.
7. Borrower may prepay this Debenture in whole or in part without any
premium or penalty.
8. This Debenture shall be subordinated to any other Debenture of
Borrower held by Lender or any assignee of Lender.
9. In the event this Debenture is turned over to an attorney at law for
collection after default, in addition to the Maturity Obligations, Lender shall
be entitled to collect all costs of collection, including but not limited to
reasonable attorneys' fees incurred, whether or not suit on this Debenture is
filed, and all such costs and expenses shall be payable on demand.
10. This Debenture may not be changed orally, but only by an agreement
in writing signed by the party against whom such agreement is sought to be
enforced.
11. Borrower, for itself and its successors and assigns, and each
endorser or guarantor of this Debenture, for its heirs, successors, and assigns,
hereby waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment, and waives and renounces all rights to the benefits of any statute
of limitations and any moratorium, appraisement, and exemption now provided or
which may hereafter be provided by any federal or
2
<PAGE> 3
state statute, including but not limited to exemptions provided by or allowed
under the Bankruptcy Reform Act of 1978, both as to itself and as to all of its
property, whether real or personal, against the enforcement and collection of
the obligations evidenced by this Debenture and any and all extensions,
renewals, and modifications hereof.
12. It is the intention of the parties to conform strictly to applicable
usury laws from time to time in force, and all agreements between Borrower and
Lender, whether now existing or hereafter arising and whether oral or written,
are hereby expressly limited so that in no contingency or event whatsoever shall
the amount paid or agreed to be paid to Lender or the holder hereof, or
collected by Lender or such holder, for the use, forbearance, or detention of
the money to be lent hereunder or otherwise, exceed the maximum amount
permissible under applicable usury laws. If under any circumstances whatsoever
fulfillment of any provision hereof at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
law, then ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity; and if under any circumstances Lender or other holder
hereof shall ever receive an amount deemed interest, by applicable law, which
would exceed the highest lawful rate, such amount that would be excessive
interest under applicable usury laws shall be applied to the reduction of the
principal amount owing hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal amount and other indebtedness,
the excess shall be deemed to have been a payment made by mistake and shall be
refunded to Borrower or to any other person making such payment on Borrower's
behalf. The terms and provisions of this paragraph shall control and supersede
every other provision of all agreements between Lender and Borrower and any
endorser or guarantor of this Debenture.
13. This Debenture shall be governed by and construed under the laws of
the State of California. Borrower hereby submits to personal jurisdiction within
the State of California for the enforcement of Borrower's obligations hereunder,
and waives any and all personal rights under the law of any other
3
<PAGE> 4
state to object to jurisdiction within the State of California for the purposes
of litigation to enforce such obligation of Borrower.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Debenture to be duly executed.
"BORROWER"
Nextera Enterprises, L.L.C., a
Delaware limited liability
company
By: /s/ GRESHAM BREBACH, JR.
--------------------------
Gresham Brebach, Jr.
Its Manager
4
<PAGE> 5
Schedule "A"
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 $ 4,832,760 $22,977,000
4/10/98 $ 23,000 $23,000,000
----------- -----------
</TABLE>
5
<PAGE> 1
EXHIBIT 10.26
$24,970,000.00 January 5, 1998
DEBENTURE
1. For value received, Nextera Enterprises, L.L.C., a Delaware limited
liability company ("Borrower"), promises to pay to the order of Nextera
Enterprises Holdings, L.L.C., a Delaware limited liability company, or its
assigns ("Lender"), the principal sum of Twenty-Four Million Nine Hundred
Seventy Thousand Dollars ($24,970,000.00) or such lesser sum as shall be
advanced by Lender to Borrower hereunder from time to time (the "Principal
Amount"). Interest shall accrue from the date hereof on the outstanding
principal at ten percent (10%) per annum, compounded quarterly, based on the
calendar year, but in no case shall the interest rate exceed the maximum rate
allowed by law.
2. Lender shall record the amount and date of each advance hereunder on
Schedule "A" attached hereto.
3. The Maturity Obligations shall be due and payable on May 1, 2002 (the
"Maturity Date"). As used herein, "Maturity Obligations" shall mean the entire
outstanding principal amount, together with all accrued but unpaid interest
thereon, and all other sums due and unpaid hereunder.
4. All payments due under this Debenture are payable in lawful money of
the United States of America at Lender's office at 844 Moraga Drive, Los
Angeles, California 90049 or at such other place as Lender or other holder
hereof shall notify Borrower in writing.
5. All payments received by Lender on this Debenture shall be applied by
Lender as follows: first, to the payment of accrued and unpaid interest; and
second, to the reduction of the principal amount.
1
<PAGE> 2
6. Any portion of the principal amount, or interest unpaid at maturity,
or when the entire amount of this Debenture is otherwise due and payable, shall
thereafter accrue interest at a rate of fifteen percent (15%) per annum (the
"Delinquency Rate"). The Delinquency Rate shall be effective both before and
after any judgment as may be rendered in a court of competent jurisdiction
provided, however, that if such Delinquency Rate is deemed to be interest in
excess of the amount permitted to be charged to Borrowers under applicable law,
Lender shall be entitled to collect a Delinquency Rate only at the highest rate
permitted by law, and any interest actually collected by Lender in excess of
such lawful amount shall be deemed a payment in reduction of the principal
amount then outstanding under this Debenture and shall be so applied.
7. Borrower may prepay this Debenture in whole or in part without any
premium or penalty.
8. In the event this Debenture is turned over to an attorney at law for
collection after default, in addition to the Maturity Obligations, Lender shall
be entitled to collect all costs of collection, including but not limited to
reasonable attorneys' fees incurred, whether or not suit on this Debenture is
filed, and all such costs and expenses shall be payable on demand.
9. This Debenture may not be changed orally, but only by an agreement in
writing signed by the party against whom such agreement is sought to be
enforced.
10. Borrower, for itself and its successors and assigns, and each
endorser or guarantor of this Debenture, for its heirs, successors, and assigns,
hereby waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment, and waives and renounces all rights to the benefits of any statute
of limitations and any moratorium, appraisement, and exemption now provided or
which may hereafter be provided by any federal or state statute, including but
not limited to exemptions provided by or allowed under the Bankruptcy Reform Act
of 1978, both as to itself and as to all of its property, whether real or
personal,
2
<PAGE> 3
against the enforcement and collection of the obligations evidenced by this
Debenture and any and all extensions, renewals, and modifications hereof.
11. It is the intention of the parties to conform strictly to applicable
usury laws from time to time in force, and all agreements between Borrower and
Lender, whether now existing or hereafter arising and whether oral or written,
are hereby expressly limited so that in no contingency or event whatsoever shall
the amount paid or agreed to be paid to Lender or the holder hereof, or
collected by Lender or such holder, for the use, forbearance, or detention of
the money to be lent hereunder or otherwise, exceed the maximum amount
permissible under applicable usury laws. If under any circumstances whatsoever
fulfillment of any provision hereof at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
law, then ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity; and if under any circumstances Lender or other holder
hereof shall ever receive an amount deemed interest, by applicable law, which
would exceed the highest lawful rate, such amount that would be excessive
interest under applicable usury laws shall be applied to the reduction of the
principal amount owing hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal amount and other indebtedness,
the excess shall be deemed to have been a payment made by mistake and shall be
refunded to Borrower or to any other person making such payment on Borrower's
behalf. The terms and provisions of this paragraph shall control and supersede
every other provision of all agreements between Lender and Borrower and any
endorser or guarantor of this Debenture.
12. This Debenture shall be governed by and construed under the laws of
the State of California. Borrower hereby submits to personal jurisdiction within
the State of California for the enforcement of Borrower's obligations hereunder,
and waives any and all personal rights under the law of any other state to
object to jurisdiction within the State of California for the purposes of
litigation to enforce such obligation of Borrower.
3
<PAGE> 4
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Debenture to be duly executed.
"BORROWER"
Nextera Enterprises, L.L.C., a
Delaware limited liability
company
By: /s/ GRESHAM BREBACH, JR.
-----------------------------
Gresham Brebach, Jr.
Its Manager
4
<PAGE> 5
Schedule "A"
Schedule of Advances
<TABLE>
<CAPTION>
Date Amount of Advance Principal Balance
- ---- ----------------- -----------------
<S> <C> <C>
1/5/98 $ 4,875,800 $ 4,875,800
1/29/98 $ 150,000 $ 5,025,800
2/11/98 $ 100,000 $ 5,125,800
2/13/98 $ 150,000 $ 5,275,800
2/26/98 $ 300,000 $ 5,575,800
3/23/98 $ 300,000 $ 5,875,800
4/7/98 $ 6,710,000 $12,585,800
4/8/98 $ 9,750,000 $22,335,800
4/30/98 $ 2,634,200 $24,970,000
</TABLE>
5
<PAGE> 1
EXHIBIT 10.27
This Debenture, in the principal amount of $23,000,000, with Nextera
Enterprises, L.L.C., a Delaware limited liability company, as the maker, is
hereby assigned to the persons listed below in the percentages shown, effective
as of the close of the business day on April 30, 1998.
This assignment is made without recourse of any kind, nature, or description.
Knowledge Universe, L.L.C. - 98.14703%
Gresham Brebach, Jr. - 1.16805%
Ronald Bohlin - 0.10070%
Debra Bergevine - 0.146171%
Belden Menkus - 0.146037%
Michael Muldowney - 0.146006%
David Fritts - 0.146006%
Nextera Enterprises Holdings, L.L.C., a
Delaware limited liability company
By: /s/ Gresham Brebach, Jr.
--------------------------------
Gresham Brebach, Jr.
Its Manager
<PAGE> 1
EXHIBIT 10.28
This Debenture, in the principal amount of $24,970,000, with Nextera
Enterprises, L.L.C., a Delaware limited liability company, as the maker, is
hereby assigned to the persons listed below in the percentages shown, effective
as of the close of the business day on April 30, 1998.
This assignment is made without recourse of any kind, nature, or description.
Knowledge Universe, L.L.C. - 98.14703%
Gresham Brebach, Jr. - 1.16805%
Ronald Bohlin - 0.10070%
Debra Bergevine - 0.146171%
Belden Menkus - 0.146037%
Michael Muldowney - 0.146006%
David Fritts - 0.146006%
Nextera Enterprises Holdings, L.L.C., a
Delaware limited liability company
By: /s/ Gresham Brebach, Jr.
--------------------------------
Gresham Brebach, Jr.
Its Manager
<PAGE> 1
EXHIBIT 10.29
The 98.14703% interest in this Debenture, the total principal amount of the
Debenture being $23,000,000, with Nextera Enterprises, L.L.C., a Delaware
limited liability company, as the maker, which is held by Knowledge Universe,
L.L.C., is hereby assigned to Knowledge Universe, Inc., effective August 5,
1998.
This assignment is made without recourse of any kind, nature, or description.
Knowledge Universe, L.L.C., a
Delaware limited liability company
By: /s/ Stanley E. Maron
--------------------------
Stanley E. Maron
Its Secretary
<PAGE> 1
EXHIBIT 10.30
The 98.14703% interest in this Debenture, the total principal amount of the
Debenture being $24,970,000, with Nextera Enterprises, L.L.C., a Delaware
limited liability company, as the maker, which is held by Knowledge Universe,
L.L.C., is hereby assigned to Knowledge Universe, Inc., effective August 5,
1998.
This assignment is made without recourse of any kind, nature, or description.
Knowledge Universe, L.L.C., a
Delaware limited liability company
By: /s/ Stanley E. Maron
----------------------------
Stanley E. Maron
Its Secretary
<PAGE> 1
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated April
30, 1998, except for Note 12, as to which the date is August 31, 1998, in
Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus
of Nextera Enterprises, Inc. for the registration of shares of its Class A
common stock.
Our audits also included the financial statement schedule of Nextera
Enterprises, L.L.C. included in Pre-effective Amendment No. 2 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
January 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. 2 to the Registration
Statement (Form S-1) and related Prospectus of Nextera Enterprises, Inc., for
the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
January 14, 1999
<PAGE> 1
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 19, 1996, with respect to the financial
statements of Symmetrix, Inc., included in the Pre-effective Amendment No. 2 to
the Registration Statement (Form S-1) and the related Prospectus of Nextera
Enterprises, Inc., for the registration of its Class A common stock.
/s/ B.D.O. SEIDMAN LLP
Boston, Massachusetts
January 14, 1999
<PAGE> 1
EXHIBIT 23.1.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 21, 1995. We also
consent to the reference to us under the headings "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, MA
January 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 August 31, 1998, with respect to the financial
statements of SiGMA Consulting, LLC, included in Amendment No. 2 to the
Registration Statement (Form S-1) and related Prospectus of Nextera Enterprises,
Inc., for the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
January 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 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. 2 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
January 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 December 29, 1998 with respect to the financial
statements of Sibson & Company, L.P., and Subsidiaries, included in the
Pre-effective Amendment No. 2 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
January 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 September 1, 1998 with respect to the financial
statements of Sibson Canada, Inc., included in 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
January 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 financial
statements of Pyramid Imaging, Inc., included in Amendment No. 2 to the
Registration Statement (Form S-1) and related Prospectus of Nextera Enterprises,
Inc., for the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
San Francisco, California
January 14, 1999
<PAGE> 1
EXHIBIT 23.1.10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 7, 1998, except for the third paragraph of Note
11, as to which the date is December 31, 1998, with respect to the financial
statements of Lexecon Inc., included in Amendment No. 2 to the Registration
Statement (Form S-1) and related Prospectus of Nextera Enterprises, Inc., for
the registration of shares of its Class A common stock.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
January 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 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> FEB-26-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 554 1,563
<SECURITIES> 0 0
<RECEIVABLES> 2,302 26,480
<ALLOWANCES> 100 996
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,619 31,705
<PP&E> 1,311 6,173
<DEPRECIATION> 130 1,185
<TOTAL-ASSETS> 22,655 116,230
<CURRENT-LIABILITIES> 4,954 65,817
<BONDS> 0 0
0 0
0 0
<COMMON> 19,747 9,817
<OTHER-SE> (3,015) (12,108)
<TOTAL-LIABILITY-AND-EQUITY> 16,732 116,230
<SALES> 7,998 39,581
<TOTAL-REVENUES> 7,998 39,581
<CGS> 4,718 27,579
<TOTAL-COSTS> 5,561 16,576
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32 4,319
<INCOME-PRETAX> (2,313) (8,893)
<INCOME-TAX> 702 200
<INCOME-CONTINUING> (3,015) (9,093)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,015) (9,093)
<EPS-PRIMARY> (0.74) (0.66)
<EPS-DILUTED> (0.74) (0.66)
</TABLE>
