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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-25995
NEXTERA ENTERPRISES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4700410
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE CRANBERRY HILL, LEXINGTON, MASSACHUSETTS 02421
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(781) 778-4400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 28, 2000, the aggregate market value of the registrant's
Class A voting stock held by non-affiliates of the registrant was approximately
$174,092,000, based on the closing price of the Company's Class A Common Stock
on the Nasdaq National Market on March 28, 2000 of $8.125 per share.
As of March 28, 2000 there were 30,683,808 shares of $0.001 par value
Class A Common Stock outstanding and 4,274,630 shares of $0.001 par value
Class B Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated into this report by
reference:
1. Part III. Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal
year.
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FORWARD LOOKING STATEMENTS
The following discussion contains "forward-looking statements."
Forward-looking statements give our current expectations or forecasts of future
events. These statements can be identified by the fact that they do not relate
strictly to historic or current facts. They use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these forward-looking
statements include statements relating to future actions or the outcome of
financial results. From time to time, we also may provide oral or written
forward-looking statements in other materials released to the public. Any or all
of the forward-looking statements in this annual report and in any other public
statements may turn out to be incorrect. They can be affected by inaccurate
assumptions or by known or unknown risks and uncertainties. Consequently, no
forward-looking statement can be guaranteed. Actual results may vary materially.
Forward-looking statements are based on many factors that may be outside
our control, causing actual results to differ materially from those suggested.
These factors include, but are not limited to, those discussed under the caption
"Item 1. Business - Factors That May Affect Our Future Performance." New factors
emerge from time to time, and it is not possible for us to predict all these
factors nor can we assess the impact of these factors on our business or the
extent to which any factor or combination of factors may cause actual results to
differ materially from those contained in any forward-looking statements. Given
these risks and uncertainties, you should not place undue reliance on
forward-looking statements as a prediction of actual results.
PART I
ITEM 1. BUSINESS
OVERVIEW
Nextera Enterprises, Inc. is a provider of consulting services and
integrated Internet solutions. Our end-to-end professional service offerings
encompass business and digital strategy, customer relationship management,
economic analysis, organizational and process design and Internet technology
consulting to both innovative Fortune 500 as well as emerging companies. The
breadth of our practice portfolio allows us to assist clients in achieving
enhanced business performance, building new businesses, entering new markets and
redefining the way in which their existing work is conducted. We do this by
utilizing proprietary econometric modeling tools and capitalizing on our
knowledge of vertical markets.
Our practice portfolio includes:
- Strategy and Research Services. This practice provides economic
analyses of business conditions, pricing models, relevant business
frameworks, business practices and litigation support. Through this
practice we assist senior management in proactively developing
electronic business strategies and implementing business plans.
- Human Capital Services. This practice assists clients in implementing
organizational and strategic changes through all levels of an
organization. In addition, this practice also helps organizations
solve complex operational issues through major business transformation
programs, redesigned business processes and best practices adaptation.
- Interactive Technology Consulting Services. This practice applies
emerging web-based technologies ranging from business and technical
architecture, to creative consulting to applications development,
implementation and hosting. Our breadth of expertise enables us to
deliver services from across each of our service offerings on a stand
alone or combined basis and offers our clients creative Internet
solutions.
In addition, we make minority investments in independently managed
companies that we believe are well-positioned to take advantage of opportunities
created by the Internet. We have co-invested in these companies with other
well-known early-stage investors. We believe that our relationship with
Knowledge Universe, Inc. and its affiliates, coupled with the broad based
expertise resident in our consulting practices, allow us access to early-stage
investment opportunities and the ability to focus our investment capital in the
most promising of those entities.
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We provide our services across a broad spectrum of industries, including
communications, consumer products, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. Our clients principally consist of Fortune 500 and other
multinational companies.
INDUSTRY BACKGROUND
Change is one of the most important factors driving demand for professional
consulting services. Corporate recognition that the Internet can be used to gain
competitive advantage is leading to rapid 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. Commercial activity is becoming
increasingly global. The continued evolution of the Internet and electronic
commerce technology are motivating companies to use the Internet in a variety of
innovative and strategic ways. This is resulting in the creation of new products
and services, the opening of new sales and marketing channels, and a reduction
in costs and time-to-market for products and services. Moreover, business and
technology 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 issues
affecting 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 the Internet.
Many organizations lack the skilled personnel, technical capabilities and
time necessary to formulate strategies and implement the 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 assistance and expertise.
Professional consulting services have traditionally been focused on
individual issues of business strategy, operations improvement, organizational
design or information technology (IT) consulting. Historically, consulting
service providers have offered services focusing on one or two of these issues.
Few providers have had the breadth of expertise or comprehensive approach 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 technology issues or electronic commerce opportunities.
Given the rapidly changing nature of today's business environment,
traditional approaches do not provide the broad perspective or range of
expertise required for a comprehensive examination of the causes of business
problems. Consequently, consulting service providers employing traditional
approaches do not offer the types of integrated solutions critical to solving
the multi-disciplinary problems that organizations currently face. In order to
solve such problems, organizations are demanding that third-party service
providers have experience in a breadth of practice areas. We recognize this need
and deliver our services through industry experts that have decades of
experience in their discipline and coordinate with our other practitioners to
deliver multifaceted, integrated solutions.
OUR ADVANTAGE
We provide consulting services and integrated Internet solutions to help
organizations adapt and develop dynamic business and electronic commerce
strategies, redesign operational processes, and enhance the organizational
effectiveness our clients need to achieve their visions and goals. Our flexible
delivery model is designed to bring together required expertise in business
strategy and research, operations improvement, organizational design and
Internet commerce consulting. This
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enables us to solve our clients' enterprise-wide management problems and deliver
results that are timely and cost-effective. The key elements of our advantage
include:
Portfolio of Complementary Practice Areas. Through our portfolio of three
practice areas--Strategy and Research Services, Human Capital Services, and
Interactive Technology Consulting Services--we address our clients' needs from
varying perspectives and draw on our experience to provide multi-disciplinary
services. We utilize this perspective to help clients identify business
opportunities and to develop and implement the strategic solutions necessary to
enhance business performance. As a result of this balanced perspective, we offer
objective and independent services which we believe are valued by organizations.
Experience and Expertise. Our experience within traditional and emerging
industries and practice areas enables our consultants to more fully and rapidly
understand clients' businesses. Our senior consulting executives average more
than 20 years of consulting or industry experience and have all held senior
level positions in large organizations with management responsibility for large
numbers of consultants. Of our consultants, 47% have either doctorate or
master's degrees as of December 31, 1999.
Client Relationships. We have established relationships with many rapidly
growing emerging companies and with the community of venture capitalists and
investors that provide the capital necessary to fuel this growth. Through our
relationships, we gain in-depth knowledge of clients' businesses and industries,
which facilitates our identification of service opportunities and our ability to
offer new and timely services to these clients. As a result, we have amassed
significant expertise in a wide range of industries, including electronic
commerce and electronic business, financial services, utilities and insurance.
Proprietary Information System and Scaleable Infrastructure. We have
developed and are expanding our proprietary information system that facilitates
synergies across our practice areas. NextNet, the foundation of our technology
infrastructure, provides the backbone and architecture for a collection of
integrated applications accessed through a common, web-based user interface. Our
information system enables us to share business information and knowledge among
our consultants and to effectively manage our resources. NextNet provides an
interactive environment through which defined groups, including client service
teams, can collaborate to solve complex client problems. In addition, our
infrastructure incorporates recruiting, staff development and deployment,
collaborative marketing initiatives, sharing of intellectual capital and
enterprise management systems. We believe that this scaleable infrastructure has
the capacity to support our growth plans for the foreseeable future.
GROWTH STRATEGY
Our objective is to develop and expand our position as a leading provider
of integrated electronic commerce and Internet-focused consulting services. The
key elements of our growth strategy include:
Expansion of Internet-related Engagements. We intend to focus on continuing
the rapid growth of our Interactive Technology Consulting Services practice
area. This practice area is dedicated to Internet related electronic commerce
and electronic business strategy and implementation. We are developing a new
e-Solutions Center--a state-of-the art technology facility whose mission is to
help clients capitalize on emerging opportunities. This facility will be
dedicated to the development of Internet software applications and frameworks.
In addition, we intend to provide application hosting and proof-of-concept
development for clients. We intend to increase our focus on Internet-related
engagements by providing consulting services to our clients regarding employee
retention and rewards, sales and marketing effectiveness and Internet strategy.
Innovative Capital Usage. To further expand our business, we increased our
credit facility, in part to fund acquisitions and incubator investments. We
intend to continue to take advantage of the highly fragmented nature of the
consulting industry by acquiring select complementary consulting businesses. We
intend to continue to broaden and enhance our substantive expertise, service
offerings and geographic coverage through strategic acquisitions. For example,
to capitalize on the growth in electronic commerce, we intend to evaluate
potential acquisitions designed to enhance and strengthen our
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capabilities in this area. From time to time, we may also evaluate selective
potential acquisitions outside these practice areas if justified by client needs
and market demand.
In addition, we are also seeking growth through venture incubation
activities in order to extend our consulting services and work with our external
strategic partners. We are evaluating equity participation in new
Internet-based, high-growth businesses. In connection with these ventures, we
are evaluating obtaining equity in partial payment of our fees, in addition to
potential cash investments in these entities.
We believe that our expertise in delivering Internet services and our
breadth of expertise in strategic, economic, human resource and technology
issues will facilitate the identification of promising Internet companies in the
early stages of their development. Further, once we have made an investment in
these Internet companies, we have the diverse skill set to deliver high quality
Internet services, strategic consulting services, human capital and business
infrastructure services during their critical formative period.
In 1999, we formed a new wholly-owned subsidiary, NetNext, Inc., to make
investments in companies that we believe possess superior Internet business
models. In 1999, we made investments in:
- Hoover's Online- an Internet site delivering a full spectrum of
business news and information;
- Oncology.com- a daily news network providing coverage of cancer
research, treatment developments and patient care needs;
- Taste for Living - an on-line health and wellness company;
- MeansBuiness - a business-to-business knowledge management company
that uses a proprietary search engine to provide key extracts and
summaries from business and other non-fiction books, periodicals and
research reports; and
- Advanced Online- an Internet supplier of training for compliance with
government environmental, health and safety regulations.
For a description of the acquisitions we have made since our inception in
1997, refer to our discussion under the caption "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation - Acquisitions" and
at Note 1 of the Notes to Consolidated Financial Statements.
Marketing the Nextera Brand Name. We plan to continue to build a common
identity for the services we provide under our brand name. We actively promote
our name and capabilities through our sales and marketing activities. We believe
that using a common brand name for our services enhances our visibility and
recognition in the market and improves our ability to compete for new and
expanded business.
We are affiliated with Knowledge Universe and its affiliates and from
time-to-time have been engaged on an arm's-length basis to provide consulting
services for them. See "Item 1. Business -- Factors That May Affect Our Future
Performance -- Nextera Enterprises Holdings Owns 64.2% of Our Voting Power." We
expect that we may also be engaged to provide such services in the future.
Knowledge Universe and its affiliates are engaged in acquiring and operating
companies in a broad range of areas, including those relating to (i) career
workforce management (including staffing, employee training and testing and
assessment), (ii) business consulting through Nextera, and (iii) informational
meetings and conferences (including seminars). Knowledge Universe has focused on
acquiring and building education-oriented companies with activities in areas
such as youth education, corporate training (both classroom-based and
computer-delivered), educational content creation and distribution, and
information technology and management consulting. We believe that our
association with Knowledge Universe and its affiliates will increase our market
exposure and provide us with prospective client contacts and other business
opportunities.
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Sales and Marketing. We rely to a significant extent on the efforts of our
employees, particularly our senior consulting executives and consultants, to
market our services. We employ a "selling practitioner" model in which our
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. Our
close working relationships with many of our clients enable our consultants to
become aware of, and to help define, additional project opportunities, thereby
facilitating our ability to market additional capabilities to our clients. In
pursuing new business, our consultants emphasize our overall capabilities and
experience while also promoting the expertise of the particular employees who
will work on the project. In addition, our senior consulting executives meet
with prospective clients and senior managers in organizations where we have
worked in the past to make them aware of the our capabilities.
Our marketing and sales efforts are focused on increasing our brand
awareness and market share through:
- Defining our services as deliverable products;
- Entering into and managing strategic alliances;
- Public relations efforts and marketing communications;
- Direct mail and advertising building brand recognition in industry
publications; and
- Conference attendance and speaking engagements.
Pursue Cross-Selling Opportunities. We intend to provide additional
services and expand the scope of engagements during delivery to include
follow-on complementary activities. We believe that our integrated approach to
practice areas coupled with our ability to cross-sell services will
significantly enhance, sustain and expand our relationships with clients.
Further, our close working relationship with our clients affords us the
opportunity to become aware of, and to help define, additional project
opportunities and to market additional capabilities to our clients. Client
service opportunities are disseminated and coordinated on-line through our
Business Development System, a proprietary NextNet application providing
company-wide access and the identification and sharing of sales, marketing and
other business data.
Talent Development and Deployment. We will continue to build our talent
base by training and hiring, and through acquisitions and recruitment programs.
We intend to actively seek talent in the areas of digital strategy, web
creativity, customer relationship management, content management, enterprise
integration and project management. In addition, we intend to launch several new
programs to use our intellectual capital in new ways. These programs include:
- Incubating new Internet ventures that extend our traditional
consulting services;
- Launching new functional practice groups (including, for example, due
diligence, turnover and turnaround practices) to provide focused
resources on areas critical to success in today's economy; and
- Formation of vertical industry groups to better address the unique
challenges faced by many industry segments.
We intend to attract and retain consultants who will enhance and complement
our service capabilities by fostering a creative, innovative, collaborative work
environment and through competitive compensation and incentive programs. We have
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 we serve. Our
broad client base and flexible delivery model provide our consultants with
diverse client experiences for professional growth. We also offer our
consultants the opportunity to become stockholders through our stock option
plans. In addition, we have implemented policies and programs designed to
accommodate individual needs. For example, we employ a "virtual office" concept
to provide travel and relocation flexibility where appropriate.
Expand International Presence. We intend to expand our international
presence through the growth of existing practices and selective acquisitions of
complementary consulting businesses in international markets. For example, in
1999 we acquired human capital services providers in the United Kingdom and
Australia, thereby enhancing our ability to offer consulting services to the
international markets. We believe that clients will increasingly demand a global
presence from
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consulting service providers. Accordingly, we intend to continue to expand
internationally to participate in the market for global consulting services and
to generate new opportunities. Our geographic priority is to expand our service
offerings in Europe and the Asia-Pacific areas within our existing portfolio of
practice areas.
SERVICE OFFERINGS
Our portfolio of practice areas enables us to provide a breadth of services
to our clients. By offering clients a combination of business strategy,
operations improvement, organizational design and technology consulting
services, we help 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 our 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.
Our three practice areas are as follows:
Strategy and Research Services. We provide in-depth business and economic
analyses of business conditions, relevant business frameworks and business
practices. We combine the expertise of our 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, product development and knowledge management. Through the Strategy
and Research Services practice area, we also provide litigation support,
including expert testimony, principally in antitrust and securities matters. We
also assist organizations in developing, refining and implementing successful
e-business strategies.
Human Capital Services. We help clients invest in and gain business
advantages from their human capital by identifying the impact on their workforce
of various strategies. We also assist in developing new organizational designs.
We do this by establishing programs for personnel selection, recruitment,
development and succession. In addition, we identify the drivers of business
performance and help organizations achieve critical focus from their workforce
through programs to enhance business literacy. We also help clients communicate
and implement organizational changes. These programs are designed to respond to
new opportunities or competitive threats and establish reward programs for broad
employee groups, managers and executives engaged in both traditional and digital
commerce.
Interactive Technology Consulting Services. We help clients use emerging
technologies to create high-impact business and digital business process support
systems, knowledge management systems and Internet solutions. We develop custom
solutions that employ electronic commerce and web-based technologies to redefine
clients' processes for customer service, supply chain, product development and
channel expansion. We also helps clients define, manage and implement web-based
packaged solutions in finance, customer relationship management, supply chain
and operations management.
CLIENT PROFILE
Our clients principally consist of Fortune 500 and other multinational
companies. Our ten largest clients accounted for approximately 29% of our net
revenues for the year ended December 31, 1999 and, on a pro forma basis, 29% for
the year ended December 31, 1998. No client in either of these periods accounted
for 10% or more of our net revenues. We serve a broad range of clients in a
diverse range of industries, with financial services, insurance and information
technologies, communications and entertainment representing the highest industry
concentrations in 1999.
COMPETITION
Our industry includes a large number of competitors, is subject to rapid
change, and is highly competitive. We believe that the principal competitive
factors in our industry are reputation, industry expertise, analytical ability,
service and price. We believe we compete favorably with respect to these
factors. We also believe that our ability to compete depends in part on a number
of factors outside of our control, including the ability of our competitors to
hire, retain and compensate consultants, offer lower-priced services, respond to
client requirements and develop advanced services or technology. Our primary
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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 we do. In addition, many of these
competitors have been operating for a significantly longer period of time than
we have and have established long-term client relationships. We also compete
with our clients' internal resources, particularly where the resources represent
a fixed cost to the client. This competition may impose additional pricing
pressures on us. In addition, we face intense competition in our efforts to
recruit and retain qualified consultants.
INTELLECTUAL PROPERTY RIGHTS
Our success has resulted, in part, from our analytical templates,
application frameworks, software objects and customizable applications. We rely
upon a combination of nondisclosure, confidentiality, license and other
contractual arrangements and trade secret, copyright and trademark laws to
protect our proprietary rights and the proprietary rights of third parties from
whom we license intellectual property. In addition, we generally limit the
distribution of our proprietary information. The steps we have taken to protect
our intellectual property may not be adequate to deter misappropriation of our
proprietary information, detect unauthorized use, enforce our intellectual
property rights or ensure 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 foreign copyright and trade secret laws may be inadequate to
protect our intellectual property rights. Although we believe that our services
do not infringe on the intellectual property rights of others and that we have
all rights necessary to utilize the intellectual property we employ in our
business, our employees may misappropriate the intellectual property of others.
Accordingly, we are subject to the risk of claims alleging infringement of
third-party intellectual property rights. Any such claims could require us 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. We presently hold no patents or registered
copyrights.
EMPLOYEES
As of December 31, 1999, Nextera had 773 employees, including 575
consultants. None of our employees is represented by a union or subject to a
collective bargaining agreement. We believe that our relations with our
employees are good.
FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCE
You should carefully consider the following factors in your evaluation of our
company. If any of the following risks actually occur it could materially harm
our business and impair the price of our stock.
OUR REVENUES AND PROSPECTS ARE DIFFICULT TO FORECAST BECAUSE WE HAVE A LIMITED
COMBINED OPERATING HISTORY.
We were formed in February 1997 and have grown substantially since our
inception, principally through the acquisition of other companies. Although some
of the companies we have acquired have been in operation for some time, we have
a limited history of combined operations. To achieve the anticipated benefits of
these transactions we will need to successfully integrate, preserve and expand
the businesses and operations of the companies we have acquired. However, we may
encounter financial, managerial or other difficulties as a result of the
difficulties involved in integrating our combined operations. Accordingly, you
should assess our prospects in light of the risks and difficulties frequently
encountered by companies in the early stages of development in new and rapidly
evolving industries.
If we are unsuccessful in addressing these risks, we may experience losses
as a result of these acquisitions. As a result, we may not meet the expectations
of market analysts and investors which could cause our stock price to decline.
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WE HAVE A HISTORY OF LOSSES AND WE MAY NOT SUSTAIN OR INCREASE PROFITABILITY.
Since our inception in February 1997, we have incurred, on an historical
basis, net losses of $3.0 million and $17.2 million for the years ended December
31, 1997 and 1998 and net income of $3.1 million for the year ended December 31,
1999. We intend to continue to make significant investments in:
- the development of our infrastructure;
- marketing and sales; and
- geographic expansion.
As a result, it is possible that we may not sustain or increase our
profitability in the future even if our revenues increase.
IF WE FAIL TO MANAGE OUR GROWTH, OUR REVENUES MAY DECREASE CAUSING OUR STOCK
PRICE TO DECLINE.
We have experienced a period of rapid growth that has challenged, and will
likely continue to challenge, our managerial and other resources. Since our
inception in February 1997 through December 31, 1999, the number of consultants
we employ has increased to 575 and the scope of our geographic coverage has
expanded significantly.
In order to manage our growth effectively, we must:
- recruit and hire additional consultants;
- develop, motivate and manage effectively our expanding work force;
- establish offices in new geographic locations;
- enhance our operating, financial and management information systems;
and
- maintain project quality, successfully negotiate competitive rates and
fees and maintain high employee utilization rates, particularly if the
average size or number of our projects continues to increase.
If we are unable to accomplish these objectives, our reputation will suffer
and we may be unable to attract new clients. This may result in a decrease in
our revenues and a decline in the price of our stock.
IF THE GROWTH OF COMMERCE ON THE INTERNET IS SLOWER THAN EXPECTED, THE NUMBER
AND SCOPE OF OUR PROJECTS COULD DECLINE CAUSING A REDUCTION IN OUR REVENUES.
Because Internet technologies are central to many of our capabilities, our
business depends on continued growth in the use of the Internet by our clients,
prospective clients and their customers and suppliers. If the number of Internet
users does not increase and commerce over the Internet does not become more
accepted and widespread, demand for our services may decrease causing our
revenues to decline. If Internet usage grows too rapidly, the existing Internet
infrastructure may not support the demands this growth will place on it. Factors
which may affect Internet usage or the acceptance of electronic commerce
include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- Internet congestion or other usage delays;
- inconsistent quality of service;
- increases in Internet access costs;
- increased governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- the economic viability of the Internet commerce model.
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FAILURE TO SUCCESSFULLY INTEGRATE AND EFFECTIVELY SOLVE THE FINANCIAL AND OTHER
CHALLENGES ARISING FROM OUR ACQUISITIONS COULD REDUCE OUR PROFITABILITY.
Since our inception, we have significantly expanded through acquisitions
and expect to pursue additional acquisitions to expand our geographic presence,
gain access to new technologies, obtain experienced consultants and enhance our
capabilities, service offerings and client base. The timing, magnitude and
success of our acquisition efforts and the related capital expenditures and
commitments cannot be predicted. Acquisitions involve a number of special risks,
including:
- successful integration of the acquired businesses into our existing
organization and culture without substantial expense, delays or other
operational or financial costs or problems;
- significant diversion of management's attention;
- potential failure to retain key acquired personnel;
- unanticipated events, circumstances or legal liabilities; and
- potential dilution of earnings per share.
For the foreseeable future, we will be unable to account for our
acquisitions under the pooling-of-interests method of accounting. Accordingly,
we 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 our statement
of operations. Further, the businesses we acquire may not achieve expected
results or generate anticipated revenues or earnings. If realized, any of these
factors could cause a decrease in our revenues and a decline in the price of our
stock.
WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL CAPITAL NECESSARY FOR US TO CARRY
OUT OUR BUSINESS STRATEGY, WHICH COULD HINDER OUR GROWTH. IN ADDITION, THE TERMS
OF ANY ADDITIONAL CAPITAL MAY BE UNFAVORABLE TO US OR OUR STOCKHOLDERS.
Implementation of our growth strategy will likely require continued access
to capital. We may require additional financing in amounts that we cannot
determine at this time. If our plans or assumptions change or are inaccurate, we
may be required to seek capital sooner than anticipated. We may need to raise
funds through public or private debt or equity financings.
If funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through a bank credit facility or the issuance of debt securities, the
holder of this indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our operations. If we need to raise additional funds, we may not
be able to do so on terms favorable to us, or at all. If we cannot raise
adequate funds on acceptable terms, we may be unable to continue to fund our
operations.
IF WE FAIL TO ATTRACT, RETAIN AND TRAIN SKILLED CONSULTANTS, OUR REPUTATION WILL
SUFFER AND OUR OPERATING MARGINS COULD DECLINE.
Because our business involves the delivery of professional services and is
labor-intensive, our success depends in large part upon our ability to attract,
retain, motivate and train highly skilled consultants. If we fail to do so it
could impair our ability to effectively manage and complete our client projects
and secure future client engagements, and as a result our reputation could
suffer.
Qualified business consultants are in great demand and are likely to remain
a limited resource for the foreseeable future. Because we have experienced a
significant portion of our growth through the acquisition of other companies,
many of our current consultants were initially hired by one of the companies we
acquired. These consultants may not continue to be satisfied with our culture,
benefits or the prospects for advancement within our company.
9
<PAGE> 12
Even if we are able to retain our current consultants and expand the number
of our qualified consultants, the resources required to attract, retain,
motivate and train these consultants will reduce our revenues and could
adversely affect our operating margins.
NEXTERA ENTERPRISES HOLDINGS OWNS 64.2% OF OUR VOTING POWER AND CAN CONTROL
MATTERS SUBMITTED TO OUR STOCKHOLDERS AND ITS INTERESTS MAY BE DIFFERENT FROM
YOURS.
Nextera Enterprises Holdings owns 8,810,000 shares of Class A Common Stock
and 3,844,200 shares of Class B Common Stock, which together represent
approximately 64.2% of the voting power of our 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 our stockholders, including the election of the members
of the Board of Directors. Accordingly, Nextera Enterprises Holdings will be
able to determine the disposition of all matters submitted to a vote of our
stockholders, including mergers, transactions involving a change in control and
other corporate transactions and the terms thereof. In addition, Nextera
Enterprises Holdings will be able to elect all of our directors, except for two
directors to be elected in accordance with the terms of a stockholders
agreement. This control by Nextera Enterprises Holdings could materially
adversely affect the market price of the Class A Common Stock or delay or
prevent a change in control of our company.
Nextera Enterprises Holdings is indirectly controlled by Knowledge
Universe, Inc. Knowledge Universe, Inc. 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, Inc.
may form, invest in or acquire other businesses which are involved in these and
related areas, among others, which businesses may be operated under the control
of Knowledge Universe, Inc. independently of us. Potential conflicts of interest
between Knowledge Universe and us may arise and may not be resolved in our
favor. These potential conflicts of interest include competitive business
activities, indemnity arrangements, registration rights, sales or distributions
by Nextera Enterprises Holdings of our Class A and Class B Common Stock and the
exercise by Nextera Enterprises Holdings of its ability to control our
management and affairs. This control and the potential conflicts of interest it
creates could limit our future independence and harm our reputation.
We were formed in February 1997 by entities which were under the direct or
indirect control of Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken.
After our formation, ownership of our common stock originally held by our
founding entities was transferred to Nextera Enterprises Holdings. Lawrence J.
Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have the
power to control Knowledge Universe, Inc. As a result, Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken may each be deemed to have the power to
direct the voting and disposition of, and to share beneficial ownership of, any
shares of common stock owned by Nextera Enterprises Holdings. On February 24,
1998, without admitting or denying any liability, Michael R. Milken consented to
the entry of a final judgment in the U.S. District Court for the Southern
District of New York in Securities and Exchange Commission v. Michael R. Milken
et al., which judgment was entered on February 26, 1998, restraining and
enjoining Michael R. Milken from associating with any broker, dealer, investment
advisor, investment company, or municipal securities dealer and from violating
Section 15(a) of the Exchange Act. Lowell J. Milken is the brother of Michael R.
Milken.
OUR QUARTERLY REVENUES AND OPERATING RESULTS HAVE VARIED SIGNIFICANTLY AND, IF
THEY CONTINUE TO DO SO, THE MARKET PRICE OF OUR STOCK COULD DECLINE.
Our operating results have varied significantly from quarter to quarter and
may continue to do so in the future. Our quarterly financial results could be
impacted significantly by the timing, mix and number of active client projects
commenced and completed during a quarter, the variations in utilization rates
and average billing rates for our consultants and the accuracy of our estimates
of resources required to complete our ongoing projects. Our operating expenses
are based on anticipated revenue levels in the short-term, are relatively fixed,
and are incurred throughout the quarter. Additionally, our products are subject
to long sales cycles. As a result, if expected revenues are not realized as
anticipated, our quarterly financial results could be materially harmed. As a
result, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful, and you should not rely on them as an indication
of our future performance.
10
<PAGE> 13
POTENTIAL WRITE-OFF OF GOODWILL AND OTHER INTANGIBLE ASSETS RELATING TO
PERSONNEL COULD REDUCE OUR REVENUES.
As of December 31, 1999, our intangible assets, net of accumulated
amortization, were approximately $155.8 million. Intangible assets at December
31, 1999, net of accumulated amortization, included $151.6 million of goodwill
and $4.2 million for intangibles relating to personnel. Intangible assets are
being amortized by us on a straight-line basis principally over 40 years for
goodwill and over five years for intangibles relating to personnel. Our future
acquisitions can be expected to result in additional goodwill and intangible
assets.
The amount amortized in a particular period constitutes a non-cash expense
that reduces our net income. In accordance with accounting guidelines, we
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, we will be required to
write down the carrying value of the goodwill and incur a related charge to our
income. A write down of goodwill would result in a reduction in our net income.
WE HAVE RELIED AND MAY CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS AND
INDUSTRIES FOR A SIGNIFICANT PORTION OF OUR REVENUES AND, AS A RESULT, THE LOSS
OF OR A SIGNIFICANT REDUCTION IN WORK PERFORMED FOR ANY OF THEM COULD RESULT IN
REDUCED REVENUES.
We have in the past derived, and may in the future derive, a significant
portion of our net revenues from a relatively limited number of clients. To the
extent that any client or industry uses less of our services or terminates its
relationship with us, our revenues could decline accordingly. For example, for
the year ended December 31, 1999, our ten largest clients accounted for
approximately 29% of our net revenues. For the year ended December 31, 1999, our
largest client accounted for approximately 6% of our net revenues. Further,
clients in the financial services, insurance and information technologies,
communications and entertainment industries accounted for approximately 21%,
17%, and 15%, respectively, of our net revenues for the year ended December 31,
1999.
The volume of work we perform for a specific client is likely to vary from
year to year, and a significant client in one year may not use our services in
another year. Further, the failure to collect a large account receivable from
any of these clients could result in significant financial exposure. In
addition, any economic conditions or other factors adversely affecting any of
the industries or any increase in the size or number of competitors within the
industries we service could cause our revenues to decline.
POTENTIAL CONFLICTS OF INTERESTS REDUCE THE NUMBER OF BOTH POTENTIAL CLIENTS AND
ENGAGEMENTS.
We provide 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. Our
engagement by a client to provide such services frequently precludes us from
accepting engagements with entities which may have interests which are adverse
to the subject matter of such engagements. In addition, we may be precluded from
accepting engagements due to clients' expectations of loyalty, perceived
conflicts of interests or other reasons. Accordingly, the number of both
potential clients and potential engagements is limited, particularly in the
economic consulting and litigation services markets. Moreover, in many of the
industries in which we provide economic and litigation consulting services,
there has been a continuing trend toward business consolidations and strategic
alliances which further reduce the number of potential clients for our services
and increase the likelihood that we will be unable to continue certain ongoing
engagements or accept certain new engagements as a result of conflicts of
interests, which could reduce our revenues.
WE DEPEND ON OUR SENIOR CONSULTING EXECUTIVES AND OTHER KEY PERSONNEL, AND THE
LOSS OF ANY THEM MAY DAMAGE CLIENT RELATIONSHIPS AND CAUSE OUR REPUTATION TO
SUFFER.
Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution skills of our senior consulting
executives and other key personnel. This dependence is particularly important to
our business because
11
<PAGE> 14
personal relationships are a critical element of obtaining and maintaining
client engagements. The loss of the services of any of these persons for any
reason could have an adverse effect on our reputation and our ability to secure
and complete engagements. We may not be able to retain these persons or to
attract suitable replacements or additional personnel if necessary. We generally
do not maintain key person life insurance coverage for our employees.
In addition, if any of these key employees joins a competitor or forms a
competing business, some of our clients might choose to use the services of that
competitor or new company. Further, in the event of the loss of any such
personnel, we may not be able to prevent the unauthorized disclosure or use of
our technical knowledge, practices or procedures by these personnel. As a
result, we might lose existing or potential clients.
IF WE FAIL TO MEET OUR CLIENTS' EXPECTATIONS, WE COULD DAMAGE OUR REPUTATION AND
HAVE DIFFICULTY ATTRACTING NEW BUSINESS.
Our client engagements often involve projects that are complex and critical
to the operation of a client's business. Our failure or inability to meet a
client's expectations in the performance of our services could result in damage
to our reputation, which could adversely affect our ability to attract new
business from that client or others. In addition, if we fail to perform
adequately on a project, a client could refuse to pay or sue us for economic
damages which could further damage our reputation or cause a reduction in
revenues.
WE COULD LOSE MONEY ON OUR FIXED-PRICE OR CAPPED-FEE CONTRACTS.
We have undertaken and expect in the future to undertake certain projects
under fixed-price or capped-fee billing arrangements, which are distinguishable
from our principal method of utilizing time and materials billing arrangements.
To achieve profitability from fixed-price or capped-fee contracts, we must,
among other things:
- accurately estimate the resources required to perform these contracts;
- complete our clients' projects on a timely basis;
- effectively manage our clients' expectations; and
- complete the projects within budget and to our clients' satisfaction.
If we are unable to accomplish these goals, we could be exposed to cost
overruns and penalties. If this occurs in connection with a large project or a
sufficient number of projects, our revenues would decline.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTY RELATING TO OUR MARKETS COULD RESULT
IN DECREASED DEMAND FOR OUR SERVICES, INCREASED COSTS OR OTHERWISE HARM OUR
BUSINESS CAUSING A REDUCTION IN REVENUES.
For the year ended December 31, 1999 we derived approximately 28% of our
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 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 us in these areas.
In addition, adverse changes in general economic conditions or conditions
influencing merger and acquisition activity could have an adverse impact on
engagements in which we assist clients in connection with these types of
transactions. Any reductions in the number of our securities, antitrust and
mergers and acquisitions consulting engagements could cause a reduction in our
revenues.
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<PAGE> 15
IF A LARGE CLIENT PROJECT OR A SIGNIFICANT NUMBER OF OTHER CLIENT PROJECTS ARE
TERMINATED OR REDUCED, WE MAY HAVE A LARGE NUMBER OF EMPLOYEES WHO ARE NOT
GENERATING REVENUE.
Our clients engage us 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 us and without penalty. When a client defers, modifies or
cancels a project, we must be able to rapidly deploy our consultants to other
projects in order to minimize the underutilization of our employees. In
addition, our 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. Thus, any termination, significant reduction or
modification of our business relationships with any of our significant clients
or with a number of smaller clients would have an adverse impact on our ability
to generate revenue. As a result, we believe that the number of our clients or
the number and size of our existing projects may not be reliable indicators or
measures of future net revenues.
WE MAY NOT SUCCESSFULLY COMPETE WITH OUR COMPETITORS, WHICH COULD RESULT IN
REDUCED MARGINS.
We compete in markets that are new, intensely competitive and rapidly
changing. We believe that the principal competitive factors in the consulting
services and e-business industries are reputation, industry expertise,
analytical ability and price. We also believe that our ability to compete
depends in part on a number of factors outside of our control, including the
ability of our competitors to hire, retain and compensate consultants, offer
lower-priced services, respond to client requirements and develop advanced
services or technology.
Our 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 our current and potential competitors have advantages over us.
These advantages include longer operating histories, larger client bases,
greater name recognition and significantly greater financial, technical and
marketing resources. We have faced, and expect to continue to face, additional
competition from new entrants into our markets and from our clients' internal
resources. In addition, we face intense competition in our efforts to recruit
and retain qualified consultants. Each of these competitive factors may limit
our ability to increase prices or fees commensurate with increases in labor
costs which could result in reduced margins. We cannot assure that we will be
able to compete successfully with existing or new competitors.
OUR INTERNATIONAL EXPANSION COULD RESULT IN FINANCIAL LOSSES DUE TO CHANGES IN
FOREIGN ECONOMIC CONDITIONS AS WELL AS FLUCTUATIONS IN CURRENCY AND EXCHANGE
RATES.
We have engaged in projects in Canada and the United Kingdom and one of the
components of our growth strategy is to expand our international presence and
seek additional business outside the United States. For example, including
export sales, we derived approximately 11% of our net revenues from clients
outside of the United States for the year ended December 31, 1999.
Our international business operations are and will be subject to a number
of risks, including:
- unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
13
<PAGE> 16
- political and economic instability and fluctuations in foreign
currency exchange rates;
- increased expenses associated with establishing foreign
operations and complying with differing labor regulations; and
- reduced intellectual property rights and protections.
There can be no assurance that these factors will not adversely affect our
financial condition.
IF WE FAIL TO KEEP PACE WITH CHANGING TECHNOLOGIES, WE MAY LOSE CLIENTS.
Our markets are characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. These
changes could render our existing service practices and methods out-of-date. Our
success will depend, in part, on our ability to:
- improve on the performance and reliability of existing services;
- develop new services and solutions that address the increasingly
sophisticated and varied needs of our clients;
- respond to technological advances; and
- respond to emerging industry standards and practices.
If we do not respond adequately to address these developments, our clients
may turn to our competition for their consulting and e-business needs.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN
ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF OUR COMMON STOCK
Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of us or otherwise decrease the price of our common stock. These provisions
include:
- authorizing our board of directors to issue additional preferred
stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder actions by written consent; and
- establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
WE MAY NOT BE ABLE TO PROTECT OUR CONFIDENTIAL INFORMATION AND INTELLECTUAL
PROPERTY RIGHTS.
Our success is dependent in part upon certain methodologies and other
proprietary intellectual property rights. We rely 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 our proprietary rights and the
proprietary rights of third parties from whom we license intellectual property.
However, the steps we have taken to protect our intellectual property rights may
be inadequate to deter misappropriation of our proprietary information, prevent
our competitors from developing similar or functionally equivalent methodologies
or detect unauthorized use of our proprietary information so that we can take
appropriate steps to enforce our rights. Furthermore, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries, and foreign copyright and trade secret laws may be inadequate to
protect our intellectual property rights.
In addition, we are subject to risk of claims alleging infringement of
third-party intellectual property rights. Any such claims could require us to
spend significant sums in litigation, damages, developing non-infringing
intellectual property or acquiring licenses to the intellectual property that is
the subject of the asserted infringement, any of which could reduce our revenues
or increase our expenses.
14
<PAGE> 17
YEAR 2000 PROBLEMS COULD DISRUPT OUR BUSINESS.
Although the date is now past January 1, 2000 and we have not experienced
immediate adverse impact from the transition to the Year 2000, we do not know
whether we, our customers or our vendors have been affected in a manner that is
not yet apparent. We will continue to monitor our Year 2000 compliance and the
Year 2000 compliance of our customers and vendors. Due to the general
uncertainty inherent in the Year 2000 problem, especially the uncertainty
regarding the Year 2000 compliance of our customers and vendors, we are unable
to determine at this time whether the Year 2000 problem will have a material
adverse effect on our business, results of operations and financial condition.
To date we have spent immaterial amounts to comply with accounting and
statutory requirements regarding the Year 2000. We believe that we will spend
minimal additional amounts for Year 2000 issues in the foreseeable future. These
assessments have not been independently verified. If we discover Year 2000
errors or defects in our internal systems, we may have to spend substantial
amounts in making repairs.
OUR STOCK PRICE MAY BE VOLATILE AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
We expect that the market price of our common stock will be volatile. We
are involved in a highly competitive, rapidly changing industry and stock prices
in our and similar industries have risen and fallen in response to a variety of
factors, including:
- quarter-to-quarter variations in operating results;
- entering into, or failing to enter into or renew, a material contract
or order;
- acquisitions of, or strategic alliances among, companies within our
industry;
- changes in recommendations by securities analysts regarding the
results or prospects of e-commerce and consulting service providers;
and
- changes in investor perceptions of the acceptance or profitability of
consulting and e-commerce services.
The market price for our common stock may also be affected by our ability
to meet investors' or securities analysts' expectations. Any failure to meet
these expectations, even slightly, may result in a material decline in the
market price of our common stock. In addition, the stock market is subject to
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against that
company. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our management's attention and resources.
ITEM 2. PROPERTIES
Our 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. We also occupy leased office space in Los Angeles,
California; San Francisco, California; Chicago, Illinois; Lexington,
Massachusetts; Princeton, New Jersey; New York, New York; Rochester, New York;
Raleigh, North Carolina; Dallas, Texas; Toronto, Canada; London, England; and
Sydney, Australia. We believe that our existing facilities are adequate to meet
our current requirements and that suitable space will be available as needed on
terms acceptable to us.
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<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
From time to time we are 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 us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
quarter ended December 31, 1999.
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<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A Common Stock, $0.001 par value per share, has traded on the
Nasdaq National Market under the symbol "NXRA" since May 18, 1999. The following
table sets forth the high and low sale prices for our Common Stock as reported
by the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
First Quarter............................... NA NA
Second Quarter.............................. $ 10 1/4 $ 6 5/16
Third Quarter............................... $ 9 1/16 $ 3 9/16
Fourth Quarter.............................. $ 13 3/16 $ 3 1/2
</TABLE>
As of March 28, 2000 there were 30,683,808 shares of Class A Common Stock
outstanding held by approximately 205 holders of record.
We have never paid or declared any cash dividends on our Common Stock and
do not intend to pay dividends on our Common Stock in the foreseeable future. We
intend to retain any earnings for use in the operation and expansion of our
business. The payment of cash dividends by us is restricted by our senior credit
facility that contains restrictions prohibiting us from paying any cash
dividends without the bank's prior approval.
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<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
SEQUENTIAL QUARTERLY TRENDS AND RESULTS OF OPERATIONS
The following table sets forth our results of operations for the periods
indicated. This information for the indicated quarterly periods has been
prepared on the same basis as our annual Consolidated Financial Statements and,
in the opinion of our management, reflect all adjustments (consisting only of
normal and recurring adjustments and adjustments related to our equity
recapitalization) necessary for the fair presentation of the information for the
periods presented.
When you read this summary, it is important that you read along with it the
historical financial statements and related notes in our annual and quarterly
reports filed with the Securities and Exchange Commission, as well as the
section of our annual and quarterly reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1999 1999 1999 1999 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............... $ 43,197 $ 40,094 $ 36,519 $ 36,145 $ 28,009 $ 17,486 $ 13,909
Cost of revenues ........... 24,098 22,755 20,470 20,512 17,406 12,641 9,315
-------- -------- -------- -------- -------- -------- --------
Gross profit ............. 19,099 17,339 16,049 15,633 10,603 4,845 4,594
Selling, general and
Administrative expenses .. 12,696 11,531 10,594 10,154 8,528 7,279 4,410
Amortization expense ....... 1,290 1,243 1,156 1,034 688 466 344
Special charges ............ 1,316 -- 1,705 4,384 7,002 967 --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
Operations ............... 3,797 4,565 2,594 61 (5,615) (3,867) (160)
Interest income (expense),
Net ...................... (1,240) (1,222) (2,591) (3,783) (2,404) (1,648) (1,104)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
Income taxes ............. 2,557 3,343 3 (3,722) (8,019) (5,515) (1,264)
Provision (benefit) for
Income taxes ............. (886) -- 2 -- 43 -- 75
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .......... $ 3,443 $ 3,343 $ 1 $ (3,722) $ (8,062) $ (5,515) $ (1,339)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1998 1997 1997 1997(1)
<S> <C> <C> <C> <C>
Net revenues ............... $ 8,186 $ 4,959 $ 3,039 $ --
Cost of revenues ........... 5,623 2,867 1,851 --
-------- -------- -------- --------
Gross profit ............. 2,563 2,092 1,188 --
Selling, general and
Administrative expenses .. 2,886 2,471 1,848 987
Amortization expense ....... 224 154 101 --
Special charges ............ -- -- -- --
-------- -------- -------- --------
Income (loss) from
Operations ............... (547) (533) (761) (987)
Interest income (expense),
Net ...................... (1,567) (43) 8 3
-------- -------- -------- --------
Income (loss) before
Income taxes ............. (2,114) (576) (753) (984)
Provision (benefit) for
Income taxes ............. 125 422 280 --
-------- -------- -------- --------
Net income (loss) .......... $ (2,239) $ (998) $ (1,033) $ (984)
======== ======== ======== ========
</TABLE>
- -------------------------
(1) During the period from February 26, 1997 (date of inception) through March
31, 1997, we incurred expenses of $34,000 which are included in the three
months ended June 30, 1997.
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<PAGE> 21
The following table sets forth the percentage relationship to net revenues
of our results of operations for the periods indicated. This information for the
quarterly periods indicated has been prepared on the same basis as the
Consolidated Financial Statements and, in the opinion of our management, reflect
all adjustments (consisting only of normal and recurring adjustments and
adjustments related to our equity recapitalization) necessary for the fair
presentation of the information for the periods presented.
When you read this summary, it is important that you read along with it the
historical financial statements and related notes in our annual and quarterly
reports filed with the Securities and Exchange Commission, as well as the
section of our annual and quarterly reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1999 1999 1999 1999 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............... 100% 100% 100% 100% 100% 100% 100%
Cost of revenues ........... 56 57 56 57 62 72 67
---- ---- ---- ---- ---- ---- ----
Gross profit ............. 44 43 44 43 38 28 33
Selling, general and
Administrative expenses .. 29 29 29 28 30 42 32
Amortization expense ....... 3 3 3 3 2 3 2
Special charges ............ 3 -- 5 12 25 6 --
---- ---- ---- ---- ---- ---- ----
Income (loss) from
Operations ............... 9 11 7 -- (20) (22) (1)
Interest income (expense),
Net ...................... (3) (3) (7) (10) (9) (9) (8)
---- ---- ---- ---- ---- ----
Income (loss) before
Income taxes ............. 6 8 -- (10) (29) (32) (9)
Provision (benefit) for
Income taxes ............. (2) -- -- -- -- -- 1
---- ---- ---- ---- ---- ---- ----
Net income (loss) .......... 8% 8% 0% (10)% (29)% (32)% (10)%
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1998 1997 1997 1997
<S> <C> <C> <C> <C>
Net revenues ............... 100% 100% 100% --
Cost of revenues ........... 69 58 61 --
---- ---- ---- ----
Gross profit ............. 31 42 39 --
Selling, general and
Administrative expenses .. 35 50 61
Amortization expense ....... 3 3 3
Special charges ............ -- -- -- --
---- ---- ---- ----
Income (loss) from
Operations ............... (7) (11) (25)
Interest income (expense),
Net ...................... (19) (1) 0
---- ---- ----
Income (loss) before
Income taxes ............. (26) (12) (25)
Provision (benefit) for
Income taxes ............. 1 8 9 --
---- ---- ---- ----
Net income (loss) .......... (27)% (20)% (34)% --
==== ==== ==== ====
</TABLE>
SELECTED FINANCIAL BALANCE SHEET DATA
The following selected financial balance sheet data as of December 31,
1999, 1998 and 1997 have been derived from our financial statements. The
data should be read in conjunction with our financial statements and the
notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,011 $ 1,496 $ 554
Working capital (deficit)................................... 33,035 (62,399) (335)
Total assets................................................ 226,762 176,691 22,655
Total short-term debt and capital lease obligations......... 938 82,487 1,833
Total long-term debt and capital lease obligations.......... 56,798 55,749 969
Total stockholders' equity.................................. 146,057 14,852 16,732
</TABLE>
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Nextera Enterprises, Inc. ("We" or the "Company") is a provider of
consulting services and integrated Internet solutions. Our end-to-end
professional service offerings encompass business and digital strategy, customer
relationship management, economic analysis, organizational and process design,
and internet technology consulting to both innovative Fortune 500 as well as
emerging companies. We assist clients in achieving enhanced business performance
or building new businesses by anticipating and addressing their complex
needs by offering among the broadest base of skills in the industry. We help
organizations redefine the way in which existing work is conducted or new
businesses and markets are entered. We do this by utilizing our unique
econometric modeling tools and leveraging our knowledge of vertical markets.
Our practice portfolio includes:
- Strategy and Research Services. This practice provides economic
analyses of business conditions, pricing models, relevant business
frameworks, business practices and litigation support. Through this
practice we assist senior management in proactively developing
electronic business strategies and implementing business plans.
- Human Capital Services. This practice assists clients in implementing
organizational and strategic changes through all levels of an
organization. In addition, this practice also helps organizations
solve complex operational issues through major business transformation
programs, redesigned business processes and best practices adaptation.
- Interactive Technology Consulting Services. This practice applies
emerging web-based technologies ranging from business and technical
architecture, to creative consulting to applications development,
implementation and hosting. Our breadth of expertise enables us to
deliver services from across each of our service offerings on a stand
alone or combined basis and offers our clients creative Internet
solutions.
We provide our services across a broad spectrum of industries, including
communications, consumer products, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. We generate net revenues by providing business and
information technology 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
20
<PAGE> 23
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. We determine the
percentage of completion of our contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to performance of the contract. We believe that the majority of our work
will continue to be performed under time and materials billing arrangements. Net
revenues exclude reimbursable expenses charged to clients. We typically bill on
a monthly basis to monitor client satisfaction and manage our outstanding
accounts receivable balances. Substantially all of our net revenues are derived
from clients located in the United States and Canada.
Gross profit is derived from net revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. Our 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). We monitor our engagements to manage billing and utilization
rates. We derive a substantial majority of our net revenues from engagements
billed on a time and materials basis. We are generally able to pass increases in
our cost of revenues along to our clients to the extent that we bill engagements
on a time and materials basis. We generally are unable to pass along increases
in our cost of revenues with respect to engagements billed on a fixed-price or
capped-fee basis. Generally, clients are billed for expenses incurred by us on
the clients' behalf. In addition, we closely monitor and attempt to control
expenses that are not passed through to our clients. Incentive compensation
expenses paid to consultants have a large variable component relating to net
revenues and profit and, therefore, vary based upon our ability to achieve our
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
our development of new business and with our 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 our ability to achieve
our operating objectives.
Through December 31, 1998, we and certain of our subsidiaries were treated
as partnerships for federal and state income tax purposes and all items of
income, expense and tax credit were passed through to our respective equity
holders. Nextera Business Performance Solutions Group, Inc. (formerly named
Symmetrix, Inc.) and Pyramid Imaging, Inc., two of our wholly-owned
subsidiaries, were subject to federal and state income taxes for periods ended
prior to January 1, 1999. Our provision for income taxes for periods ended
through December 31, 1998 reflect the accrued tax liabilities of these two
subsidiaries and certain items of income and loss from the ownership of Lexecon
Inc. Effective December 31, 1998, we changed to corporate form and became
subject to federal and state income taxes applicable to "C" corporations. Our
tax provisions, both historically and for periods ending after December 31,
1998, did and are expected to vary from the federal statutory rate of 34%
predominately due to nondeductible goodwill amortization, utilization of
post-acquisition net operating losses, state and local taxes and nondeductible
meal expenses.
In 1999, we formed a new wholly-owned subsidiary, NetNext, Inc., to make
investments in companies that we believe possess superior Internet business
models. In 1999, we made investments in:
- Hoover's Online- an Internet site delivering a full spectrum of
business news and information;
- Oncology.com- a daily news network providing coverage of cancer
research, treatment developments and patient care needs;
- Taste for Living - an on-line health and wellness company;
- MeansBuiness- a business-to-business knowledge management company that
uses a proprietary search engine to provide key extracts and summaries
from business and other non-fiction books, periodicals and research
reports; and
- Advanced Online- an Internet supplier of training for compliance with
government environmental, health and safety regulations.
ACQUISITIONS
We were founded in February 1997 and have focused on building our portfolio
of practice areas primarily through selective acquisitions and, to a lesser
extent through December 31, 1998, internal growth. The Company has pursued an
acquisition strategy that has resulted in the acquisitions detailed below. Our
results of operations have been, and will continue to be, affected by
substantial annual non-cash amortization charges for goodwill as a result of
these acquisitions being accounted for under the purchase method of accounting.
For the foreseeable future, we will be unable to account for future acquisitions
under the pooling-of-interests method of accounting because, among other
reasons, we are a controlled subsidiary. Accordingly, our historical
Consolidated Financial
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<PAGE> 24
Statements include operating results of the acquired companies only from the
effective date of each respective acquisition. Intangible assets are being
amortized by us on a straight-line basis over 5 years for intangibles relating
to personnel and principally over 40 years for all other intangibles, including
goodwill. We periodically evaluate whether recent events and circumstances have
occurred that indicate the acquired goodwill may warrant revision.
1999 ACQUISITIONS
Effective September 30, 1999, the Company, through Sibson AP, LLC, a newly
formed acquisition subsidiary of the Company, acquired substantially all of the
assets of SCCAP Pty Limited ("SCCAP"), an Australian human resources consulting
firm, for $1.7 million in cash.
Effective June 1, 1999, the Company acquired substantially all of the
assets and certain liabilities of The Economics Resource Group, Inc. ("ERG"), a
Massachusetts-based consulting firm that provides economic and strategic
services primarily to energy and other regulated industries. ERG was acquired
for $9.6 million of cash and a $2.4 million promissory note payable January 1,
2001, subject to post-closing adjustments based upon certain financial
performance criteria for ERG.
Effective May 18, 1999, the Company acquired NeoEnterprises, Inc.
("NeoEnterprises"), a Connecticut-based electronic commerce, or "e-commerce,"
consulting and development company. NeoEnterprises was acquired for 170,000
shares of Class A Common Stock and was merged into Neonext LLC ("Neonext"), a
newly-formed acquisition subsidiary of the Company, as a part of the
acquisition.
Effective January 29, 1999, the Company acquired the stock of The Alexander
Corporation Limited ("Alexander"), a United Kingdom-based human resources
consulting firm. Alexander was acquired for (pound)360,000 (approximately
$590,000) and 150,000 shares of Class A Common Stock, including the payment of
(pound)60,000 (approximately $100,000) in final satisfaction of amounts payable
under an earnout arrangement.
1998 ACQUISITIONS
Effective December 31, 1998, the Company acquired Lexecon Inc. ("Lexecon"),
an Illinois-based economic consulting firm. Lexecon was acquired for $31.1
million in cash and 4,266,240 shares of Class A Common Stock, including
1,450,240 shares of Class A Common Stock which were determined based upon the
price per share in the initial public offering of the Company's Class A common
stock.
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., (collectively "Sibson") human resources consulting firms based in
New Jersey and Toronto, Canada, respectively. Sibson was acquired for $37.4
million in cash, 2,613,087 shares of Class A Common Stock and 197,813
exchangeable shares of Sibson Canada Co., a newly formed wholly-owned subsidiary
of Nextera, that may be converted at the option of the holders into 197,813
shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of The Planning Technologies Group, Inc.
("PTG"), a Massachusetts-based strategy and management consulting firm. PTG was
acquired for $6.7 million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired Pyramid Imaging, Inc.
("Pyramid"), a California-based consulting and technology firm. Pyramid was
acquired for $10.0 million in cash and 640,000 shares of Class A Common Stock,
including $0.8 million in cash and 53,333 shares of Class A Common Stock issued
during 1999 as a result of the achievement of certain revenue and pretax
earnings targets related to the performance of Pyramid during the twelve months
ended March 31, 1999.
Effective January 5, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of SiGMA Consulting, LLC ("SiGMA"), a New
York-based management consulting firm. SiGMA was acquired for $10.0 million in
cash and 669,000 shares of Class A Common Stock. Effective December 31, 1998,
the Company transferred all of the membership interests of SiGMA to Nextera
Business Performance Solutions Group, Inc. ("Nextera Business Performance
Solutions Group").
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<PAGE> 25
1997 ACQUISITION
Effective July 30, 1997, Nextera acquired Symmetrix, Inc. ("Symmetrix"), a
management consulting and information technology consulting company, for
approximately $15.5 million in cash. Symmetrix was subsequently renamed Nextera
Business Performance Solutions Group.
RESULTS OF OPERATIONS
In light of the number and significance of acquisitions completed since
January 1, 1998, management has presented a comparison of the sequential
quarterly results of operations for the periods enumerated below because it
believes that such comparisons are the most meaningful presentation of the
Company's financial results. All acquisitions completed by Nextera have been
accounted for under the purchase method of accounting. Accordingly, the
Consolidated Financial Statements of the Company include operating results of
the acquired companies only from the effective date of each respective
acquisition.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net Revenues. Net revenues increased 7.7% to $43.2 million for the three
months ended December 31, 1999 from $40.1 million for the three months ended
September 30, 1999. This increase was primarily attributable to an increase in
human capital revenues, due in part to the inclusion of revenues relating to the
acquisition of the assets of SCCAP effective September 30, 1999, and to an
increase in e-commerce and e-business revenues.
Gross Profit. Gross profit increased 10.1% to $19.1 million for the three
months ended December 31, 1999 from $17.3 million for the three months ended
September 30, 1999. Gross margin as a percentage of sales increased to 44.2% for
the three months ended December 31, 1999 from 43.2% for the three months ended
September 30, 1999. The increase in gross margin was due primarily to improved
chargeability of our consultants in the quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 10.1% to $12.7 million for the three months
ended December 31, 1999 from $11.5 million for the three months ended September
30, 1999. As a percentage of revenues, such expenses increased slightly to 29.4%
for the three months ended December 31, 1999 from 28.8% for the three months
ended September 30, 1999.
Interest Expense, Net. Interest expense, net increased to $1.3 million for
the three months ended December 31, 1999 from $1.2 million for the three months
ended September 30, 1999 due principally to incremental borrowings incurred in
connection with the acquisition of the assets of SCCAP effective September 30,
1999.
Special Charges. During the three months ended December 31, 1999, in
connection with a change in senior management, the Company implemented a plan to
reduce its administrative staff, resulting in severance costs of approximately
$1.3 million.
Income tax benefit. The Company recorded an income tax benefit of $0.9
million for the three months ended December 31, 1999 primarily as a result of
the reversal of reserves previously established for certain deferred tax assets.
In the fourth quarter, Management determined that the recovery of these assets
is more likely than not, principally as a result of the Company's achievement of
pretax profitability in the fourth quarter of 1999. This benefit was partially
offset by the unfavorable impact of nondeductible goodwill amortization.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND THREE MONTHS ENDED JUNE
30, 1999
Net Revenues. Net revenues increased 9.8% to $40.1 million for the three
months ended September 30, 1999 from $36.5 million for the three months ended
June 30, 1999. This increase was primarily attributable to an increase in
e-commerce and e-business revenues and to the inclusion of revenues generated by
ERG, which was acquired effective June 1, 1999, offset in part by a reduction in
revenues related to enterprise resource planning ("ERP") services performed
during the quarter.
Gross Profit. Gross profit increased 8.0% to $17.3 million for the three
months ended September 30, 1999 from $16.0 million for the three months ended
June 30, 1999. Gross margin as a percentage of sales decreased to 43.2% for the
three months ended September 30, 1999 from 43.9% for the three months ended June
30, 1999. The decrease in gross margin was due primarily to lower chargeability
from junior level resources due to seasonal training and vacation schedules.
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<PAGE> 26
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.8% to $11.5 million for the three months
ended September 30, 1999 from $10.6 million for the three months ended June 30,
1999. As a percentage of revenues, such expenses decreased slightly to 28.8% for
the three months ended September 30, 1999 from 29.0% for the three months ended
June 30, 1999.
Interest Expense, Net. Interest expense, net decreased to $1.2 million for
the three months ended September 30, 1999 from $2.6 million for the three months
ended June 30, 1999. This decrease was due primarily to the repayment of a
portion of the Company's outstanding indebtedness with the proceeds from the
Company's initial public offering of Class A Common Stock, which was completed
on May 21, 1999.
Special Charges. The Company recorded a non-cash compensation expense of
$1.7 million in the three months ended June 30, 1999, which represented the
difference between the fair value of fully-vested options granted to certain
non-stockholder employees of Lexecon on the date of grant of $10.00 per share,
and the $1.50 exercise price of the options.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND THREE MONTHS ENDED MARCH 31,
1999
Net Revenues. Net revenues increased to $36.5 million for the three months
ended June 30, 1999 from $36.1 million for the three months ended March 31,
1999. This increase was primarily attributable to an increase in e-commerce and
e-business revenues and to the inclusion of revenues generated by ERG, which was
acquired effective June 1, 1999, offset in part by a reduction in revenues
related to ERP services performed during the quarter. As a result of the reduced
demand for ERP services, the Company utilized a lower level of outside
contractors during the three months ended June 30, 1999.
Gross Profit. Gross profit increased 2.6% to $16.0 million for the three
months ended June 30, 1999 from $15.6 million for the three months ended March
31, 1999. Gross margin as a percentage of sales increased to 43.9% for the three
months ended June 30, 1999 from 43.3% for the three months ended March 31, 1999.
The increase in gross margin was due primarily to higher margins on e-commerce
and e-business services than those earned on ERP-related business. The Company
has historically utilized subcontractors to perform a significant portion of ERP
services and, in most instances, has recorded lower gross margins on revenue
related to such subcontracted services than on work performed by internal
consultant resources.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 4.3% to $10.6 million for the three months
ended June 30, 1999 from $10.2 million for the three months ended March 31,
1999. As a percentage of revenues, such expenses increased slightly to 29.0% for
the three months ended June 30, 1999 from 28.1% for the three months ended March
31, 1999.
Interest Expense, Net. Interest expense, net decreased to $2.6 million for
the three months ended June 30, 1999 from $3.8 million for the three months
ended March 31, 1999. This decrease was due primarily to the repayment of a
portion of the Company's outstanding indebtedness with the proceeds from the
Company's initial public offering of Class A Common Stock, which was completed
on May 21, 1999.
Special Charges. The Company granted to certain non-stockholder employees
of Lexecon fully-vested options to purchase 197,760 shares of Class A Common
Stock at an exercise price of $1.50 per share effective as of May 1999. The
Company recorded an expense of $1.7 million in the three months ended June 30,
1999, which represented the difference between the fair value of the options on
the date of grant of $10.00 per share, and the exercise price of the options.
In March 1999, the Company granted to certain non-employee consultants of
Lexecon fully-vested options to purchase 445,245 shares of Class A Common Stock
at an exercise price of $14.00 per share. The Company recorded a non-cash
compensation charge of $4.4 million related to the grant of these options in the
three months ended March 31, 1999.
24
<PAGE> 27
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND THREE MONTHS ENDED DECEMBER
31, 1998
Net Revenues. Net revenues increased 29.1% to $36.1 million for the three
months ended March 31, 1999 from $28.0 million for the three months ended
December 31, 1998. This increase was primarily attributable to the inclusion of
revenues generated by Lexecon, which was acquired effective December 31, 1998,
and by Alexander, which was acquired effective January 29, 1999.
Gross Profit. Gross profit increased 47.4% to $15.6 million for the three
months ended March 31, 1999 from $10.6 million for the three months ended
December 31, 1998. Gross margin as a percentage of sales increased to 43.3% for
the three months ended March 31, 1999 from 37.9% for the three months ended
December 31, 1998. The increase in gross profit and gross margin was due
primarily to the acquisition of Lexecon.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 19.1% to $10.2 million for the three months
ended March 31, 1999 from $8.5 million for the three months ended December 31,
1998. As a percentage of revenues, such expenses decreased to 28.1% for the
three months ended March 31, 1999 from 30.4% for the three months ended December
31, 1998. The dollar increase was due primarily to the inclusion of the
acquisition of Lexecon for the three months ended March 31, 1999, offset in part
by the inclusion in the three months ended December 31, 1998 of $0.4 million of
a supplemental management fee charged by Knowledge Universe, Inc. ("Knowledge
Universe").
Interest Expense, Net. Interest expense, net increased to $3.8 million for
the three months ended March 31, 1999 from $2.4 million for the three months
ended December 31, 1998. This increase was due primarily to borrowings incurred
to fund the acquisition of Lexecon.
Special Charges. During the three months ended December 31, 1998 the
Company recorded restructuring costs of $0.3 million related to severance
obligations incurred in connection with the combination of two of the Company's
operating subsidiaries, Symmetrix and SiGMA, into Nextera Business Performance
Solutions Group.
The Company granted to certain non-employee consultants of Lexecon options
to purchase 445,245 shares of Class A Common Stock at an exercise price of
$14.00 per share in March 1999. Such options were fully-vested upon grant. The
Company recorded a non-cash compensation charge of $4.4 million in the three
months ended March 31, 1999, which represented the estimated fair value of the
options calculated using the Black-Scholes model.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net Revenues. Net revenues increased 60.2% to $28.0 million for the three
months ended December 31, 1998 from $17.5 million for the three months ended
September 30, 1998. This increase was due primarily to the inclusion of Sibson's
net revenues for the three months ended December 31, 1998 as compared to only
one month of such net revenues in the three months ended September 30, 1998. The
increase in revenues was also attributable to a $0.6 million reduction in
revenues resulting principally from a reduction in the estimated percentage of
completion of a fixed-price contract during the three months ended September 30,
1998. No such reduction was reflected in the three months ended December 31,
1998.
Gross Profit. Gross profit increased 118.8% to $10.6 million for the three
months ended December 31, 1998 from $4.8 million for the three months ended
September 30, 1998. Gross margin increased to 37.9% for the three months ended
December 31, 1998 from 27.7% for the three months ended September 30, 1998. The
increase in gross profit and gross margin was due primarily to the acquisition
of Sibson. Gross profit and gross margin also increased due, to a lesser extent,
to a reduction reflected during the three months ended September 30, 1998 in the
estimated percentage of completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.2% to $8.5 million for the three months
ended December 31, 1998 from $7.3 million for the three months ended September
30, 1998. As a percentage of net revenues, such expenses decreased to 30.5% for
the three months ended December 31, 1998 from 41.6% for the three months ended
September 30, 1998. The dollar increase was due primarily to the inclusion of
Sibson for the entire three months ended December 31, 1998 and the inclusion in
the three months ended December 31, 1998 of $0.4 million of a supplemental
management fee charge by Knowledge Universe, offset in part by the inclusion
during the three months ended September 30, 1998 of $1.1 million of a
supplemental management fee charged by Knowledge Universe for 1998, and the
inclusion of $0.3 million of compensation expense related to the purchase of
Common Stock by certain of the Company's executive officers.
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<PAGE> 28
Interest Expense, Net. Interest expense, net increased 45.9% to $2.4
million for the three months ended December 31, 1998 from $1.6 million for the
three months ended September 30, 1998. This increase was due primarily to the
borrowings to fund the acquisition of Sibson on August 31, 1998.
Special Charges. During the three months ended December 31, 1998 and
September 30, 1998, the Company recorded restructuring costs of $0.3 million and
$1.0 million, respectively, related to the approval by the Board of Directors of
a plan to combine two of the Company's operating subsidiaries, Symmetrix and
SiGMA, into a single operating unit, renamed Nextera Business Performance
Solutions Group. In connection with such plan, specific individuals were
identified for termination along with the severance benefits to be offered. In
addition, certain leased space was to be vacated. The restructuring charge
recorded during the three months ended December 31, 1998 consisted of severance
and termination costs related to individuals who were not informed of their
severance until after September 30, 1998. The restructuring charges recorded
during the three months ended September 30, 1998 consisted principally of $0.3
million for severance payments and termination costs related to individuals
whose severance arrangements were known as of September 30, 1998 and $0.6
million for leased office space to be vacated, net of estimated sub-lease
income.
On December 31, 1998, the Company entered into agreements with certain
non-stockholder key executives of Lexecon under which payments totaling $4.2
million in cash were made and fully-vested options (the "Vested Options") to
purchase 384,000 shares of Class A Common Stock at an exercise price of $1.50
per share were granted. In addition, the Company reserved for issuance to these
key executives options to purchase Class A Common Stock at an exercise price of
$1.50 per share (the "Reserved Options"). Based upon the price per share of the
Class A Common Stock in the initial public offering, 197,760 shares of Class A
Common Stock will be subject to the Reserved Options. The Company recorded $6.6
million in the three months ended December 31, 1998, which represented the cash
paid plus the difference between the fair market value of the Class A Common
Stock on the date of grant of $7.65 per share, and the exercise price of the
Vested Options.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED JUNE
30, 1998
Net Revenues. Net revenues increased 25.7% to $17.5 million for the three
months ended September 30, 1998 from $13.9 million for the three months ended
June 30, 1998. This increase was due primarily to the net revenues generated by
Sibson which was acquired effective August 31, 1998, partially offset by a $0.6
million reduction in revenues resulting principally from a reduction in the
estimated percentage completion of an ongoing fixed-price contract.
Gross Profit. Gross profit increased 5.5% to $4.8 million for the three
months ended September 30, 1998 from $4.6 million for the three months ended
June 30, 1998. Gross margin decreased to 27.7% for the three months ended
September 30, 1998 from 33.0% for the three months ended June 30, 1998. The
increase in gross profit was due primarily to the acquisition of Sibson. The
decrease in gross margin was primarily attributable to a reduction in the
estimated percentage completion of a fixed-price contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 65.1% to $7.3 million for the three months
ended September 30, 1998 from $4.4 million for the three months ended June 30,
1998. As a percentage of net revenues, such expenses increased to 41.6% for the
three months ended September 30, 1998 from 31.7% for the three months ended June
30, 1998. The dollar increase was due primarily to the increase in the number of
employees attributable to the acquisition of Sibson and the inclusion in the
three months ended September 30, 1998 of $1.1 million of the $1.5 million
supplemental management fee charged by Knowledge Universe for 1998 and
approximately $0.3 million of compensation expense related to the purchase of
Common Stock by certain of the Company's executive officers during the three
months ended September 30, 1998, as well as additional hirings. Excluding the
foregoing $1.1 million supplemental management fee and $0.3 million compensation
expense, selling, general and administrative expenses for the three months ended
September 30, 1998 were $5.8 million, or 33% of net revenues.
Interest Expense, Net. Interest expense, net 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 used to finance the acquisition of Sibson.
Special Charges. During the three months ended September 30, 1998, the
Company recorded restructuring costs of $1.0 million related to Nextera Business
Performance Solutions Group. 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.
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<PAGE> 29
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 Expense, Net. Interest expense, net 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.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND THREE MONTHS ENDED DECEMBER
31, 1997
Net Revenues. Net revenues increased 65.1% to $8.2 million for the three
months ended March 31, 1998 from $5.0 million for the three months ended
December 31, 1997. This increase was due to the net revenues generated from
SiGMA, which was acquired under the purchase method of accounting on January 5,
1998, partially offset by reserves taken on a fixed-price contract which has now
been completed. No net revenues from SiGMA were recorded by Nextera for the
three months ended December 31, 1997.
Gross Profit. Gross profit increased 22.5% to $2.6 million for the three
months ended March 31, 1998 from $2.1 million for the three months ended
December 31, 1997. Gross margin decreased to 31.3% for the three months ended
March 31, 1998 from 42.2% for the three months ended December 31, 1997. The
decrease in gross margin was primarily due to a $0.5 million reserve adjustment
on a fixed-price contract taken in the three months ended March 31, 1998,
partially offset by increased gross profit generated from SiGMA. The amount of
the reserve adjustment was determined using the percentage of completion method
of accounting.
Selling, General and Administrative. Selling, general and administrative
expenses increased 16.8% to $2.9 million for the three months ended March 31,
1998 from $2.5 million for the three months ended December 31, 1997. As a
percentage of net revenues, such expenses decreased to 35.3% for the three
months ended March 31, 1998 from 49.8% for the three months ended December 31,
1997. The dollar increase was due primarily to the increase in the number of
employees attributable to the SiGMA acquisition as well as additional hirings.
The decrease as a percentage of net revenues was due primarily to a greater
increase in net revenues in relation to the increase in such expenses.
Interest Expense, Net. Interest expense, net 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.
27
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $33.0 million on December 31, 1999,
compared with a working capital deficit of $62.4 million on December 31, 1998.
Included in working capital were cash and cash equivalents of $7.0 million and
$1.5 million on December 31, 1999 and 1998, respectively. The increase in
working capital was primarily attributable to the completion of the Company's
initial public offering in May 1999, which resulted in net proceeds to the
Company of $103.0 million. A portion of such proceeds were used to retire
amounts outstanding under a short-term bridge loan, with the balance used to
repay a portion of the Company's outstanding long-term indebtedness and certain
management and initial public offering fees.
Net cash provided by operating activities was $8.3 million for the year
ended December 31, 1999. The primary components of net cash provided by
operating activities were net income of $3.1 million, depreciation and
amortization expense of $8.0 million and non-cash compensation charges of $6.0
million, offset in part by increases in accounts receivables of $3.7 million and
costs and estimated earnings in excess of billings of $4.1 million.
Net cash used in investing activities was $21.1 million for the year ended
December 31, 1999. The primary components of cash used in investing activities
were the acquisitions of Alexander in January 1999, the acquisition of ERG in
June 1999, the acquisition of the assets of SCCAP in September 1999 and the
payment of an earnout to the former owners of Pyramid in aggregate totaling
$14.8 million, exclusive of $0.3 million of cash acquired, and expenditures of
$5.2 million for furniture, equipment and leasehold improvements.
Net cash provided by financing activities was $18.1 million for the year
ended December 31, 1999. The primary components of cash generated from financing
activities were $103.0 million of net proceeds from the completion of the
Company's initial public offering of common stock, offset by $79.6 million of
cash utilized to repay bridge loan borrowings and $25.6 million of cash utilized
to repay a portion of the Company's outstanding indebtedness. Additionally,
borrowings under notes payables to banks totaled $17.6 million, of which $14.8
million was incurred in connection with acquisitions completed during 1999.
Effective December 30, 1999, the Company entered into a Senior Credit
Facility which matures on March 29, 2002 and provides for a $15 million
revolving credit arrangement, intended for general corporate purposes, and a $40
million revolving acquisition facility. The Senior Credit Facility contains
covenants, with which the Company was in compliance as of December 31, 1999,
related to the maintenance of financial ratios, operating restrictions and
restrictions on the payment of dividends and disposition of assets. As of
December 31, 1999, total borrowings outstanding under the Senior Credit Facility
were $22,946,000. The Company believes that the available capacity under the
credit facility will be sufficient to meet its operating and capital
requirements for the next twelve months. However, there can be no assurances
that the Company's actual cash needs will not exceed anticipated levels, that
the Company will generate sufficient operating cash flows to fund its operations
in the absence of other sources or that acquisition opportunities will not arise
that require resources in excess of those currently available.
Effective January 1, 2000, the Company acquired substantially all of the
assets and certain liabilities of Cambridge Economics, Inc. ("CEI"), a
Massachusetts-based consulting firm that provides strategic, economic and
business transformation and other services to a diverse group of domestic and
international clients. CEI was acquired for $8.4 million of cash and a $2.1
million promissory note payable June 30, 2002, subject to post-closing
adjustments. The Company financed the cash portion of the purchase price through
additional borrowings under the Senior Credit Facility.
IMPACT OF YEAR 2000
Although the date is now past January 1, 2000 and the Company has not
experienced immediate adverse impact from the transition to the Year 2000, we do
not know whether we, our customers or our vendors have been affected in a manner
that is not yet apparent. We will continue to monitor our Year 2000 compliance
and the Year 2000 compliance of our customers and vendors. Due to the general
uncertainty inherent in the Year 2000 problem, especially the uncertainty
regarding the Year 2000 compliance of our customers and vendors, we are unable
to determine at this time whether the Year 2000 problem will have a material
adverse effect on our business, results of operations and financial condition.
To date we have spent immaterial amounts to comply with accounting and
statutory requirements regarding the Year 2000. We believe that we will spend
minimal additional amounts for Year 2000 issues in the foreseeable future. These
assessments have not been independently verified. If we discover Year 2000
errors or defects in our internal systems, we may have to spend substantial
amounts in making repairs.
28
<PAGE> 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to changes in interest rates primarily from our senior
credit facility. We do not currently use interest rate derivative instruments to
manage exposure to interest rate changes. A hypothetical 100 basis point adverse
move in interest rates along the interest rate yield curve would not have a
material adverse effect on interest sensitive financial instruments at December
31, 1999.
Foreign Currency Risk
Currently, the majority of our sales and expenses are denominated in U.S.
dollars and as a result we have not experienced significant foreign exchange
gains or losses to date. While we conducted some transactions in foreign
currencies during 1999, we do not anticipate that foreign exchange gains or
losses will be significant. We have not engaged in foreign currency hedging
activities to date.
29
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst and Young LLP, Independent Auditors ............ 30
Consolidated Balance Sheets .................................... 31
Consolidated Statements of Operations .......................... 32
Consolidated Statements of Cash Flows .......................... 34
Notes to Consolidated Financial Statements ..................... 35
<PAGE> 33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nextera Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Nextera
Enterprises, Inc. (the "Company") (formerly Nextera Enterprises, L.L.C.) as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1999 and 1998, and 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nextera
Enterprises, Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998,
and for the period from February 26, 1997 (date of inception) through December
31, 1997, in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 2000
30
<PAGE> 34
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1999 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 7,011 $ 1,496
Accounts receivable, net of allowance for doubtful
accounts of $953 and $1,267 at December 31, 1999
and 1998, respectively ............................................. 38,930 31,094
Costs and estimated earnings in excess of billings .................... 7,092 2,962
Due from affiliates ................................................... 156 400
Due from officers ..................................................... 93 856
Prepaid expenses and other current assets ............................. 2,460 5,709
--------- ---------
Total current assets ............................................. 55,742 42,517
Property and equipment, net ............................................. 10,587 8,056
Intangible assets, net of accumulated amortization of $6,700
and $1,977 at December 31, 1999 and 1998, respectively ............... 155,800 125,082
Other assets ............................................................ 4,633 1,036
--------- ---------
Total assets ..................................................... $ 226,762 $ 176,691
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................. $ 19,512 $ 20,168
Notes payable to bank ................................................. 248 6,156
Bridge loan payable (including $37,500 payable
to related party at December 31, 1998) ............................. 0 75,849
Deferred revenue ...................................................... 1,505 1,193
Due to affiliates ..................................................... 752 1,068
Current portion of long-term debt and capital lease obligations........ 690 482
--------- ---------
Total current liabilities ........................................ 22,707 104,916
Long-term debt and capital lease obligations ............................ 4,021 2,600
Senior credit facility .................................................. 22,946 0
Debentures due to affiliates, including at December 31, 1998
accrued interest thereon ............................................. 29,831 53,149
Other long-term liabilities ............................................. 1,200 1,174
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding ....................... -- --
Exchangeable shares, no par value, 2,500,000 shares
authorized, 197,813 shares issued and outstanding
at December 31, 1999 and 1998 ...................................... 495 495
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 30,633,049 and 16,811,740 shares
issued and outstanding at December 31, 1999 and 1998 ............... 31 17
Class B Common Stock, $0.001 par value, zero, 4,300,000 shares
authorized, 4,274,630 shares issued and outstanding
at December 31, 1999 and 1998....................................... 4 4
Additional paid-in capital ............................................ 162,299 34,506
Retained earnings (deficit) ........................................... (17,105) (20,170)
Accumulated other comprehensive income ................................ 333 0
--------- ---------
Total stockholders' equity ......................................... 146,057 14,852
--------- ---------
Total liabilities and stockholders' equity ....................... $ 226,762 $ 176,691
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 35
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
Net revenues ..................................... $ 155,955 $ 67,590 $ 7,998
Cost of revenues ................................. 87,835 44,985 4,718
--------- --------- ---------
Gross profit ................................ 68,120 22,605 3,280
Selling, general and administrative expenses...... 44,975 23,103 5,306
Amortization expense ............................. 4,723 1,722 255
Special charges .................................. 7,405 7,969 --
--------- --------- ---------
Income (loss) from operations ............... 11,017 (10,189) (2,281)
Interest income .................................. 531 160 37
Interest expense ................................. (9,367) (6,883) (69)
--------- --------- ---------
Income (loss) before income taxes ........... 2,181 (16,912) (2,313)
Provision (benefit) for income taxes ............. (884) 243 702
--------- --------- ---------
Net income (loss) ........................... $ 3,065 $ (17,155) $ (3,015)
========= ========= =========
Net income (loss) per common share, basic ........ $ 0.10 $ (1.14) $ (0.74)
========= ========= =========
Net income (loss) per common share, diluted ...... $ 0.10 $ (1.14) $ (0.74)
========= ========= =========
Weighted average common shares outstanding,
Basic .......................................... 29,990 14,997 4,061
========= ========= =========
Weighted average common shares outstanding,
Diluted ........................................ 30,441 14,997 4,061
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 36
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B EXCHANGEABLE
COMMON STOCK COMMON STOCK PREFERRED STOCK SHARES
-------------------- -------------------- ------------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss ...................... -- $ -- -- $ -- -- $ -- -- $ --
Issuance of Class A Common Stock 7,898,800 8 -- -- -- -- -- --
--------- ---- --------- ---- ----------- -------- ------- ----
Balance at December 31, 1997 7,898,800 8 -- -- -- -- --
Net loss ...................... -- -- -- -- -- -- -- --
Issuance of Class A Common Stock 2,111,200 2 -- -- -- -- -- --
Issuance of Class A Common
Stock in connection with
acquired businesses ......... 6,947,114 7 -- -- -- -- 197,813 495
Recapitalization of Shares .... -- -- -- -- 22,977,000 22,977 -- --
Exchange of warrant for
Class B Common Stock ........ -- -- 4,300,000 4 -- -- -- --
Issuance of Class B
Preferred Stock ............. -- -- -- -- 24,993,000 24,993 -- --
Redemption of Class B
Preferred Stock in
exchange for 10% debentures.. -- -- -- -- (47,970,000) (47,970) -- --
Repurchases and cancellation
of Class A and Class B
Common Stock ................ (280,374) -- (83,420) -- -- -- -- --
Value of warrants issued in
connection with acquisition.. -- -- -- -- -- -- -- --
Value of options issued for
services rendered .......... -- -- -- -- -- -- -- --
Issuances of Class A and
Class B Common Stock ........ 135,000 -- 58,050 -- -- -- -- --
---------- ---- --------- ---- ----------- -------- ------- ----
Balance at December 31, 1998 16,811,740 17 4,274,630 4 -- -- 197,813 495
---------- ---- --------- ---- ----------- -------- ------- ----
Net income .................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment ................. -- -- -- -- -- -- -- --
Unrealized holding gain on
certain investments (net
of tax of $107) ............. -- -- -- -- -- -- -- --
Total comprehensive income ....
Issuance of Class A Common
Stock in connection with
acquired businesses ......... 1,823,573 2 -- -- -- -- -- --
Issuance of Class A Common
Stock in connection with
option exercises ............ 497,736 -- -- -- -- -- -- --
Initial public offering of
Class A Common Stock ....... 11,500,000 12 -- -- -- -- -- --
Value of options issued for
services rendered .......... -- -- -- -- -- -- -- --
Tax benefit from employee
stock options ............... -- -- -- -- -- -- -- --
---------- ---- --------- ---- ----------- -------- ------- ----
Balance at December 31, 1999 30,633,049 $ 31 4,274,630 $ 4 -- $ -- 197,813 $495
========== ==== ========= ==== =========== ======== ======= ====
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ADDITIONAL RETAINED OTHER STOCK- TOTAL
PAID-IN EARNINGS COMPREHENSIVE HOLDERS' COMPREHENSIVE
CAPITAL (DEFICIT) INCOME EQUITY INCOME (LOSS)
<S> <C> <C> <C> <C> <C>
Net loss ...................... $ -- $ (3,015) $ -- $ (3,015) $ (3,015)
Issuance of Class A Common Stock 19,739 -- -- 19,747
----------- ----------- ----------- -----------
Balance at December 31, 1997 19,739 (3,015) -- 16,732
Net loss ...................... -- (17,155) -- (17,155) (17,155)
Issuance of Class A Common Stock 5,276 -- -- 5,278
Issuance of Class A Common
Stock in connection with
acquired businesses ......... 28,846 -- -- 29,348
Recapitalization of Shares .... (22,977) -- -- --
Exchange of warrant for
Class B Common Stock ........ (4) -- -- --
Issuance of Class B
Preferred Stock ............. -- -- -- 24,993
Redemption of Class B
Preferred Stock in
exchange for 10% debentures.. -- -- -- (47,970)
Repurchases and cancellation
of Class A and Class B
Common Stock ................ (70) -- -- (70)
Value of warrants issued in
connection with acquisition 1,000 -- -- 1,000
Value of options issued for
services rendered .......... 2,362 -- -- 2,362
Issuances of Class A and
Class B Common Stock ........ 334 -- -- 334
----------- ----------- ----------- -----------
Balance at December 31, 1998 34,506 (20,170) -- 14,852
----------- ----------- ----------- -----------
Net income .................... -- 3,065 -- 3,065 3,065
Foreign currency translation
adjustment ................. -- -- 216 216 216
Unrealized holding gain on
certain investments (net
of tax of $107) ............. -- -- 117 117 117
-----------
Total comprehensive income .... 3,398
Issuance of Class A Common
Stock in connection with
acquired businesses ......... 17,690 -- -- 17,692
Issuance of Class A Common
Stock in connection with
option exercises ............ 857 -- -- 857
Initial public offering of
Class A Common Stock ....... 103,015 -- -- 103,027
Value of options issued for
services rendered .......... 6,031 -- -- 6,031
Tax benefit from employee
stock options .............. 200 -- -- 200
----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 162,299 $ (17,105) $ 333 $ 146,057
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 37
NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................ $ 3,065 $ (17,155) $ (3,015)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation and amortization .............................. 7,951 2,813 417
Deferred income taxes ...................................... (2,539) -- 702
Non-cash compensation charges .............................. 6,031 2,670 --
Change in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable ...................................... (3,724) 1,923 425
Due from affiliates ...................................... 244 (175) (225)
Due to affiliates ........................................ (316) 978 90
Prepaid expenses and other current assets ................ 2,013 (3,747) (272)
Income tax receivable .................................... -- 414 --
Accounts payable and accrued expenses .................... 444 9,461 517
Costs and estimated earnings in excess of billings ....... (4,131) (2,212) (761)
Deferred revenue ......................................... 295 (747) (2,403)
Other .................................................... (1,058) 273 45
--------- --------- ---------
Net cash provided by (used in) operating activities . 8,275 (5,504) (4,480)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment ........................... (5,220) (2,209) (955)
Acquisition of businesses, net of cash acquired .............. (14,784) (95,168) (15,321)
Other investments ............................................ (1,083) -- --
--------- --------- ---------
Net cash used in investing activities ............... (21,087) (97,377) (16,276)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of Class A and Class B Common
Stock ...................................................... 104,085 5,304 19,747
Proceeds from issuance of Class B Preferred Stock ............ -- 24,993 --
Repurchases of Class A and B Common Stock .................... -- (70) --
Due from officers ............................................ 387 (856) --
Borrowings (repayments) under notes payable to bank .......... 17,599 (324) 1,606
Repayments of debentures due to affiliates ................... (25,607) -- --
Borrowings under Bridge Loan ................................. 2,000 75,500 --
Repayments under Bridge Loan ................................. (79,564) -- --
Repayments of long-term debt and capital lease
obligations ................................................ (771) (724) (43)
--------- --------- ---------
Net cash provided by financing activities ........... 18,129 103,823 21,310
--------- --------- ---------
Effects of exchange rates on cash and cash equivalents ....... 198 -- --
--------- --------- ---------
Net increase in cash and cash equivalents .................... 5,515 942 554
Cash and cash equivalents at beginning of period ............. 1,496 554 --
--------- --------- ---------
Cash and cash equivalents at end of period ................... $ 7,011 $ 1,496 $ 554
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ..................... $ 7,744 $ 1,240 $ 113
========= ========= =========
Cash paid during the period for taxes ........................ $ 151 $ 76 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 38
NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Nextera Enterprises, Inc. ("Nextera" or the "Company") a professional
services firm, builds competitively differentiating e-commerce and e-business
solutions for clients. By combining expertise in economic analysis, strategy
formulation, business process redesign, human capital development and
information technology design and implementation, Nextera helps clients optimize
all aspects of how business is conducted.
Nextera was formed on February 26, 1997 as Education Technology Consulting
LLC and renamed Nextera Enterprises L.L.C. on April 11, 1997. References to 1997
included in the Notes to Consolidated Financial Statements refer to the period
from February 26, 1997 (date of inception) through December 31, 1997. Effective
December 31, 1998, Nextera Enterprises L.L.C. was dissolved, at which time the
Company commenced operating as Nextera Enterprises, Inc. Accordingly, the
consolidated financial statements reflect the operations of the predecessor,
Nextera Enterprises, L.L.C., for all periods through December 31, 1998.
Stockholders' equity has been restated to give retroactive recognition to the
establishment of Nextera Enterprises, Inc. for all periods presented by
reclassifying from common stock to additional paid-in capital the proceeds from
the issuance of units in excess of the par value of the common stock. In
addition, all references in the financial statements and notes to number of
shares, per share amounts and stock option data have been restated to reflect
the formation of Nextera Enterprises, Inc.
The majority stockholder of the Company is Nextera Enterprises Holdings,
Inc., which is controlled by Knowledge Universe, Inc. which, in turn, is
controlled by Knowledge Universe, L.L.C.
Acquisitions
The Company has used the purchase method of accounting for all
acquisitions. Operating results of acquired companies have been included in the
Company's results of operations only from the effective date of each respective
acquisition. Allocation of purchase price for these acquisitions was based upon
estimates of the fair value of the net assets acquired and is subject to
adjustments based upon finalization of the purchase price allocation and post
closing adjustments. The Company does not expect that the aggregate purchase
price allocation or post-closing adjustments will be material. Pro forma data is
not presented for the acquisitions completed in 1999 since the acquisitions were
not material to the Company's results of operations.
Effective September 30, 1999, the Company, through Sibson AP, LLC, a newly
formed acquisition subsidiary of the Company, acquired substantially all of the
assets of SCCAP Pty Limited ("SCCAP"), an Australian human resources consulting
firm, for $1.7 million in cash.
Effective June 1, 1999, the Company acquired substantially all of the
assets and certain liabilities of The Economics Resource Group, Inc. ("ERG"), a
Massachusetts-based consulting firm that provides economic and strategic
services primarily to energy and other regulated industries. ERG was acquired
for $9.6 million of cash and a $2.4 million promissory note payable January 1,
2001, subject to post-closing adjustments based upon certain financial
performance criteria for ERG.
Effective May 18, 1999, the Company acquired NeoEnterprises, Inc.
("NeoEnterprises"), a Connecticut-based electronic commerce, or "e-commerce,"
consulting and development company. NeoEnterprises was acquired for 170,000
shares of Class A Common Stock and was merged into Neonext LLC ("Neonext"), a
newly-formed acquisition subsidiary of the Company, as a part of the
acquisition.
Effective January 29, 1999, the Company acquired the stock of The Alexander
Corporation Limited ("Alexander"), a United Kingdom-based human resources
consulting firm. Alexander was acquired for (pound)360,000 (approximately
$590,000) and 150,000 shares of Class A Common Stock, including the payment of
(pound)60,000 (approximately $100,000) in satisfaction of amounts payable under
an earnout arrangement.
Effective December 31, 1998, the Company acquired Lexecon Inc. ("Lexecon"),
an Illinois-based economic consulting firm. Lexecon was acquired for $31.1
million in cash and 4,266,240 shares of Class A Common Stock, including
1,450,240 shares of Class
35
<PAGE> 39
A Common Stock which were determined based upon the price per share in the
initial public offering of the Company's Class A common stock.
Effective August 31, 1998, Nextera acquired substantially all the assets
and assumed certain liabilities of Sibson & Company, L.P. and acquired Sibson
Canada, Inc., (collectively "Sibson") human resources consulting firms based in
New Jersey and Toronto, Canada, respectively. Sibson was acquired for $37.4
million in cash, 2,613,087 shares of Class A Common Stock and 197,813
exchangeable shares of Sibson Canada Co., a newly formed wholly-owned subsidiary
of Nextera, that may be converted at the option of the holders into 197,813
shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of The Planning Technologies Group, Inc.
("PTG"), a Massachusetts-based strategy and management consulting firm. PTG was
acquired for $6.7 million in cash and 214,000 shares of Class A Common Stock.
Effective March 31, 1998, Nextera acquired Pyramid Imaging, Inc.
("Pyramid"), a California-based consulting and technology firm. Pyramid was
acquired for $10.0 million in cash and 640,000 shares of Class A Common Stock,
including $0.8 million in cash and 53,333 shares of Class A Common Stock issued
during 1999 as a result of the achievement of certain revenue and pretax
earnings targets related to the performance of Pyramid during the twelve months
ended March 31, 1999.
Effective January 5, 1998, Nextera acquired substantially all of the assets
and assumed certain liabilities of SiGMA Consulting, LLC ("SiGMA"), a New
York-based management consulting firm. SiGMA was acquired for $10.0 million in
cash and 669,000 shares of Class A Common Stock. Effective December 31, 1998,
the Company transferred all of the membership interests of SiGMA to Nextera
Business Performance Solutions Group, Inc. ("Nextera Business Performance
Solutions Group").
Effective July 30, 1997, the Nextera acquired Symmetrix, Inc.
("Symmetrix"), a management consulting and information technology consulting
company, for cash of approximately $15,500,000. Symmetrix was subsequently
renamed Nextera Business Performance Solutions Group.
The following information presents the unaudited pro forma condensed
results of operations as if the acquisitions of Symmetrix, SiGMA, PTG, Pyramid,
Sibson and Lexecon had occurred on January 1, 1997. The pro forma results are
presented for information purposes only and are not necessarily indicative of
the future results of operations of the Company or the results of operations of
the Company had the acquisitions occurred on January 1, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------
1998 1997
(IN THOUSANDS,
EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Net revenues .................................... $ 135,167 $ 105,275
Net loss ........................................ (12,044) (3,567)
Net loss per common share, basic and diluted .... $ (0.61) $ (0.36)
</TABLE>
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. The Company accounts for its investments
in which it owns less than 20% of the voting stock and does not possess
significant influence over the operations of the investee under the cost method
of accounting.
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.
36
<PAGE> 40
Prior to the completion of the Company's initial public offering of Class A
Common Stock in 1999, the Company's common stock was not traded on any public
market. Accordingly, the Company established the fair market value for its
common stock from time to time during this period. In determining the fair
market value, the Company considered, among other factors, the values utilized
in certain arms-length negotiated transactions, valuations prepared by outside
consultants and the market values of comparable public companies as adjusted for
the lack of liquidity of the Company's common stock.
Revenue Recognition
The Company derives its revenues from consulting services under time and
materials, capped-fee and fixed-price billing arrangements. Under time and
materials arrangements, revenues are recognized as the services are provided.
Revenues on fixed-price and capped-fee contracts are recognized using the
percentage of completion method of accounting and are adjusted monthly for the
cumulative impact of any revision in estimates. The Company determines the
percentage of completion of its contracts by comparing costs incurred to date to
total estimated costs. Contract costs include all direct labor and expenses
related to the contract performance. Costs and estimated earnings in excess of
billings represents revenues recognized in excess of amounts billed. Deferred
revenue represents billings in excess of revenues recognized. Net revenues
exclude reimbursable expenses charged to clients.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits
accounts. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Available-for-sale Investments
The Company's marketable equity securities are considered
available-for-sale investments and are carried in "Other assets" in the
accompanying consolidated balance sheet at market value, with the difference
between cost and market value, net of related tax effects, recorded in the
"Accumulated other comprehensive income" component of Consolidated Stockholders'
Equity. As of December 31, 1999, the market value of available-for-sale
investments was $1,307,000, an amount $224,000 more than the cost of such
investments. No such investments were outstanding as of December 31, 1998.
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>
<CAPTION>
<S> <C>
Furniture and fixtures........ 5-7 years
Equipment..................... 3-5 years
Software...................... 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the useful life of the property. Amortization of assets under capital leases is
included in depreciation.
Intangible and Other Long-lived 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 principally over 40
years for all other intangibles. Other long-lived assets include, among others,
investments in affiliates, certain available-for-sale investments and fixed
assets. The Company assesses the carrying value and future useful life of these
assets whenever events or changes in circumstances indicate that impairment may
have occurred or that the future life has diminished. The Company considers the
future undiscounted cash flows of the acquired companies in assessing the
recoverability of these assets. If impairment is indicated through this review,
the carrying amount of the intangible assets will be reduced to their respective
estimated fair values as determined based upon the best information available in
the circumstances. Such information likely would include a review of comparable
market prices of similar assets or businesses, if available, or an estimate of
fair value based upon the present value of estimated expected future cash flows.
Any impairment is charged to expense in the period in which the impairment is
incurred.
37
<PAGE> 41
Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on references
to similar instruments.
Concentration of Credit Risk
The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. During 1999 and 1998, no customer accounted for more
than 10% of net revenues. Sales to three significant customers accounted for
36%, 20% and 10% of net revenues during 1997.
Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates. Foreign currency transaction gains and losses are
included in the accompanying statement of operations and are not material for
all periods presented.
Basic and Diluted Earnings Per Common Share
The Company presents two earnings per share amounts, basic earnings per
common share and diluted earnings per common share. Basic earnings per common
share includes only the weighted average shares outstanding and excludes any
dilutive effects of options, warrants and convertible securities. The dilutive
effects of options, warrants and convertible securities are added to the
weighted average shares outstanding in computing diluted earnings per common
share. For the period ended December 31, 1998 and 1997, basic and diluted
earnings per common share are the same due to the antidilutive effect of
potential common shares outstanding.
Income Taxes
Effective December 31, 1998, as a result of the incorporation of Nextera
Enterprises, Inc., the Company became subject to income taxes. Deferred income
taxes are provided for temporary differences between the financial reporting and
the tax bases of assets and liabilities and are measured using enacted income
taxes and laws that will be in effect when temporary differences are expected to
reverse.
Nextera was treated as a partnership for federal and state income tax
purposes through December 31, 1998. Therefore, all items of income, expense, and
tax credit were passed through to the individual unit holders. Accordingly, no
provision for income taxes is required for Nextera prior to December 31, 1998.
Symmetrix and Pyramid, wholly-owned incorporated subsidiaries of the Company,
have been subject to income taxes.
Stock-Based Compensation and Other Equity Instruments
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
38
<PAGE> 42
The Company accounts for equity instruments issued to non-employees in
exchange for goods or services using the fair value method. Accordingly,
warrants issued to Knowledge Universe, Inc. in connection with an acquisition
(see Note 8) have been recorded at their fair value on the date of grant.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
SFAS 133 requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS 133, as
amended, is effective beginning in 2001. The adoption of SFAS 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
Presentation
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Equipment .......................... $ 7,578 $ 3,409
Software ........................... 1,981 923
Furniture and fixtures ............. 3,100 3,380
Leasehold improvements ............. 2,343 1,620
------ --------
15,002 9,332
Less: accumulated depreciation...... 4,415 1,276
------- -------
Property and equipment, net ........ $10,587 $ 8,056
======= =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Goodwill ............................. $156,542 $121,751
Intangibles related to personnel...... 5,958 5,308
-------- --------
162,500 127,059
Less: accumulated amortization ....... 6,700 1,977
-------- --------
Intangible assets, net ............... $155,800 $125,082
======== ========
</TABLE>
39
<PAGE> 43
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable ......... $ 4,097 $ 6,086
Accrued payroll and compensation 11,165 12,103
Accrued income taxes ........... 1,601 0
Other .......................... 2,649 1,979
------- -------
$19,512 $20,168
======= =======
</TABLE>
6. FINANCING ARRANGEMENTS
Bridge Loan Payable
In August 1998, the Company secured a $40,000,000 credit facility (the
"Bridge Loan"), which bore interest during 1998 at the rate of LIBOR plus 450
basis points per annum (10.2% at December 31, 1998). The Bridge Loan was secured
by substantially all of the Company's assets and contained certain restrictive
covenants, with which the Company was in compliance at December 31, 1998.
Effective December 31, 1998, the Bridge Loan was amended to increase the credit
facility to $77,500,000, to add Knowledge Universe, Inc. as a lender under the
credit facility and to extend the maturity to May 31, 1999. Borrowings under the
amended Bridge Loan bore interest at a rate of 12% and were repaid in full
during 1999.
Notes Payable to Bank
Prior to June 25, 1999, the Company and its subsidiaries had lines of
credit with banks which provided for an aggregate maximum borrowing capacity of
$11,000,000. Lines of credit with an aggregate maximum borrowing capacity of
$10,000,000 bore interest at rates ranging from prime (7.75% at December 31,
1998) plus 0.25% to prime plus 1%. The balance of the lines bore interest at the
commercial paper rate (approximately 4.8% at December 31, 1998) plus 3.15%.
Effective June 25, 1999, the Company consolidated its domestic notes
payable to banks into an interim discretionary demand credit agreement.
Borrowings under the discretionary demand credit agreement bore interest at the
banks base rate and were available for working capital and acquisition financing
purposes, with an aggregate limit of $30,000,000. All borrowing under the
discretionary demand credit facility were repaid on December 30, 1999 when the
facility was replaced with a Senior Credit Facility.
The Company has a Canadian line of credit which provides for maximum
borrowings of approximately $300,000. Borrowings under the line are payable on
demand and bear interest at Canadian prime plus 1%. As of December 31, 1999,
$248,000 was outstanding under the line.
LONG-TERM DEBT
Senior Credit Facility
Effective December 30, 1999, the Company entered into a Senior Credit
Facility which replaced and expanded the Company's previous discretionary demand
credit facility. The Senior Credit Facility, which matures on March 29, 2002,
provides for a $15 million revolving credit arrangement, intended for general
corporate purposes, and a $40 million revolving acquisition facility. The
revolving credit arrangement further contains a sublimit which provides for the
issuance of letters of credit in an amount which may not exceed $7.5 million.
Interest under the Senior Credit Facility is based, at the Company's election,
on the bank's base rate plus 0.25% to 1.50% or LIBOR plus 1.5% to 2.75%, with
the spread in either election determined by an overall measurement of total
indebtedness to trailing earnings, as defined in the agreement. The agreement
40
<PAGE> 44
also provides for a commitment fee on unused borrowings equal to 0.35% to 0.50%.
The Company incurred $1,050,000 of upfront fees and expenses in connection with
the establishment of the Senior Credit Facility, which will be amortized as
interest expense over the life of the facility.
The Senior Credit Facility contains covenants, with which the Company was
in compliance as of December 31, 1999, related to the maintenance of financial
ratios, operating restrictions and restrictions on the payment of dividends and
disposition of assets. As of December 31, 1999, total borrowings outstanding
under the Senior Credit Facility were $22,946,000, of which $5,000,000 was
outstanding under the revolving credit arrangement. Additionally, the Company
had outstanding letters of credit totaling $2.5 million under the revolving
credit arrangement.
Debentures Due to Affiliates
As a result of a 1998 recapitalization transaction (see Note 10 -
Recapitalization), the Company issued two debentures with principal amounts of
$24,970,000 and $23,000,000, respectively. Both debentures are due on May 1,
2002. The debentures accrue interest at a rate of 10% retroactive to the date
the initial capital was funded. Accordingly, for the year ended December 31,
1998, the Company incurred approximately $793,000 of interest expense pursuant
to the recapitalization related to the period ended December 31, 1997.
During 1999, the Company repaid $25,607,000 of principal and interest due
under the Debentures. Effective August 31, 1999, in accordance with the terms of
the Debenture, all unpaid interest then outstanding was converted to principal,
with interest accruing thereafter payable on a quarterly basis. As of December
31, 1999, accrued interest totaling $752,000 was outstanding. Principal amounts
due under the Debentures are subordinated to borrowings under the Senior Credit
Facility.
Other Long-term Debt
Other long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
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% ........................................... $ 828 $ 873
Promissory note payable to former stockholders of ERG, interest
at 5.0%, due January 1, 2001 ....................................... 2,460 0
Other ................................................................ 11 101
------ ------
3,299 974
Less: current portion ................................................ 48 101
------ ------
Long-term debt ....................................................... $3,251 $ 873
====== ======
</TABLE>
Annual maturities of other long-term debt for the years ending after
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000................... $ 48
2001................... 2,512
2002................... 57
2003................... 62
2004................... 67
2005 and thereafter.... 553
-------
$ 3,299
=======
</TABLE>
41
<PAGE> 45
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal ............................................... $ 1,308 $ 200 $ --
State ................................................. 347 43 --
------- ------- -------
Total current tax provision ................... 1,655 243 --
------- ------- -------
Deferred:
Federal ............................................... (2,158) -- 596
State ................................................. (381) -- 106
------- ------- -------
Total deferred tax provision (benefit)......... (2,539) -- 702
------- ------- -------
Total tax provision (benefit) ................. $ (884) $ 243 $ 702
======= ======= =======
</TABLE>
The reconciliation of the consolidated effective tax rate of the Company is
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C> <C>
Tax (benefit) at statutory rate ...................... 34% (34)% (34)%
State taxes (benefit), net of federal benefit......... (1) 0 (6)
Permanent differences ................................ 49 2 3
Loss treated as partnership flow-through for
tax purposes ....................................... 0 11 54
Valuation allowance adjustments ...................... (123) 20 0
Other ................................................ 0 2 13
------- ----- --
Income tax provision (benefit) ....................... (41)% 1% 30%
======= ===== ==
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves ......................... $ 2,861 $ 1,739
Other accrued liabilities ........ 1,737 2,491
Net operating loss carryforwards . 3,552 4,507
------- -------
Deferred tax assets ........... 8,150 8,737
Valuation allowance .............. 5,135 5,725
------- -------
3,015 3,012
Deferred tax liabilities:
Depreciation and other ........... (71) (71)
Deductible goodwill amortization . (1,141) (426)
Cash-to-accrual adjustments ...... (1,651) (2,515)
------- -------
Net deferred tax assets ..... $ 152 $ 0
======= =======
</TABLE>
Valuation allowances relate to uncertainties surrounding the realization of
tax loss carryforwards and the tax benefit attributable to certain tax assets of
the Company. Of the valuation allowances at December 31, 1999, $2,328,000 will
be used to reduce goodwill when any portion of the deferred tax asset is
recognized. During 1999, the decrease in the valuation allowance represented
primarily the benefit of certain previously reserved deferred tax assets because
the Company believes that the recovery of these assets is more likely than not
given the Company's achievement of pretax profitability in 1999.
42
<PAGE> 46
Offsetting this benefit in part was the establishment of a valuation allowance
for certain compensation related deferred tax assets as a result of uncertainty
surrounding their realization.
At December 31, 1999, the Company has tax net operating loss carryforwards
of approximately $8,879,000, which will expire through the year 2018. As a
result of ownership changes, net operating losses are subject to limitations
under the Internal Revenue Code.
8. RELATED PARTY TRANSACTIONS
The Company from time to time performs professional consulting services for
Knowledge Universe, L.L.C and certain of its subsidiaries. Revenues recognized
from performance of such services were $290,000, $1,632,000 and $225,000 in
1999, 1998 and 1997, respectively. During 1999, the Company recognized
$3,674,000 of revenue in connection with professional services performed for an
entity whose chairman, founder and Chief Executive Officer is a senior executive
of one of the Company's subsidiaries. A subsidiary of Knowledge Universe L.L.C.
is also a minority investor in the entity.
During 1999, the Company recognized revenues totaling $869,000 from certain
entities in which it made equity investments during 1999 (see Note 2 -
Available-for-sale Investments). Knowledge Universe L.L.C. or its subsidiaries
have also made equity investments in certain of these entities.
Management fees of $200,000, $120,000 and $90,000 in 1999, 1998 and 1997,
respectively, due to Knowledge Universe, Inc. were incurred. In addition, the
Company also incurred a supplemental management fee of $1,500,000 to Knowledge
Universe, Inc. for additional services rendered to the Company during 1998. No
management fees were incurred after April 1999.
The law firm of Maron & Sandler has served as Nextera's general counsel
since its inception. Stanley E. Maron and Richard V. Sandler, two of the
Company's Directors, are partners of Maron & Sandler. In 1999 and 1998, Maron &
Sandler billed Nextera approximately $650,000 and $473,000, respectively, for
legal services rendered to the Company. Services rendered in 1997 were
immaterial.
Since June 1997, Nextera has retained RFG Financial Group, Inc. to provide
accounting and financial services. Ralph Finerman, a Director, is President of
RFG Financial Group, Inc. In 1999 and 1998, the Company paid RFG Financial Group
approximately $20,000 and $13,000, respectively, for their services. Services
rendered in 1997 were immaterial.
In connection with a 1998 equity recapitalization, $47,970,000 was recorded
as debentures due to affiliates (see Note 10). In connection with the amendment
of the Bridge Loan during 1998, Knowledge Universe, Inc. provided a $37.5
million credit facility to the Company (see Note 6). During 1999, the Company
utilized a portion of the net proceeds that it received from its initial public
offering of Class A Common Stock to repay to Knowledge Universe, Inc.
$25,169,000 of principal and interest due under the Debentures and $38,499,000
of principal and interest due under the Bridge Loan.
As consideration for a guaranty provided by Knowledge Universe, Inc. in
connection with the Company's acquisition of Lexecon (see Note 1--Acquisitions),
the Company granted to Knowledge Universe, Inc. warrants to purchase 250,000
shares of Class A Common Stock at an exercise price of $8.00 share. The warrants
expire on December 31, 2003. The Company has included approximately $1,000,000,
the estimated fair value of the warrants, calculated using the Black-Scholes
model, as a component of its purchase price incurred in connection with the
Lexecon acquisition.
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, 1999 and 1998, the carrying amount was $0 and
$144,000, respectively, and was included in other assets on the consolidated
balance sheet.
43
<PAGE> 47
9. LEASES
The Company leases its office facilities under operating leases which
expire from 2001 to 2007. The majority of the leases require payments for
additional expenses such as taxes, maintenance and utilities. Certain of the
leases contain renewal options. The Company also has operating leases for
certain equipment. Total rent expense was approximately $5,828,000, $2,223,000
and $449,000, in 1999, 1998 and 1997, respectively. The Company also leases
certain equipment under capital leases.
Future minimum lease payments under capital leases and noncancelable
operating leases for the years ending after December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000 ..................................... $ 739 $ 5,924
2001 ..................................... 578 5,511
2002 ..................................... 165 4,231
2003 ..................................... 65 3,300
2004 ..................................... 30 2,741
2005 and thereafter ...................... 0 5,532
------- -------
Total minimum lease payments ..... 1,577 $27,239
Less amounts representing interest ....... (165) =======
-------
Present value of minimum capitalized lease
Payments .............................. 1,412
Current portion .......................... (642)
-------
Long-term capitalized lease obligation ... $ 770
=======
</TABLE>
10. STOCKHOLDERS' EQUITY
The Company's historical equity structure is described below. As of April
30, 1998, the Company amended and restated its capital structure (see
Recapitalization below). As of December 31, 1998, the Company converted from a
limited liability company to a "C" corporation.
Historical
As of December 31, 1997, the Company was authorized to issue two classes of
stock: Class A Common Stock and Class B Preferred Stock. Each Class A Common
stockholder had one vote per share of Class A Common Stock. The Class B
Preferred Stock was non-voting. At December 31, 1997, the Company had a warrant
outstanding to purchase 5,000,000 shares of Class A Common Stock at an exercise
price of $2.50 per share, with an expiration date of August 1, 2002 (the
"Warrant"). At any time after May 1, 2002, or upon the exercise of the Warrant,
the Class B Preferred stockholders have the right to require the Company to
redeem all of their Class B Preferred Stock for an amount equal to their
adjusted capital balances. The Class B Preferred Stock also had a liquidation
preference equal to their undistributed return, as defined in the amended and
restated operating agreement of the limited liability company. The Company had a
right to approve or disapprove any proposed transfer of stock.
Recapitalization
During the period from January 1, 1998 through April 30, 1998, $30,223,000
of additional capital was contributed, bringing the total contributed capital to
$49,970,000. As of April 30, 1998, the Company undertook a recapitalization,
which was unanimously approved by the stockholders of the Company. The net
result of the recapitalization was the redesignation of $47,970,000 of capital
as debentures.
Also, as part of the recapitalization, the stated value of the 10,000,000
Class A Common Stock was reduced to $0.20 per share from $2.50 per share.
Effective December 31, 1998, a par value of $0.001 per share was established for
Class A and Class B Common Stock.
44
<PAGE> 48
In addition, pursuant to the recapitalization, the Warrant to acquire
5,000,000 shares of Class A Common Stock was amended to provide that the shares
subject to the Warrant were changed to a new class of authorized Class B Common
Stock. The Class B Common Stock has the same economic characteristics as the
Class A Common Stock, except that each Class B Common stockholder has ten votes
per share of Class B Common Stock. The warrant was contributed to the Company in
exchange for 4,300,000 shares of Class B Common Stock on April 30, 1998.
Initial Public Offering of Class A Common Stock
On May 21, 1999, the Company completed its initial public offering of its
Class A Common Stock. The Company sold 11,500,000 shares of Class A Common Stock
and realized net proceeds of $103,027,000. Substantially all of these net
proceeds were used to repay a portion of the Company's then outstanding short-
and long-term debt.
Employee Equity Participation Plan
The Company has granted options principally under two stock option plans,
adopted in 1998 and 1999. Options granted under these plans have up to a 10 year
life and vest principally over three to four year periods, with certain options
subject to acceleration if certain conditions are achieved. The exercise price
of options granted is generally equal to the fair market value of the Company's
Class A common stock on the date of grant. As of December 31, 1999, the Company
had reserved 12,500,000 shares of common for future issuance under the stock
option plans, of which 2,190,630 were available for future grants.
A summary of stock option related transactions is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Granted ...................................... 450,000 $ 3.51
---------- --------
Outstanding options at December 31, 1997........ 450,000 3.51
Granted ...................................... 2,554,233 6.91
Forfeited .................................... (139,993) 6.06
---------- --------
Outstanding options at December 31, 1998........ 2,864,240 6.44
Granted ...................................... 8,484,573 8.27
Exercised .................................... (497,729) 6.47
Forfeited .................................... (457,683) 6.61
---------- --------
Outstanding options at December 31, 1999........ 10,393,401 $ 7.77
========== ========
</TABLE>
A summary of information about stock options outstanding as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED-AVERAGE NUMBER EXERCISE PRICE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE
<S> <C> <C> <C> <C> <C>
$ 0.50-$ 5.00 3,197,793 9.5 $ 4.60 775,514 $ 3.81
$ 5.01-$10.00 6,205,186 9.3 8.67 593,573 7.50
$10.01-$14.00 990,422 9.2 12.34 520,245 13.57
---------- ---------
10,393,401 $ 7.77 1,889,332 $ 7.66
========== =========
</TABLE>
45
<PAGE> 49
The Company has adopted the disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS 123,
applies Accounting Principles Board Opinion ("APB") No. 25 and related
interpretations in accounting for its plans. If the Company had adopted the
optional recognition provisions of SFAS 123 for its stock option plans, net
income (loss) and net income (loss) per common share would have been changed to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income (loss):
As reported ................ $ 3,065 $ (17,155)
Pro forma .................. (993) (17,627)
Net income (loss) per diluted
common share:
As reported ................ $ 0.10 $ (1.14)
Pro forma .................. $ (0.03) $ (1.18)
</TABLE>
The fair value of stock options used to compute pro forma net loss and net
loss per common share disclosure is the estimated fair value at grant date using
the Black-Scholes option pricing model assuming expected volatility of 65% and
55% in 1999 and 1998, respectively, and a risk free interest rate of 5.5% and
5.0% in 1999 and 1998, respectively and an expected life of approximately 10
years in both 1999 and 1998.
Adoption of the optional recognition provisions of SFAS 123 during 1997
would have had no effect on reported net loss and net loss per common share.
11. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The following table sets forth the reconciliation of the numerator and
denominator of the net income (loss) per common share computation:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26, 1997
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
Net income (loss) ............................ $ 3,065 $(17,155) $ (3,015)
======== ======== ========
Weighted average common
Shares outstanding ....................... 29,990 14,997 4,061
Dilutive Effect of Options
And Warrants .............................. 451 0 0
-------- -------- --------
Weighted average common
Shares outstanding ........................ 30,441 14,997 4,061
======== ======== ========
Basic net income (loss) per common
Share: ................................. $ 0.10 $ (1.14) $ (0.74)
======== ======== ========
Diluted net income (loss) per common
Share: ................................. $ 0.10 $ (1.14) $ (0.74)
======== ======== ========
</TABLE>
12. RETIREMENT SAVINGS PLANS
The Company and certain of its subsidiaries sponsor retirement savings
plans under Section 401(k) of the Internal Revenue Code for the benefit of all
of their employees meeting certain minimum service requirements. Eligible
employees may elect to contribute to the retirement plans subject to limitations
established by the Internal Revenue Code. The trustees of the plans select
investment opportunities from which participants may choose to contribute.
Matching contributions are made at the discretion of the Company and, for
certain plans, as a percentage of employee contributions. Total discretionary
and
46
<PAGE> 50
matching contribution expense under the plans were $3,107,000 and $1,839,000 in
1999 and 1998, respectively. There were no contributions in 1997.
13. SPECIAL CHARGES
Compensation Expense - Other
The Company granted to certain non-employee consultants options to purchase
445,245 of its Class A Common Stock at an exercise price of $14.00 per share in
1999. Such options were fully-vested upon grant. The Company recorded a non-cash
compensation expense of $4,384,000, which represented the estimated fair value
of the options calculated using the Black-Scholes model.
The Company recorded a non-cash compensation expense of $1,705,000,
principally representing the difference between the fair value of 197,760
fully-vested options granted in 1999 to certain non-stockholder employees on the
date of grant of $10.00 per share and the $1.50 exercise price of the options.
Such options were granted in final satisfaction of an agreement entered into in
December 1998 under which payments totaling $4,248,000 in cash and fully-vested
options to purchase 384,000 of Class A Common Stock at a purchase price of $1.50
per share were granted during 1998. The Company recorded $6,671,000 of charges
in 1998, which represented the cash paid plus the difference between the between
the fair value of options granted in 1998 on the date of grant of $7.65 per
share and the $1.50 exercise price of the options.
Restructuring and Other Charges
In November 1999, in connection with a change in senior management, the
Company implemented a plan to reduce its administrative staff, resulting in
severance costs of approximately $1,316,000. As of December 31, 1999, $798,000
was included in accounts payable and accrued expenses related to severance
costs.
During 1998, the Company recorded restructuring costs of $1,298,000 related
to the combination of Symmetrix and SiGMA resulting in the formation of Nextera
Business Performance Solutions Group. These restructuring costs consisted
principally of $603,000 of severance payments and terminating costs and $616,000
for vacated leased office space, net of estimated sublease income. As of
December 31, 1999, $332,000 was included in accounts payable and accrued
expenses related to unpaid restructuring costs.
14. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and
defend itself in any litigation which may arise from such claims. While the
ultimate outcome of these matters could affect the results of operations of any
one quarter or year when resolved in future periods, and while there can be no
assurance with respect thereto, management believes that after final
disposition, any financial impact to the Company would not be material to the
Company's financial position and results of operations or liquidity.
In connection with one of its available-for-sale investments (see Note 2 -
Available-for-sale Investments), the Company has an obligation to fund up to an
additional $179,000 in the event that the investee achieves certain milestones.
Additionally, in connection with another of its investments, the Company
received warrants to purchase additional equity securities which, if exercised,
would result in $111,000 of additional investment.
47
<PAGE> 51
15. QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
1999
- ----
Revenue $ 36,145 $ 36,519 $ 40,094 $ 43,197
Gross profit 15,633 16,049 17,339 19,099
Income (loss) before income (3,722) 3 3,343 2,557
taxes
Net income (loss) (3,722) 1 3,343 3,443
Net income (loss) per common share:
Basic $ (0.17) $ 0.00 $ 0.10 $ 0.10
Diluted $ (0.17) $ 0.00 $ 0.09 $ 0.10
1998
- ----
Revenue $ 8,186 $ 13,909 $ 17,486 $ 28,009
Gross profit 2,563 4,594 4,845 10,603
Income (loss) before income (2,114) (1,264) (5,515) (8,019)
taxes
Net income (loss) (2,239) (1,339) (5,515) (8,062)
Net income (loss) per common share:
Basic $ (0.21) $ (0.09) $ (0.30) $ (0.44)
Diluted $ (0.21) $ (0.09) $ (0.30) $ (0.44)
</TABLE>
16. SUBSEQUENT EVENT
Effective January 1, 2000, the Company acquired substantially all of the
assets and certain liabilities of Cambridge Economics, Inc. ("CEI"), a
Massachusetts-based consulting firm that provides strategic, economic and
business transformation and other services to a diverse group of domestic and
international clients. CEI was acquired for $8.4 million of cash and a $2.1
million promissory note payable June 30, 2002, subject to post-closing
adjustments.
48
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the sections headed
"Proposal 1--Election of Directors," "Executive Compensation," "Management" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive
Proxy Statement for the Annual Meeting of Stockholders of the Company (the
"Proxy Statement") which is expected to be filed not later than 120 days after
the end of our fiscal year ended December 31, 1999, and is incorporated in this
report by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the section headed
"Executive Compensation" in the Proxy Statement and is incorporated in this
report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the section headed
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated in this report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the section headed
"Certain Transactions" in the Proxy Statement and is incorporated in this report
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT AS EXHIBITS:
1. The following financial statements of and report of independent public
accountants are included in Item 8 of this Form 10-K:
- Report of Ernst & Young LLP, Independent Auditors
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statements of Stockholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
2. The following financial statement schedule is filed as part of this
report and is attached hereto:
Schedule II Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
<S> <C> <C>
3.1(1) Amended and Restated Certificate of Incorporation
3.2(1) Amended and Restated Bylaws
4.1(2) Form of Class A Common Stock Certificate
10.1(3) 1998 Equity Participation Plan
10.2(3) Nextera/Lexecon Limited Purpose Stock Option Plan
10.3(4) Stock Purchase Agreement dated as of July 30, 1997 by and among Nextera Enterprises,
L.L.C., Symmetrix, Inc. and the stockholders and certain option holders of
Symmetrix, Inc. listed on the signature pages thereto.
10.4(4) 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(4) 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.
10.6(5) 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.
10.7(4) 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.
10.8(4) 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.
10.9(4) First Amendment to Asset Purchase Agreement dated as of August 31, 1998 by and
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C> <C>
among SC/NE, LLC, Nextera Enterprises, L.L.C., Sibson &
Company, L.P., Sibson & Company, Inc. and SC2, Inc.
10.10(4) 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.
10.11(4) 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.
10.12(4) Escrow Agreement dated as of August 31, 1998 by and among Nextera Enterprises,
L.L.C., Sibson Acquisition Co., the shareholders of Sibson Canada Inc. listed on the
signature pages thereto and Chase Manhattan Trust Company.
10.13(4) 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.
10.14(4) Stockholders Agreement dated as of August 31, 1998 by and
among Nextera Enterprises, L.L.C., Nextera Enterprises,
Inc. and the individuals and other parties listed on the
Table of Stockholders attached thereto as Schedule A.
10.15(1) First Amendment to Stockholders Agreement dated as of December 15, 1998 by and among
Nextera Enterprises, L.L.C., Nextera Enterprises, Inc. and the individuals and other
parties listed on the signature pages thereto.
10.16(1) Letter dated December 15, 1998 from Nextera Enterprises, Inc. to certain
stockholders of Nextera Enterprises, Inc.
10.17(6) 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.
10.18(1) Letter agreement dated as of December 31, 1998 by and among Nextera Enterprises,
Inc., Knowledge Universe, Inc. and the individuals listed on the signature page
thereto.
10.19(6) Warrant to Purchase Class A Common Stock of Nextera Enterprises, Inc. dated as of
December 31, 1998 issued to Knowledge Universe, Inc.
10.20(6) Agreement relating to the sale and purchase of the whole of
the issued share capital of The Alexander Corporation
Limited dated as of January 29, 1999 by and among Nextera
Enterprises, Inc. and the parties listed on Schedule I
thereto.
10.21(6) Supplemental Deferred Consideration Agreement dated as of January 29, 1999 by and
among Nextera Enterprises, Inc., Graham Alexander and Arthur Morgan.
10.22(6) Loan Note Instrument dated as of January 29, 1999 of Nextera Enterprises, Inc.
10.23(6) Tax Deed of Covenant dated as of January 29, 1999 by and among Nextera Enterprises,
Inc. and the persons listed on the Schedule thereto.
10.24(6) Charge of Shares dated as of January 29, 1999 by the persons listed on Schedule I
thereto in favor of Nextera Enterprises, Inc.
10.25(1) Assignment effective April 30, 1998 with respect to Debenture of Nextera
Enterprises, L.L.C. in the principal amount of $23,000,000.
10.26(1) Assignment effective April 30, 1998 with respect to Debenture of Nextera
Enterprises, L.L.C. in the principal amount of $24,970,000.
10.27(1) Assignment effective August 5, 1998 with respect to Debenture of Nextera
Enterprises, L.L.C. in the principal amount of $23,000,000.
10.28(1) Assignment effective August 5, 1998 with respect to Debenture of Nextera
Enterprises, L.L.C. in the principal amount of $24,970,000.
10.29(6) Amended and Restated Debenture of Nextera Enterprises, Inc. in the principal amount
of $22,966,411.50 dated as of December 31, 1997.
10.30(7) First Amendment to Amended and Restated Debenture of Nextera Enterprises, Inc. dated
as of April 15, 1999.
10.31(6) Amended and Restated Debenture of Nextera Enterprises, Inc. in the principal amount
of $24,933,543.66 dated as of December 31, 1997.
10.32(7) First Amendment to Amended and Restated Debenture of Nextera Enterprises, Inc.
</TABLE>
50
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
dated as of April 15, 1999.
10.33(4) Employment Agreement dated as of March 3, 1997 by and between Education Technology
Holdings, L.L.C. and Gresham T. Brebach, Jr.
10.34(4) Employment Agreement dated as of April 1, 1997 by and between Nextera Enterprises
Holdings, L.L.C. and Ronald K. Bohlin.
10.35(4) Employment Agreement dated as of April 15, 1997 by and between Nextera Enterprises,
L.L.C. and Michael P. Muldowney.
10.36(7) Letter dated April 6, 1999 from Nextera Enterprises, Inc., to Michael P. Muldowney
amending terms of Employment Agreement.
10.37(4) Employment Agreement dated as of April 25, 1997 by and between Debra Bergevine and
Education Technology Holdings, L.L.C.
10.38(4) Employment Agreement dated as of August 31, 1998 by and between Roger Brossy and
SC/NE, LLC.
10.39(4) 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(6) Agreement dated as of December 31, 1998 by and between Lexecon Inc. and Andrew M.
Rosenfield.
10.41(6) Confidentiality and Proprietary Rights Agreement dated as of December 31, 1998
between Lexecon Inc. and Daniel R. Fischel.
10.42(6) Confidentiality and Proprietary Rights Agreement dated as of December 31, 1998
between Lexecon Inc. and Dennis W. Carlton.
10.43(8) Discretionary Demand Credit Agreement dated as of June, 25 1999 between Nextera
Enterprises, Inc. and BankBoston, N.A.
10.44(8) Demand Note dated June 25, 1999 of Nextera Enterprises, Inc. in favor of BankBoston,
N.A.
10.45(8) Guarantee and Security Agreement dated as of June 25, 1999 by and among Nextera
Enterprises, Inc., BankBoston, N.A. and the entities listed on the signature pages
thereto.
10.46(9) Credit Agreement dated as of December 30, 1999 by and among Nextera Enterprises,
Inc., BankBoston, N.A. and the entities listed on the signature pages thereto.
10.47(9) Guarantee and Security Agreement dated as of December 30, 1999 by and among Nextera
Enterprises, Inc., BankBoston, N.A. and the entities listed on the signature pages
thereto.
10.48(9) Separation and Release Agreement between Nextera Enterprises, Inc. and Gresham T.
Brebach, Jr.
10.49(9) Letter dated December 23, 1999 from Nextera Enterprises, Inc. to Debra Bergevine.
10.50(9) Letter dated December 31, 1999 from Nextera Enterprises, Inc. to Ronald K. Bohlin.
10.51(9) Non-Qualified Stock Option Agreement between Nextera Enterprises, Inc. and Steven B.
Fink.
10.52(4) 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.
10.53(4) 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.
10.54(4) Promissory Note of Debra Bergevine dated January 2, 1998 in the principal amount of
$62,000 in favor of Nextera Enterprises Holdings, L.L.C.
21.1(9) List of Subsidiaries
23.1(9) Consent of Ernst and Young LLP, Independent Auditors
27.1(9) Financial Data Schedule
</TABLE>
(1) Filed as an exhibit to Nextera's Amendment No. 2 to Registration Statement
on Form S-1 (File No. 333-63789) dated January 21, 1999, and incorporated herein
by reference.
(2) Filed as an exhibit to Nextera's Amendment No. 7 to Registration Statement
on Form S-1 (File No. 333-63789) dated May 17, 1999, and incorporated herein by
reference.
(3) Filed as an exhibit to Nextera's Amendment No. 6 to Registration Statement
on Form S-1 (File No. 333-63789) dated May 6, 1999, and incorporated herein by
reference.
51
<PAGE> 55
(4) Filed as an exhibit to Nextera's Registration Statement on Form S-1 (File
No. 333-63789) dated September 18, 1998, and incorporated herein by reference.
(5) Filed as an exhibit to Nextera's Pre-Effective Amendment No. 1 to
Registration Statement on Form S-1 (File No. 333-63789) dated December 4, 1998,
and incorporated herein by reference.
(6) Filed as an exhibit to Nextera's Amendment No. 3 to Registration Statement
on Form S-1 (File No. 333-63789) dated February 24, 1999, and incorporated
herein by reference.
(7) Filed as an exhibit to Nextera's Amendment No. 5 to Registration Statement
on Form S-1 (File No. 333-63789) dated April 16, 1999, and incorporated herein
by reference.
(8) Filed as an exhibit to Nextera's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by reference.
(9) Filed herewith.
(b) REPORTS ON FORM 8-K
On November 1, 1999, we filed a report on Form 8-K. A press release was
attached to the report announcing that Mr. Steven B. Fink had replaced Mr.
Gresham T. Brebach, Jr. as our Chairman and Chief Executive Officer. In
addition, we announced that our third quarter revenues and earnings were
expected to be within the range of analyst expectations.
52
<PAGE> 56
SCHEDULE II
NEXTERA ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD OPERATIONS ACQUISITIONS DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1997
Allowance for uncollectible
accounts .................... $ -- $ -- $ 100,000 $ -- $ 100,000
- -----------------------------------------------------------------------------------------------------------------------
Period ended December 31, 1998
Allowance for uncollectible
accounts .................... $ 100,000 $ 304,000 $ 863,000 $ -- $1,267,000
- -----------------------------------------------------------------------------------------------------------------------
Period ended December 31, 1999
Allowance for uncollectible
accounts .................... $1,267,000 $ 871,000 $ -- $1,185,000 $ 953,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Nextera Enterprises, Inc.
March 30, 2000
By: /s/ STEVEN B. FINK
------------------------------------
Steven B. Fink,
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN B. FINK Chief Executive Officer and March 30, 2000
- ---------------------------------------- Chairman of the Board of Directors
Steven B. Fink (Principal Executive Officer)
/s/ MICHAEL P. MULDOWNEY Chief Financial Officer March 30, 2000
- ---------------------------------------- (Principal Financial Officer and
Michael P. Muldowney Principal Accounting Officer)
/s/ MARC R. BENIOFF Director March 30, 2000
- ----------------------------------------
Marc R. Benioff
/s/ ROGER BROSSY Director March 30, 2000
- ----------------------------------------
Roger Brossy
/s/ JAMES K. BURNS Director March 30, 2000
- ----------------------------------------
James K. Burns
/s/ GREGORY J. CLARK Director March 30, 2000
- ----------------------------------------
Gregory J. Clark
/s/ RALPH FINERMAN Director March 30, 2000
- ----------------------------------------
Ralph Finerman
/s/ KEITH D. GRINSTEIN Director March 30, 2000
- ----------------------------------------
Keith D. Grinstein
/s/ STANLEY E. MARON Director March 30, 2000
- ----------------------------------------
Stanley E. Maron
/s/ MICHAEL D. ROSE Director March 30, 2000
- ----------------------------------------
Michael D. Rose
/s/ RICHARD V. SANDLER Director March 30, 2000
- ----------------------------------------
Richard V. Sandler
/s/ RICHARD L. SANDOR Director March 30, 2000
- ----------------------------------------
Richard L. Sandor
</TABLE>
50
<PAGE> 1
EXECUTION VERSION
EXHIBIT 10.46
================================================================================
NEXTERA ENTERPRISES, INC.
CREDIT AGREEMENT
Dated as of December 30, 1999
BANKBOSTON, N.A., Administrative Agent
----------------------
BANCBOSTON ROBERTSON STEPHENS INC.,
Co-Adviser, Co-Lead Arranger and Co-Book Manager
BANC OF AMERICA SECURITIES LLC,
Syndication Agent,
Co-Adviser, Co-Lead Arranger and Co-Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions; Certain Rules of Construction...............................................................1
2. The Credits.............................................................................................25
2.1. Revolving Credit...............................................................................25
2.1.1. Revolving Loan........................................................................25
2.1.2. Maximum Amount of Revolving Credit....................................................25
2.1.3. Borrowing Requests....................................................................26
2.1.4. Revolving Notes.......................................................................26
2.2. Acquisition Credit.............................................................................26
2.2.1. Acquisition Loan......................................................................26
2.2.2. Maximum Amount of Acquisition Credit..................................................27
2.2.3. Borrowing Requests. .................................................................27
2.2.4. Acquisition Notes.....................................................................28
2.3. Letters of Credit..............................................................................28
2.3.1. Issuance of Letters of Credit.........................................................28
2.3.2. Requests for Letters of Credit........................................................28
2.3.3. Form and Expiration of Letters of Credit..............................................29
2.3.4. Lenders' Participation in Letters of Credit...........................................29
2.3.5. Reimbursement of Payment..............................................................29
2.3.6. UCP; ISP..............................................................................29
2.3.7. Subrogation...........................................................................31
2.3.8. Modification, Consent, etc............................................................31
2.4. Application of Proceeds........................................................................31
2.4.1. Revolving Loan........................................................................31
2.4.2. Acquisition Loan......................................................................31
2.4.3. Letters of Credit.....................................................................32
2.4.4. Specifically Prohibited Applications..................................................32
2.5. Option to Extend Maturities of Credits.........................................................32
2.6. Settlement under the Cash Management Agreement.................................................32
3. Interest; LIBOR Pricing Options; Fees...................................................................33
3.1. Interest.......................................................................................33
3.2. LIBOR Pricing Options..........................................................................33
3.2.1. Election of LIBOR Pricing Options.....................................................33
3.2.2. Notice to Lenders and the Company.....................................................34
3.2.3. Selection of LIBOR Interest Periods...................................................34
3.2.4. Reimbursement of Breakage Costs.......................................................35
3.2.5. Violation of Legal Requirements.......................................................35
3.2.6. Funding Procedure.....................................................................36
3.3. Commitment Fees................................................................................36
3.3.1. Revolving Credit Commitment Fee.......................................................36
</TABLE>
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<TABLE>
<S> <C>
3.3.2. Acquisition Credit Commitment Fee.....................................................36
3.4. Letter of Credit Fees..........................................................................36
3.5. Changes in Circumstances; Yield Protection.....................................................37
3.5.1. Reserve Requirements, etc.............................................................37
3.5.2. Taxes.................................................................................37
3.5.3. Capital Adequacy......................................................................38
3.5.4. Regulatory Changes....................................................................38
3.5.5. Compensation Claims...................................................................38
3.5.6. Mitigation............................................................................39
3.6. Computations of Interest and Fees..............................................................39
4. Payment.................................................................................................39
4.1. Payment at Maturity............................................................................39
4.2. Contingent Required Prepayments................................................................39
4.2.1. Excess Credit Exposure................................................................39
4.2.2. Net Asset Sale Proceeds...............................................................40
4.2.3. Net Debt Proceeds.....................................................................40
4.2.4. Net Equity Proceeds...................................................................40
4.2.5. Cash Management Agreement.............................................................40
4.3. Voluntary Prepayments..........................................................................40
4.4. Letters of Credit..............................................................................40
4.5. Reborrowing; Application of Payments, etc......................................................41
4.5.1. Reborrowing...........................................................................41
4.5.2. Order of Application..................................................................41
4.5.3. Payments for Lenders..................................................................41
5. Conditions to Extending Credit..........................................................................41
5.1. Conditions on Initial Closing Date.............................................................41
5.1.1 . Notes.................................................................................42
5.1.2. Payment of Fees.......................................................................42
5.1.3. Legal Opinions........................................................................42
5.1.4. Guarantee and Security Agreement......................................................42
5.1.5. Perfection of Security................................................................42
5.1.6. Subordination Agreement...............................................................42
5.1.7. Solvency..............................................................................43
5.1.8. Termination of Prior Credit Agreement.................................................43
5.1.9. Proper Proceedings....................................................................43
5.1.10. General...............................................................................44
5.2. Conditions to Each Extension of Credit.........................................................44
5.2.1. Officer's Certificate.................................................................44
5.2.2. Legality, etc.........................................................................44
6. General Covenants.......................................................................................44
6.1. Taxes and Other Charges; Accounts Payable......................................................45
6.1.1. Taxes and Other Charges...............................................................45
6.1.2. Accounts Payable......................................................................45
</TABLE>
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<TABLE>
<S> <C>
6.2. Conduct of Business, etc.......................................................................45
6.2.1. Types of Business.....................................................................45
6.2.2. Maintenance of Properties.............................................................45
6.2.3. Statutory Compliance..................................................................46
6.2.4. Compliance with Material Agreements...................................................46
6.3. Insurance......................................................................................46
6.3.1. Business Interruption Insurance.......................................................46
6.3.2. Property Insurance....................................................................46
6.3.3. Liability Insurance...................................................................46
6.4. Financial Statements and Reports...............................................................47
6.4.1. Annual Reports........................................................................47
6.4.2. Quarterly Reports.....................................................................48
6.4.3. Monthly Reports.......................................................................49
6.4.4. Other Reports.........................................................................49
6.4.5. Notice of Litigation, Defaults, etc...................................................50
6.4.6. ERISA Reports.........................................................................50
6.4.7. Other Information.....................................................................51
6.5. Certain Financial Tests........................................................................51
6.5.1. Consolidated Total Debt to Consolidated Pro Forma EBITDA..............................51
6.5.2. Consolidated Pro Forma EBITDA Minus Capital Expenditures to
Consolidated Pro Forma Interest Expense ..............................................51
6.5.3. Quick Ratio...........................................................................51
6.5.4. Consolidated Adjusted Net Worth.......................................................52
6.6. Indebtedness...................................................................................52
6.7. Guarantees; Letters of Credit..................................................................53
6.8. Liens..........................................................................................53
6.9. Investments and Acquisitions...................................................................55
6.10. Distributions..................................................................................57
6.11. Asset Dispositions and Mergers.................................................................58
6.12. Issuance of Stock by Subsidiaries; Subsidiary Distributions....................................59
6.12.1. Issuance of Stock by Subsidiaries....................................................59
6.12.2. No Restrictions on Subsidiary Distributions..........................................59
6.13. Voluntary Prepayments of Other Indebtedness....................................................59
6.14. Derivative Contracts...........................................................................59
6.15. Negative Pledge Clauses........................................................................59
6.16. ERISA, etc.....................................................................................60
6.17. Transactions with Affiliates...................................................................60
6.18. Restricted Operations of Cranberry Hill Capital................................................60
7. Representations and Warranties..........................................................................60
7.1. Organization and Business......................................................................60
7.1.1. The Company...........................................................................60
7.1.2. Subsidiaries..........................................................................61
7.1.3. Qualification.........................................................................61
</TABLE>
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<TABLE>
<S> <C>
7.1.4. Capitalization........................................................................62
7.2. Financial Statements and Other Information; Material Agreements................................62
7.2.1. Financial Statements and Other Information............................................62
7.2.2. Material Agreements...................................................................63
7.3. Agreements Relating to Financing Debt, Investments, etc........................................63
7.4. Changes in Condition...........................................................................64
7.5. Title to Assets................................................................................64
7.6. Operations in Conformity With Law, etc.........................................................64
7.7. Litigation.....................................................................................64
7.8. Authorization and Enforceability...............................................................65
7.9. No Legal Obstacle to Agreements................................................................65
7.10. Defaults.......................................................................................66
7.11. Licenses, etc..................................................................................66
7.12. Tax Returns....................................................................................66
7.13. Certain Business Representations...............................................................66
7.13.1. Labor Relations.......................................................................66
7.13.2. Antitrust.............................................................................67
7.13.3. Year 2000 Issues......................................................................67
7.13.4. Future Expenditures...................................................................67
7.14. Pension Plans..................................................................................67
7.15. Environmental Regulations......................................................................67
7.15.1. Environmental Compliance..............................................................67
7.15.2. Environmental Condition of Properties.................................................68
7.16. Government Regulation; Margin Stock............................................................68
7.16.1. Government Regulation.................................................................68
7.16.2. Margin Stock..........................................................................68
7.17. Disclosure.....................................................................................68
8. Defaults................................................................................................68
8.1. Events of Default..............................................................................68
8.1.1. Payment...............................................................................68
8.1.2. Specified Covenants...................................................................69
8.1.3. Other Covenants.......................................................................69
8.1.4. Representations and Warranties........................................................69
8.1.5. Material Financing Debt Cross Default, etc............................................69
8.1.6. Ownership; Liquidation; etc...........................................................70
8.1.7. Enforceability, etc...................................................................70
8.1.8. Judgments.............................................................................71
8.1.9. ERISA.................................................................................71
8.1.10. Bankruptcy, etc.......................................................................71
8.2. Certain Actions Following an Event of Default..................................................72
8.2.1. Terminate Obligation to Extend Credit.................................................72
8.2.2. Specific Performance; Exercise of Rights..............................................72
8.2.3. Acceleration..........................................................................72
</TABLE>
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<TABLE>
<S> <C>
8.2.4. Enforcement of Payment; Credit Security; Setoff.......................................73
8.2.5. Cumulative Remedies...................................................................73
8.3. Annulment of Defaults..........................................................................73
8.4. Waivers........................................................................................73
9. Expenses; Indemnity.....................................................................................74
9.1. Expenses.......................................................................................74
9.2. General Indemnity..............................................................................74
9.3. Indemnity With Respect to Letters of Credit....................................................75
10. Operations; Agent.......................................................................................75
10.1. Interests in Credits...........................................................................75
10.2. Agent's Authority to Act, etc..................................................................75
10.3. Company to Pay Agent, etc......................................................................76
10.4. Lender Operations for Advances, Letters of Credit, etc.........................................76
10.4.1. Advances.............................................................................76
10.4.2. Letters of Credit....................................................................76
10.4.3. Agent to Allocate Payments, etc......................................................77
10.4.4. Nonperforming Lenders................................................................77
10.5. Sharing of Payments, etc.......................................................................78
10.6. Agent's Resignation............................................................................78
10.7. Concerning the Agent...........................................................................79
10.7.1. Action in Good Faith, etc............................................................79
10.7.2. No Implied Duties, etc...............................................................79
10.7.3. Validity, etc........................................................................79
10.7.4. Compliance...........................................................................80
10.7.5. Employment of Agents and Counsel.....................................................80
10.7.6. Reliance on Documents and Counsel....................................................80
10.7.7. Agent's Reimbursement................................................................80
10.8. Rights as a Lender.............................................................................80
10.9. Independent Credit Decision....................................................................81
10.10. Indemnification................................................................................81
11. Successors and Assigns; Lender Assignments and Participations...........................................81
11.1. Assignments by Lenders.........................................................................82
11.1.1. Assignees and Assignment Procedures..................................................82
11.1.2. Terms of Assignment and Acceptance...................................................83
11.1.3. Register.............................................................................84
11.1.4. Acceptance of Assignment and Assumption..............................................84
11.1.5. Federal Reserve Bank.................................................................84
11.1.6. Further Assurances...................................................................84
11.2. Credit Participants............................................................................85
11.3. Replacement of Lender..........................................................................85
12. Confidentiality.........................................................................................86
13. Foreign Lenders.........................................................................................87
14. Notices.................................................................................................88
</TABLE>
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<TABLE>
<S> <C>
15. Amendments, Consents, Waivers, etc......................................................................88
15.1. Lender Consents for Amendments.................................................................88
15.2. Course of Dealing; No Implied Waivers..........................................................90
16. General Provisions......................................................................................90
16.1. Defeasance.....................................................................................90
16.2. No Strict Construction.........................................................................91
16.3. Certain Obligor Acknowledgments................................................................91
16.4. Venue; Service of Process; Certain Waivers.....................................................91
16.5. WAIVER OF JURY TRIAL...........................................................................92
16.6. Interpretation; Governing Law; etc.............................................................92
</TABLE>
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EXHIBITS
2.1.4 - Revolving Note
2.2.4 - Acquisition Note
5.1.4 - Guarantee and Security Agreement
5.1.6 - Subordination Agreement
5.2.1 - Officer's Certificate
6.4. - Compliance Certificate
6.9.2 - Foreign Subsidiary Subordination Agreement
7.1 - Company and its Subsidiaries
7.2.2 - Material Agreements
7.3 - Financing Debt, Certain Investments, etc.
7.7 - Litigation
7.12 - Tax Matters
7.14 - Multi-employer and Defined Benefit Plans
7.15 - Hazardous Material Sites
7.16.2 - Margin Stock
10.1 - Percentage Interests
11.1.1 - Assignment and Acceptance
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<PAGE> 14
NEXTERA ENTERPRISES, INC.
CREDIT AGREEMENT
This Agreement, dated as of December 30, 1999, is among Nextera
Enterprises, Inc., a Delaware corporation, its Subsidiaries from time to time
party hereto, the Lenders from time to time party hereto and BankBoston, N.A.,
both in its capacity as a Lender and in its capacity as administrative agent for
the Lenders. The parties agree as follows:
RECITALS: Pursuant to this Agreement, the Lenders are extending to the
Company a $15,000,000 revolving credit facility, including a $7,500,000
sub-allotment for Letters of Credit, and a $40,000,000 revolving acquisition
facility. All the credit facilities mature on March 29, 2002. These credit
facilities are guaranteed by the Company's Domestic Subsidiaries and are secured
by liens on substantially all the assets of the Company and its Domestic
Subsidiaries (excluding Cranberry Hill Capital, LLC and 34% of the voting stock
of Foreign Subsidiaries owned by the Company and its Domestic Subsidiaries). The
proceeds of these credit facilities may be used to refinance existing
Indebtedness, to make certain acquisitions and for general corporate purposes,
each as provided herein.
1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Certain capitalized terms are
used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP, (f)
references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time in effect, (g) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
this Agreement and the other Credit Documents and (h) references to "Dollars" or
"$" mean United States Funds. References to "the date hereof" mean the date
first set forth above.
"ACCUMULATED BENEFIT OBLIGATIONS" means the actuarial present value of the
accumulated benefit obligations under any Plan, calculated in accordance with
Statement No. 87 of the Financial Accounting Standards Board.
"ACQUISITION LOAN" is defined in Section 2.2.4.
"ACQUISITION NOTES" is defined in Section 2.2.4.
"AFFECTED LENDER" is defined in Section 11.3.
<PAGE> 15
"AFFILIATE" means, with respect to the Company (or any other specified
Person), any other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with the Company (or such specified
Person), and shall include (a) any officer or director or general partner of the
Company (or such specified Person), (b) any Person of which the Company (or such
specified Person) or any Affiliate (as defined in clause (a) above) of the
Company (or such specified Person) shall, directly or indirectly, beneficially
own either (i) at least 10% of the outstanding equity securities having the
general power to vote or (ii) at least 10% of all equity interests or (c) any
Person directly or indirectly controlling the Company (or such specified Person)
through a management agreement, voting agreement or other contract.
"AGENT" means BankBoston in its capacity as administrative agent for the
Lenders hereunder, as well as its successors and assigns in such capacity
appointed pursuant to Section 10.6.
"AGREEMENT" means this Credit Agreement as from time to time amended,
modified and in effect.
"APPLICABLE MARGIN" means (a) from the Initial Closing Date through the
fifth Banking Day after which the Company delivers quarterly financial
statements in accordance with Section 6.4.2 for the fiscal quarter ending March
31, 2000, a percentage no lower than the percentage set forth below as Level I
and (b) on each day thereafter, the percentage in the table below set opposite
the Reference Leverage Ratio for such date:
<TABLE>
<CAPTION>
Base Rate LIBOR Commitment
Reference Leverage Ratio Applicable Margin Applicable Margin Fee Rate
------------------------ ----------------- ----------------- --------
<S> <C> <C> <C> <C>
I. Less than 3.00:1.00 but greater 1.50% 2.75% 0.50%
than or equal to 2.50:1.00
II. Less than 2.50:1.00 but greater 1.00 2.25 0.50
than or equal to 2.00:1.00
III. Less than 2.00:1.00 but greater 0.75 2.00 0.45
than or equal to 1.50:1.00
IV. Less than 1.50:1.00 but greater 0.50 1.75 0.40
than or equal to 1.00:1.00
V. Less than 1.00:1.00 0.25 1.50 0.35
</TABLE>
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Changes in the Applicable Margin shall occur on the fifth Banking Day after
quarterly financial statements have been furnished to the Agent in accordance
with Sections 6.4.1 or 6.4.2 from time to time. In the event that the financial
statements required to be delivered pursuant to Section 6.4.1 or 6.4.2, as
applicable, are not delivered when due, then during the period from the fifth
Banking Day following the date such financial statements were due until the
fifth Banking Day following the date on which they are actually delivered, the
Applicable Margin shall be the maximum amount set forth in the table above.
"APPLICABLE RATE" means, at any date, the sum of:
(a) (i) with respect to each portion of the Loan subject to a LIBOR
Pricing Option, the sum of the Applicable Margin (which may change
during the LIBOR Interest Period for such LIBOR Pricing Option in
accordance with the definition of "Applicable Margin") PLUS the LIBOR
Rate with respect to such LIBOR Pricing Option;
(ii) with respect to each other portion of the Loan, the sum of
the Applicable Margin PLUS the Base Rate;
PLUS (b) an additional 2% per annum effective on the day the Agent provides
written notice to the Company that the interest rates hereunder are
increasing as a result of the occurrence and continuance of an Event
of Default until the earlier of such time as (i) such Event of Default
is no longer continuing or (ii) such Event of Default is deemed no
longer to exist, in each case pursuant to Section 8.3.
"ASSIGNEE" is defined in Section 11.1.1.
"ASSIGNMENT AND ACCEPTANCE" is defined in Section 11.1.1.
"BANKBOSTON" means BankBoston, N.A.
"BANKING DAY" means any day other than Saturday, Sunday or a day on which
banks in Boston, Massachusetts are authorized or required by law or other
governmental action to close and, if such term is used with reference to a LIBOR
Pricing Option, any day on which dealings are effected in the LIBOR Deposits in
question by first-class banks in the inter-bank LIBOR markets in New York, New
York.
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"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BANKRUPTCY DEFAULT" means an Event of Default referred to in Section
8.1.10.
"BASE RATE" means, on any date, the greater of (a) the rate of interest
announced by BankBoston at the Boston Office as its Base Rate or (b) the sum of
1/2% PLus the Federal Funds Rate.
"BOSTON OFFICE" means the principal banking office of BankBoston in Boston,
Massachusetts.
"BY-LAWS" means all written by-laws, rules, regulations and all other
documents relating to the management, governance or internal regulation of any
Person other than an individual, all as from time to time in effect.
"CAPITAL EXPENDITURES" means, for any period, amounts added or required to
be added to the property, plant and equipment or other fixed assets account on
the Consolidated balance sheet of the Company and its Subsidiaries, prepared in
accordance with GAAP, including expenditures in respect of (a) the acquisition,
construction, improvement or replacement of land, buildings, machinery,
equipment, leaseholds and any other real or personal property, (b) to the extent
not included in clause (a) above, materials, contract labor and direct labor
relating thereto (excluding amounts properly expensed as repairs and maintenance
in accordance with GAAP) and (c) software development costs to the extent not
expensed; PROVIDED, HOWEVER, that Capital Expenditures shall not include (i) the
purchase price for the acquisition of another Person (or substantially all the
assets of another Person) as a going concern permitted by Section 6.9 or (ii)
expenditures made with the proceeds of condemnation awards or insurance claims.
"CAPITALIZED LEASE" means any lease which is required to be capitalized on
the balance sheet of the lessee in accordance with GAAP, including Statement
Nos. 13 and 98 of the Financial Accounting Standards Board.
"CAPITALIZED LEASE OBLIGATIONS" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.
"CASH EQUIVALENTS" means:
(1) negotiable certificates of deposit, time deposits (including
sweep accounts), demand deposits and bankers' acceptances having a maturity
of nine months
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<PAGE> 18
or less and issued by any United States financial institution having
capital and surplus and undivided profits aggregating at least $100,000,000
and rated at least Prime-1 by Moody's or A-1 by S&P or issued by any
Lender;
(2) corporate obligations having a maturity of nine months or less
and rated at least Prime-1 by Moody's or A-1 by S&P or issued by any
Lender;
(3) any direct obligation of the United States of America or any
agency or instrumentality thereof, or of any state or municipality thereof,
(i) which has a remaining maturity at the time of purchase of not more than
one year or which is subject to a repurchase agreement with any Lender (or
any other financial institution referred to in clause (a) above)
exercisable within one year from the time of purchase and (ii) which, in
the case of obligations of any state or municipality, is rated at least Aaa
by Moody's or AAA by S&P;
(4) any mutual fund or other pooled investment vehicle rated at least
Aa by Moody's or AA by S&P which invests principally in obligations
described above; and
(5) any Investment by a Foreign Subsidiary in its local jurisdiction
comparable to the items described above.
"CASH MANAGEMENT AGREEMENT" means any Cash Management Master Agreement
entered into between the Agent and the Company from time to time, as from time
to time in effect, including all schedules and addenda thereto, relating to cash
management, sweep account and other similar services provided by the Agent to
the Company to facilitate daily advances and repayments in connection with the
Company's operations and working capital requirements.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"CHARTER" means the articles of organization, certificate of incorporation,
statute, constitution, joint venture agreement, partnership agreement, trust
indenture, limited liability company agreement or other charter document of any
Person other than an individual, each as from time to time in effect.
"CLOSING DATE" means the Initial Closing Date and each other date on which
any extension of credit is made pursuant to Sections 2.1, 2.2 or 2.3.
"CODE" means the federal Internal Revenue Code of 1986.
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<PAGE> 19
"COMMITMENT" means, with respect to any Lender, such Lender's obligations
to extend the respective credits contemplated by Section 2 and its interests in
such credits at any time outstanding. The original Commitments are set forth in
Exhibit 10.1 and the subsequent Commitments are recorded from time to time in
the Register.
"COMMITMENT FEE RATE" means, at any date, the sum of (a) the rate per annum
equal to the Applicable Margin with respect to the Commitment Fee Rate PLUS (b)
an additional 2% per annum effective on the day the Agent provides written
notice to the Company that the interest rates hereunder are increasing as a
result of the occurrence and continuance of an Event of Default until the
earlier of such time as (i) such Event of Default is no longer continuing or
(ii) such Event of Default is deemed no longer to exist, in each case pursuant
to Section 8.3.
"COMPANY" means Nextera Enterprises, Inc., a Delaware corporation.
"COMPUTATION COVENANTS" means Sections 6.5, 6.6.7, 6.6.13, 6.9.5, 6.9.8,
6.10.2, 6.10.3, 6.11.6 and 6.11.7.
"CONSOLIDATED" and "CONSOLIDATING", when used with reference to any term,
mean that term as applied to the accounts of the Company (or other specified
Person) and all of its Subsidiaries (or other specified group of Persons), or
such of its Subsidiaries as may be specified, consolidated (or combined) or
consolidating (or combining), as the case may be, in accordance with GAAP and
with appropriate deductions for minority interests in Subsidiaries.
"CONSOLIDATED ADJUSTED POSITIVE CONSOLIDATED NET INCOME" means, for any
period, the amount, if any, by which the sum of Consolidated Net Income PLUS
Consolidated Adjustment Items exceeds zero.
"CONSOLIDATED ADJUSTED NET WORTH" means, at any date, the sum of
Consolidated Net Worth PLUS the cumulative amount of all Consolidated Adjustment
Items incurred after June 30, 1999.
"CONSOLIDATED ADJUSTMENT ITEMS" means, for any period, the remainder of the
following items (in each case net of the tax benefit or expense provided by each
item): (a) to the extent such amounts have reduced Consolidated Net Income for
such period (i) non-cash compensation charges associated with the issuance of
stock options or other equity instruments to employees or third parties; PLUS
(ii) non-cash charges associated with the write-off of in-process research and
development costs in connection with acquisitions consummated within 100 days of
such write-off; PLUS (iii) the non-cash portion of restructuring charges
incurred after June 30, 1999; MINUS (b) to the extent such amounts have not
reduced Consolidated Net Income for such period, the cash portion of
restructuring charges incurred after June 30, 1999 and paid during such period.
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"CONSOLIDATED CURRENT LIABILITIES" means, at any date, all amounts that are
or should be carried as current liabilities on the balance sheet of the Company
and its Subsidiaries determined in accordance with GAAP on a Consolidated basis,
including the current portion of all long-term Financing Debt.
"CONSOLIDATED EBITDA" means, for any period, the total of:
(a) Consolidated Net Income;
PLUS (b) all amounts deducted in computing such Consolidated Net Income in
respect of:
(1) depreciation, amortization and other non-cash charges
(including non-cash transaction charges related to acquisitions
permitted by Section 6.9),
(2) interest expense,
(3) taxes based upon or measured by net income,
(4) non-recurring cash transaction costs related to acquisitions
permitted by Section 6.9 and
(5) management fees charged by Knowledge Universe for periods
ending prior to May 19, 1999;
MINUS (c) all cash payments made during such period on account of reserves,
restructuring charges and other non-cash charges deducted from Consolidated
Net Income in a previous period;
MINUS (d) all amounts included in Consolidated Net Income in respect of
deferred income tax benefits and other non-cash income items (other than
accounts receivable and other normal current accrued income items in the
ordinary course of business).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total of:
(a) the aggregate amount of interest, including commitment fees and
other financing fees and costs, payments in the nature of interest under
Capitalized Leases and net payments under Hedge Agreements, accrued by the
Company and its Subsidiaries (whether such interest is reflected as an item
of expense or capitalized) in accordance with GAAP on a Consolidated basis,
-7-
<PAGE> 21
MINUS (b) to the extent otherwise included in clause (a) above, the
amortization of deferred financing fees and costs, original issue discount
relating to Indebtedness and accrued interest on Indebtedness not paid in
cash to the extent permitted by the terms, including subordination terms,
of such Indebtedness (including PIK Interest),
PLUS (c) actual cash payments with respect to accrued and unpaid interest
(including PIK Interest) that has previously reduced Consolidated Interest
Expense pursuant to clause (b) above,
MINUS (d) interest paid on the Debentures and bridge financing Indebtedness
at the closing of the initial underwritten public offering of the Company's
stock.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of the Company and its Subsidiaries, determined in accordance with GAAP on a
Consolidated basis; PROVIDED, HOWEVER, that Consolidated Net Income shall not
include:
(a) the income (or loss) of any Person accrued prior to the date such
Person becomes a Subsidiary or is merged into or consolidated with the
Company or any of its Subsidiaries;
(b) the income (or loss) of any Person (other than a Subsidiary) in
which the Company or any of its Subsidiaries has an ownership interest;
PROVIDED, HOWEVER, that (i) Consolidated Net Income shall include amounts
in respect of the income of such Person when actually received in cash by
the Company or such Subsidiary in the form of dividends or similar
Distributions and (ii) Consolidated Net Income shall be reduced by the
aggregate amount of all Investments, regardless of the form thereof, made
by the Company or any of its Subsidiaries in such Person for the purpose of
funding any deficit or loss of such Person;
(c) all amounts included in computing such net income (or loss) in
respect of (i) the write-up of any asset on or after June 30, 1999 or (ii)
the retirement of any Indebtedness or equity at less than face value after
June 30, 1999;
(d) extraordinary and nonrecurring gains or losses;
(e) the income of any Subsidiary to the extent the payment of such
income in the form of a Distribution or repayment of Indebtedness to the
Company or a Wholly Owned Subsidiary is not permitted, whether on account
of any Charter or By-law restriction, any agreement, instrument, deed or
lease or any law, statute, judgment, decree or governmental order, rule or
regulation applicable to such Subsidiary; and
(6) any after-tax gains or losses attributable to returned surplus
assets of any Plan.
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"CONSOLIDATED NET WORTH" means, at any date, the total of:
(a) stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP on a Consolidated basis, excluding the
effect of any foreign currency translation adjustments;
MINUS (b) the amount by which such stockholders' equity has been increased
after June 30, 1999 by the items excluded from Consolidated Net Income
pursuant to clauses (a) through (f) of the definition of Consolidated Net
Income;
MINUS (c) to the extent not already deducted from the amount in clause (a)
above, (i) treasury stock, (ii) receivables due from an employee stock
ownership plan and (iii) Guarantees of Indebtedness incurred by an employee
stock ownership plan.
"CONSOLIDATED PRO FORMA EBITDA" means, for any period, the sum of:
(a) Consolidated EBITDA;
PLUS (b) in the event during such period the Company or any of its
Subsidiaries makes an acquisition permitted by Section 6.9 (whether by
stock purchase, asset purchase, merger, consolidation or otherwise),
Consolidated EBITDA of such acquired Person (or acquired assets) accrued
during such period prior to the date of such acquisition; PROVIDED, in
determining the Consolidated EBITDA of such acquired Person (or acquired
assets) for such period, such Consolidated EBITDA will be adjusted as
follows: actions taken or anticipated to be taken by the Company and/or its
Subsidiaries prior to the first anniversary of the related acquisition date
(such as changes in compensation and other Affiliate payments) that result
in a cost savings with respect to such acquired Person (or acquired assets)
will be deemed to have been taken on the first day of such period for which
Consolidated EBITDA is being determined (with the intent that such cost
savings be effectively annualized by extrapolation from the demonstrated or
anticipated cost savings since the related acquisition date). Such
adjustments in such Consolidated EBITDA will be subject to the approval of
the Required Lenders, such approval not to be unreasonably withheld; and
MINUS (c) in the event during such period the Company or any of its
Subsidiaries disposes of any assets permitted by Section 6.11 (whether by
sale, merger, consolidation or otherwise), Consolidated EBITDA of such
disposed assets accrued during such period prior to the date of such
disposition.
"CONSOLIDATED PRO FORMA INTEREST EXPENSE" means, for any period, the sum
of:
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(a) Consolidated Interest Expense;
PLUS (b) in the event the Company or any of its Subsidiaries makes an
acquisition during such period, Consolidated Interest Expense deemed to
accrue on Indebtedness assumed or incurred as a result of such acquisition
from the beginning of such period to the date of such acquisition, which
deemed Consolidated Interest Expense shall be calculated by assuming that
(i) any Indebtedness assumed or incurred as a result of such acquisition
was assumed or incurred on the first day of such period and (ii) the
interest rate applicable to such Indebtedness prior to such acquisition was
the same as the interest rate applicable to such Indebtedness on the date
of such acquisition;
MINUS (c) in the event the Company or any of its Subsidiaries disposes of
any assets permitted by Section 6.11 (other than Sections 6.11.1 through
6.11.6) during such period, Consolidated Interest Expense accrued on any
Indebtedness repaid as a result of such disposition.
"CONSOLIDATED TOTAL DEBT" means, at any date, all Financing Debt of the
Company and its Subsidiaries on a Consolidated basis.
"CRANBERRY HILL CAPITAL" means Cranberry Hill Capital, LLC, a Delaware
limited liability company of which Nextera Business Performance Solutions, Inc.
is the sole member.
"CREDIT DOCUMENTS" means:
(a) this Agreement, the Notes, each Letter of Credit, each draft
presented or accepted under a Letter of Credit, the Guarantee and Security
Agreement, the Cash Management Agreement, the Subordination Agreement, the
fee agreement contemplated by Section 5.1.2 and each Hedge Agreement
provided by a Lender (or an Affiliate of a Lender) to the Company or any of
its Subsidiaries, each as from time to time in effect; and
(b) any other present or future agreement or instrument from time to
time entered into among the Company, any of its Subsidiaries or any other
Obligor, on one hand, and the Agent, any Letter of Credit Issuer or all the
Lenders, on the other hand, relating to, amending or modifying this
Agreement or any other Credit Document referred to above or which is stated
to be a Credit Document, each as from time to time in effect.
"CREDIT OBLIGATIONS" means all present and future liabilities, obligations
and Indebtedness of the Company, any of its Subsidiaries or any other Obligor
owing to the Agent or any Lender (or any Affiliate of a Lender) under or in
connection with this Agreement or any other Credit Document, including
obligations in respect of principal, interest, reimbursement
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obligations under Letters of Credit and Hedge Agreements provided by a Lender
(or an Affiliate of a Lender), commitment fees, Letter of Credit fees, amounts
provided for in Sections 3.2.4, 3.5 and 9 and other fees, charges, indemnities
and expenses from time to time owing hereunder or under any other Credit
Document (all whether accruing before or after a Bankruptcy Default and
regardless of whether allowed as a claim in bankruptcy or similar proceedings).
"CREDIT PARTICIPANT" is defined in Section 11.2.
"CREDIT REALLOCATION" means the election by the Company, upon seven Banking
Days prior written notice to the Agent at a time when no Default exists,
irrevocably to transfer unused availability from the revolving credit facility
in Section 2.1 to the acquisition credit facility in Section 2.2 (or from such
acquisition facility to such revolving credit facility); PROVIDED, HOWEVER, that
no more than $5,000,000 of unused availability may be transferred between such
credit facilities at any one time, and in no event shall such a transfer occur
more than twice in any year.
"CREDIT SECURITY" means all assets now or from time to time hereafter
subjected to a security interest, mortgage or charge (or intended or required so
to be subjected pursuant to the Guarantee and Security Agreement or any other
Credit Document) to secure the payment or performance of any of the Credit
Obligations on a pari passu basis, including the assets described in section 3.1
of the Guarantee and Security Agreement.
"CURRENCY EXCHANGE AGREEMENT" means any currency swap, foreign exchange
contract or similar arrangement providing for protection against fluctuations in
currency exchange rates, either generally or under specific contingencies.
"DEBENTURES" means the various debentures owed by the Company to certain
individuals and affiliates of Knowledge Enterprises, in the aggregate principal
amount of $30,001,000 as of the date hereof, all as amended and modified through
the date hereof and previously furnished to the Agent, with such subsequent
amendments and modifications as are entered into in accordance with Section
6.2.4.
"DEFAULT" means any Event of Default and any event or condition which with
the passage of time or giving of notice, or both, would become an Event of
Default, including the filing against the Company, any of its Subsidiaries or
any other Obligor of a petition commencing an involuntary case under the
Bankruptcy Code.
"DELINQUENCY PERIOD" is defined in Section 10.4.4.
"DELINQUENT PAYMENT" is defined in Section 10.4.4.
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"DISTRIBUTION" means, with respect to the Company (or other specified
Person):
(a) the declaration or payment of any dividend or distribution on or
in respect of any shares of any class of capital stock of or other equity
interests in the Company (or such specified Person);
(b) the purchase, redemption or other retirement for value of any
shares of any class of capital stock of or other equity interest in the
Company (or such specified Person) or any of its Subsidiaries, or of
options, warrants or other rights for the purchase of such shares,
directly, indirectly through a Subsidiary or corporate parent or otherwise;
(c) any other distribution on or in respect of any shares of any class
of capital stock of or equity or other beneficial interest in the Company
(or such specified Person);
(d) any payment of principal or interest with respect to, or any
purchase, redemption or defeasance of, any Financing Debt of the Company
(or such specified Person) or any of its Subsidiaries which by its terms or
the terms of any agreement is subordinated to the payment of the Credit
Obligations; and
(e) any payment, loan or advance by the Company (or such specified
Person) to, or any other Investment by the Company (or such specified
Person) in, the holder of any shares of any class of capital stock of or
equity interest in the Company (or such specified Person) or any of its
Subsidiaries, or any Affiliate of such holder (including the payment of
management and transaction fees and expenses);
PROVIDED, HOWEVER, that the term "Distribution" shall not include (i) dividends
payable in perpetual common stock of or other similar equity interests in the
Company (or such specified Person) or (ii) payments in the ordinary course of
business in respect of (A) reasonable compensation paid to employees, officers
and directors, (B) advances and reimbursements to employees for travel expenses,
drawing accounts, relocation costs and similar expenditures or (C) payments or
accounts payable, in each case for services rendered or goods sold by,
non-Affiliates that own capital stock of or other equity interests in the
Company (or such specified Person) or any of its Subsidiaries.
"DOMESTIC SUBSIDIARY" means any Subsidiary that is not a Foreign
Subsidiary.
"ELIGIBLE ASSIGNEE" means (a) a Lender, (b) an Affiliate of a Lender, (c) a
Related Fund and (d) subject to the prior approval of the Agent and, so long as
no Event of Default shall have occurred and be continuing, the Company, such
approval by the Agent and the Company not to be unreasonably withheld or
delayed:
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(i) a commercial bank organized under the laws of the United States of
America, or any state thereof, and having total assets in excess of
$500,000,000;
(ii) a savings and loan association or savings bank organized under
the laws of the United States of America, or any state thereof, and having
total assets in excess of $500,000,000;
(iii) a commercial bank organized under the laws of any other country
that is a member of the Organization for Economic Cooperation and
Development or has concluded special lending arrangements with the
International Monetary Fund associated with its General Arrangements to
Borrow or of the Cayman Islands, or a political subdivision of any such
country, and having total assets in excess of $500,000,000, so long as such
bank is acting through a branch or agency located in the United States of
America;
(iv) the central bank of any country that is a member of the
Organization for Economic Cooperation and Development; and
(v) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other
entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having total
assets in excess of $500,000,000;
PROVIDED, HOWEVER, that (A) no Person shall qualify as an Eligible Assignee with
respect to assignments of obligations or Commitments in connection with Letters
of Credit unless such Person qualifies under clauses (d)(i) or (d)(iii) above
and (B) no Obligor or Affiliate of an Obligor shall qualify as an Eligible
Assignee under any circumstances.
"ENVIRONMENTAL LAWS" means all applicable federal, state or local statutes,
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment, including the federal Occupational Health and
Safety Act.
"ERISA" means the federal Employee Retirement Income Security Act of 1974.
"ERISA GROUP PERSON" means the Company, any of its Subsidiaries and any
Person which is a member of the controlled group or under common control with
the Company or any of its Subsidiaries within the meaning of section 414 of the
Code or section 4001(a)(14) of ERISA.
"EVENT OF DEFAULT" is defined in Section 8.1.
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<PAGE> 27
"EXCHANGE ACT" means the federal Securities Exchange Act of 1934.
"FEDERAL FUNDS RATE" means, for any day, the rate equal to the weighted
average (rounded upward to the nearest 1/16%) of (a) the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as such weighted average is published for such day
(or, if such day is not a Banking Day, for the immediately preceding Banking
Day) by the Federal Reserve Bank of New York or (b) if such rate is not so
published for such Banking Day, quotations received by the Agent from three
federal funds brokers of recognized standing selected by the Agent. Each
determination by the Agent of the Federal Funds Rate shall, in the absence of
manifest error, be conclusive.
"FINANCIAL OFFICER" of the Company (or other specified Person) means its
chief executive officer, chief financial officer, chief operating officer,
chairman, president, treasurer, controller or any of its vice presidents whose
primary responsibility is for its financial affairs, in each case whose
incumbency and signatures have been certified to the Agent by the secretary or
other appropriate attesting officer of the Company (or such specified Person).
"FINANCING DEBT" means each of the items described in clauses (a) through
(f) of the definition of the term "Indebtedness" and, without duplication, any
Guarantees of such items.
"FOREIGN SUBSIDIARY" means each Subsidiary that is organized under the laws
of, and conducting its business primarily in a jurisdiction outside of, the
United States of America and that is not domesticated or dually incorporated
under the laws of the United States of America or the states thereof.
"FUNDING LIABILITY" means (a) any LIBOR Deposit which was used (or deemed
by Section 3.2.6 to have been used) to fund any portion of the Loan subject to a
LIBOR Pricing Option, and (b) any portion of the Loan subject to a LIBOR Pricing
Option funded (or deemed by Section 3.2.6 to have been funded) with the proceeds
of any such LIBOR Deposit.
"GAAP" means generally accepted accounting principles as from time to time
in effect, including the statements and interpretations of the United States
Financial Accounting Standards Board; PROVIDED, HOWEVER, that (a) for purposes
of compliance with Section 6 (other than Section 6.4) and the related
definitions, "GAAP" means such principles as in effect on December 31, 1998 as
applied by the Company and its Subsidiaries in the preparation of the most
recent annual statements referred to in Section 7.2.1(a), and consistently
followed, without giving effect to any subsequent changes thereto and (b) in the
event of a change in generally accepted accounting principles after such date,
either the Company or the Required Lenders may request a change in the
definition of "GAAP", in which case the parties hereto
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<PAGE> 28
shall negotiate in good faith with respect to an amendment of this Agreement
implementing such change.
"GUARANTEE" means, with respect to the Company (or other specified Person):
(a) any guarantee by the Company (or such specified Person) of the
payment or performance of, or any contingent obligation by the Company (or
such specified Person) in respect of, any Indebtedness or other obligation
of any primary obligor;
(b) any other arrangement whereby credit is extended to a primary
obligor on the basis of any promise or undertaking of the Company (or such
specified Person), including any binding "comfort letter" or "keep well
agreement" written by the Company (or such specified Person), to a creditor
or prospective creditor of such primary obligor, to (i) pay the
Indebtedness of such primary obligor, (ii) purchase an obligation owed by
such primary obligor, (iii) pay for the purchase or lease of assets or
services regardless of the actual delivery thereof or (iv) maintain the
capital, working capital, solvency or general financial condition of such
primary obligor;
(c) any liability of the Company (or such specified Person), as a
general partner of a partnership in respect of Indebtedness or other
obligations of such partnership;
(d) any liability of the Company (or such specified Person) as a joint
venturer of a joint venture in respect of Indebtedness or other obligations
of such joint venture;
(e) any liability of the Company (or such specified Person) with
respect to the tax liability of others as a member of a group (other than a
group consisting solely of the Company and its Subsidiaries) that is
consolidated for tax purposes; and
(f) reimbursement obligations, whether contingent or matured, of the
Company (or such specified Person) with respect to letters of credit,
bankers acceptances, surety bonds, other financial guarantees and Hedge
Agreements,
in each case whether or not any of the foregoing are reflected on the balance
sheet of the Company (or such specified Person) or in a footnote thereto;
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee shall be
the maximum amount that the guarantor may become obligated to pay in respect of
the obligations (whether or not such obligations are outstanding at the time of
computation).
"GUARANTEE AND SECURITY AGREEMENT" is defined in Section 5.1.4.
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<PAGE> 29
"GUARANTOR" means each of the Company's Subsidiaries party to, or which
subsequently becomes party to, the Guarantee and Security Agreement as a
Guarantor.
"HAZARDOUS MATERIAL" means any pollutant, toxic or hazardous material or
waste, including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of CERCLA or any other Environmental Law or regulated
as toxic or hazardous under RCRA or any other Environmental Law.
"HEDGE AGREEMENTS" means, collectively, Currency Exchange Agreements and
Interest Rate Protection Agreements.
"IMMATERIAL SUBSIDIARY" means any Subsidiary whose assets (at fair market
value) do not exceed $100,000 and in which the net Investment of the Company and
its Subsidiaries is less than $100,000.
"INDEBTEDNESS" means all obligations, contingent or otherwise, which in
accordance with GAAP are required to be classified upon the balance sheet of the
Company (or other specified Person) as liabilities, but in any event including
(without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) the deferred cash purchase price of assets, services or
securities, including related noncompetition, consulting and stock
repurchase obligations (other than ordinary trade accounts payable within
six months after the incurrence thereof in the ordinary course of
business);
(e) mandatory redemption or dividend rights on capital stock (or other
equity);
(f) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers acceptances, surety bonds, other
financial guarantees and Hedge Agreements (without duplication of other
Indebtedness supported or guaranteed thereby);
(g) unfunded pension liabilities;
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<PAGE> 30
(h) obligations that are immediately and directly due and payable out
of the proceeds of or production from property;
(i) liabilities secured by any Lien existing on property owned or
acquired by the Company (or such specified Person), whether or not the
liability secured thereby shall have been assumed; and
(j) all Guarantees in respect of Indebtedness of others.
"INDEMNIFIED PARTY" is defined in Section 9.2.
"INITIAL CLOSING DATE" means December 30, 1999 or such other date prior to
January 1, 2000 agreed to by the Company and the Agent as the first Closing Date
hereunder.
"INTEREST RATE PROTECTION AGREEMENT" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that converts
variable interest rates into fixed interest rates, fixed interest rates into
variable interest rates or other similar arrangements.
"INVESTMENT" means, with respect to the Company (or other specified
Person):
(a) any share of capital stock, partnership or other equity interest,
evidence of Indebtedness or other security issued by any other Person;
(b) any loan, advance or extension of credit to, or contribution to
the capital of, any other Person;
(c) any Guarantee of the obligations of any other Person;
(d) any acquisition of all, or any division or similar operating unit
of, the business of any other Person or the assets comprising such
business, division or unit; and
(e) any other similar investment.
The investments described in the foregoing clauses (a) through (e) shall be
included in the term "Investment" whether they are made or acquired by purchase,
exchange, issuance of stock or other securities, merger, reorganization or any
other method; PROVIDED, HOWEVER, that the term "Investment" shall not include
(i) trade and customer accounts receivable for property leased, goods furnished
or services rendered in the ordinary course of business and payable within one
year in accordance with customary trade terms, (ii) deposits, advances or
prepayments to suppliers for property leased or licensed, goods furnished and
services rendered in the ordinary course of business, (iii) advances to
employees for relocation and
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travel expenses, drawing accounts and similar expenditures, (iv) stock or other
securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims or accounts receivable due to the Company (or such
specified Person) or as security for any such Indebtedness or claim or (v)
demand deposits in banks or similar financial institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost thereof MINUS any
returns of capital in cash on such Investment (determined in accordance
with GAAP without regard to amounts realized as income on such Investment);
(B) the amount of any Investment in respect of a purchase described in
clause (d) above shall include the amount of any Financing Debt assumed in
connection with such purchase or secured by any asset acquired in such
purchase (whether or not any Financing Debt is assumed) or for which any
Person that becomes a Subsidiary is liable on the date on which the
securities of such Person are acquired; and
(C) no Investment shall be increased as the result of an increase in
the undistributed retained earnings of the Person in which the Investment
was made or decreased as a result of an equity interest in the losses of
such Person.
"ISP" is defined in Section 2.3.6.
"KNOWLEDGE ENTERPRISES" means Knowledge Enterprises, Inc., a Delaware
corporation.
"LEGAL REQUIREMENT" means any present or future requirement imposed upon
any of the Lenders or the Company and its Subsidiaries by any law, statute,
rule, regulation, directive, order, decree or guideline (or any interpretation
thereof by courts or of administrative bodies) of the United States of America,
or any jurisdiction in which any LIBOR Office is located or any state or
political subdivision of any of the foregoing, or by any board, governmental or
administrative agency, central bank or monetary authority of the United States
of America, any jurisdiction in which any LIBOR Office is located or where the
Company or any of its Subsidiaries owns property or conducts its business, or
any political subdivision of any of the foregoing. Any such law, statute, rule,
regulation, directive, order, decree, guideline or interpretation imposed on any
of the Lenders not having the force of law shall be deemed to be a Legal
Requirement for purposes of Section 3 if such Lender reasonably believes that
compliance therewith is customary commercial practice.
"LENDER" means each of the Persons listed as lenders on the signature page
hereto, including BankBoston and Bank of America, N.A., each in its capacity as
a Lender and such other Persons who may from time to time own a Percentage
Interest in the Credit Obligations, but the term "Lender" shall not include any
Credit Participant.
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"LENDING OFFICER" means such individuals whom the Agent may designate by
notice to the Company from time to time as an officer or employee who may
receive telephone requests for extensions of credit under Sections 2.1.3 and
2.3.2.
"LETTER OF CREDIT" is defined in Section 2.3.1.
"LETTER OF CREDIT EXPOSURE" means, at any date, the sum of (a) the
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, PLUS (b) the
aggregate face amount of all drafts that the Letter of Credit Issuer has
previously accepted under Letters of Credit but has not paid.
"LETTER OF CREDIT ISSUER" means, for any Letter of Credit, BankBoston or,
in the event BankBoston does not for any reason issue a requested Letter of
Credit, another Lender selected by the Company to issue such Letter of Credit.
"LIBOR BASIC RATE" means, for any LIBOR Interest Period, the rate of
interest at which LIBOR Deposits which have a term corresponding to such LIBOR
Interest Period are offered to the Agent by first class banks in the inter-bank
LIBOR market for delivery in immediately available funds at a LIBOR Office on
the first day of such LIBOR Interest Period as determined by the Agent at
approximately 11:00 a.m. (London time) two Banking Days prior to the date upon
which such LIBOR Interest Period is to commence (which determination by the
Agent shall, in the absence of manifest error, be conclusive).
"LIBOR DEPOSITS" means, with respect to any Lender, deposits of United
States Funds in a non-United States office or an international banking facility
of such Lender.
"LIBOR INTEREST PERIOD" means any period, selected as provided in Section
3.2.1, of one, two, three or six months, commencing on any Banking Day and
ending on the corresponding date in the subsequent calendar month so indicated
(or, if such subsequent calendar month has no corresponding date, on the last
day of such subsequent calendar month); PROVIDED, HOWEVER, that subject to
Section 3.2.3, if any LIBOR Interest Period so selected would otherwise begin or
end on a date which is not a Banking Day, such LIBOR Interest Period shall
instead begin or end, as the case may be, on the immediately preceding or
succeeding Banking Day as determined by the Agent in accordance with the then
current banking practice in the inter-bank LIBOR market with respect to LIBOR
Deposits at the applicable LIBOR Office, which determination by the Agent shall,
in the absence of manifest error, be conclusive.
"LIBOR OFFICE" means such non-United States office or international banking
facility of any Lender as such Lender may from time to time select.
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"LIBOR PRICING OPTIONS" means the options granted pursuant to Section 3.2.1
to have the interest on any portion of the Loan computed on the basis of a LIBOR
Rate.
"LIBOR RATE" for any LIBOR Interest Period means the rate, rounded upward
to the nearest 1/100%, obtained by dividing (a) the LIBOR Basic Rate for such
LIBOR Interest Period by (b) an amount equal to 1 MINUS the LIBOR Reserve Rate;
PROVIDED, HOWEVER, that if at any time during such LIBOR Interest Period the
LIBOR Reserve Rate applicable to any outstanding LIBOR Pricing Option changes,
the LIBOR Rate for such LIBOR Interest Period shall automatically be adjusted to
reflect such change, effective as of the date of such change to the extent
required by the Legal Requirement implementing such change.
"LIBOR RESERVE RATE" means the stated maximum rate (expressed as a decimal)
of all reserves (including any basic, supplemental, marginal or emergency
reserve or any reserve asset), if any, as from time to time in effect, required
by any Legal Requirement to be maintained by any Lender against (a)
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System applicable to LIBOR Pricing Options or
(b) any other category of extensions of credit, or other assets, that includes
loans subject to a LIBOR Pricing Option by a non-United States office of any of
the Lenders to United States residents.
"LIEN" means, with respect to the Company (or any other specified Person):
(a) any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the Company (or such
specified Person), whether now owned or hereafter acquired, or upon the
income or profits therefrom;
(b) the acquisition of, or the agreement to acquire, any property or
asset upon conditional sale or subject to any other title retention
agreement, device or arrangement (including a Capitalized Lease);
(c) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or such
specified Person), with or without recourse;
(d) the transfer of any tangible property or assets for the purpose of
subjecting such items to the payment of previously outstanding Indebtedness
in priority to payment of the general creditors of the Company (or such
specified Person); and
(e) the existence for a period of more than 120 consecutive days of
any Indebtedness against the Company (or such specified Person) which if
unpaid would by law or upon a Bankruptcy Default be given any priority over
general creditors.
"LOAN" means, collectively, the Revolving Loan and the Acquisition Loan.
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"MARGIN STOCK" means "margin stock" within the meaning of Regulations T, U
or X of the Board of Governors of the Federal Reserve System.
"MATERIAL ADVERSE CHANGE" means, since any specified date or from the
circumstances existing immediately prior to the happening of any specified
event, a material adverse change in (a) the business, assets, financial
condition, income or prospects of the Company and its Subsidiaries (on a
Consolidated basis), whether as a result of (i) general economic conditions
affecting the business consulting industry, (ii) fire, flood or other natural
calamities, (iii) regulatory changes, judicial decisions, war or other
governmental action or (iv) any other event or development, whether or not
related to those enumerated above or (b) the ability of the Obligors to perform
their obligations under the Credit Documents or (c) the rights and remedies of
the Agent and the Lenders under the Credit Documents.
"MATERIAL AGREEMENTS" is defined in Section 7.2.2.
"MATERIAL FINANCING DEBT" means any Financing Debt (other than the Credit
Obligations and, so long as the Subordination Agreement is in full force and
effect, the Debentures) outstanding in an aggregate amount of principal (whether
or not due) and accrued interest exceeding $500,000.
"MATURITY DATE" means March 29, 2002 (which Maturity Date may be extended
as provided in Section 2.5).
"MAXIMUM AMOUNT OF ACQUISITION CREDIT" is defined in Section 2.2.2.
"MAXIMUM AMOUNT OF REVOLVING CREDIT" is defined in Section 2.1.2.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" as
defined in section 4001(a)(3) of ERISA.
"NET ASSET SALE PROCEEDS" means the cash proceeds of the sale or
disposition of assets (including by way of merger), and the cash proceeds of any
insurance payments on account of the destruction or loss of property, by the
Company or any of its Subsidiaries after the Initial Closing Date, net of (a)
any Indebtedness permitted by Section 6.6.7 (purchase money Indebtedness and
Capitalized Leases) secured by assets being sold in such transaction required to
be paid from such proceeds, (b) income taxes that, as estimated by the Company
in good faith, will be required to be paid by the Company or any of its
Subsidiaries in cash as a result of, and within 16 months after, such sale or
disposition, (c) reasonable reserves for liabilities, indemnities, escrows and
purchase price adjustments resulting from the sale of assets and (d) all
reasonable expenses of the Company or any of its Subsidiaries payable in
connection with
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the sale or disposition; PROVIDED, HOWEVER, that "Net Asset Sale Proceeds" shall
not include cash proceeds:
(i) of asset sales permitted by Section 6.11.1, 6.11.6 or 6.11.7,
(ii) to the extent not covered in clause (i) above, of mergers
permitted by Section 6.11.2,
(iii) that will be used to acquire replacement or other assets within
180 days after such sale, disposition, destruction or loss; PROVIDED,
HOWEVER, that if any amount in this clause (iii) is not actually used to
acquire replacement or other assets within such 180-day period, such amount
shall become Net Asset Sale Proceeds,
(iv) of licensing or leasing of assets permitted by Section 6.11.3, or
(v) of the liquidation or other disposition of Cranberry Hill Capital.
"NET DEBT PROCEEDS" means cash proceeds (net of reasonable out-of-pocket
transaction fees and expenses) from the incurrence by the Company or any of its
Subsidiaries after the Initial Closing Date of Financing Debt other than
Financing Debt permitted by Sections 6.6.1 (the Loan), 6.6.7 (purchase money
Indebtedness and Capitalized Leases), 6.6.9 (intercompany Indebtedness) and
6.6.13 (Foreign Subsidiary Indebtedness).
"NET EQUITY PROCEEDS" means the cash proceeds (net of reasonable
out-of-pocket fees and expenses) received by the Company or any of its
Subsidiaries in connection with any issuance by the Company or any of its
Subsidiaries after the Initial Closing Date of any shares of its capital stock,
other equity interests or options, warrants or other purchase rights to acquire
such capital stock or other equity interests to, or receipt of a capital
contribution from, any Person (other than any Obligors or their officers,
employees and directors); PROVIDED, HOWEVER, that Net Equity Proceeds shall
exclude all cash proceeds derived from any exercises under the Company's stock
option plans and employee stock purchase plans.
"NONPERFORMING LENDER" is defined in Section 10.4.4.
"NOTES" means, collectively, the Revolving Notes and the Acquisition Notes.
"OBLIGOR" means the Company, each Guarantor and each other Person
guaranteeing or providing collateral for the Credit Obligations.
"OVERDUE REIMBURSEMENT RATE" means, at any date, the highest Applicable
Rate then in effect.
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"PAYMENT DATE" means (a) the last Banking Day of each March, June,
September and December, beginning on the first such date after the date hereof
and (b) the Maturity Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
entity.
"PERCENTAGE INTEREST" means, with respect to any Lender, the Commitment of
such Lender with respect to the respective portions of the Loan and Letter of
Credit Exposure. For purposes of determining votes or consents by the Lenders,
the Percentage Interest of any Lender shall be computed as follows: (a) at all
times when no Event of Default under Section 8.1.1 and no Bankruptcy Default
exists, the ratio that the respective Commitments of such Lender bears to the
total Commitments of all Lenders as from time to time in effect and reflected in
the Register, and (b) at all other times, the ratio that the respective amounts
of the outstanding Loan and Letter of Credit Exposure owing to such Lender bear
to the total outstanding Loan and Letter of Credit Exposure owing to all
Lenders.
"PERFORMING LENDER" is defined in Section 10.4.4.
"PERSON" means any present or future natural person or any corporation,
association, partnership, joint venture, limited liability, joint stock or other
company, business trust, trust, organization, business or government or any
governmental agency or political subdivision thereof.
"PIK INTEREST" means any accrued interest payments on Financing Debt that
are postponed or made through the issuance of "payment-in-kind" notes or other
similar securities (including book-entry accrual with respect to such postponed
interest payments), all in accordance with the terms of such Financing Debt;
PROVIDED, HOWEVER, that in no event shall PIK Interest include payments made
with cash or Cash Equivalents.
"PLAN" means, at any date, any pension benefit plan subject to Title IV of
ERISA maintained, or to which contributions have been made or are required to be
made, by any ERISA Group Person within six years prior to such date.
"PRIOR CREDIT AGREEMENT" means the Discretionary Demand Credit Agreement
dated as of June 26, 1999, as from time to time in effect, among the Company,
its Domestic Subsidiaries and BankBoston.
"PROSPECTUS" is defined in Section 7.2.1.
"RCRA" means the federal Resource Conservation and Recovery Act, 42 U.S.C.
section 690, ET SEQ.
"REFERENCE LEVERAGE RATIO" means, on any date, the ratio of (a)
Consolidated Total Debt as of the end of the most recent period of four
consecutive fiscal quarters for which
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financial statements have been furnished to the Lenders in accordance with
Sections 6.4.1 and 6.4.2 prior to such date to (b) Consolidated Pro Forma EBITDA
for such period.
"REGISTER" is defined in Section 11.1.3.
"RELATED FUND" means, with respect to any Lender that is a fund that
invests in senior bank loans, any other fund that invests in senior bank loans
and is managed by the same investment advisor as such Lender or by an Affiliate
of such investment advisor.
"REPLACEMENT LENDER" is defined in Section 11.3.
"REQUIRED LENDERS" means, with respect to any approval, consent,
modification, waiver or other action to be taken by the Agent or the Lenders
under the Credit Documents which require action by the Required Lenders, such
Lenders as own at least a majority of the Percentage Interests; PROVIDED,
HOWEVER, that with respect to any matters referred to in the proviso to Section
15.1, Required Lenders means such Lenders as own at least the respective
portions of the Percentage Interests required by Section 15.1.
"REVOLVING LOAN" is defined in Section 2.1.4.
"REVOLVING NOTES" is defined in Section 2.1.4.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc.
"SECURITIES ACT" means the federal Securities Act of 1933.
"SETTLEMENT" means the making or receiving of payments, in immediately
available funds, by the Lenders to the extent necessary to cause each Lender's
actual share of the Revolving Loan to be equal to such Lender's Percentage
Interest with respect to the Revolving Loan, in the event that, prior to such
making or receiving of payments, the actual share is not so equal.
"SETTLEMENT AMOUNT" is defined in Section 2.6.
"SETTLEMENT DATE" means the first Banking Day in each calendar week and
each Payment Date.
"SIBSON CANADA" means Sibson Canada Co., a corporation formed under the
laws of Canada.
"SUBORDINATION AGREEMENT" is defined in Section 5.1.6.
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"SUBSIDIARY" means any Person of which the Company (or other specified
Person) shall at the time, directly or indirectly through one or more of its
Subsidiaries, (a) own at least 50% of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally, (b) hold at least 50%
of the partnership, joint venture or similar interests or (c) be a general
partner or joint venturer and hold at least 50% of the general partner or joint
venturer interests, as the case may be.
"SYNDICATION AGENT" means Banc of America Securities LLC, a Delaware
limited liability company .
"TAX" means any present or future tax, levy, duty, impost, deduction,
withholding or other charges of whatever nature at any time required by any
Legal Requirement (a) to be paid by any Lender or (b) to be withheld or deducted
from any payment otherwise required hereby to be made to any Lender, in each
case on or with respect to its obligations hereunder, from the Loan, any payment
in respect of the Credit Obligations or any Funding Liability not included in
the foregoing; PROVIDED, HOWEVER, that the term "Tax" shall not include taxes
imposed upon or measured by the net income of such Lender or franchise taxes
that are imposed in lieu of net income taxes; PROVIDED, FURTHER, HOWEVER, that
the term "Tax" shall include withholding taxes in any event.
"UCP" is defined in Section 2.3.6.
"UNITED STATES FUNDS" means such coin or currency of the United States of
America as at the time shall be legal tender therein for the payment of public
and private debts.
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary of which all of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares and, in the case of
Foreign Subsidiaries, shares required by Legal Requirements to be held by
foreign nationals) is owned by the Company (or other specified Person) directly,
or indirectly through one or more Wholly Owned Subsidiaries; PROVIDED, HOWEVER,
that Sibson Canada shall be considered a "Wholly Owned Subsidiary" so long as
the Company owns at least 99% of the outstanding equity of Sibson Canada.
2. THE CREDITS.
2.1. REVOLVING CREDIT.
2.1.1. REVOLVING LOAN. Subject to all the terms and conditions of this
Agreement and so long as no Default exists, from time to time on and after
the Initial Closing Date and prior to the Maturity Date the Lenders will,
severally in accordance with their respective Commitments in the Revolving
Loan, make loans to the Company in such amounts as may be requested by the
Company in accordance with
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Section 2.1.3. The sum of the aggregate principal amount of loans made
under this Section 2.1.1 at any one time outstanding (including loans made
in accordance with the Cash Management Agreement) PLUS the Letter of Credit
Exposure shall in no event exceed the Maximum Amount of Revolving Credit.
In no event will the principal amount of loans at any one time outstanding
made by any Lender pursuant to this Section 2.1, together with such
Lender's Percentage Interest in the Letter of Credit Exposure, exceed such
Lender's Commitment with respect to the Revolving Loan.
2.1.2. MAXIMUM AMOUNT OF REVOLVING CREDIT. The term "MAXIMUM AMOUNT OF
REVOLVING CREDIT" means the lesser of:
(a) the total of (i) $15,000,000 MINUS (ii) any Net Asset Sale
Proceeds described in Section 4.2.2 and Net Debt Proceeds described in
Section 4.2.3, in each case to the extent allocable to the Revolving
Loan in accordance with Section 4.5.2, PLUS (iii) any Credit
Reallocation from the Maximum Amount of Acquisition Credit to the
Maximum Amount of Revolving Credit, MINUS (iv) any Credit Reallocation
from the Maximum Amount of Revolving Credit to the Maximum Amount of
Acquisition Credit, or
(b) the amount to which the then applicable amount set forth in
clause (a) hereof shall have been irrevocably reduced from time to
time by seven Banking Days notice from the Company to the Agent (the
minimum aggregate amount of which reduction shall be $5,000,000 and
integral multiples of $1,000,000 in excess thereof).
2.1.3. BORROWING REQUESTS. Except as otherwise provided in the Cash
Management Agreement for net daily loans not exceeding $2,500,000 in
principal amount made in accordance therewith, the Company may from time to
time request a loan under Section 2.1.1 by providing to the Agent a notice
(which may be given by a telephone call received by a Lending Officer if
promptly confirmed in writing). Such notice must be not later than noon
(Boston time) on the first Banking Day (third Banking Day if any portion of
such loan will be subject to a LIBOR Pricing Option on the requested
Closing Date) prior to the requested Closing Date for such loan. The notice
must specify (a) the amount of the requested loan (which shall be not less
than $1,000,000 and an integral multiple of $500,000, except as otherwise
provided in the Cash Management Agreement) and (b) the requested Closing
Date therefor, which shall be a Banking Day. Upon receipt of such notice,
the Agent will promptly inform each other Lender (by telephone or
otherwise). Each such loan will be made at the Boston Office by depositing
the amount thereof to the general account of the Company with the Agent. In
connection with each such loan, the Company shall furnish to the Agent a
certificate in substantially the form of Exhibit 5.2.1.
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2.1.4. REVOLVING NOTES. The aggregate principal amount of the loans
outstanding from time to time under this Section 2.1 (including loans made
in accordance with the Cash Management Agreement) is referred to as the
"REVOLVING LOAN". The Agent shall keep a record of the Revolving Loan and
the respective interests of the Lenders therein as part of the Register,
which shall evidence the Revolving Loan. The Revolving Loan shall be deemed
owed to each Lender having a Commitment therein severally in accordance
with such Lender's Percentage Interest therein, and all payments thereon
shall be for the account of each Lender in accordance with its Percentage
Interest therein. Upon written request of any Lender, the Company's
obligations to pay such Lender's Percentage Interest in the Revolving Loan
shall be further evidenced by a separate note of the Company in
substantially the form of Exhibit 2.1.4 (the "REVOLVING NOTES"), payable to
such Lender in accordance with such Lender's Percentage Interest in the
Revolving Loan.
2.2. ACQUISITION CREDIT.
2.2.1. ACQUISITION LOAN. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, from time to time on and
after the Initial Closing Date and prior to the Maturity Date the Lenders
will, severally in accordance with their respective Commitments in the
Acquisition Loan, make loans to the Company in such amounts as may be
requested by the Company in accordance with Section 2.2.3 for the purpose
of funding all or a portion of an acquisition permitted by Section 6.9
(whether requested in connection with the closing of such an acquisition or
to fund future payments by the Company (i.e., that become due and owing by
the Company after the closing of such an acquisition) related to such an
acquisition) (or, on the Initial Closing Date, refinancing the Prior Credit
Agreement). The sum of the aggregate principal amount of loans made under
this Section 2.2.1 at any one time outstanding shall in no event exceed the
Maximum Amount of Acquisition Credit. In no event will the principal amount
of loans at any one time outstanding made by any Lender pursuant to this
Section 2.2 exceed such Lender's Commitment with respect to the Acquisition
Loan.
2.2.2. MAXIMUM AMOUNT OF ACQUISITION CREDIT. The term "MAXIMUM AMOUNT
OF ACQUISITION CREDIT" means the lesser of:
(a) the total of (i) $40,000,000 MINUS (ii) any Net Asset Sale
Proceeds described in Section 4.2.2 and Net Debt Proceeds described in
Section 4.2.3, in each case to the extent allocable to the Acquisition
Loan in accordance with Section 4.5.2, PLUS (iii) any Credit
Reallocation from the Maximum Amount of Revolving Credit to the
Maximum Amount of Acquisition Credit, MINUS (iv) any Credit
Reallocation from the Maximum
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Amount of Acquisition Credit to the Maximum Amount of Revolving
Credit, or
(b) the amount to which the then applicable amount set forth in
clause (a) hereof shall have been irrevocably reduced from time to
time by seven Banking Days notice from the Company to the Agent (the
minimum aggregate amount of which reduction shall be $5,000,000 and
integral multiples of $1,000,000 thereof).
2.2.3. BORROWING REQUESTS. The Company may from time to time request a
loan under this Section 2.2 by providing to the Agent a written notice in
accordance with Section 2.2.1. Such notice must be not later than noon
(Boston time) on the first Banking Day (third Banking Day if any portion of
such loan will be subject to a LIBOR Pricing Option on the requested
Closing Date) prior to the requested Closing Date for such loan. The notice
must specify (a) the amount of the requested loan (which shall not be less
than $500,000) and (b) the requested Closing Date therefor, which shall be
a Banking Day. Upon receipt of such notice, the Agent will promptly inform
each other Lender (by telephone or otherwise). Each such loan will be made
at the Boston Office by depositing the amount thereof to the general
account of the Company with the Agent or by wire transfer as the Company
may direct in writing to the Agent. In connection with each such loan, the
Company shall furnish to the Agent a certificate in substantially the form
of Exhibit 5.2.1 and any additional information the Agent or any Lender
shall reasonably request.
2.2.4. ACQUISITION NOTES. The aggregate principal amount of the loans
outstanding from time to time under this Section 2.2 is referred to as the
"ACQUISITION LOAN". The Agent shall keep a record of the Acquisition Loan
and the interests of the respective Lenders therein as part of the
Register, which shall evidence the Acquisition Loan. The Acquisition Loan
shall be deemed owed to each Lender having a Commitment therein severally
in accordance with such Lender's Percentage Interest therein, and all
payments thereon shall be for the account of each Lender in accordance with
its Percentage Interest therein. Upon request of any Lender, the Company's
obligations to pay such Lender's Percentage Interest in the Acquisition
Loan shall be evidenced by a separate note of the Company in substantially
the form of Exhibit 2.2.4 (the "ACQUISITION NOTES"), payable to such Lender
in accordance with such Lender's Percentage Interest in the Acquisition
Loan.
2.3. LETTERS OF CREDIT.
2.3.1. ISSUANCE OF LETTERS OF CREDIT. Subject to all the terms and
conditions of this Agreement and so long as no Default exists, from time to
time on and after the Initial Closing Date and prior to the date five
Banking Days preceding the Maturity
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Date, the Letter of Credit Issuer will issue for the account of the Company
one or more irrevocable documentary or standby letters of credit (the
"LETTERS OF CREDIT"). In addition, letters of credit having Letter of
Credit Exposure not exceeding $4,000,000 issued under the Prior Credit
Agreement shall be automatically deemed to be Letters of Credit issued
under this Section 2.3. The sum of Letter of Credit Exposure PLUS the
Revolving Loan shall in no event exceed the Maximum Amount of Revolving
Credit. Letter of Credit Exposure shall in no event exceed $7,500,000.
2.3.2. REQUESTS FOR LETTERS OF CREDIT. The Company may from time to
time request a Letter of Credit to be issued by providing to the Letter of
Credit Issuer (and the Agent if the Letter of Credit Issuer is not the
Agent) a notice which is actually received not less than three Banking Days
(for standby Letters of Credit) and one Banking Day (for documentary
Letters of Credit) prior to the requested Closing Date for such Letter of
Credit specifying (a) the amount of the requested Letter of Credit, (b) the
beneficiary thereof, (c) the requested Closing Date and (d) a summary of
the principal terms of the text for such Letter of Credit, together with
any customary application forms required by the Letter of Credit Issuer. In
the event of any inconsistency between such application forms and this
Agreement, this Agreement shall govern. Each Letter of Credit will be
issued by forwarding it to the Company or to such other Person as directed
in writing by the Company. In connection with the issuance of any Letter of
Credit, the Company shall furnish to the Letter of Credit Issuer (and the
Agent if the Letter of Credit Issuer is not the Agent) a certificate in
substantially the form of Exhibit 5.2.1.
2.3.3. FORM AND EXPIRATION OF LETTERS OF CREDIT. Each Letter of Credit
issued under this Section 2.3 and each draft accepted or paid under such a
Letter of Credit shall be issued, accepted or paid, as the case may be, by
the Letter of Credit Issuer at its principal office. No Letter of Credit
shall provide for the payment of drafts drawn thereunder, and no draft
shall be payable, at a date which is later than the earlier of (a) the date
12 months after the date of issuance (which expiration date may be extended
at the option of the Letter of Credit Issuer for additional 12-month
periods ending prior to the date referred to in clause (b) below) or (b)
five Banking Days prior to the Maturity Date. Each Letter of Credit and
each draft accepted under a Letter of Credit shall be in such form and
shall contain such terms as is generally acceptable in the industry for
which such Letter of Credit is being requested and shall be in such amount
as the Letter of Credit Issuer and the Company may agree upon at the time
such Letter of Credit is issued.
2.3.4. LENDERS' PARTICIPATION IN LETTERS OF CREDIT. Upon the issuance
of any Letter of Credit, a participation therein, in an amount equal to
each Lender's Percentage Interest in the Revolving Loan, shall
automatically be deemed granted by the Letter of Credit Issuer to each such
Lender on the date of such issuance and such
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Lenders shall automatically be obligated, as set forth in Section 10.4, to
reimburse the Letter of Credit Issuer to the extent of their respective
Percentage Interests in the Revolving Loan for all obligations incurred by
the Letter of Credit Issuer to third parties in respect of such Letter of
Credit not reimbursed by the Company. The Letter of Credit Issuer will send
to each Lender (and the Agent if the Letter of Credit Issuer is not the
Agent) a confirmation regarding the participations in Letters of Credit
outstanding during such month.
2.3.5. REIMBURSEMENT OF PAYMENT. At such time as a Letter of Credit
Issuer makes any payment on a draft presented or accepted under a Letter of
Credit, the amount of such payment shall be considered a loan under Section
2.1.1 (regardless of whether the conditions set forth in Section 5.2 are
satisfied) and part of the Revolving Loan as if the Company had paid in
full the amount required with respect to the Letter of Credit by borrowing
such amount under Section 2.1.1, except as provided below. In the event
such amount would cause the Revolving Loan to exceed the Maximum Amount of
Revolving Credit or if during the existence of an Event of Default the
Agent has previously provided written notice to the Company that Letter of
Credit payments will no longer be considered loans under Section 2.1.1, the
Company will on demand pay to the Agent in immediately available funds the
amount of such payment.
2.3.6. UCP; ISP. As to any Letter of Credit that is a documentary
letter of credit, the most recent Uniform Customs and Practice for
Documentary Credits adopted by a Congress of the International Chamber of
Commerce, and any subsequent revisions thereof approved by a Congress of
the International Chamber of Commerce and adhered to by the Letter of
Credit Issuer (the "UCP"), shall be binding on the Company and the Letter
of Credit Issuer except to the extent otherwise provided herein, in any
Letter of Credit or in any other Credit Document. As to any Letter of
Credit that is a standby letter of credit, the most recent International
Standby Practices adopted by a Congress of the International Chamber of
Commerce, and any subsequent revisions thereof approved by a Congress of
the International Chamber of Commerce and adhered to by the Letter of
Credit Issuer (the "ISP"), shall be binding on the Company and the Letter
of Credit Issuer except to the extent otherwise provided herein, in any
Letter of Credit or in any other Credit Document. Without limiting the
foregoing, in the event of an unexpected closure of the Letter of Credit
Issuer Letter of Credit draws may be made up to only two Banking Days after
the reopening of the Letter of Credit Issuer rather than the 30 day period
provided in Rule 3.14(a) of the ISP. Anything in the UCP or the ISP to the
contrary notwithstanding:
(1) With respect to each Letter of Credit, neither the Letter of
Credit Issuer nor its correspondents shall be responsible for or shall have
any duty to ascertain (unless the Letter of Credit Issuer or such
correspondent is grossly negligent or willful in failing so to ascertain):
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(1) the genuineness of any signature or the validity, form,
sufficiency, accuracy, genuineness or legal effect of any
endorsements;
(2) delay in giving, or failure to give, notice of arrival,
notice of refusal of documents or of discrepancies in respect of which
any Letter of Credit Issuer refuses the documents or any other notice,
demand or protest;
(3) the performance by any beneficiary under any Letter of Credit
of such beneficiary's obligations to the Company;
(4) inaccuracy in any notice received by the Letter of Credit
Issuer;
(5) the validity, form, sufficiency, accuracy, genuineness or
legal effect of any instrument, draft, certificate or other document
required by such Letter of Credit to be presented before payment of a
draft if such instrument, draft, certificate or other document appears
on its face to comply with the requirements of the Letter of Credit,
or the office held by or the authority of any Person signing any of
the same; or
(6) failure of any instrument to bear any reference or adequate
reference to such Letter of Credit, or failure of any Person to note
the amount of any instrument on the reverse of such Letter of Credit
or to surrender such Letter of Credit or to forward documents in the
manner required by such Letter of Credit.
(2) The occurrence of any of the events referred to in the UCP or the
ISP or in the preceding clauses of this Section 2.3.6 shall not affect or
prevent the vesting of any of the Letter of Credit Issuer's rights or
powers hereunder or the Company's obligation to make reimbursement (whether
by cash payment or by refinancing with advances under the Revolving Loan in
accordance with Section 2.3.5) of amounts paid under any Letter of Credit
or any draft accepted thereunder.
(3) In the event of any conflict between the provisions of this
Agreement and either the UCP or the ISP, the provisions of this Agreement
shall govern.
2.3.7. SUBROGATION. Upon any payment by a Letter of Credit Issuer
under any Letter of Credit and until the reimbursement of such Letter of
Credit Issuer by the Company with respect to such payment (whether by cash
payment or by refinancing with advances under the Revolving Loan in
accordance with Section 2.3.5), the Letter of Credit Issuer shall be
entitled to be subrogated to, and to acquire and retain, the
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rights which the Person to whom such payment is made may have against the
Company, all for the benefit of the Lenders. The Company will take such
action as the Letter of Credit Issuer may reasonably request, including
requiring the beneficiary of any Letter of Credit to execute such documents
as the Letter of Credit Issuer may reasonably request, to assure and
confirm to the Letter of Credit Issuer such subrogation and such rights,
including the rights, if any, of the beneficiary to whom such payment is
made in accounts receivable, inventory and other properties and assets of
any Obligor.
2.3.8. MODIFICATION, CONSENT, ETC. If the Company requests or consents
in writing to any modification or extension of any Letter of Credit, or
waives any failure of any draft, certificate or other document to comply
with the terms of such Letter of Credit, the Letter of Credit Issuer shall
be entitled to rely on such request, consent or waiver. This Agreement
shall be binding upon the Company with respect to such Letter of Credit as
so modified or extended, and with respect to any action taken or omitted by
such Letter of Credit Issuer pursuant to any such request, consent or
waiver.
2.4. APPLICATION OF PROCEEDS.
2.4.1. REVOLVING LOAN. Subject to Section 2.4.4, the Company will
apply the proceeds of the Revolving Loan for working capital, capital
expenditures and other lawful corporate purposes of the Company and its
Subsidiaries.
2.4.2. ACQUISITION LOAN. The Company will apply the proceeds of the
Acquisition Loan to fund all or a portion of acquisitions permitted by
Section 6.9 (whether through stock purchase, asset purchase, merger or
consolidation), including the repayment of related Indebtedness of the
acquired entity that will not be assumed by the Company and its
Subsidiaries, and to pay the related transaction fees and expenses. In
addition, on the Initial Closing Date the Company may apply the proceeds of
the Acquisition Loan to refinance the Prior Credit Agreement.
2.4.3. LETTERS OF CREDIT. Letters of Credit shall be issued only for
such lawful corporate purposes as the Company has requested in writing and
to which the Letter of Credit Issuer agrees, which agreement shall not be
unreasonably withheld.
2.4.4. SPECIFICALLY PROHIBITED APPLICATIONS. The Company will not,
directly or indirectly, apply any part of the proceeds of any extension of
credit made pursuant to the Credit Documents to purchase or to carry Margin
Stock or to any transaction prohibited by the Credit Documents or by Legal
Requirements applicable to the Lenders.
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2.5. OPTION TO EXTEND MATURITIES OF CREDITS. So long as no Default exists,
the Company may request, by notice to the Lenders at least 90 days and not more
than 120 days prior to the Maturity Date, that the Maturity Date be extended for
an additional period not longer than 12 months, but in no event to a date later
than March 29, 2003. The Lenders shall consider such request in their sole
discretion, and may propose additional terms, including any changes in the
interest rates, as a condition to any extension. The Lenders shall provide a
written response to the Borrower not later than 45 days after receipt of such
request. In no event shall the Maturity Date be extended hereunder without the
consent of each of the Lenders (giving effect to any Replacement Lender under
Section 11.3). In the event the Lenders offer to extend the Maturity Date
pursuant to this Section 2.5, the Company may accept such offer by written
notice received by the Agent not later than 30 days after receipt by the Company
of such offer.
2.6. SETTLEMENT UNDER THE CASH MANAGEMENT AGREEMENT. On each Settlement
Date, the Agent shall, not later than 11:00 a.m. (Boston time), give telephonic
or facsimile notice (a) to the Lenders and the Company of the net outstanding
amount of loans made, or the net amount of repayments of the Revolving Loan
received, as the case may be, by the Agent on behalf of the Lenders under the
Cash Management Agreement since the immediately preceding Settlement Date
through the close of business on the prior Banking Day and (b) to the Lenders of
the amount (a "SETTLEMENT AMOUNT") that each Lender shall pay or receive, as the
case may be, to effect a Settlement of the Revolving Loan. A statement of the
Agent submitted to the Lenders and the Company with respect to any amounts owing
under this Section 2.6 shall be prima facie evidence of the amount due and
owing. Each Lender shall, not later than 3:00 p.m. (Boston time) on such
Settlement Date, send to or receive from the Agent, as the case may be, a wire
transfer of immediately available funds in the amount of the Settlement Amount
for such Lender. All funds advanced by any Lender pursuant to this Section 2.6
shall for all purposes be treated as an advance under the Revolving Loan made by
such Lender to the Company and all funds received by any Lender pursuant to this
Section 2.6 shall for all purposes be treated as repayment of the Revolving Loan
made to such Lender. In the event that any bankruptcy, reorganization,
liquidation, receivership or similar case or proceeding in which the Company is
a debtor prevents a Lender from making any advance under the Revolving Loan to
effect a Settlement as contemplated hereby, such Lender will make such
dispositions and arrangements with the other Lenders with respect to such
advance under the Revolving Loan, either by way of purchase of participations,
distribution, assignment of claims, subrogation or otherwise, as shall result in
each Lender's share of the outstanding Revolving Loan being equal, as nearly
practicable, to such Lender's Percentage Interest in the Revolving Loan.
3. INTEREST; LIBOR PRICING OPTIONS; FEES.
3.1. INTEREST. The Loan shall accrue and bear interest at a rate per annum
which shall at all times equal the Applicable Rate. Prior to any stated or
accelerated maturity of the
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Loan, the Company will, on each Payment Date, pay the accrued and unpaid
interest on the portion of the Loan which was not subject to a LIBOR Pricing
Option. On the last day of each LIBOR Interest Period or on any earlier
termination of any LIBOR Pricing Option, the Company will pay the accrued and
unpaid interest on the portion of the Loan which was subject to the LIBOR
Pricing Option which expired or terminated on such date. In the case of any
LIBOR Interest Period longer than three months, the Company will also pay the
accrued and unpaid interest on the portion of the Loan subject to the LIBOR
Pricing Option having such LIBOR Interest Period at three-month intervals, the
first such payment to be made on the last Banking Day of the three-month period
which begins on the first day of such LIBOR Interest Period. On the stated or
any accelerated maturity of the Loan, the Company will pay all accrued and
unpaid interest on the Loan, including any accrued and unpaid interest on any
portion of the Loan which is subject to a LIBOR Pricing Option. Upon the
occurrence and during the continuance of an Event of Default, the Lenders may
require accrued interest to be payable on demand or at regular intervals more
frequent than each Payment Date. All payments of interest hereunder shall be
made to the Agent for the account of each Lender in accordance with such
Lender's Percentage Interest therein.
3.2. LIBOR PRICING OPTIONS.
3.2.1. ELECTION OF LIBOR PRICING OPTIONS. Subject to all of the terms
and conditions hereof and so long as no Default exists, the Company may
from time to time, by irrevocable notice to the Agent actually received by
noon (Boston time) not less than three Banking Days prior to the
commencement of the LIBOR Interest Period selected in such notice, elect to
have such portion of the Loan as the Company may specify in such notice
accrue and bear interest during the LIBOR Interest Period so selected at
the Applicable Rate computed on the basis of the LIBOR Rate. In the event
the Company at any time does not elect a LIBOR Pricing Option under this
Section 3.2.1 for any portion of the Loan (upon termination of a LIBOR
Pricing Option or otherwise), then such portion of the Loan will accrue and
bear interest at the Applicable Rate based on the Base Rate. A single LIBOR
Pricing Option may include any portion of the Revolving Loan or Acquisition
Loan designated by the Company in the notice referred to above so long as
the Percentage Interests of the Lenders are the same for each such portion
of the Loan. No election of a LIBOR Pricing Option shall become effective:
(1) if, prior to the commencement of any such LIBOR Interest Period,
the Agent determines that (i) the electing or granting of the LIBOR Pricing
Option in question would violate a Legal Requirement, (ii) LIBOR Deposits
in an amount comparable to the amount of the Loan as to which such LIBOR
Pricing Option has been elected and which have a term corresponding to the
proposed LIBOR Interest Period are not readily available in the inter-bank
LIBOR market or (iii) by reason of circumstances affecting the inter-bank
LIBOR market, adequate and reasonable methods
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do not exist for ascertaining the interest rate applicable to such deposits
for the proposed LIBOR Interest Period; or
(2) if the Required Lenders shall have advised the Agent by telephone
or otherwise at or prior to noon (Boston time) on the second Banking Day
prior to the commencement of such proposed LIBOR Interest Period (and shall
have subsequently confirmed in writing) that, after reasonable efforts to
determine the availability of such LIBOR Deposits, the Required Lenders
reasonably anticipate that LIBOR Deposits in an amount equal to the
Percentage Interest of the Required Lenders in the portion of the Loan as
to which such LIBOR Pricing Option has been elected and which have a term
corresponding to the LIBOR Interest Period in question will not be offered
in the LIBOR market to the Required Lenders at a rate of interest that does
not exceed the anticipated LIBOR Basic Rate.
3.2.2. NOTICE TO LENDERS AND THE COMPANY. The Agent will promptly
inform each Lender (by telephone or otherwise) of each notice received by
it from the Company pursuant to Section 3.2.1 and of the LIBOR Interest
Period specified in such notice. Upon determination by the Agent of the
LIBOR Rate for such LIBOR Interest Period or in the event such election
shall not become effective, the Agent will promptly notify the Company and
each Lender (by telephone or otherwise) of the LIBOR Rate so determined or
why such election did not become effective, as the case may be.
3.2.3. SELECTION OF LIBOR INTEREST PERIODS. LIBOR Interest Periods
shall be selected so that:
(1) the minimum portion of the Loan subject to any LIBOR Pricing
Option shall be $2,000,000 and an integral multiple of $500,000;
(2) no more than six LIBOR Pricing Options shall be outstanding at
any one time;
(3) no LIBOR Interest Period shall expire later than the Maturity
Date; and (1)
(4) prior to the date 60 days after the Initial Closing Date or the
earlier date the Agent informs the Company that the proposed initial
syndication of the credit facilities provided hereby will close, no LIBOR
Interest Period shall extend beyond such date except with the written
consent of the Agent, which consent shall not be unreasonably withheld. The
Company and the Agent shall confer about the appropriate scheduling of the
selection of LIBOR Interest Periods to facilitate the anticipated
syndication of the credit facilities provided herein to other Lenders.
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3.2.4. REIMBURSEMENT OF BREAKAGE COSTS. If any portion of the Loan
subject to a LIBOR Pricing Option is repaid, or any LIBOR Pricing Option is
terminated for any reason (including acceleration of maturity), on a date
which is prior to the last Banking Day of the LIBOR Interest Period
applicable to such LIBOR Pricing Option, the Company will pay to the Agent
for the account of each Lender in accordance with such Lender's Percentage
Interest, in addition to any amounts of interest otherwise payable
hereunder, an amount equal to the present value (calculated in accordance
with this Section 3.2.4) of interest for the unexpired portion of such
LIBOR Interest Period on the portion of the Loan so repaid, or as to which
a LIBOR Pricing Option was so terminated, at a per annum rate equal to the
excess, if any, of (a) the rate applicable to such LIBOR Pricing Option
MINUS (b) the lowest rate of interest obtainable by the Agent upon the
purchase of debt securities customarily issued by the Treasury of the
United States of America which have a maturity date approximating the last
Banking Day of such LIBOR Interest Period. The present value of such
additional interest shall be calculated by discounting the amount of such
interest for each day in the unexpired portion of such LIBOR Interest
Period from such day to the date of such repayment or termination at a per
annum interest rate equal to the interest rate determined pursuant to
clause (b) of the preceding sentence, and by adding all such amounts for
all such days during such period. The determination by the Agent of such
amount of interest shall, in the absence of manifest error, be conclusive.
For purposes of this Section 3.2.4, if any portion of the Loan which was to
have been subject to a LIBOR Pricing Option is not outstanding on the first
day of the LIBOR Interest Period applicable to such LIBOR Pricing Option
other than for reasons described in Section 3.2.1 or as a result of the
failure of any Lender to perform its obligations under Section 2, the
Company shall be deemed to have terminated such LIBOR Pricing Option.
3.2.5. VIOLATION OF LEGAL REQUIREMENTS. If any mandatory Legal
Requirement shall prevent any Lender from funding or maintaining through
the purchase of deposits in the interbank LIBOR market any portion of the
Loan subject to a LIBOR Pricing Option or otherwise from giving effect to
such Lender's obligations as contemplated by Section 3.2, (a) the Agent may
by notice to the Company terminate all of the affected LIBOR Pricing
Options of such Lender on the respective last day of the then current LIBOR
Interest Period with respect to such Loan or within such earlier period as
required by law, (b) the portion of the Loan subject to such terminated
LIBOR Pricing Options shall immediately bear interest thereafter at the
Applicable Rate computed on the basis of the Base Rate and (c) the Company
shall make any payment required by Section 3.2.4. The Company shall be
entitled to replace any such Lender in accordance with Section 11.3.
3.2.6. FUNDING PROCEDURE. The Lenders may fund any portion of the Loan
subject to a LIBOR Pricing Option out of any funds available to the
Lenders. Regardless of the source of the funds actually used by any of the
Lenders to fund any
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portion of the Loan subject to a LIBOR Pricing Option, however, all amounts
payable hereunder, including the interest rate applicable to any such
portion of the Loan and the amounts payable under Sections 3.2.4 and 3.5,
shall be computed as if each Lender had actually funded such Lender's
Percentage Interest in such portion of the Loan through the purchase of
deposits in such amount of the type by which the LIBOR Basic Rate was
determined with a maturity the same as the applicable LIBOR Interest Period
relating thereto and through the transfer of such deposits from an office
of the Lender having the same location as the applicable LIBOR Office to
one of such Lender's offices in the United States of America.
3.3. COMMITMENT FEES.
3.3.1. REVOLVING CREDIT COMMITMENT FEE. In consideration of the
Lenders' commitments to make the extensions of credit provided for in
Section 2.1, while such commitments are outstanding, the Company will pay
to the Agent for the account of the Lenders in accordance with the Lenders'
respective Commitments in the Revolving Loan, on each Payment Date, an
amount equal to interest computed at the Commitment Fee Rate as of such
Payment Date on the amount by which (a) the daily Maximum Amount of
Revolving Credit during the three-month period or portion thereof ending on
such Payment Date exceeded (b) the sum of (i) the daily Revolving Loan
during such period or portion thereof PLUS (ii) the daily Letter of Credit
Exposure during such period or portion thereof.
3.3.2. ACQUISITION CREDIT COMMITMENT FEE. In consideration of the
Lenders' commitments to make the extensions of credit provided for in
Section 2.2, while such commitments are outstanding, the Company will pay
to the Agent for the account of the Lenders in accordance with the Lenders'
respective Commitments in the Acquisition Loan, on each Payment Date, an
amount equal to interest computed at the Commitment Fee Rate as of such
Payment Date on the respective amounts by which (a) the daily Maximum
Amount of Acquisition Credit during the three-month period or portion
thereof ending on such Payment Date exceeded (b) the daily Acquisition Loan
during such period or portion thereof.
3.4. LETTER OF CREDIT FEES. The Company will pay to the Agent for the
account of each of the Lenders, in accordance with the Lenders' respective
Percentage Interests, in arrears on each Payment Date, a Letter of Credit fee
equal to interest at a rate per annum equal to the sum of (a) the Applicable
Margin indicated for the LIBOR Rate plus (b) an additional 2% per annum
effective on the day the Agent provides written notice to the Company that the
interest rates hereunder are increasing as a result of the occurrence and
continuance of an Event of Default until the earlier of such time as (i) such
Event of Default is no longer continuing or (ii) such Event of Default is deemed
no longer to exist, in each case pursuant to Section 8.3, on the daily Letter of
Credit Exposure during the three-month period or portion thereof ending
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on such Payment Date. The Company will pay to the Letter of Credit Issuer, for
its own account, on the date such Letter of Credit is issued, extended, renewed
or amended, an amount equal to (i) interest computed at the rate of 0.125% per
annum on the amount of such Letter of Credit being issued and (ii) customary
service charges and expenses for its services in connection with such Letter of
Credit at the times and in the amounts from time to time in effect in accordance
with its general rate structure, including fees and expenses relating to
issuance, amendment, negotiation, cancellation and similar operations.
3.5. CHANGES IN CIRCUMSTANCES; YIELD PROTECTION.
3.5.1. RESERVE REQUIREMENTS, ETC. If any Legal Requirement shall (a)
impose, modify, increase or deem applicable any insurance assessment,
reserve, special deposit or similar requirement against any Funding
Liability or the Letters of Credit, (b) impose, modify, increase or deem
applicable any other requirement or condition with respect to any Funding
Liability or the Letters of Credit or (c) change the basis of taxation of
Funding Liabilities or payments in respect of any Letter of Credit (other
than changes in the rate of taxes measured by the overall net income of
such Lender) and the effect of any of the foregoing shall be to increase
the cost to any Lender of issuing, making, funding or maintaining its
respective Percentage Interest in any portion of the Loan subject to a
LIBOR Pricing Option or any Letter of Credit, to reduce the amounts
received or receivable by such Lender under this Agreement or to require
such Lender to make any payment or forego any amounts otherwise payable to
such Lender under this Agreement (other than any Tax or any reserves that
are included in computing the LIBOR Reserve Rate), then such Lender may
claim compensation from the Company under Section 3.5.5.
3.5.2. TAXES. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions,
including deductions for Taxes, unless the Company is required by law to
make such deductions. If (a) any Lender shall be subject to any Tax with
respect to any payment of the Credit Obligations or its obligations
hereunder or (b) the Company shall be required to withhold or deduct any
Tax on any payment on the Credit Obligations, then such Lender may claim
compensation from the Company under Section 3.5.5 to the extent such Lender
is then in compliance with any applicable requirements of Section 13.
Whenever Taxes must be withheld by the Company with respect to any payments
of the Credit Obligations, the Company shall promptly furnish to the Agent
for the account of the applicable Lender official receipts (to the extent
that the relevant governmental authority delivers such receipts) evidencing
payment of any such Taxes so withheld. If the Company fails to pay any such
Taxes when due or fails to remit to the Agent for the account of the
applicable Lender the required receipts evidencing payment of any such
Taxes so withheld or deducted, the Company shall indemnify the affected
Lender for any incremental Taxes and interest or penalties that may become
payable by such
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Lender as a result of any such failure. In the event any Lender receives a
refund of any Taxes for which it has received payment from the Company
under this Section 3.5.2, such Lender shall promptly pay the amount of such
refund to the Company, together with any interest thereon actually earned
by such Lender.
3.5.3. CAPITAL ADEQUACY. If any Lender shall determine that compliance
by such Lender with any Legal Requirement regarding capital adequacy of
banks or bank holding companies has or would have the effect of reducing
the rate of return on the capital of such Lender and its Affiliates as a
consequence of such Lender's commitment to make the extensions of credit
contemplated hereby, or such Lender's maintenance of the extensions of
credit contemplated hereby, to a level below that which such Lender could
have achieved but for such compliance (taking into consideration the
policies of such Lender and its Affiliates with respect to capital adequacy
immediately before such compliance and assuming that the capital of such
Lender and its Affiliates was fully utilized prior to such compliance) by
an amount deemed by such Lender to be material, then such Lender may claim
compensation from the Company under Section 3.5.5.
3.5.4. REGULATORY CHANGES. If any Lender shall determine that (a) any
change in any Legal Requirement (including any new Legal Requirement) after
the date hereof shall directly or indirectly (i) reduce the amount of any
sum received or receivable by such Lender with respect to the Loan or the
Letters of Credit or the return to be earned by such Lender on the Loan or
the Letters of Credit, (ii) impose a cost on such Lender or any Affiliate
of such Lender that is attributable to the making or maintaining of, or
such Lender's commitment to make, its portion of the Loan or the Letters of
Credit, or (iii) require such Lender or any Affiliate of such Lender to
make any payment on, or calculated by reference to, the gross amount of any
amount received by such Lender under any Credit Document (other than Taxes
or income or franchise taxes), and (b) such reduction, increased cost or
payment shall not be fully compensated for by an adjustment in the
Applicable Rate or the Letter of Credit fees, then such Lender may claim
compensation from the Company under Section 3.5.5.
3.5.5. COMPENSATION CLAIMS. Within 15 days after the receipt by the
Company of a certificate from any Lender setting forth why it is claiming
compensation under this Section 3.5 and computations (in reasonable detail)
of the amount thereof, the Company shall pay to such Lender such additional
amounts as such Lender sets forth in such certificate as sufficient fully
to compensate it on account of the foregoing provisions of this Section
3.5, together with interest on such amount from the 15th day after receipt
of such certificate until payment in full thereof at the Overdue
Reimbursement Rate. The determination by such Lender of the amount to be
paid to it and the basis for computation thereof hereunder shall be
conclusive so long as (a) such determination is made in good faith, (b) no
manifest error appears therein and (c) the
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Lender uses reasonable averaging and attribution methods. The Company shall
be entitled to replace any such Lender in accordance with Section 11.3.
3.5.6. MITIGATION. Each Lender shall take such commercially reasonable
steps as it may determine are not materially disadvantageous to it,
including changing lending offices to the extent feasible, in order to
reduce amounts otherwise payable by the Company to such Lender pursuant to
Sections 3.2.4 and 3.5 or to make LIBOR Pricing Options available under
Sections 3.2.1 and 3.2.5. In addition, the Company shall not be responsible
for costs (a) under Section 3.5 arising more than 90 days prior to receipt
by the Company of the certificate from the affected Lender pursuant to such
Section 3.5 or (b) under Section 3.2.4 arising from the termination of
LIBOR Pricing Options more than 90 days prior to the demand by the Agent
for payment under Section 3.2.4.
3.6. COMPUTATIONS OF INTEREST AND FEES. For purposes of this Agreement,
interest, commitment fees and Letter of Credit fees (and any other amount
expressed as interest or such fees) shall be computed on the basis of a 360-day
year for actual days elapsed; PROVIDED, HOWEVER, that interest on any portion of
the Loan for which interest is calculated on the basis of the Base Rate shall be
computed on the basis of a 365/6-day year. If any payment required by this
Agreement becomes due on any day that is not a Banking Day, such payment shall,
except as otherwise provided in the definition of "LIBOR Interest Period", be
made on the next succeeding Banking Day. If the due date for any payment of
principal is extended as a result of the immediately preceding sentence,
interest shall be payable for the time during which payment is extended at the
Applicable Rate.
4. PAYMENT.
4.1. PAYMENT AT MATURITY. On the Maturity Date or any accelerated maturity
of the Loan, the Company will pay to the Agent an amount equal to the Loan then
due, together with all accrued and unpaid interest and fees with respect thereto
and all other Credit Obligations then outstanding.
4.2. CONTINGENT REQUIRED PREPAYMENTS.
4.2.1. EXCESS CREDIT EXPOSURE. If at any time the Revolving Loan
exceeds the limits set forth in Section 2.1 or the Acquisition Loan exceeds
the limits set forth in Section 2.2, the Company shall within one Banking
Day after actual knowledge by a Financial Officer or notice from the Agent
pay the amount of such excess to the Agent as a prepayment of the Revolving
Loan or the Acquisition Loan, as the case may be. If at any time the Letter
of Credit Exposure exceeds the limits set forth in Section 2.3, the Company
shall within one Banking Day after actual knowledge by a
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Financial Officer or notice from the Agent pay the amount of such excess to
the Agent to be applied as provided in Section 4.4.
4.2.2. NET ASSET SALE PROCEEDS. Upon receipt by the Company or any of
its Subsidiaries of Net Asset Sale Proceeds or net proceeds of asset sales
permitted by Section 6.11.7, the Company shall within one Banking Day pay
to the Agent as a prepayment of the Loan to be applied as provided in
Section 4.5.2 the lesser of (a) the amount of such Net Asset Sale Proceeds
or (b) the amount of the Loan.
4.2.3. NET DEBT PROCEEDS. Upon receipt of Net Debt Proceeds by the
Company or any of its Subsidiaries, the Company shall within one Banking
Day pay to the Agent as a prepayment of the Loan to be applied as provided
in Section 4.5.2 the lesser of (a) the amount of such Net Debt Proceeds or
(b) the amount of the Loan.
4.2.4. NET EQUITY PROCEEDS. Upon receipt of Net Equity Proceeds by the
Company or any of its Subsidiaries, the Company shall within one Banking
Day pay to the Agent as a prepayment of the Loan to be applied as provided
in Section 4.5.2 the lesser of (a) the amount of such Net Equity Proceeds
or (b) the amount of the Loan.
4.2.5. CASH MANAGEMENT AGREEMENT. At the times and in the amounts
required by the Cash Management Agreement, the Company will pay to the
Agent for the account of the Lenders prepayments of the Revolving Loan.
4.3. VOLUNTARY PREPAYMENTS. In addition to the prepayments required by
Section 4.2, the Company may from time to time prepay all or any portion of the
Loan (in a minimum amount of $1,000,000 and an integral multiple of $500,000,
except with respect to payments made pursuant to the Cash Management Agreement
as to which no minimum amount shall apply, or such lesser amount as is then
outstanding), without premium or penalty of any type (except as provided in
Section 3.2.4 with respect to the early termination of LIBOR Pricing Options).
The Company shall give the Agent at least one Banking Day prior notice of its
intention to prepay the Loan under this Section 4.3, specifying the date of
payment and the total amount of the Revolving Loan and the Acquisition Loan to
be paid on such date.
4.4. LETTERS OF CREDIT. If on the Maturity Date or any accelerated maturity
of the Credit Obligations the Lenders shall be obligated in respect of a Letter
of Credit or a draft accepted under a Letter of Credit, the Company will either:
(1) prepay such obligation by depositing cash with the Agent, or
(2) deliver to the Agent a standby letter of credit (designating the
Letter of Credit Issuer as beneficiary and issued by a bank and on terms
reasonably acceptable to the Letter of Credit Issuer),
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in each case in an amount equal to the portion of the then Letter of Credit
Exposure issued for the account of the Company. Any such cash so deposited and
the cash proceeds of any draw under any standby Letter of Credit so furnished,
including any interest thereon, shall be returned by the Agent to the Company
only when, and to the extent that, the amount of such cash held by the Agent
exceeds the Letter of Credit Exposure at such time and no Default then exists;
PROVIDED, HOWEVER, that if an Event of Default occurs and the Credit Obligations
become or are declared immediately due and payable, the Agent may apply such
cash, including any interest thereon, to the payment of any of the Credit
Obligations.
4.5. REBORROWING; APPLICATION OF PAYMENTS, ETC.
4.5.1. REBORROWING. The amounts of the Revolving Loan or the
Acquisition Loan prepaid pursuant to Sections 4.2.1, 4.2.4, 4.2.5, 4.3 or
from the net proceeds from dispositions of assets permitted by Section
6.11.7 may be reborrowed from time to time prior to the Maturity Date in
accordance with Sections 2.1 and 2.2, subject to the limits set forth
therein.
4.5.2. ORDER OF APPLICATION. In the absence of notice to the contrary
by the Company, any prepayment of the Loan pursuant to Sections 4.2.2,
4.2.3, 4.2.4 or 4.3 shall be applied first to the Revolving Loan, with any
balance to the Acquisition Loan. Subject to the foregoing, any prepayment
of the Loan shall be applied first to the portion of the Revolving Loan or
Acquisition Loan, as the case may be, not then subject to LIBOR Pricing
Options, then the balance of any such prepayment shall be applied to the
portion of the Revolving Loan or Acquisition Loan, as the case may be, then
subject to LIBOR Pricing Options, in the chronological order of the
respective maturities thereof (or as the Company may otherwise specify in
writing), together with any payments required by Section 3.2.4.
4.5.3. PAYMENTS FOR LENDERS. All payments of principal hereunder shall
be made to the Agent for the account of the Lenders in accordance with the
Lenders' respective Percentage Interests in the Credit Obligations so
repaid.
5. CONDITIONS TO EXTENDING CREDIT.
5.1. CONDITIONS ON INITIAL CLOSING DATE. The obligations of the Lenders to
make the initial extension of credit pursuant to Section 2 shall be subject to
the satisfaction, on or before the Initial Closing Date, of the conditions set
forth in this Section 5.1 as well as the further conditions in Section 5.2. If
the conditions set forth in this Section 5.1 are not met on or prior to the
Initial Closing Date, the Lenders shall have no obligation to make any
extensions of credit hereunder.
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5.1.1. NOTES. The Company shall have duly executed and delivered to
the Agent a Revolving Note and an Acquisition Note for each Lender having a
Commitment with respect thereto who has requested delivery of a Note prior
to the Initial Closing Date.
5.1.2. PAYMENT OF FEES. The Company shall have paid to the Agent and
the Syndication Agent the fees contemplated by the separate letter
agreement among the Agent, the Syndication Agent, certain of their
respective affiliates and the Company dated prior to the date hereof, which
fees may be paid from proceeds of the initial loan made pursuant to Section
2.
5.1.3. LEGAL OPINIONS. On the Initial Closing Date, the Lenders shall
have received from the following special counsel for the Company and its
Subsidiaries their respective opinions with respect to the transactions
contemplated by the Credit Documents, which opinions shall be in form and
substance reasonably satisfactory to the Required Lenders:
(1) Latham & Watkins;
(2) Maron & Sandler; and
(3) Perkins, Smith & Cohen.
The Company authorizes and directs its special counsels to furnish the
foregoing opinions.
5.1.4. GUARANTEE AND SECURITY AGREEMENT. Each of the Company and its
Domestic Subsidiaries (other than Cranberry Hill Capital) shall have duly
authorized, executed and delivered to the Agent a Guarantee and Security
Agreement in substantially the form of Exhibit 5.1.4 (the "GUARANTEE AND
SECURITY AGREEMENT").
5.1.5. PERFECTION OF SECURITY. Each Obligor shall have duly
authorized, executed, acknowledged, delivered, filed, registered and
recorded such security agreements, notices, financing statements, memoranda
of intellectual property security interests and other instruments as the
Agent may have reasonably requested in order to perfect the Liens purported
or required pursuant to the Credit Documents to be created in the Credit
Security and shall have paid all filing or recording fees or taxes required
to be paid in connection therewith, including any recording, mortgage,
documentary, transfer or intangible taxes.
5.1.6. SUBORDINATION AGREEMENT. Each of Knowledge Universe and the
Company shall have duly authorized, executed and delivered to the Agent a
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Subordination Agreement in substantially the form of Exhibit 5.1.6 (the
"SUBORDINATION AGREEMENT").
5.1.7. SOLVENCY.
(1) After giving effect to the incurrence of the Credit Obligations,
the Company and its Domestic Subsidiaries, taken as a whole:
(1) will be solvent;
(2) will have assets having a fair saleable value in excess of
the amount required to pay their probable liability on their existing
debts as such debts become absolute and mature;
(3) will have access to adequate capital for the conduct of
their business; and
(4) will have the ability to pay their debts from time to time
incurred as such debts mature.
(2) The Company shall have furnished to the Lenders a certificate,
signed by a Financial Officer, to such effect, together with calculations
pursuant to Section 7.2.1(d) with respect to the Computation Covenants, in
each case giving pro forma effect to the incurrence of the Credit
Obligations.
5.1.8. TERMINATION OF PRIOR CREDIT AGREEMENT. Contemporaneously with
the initial advances hereunder, the Company and its Subsidiaries shall have
paid in full all principal, interest and other accrued and outstanding
amounts under the Prior Credit Agreement (other than reimbursement
obligations with respect to letters of credit issued under the Prior Credit
Agreement that constitute Letters of Credit under this Agreement in
accordance with Section 2.3.1), all Liens securing amounts owing under the
Prior Credit Agreement shall have been released or assigned to the Agent
and the Prior Credit Agreement shall have become terminated and of no
further force or effect (except for indemnity provisions that by their
terms survive the termination of the Prior Credit Agreement).
5.1.9. PROPER PROCEEDINGS. This Agreement, each other Credit Document
and the transactions contemplated hereby and thereby shall have been
authorized by all necessary corporate or other proceedings. All necessary
consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect.
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5.1.10. GENERAL. All legal and corporate proceedings in connection
with the transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to the Agent and the Agent shall have
received copies of all documents, including certified copies of the Charter
and By-Laws of the Company and the other Obligors, records of corporate
proceedings, certificates as to signatures and incumbency of officers and
opinions of counsel, which the Agent may have reasonably requested in
connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities.
5.2. CONDITIONS TO EACH EXTENSION OF CREDIT. The obligations of the Lenders
to make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Closing Date for such extension of credit, of the
following conditions:
5.2.1. OFFICER'S CERTIFICATE. The representations and warranties
contained in Section 7 shall be true and correct on and as of such Closing
Date with the same force and effect as though made on and as of such date
(except as to any representation or warranty which refers to a specific
earlier date); no Default shall exist on such Closing Date prior to or
immediately after giving effect to the requested extension of credit; no
Material Adverse Change shall have occurred; in the event of an advance
under the Acquisition Loan, the proceeds shall be used to finance all or a
portion of an acquisition permitted by Section 6.9 and, on the Initial
Closing Date, amounts outstanding under the Prior Credit Agreement; and,
except in connection with a loan made in accordance with the Cash
Management Agreement in a principal amount less than $250,000 (and loans up
to $2,500,000 made on the first and fifteenth days of the month for payroll
purposes), the Company shall have furnished to the Agent in connection with
the requested extension of credit a certificate to these effects, in
substantially the form of Exhibit 5.2.1, signed by a Financial Officer.
5.2.2. LEGALITY, ETC. The making of the requested extension of credit
shall not (a) subject any Lender to any penalty or special tax (other than
a Tax for which the Company is required to reimburse the Lenders under
Section 3.5), (b) be prohibited by any Legal Requirement or (c) violate any
credit restraint program of the executive branch of the government of the
United States of America, the Board of Governors of the Federal Reserve
System or any other governmental or administrative agency so long as any
Lender reasonably believes that compliance therewith is customary
commercial practice.
6. GENERAL COVENANTS. Each of the Company and the other Guarantors covenants
that, until all of the Credit Obligations shall have been paid in full and until
the Lenders' commitments to extend credit under this Agreement and any other
Credit Document shall have
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been irrevocably terminated, the Company and its Subsidiaries will comply with
the following provisions:
6.1. TAXES AND OTHER CHARGES; ACCOUNTS PAYABLE.
6.1.1. TAXES AND OTHER CHARGES. Each of the Company and its
Subsidiaries shall duly pay and discharge, or cause to be paid and
discharged, before the same becomes in arrears, all taxes, assessments and
other governmental charges imposed upon such Person and its properties,
sales or activities, or upon the income or profits therefrom, as well as
all claims for labor, materials or supplies which if unpaid might by law
become a Lien upon any of its property; PROVIDED, HOWEVER, that any such
tax, assessment, charge or claim need not be paid if the validity or amount
thereof shall at the time be contested in good faith by appropriate
proceedings and if such Person shall, in accordance with GAAP, have set
aside on its books adequate reserves with respect thereto; and PROVIDED,
FURTHER, that each of the Company and its Subsidiaries shall pay or bond,
or cause to be paid or bonded, all such taxes, assessments, charges or
other governmental claims immediately upon the commencement of proceedings
to foreclose any Lien which may have attached as security therefor (except
to the extent such proceedings have been dismissed or stayed).
6.1.2. ACCOUNTS PAYABLE. Each of the Company and its Subsidiaries
shall promptly pay when due, or in conformity with customary trade terms,
all accounts payable incident to the operations of such Person not referred
to in Section 6.1.1; PROVIDED, HOWEVER, that any such accounts payable need
not be paid if the validity or amount thereof shall at the time be
contested in good faith and if such Person shall, in accordance with GAAP,
have set aside on its books adequate reserves with respect thereto.
6.2. CONDUCT OF BUSINESS, ETC.
6.2.1. TYPES OF BUSINESS. The Company and its Subsidiaries shall
engage only in the business of (a) business consulting, (b) minority
investments in and cooperative ventures with Internet, intellectual
property and other service-oriented businesses and (c) other activities
related thereto.
6.2.2. MAINTENANCE OF PROPERTIES. Each of the Company and its
Subsidiaries:
(1) shall keep its properties in such repair, working order and
condition, and shall from time to time make such repairs, replacements,
additions and improvements thereto, as are necessary for the efficient
operation of its businesses and shall comply at all times in all material
respects with all material franchises, licenses and leases to
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which it is party so as to prevent any loss or forfeiture thereof or
thereunder, except where (i) compliance is at the time being contested in
good faith by appropriate proceedings and (ii) failure to comply with the
provisions being contested has not resulted, and does not create a material
risk of resulting, in the aggregate in any Material Adverse Change; and (1)
(2) shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its legal existence and authority
necessary to continue its business; PROVIDED, HOWEVER, that this Section
6.2.2(b) shall not prevent the merger, consolidation or liquidation of
Subsidiaries permitted by Section 6.11.
6.2.3. STATUTORY COMPLIANCE. Each of the Company and its Subsidiaries
shall comply in all material respects with all valid Legal Requirements
applicable to it, except where (a) compliance therewith shall at the time
be contested in good faith by appropriate proceedings and (b) failure so to
comply with the provisions being contested has not resulted, and does not
create a material risk of resulting, in the aggregate in any Material
Adverse Change.
6.2.4. COMPLIANCE WITH MATERIAL AGREEMENTS. Each of the Company and
its Subsidiaries shall comply in all material respects with the Material
Agreements (to the extent not in violation of the other provisions of this
Agreement or any other Credit Document). Without the prior written consent
of the Required Lenders, no Material Agreement shall be amended, modified,
waived or terminated in any manner that would have in any material respect
an adverse effect on the interests of the Lenders.
6.3. INSURANCE.
6.3.1. BUSINESS INTERRUPTION INSURANCE. Each of the Company and its
Subsidiaries shall maintain with financially sound and reputable insurers
insurance related to interruption of business, either for loss of revenues
or for extra expense, in the manner customary for businesses of similar
size engaged in similar activities.
6.3.2. PROPERTY INSURANCE. Each of the Company and its Subsidiaries
shall keep its assets which are of an insurable character insured by
financially sound and reputable insurers against theft and fraud and
against loss or damage by fire, explosion and hazards insured against by
extended coverage to the extent, in amounts and with deductibles at least
as favorable as those generally maintained by businesses of similar size
engaged in similar activities.
6.3.3. LIABILITY INSURANCE. Each of the Company and its Subsidiaries
shall maintain with financially sound and reputable insurers insurance
against liability
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for hazards, risks and liability to persons and property to the extent, in
amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar activities;
PROVIDED, HOWEVER, that it may effect workers' compensation insurance or
similar coverage with respect to operations in any particular state or
other jurisdiction through an insurance fund operated by such state or
jurisdiction or by meeting the self-insurance requirements of such state or
jurisdiction.
6.4. FINANCIAL STATEMENTS AND REPORTS. Each of the Company and its
Subsidiaries shall maintain a system of accounting in which correct entries
shall be made of all transactions in relation to their business and affairs in
accordance with generally accepted accounting practice. The fiscal year of the
Company and its Subsidiaries shall end on December 31 in each year and the
fiscal quarters of the Company and its Subsidiaries shall end on March 31, June
30, September 30 and December 31 in each year.
6.4.1. ANNUAL REPORTS. The Company shall furnish to the Agent (with
copies for each Lender) within 92 days after the end of each fiscal year,
the Consolidated and Consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year, the Consolidated and
Consolidating statements of income and Consolidated statements of changes
in shareholders' equity and of cash flows of the Company and its
Subsidiaries for such fiscal year (all in reasonable detail) and, in the
case of Consolidated financial statements, comparative figures for the
immediately preceding fiscal year, all accompanied by:
(1) Reports of independent certified public accountants of recognized
national standing reasonably satisfactory to the Required Lenders,
containing no material qualification, to the effect that they have audited
the foregoing Consolidated financial statements in accordance with
generally accepted auditing standards and that such Consolidated financial
statements present fairly, in all material respects, the financial position
of the Company and its Subsidiaries covered thereby at the dates thereof
and the results of their operations for the periods covered thereby in
conformity with GAAP.
(2) The statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the
Company and its Subsidiaries no facts have come to their attention that
cause them to believe that any Default exists and in particular that they
have no knowledge of any Default under the Computation Covenants or, if
such is not the case, specifying such Default and the nature thereof. This
statement is furnished by such accountants with the understanding that the
examination of such accountants cannot be relied upon to give such
accountants knowledge of any such Default except as it relates to
accounting or auditing matters within the scope of their audit.
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(3) A certificate of the Company signed by a Financial Officer to the
effect that such officer has caused this Agreement to be reviewed and has
no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof, and what action the Company
has taken, is taking or proposes to take with respect thereto.
(4) Computations by the Company comparing the financial statements
referred to above with the most recent budget for such fiscal year
furnished to the Agent in accordance with Section 6.4.4.
(5) Computations by the Company in substantially the form of Exhibit
6.4 demonstrating, as of the end of such fiscal year, compliance with the
Computation Covenants, signed by a Financial Officer.
(6) Calculations, as at the end of such fiscal year, of (i) the
Accumulated Benefit Obligations for each Plan (other than Multiemployer
Plans) having Accumulated Benefit Obligations in excess of $1,000,000 and
(ii) the fair market value of the assets of such Plan allocable to such
benefits.
(7) Supplements to Exhibits 7.1, 7.3, 7.14 and 7.15 showing any
changes in the information set forth in such exhibits not previously
furnished to the Agent in writing, as well as any changes in the Charter,
Bylaws or incumbency of officers of the Obligors from those previously
certified to the Agent.
(8) In the event of a change in GAAP after December 31, 1998,
computations by the Company, signed by a Financial Officer, reconciling the
financial statements referred to above with financial statements prepared
in accordance with GAAP as applied to the other covenants in Section 6 and
related definitions.
(9) In reasonable detail, management's discussion and analysis of the
results of operations and the financial condition of the Company and its
Subsidiaries as at the end of and for the year covered by such financial
statements.
6.4.2. QUARTERLY REPORTS. The Company shall furnish to the Agent (with
copies for each Lender) within 47 days after the end of each of the first
three fiscal quarters of the Company, the internally prepared Consolidated
and Consolidating balance sheets of the Company and its Subsidiaries as of
the end of such fiscal quarter, the Consolidated and Consolidating
statements of income and the Consolidated statements of changes in
shareholders' equity and of cash flows of the Company and its Subsidiaries
for such fiscal quarter and for the portion of the fiscal year then ended
(all in reasonable detail) and comparative figures for the same period in
the preceding fiscal year, all accompanied by:
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(1) A certificate of the Company signed by a Financial Officer to the
effect that such financial statements have been prepared in accordance with
GAAP and present fairly, in all material respects, the financial position
of the Company and its Subsidiaries covered thereby at the dates thereof
and the results of their operations for the periods covered thereby,
subject only to normal year-end audit adjustments and the addition of
footnotes.
(2) A certificate of the Company signed by a Financial Officer to the
effect that such officer has caused this Agreement to be reviewed and has
no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof and what action the Company
has taken, is taking or proposes to take with respect thereto.
(3) Computations by the Company comparing the financial statements
referred to above with the most recent budget for the period covered
thereby furnished to the Agent in accordance with Section 6.4.4.
(4) Computations by the Company in substantially the form of Exhibit
6.4 demonstrating, as of the end of such quarter, compliance with the
Computation Covenants, signed by a Financial Officer.
(5) Supplements to Exhibits 7.1, 7.3, 7.14 and 7.15 showing any
changes in the information set forth in such exhibits not previously
furnished to the Agent in writing, as well as any changes in the Charter,
Bylaws or incumbency of officers of the Obligors from those previously
certified to the Agent.
(6) In reasonable detail, management's discussion and analysis of the
results of operations and financial condition of the Company and its
Subsidiaries as at the end of and for the fiscal period covered by the
financial statements referred to above.
6.4.3. MONTHLY REPORTS. The Company shall furnish to the Agent (with
copies for each Lender) as soon as available and, in any event, within 25
days after the end of each month (other than months that coincide with the
end of a fiscal quarter of the Company), the internally prepared
Consolidated balance sheet of the Company and its Subsidiaries as at the
end of such month and the Consolidated statements of income and of cash
flows of the Company and its Subsidiaries for such month (all in reasonable
detail), together with other financial reporting items in substantially the
form of the Company's internal monthly reports, all accompanied by a
certificate of the Company signed by a Financial Officer to the effect that
such financial statements were prepared in accordance with GAAP and present
fairly, in all material respects, the financial position of the Persons
covered thereby at the dates thereof and the results of their
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operations for the periods covered thereby, subject only to normal year-end
audit adjustments and the addition of footnotes.
6.4.4. OTHER REPORTS. The Company shall promptly furnish to the Agent
(with copies for each Lender):
(1) As soon as prepared and in any event before the beginning of each
fiscal year, an annual budget and operating projections for such fiscal
year of the Company and its Subsidiaries, prepared in a manner consistent
with the manner in which the financial projections described in Section
7.2.1 were prepared.
(2) Any material updates of such budget and projections.
(3) Any management letters furnished to the Company or any of its
Subsidiaries by the Company's auditors.
(4) All budgets, projections, statements of operations and other
reports furnished generally to the shareholders of the Company.
(5) Such registration statements, proxy statements and reports,
including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by
the Company or any of its Subsidiaries with the Securities and Exchange
Commission.
(6) Any 90-day letter or 30-day letter from the federal Internal
Revenue Service (or the equivalent notice received from state or other
taxing authorities) asserting tax deficiencies against the Company or any
of its Subsidiaries.
6.4.5. NOTICE OF LITIGATION, DEFAULTS, ETC. The Company shall promptly
furnish to the Agent notice of any litigation or any administrative or
arbitration proceeding (a) which creates a material risk of resulting,
after giving effect to any applicable insurance, in the payment by the
Company and its Subsidiaries of more than $500,000 or (b) which results, or
creates a material risk of resulting, in a Material Adverse Change.
Promptly upon acquiring knowledge thereof, the Company shall notify the
Agent of the existence of any Default or Material Adverse Change,
specifying the nature thereof and what action the Company or any of its
Subsidiaries has taken, is taking or proposes to take with respect thereto.
6.4.6. ERISA REPORTS. The Company shall furnish to the Agent (with
copies for each Lender) as soon as available the following items with
respect to any Plan:
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(1) any request for a waiver of the funding standards or an extension
of the amortization period,
(2) notice of any reportable event (as defined in section 4043 of
ERISA), unless the notice requirement with respect thereto has been waived
by regulation,
(3) any notice received by any ERISA Group Person that the PBGC has
instituted or intends to institute proceedings to terminate any Plan, or
that any Multiemployer Plan is insolvent or in reorganization,
(4) notice of the possibility of the termination of any Plan by its
administrator pursuant to section 4041 of ERISA, and
(5) notice of the intention of any ERISA Group Person to withdraw, in
whole or in part, from any Multiemployer Plan.
6.4.7. OTHER INFORMATION. Subject to Section 12, from time to time at
reasonable intervals upon request of the Agent, each of the Company and its
Subsidiaries shall furnish to the Agent such other information regarding
the business, assets, financial condition, income or prospects of the
Company and its Subsidiaries as such officer may reasonably request,
including copies of all tax returns, licenses, agreements, leases and
instruments to which any of the Company or its Subsidiaries is party. Each
Lender's authorized officers and representatives shall have the right
during normal business hours upon reasonable notice and at reasonable
intervals to examine the books and records of the Company and its
Subsidiaries, to make copies and notes therefrom for the purpose of
ascertaining compliance with or obtaining enforcement of this Agreement or
any other Credit Document; PROVIDED, HOWEVER, that the Agent shall
coordinate the exercise of such Lenders' rights to the extent practicable.
6.5. CERTAIN FINANCIAL TESTS.
6.5.1. CONSOLIDATED TOTAL DEBT TO CONSOLIDATED PRO FORMA EBITDA. On
the last day of each fiscal quarter of the Company, Consolidated Total Debt
shall not exceed the percentage set forth in the table below of
Consolidated Pro Forma EBITDA for the period of four consecutive fiscal
quarters ending on such date.
Period Ending Percentage
------------- ----------
June 30, 1999 through 300%
September 30, 2001
December 31, 2001 275%
and thereafter
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6.5.2. CONSOLIDATED PRO FORMA EBITDA MINUS CAPITAL EXPENDITURES TO
CONSOLIDATED PRO FORMA INTEREST EXPENSE. For each period of four
consecutive fiscal quarters of the Company (measured as of the last day of
each fiscal quarter of the Company), the ratio of (a) the remainder of
Consolidated Pro Forma EBITDA MINUS Capital Expenditures to (b)
Consolidated Pro Forma Interest Expense shall equal or exceed 3.00 to 1.00.
6.5.3. QUICK RATIO. The ratio of the sum of cash, Cash Equivalents and
accounts receivable carried on the balance sheet of the Company and its
Subsidiaries determined in accordance with GAAP on a Consolidated basis to
Consolidated Current Liabilities (excluding any portion of the Loan) shall
equal or exceed 1.10 to 1.00 at all times.
6.5.4. CONSOLIDATED ADJUSTED NET WORTH. Consolidated Adjusted Net
Worth shall at all times equal or exceed the sum of (a) 90% of Consolidated
Net Worth as of June 30, 1999, PLUS (b) 75% of Consolidated Adjusted
Positive Consolidated Net Income since June 30, 1999, PLUS (c) 90% of the
amount by which Consolidated shareholders' equity of the Company and its
Subsidiaries has been increased after June 30, 1999 by the proceeds of the
issuance of capital stock or options, warrants or other rights to acquire
such capital stock or from capital contributions.
6.6. INDEBTEDNESS. Neither the Company nor any of its Subsidiaries shall
create, incur, assume or otherwise become or remain liable with respect to any
Indebtedness (or become contractually committed to do so), except the following:
6.6.1. Indebtedness in respect of the Credit Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Current liabilities, other than Financing Debt, incurred in the
ordinary course of business.
6.6.4. To the extent that payment thereof shall not at the time be
required by Section 6.1, Indebtedness in respect of taxes, assessments,
governmental charges and claims for labor, materials and supplies.
6.6.5. Indebtedness secured by Liens of carriers, warehouses,
mechanics, landlords and other Persons permitted by Sections 6.8.5 and
6.8.6.
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6.6.6. Indebtedness in respect of judgments or awards (a) which have
been in force for less than the applicable appeal period or (b) in respect
of which the Company or any Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and, in the case of each of
clauses (a) and (b), the Company or such Subsidiary shall have taken
appropriate reserves therefor in accordance with GAAP and execution of such
judgment or award shall not be levied.
6.6.7. To the extent permitted by Section 6.8.7, Indebtedness in
respect of Capitalized Lease Obligations or secured by purchase money
security interests; PROVIDED, HOWEVER, that the aggregate principal amount
of all Indebtedness permitted by this Section 6.6.7 at any one time
outstanding shall not exceed $5,000,000.
6.6.8. Indebtedness in respect of deferred taxes arising in the
ordinary course of business.
6.6.9. Indebtedness in respect of inter-company loans and advances
among the Company and its Subsidiaries which are not prohibited by Section
6.9.
6.6.10. Unfunded pension liabilities and obligations with respect to
Plans so long as the Company and all other ERISA Group Persons are in
compliance with Section 6.16.
6.6.11. Indebtedness outstanding on the date hereof and described in
Exhibit 7.3 and (except with respect to the Prior Credit Agreement, which
shall be terminated on the Initial Closing Date) all renewals, refinancings
and extensions thereof not in excess of the amount thereof outstanding
immediately prior to such renewal or extension (without reducing
Indebtedness permitted under the other provisions of this Section 6.6).
6.6.12. Unsecured Indebtedness in respect of obligations incurred
pursuant to an acquisition permitted under Section 6.9, the amount of which
is deferred purchase price or based on post-acquisition performance (when
achieved) of the business or assets acquired (or Subsidiary acquiring such
business or assets) in connection with such acquisition, in an amount not
to exceed $1,000,000 at any one time outstanding.
6.6.13. Indebtedness of Foreign Subsidiaries owing to local lenders in
the jurisdiction of operations of such Foreign Subsidiaries in an aggregate
principal amount not exceeding $500,000 at any one time outstanding in an
equivalent amount of United States Funds.
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6.7. GUARANTEES; LETTERS OF CREDIT. Neither the Company nor any of its
Subsidiaries shall become or remain liable with respect to any Guarantee,
including reimbursement obligations, whether contingent or matured, under
letters of credit or other financial guarantees by third parties (or become
contractually committed do to so), except the following:
6.7.1. Letters of Credit and Guarantees of the Credit Obligations.
6.7.2. Guarantees by the Company or its Subsidiaries of Indebtedness
and other obligations incurred by the Company or its Subsidiaries and
permitted by Section 6.6.
6.8. LIENS. Neither the Company nor any of its Subsidiaries shall create,
incur or enter into, or suffer to be created or incurred or to exist, any Lien
(or become contractually committed to do so), except the following:
6.8.1. Liens on the Credit Security that secure the Credit
Obligations.
6.8.2. Liens to secure taxes, assessments and other governmental
charges, to the extent that payment thereof shall not at the time be
required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions
or other social security, (b) in connection with casualty insurance
maintained in accordance with Section 6.3, (c) to secure the performance of
bids, tenders, contracts (other than contracts relating to Financing Debt)
or leases, (d) to secure statutory obligations or surety or appeal bonds,
(e) to secure indemnity, performance or other similar bonds in the ordinary
course of business or (f) in connection with contested amounts to the
extent that payment thereof shall not at that time be required by Section
6.1.
6.8.4. Liens in respect of judgments or awards, to the extent that
such judgments or awards are permitted by Section 6.6.6 but only to the
extent that such Liens are junior to the Liens on the Credit Security
granted to secure the Credit Obligations.
6.8.5. Liens of carriers, warehouses, mechanics and similar Liens, in
each case (a) in existence less than 90 days from the date of creation
thereof or (b) being contested in good faith by the Company or any
Subsidiary in appropriate proceedings (so long as the Company or such
Subsidiary shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto).
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6.8.6. Encumbrances in the nature of (a) zoning restrictions, (b)
easements, (c) restrictions of record on the use of real property, (d)
landlords' and lessors' Liens on rented premises and (e) restrictions on
transfers or assignment of leases, which in each case do not materially
detract from the value of the encumbered property or impair the use thereof
in the business of the Company or any Subsidiary.
6.8.7. Liens constituting (a) purchase money security interests
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices), interests in leases or
tangible personal property (other than inventory) existing or created on
the date on which such property is acquired or within 60 days thereafter,
and (b) the renewal, extension or refunding of any security interest
referred to in the foregoing clause (a) in an amount not to exceed the
amount thereof remaining unpaid immediately prior to such renewal,
extension or refunding; PROVIDED, HOWEVER, that (i) each such security
interest shall attach solely to the particular item of property so
acquired, and the principal amount of Indebtedness (including Indebtedness
in respect of Capitalized Lease Obligations) secured thereby shall not
exceed the cost (including all such Indebtedness secured thereby, whether
or not assumed) of such item of property; and (ii) the aggregate principal
amount of all Indebtedness secured by Liens permitted by this Section 6.8.7
shall not exceed the amount permitted by Section 6.6.7.
6.8.8. Restrictions under federal and state securities laws on the
transfer of securities.
6.8.9. The sale of doubtful accounts receivable for collection in the
ordinary course of business.
6.8.10. Liens as in effect on the date hereof described in Exhibit 7.3
(and renewals and replacements thereof) and securing Indebtedness permitted
by Section 6.6.11 (without reducing Liens permitted under the other
provisions of this Section 6.8).
6.8.11. Liens arising from Uniform Commercial Code financing
statements and similar documents filed on a precautionary basis in respect
of operating leases intended by the parties to be true leases.
6.8.12. Liens on the assets of Foreign Subsidiaries to secure
Indebtedness permitted by Section 6.6.13.
6.9. INVESTMENTS AND ACQUISITIONS. Neither the Company nor any of its
Subsidiaries shall have outstanding, acquire or hold any Investment (including
any Investment consisting of
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the acquisition of any business) (or become contractually committed to do so),
except the following:
6.9.1. Investments of the Company and its Subsidiaries in (a) Wholly
Owned Subsidiaries which are Guarantors as of the date hereof or (b)
Persons that have become Wholly Owned Subsidiaries and Guarantors after the
date hereof in accordance with Section 6.9.6; PROVIDED, HOWEVER, that (a)
no such Investment shall involve the transfer by the Company of any
material assets other than cash and (b) loans and advances from a Foreign
Subsidiary to a Domestic Subsidiary must be subordinated to the Credit
Obligations pursuant to an intercompany subordination agreement in
substantially the form of Exhibit 6.9.2.
6.9.2. Intercompany loans and advances from any Wholly Owned
Subsidiary to the Company but in each case only to the extent reasonably
necessary for Consolidated tax planning and working capital management;
PROVIDED, HOWEVER, that loans and advances from a Foreign Subsidiary to the
Company or a Domestic Subsidiary must be subordinated to the Credit
Obligations pursuant to an intercompany subordination agreement in
substantially the form of Exhibit 6.9.2.
6.9.3. Investments in Cash Equivalents. 1.1.1.
6.9.4. Guarantees permitted by Section 6.7.
6.9.5. So long as immediately before and after giving effect thereto
no Default exists, Investments of the Company and its Subsidiaries in
Foreign Subsidiaries that have been previously acquired or created by the
Company and its Subsidiaries; PROVIDED, HOWEVER, that (a) such Investments
shall not involve the transfer of substantial assets from the Company and
its Domestic Subsidiaries to its Foreign Subsidiaries, other than cash and
surplus equipment, and (b) Investments of the Company and its Domestic
Subsidiaries in Foreign Subsidiaries made pursuant to this Section shall
not exceed $2,000,000 at any one time outstanding MINUS the value of assets
transferred to Foreign Subsidiaries pursuant to Section 6.11.6.
6.9.6. The Company and its Subsidiaries may make acquisitions of
businesses in the same or a substantially similar line of business so long
as:
(a) The Company provides written computations and projections
satisfactory to the Agent demonstrating pro forma compliance with
Section 6.5 and the absence of any Default, both immediately
before and after giving effect to such acquisition.
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(b) The aggregate purchase price (including cash, assumed debt,
earnout payments, seller debt, stock issuances and noncompetition
payments) for such acquisition (including any related
acquisitions) is less than $50,000,000.
(c) The Company has demonstrated to the satisfaction of the Agent
that the business to be acquired has a positive adjusted
Consolidated Pro Forma EBITDA on a trailing 12 month basis for
the 12 months most recently ended prior to the proposed
acquisition (with adjustments to Consolidated Pro Forma EBITDA
being normal and customary for transactions of this type and
approved by the Agent).
(d) The Company has provided the Agent at least 15 Banking Days prior
written notice of such acquisition and copies of all letters of
intent and agreements relating thereto.
(e) The Company or one of its Wholly Owned Subsidiaries is the
surviving entity of such acquisition or, in the event of a stock
acquisition, the Company or one of its Wholly Owned Subsidiaries
will own at least 80% of the capital stock, as well as at least
80% of the capital stock entitled to vote generally for the
election of directors, of the acquired entity.
(f) The acquired business, if an acquired or newly created domestic
corporation, will become a Guarantor and pledge its assets to
secure the credit facility. The Company and the other Guarantors
will pledge the stock (up to 66% of voting stock of a foreign
corporation) of the acquired or newly created entity.
(g) The Lenders will have received a customary legal opinion from
special counsel to the Company with respect to the new Guarantor.
6.9.7. Investments outstanding on the date hereof and described in
Exhibit 7.3 (without reducing Investments permitted under the other
provisions of this Section 6.9).
6.9.8. So long as immediately before and after giving effect thereto
no Default exists, Investments in portfolio companies in an aggregate
amount (calculated at original cost, net of any Distributions received in
respect of such Investments) not to exceed $4,000,000 at any one time
outstanding; PROVIDED, HOWEVER, that (a) no single Investment in any such
portfolio company shall exceed $500,000 at any one time outstanding without
the approval of the Required Lenders, which approval shall not be
unreasonably withheld, and (b) as of the date of such Investment, the
Reference
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Leverage Ratio shall not exceed 250% if such Investment is made on or
before December 31, 2001 or 225% if such Investment is made after December
31, 2001, unless the Company shall obtain the approval of the Required
Lenders to make such Investment.
6.10. DISTRIBUTIONS. Neither the Company nor any of its Subsidiaries shall
make any Distribution (or become contractually committed to do so), except the
following:
6.10.1. So long as immediately before and after giving effect thereto
no Default exists, Subsidiaries of the Company may make Distributions to
the Company or any Wholly Owned Subsidiary of the Company and the Company
and its Subsidiaries may make Investments permitted by Section 6.9.
6.10.2. The Company may make Distributions of PIK Interest on the
Debentures in accordance with their terms and, so long as immediately
before and after giving effect thereto no Default exists, the Company may
make cash interest payments on the Debentures equal to the lesser of (a) an
amount equal to the accrued, scheduled, mandatory cash payments of interest
on the Debentures in accordance with their terms, including subordination
terms and (b) an aggregate amount in any year equal to 10% of the
outstanding principal amount of the Debentures at the time of payment.
6.10.3. So long as immediately before and after giving effect thereto
no Default exists, the Company may repurchase Company stock, options to
acquire such stock and Debentures in an aggregate amount not exceeding
$200,000 in any year in cash, as well as any non-cash repurchases of the
Debentures consummated by offsetting corresponding amounts owing to the
Company by such employees, and any repurchases made from the cash proceeds
of exercises under the Company's stock option plans and employee stock
purchase plans.
6.11. ASSET DISPOSITIONS AND MERGERS. Neither the Company nor any of its
Subsidiaries shall merge or enter into a consolidation or sell, lease, exchange,
sell and lease back, sublease or otherwise dispose of any of its assets (or
become contractually committed to do so), except the following:
6.11.1. The Company and any of its Subsidiaries may sell or otherwise
dispose of (a) inventory and Cash Equivalents in the ordinary course of
business, (b) assets (i) that will be replaced in the ordinary course of
business within 12 months by other assets of equal or greater value or (ii)
that are no longer used or useful in the business of the Company or such
Subsidiary, PROVIDED, HOWEVER that the aggregate fair market value (book
value, if greater) of all assets sold under this clause (b) in any fiscal
year shall not be material, (c) doubtful accounts receivable for collection
purposes in the ordinary course of business and (d) Immaterial
Subsidiaries.
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6.11.2. Any Wholly Owned Subsidiary of the Company may merge,
consolidate or be liquidated into the Company or any other Wholly Owned
Subsidiary of the Company so long as after giving effect to any such merger
to which the Company is a party the Company shall be the surviving or
resulting Person.
6.11.3. Licensing or leasing of assets for fair value in the ordinary
course of business.
6.11.4. Nextera Business Performance Solutions Group, Inc. may
liquidate or otherwise dispose of all its interest in Cranberry Hill
Capital.
6.11.5. Mergers or consolidations in connection with acquisitions
permitted by Section 6.9.
6.11.6. The sale, transfer or other disposition of assets from the
Company to any Guarantor or from a Subsidiary to the Company or a
Guarantor; PROVIDED, HOWEVER, that all such sales, transfers or other
dispositions of assets of the Company and its Domestic Subsidiaries to
Foreign Subsidiaries shall not exceed $2,000,000 in the aggregate MINUS the
outstanding amount of Investments in Foreign Subsidiaries made under
Section 6.9.5.
6.11.7. So long as immediately before and after giving effect thereto
no Default exists, dispositions of assets not to exceed $2,500,000
(measured at net book value, except for assets constituting
available-for-sale securities, which shall be measured at the lower of
original cost or market value) for any fiscal year.
6.11.8. Transactions constituting the offset of Indebtedness permitted
by Section 6.10.3.
6.12. ISSUANCE OF STOCK BY SUBSIDIARIES; SUBSIDIARY DISTRIBUTIONS.
6.12.1. ISSUANCE OF STOCK BY SUBSIDIARIES. No Subsidiary shall issue
or sell any shares of its capital stock or other evidence of beneficial
ownership to any Person other than (a) the Company or any Wholly Owned
Subsidiary of the Company, which shares shall have been pledged to the
Agent as part of the Credit Security to the extent required by the
Guarantee and Security Agreement, (b) directors of Subsidiaries as
qualifying shares to the extent required by Legal Requirements and, in the
case of Foreign Subsidiaries, shares required by Legal Requirements to be
held by foreign nationals and (c) pro rata Distributions to shareholders of
non-Wholly Owned Subsidiaries.
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6.12.2. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except for this
Agreement and the Credit Documents, neither the Company nor any Subsidiary
shall enter into or be bound by any agreement (including covenants
requiring the maintenance of specified amounts of net worth or working
capital) restricting the right of any Subsidiary to make Distributions or
extensions of credit to the Company (directly or indirectly through another
Subsidiary).
6.13. VOLUNTARY PREPAYMENTS OF OTHER INDEBTEDNESS. Neither the Company nor
any of its Subsidiaries shall make any voluntary prepayment of principal of or
interest on any Financing Debt (other than the Credit Obligations) or make any
voluntary redemptions or repurchases of Financing Debt (other than the Credit
Obligations), in each case except in order to facilitate a refinancing of
Indebtedness permitted by Sections 6.6 or 6.10.3.
6.14. DERIVATIVE CONTRACTS. Neither the Company nor any of its Subsidiaries
shall enter into any Hedge Agreement or other financial or commodity derivative
contracts except to provide hedge protection for an underlying economic
transaction in the ordinary course of business.
6.15. NEGATIVE PLEDGE CLAUSES. Neither the Company nor any of its
Subsidiaries shall enter into any agreement, instrument, deed or lease which
prohibits or limits the ability of the Company or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter acquired, or
which requires the grant of any collateral for such obligation if collateral is
granted for another obligation, except the following:
6.15.1. This Agreement and the other Credit Documents.
6.15.2. Covenants in documents creating, or that could create, Liens
permitted by Section 6.8 prohibiting further or any, as the case may be,
Liens on the assets encumbered thereby.
6.16. ERISA, ETC. Each of the Company and its Subsidiaries shall comply,
and shall cause all ERISA Group Persons to comply, in all material respects,
with the provisions of ERISA and the Code applicable to each Plan. Each of the
Company and its Subsidiaries shall meet, and shall cause all ERISA Group Persons
to meet, all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $500,000. The Company and its Subsidiaries shall not withdraw, and shall
cause all other ERISA Group Persons not to withdraw, in whole or in part, from
any Multiemployer Plan so as to give rise to withdrawal
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liability exceeding $500,000 in the aggregate. At no time shall the actuarial
present value of unfunded liabilities for post-employment health care benefits
(other than COBRA continuation coverage benefits), whether or not provided under
a Plan, calculated in a manner consistent with Statement No. 106 of the
Financial Accounting Standards Board, exceed $500,000.
6.17. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any of its
Subsidiaries shall effect any transaction with any of their respective
Affiliates (except for the Company and its Subsidiaries) on a basis less
favorable to the Company and its Subsidiaries than would be the case if such
transaction had been effected with a non-Affiliate.
6.18. RESTRICTED OPERATIONS OF CRANBERRY HILL CAPITAL. Cranberry Hill
Capital will conduct no operations other than owning Investments in former
customers of Symmetrix, Inc. (now known as Nextera Business Performance
Solutions, Inc.) for the benefit of present and former employees of Symmetrix,
Inc. and activities incidental thereto. Cranberry Hill Capital will own no
material assets other than such Investments and cash expected to be spent or
distributed within 90 days.
7. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to extend
credit to the Company hereunder, each of the Company and the other Guarantors
jointly and severally represents and warrants as follows:
7.1. ORGANIZATION AND BUSINESS.
7.1.1. THE COMPANY. The Company is a duly organized and validly
existing corporation, in good standing under the laws of Delaware, with all
power and authority, corporate or otherwise, necessary to (a) enter into
and perform this Agreement and each other Credit Document to which it is
party, (b) incur the Credit Obligations, (c) grant the Agent for the
benefit of the Lenders the security interests in the Credit Security owned
by it to secure the Credit Obligations and (d) own its properties and carry
on the business now conducted or proposed to be conducted by it. Certified
copies of the Charter and By-laws of the Company have been previously
delivered to the Agent and are correct and complete. Exhibit 7.1, as from
time to time hereafter supplemented in accordance with Sections 6.4.1 and
6.4.2, sets forth, as of the later of the date hereof or the end of the
most recent fiscal quarter for which financial statements are required to
be furnished in accordance with such Sections, (i) the jurisdiction of
incorporation of the Company, (ii) the address of the Company's principal
executive office and chief place of business, (iii) each name, including
any trade name, under which the Company conducts its business and (iv) the
jurisdictions in which the Company owns material real or tangible personal
property.
7.1.2. SUBSIDIARIES. Each Subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is
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organized, with all power and authority, corporate or otherwise, necessary
to (a) enter into and perform this Agreement and each other Credit Document
to which it is party, (b) guarantee the Credit Obligations, (c) grant the
Agent for the benefit of the Lenders the security interest in the Credit
Security owned by such Subsidiary to secure the Credit Obligations and (d)
own its properties and carry on the business now conducted or proposed to
be conducted by it. Certified copies of the Charter and By-laws of each
Subsidiary of the Company have been previously delivered to the Agent and
are correct and complete. Exhibit 7.1, as from time to time hereafter
supplemented in accordance with Sections 6.4.1 and 6.4.2, sets forth, as of
the later of the date hereof or the end of the most recent fiscal quarter
for which financial statements are required to be furnished in accordance
with such Sections, (i) the name and jurisdiction of organization of each
Subsidiary of the Company, (ii) the address of the chief executive office
and principal place of business of each such Subsidiary, (iii) each name
under which each such Subsidiary conducts its business, (iv) each
jurisdiction in which each such Subsidiary owns material real or tangible
personal property, and (v) the number of authorized and issued shares and
ownership of each such Subsidiary.
7.1.3. QUALIFICATION. Each of the Company and its Subsidiaries is duly
and legally qualified to do business as a foreign corporation or other
entity and is in good standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified and licensed
under all laws, regulations, ordinances or orders of public authorities, or
otherwise, to carry on its business in the places and in the manner in
which it is conducted, except for failures to be so qualified, authorized
or licensed which would not in the aggregate result, or create a material
risk of resulting, in any Material Adverse Change.
7.1.4. CAPITALIZATION. Except as set forth in Exhibit 7.1, as from
time to time hereafter supplemented in accordance with Sections 6.4.1 and
6.4.2, no options, warrants, conversion rights, preemptive rights or other
statutory or contractual rights to purchase shares of capital stock or
other securities of any Subsidiary now exist, nor has any Subsidiary
authorized any such right, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.
7.2. FINANCIAL STATEMENTS AND OTHER INFORMATION; MATERIAL AGREEMENTS.
7.2.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company has
previously furnished to the Agent copies of the following:
(1) The audited Consolidated and unaudited Consolidating balance
sheets of the Company and its Subsidiaries as at December 31 in each of
1996, 1997 and 1998 and the audited Consolidated and unaudited
Consolidating statements of income and the audited Consolidated statements
of changes in shareholders' equity and of cash flows of
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the Company and its Subsidiaries for the fiscal years (or the fiscal
quarter, in the case of June 30, 1999) of the Company then ended.
(2) The unaudited Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1999 and the unaudited Consolidated statements
of income and of cash flows of the Company and its Subsidiaries for the
fiscal quarter and the portion of the fiscal year then ended.
(3) The three-year financial and operational projections for the
Company and its Subsidiaries dated September 1999.
(4) Calculations with respect to the Computation Covenants as of the
end of the most recent fiscal quarter preceding the date hereof on a pro
forma basis giving effect to the incurrence of the Credit Obligations.
(5) The registration statement on Form S-1 of the Company, together
with all amendments thereto, filed by the Company with the Securities and
Exchange Commission in connection with its initial public offering of Class
A Common Stock in May 1999 (the "PROSPECTUS").
The audited Consolidated financial statements (including the notes
thereto) referred to in clause (a) above were prepared in accordance with
GAAP and fairly present in all material respects the financial position of
the Company and its Subsidiaries on a Consolidated basis at the respective
dates thereof and the results of their operations for the periods covered
thereby. The unaudited Consolidating financial statements referred to in
clause (a) above and the unaudited Consolidated financial statements
referred to in clause (b) above were prepared in accordance with GAAP and
fairly present in all material respects the financial position of the
Company and its Subsidiaries at the respective dates thereof and the
results of their operations for the periods covered thereby, subject to
normal year-end audit adjustments and the addition of footnotes in the case
of interim financial statements. Neither the Company nor any of its
Subsidiaries has any known contingent liability material to the Company and
its Subsidiaries on a Consolidated basis which is not reflected in the
balance sheets referred to in clauses (a) or (b) above (or delivered
pursuant to Sections 6.4.1 or 6.4.2) or in the notes thereto.
In the Company's judgment, the financial and operational projections
referred to in clause (c) above constitute a reasonable basis as of the
Initial Closing Date for the assessment of the future performance of the
Company and its Subsidiaries during the periods indicated therein, it being
understood that any projected financial information represents an estimate,
based on various assumptions, of future results of operations which may or
may not in fact occur.
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The Prospectus contained all information required to be contained
therein and otherwise complied in all material respects with the Securities
Act.
7.2.2. MATERIAL AGREEMENTS. The Company has previously furnished to
the Agent correct and complete copies, including all exhibits, schedules
and amendments thereto, of the agreements and instruments, each as in
effect on the date hereof, listed in Exhibit 7.2.2, which constitute all
agreements and instruments material to the Company and its Subsidiaries on
a Consolidated basis (the "MATERIAL AGREEMENTS").
7.3. AGREEMENTS RELATING TO FINANCING DEBT, INVESTMENTS, ETC. Exhibit 7.3,
as from time to time hereafter supplemented in accordance with Sections 6.4.1
and 6.4.2, sets forth:
7.3.1. The amounts (as of the dates indicated in Exhibit 7.3, as so
supplemented) of all Financing Debt of the Company and its Subsidiaries and
all agreements which relate to such Financing Debt.
7.3.2. All Liens and Guarantees with respect to such Financing Debt.
7.3.3. Certain material Investments outstanding as of the date hereof
and all agreements which directly or indirectly require the Company or any
Subsidiary to make any Investment.
7.3.4. All trademarks, tradenames, service marks, service names and
patents owned by the Company and its Subsidiaries that are registered with
the federal Patent and Trademark Office (or with respect to which
applications for such registration have been filed).
7.3.5. All copyrights owned by the Company and its Subsidiaries that
are registered with the federal Copyright Office.
7.3.6. All bank and deposit accounts owned by the Company and its
Subsidiaries.
The Company has furnished the Agent correct and complete copies of any
agreements described above in this Section 7.3 requested by the Agent.
7.4. CHANGES IN CONDITION. Between June 30, 1999 and the date hereof, no
Material Adverse Change has occurred and between June 30, 1999 and the date
hereof, neither the Company nor any Subsidiary of the Company has entered into
any material transaction outside
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the ordinary course of business except for the transactions contemplated by this
Agreement and the Material Agreements and as otherwise disclosed in writing to
the Agent.
7.5. TITLE TO ASSETS. The Company and its Subsidiaries have good and
marketable title to all material assets necessary for or used in the operations
of their business as now conducted by them and reflected in the most recent
balance sheet referred to in Section 7.2.1 (or the balance sheet most recently
furnished to the Agent pursuant to Sections 6.4.1 or 6.4.2), and to all assets
acquired subsequent to the date of such balance sheet, subject to no Liens
except for Liens permitted by Section 6.8 and except for assets disposed of as
permitted by Section 6.11.
7.6. OPERATIONS IN CONFORMITY WITH LAW, ETC. The operations of the Company
and its Subsidiaries as now conducted or proposed to be conducted are not in
violation of, nor is the Company or its Subsidiaries in default under, any Legal
Requirement presently in effect, except for such violations and defaults as do
not and will not, in the aggregate, result, or create a material risk of
resulting, in any Material Adverse Change. The Company has received no notice of
any such violation or default and has no knowledge of any basis on which the
operations of the Company or its Subsidiaries, as now conducted and as currently
proposed to be conducted after the date hereof, would be held so as to violate
or to give rise to any such violation or default.
7.7. LITIGATION. Except as set forth on Exhibit 7.7, no litigation, at law
or in equity, or any proceeding before any court, board or other governmental or
administrative agency or any arbitrator is pending or, to the knowledge of the
Company or any Guarantor, threatened which involves any material risk of any
final judgment, order or liability which, after giving effect to any applicable
insurance, has resulted, or creates a material risk of resulting, in any
Material Adverse Change or which seeks to enjoin the consummation, or which
questions the validity, of any of the transactions contemplated by this
Agreement or any other Credit Document. Except as set forth on Exhibit 7.7, no
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds the
Company or any of its Subsidiaries which has resulted, or creates a material
risk of resulting, in any Material Adverse Change.
7.8. AUTHORIZATION AND ENFORCEABILITY. Each of the Company and each other
Obligor has taken all corporate action required to execute, deliver and perform
this Agreement and each other Credit Document to which it is party. No consent
of stockholders of the Company is necessary in order to authorize the execution,
delivery or performance of this Agreement or any other Credit Document to which
the Company is party. Each of this Agreement and each other Credit Document
constitutes the legal, valid and binding obligation of each Obligor party
thereto and is enforceable against such Obligor in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally.
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7.9. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution and delivery of
this Agreement or any other Credit Document, nor the making of any borrowings
hereunder, nor the guaranteeing of the Credit Obligations, nor the securing of
the Credit Obligations with the Credit Security, nor the consummation of any
transaction referred to in or contemplated by this Agreement or any other Credit
Document, nor the fulfillment of the terms hereof or thereof or of any other
agreement, instrument, deed or lease contemplated by this Agreement or any other
Credit Document has constituted or resulted in or will constitute or result in:
(1) any breach or termination of the provisions of any agreement,
instrument, deed or lease which is material to the Company and its
Subsidiaries, taken as a whole, or which would have a material adverse
effect on the rights of the Lenders under the Credit Documents, to which
the Company, any of its Subsidiaries or any other Obligor is a party or by
which it is bound, or of the Charter or By-laws of the Company, any of its
Subsidiaries or any other Obligor;
(2) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company, any of
its Subsidiaries or any other Obligor;
(3) the creation under any agreement, instrument, deed or lease of
any Lien (other than Liens on the Credit Security which secure the Credit
Obligations) upon any of the assets of the Company, any of its Subsidiaries
or any other Obligor; or
(4) any redemption, retirement or other repurchase obligation of the
Company, any of its Subsidiaries or any other Obligor under any Charter,
By-law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company, any of its Subsidiaries or any other Obligor
in connection with the execution, delivery and performance of this Agreement or
any other Credit Document, the transactions contemplated hereby or thereby, the
making of any borrowing hereunder, the guaranteeing of the Credit Obligations or
the securing of the Credit Obligations with the Credit Security (other than
filings necessary to perfect the Agent's security interest in the Credit
Security).
7.10. DEFAULTS. Neither the Company nor any of its Subsidiaries is in
default under any provision of its Charter or By-laws or of this Agreement or
any other Credit Document. Neither the Company nor any of its Subsidiaries is in
default under any provision of any agreement, instrument, deed or lease to which
it is party or by which it or its property is bound so as to result, or create a
material risk of resulting, in any Material Adverse Change.
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7.11. LICENSES, ETC. The Company and its Subsidiaries have all patents,
patent applications, patent licenses, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, licenses, franchises,
permits, authorizations and other rights as are reasonably necessary for the
conduct of the business of the Company and its Subsidiaries as now conducted by
them. All of the foregoing are in full force and effect in all material
respects, and each of the Company and its Subsidiaries is in substantial
compliance with the foregoing without any known conflict with the valid rights
of others which has resulted, or creates a material risk of resulting, in any
Material Adverse Change. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination of any such
license, franchise or other right or which affects the rights of any of the
Company and its Subsidiaries thereunder so as to result, or to create a material
risk of resulting, in any Material Adverse Change.
7.12. TAX RETURNS. Except as set forth on Exhibit 7.12, each of the Company
and its Subsidiaries has filed all material tax and information returns which
are required to be filed by it and has paid, or made adequate provision for the
payment of, all taxes which have or may become due pursuant to such returns or
to any assessment received by it, other than taxes and assessments being
contested by the Company and its Subsidiaries in good faith by appropriate
proceedings and for which adequate reserves have been taken in accordance with
GAAP. Except as set forth on Exhibit 7.12, neither the Company nor any of its
Subsidiaries knows of any material additional assessments or any basis therefor.
The Company reasonably believes that the charges, accruals and reserves on the
books of the Company and its Subsidiaries in respect of taxes or other
governmental charges are adequate.
7.13. CERTAIN BUSINESS REPRESENTATIONS.
7.13.1. LABOR RELATIONS. No dispute or controversy between the Company
or any of its Subsidiaries and any of their respective employees has
resulted, or is reasonably likely to result, in any Material Adverse
Change, and neither the Company nor any of its Subsidiaries anticipates
that its relationships with its unions or employees will result, or are
reasonably likely to result, in any Material Adverse Change. The Company
and each of its Subsidiaries is in compliance in all material respects with
all federal and state laws with respect to (a) non-discrimination in
employment with which the failure to comply, in the aggregate, has
resulted, or creates a material risk of resulting, in a Material Adverse
Change and (b) the payment of wages.
7.13.2. ANTITRUST. Each of the Company and its Subsidiaries is in
compliance in all material respects with all federal and state antitrust
laws relating to its business and the geographic concentration of its
business.
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7.13.3. YEAR 2000 ISSUES. Based on a review of the operations of the
Company and its Subsidiaries as they relate to the processing, storage and
retrieval of data, the Company does not believe that a Material Adverse
Change is reasonably likely to occur as a result of computer software and
hardware that will not function with respect to periods commencing January
1, 2000 at least as effectively as with respect to periods ending on or
prior to December 31, 1999.
7.13.4. FUTURE EXPENDITURES. Neither the Company nor any of its
Subsidiaries anticipate that the future expenditures, if any, by the
Company and its Subsidiaries needed to meet the provisions of any federal,
state or foreign governmental statutes, orders, rules or regulations will
be so burdensome as to result, or create a material risk of resulting, in
any Material Adverse Change.
7.14. PENSION PLANS. Each Plan (other than a Multiemployer Plan) and, to
the knowledge of the Company and its Subsidiaries, each Multiemployer Plan is in
material compliance with the applicable provisions of ERISA and the Code. Each
Multiemployer Plan and each Plan that constitutes a "defined benefit plan" (as
defined in ERISA) are set forth in Exhibit 7.14 (as from time to time hereafter
supplemented in accordance with Sections 6.4.1 and 6.4.2). Each ERISA Group
Person has met all of the material funding standards applicable to all Plans
that are not Multiemployer Plans, and no condition exists which would permit the
institution of proceedings to terminate any Plan that is not a Multiemployer
Plan under section 4042 of ERISA. To the knowledge of the Company and each
Subsidiary, no Plan that is a Multiemployer Plan is currently insolvent or in
reorganization or has been terminated within the meaning of ERISA.
7.15. ENVIRONMENTAL REGULATIONS.
7.15.1. ENVIRONMENTAL COMPLIANCE. Each of the Company and its
Subsidiaries is in compliance in all material respects with the Clean Air
Act, the Federal Water Pollution Control Act, the Marine Protection
Research and Sanctuaries Act, RCRA, CERCLA and any other Environmental Law
in effect in any jurisdiction in which any properties of the Company or any
of its Subsidiaries are located or where any of them conducts its business,
and with all applicable published rules and regulations (and applicable
standards and requirements) of the federal Environmental Protection Agency
and of any similar agencies in states or foreign countries in which the
Company or its Subsidiaries conducts its business other than those which in
the aggregate have not resulted, and do not create a material risk of
resulting, in a Material Adverse Change.
7.15.2. ENVIRONMENTAL CONDITION OF PROPERTIES. To the knowledge of the
Company, none of the properties owned or leased by the Company or any of
its Subsidiaries has been used as a treatment, storage or disposal site for
Hazardous
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Material, other than as disclosed in Exhibit 7.15 (as from time to time
hereafter supplemented in accordance with Sections 6.4.1 and 6.4.2). To the
knowledge of the Company, no Hazardous Material is present in any real
property currently or formerly owned or operated by the Company or any of
its Subsidiaries except that which has not resulted, and does not create a
material risk of resulting, in a Material Adverse Change.
7.16. GOVERNMENT REGULATION; MARGIN STOCK.
7.16.1. GOVERNMENT REGULATION. Neither the Company nor any of its
Subsidiaries, nor any Person controlling the Company or any of its
Subsidiaries or under common control with the Company or any of its
Subsidiaries, is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act, the
Interstate Commerce Act or any statute or regulation which regulates the
incurring by the Company or any of its Subsidiaries of Financing Debt as
contemplated by this Agreement and the other Credit Documents.
7.16.2. MARGIN STOCK. Except as set forth on Exhibit 7.16.2, neither
the Company nor any of its Subsidiaries owns any Margin Stock; PROVIDED,
HOWEVER, that the value of all such Margin Stock owned by the Company and
its Subsidiaries does not exceed 25% of the book value of the total assets
of the Company and its Subsidiaries.
7.17. DISCLOSURE. Neither this Agreement nor any other Credit Document nor
any financial statement, report, notice, mortgage, assignment or certificate,
taken as a whole, furnished or to be furnished to the Lenders or the Agent by or
on behalf of the Company or any of its Subsidiaries in connection with the
transactions contemplated hereby or by such Credit Document contains any untrue
statement of material fact or omits to state a material fact necessary in order
to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made.
8. DEFAULTS.
8.1. EVENTS OF DEFAULT. The following events are referred to as "EVENTS OF
DEFAULT":
8.1.1. PAYMENT. The Company shall fail to make any payment in respect
of: (a) interest or any fee on or in respect of any of the Credit
Obligations owed by it as the same shall become due and payable, and such
failure shall continue for a period of three Banking Days, or (b) any
Credit Obligation with respect to payments made by any Letter of Credit
Issuer under any Letter of Credit or any draft drawn thereunder within
three Banking Days after demand therefor by such Letter of Credit Issuer
(whether by loan, cash or otherwise) or (c) principal of any of the Credit
Obligations owed by it as the same shall become due, whether at maturity or
by acceleration or otherwise.
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8.1.2. SPECIFIED COVENANTS. The Company or any of its Subsidiaries
shall fail to perform or observe any of the provisions of Section 6.4.5 or
Sections 6.5 through 6.17.
8.1.3. OTHER COVENANTS. The Company, any of its Subsidiaries or any
other Obligor shall fail to perform or observe any other covenant,
agreement or provision to be performed or observed by it under this
Agreement or any other Credit Document, and such failure shall not be
rectified or cured to the written satisfaction of the Required Lenders
within 30 days after the earlier of (a) notice thereof by the Agent to the
Company or (b) a Financial Officer shall have actual knowledge thereof.
8.1.4. REPRESENTATIONS AND WARRANTIES. Any representation or warranty
of or with respect to the Company, any of its Subsidiaries or any other
Obligor made to the Lenders or the Agent in, pursuant to or in connection
with this Agreement or any other Credit Document, or in any financial
statement, report, notice, mortgage, assignment or certificate delivered to
the Agent or any of the Lenders by the Company, any of its Subsidiaries or
any other Obligor in connection herewith or therewith, shall be false in
any material respect on the date as of which it was made.
8.1.5. MATERIAL FINANCING DEBT CROSS DEFAULT, ETC.
(1) The Company or any of its Subsidiaries shall fail to make any
payment when due (after giving effect to any applicable grace periods) in
respect of any Material Financing Debt;
(2) the Company or any of its Subsidiaries shall fail to perform or
observe the terms of any agreement or instrument relating to any Material
Financing Debt, and such failure shall continue, without having been duly
cured, waived or consented to, beyond the period of grace, if any,
specified in such agreement or instrument, and such failure shall permit
the acceleration of such Material Financing Debt;
(3) all or any part of any Material Financing Debt of the Company or
any of its Subsidiaries shall be accelerated or shall become due or payable
prior to its stated maturity (except with respect to voluntary prepayments
thereof) for any reason whatsoever;
(4) any Lien on any property of the Company or any of its
Subsidiaries securing any Material Financing Debt shall be enforced by
foreclosure or similar action; or
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(5) any holder of any Material Financing Debt shall exercise any
right of rescission with respect to the issuance thereof or put, mandatory
prepayment or repurchase rights against any Obligor with respect to such
Material Financing Debt (other than any such rights that may be satisfied
with "payment in kind" notes or other similar securities).
8.1.6. OWNERSHIP; LIQUIDATION; ETC. Except as permitted by Section
6.11:
(1) the Company shall cease to own, directly or indirectly, all the
capital stock of its Subsidiaries, except (i) to the extent permitted by
Section 6.12.1, (ii) shares of Sibson Canada owned by third parties as of
the date hereof and (iii) as permitted pursuant to Section 6.9; or
(2) Knowledge Enterprises and its Affiliates shall cease to own
voting stock necessary to elect a majority of the members of the Company's
board of directors, other than as a result of stock issuances by the
Company; or
(3) a majority of the board of directors of the Company shall be
neither (i) nominated or approved in advance by the board of directors of
the Company nor (ii) appointed or approved in advance by directors so
nominated or approved; or
(4) any Person, together with "affiliates" and "associates" of such
Person within the meaning of Rule 12b-2 of the Exchange Act, or any "group"
including such Person under sections 13(d) and 14(d) of the Exchange Act,
other than the Persons described in paragraph (b) above, shall acquire
after the date hereof (i) beneficial ownership within the meaning of Rule
13d-3 of the Exchange Act of 33% or more of either the voting stock or
total equity capital of the Company or (ii) direct or indirect control of
the Company through a shareholder, voting or similar agreement or
arrangement; or
(5) except for Immaterial Subsidiaries, the Company or any of its
Subsidiaries or any other Obligor shall initiate any action to dissolve,
liquidate or otherwise terminate its existence.
8.1.7. ENFORCEABILITY, ETC. Any Credit Document shall cease for any
reason (other than the scheduled termination thereof in accordance with its
terms) to be enforceable in accordance with its terms or in full force and
effect; or any party to any Credit Document shall so assert in a judicial
or similar proceeding; or the security interests created by this Agreement
or any other Credit Documents shall cease to be enforceable and of the same
effect and priority purported to be created hereby, except to the extent
that any such loss of perfection or priority results (a) from the failure
of
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the Agent to maintain possession of certificates representing securities
pledged under the Credit Documents or (b) from any gross negligence or
willful misconduct of the Agent.
8.1.8. JUDGMENTS. A final judgment (a) which, with other outstanding
final judgments against the Company and its Subsidiaries, exceeds an
aggregate of $500,000 in excess of applicable insurance coverage shall be
rendered against the Company or any of its Subsidiaries, or (b) which
grants injunctive relief that results, or creates a material risk of
resulting, in a Material Adverse Change and in either case if (i) within 45
days after entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal or (ii) within 45 days after the
expiration of any such stay, such judgment shall not have been discharged.
8.1.9. ERISA. Any "reportable event" (as defined in section 4043 of
ERISA) shall have occurred that reasonably could be expected to result in
termination of a Plan or the appointment by the appropriate United States
District Court of a trustee to administer any Plan or the imposition of a
Lien in favor of a Plan; or any ERISA Group Person shall fail to pay when
due amounts aggregating in excess of $500,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terminate a Plan shall be filed under Title IV of ERISA by any
ERISA Group Person or administrator; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to
be appointed to administer any Plan or a proceeding shall be instituted by
a fiduciary of any Plan against any ERISA Group Person to enforce section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been
dismissed within 45 days thereafter; or a condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that
any Plan must be terminated.
8.1.10. BANKRUPTCY, ETC. The Company, any of its Subsidiaries or any
other Obligor shall:
(1) commence a voluntary case under the Bankruptcy Code or authorize,
by appropriate proceedings of its board of directors or other governing
body, the commencement of such a voluntary case;
(2) (i) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code that shall not have been dismissed within 60
days after the date on which such petition is filed, or (ii) file an answer
or other pleading within such 60-day period admitting or failing to deny
the material allegations of such a petition or seeking, consenting to or
acquiescing in the relief therein provided, or (iii) have entered against
it an order for relief in any involuntary case commenced under the
Bankruptcy Code;
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(3) seek relief as a debtor under any applicable law, other than the
Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief;
(4) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation or reorganization as a debtor or any modification
or alteration of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
portion of its property; or
(5) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the appointment
of, or suffer to exist a receiver or other custodian for, all or a
substantial portion of its property.
8.2. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT. If any one or more
Events of Default shall occur and be continuing, then in each and every such
case:
8.2.1. TERMINATE OBLIGATION TO EXTEND CREDIT. Upon written request of
the Required Lenders, the Agent shall terminate the obligations of the
Lenders to make any further extensions of credit under the Credit Documents
by furnishing notice of such termination to the Company; PROVIDED, HOWEVER,
that if a Bankruptcy Default shall have occurred, the obligations of the
Lenders to make any further extensions of credit under the Credit Documents
shall automatically terminate.
8.2.2. SPECIFIC PERFORMANCE; EXERCISE OF RIGHTS. Upon written request
of the Required Lenders, the Agent shall proceed to protect and enforce the
Lenders' rights by suit in equity, action at law and/or other appropriate
proceeding, either for specific performance of any covenant or condition
contained in this Agreement or any other Credit Document (other than Hedge
Agreements) or in any instrument or assignment delivered to the Lenders
pursuant to this Agreement or any other Credit Document (other than Hedge
Agreements), or in aid of the exercise of any power granted in this
Agreement or any other Credit Document (other than Hedge Agreements) or any
such instrument or assignment.
8.2.3. ACCELERATION. Upon written request of the Required Lenders, the
Agent shall by notice in writing to the Company (a) declare all or any part
of the unpaid balance of the Credit Obligations (other than amounts under
Hedge Agreements) then outstanding to be immediately due and payable, and
(b) require the Company immediately to deposit with the Agent in cash an
amount equal to the then Letter of Credit Exposure (which cash shall be
held and applied as provided in Section 4.4), and thereupon such unpaid
balance or part thereof and such amount equal to the Letter of
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Credit Exposure shall become so due and payable without presentation,
protest or further demand or notice of any kind, all of which are hereby
expressly waived; PROVIDED, HOWEVER, that if a Bankruptcy Default shall
have occurred, the unpaid balance of the Credit Obligations (other than
amounts under Hedge Agreements) shall automatically become immediately due
and payable.
8.2.4. ENFORCEMENT OF PAYMENT; CREDIT SECURITY; SETOFF. Upon written
request of the Required Lenders, the Agent shall proceed to enforce payment
of the Credit Obligations in such manner as it may elect, to cancel, or
instruct other Letter of Credit Issuers to cancel, any outstanding Letters
of Credit which permit the cancellation thereof and to realize upon any and
all rights in the Credit Security. The Lenders may offset and apply toward
the payment of the Credit Obligations (and/or toward the curing of any
Event of Default) any Indebtedness from the Lenders to the respective
Obligors, including any Indebtedness represented by deposits in any account
maintained with the Lenders, regardless of the adequacy of any security for
the Credit Obligations. The Lenders shall have no duty to determine the
adequacy of any such security in connection with any such offset.
8.2.5. CUMULATIVE REMEDIES. To the extent not prohibited by applicable
law which cannot be waived, all of the Lenders' rights hereunder and under
each other Credit Document shall be cumulative.
8.3. ANNULMENT OF DEFAULTS. Once an Event of Default has occurred, such
Event of Default shall be deemed to exist and be continuing for all purposes of
the Credit Documents (other than Hedge Agreements) until the Required Lenders or
the Agent (with the consent of the Required Lenders) shall have waived such
Event of Default in writing, stated in writing that the same has been cured to
such Lenders' reasonable satisfaction or entered into an amendment to this
Agreement which by its express terms cures such Event of Default, at which time
such Event of Default shall no longer be deemed to exist or to have continued.
No such action by the Lenders or the Agent shall extend to or affect any
subsequent Event of Default or impair any rights of the Lenders upon the
occurrence thereof. The making of any extension of credit during the existence
of any Default or Event of Default shall not constitute a waiver thereof.
8.4. WAIVERS. To the extent that such waiver is not prohibited by the
provisions of applicable law that cannot be waived, each of the Company and the
other Obligors waives:
(1) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any
other Credit Document), protests, notices of protest and notices of
dishonor;
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(2) any requirement of diligence or promptness on the part of the
Agent or any Lender in the enforcement of its rights under this Agreement
or any other Credit Document;
(3) any and all notices of every kind and description which may be
required to be given by any statute or rule of law; and
(4) any defense (other than indefeasible payment in full) which it
may now or hereafter have with respect to its liability under this
Agreement or any other Credit Document or with respect to the Credit
Obligations.
9. EXPENSES; INDEMNITY.
9.1. EXPENSES. Whether or not the transactions contemplated hereby shall be
consummated, the Company will pay:
(1) all reasonable expenses of the Agent and the Syndication Agent
(including the out-of-pocket expenses related to forming the group of
Lenders and reasonable fees and disbursements of the counsel to the Agent
and the Syndication Agent) in connection with the negotiation, preparation
and duplication of this Agreement and each other Credit Document,
examinations by, and reports of, the Agent's commercial financial
examiners, fixed asset appraisers and environmental consultants, the
transactions contemplated hereby and thereby and amendments, waivers,
consents and other operations hereunder and thereunder;
(2) all recording and filing fees and transfer and documentary stamp
and similar taxes at any time payable in respect of this Agreement, any
other Credit Document, any Credit Security or the incurrence of the Credit
Obligations; and
(3) all other reasonable expenses incurred by the Agent, the Lenders
or the holder of any Credit Obligation in connection with the enforcement
of any rights hereunder or under any other Credit Document or any work-out
negotiations relating to the Credit Obligations, including costs of
collection and reasonable attorneys' fees (including a reasonable allowance
for the hourly cost of attorneys employed by the Lenders on a salaried
basis) and expenses.
9.2. GENERAL INDEMNITY. The Company shall indemnify the Lenders and the
Agent and hold them harmless from any liability, loss or damage resulting from
the violation by the Company of Section 2.4. In addition, the Company shall
indemnify each Lender, the Agent, the Syndication Agent, each of the Lenders' or
the Agent's or the Syndication Agent's directors, officers, employees, agents,
attorneys, accountants, consultants and each Person, if any, who controls any
Lender or the Agent (each Lender, the Agent and each of such
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directors, officers, employees, agents, attorneys, accountants, consultants and
control Persons is referred to as an "INDEMNIFIED PARTY") and hold each of them
harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party relating
to, arising out of or by reason of this Agreement or any other Credit Document
in connection with (a) the Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any of its Subsidiaries or their Affiliates, (b) any litigation or
investigation involving the Company, any of its Subsidiaries or their
Affiliates, or any officer, director or employee thereof, (c) the existence or
exercise of any security rights with respect to the Credit Security in
accordance with the Credit Documents, or (d) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby; PROVIDED, HOWEVER,
that the foregoing indemnity shall not apply (i) to litigation commenced by the
Company against the Lenders or the Agent or the Syndication Agent which seeks
enforcement of any of the rights of the Company hereunder or under any other
Credit Document and is determined adversely to the Lenders or the Agent or the
Syndication Agent in a final nonappealable judgment or (ii) to the extent such
claims, damages, liabilities and expenses result from the Indemnified Party's
own gross negligence or willful misconduct. THE COMPANY EXPRESSLY ACKNOWLEDGES
THAT IT MAY BE REQUIRED TO INDEMNIFY PERSONS AGAINST THEIR OWN NEGLIGENCE.
9.3. INDEMNITY WITH RESPECT TO LETTERS OF CREDIT. The Company shall
indemnify each Letter of Credit Issuer and its correspondents and hold each of
them harmless from and against any and all claims, losses, liabilities, damages
and reasonable expenses (including reasonable attorneys' fees) arising from or
in connection with any Letter of Credit, including any such claim, loss,
liability, damage or expense arising out of any transfer, sale, delivery,
surrender or endorsement of any invoice, bill of lading, warehouse receipt or
other document at any time held by the Agent, such Letter of Credit Issuer or
held for their respective accounts by any of their correspondents, in connection
with any Letter of Credit, except to the extent such claims, losses,
liabilities, damages and expenses result from gross negligence or willful
misconduct on the part of the Agent or any other Letter of Credit Issuer.
10. OPERATIONS; AGENT.
10.1. INTERESTS IN CREDITS. The Percentage Interest of each Lender in the
respective portions of the Loan and Letter of Credit Exposure, and the related
Commitments, shall be computed based on the maximum principal amount for each
Lender as set forth in the Register, as from time to time in effect. The current
Percentage Interests are set forth in Exhibit 10.1, which may be updated by the
Agent from time to time to conform to the Register.
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10.2. AGENT'S AUTHORITY TO ACT, ETC. Each of the Lenders appoints and
authorizes BankBoston to act for the Lenders as the Lenders' Agent in connection
with the transactions contemplated by this Agreement and the other Credit
Documents (other than Hedge Agreements) on the terms set forth herein. All
action in connection with the enforcement of, or the exercise of any remedies
(other than the Lenders' rights of set-off as provided in Section 8.2.4 or in
any Credit Document) in respect of the Credit Obligations and Credit Documents
shall be taken by the Agent.
10.3. COMPANY TO PAY AGENT, ETC. The Company and each Guarantor shall be
fully protected in making all payments in respect of the Credit Obligations
(other than payments under Hedge Agreements) to the Agent, in relying upon
consents, modifications and amendments executed by the Agent purportedly on the
Lenders' behalf, and in dealing with the Agent as herein provided. The Agent may
charge the accounts of the Company, on the dates when the amounts thereof become
due and payable, with the amounts of the principal of and interest on the Loan,
any amounts paid by the Letter of Credit Issuers to third parties under Letters
of Credit or drafts presented thereunder, commitment fees, Letter of Credit fees
and all other fees and amounts owing under any Credit Document (other than Hedge
Agreements).
10.4. LENDER OPERATIONS FOR ADVANCES, LETTERS OF CREDIT, ETC.
10.4.1. ADVANCES. Except as the Lenders otherwise agree for loans made
in accordance with the Cash Management Agreement, on each Closing Date,
each Lender shall advance to the Agent in immediately available funds such
Lender's Percentage Interest in the portion of the Loan advanced on such
Closing Date prior to 12:00 noon (Boston time). If such funds are not
received at such time, but all applicable conditions set forth in Section 5
have been satisfied, each Lender authorizes and requests the Agent to
advance for the Lender's account, pursuant to the terms hereof, the
Lender's respective Percentage Interest in such portion of the Loan and
agrees to reimburse the Agent in immediately available funds for the amount
thereof prior to 2:00 p.m. (Boston time) on the day any portion of the Loan
is advanced hereunder; PROVIDED, HOWEVER, that the Agent is not authorized
to make any such advance for the account of any Lender who has previously
notified the Agent in writing that such Lender will not be performing its
obligations to make further advances hereunder; and PROVIDED, FURTHER, that
the Agent shall be under no obligation to make any such advance. With
respect to loans advanced and repayments received in accordance with the
Cash Management Agreement, the Agent shall make such advances and hold such
repayments for its own account on an interim basis and shall settle such
transactions on a net basis with the other Lenders on each Settlement Date
as provided in Section 2.6.
10.4.2. LETTERS OF CREDIT. Each of the Lenders authorizes and requests
each Letter of Credit Issuer to issue the Letters of Credit provided for in
Section 2.3
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and to grant each Lender a participation in each of such Letters of Credit
in an amount equal to its Percentage Interest in the amount of each such
Letter of Credit. Promptly upon the request of the Letter of Credit Issuer,
each Lender shall reimburse the Letter of Credit Issuer in immediately
available funds for such Lender's Percentage Interest in the amount of all
obligations to third parties incurred by the Letter of Credit Issuer in
respect of each Letter of Credit and each draft accepted under a Letter of
Credit to the extent not reimbursed by the Company by 2:00 p.m. (Boston
time) on the Banking Day when due. The Letter of Credit Issuer will notify
each Lender of the issuance of any Letter of Credit, the amount and date of
payment of any draft drawn or accepted under a Letter of Credit and whether
in connection with the payment of any such draft the amount thereof was
added to the Revolving Loan or was reimbursed by the Company.
10.4.3. AGENT TO ALLOCATE PAYMENTS, ETC. All payments of principal and
interest in respect of the extensions of credit made pursuant to this
Agreement, reimbursement of amounts paid by any Letter of Credit Issuer to
third parties under Letters of Credit or drafts presented thereunder,
commitment fees, Letter of Credit fees and other fees under this Agreement
shall, as a matter of convenience, be made by the Company and the
Guarantors to the Agent in immediately available funds by noon (Boston
time) on any Banking Day. Except as the Lenders otherwise agree for loans
made in accordance with the Cash Management Agreement, the share of each
Lender shall be credited to such Lender by the Agent in immediately
available funds by 2:00 p.m. (Boston time) on such Banking Day in such
manner that the principal amount of the Credit Obligations to be paid shall
be paid proportionately in accordance with the Lenders' respective
Percentage Interests in such Credit Obligations, except as otherwise
provided in this Agreement. Under no circumstances shall any Lender be
required to produce or present its Notes as evidence of its interests in
the Credit Obligations in any action or proceeding relating to the Credit
Obligations.
10.4.4. NONPERFORMING LENDERS. In the event that any Lender fails to
reimburse the Agent pursuant to Sections 10.4.1 or 10.4.2 (or in such
manner as the Lenders otherwise agree for loans made in accordance with the
Cash Management Agreement) for the Percentage Interest of such lender (a
"NONPERFORMING LENDER") in any credit advanced by the Agent pursuant
hereto, overdue amounts (the "DELINQUENT PAYMENT") due from the
Nonperforming Lender to the Agent shall bear interest, payable by the
Nonperforming Lender on demand, at a per annum rate equal to (a) the
Federal Funds Rate for the first three days overdue and (b) the sum of 2%
PLUS the Federal Funds Rate for any longer period. Such interest shall be
payable to the Agent for its own account for the period commencing on the
date of the Delinquent Payment and ending on the date the Nonperforming
Lender reimburses the Agent on account of the Delinquent Payment (to the
extent not paid by any Obligor as provided below) and the accrued interest
thereon (the "DELINQUENCY PERIOD"), whether pursuant to the assignments
referred to below or otherwise. Upon notice by the Agent, the Company
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will pay to the Agent the principal (but not the interest) portion of the
Delinquent Payment; PROVIDED that such Delinquent Payment has been
outstanding for no fewer than three days. During the Delinquency Period, in
order to make reimbursements for the Delinquent Payment and accrued
interest thereon, the Nonperforming Lender shall be deemed to have assigned
to the Agent all interest, commitment fees and other payments made by the
Company under Section 3 that would have thereafter otherwise been payable
under the Credit Documents to the Nonperforming Lender. During any period
in which any Nonperforming Lender is not performing its obligations to
extend credit under Section 2, the Nonperforming Lender shall be deemed to
have assigned to each Lender that is not a Nonperforming Lender (a
"PERFORMING LENDER") all principal and other payments made by the Company
under Section 4 that would have thereafter otherwise been payable under the
Credit Documents to the Nonperforming Lender. The Agent shall credit a
portion of such payments to each Performing Lender in an amount equal to
the Percentage Interest of such Performing Lender in an amount equal to the
Percentage Interest of such Performing Lender divided by one MINUS the
Percentage Interest of the Nonperforming Lender until the respective
portions of the Loan owed to all the Lenders are the same as the Percentage
Interests of the Lenders immediately prior to the failure of the
Nonperforming Lender to perform its obligations under Section 2. The
foregoing provisions shall be in addition to any other remedies the Agent,
the Performing Lenders or the Company may have under law or equity against
the Nonperforming Lender as a result of the Delinquent Payment as a result
of its failure to perform its obligations under Section 2.
10.5. SHARING OF PAYMENTS, ETC. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of (i) a proportion of the aggregate amount due with respect to its
Percentage Interest in the Loan and Letter of Credit Exposure which is greater
than (ii) the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's Percentage Interest in
the Loan and Letter of Credit Exposure and (b) if such inequality shall continue
for more than 10 days, the Lender receiving such proportionately greater payment
shall purchase participations in the Percentage Interests in the Loan and Letter
of Credit Exposure held by the other Lenders, and such other adjustments shall
be made from time to time (including rescission of such purchases of
participations in the event the unequal payment originally received is recovered
from such Lender through bankruptcy proceedings or otherwise), as may be
required so that all such payments of principal and interest with respect to the
Loan and Letter of Credit Exposure held by the Lenders shall be shared by the
Lenders pro rata in accordance with their respective Percentage Interests;
PROVIDED, HOWEVER, that this Section 10.5 shall not impair the right of any
Lender to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of Indebtedness of any
Obligor other than such Obligor's Indebtedness with respect to the Loan and
Letter of Credit Exposure. Each Lender that grants a participation in the Credit
Obligations to a Credit Participant shall require as a condition to the granting
of such participation that such Credit Participant agree to share
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payments received in respect of the Credit Obligations as provided in this
Section 10.5. The provisions of this Section 10.5 are for the sole and exclusive
benefit of the Lenders and no failure of any Lender to comply with the terms
hereof shall be available to any Obligor as a defense to the payment of the
Credit Obligations.
10.6. AGENT'S RESIGNATION. The Agent may resign at any time by giving at
least 60 days' prior written notice of its intention to do so to each of the
Lenders and the Company and upon the appointment by the Required Lenders of a
successor Agent reasonably satisfactory to the Company; PROVIDED, HOWEVER, that
Bank of America, N.A. shall have the right of first refusal with respect to such
appointment. If no successor Agent shall have been so appointed and shall have
accepted such appointment within 45 days after the retiring Agent's giving of
such notice of resignation, then the retiring Agent may appoint a successor
Agent which shall be a bank or a trust company organized under the laws of the
United States of America or any state thereof and having a combined capital,
surplus and undivided profit of at least $100,000,000 (so long as no Default
exists) with the consent of the Company, which shall not be unreasonably
withheld; PROVIDED, HOWEVER, that any successor Agent appointed under this
sentence may be removed upon the written request of the Required Lenders, which
request shall also appoint a successor Agent (so long as no Default exists)
reasonably satisfactory to the Company. Upon the appointment of a new Agent
hereunder, the term "Agent" shall for all purposes of this Agreement thereafter
mean such successor. After any retiring Agent's resignation hereunder as Agent,
or the removal hereunder of any successor Agent, the provisions of this
Agreement shall continue to inure to the benefit of such retiring or removed
Agent as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
10.7. CONCERNING THE AGENT.
10.7.1. ACTION IN GOOD FAITH, ETC. The Agent and its officers,
directors, employees and agents shall be under no liability to any of the
Lenders or to any future holder of any interest in the Credit Obligations
for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel shall
conclusively be deemed to be in good faith. The Agent shall in all cases be
entitled to rely, and shall be fully protected in relying, on instructions
given to the Agent by the Required Lenders.
10.7.2. NO IMPLIED DUTIES, ETC. The Agent shall have and may exercise
such powers as are specifically delegated to the Agent under this Agreement
or any other Credit Document together with all other powers incidental
thereto. The Agent shall have no implied duties to any Person or any
obligation to take any action under this Agreement or any other Credit
Document except for action specifically provided for in this Agreement or
any other Credit Document to be taken by the Agent.
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10.7.3. VALIDITY, ETC. The Agent shall not be responsible to any
Lender or any future holder of any interest in the Credit Obligations (a)
for the legality, validity, enforceability or effectiveness of this
Agreement or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or made in
connection with this Agreement or any other Credit Document, (c) for the
existence or value of any assets included in any security for the Credit
Obligations, (d) for the effectiveness of any Lien purported to be included
in the Credit Security, (e) for the specification or failure to specify any
particular assets to be included in the Credit Security, or (f) unless the
Agent shall have failed to comply with Section 10.7.1, for the perfection
of the security interests in the Credit Security.
10.7.4. COMPLIANCE. The Agent shall not be obligated to ascertain or
inquire as to the performance or observance of any of the terms of this
Agreement or any other Credit Document; and in connection with any
extension of credit under this Agreement or any other Credit Document, the
Agent shall be fully protected in relying on a certificate of the Company
as to the fulfillment by the Company of any conditions to such extension of
credit.
10.7.5. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of
its duties as Agent under this Agreement or any other Credit Document by or
through employees, agents and attorneys-in-fact and shall not be
responsible to any of the Lenders, the Company or any other Obligor for the
default or misconduct of any such agents or attorneys-in-fact selected by
the Agent acting in good faith. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and
its duties hereunder or under any other Credit Document.
10.7.6. RELIANCE ON DOCUMENTS AND COUNSEL. The Agent shall be entitled
to rely, and shall be fully protected in relying, upon any affidavit,
certificate, cablegram, consent, instrument, letter, notice, order,
document, statement, telecopy, telegram, telex or teletype message or
writing reasonably believed in good faith by the Agent to be genuine and
correct and to have been signed, sent or made by the Person in question,
including any telephonic or oral statement made by such Person, and, with
respect to legal matters, upon an opinion or the advice of counsel selected
by the Agent.
10.7.7. AGENT'S REIMBURSEMENT. Each of the Lenders severally agrees to
reimburse the Agent, pro rata in accordance with such Lender's Percentage
Interest, for any reasonable expenses not reimbursed by the Company or the
Guarantors (without limiting the obligation of the Company or the
Guarantors to make such reimbursement): (a) for which the Agent is entitled
to reimbursement by the Company or the Guarantors under this Agreement or
any other Credit Document, and (b) after the occurrence and during the
continuance of a Default, for any other reasonable expenses incurred by the
Agent on the Lenders' behalf in connection with the enforcement of the
Lenders' rights
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under this Agreement or any other Credit Document; PROVIDED, HOWEVER, that
the Agent shall not be reimbursed for any such expenses arising as a result
of its gross negligence or willful misconduct.
10.8. RIGHTS AS A LENDER. With respect to any credit extended by it
hereunder, BankBoston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, BankBoston
shall be treated in its individual capacity as though it were not the Agent
hereunder. Without limiting the generality of the foregoing, the Percentage
Interest of BankBoston shall be included in any computations of Percentage
Interests. BankBoston and its Affiliates may accept deposits from, lend money
to, act as trustee for and generally engage in any kind of banking or trust
business with the Company, any of its Subsidiaries or any Affiliate of any of
them and any Person who may do business with or own an equity interest in the
Company, any of its Subsidiaries or any Affiliate of any of them, all as if
BankBoston were not the Agent and without any duty to account therefor to the
other Lenders.
10.9. INDEPENDENT CREDIT DECISION. Each of the Lenders acknowledges that it
has independently and without reliance upon the Agent, based on the financial
statements and other documents referred to in Section 7.2, on the other
representations and warranties contained herein and on such other information
with respect to the Company and its Subsidiaries as such Lender deemed
appropriate, made such Lender's own credit analysis and decision to enter into
this Agreement and to make the extensions of credit provided for hereunder. Each
Lender represents to the Agent that such Lender will continue to make its own
independent credit and other decisions in taking or not taking action under this
Agreement or any other Credit Document. Each Lender expressly acknowledges that
neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agent taken under this Agreement or any other
Credit Document, including any review of the affairs of the Company and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent. Except for notices, reports and other documents expressly required to
be furnished to each Lender by the Agent under this Agreement or any other
Credit Document, the Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, condition, financial or otherwise, or creditworthiness of
the Company or any Subsidiary which may come into the possession of the Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
10.10. INDEMNIFICATION. The Lenders shall severally indemnify the Agent and
its officers, directors, employees, agents, attorneys, accountants, consultants
and controlling Persons (to the extent not reimbursed by the Obligors and
without limiting the obligation of any of the Obligors to do so), pro rata in
accordance with their respective Percentage Interests, from and against any and
all liabilities, obligations, losses, damages, penalties, actions,
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judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time be imposed on, incurred by or asserted against the Agent or such
Persons relating to or arising out of this Agreement, any other Credit Document,
the transactions contemplated hereby or thereby, or any action taken or omitted
by the Agent in connection with any of the foregoing; PROVIDED, HOWEVER, that
the foregoing shall not extend to actions or omissions which are taken by the
Agent with gross negligence or willful misconduct.
11. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS. Any
reference in this Agreement or any other Credit Document to any of the parties
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of the Company, the other Obligors,
the Agent or the Lenders that are contained in this Agreement or any other
Credit Document shall bind and inure to the benefit of their respective
successors and assigns; PROVIDED, HOWEVER, that (a) the Company and its
Subsidiaries may not assign their rights or obligations under this Agreement or
any other Credit Document except for mergers or liquidations permitted by
Section 6.11, and (b) the Lenders shall be not entitled to assign their
respective Percentage Interests in the credits extended hereunder or their
Commitments except as set forth below in this Section 11.
11.1. ASSIGNMENTS BY LENDERS.
11.1.1. ASSIGNEES AND ASSIGNMENT PROCEDURES. Each Lender may, in
compliance with applicable laws in connection with such assignment, assign
to one or more Eligible Assignees (each, an "ASSIGNEE") all or a portion of
its interests, rights and obligations under this Agreement and the other
Credit Documents, including all or a portion, which must be pro rata
between the Revolving Loan, the Acquisition Loan and the Letter of Credit
Exposure, of its Commitment, the portions of the Loan and Letter of Credit
Exposure at the time owing to it and any Notes held by it, but excluding
its rights and obligations as a Letter of Credit Issuer; PROVIDED, HOWEVER,
that:
(1) the aggregate amount of the Commitment of the assigning
Lender subject to each such assignment to any Assignee other than
another Lender, a Related Fund or an Affiliate of a Lender (determined
as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall be not less than
$5,000,000 and in increments of $1,000,000 (or, if less, the entire
remaining amount of the assigning Lender's Commitment); and
(2) the parties to each such assignment shall execute and
deliver to the Agent an Assignment and Acceptance (the "ASSIGNMENT AND
ACCEPTANCE") substantially in the form of Exhibit 11.1.1, together
with the Note subject to such assignment and, except in the event of a
transfer pursuant to Section 11.3, a processing and recordation fee of
$2,500 payable to the Agent by the assigning
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Lender (or as the assigning Lender and the Assignee may otherwise
agree between themselves).
Upon acceptance and recording pursuant to Section 11.1.4, from and after
the effective date specified in each Assignment and Acceptance (which
effective date shall be at least five Banking Days after the execution
thereof unless waived by the Agent):
(A) the Assignee shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and
(B) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 3.2.4, 3.5 and 9, as well as to any fees accrued for its
account hereunder and not yet paid).
11.1.2. TERMS OF ASSIGNMENT AND ACCEPTANCE. By executing and
delivering an Assignment and Acceptance, the assigning Lender and the
Assignee shall be deemed to confirm to and agree with each other and the
other parties hereto as follows:
(1) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Credit Document or any
other instrument or document furnished pursuant hereto;
(2) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Company and its Subsidiaries or the performance or observance by the
Company or any of its Subsidiaries of any of its obligations under this
Agreement, any other Credit Document or any other instrument or document
furnished pursuant hereto;
(3) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 7.2 or Section 6.4 and such other documents
and information as it has deemed
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appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance;
(4) such Assignee will independently and without reliance upon the
Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
(5) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and
(6) such Assignee agrees that it will perform in accordance with the
terms of this Agreement all the obligations which are required to be
performed by it as a Lender.
11.1.3. REGISTER. The Agent shall maintain at the Boston Office (for
this limited purpose, also as agent for the Company) a register (the
"REGISTER") for the recordation of (a) the names and addresses of the
Lenders and the Assignees which assume rights and obligations pursuant to
an assignment under Section 11.1.1, (b) the Percentage Interest of each
such Lender as set forth in Exhibit 10.1 and (c) the amount of the Loan and
Letter of Credit Exposure owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest
error, and the Company, the Agent and the Lenders may treat each Person
whose name is registered therein for all purposes as a party to this
Agreement. The Register shall be available for inspection by the Company or
any Lender at any reasonable time and from time to time upon reasonable
prior notice.
11.1.4. ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION. Upon its receipt of a
completed Assignment and Acceptance executed by an assigning Lender and an
Assignee (and any necessary consent of the Agent and the Company) together
with the processing and recordation fee referred to in Section 11.1.1 and,
to the extent necessary, the Note being assigned, the Agent shall (a)
accept such Assignment and Acceptance, (b) record the information contained
therein in the Register and (c) give prompt notice thereof to the Company.
Within five Banking Days after receipt of notice, the Company, at its own
expense, shall execute and deliver to the Agent (in exchange for the
surrendered Note if such Note must be surrendered or reissued as a result
of such assignment) a new Note to the order of such Assignee in a principal
amount equal to the applicable Commitment and Loan assumed by it pursuant
to such Assignment and Acceptance. If the assigning Lender has retained a
Commitment and Loan, its Note shall be deemed to be then outstanding in a
principal amount equal to the applicable Commitment and Loan retained by
it.
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11.1.5. FEDERAL RESERVE BANK. Notwithstanding the foregoing provisions
of this Section 11 (without the consent of or notice to the Agent or the
Company), any Lender may at any time pledge all or any portion of such
Lender's rights under this Agreement and the other Credit Documents to a
Federal Reserve Bank or, in the case of any Lender that is a fund, to the
trustee of such fund to support the fund's obligations to such trustee;
PROVIDED, HOWEVER, that no such pledge or assignment shall release such
Lender from such Lender's obligations hereunder or under any other Credit
Document.
11.1.6. FURTHER ASSURANCES. The Company and its Subsidiaries shall
sign such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the benefits
of the rights created by the Credit Documents.
11.2. CREDIT PARTICIPANTS. Each Lender may, without the consent of the
Company or the Agent, in compliance with applicable laws in connection with such
participation, sell to one or more commercial banks, other financial
institutions or funds in the business of making or purchasing loans similar to
the Credit Obligations (each a "CREDIT PARTICIPANT") participations in all or a
portion of its interests, rights and obligations under this Agreement and the
other Credit Documents (including all or a portion of its Commitment, the Loan
and Letter of Credit Exposure owing to it and the Notes held by it); PROVIDED,
HOWEVER, that:
(1) such Lender's obligations under this Agreement shall remain
unchanged;
(2) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations;
(3) the Credit Participant shall be entitled to the benefit of the
cost protection provisions contained in Sections 3.2.4, 3.5 and 9, but
shall not be entitled to receive any greater payment thereunder than the
selling Lender would have been entitled to receive with respect to the
interest so sold if such interest had not been sold; and
(4) the Company, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and, under any agreements
between such Lender and such Credit Participant, such Lender shall retain
the sole right as one of the Lenders to vote (and to determine how to vote)
with respect to the enforcement of the obligations of the Obligors relating
to the Loan and Letter of Credit Exposure and the approval of any
amendment, modification or waiver of any provision of this Agreement (other
than amendments, modifications, consents or waivers described in clause (b)
of the proviso to Section 15.1, with respect to which the Credit
Participant may determine how to vote).
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Each Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to Section 10.5 may exercise all rights of payment (including the right
of set-off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Obligors and a Lender
hereunder in the amount of such participation; PROVIDED, HOWEVER, that such
Credit Participant may only exercise its rights of payment if the Company has
been notified that such Person is a Credit Participant.
11.3. REPLACEMENT OF LENDER. In the event that any Lender or, to the extent
applicable, any Credit Participant (the "AFFECTED LENDER"):
(1) fails to perform its obligations to fund any portion of the Loan
or to issue any Letter of Credit on any Closing Date when required to do so
by the terms of the Credit Documents, or fails to provide its portion of
any LIBOR Pricing Option pursuant to Section 3.2.1 or on account of a Legal
Requirement as contemplated by Section 3.2.5;
(2) demands payment under the provisions of Section 3.5 in an amount
materially in excess of the amounts with respect thereto demanded by the
other Lenders; or
(3) refuses to consent to a proposed amendment, modification, waiver
or other action requiring consent of the holders of 100% of the Percentage
Interests under Section 15.1 that is consented to by Lenders owning at
least 80% of the Percentage Interests;
then, so long as no Event of Default exists, the Company shall have the right to
seek a replacement lender which is reasonably satisfactory to the Agent (the
"REPLACEMENT LENDER"). The Replacement Lender shall purchase the interests of
the Affected Lender in the Loan, Letters of Credit and its Commitment and shall
assume the obligations of the Affected Lender hereunder and under the other
Credit Documents upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage Interest in the
Loan and Letter of Credit Exposure, or appropriate credit support for contingent
amounts included therein, and all other outstanding Credit Obligations then owed
to the Affected Lender). No assignment fee pursuant to Section 11.1.1(ii) shall
be required in connection with such assignment. Such assignment by any Affected
Lender who has performed its obligations hereunder shall be deemed an early
termination of any LIBOR Pricing Option to the extent of such Affected Lender's
portion thereof, and the Company will pay to such Affected Lender any resulting
amounts due under Section 3.2.4. Upon consummation of such assignment, the
Replacement Lender shall become
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party to this Agreement as a signatory hereto and shall have all the rights and
obligations of the Affected Lender under this Agreement and the other Credit
Documents with a Percentage Interest equal to the Percentage Interest of the
Affected Lender, the Affected Lender shall be released from its obligations
hereunder and under the other Credit Documents, and no further consent or action
by any party shall be required. Upon the consummation of such assignment, the
Company, the Agent and the Affected Lender shall make appropriate arrangements
so that a new Note is issued to the Replacement Lender if it has acquired a
portion of the Loan. The Company and the Guarantors shall sign such documents
and take such other actions reasonably requested by the Replacement Lender to
enable it to share in the benefits of the rights created by the Credit
Documents. Until the consummation of an assignment in accordance with the
foregoing provisions of this Section 11.3, the Company shall continue to pay to
the Affected Lender any Credit Obligations as they become due and payable.
12. CONFIDENTIALITY. Each Lender will make no disclosure of confidential
information furnished to it by the Company or any of its Subsidiaries unless
such information shall have become public (unless such information has become
public as a result of a violation of this Section 12), except:
(1) in connection with operations under or the enforcement of this
Agreement or any other Credit Document to Persons who have a reasonable
need to be furnished such confidential information in connection with the
administration or other actions related to this Agreement and who agree, in
a commercially customary manner, to comply with the restrictions contained
in this Section 12 with respect to such information;
(2) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(3) to any parent or corporate Affiliate of such Lender or to any
Credit Participant, proposed Credit Participant or proposed Assignee in
connection with the administration or other actions related to this
Agreement; PROVIDED, HOWEVER, that any such Person shall agree, in a
commercially customary manner, to comply with the restrictions set forth in
this Section 12 with respect to such information;
(4) to its independent counsel, auditors and other professional
advisors in connection with the administration or other actions related to
this Agreement with instruction to such Person to keep such information
confidential; and
(5) with the prior written consent of the Company, to any other
Person.
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13. FOREIGN LENDERS. If any Lender is not created or organized in, or under the
laws of, the United States of America or any state thereof, such Lender shall
deliver to the Company and the Agent the forms described in one of the following
two clauses:
(a) Two fully completed and duly executed United States Internal
Revenue Service Form 1001 or 4224 or any successor form, as the case may
be, certifying that such Lender is entitled to receive payments of the
Credit Obligations payable to it without deduction or withholding of any
United States federal income taxes; or
(b) A statement, executed by such Lender under penalty of perjury,
certifying that such Lender is not a "bank" within the meaning of section
881(c)(3)(A) of the Code and two fully completed and duly executed United
States Internal Revenue Service Forms W-8 or any successor form, certifying
that such Lender is not a "United States person" within the meaning of
section 7701(a)(30) of the Code.
Each Lender that delivers any form or statement pursuant to this Section 13
further undertakes to renew such forms and statements by delivering to the
Company and the Agent any updated form, successor form or other certification,
as the case may be, on or before the date that any form or statement previously
delivered pursuant to this Section 13 expires or becomes obsolete or after the
occurrence of any event requiring a change in such most recent form or
statement. If at any time the Company and the Agent have not received all forms
and statements (including any renewals thereof) required to be provided by any
Lender pursuant to this Section 13, Section 3.5 shall not apply with respect to
any amount of United States federal income taxes required to be withheld from
payments of the Credit Obligations to such Lender.
14. NOTICES. Except as otherwise specified in this Agreement or any other
Credit Document, any notice required to be given pursuant to this Agreement or
any other Credit Document shall be given in writing. Any notice, consent,
approval, demand or other communication in connection with this Agreement or any
other Credit Document shall be deemed to be given if given in writing (including
telex, telecopy or similar teletransmission) addressed as provided below (or to
the addressee at such other address as the addressee shall have specified by
notice actually received by the addressor), and if either (a) actually delivered
in fully legible form to such address (evidenced in the case of a telex by
receipt of the correct answerback) or (b) in the case of a letter, unless actual
receipt of the notice is required by any Credit Document five days shall have
elapsed after the same shall have been deposited in the United States mails,
with first-class postage prepaid and registered or certified.
If to the Company or any of its Subsidiaries, to it at its address set
forth in Exhibit 7.1 (as supplemented pursuant to Sections 6.4.1 and 6.4.2), to
the attention of the chief financial officer.
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If to any Lender or the Agent, to it at its address set forth on the
signature pages of this Agreement or in the Register, with a copy to the Agent.
15. AMENDMENTS, CONSENTS, WAIVERS, ETC.
15.1. LENDER CONSENTS FOR AMENDMENTS. Except as otherwise set forth herein,
the Agent may (and upon the written request of the Required Lenders the Agent
shall) take or refrain from taking any action under this Agreement or any other
Credit Document, including giving its written consent to any modification of or
amendment to and waiving in writing compliance with any covenant or condition in
this Agreement or any other Credit Document (other than a Hedge Agreement) or
any Default or Event of Default, all of which actions shall be binding upon all
of the Lenders; PROVIDED, HOWEVER, that:
(1) Except as provided below, without the written consent of the
Lenders owning at least a majority of the Percentage Interests
(disregarding the Percentage Interest of any Nonperforming Lender so long
as such Lender is treated equally with the other Lenders with respect to
any actions enumerated below), no written modification of, amendment to,
consent with respect to, waiver of compliance with or waiver of a Default
under, any of the Credit Documents (other than a Hedge Agreement) shall be
made.
(2) Without the written consent of such Lenders as own 100% of the
Percentage Interests (disregarding the Percentage Interest of any
Nonperforming Lender so long as such Lender is treated equally with the
other Lenders with respect to any actions enumerated below):
(1) None of the conditions specified in Section 5 shall be
amended, waived or modified.
(2) No release of all or substantially all of the Credit Security
or release of the Company or any material Guarantor shall be made (in
any event, without the written consent of the Lenders, the Agent may
release particular items of Credit Security or particular Guarantors
in dispositions permitted by Section 6.11, as modified by amendments
thereto approved by the Required Lenders, and may release all Credit
Security pursuant to Section 16.1 upon payment in full of the Credit
Obligations and termination of the Commitments).
(3) No incurrence or existence of any Lien on all or
substantially all of the Credit Security shall be permitted (other
than Liens securing the Credit Obligations).
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<PAGE> 105
(4) No alteration shall be made of the Lenders' rights of set-off
contained in Section 8.2.4.
(5) No amendment to or modification of this Section 15.1 or the
definition of "Required Lenders" shall be made.
(3) Without the written consent of each Lender that is directly
affected thereby, as well as such Lenders as own at least a majority of the
Percentage Interests (disregarding the Percentage Interest of any
Nonperforming Lender so long as such Lender is treated equally with the
other Lenders with respect to any actions enumerated below):
(1) No reduction shall be made in (A) the amount of principal of
the Loan owing to such Lender or reimbursement obligations for
payments made under Letters of Credit payable or participated to such
Lender, (B) the interest rate on the portion of the Loan owing to such
Lender or (C) the Letter of Credit fees or commitment fees owing to
such Lender with respect to the credit facility provided herein (other
than amendments and waivers approved by the Required Lenders that
modify defined terms used in calculating the Applicable Margin or that
waive an increase in the Applicable Rate as a result of an Event of
Default).
(2) No change shall be made in the stated, scheduled time of
payment of any portion of the Loan owing to such Lender or interest
thereon or reimbursement of payments made under Letters of Credit or
fees relating to any of the foregoing payable to such Lender and no
waiver shall be made of any Default under Section 8.1.1 with respect
to such Lender (other than amendments and waivers approved by the
Required Lenders that modify defined terms used in calculating the
Applicable Margin).
(3) No increase shall be made in the amount, or extension of the
term, of the stated Commitments of such Lender beyond that provided
for under Section 2.
(4) Without the written consent of the Agent, no amendment or
modification of any Credit Document shall affect the rights or duties of
the Agent under the Credit Documents.
(5) Without the written consent of a Letter of Credit Issuer, no
amendment or modification of any Credit Document shall affect the rights or
duties of such Letter of Credit Issuer under the Credit Documents.
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<PAGE> 106
15.2. COURSE OF DEALING; NO IMPLIED WAIVERS. No course of dealing between
any Lender or the Agent, on one hand, and the Company or any other Obligor, on
the other hand, shall operate as a waiver of any of the Lenders' or the Agent's
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. In particular, no delay or omission on the part of any
Lender or the Agent in exercising any right under this Agreement or any other
Credit Document or with respect to the Credit Obligations shall operate as a
waiver of such right or any other right hereunder or thereunder. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion. No waiver, consent or amendment with respect to this
Agreement or any other Credit Document shall be binding unless it is in writing
and signed by the Agent or the Required Lenders.
16. GENERAL PROVISIONS.
16.1. DEFEASANCE. When all Credit Obligations have been paid, performed and
reasonably determined by the Agent to have been indefeasibly discharged in full,
and if at the time no Lender continues to be committed to extend any credit to
the Company hereunder or under any other Credit Document, this Agreement and the
other Credit Documents shall terminate and, at the Company's written request,
accompanied by such certificates and other items as the Agent shall reasonably
deem necessary, the Credit Security shall revert to the Obligors and the right,
title and interest of the Agent and the Lenders therein shall terminate.
Thereupon, on the Obligors' demand and at their cost and expense, the Agent
shall execute proper instruments, acknowledging satisfaction of and discharging
this Agreement and the other Credit Documents, and shall redeliver to the
Obligors any Credit Security then in its possession; PROVIDED, HOWEVER, that
Sections 3.2.4, 3.5 (for 90 days after termination of this Agreement), 9,
10.7.7, 10.10, 12 and 16 shall survive the termination of this Agreement.
16.2. NO STRICT CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other Credit Documents with
counsel sophisticated in financing transactions. In the event an ambiguity or
question of intent or interpretation arises, this Agreement and the other Credit
Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.
16.3. CERTAIN OBLIGOR ACKNOWLEDGMENTS. Each of the Company and the other
Obligors acknowledges that:
(1) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Credit Documents;
(2) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Obligors arising out of or in connection with this
Agreement or any other
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<PAGE> 107
Credit Document, and the relationship between the Agent and Lenders, on one
hand, and the Obligors, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(3) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated
hereby or thereby among the Obligors and the Lenders.
16.4. VENUE; SERVICE OF PROCESS; CERTAIN WAIVERS. Each of the Company, the
other Obligors, the Agent and the Lenders:
(1) Irrevocably submits to the nonexclusive jurisdiction of the state
courts of The Commonwealth of Massachusetts and to the nonexclusive
jurisdiction of the United States District Court for the District of
Massachusetts for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement or any other Credit Document or
the subject matter hereof or thereof;
(2) Waives to the extent not prohibited by applicable law that cannot
be waived, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such proceeding brought in any of the above-named courts,
any claim that it is not subject personally to the jurisdiction of such
court, that its property is exempt or immune from attachment or execution,
that such proceeding is brought in an inconvenient forum, that the venue of
such proceeding is improper, or that this Agreement or any other Credit
Document, or the subject matter hereof or thereof, may not be enforced in
or by such court;
(3) Consents to service of process in any such proceeding in any
manner at the time permitted by Chapter 223A of the General Laws of The
Commonwealth of Massachusetts and agrees that service of process by
registered or certified mail, return receipt requested, at its address
specified in or pursuant to Section 14 is reasonably calculated to give
actual notice; and
(4) Waives to the extent not prohibited by applicable law that cannot
be waived any right it may have to claim or recover in any such proceeding
any special, exemplary, punitive or consequential damages.
16.5. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, EACH OF THE COMPANY, THE OTHER OBLIGORS, THE AGENT AND
THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY
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<PAGE> 108
OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT
OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT,
THE COMPANY OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR
OTHERWISE. Each of the Company and the other Obligors acknowledges that it has
been informed by the Agent that the foregoing sentence constitutes a material
inducement upon which each of the Lenders has relied and will rely in entering
into this Agreement and any other Credit Document. Any Lender, the Agent, the
Company or any other Obligor may file an original counterpart or a copy of this
Agreement with any court as written evidence of the consent of the Company, the
other Obligors, the Agent and the Lenders to the waiver of their rights to trial
by jury.
16.6. INTERPRETATION; GOVERNING LAW; ETC. Time is (and shall be) of the
essence in this Agreement and the other Credit Documents. All covenants,
agreements, representations and warranties made in this Agreement or any other
Credit Document or in certificates delivered pursuant hereto or thereto shall be
deemed to have been relied on by each Lender, notwithstanding any investigation
made by any Lender on its behalf, and shall survive the execution and delivery
to the Lenders hereof and thereof. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof, and any invalid or unenforceable provision shall be modified
so as to be enforced to the maximum extent of its validity or enforceability.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof. This Agreement and the other
Credit Documents constitute the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior and
contemporaneous understandings and agreements, whether written or oral. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]
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<PAGE> 109
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
NEXTERA ENTERPRISES, INC.
By: ______________________________________
Title:
CE ACQUISITION CORP.
CRITIAS, INC.
ERG ACQUISITION CORP.
LEXECON INC.
NEONEXT LLC
NETNEXT, INC.
NEXTERA BUSINESS PERFORMANCE
SOLUTIONS GROUP, INC.
NEXTERA INTERACTIVE, INC.
THE PLANNING TECHNOLOGIES
GROUP, L.L.C.
PYRAMID IMAGING, INC.
SCANADA, INC.
SIBSON & COMPANY, LLC
SIBSON INTERNATIONAL, LLC
TIMAEUS, INC.
By: ______________________________________
As an authorized officer of each of the
foregoing corporations or limited liability
companies
BANKBOSTON, N.A.
By: ______________________________________
Title:
BANKBOSTON, N.A.
Technology and Communications Division
100 Federal Street
Boston, Massachusetts 02110
<PAGE> 110
Telecopy: (617) 434-0819
Telex: 940581
BANK OF AMERICA , N.A.
By:______________________________________
Title:
BANK OF AMERICA, N.A.
6610 Rockledge Drive, 6th Floor
Bethesda, Maryland 20817
Telecopy: (301) 571-0719
<PAGE> 1
EXECUTION VERSION
EXHIBIT 10.47
NEXTERA ENTERPRISES, INC.
GUARANTEE AND SECURITY AGREEMENT
Dated as of December 30, 1999
BANKBOSTON, N.A., as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Reference to Credit Agreement; Definitions; Certain Rules of Construction.....................................1
2. Guarantee.....................................................................................................2
2.1. Guarantee of Credit Obligations....................................................................2
2.2. Continuing Obligation..............................................................................2
2.3. Waivers with Respect to Credit Obligations.........................................................3
2.4. Lenders' Power to Waive, etc.......................................................................5
2.5. Information Regarding the Company, etc.............................................................5
2.6. Certain Guarantor Representations..................................................................6
2.7. Subrogation........................................................................................7
2.8. Subordination......................................................................................7
2.9. Future Subsidiaries; Further Assurances............................................................7
2.10. Contribution Among Guarantors.....................................................................8
3. Security......................................................................................................8
3.1. Credit Security....................................................................................8
3.1.1. Tangible Personal Property..............................................................8
3.1.2. Rights to Payment of Money..............................................................8
3.1.3. Intangibles.............................................................................9
3.1.4. Pledged Stock...........................................................................9
3.1.5. Pledged Rights..........................................................................9
3.1.6. Pledged Indebtedness....................................................................9
3.1.7. Chattel Paper, Instruments, etc.........................................................9
3.1.8. Leases..................................................................................9
3.1.9. Deposit Accounts........................................................................9
3.1.10. Collateral............................................................................10
3.1.11. Books and Records.....................................................................10
3.1.12. Insurance.............................................................................10
3.1.13. All Other Property....................................................................10
3.1.14. Proceeds and Products.................................................................10
3.1.15. Excluded Property.....................................................................10
3.2. Additional Credit Security........................................................................11
3.2.1. Real Property..........................................................................11
3.2.2. Motor Vehicles and Aircraft............................................................11
3.3. Certain Covenants with Respect to Credit Security.................................................11
3.3.1. Pledged Stock..........................................................................12
3.3.2. Accounts and Pledged Indebtedness......................................................12
3.3.3. No Liens or Restrictions on Transfer or Change of Control..............................12
3.3.4. Location of Credit Security............................................................12
3.3.5. Trade Names............................................................................13
3.3.6. Insurance..............................................................................13
</TABLE>
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<TABLE>
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<S> <C>
3.3.7. Intellectual Property..................................................................14
3.3.8. Deposit Accounts.......................................................................14
3.3.9. Modifications to Credit Security.......................................................14
3.3.10. Delivery of Documents.................................................................15
3.3.11. Perfection of Credit Security.........................................................15
3.4. Administration of Credit Security.................................................................15
3.4.1. Use of Credit Security.................................................................15
3.4.2. Accounts...............................................................................16
3.4.3. Distributions on Pledged Securities....................................................16
3.4.4. Voting Pledged Securities..............................................................16
3.5. Right to Realize upon Credit Security.............................................................17
3.5.1. Assembly of Credit Security; Receiver..................................................17
3.5.2. General Authority......................................................................17
3.5.3. Marshaling, etc........................................................................18
3.5.4. Sales of Credit Security...............................................................18
3.5.5. Sale without Registration..............................................................19
3.5.6. Application of Proceeds................................................................20
3.6. Custody of Credit Security........................................................................20
4. General.................................................................................................20
</TABLE>
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<PAGE> 4
NEXTERA ENTERPRISES, INC.
GUARANTEE AND SECURITY AGREEMENT
This Agreement, dated as of December 30, 1999, is among Nextera
Enterprises, Inc., a Delaware corporation (the "COMPANY"), the Subsidiaries of
the Company from time to time party hereto and BankBoston, N.A., as
administrative agent (the "AGENT") for the Lenders under the Credit Agreement
(as defined below). The parties agree as follows:
1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.
Reference is made to the Credit Agreement dated as of the date hereof, as from
time to time in effect (the "CREDIT AGREEMENT"), among the Company, the
Subsidiaries of the Company from time to time party thereto, the Lenders and the
Agent. Capitalized terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined (as such definitions
may be modified or supplemented herein). Certain other capitalized terms are
used in this Agreement as specifically defined below in this Section 1. Except
as the context otherwise explicitly requires, (a) the capitalized term "Section"
refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers
to exhibits to this Agreement, (c) references to a particular Section shall
include all subsections thereof, (d) the word "including" shall be construed as
"including without limitation", (e) terms defined in the UCC and not otherwise
defined herein have the meaning provided under the UCC, (f) references to a
particular statute or regulation include all rules and regulations thereunder
and any successor statute, regulation or rules, in each case as from time to
time in effect and (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement and the
other Credit Documents. References to "the date hereof" mean the date first set
forth above.
"ACCOUNTS" is defined in Section 3.1.2.
"AGREEMENT" means this Guarantee and Security Agreement as from time to
time in effect.
"GUARANTOR" means each of the Company's Subsidiaries party to, or which
subsequently becomes party to, this Agreement as a Guarantor.
"INTELLECTUAL PROPERTY" is defined in Section 3.3.7.
"OBLIGORS" means the Company and the Guarantors from time to time.
"PLEDGED INDEBTEDNESS" is defined in Section 3.1.6.
<PAGE> 5
"PLEDGED RIGHTS" is defined in Section 3.1.5.
"PLEDGED SECURITIES" means the Pledged Stock, the Pledged Rights and the
Pledged Indebtedness, collectively.
"PLEDGED STOCK" is defined in Section 3.1.4.
"UCC" means the Uniform Commercial Code as in effect in Massachusetts on
the date hereof; PROVIDED, HOWEVER, that with respect to the perfection of the
Agent's Lien on the Credit Security and the effect of nonperfection thereof, the
term "UCC" means the Uniform Commercial Code as in effect in any jurisdiction
the laws of which are made applicable by section 9-103 of the Uniform Commercial
Code as in effect in Massachusetts.
2. GUARANTEE.
2.1. GUARANTEE OF CREDIT OBLIGATIONS. Each Guarantor unconditionally
guarantees that the Credit Obligations will be performed and paid in full in
cash when due and payable, whether at the stated or accelerated maturity thereof
or otherwise, this guarantee being a guarantee of payment and not of
collectability and being absolute and in no way conditional or contingent. In
the event any part of the Credit Obligations shall not have been so paid in full
when due and payable, each Guarantor will, immediately upon notice by the Agent
or, without notice, immediately upon the occurrence of a Bankruptcy Default, pay
or cause to be paid to the Agent for the account of each Lender in accordance
with the Lenders' respective Percentage Interests therein the amount of such
Credit Obligations which are then due and payable and unpaid. The obligations of
each Guarantor hereunder shall not be affected by the invalidity,
unenforceability or irrecoverability of any of the Credit Obligations as against
the Company, any other Obligor, any other guarantor thereof or any other Person.
For purposes hereof, the Credit Obligations shall be due and payable when and as
the same shall be due and payable under the terms of the Credit Agreement or any
other Credit Document notwithstanding the fact that the collection or
enforcement thereof may be stayed or enjoined under the Bankruptcy Code or other
applicable law. If, notwithstanding any other provision of this Agreement,
including the obligations incurred by it under this Agreement and the rights
granted to it by Section 2.10, enforcement of the obligations of any Guarantor
under this Agreement for the full amount of the Credit Obligations to which such
Guarantor is liable would constitute an unlawful transfer under any applicable
fraudulent conveyance or fraudulent transfer law or any comparable law, then the
obligations of such Guarantor hereunder shall be reduced to the highest amount
for which such obligations may then be enforced without resulting in an unlawful
transfer under any such law.
2.2. CONTINUING OBLIGATION. Each Guarantor acknowledges that the Lenders
have entered into the Credit Agreement (and, to the extent that the Lenders or
the Agent may enter into any future Credit Document, will have entered into such
agreement) in reliance on this Section 2 being a continuing irrevocable
agreement, and such Guarantor agrees that its
<PAGE> 6
guarantee may not be revoked in whole or in part. The obligations of the
Guarantors hereunder shall terminate when the commitment of the Lenders to
extend credit under the Credit Agreement shall have terminated and all of the
Credit Obligations have been indefeasibly paid in full in cash and discharged;
PROVIDED, HOWEVER, that:
(1) if a claim is made upon the Lenders at any time for repayment or
recovery of any amounts or any property received by the Lenders from any
source on account of any of the Credit Obligations and the Lenders repay or
return any amounts or property so received (including interest thereon to
the extent required to be paid by the Lenders) or
(2) if the Lenders become liable for any part of such claim by reason
of (i) any judgment or order of any court or administrative authority
having competent jurisdiction, or (ii) any settlement or compromise of any
such claim (provided that, except after the occurrence and during the
continuance of an Event of Default, the Company shall have consented to
such settlement or compromise, such consent not to be unreasonably
withheld),
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or property so returned or the amounts for which the Lenders become
liable (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts or property had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Not later than five days
after receipt of notice from the Agent, the Guarantors shall pay to the Agent an
amount equal to the amount of such repayment or return for which the Lenders
have so become liable. Payments hereunder by a Guarantor may be required by the
Agent on any number of occasions.
2.3. WAIVERS WITH RESPECT TO CREDIT OBLIGATIONS. Except to the extent
expressly required by the Credit Agreement or any other Credit Document, each
Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):
(1) presentment, demand for payment and protest of nonpayment of any
of the Credit Obligations, and notice of protest, dishonor or
nonperformance;
(2) notice of acceptance of this guarantee and notice that credit has
been extended in reliance on such Guarantor's guarantee of the Credit
Obligations;
(3) notice of any Default or of any inability to enforce performance
of the obligations of the Company or any other Person with respect to any
Credit Document or notice of any acceleration of maturity of any Credit
Obligations;
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<PAGE> 7
(4) demand for performance or observance of, and any enforcement of
any provision of the Credit Agreement, the Credit Obligations or any other
Credit Document or any pursuit or exhaustion of rights or remedies with
respect to any Credit Security or against the Company or any other Person
in respect of the Credit Obligations or any requirement of diligence or
promptness on the part of the Agent or the Lenders in connection with any
of the foregoing;
(5) any act or omission on the part of the Agent or the Lenders which
may impair or prejudice the rights of such Guarantor, including rights to
obtain subrogation, exoneration, contribution, indemnification or any other
reimbursement from the Company or any other Person, or otherwise operate as
a deemed release or discharge;
(6) failure or delay to perfect or continue the perfection of any
security interest in any Credit Security or any other action which harms or
impairs the value of, or any failure to preserve or protect the value of,
any Credit Security;
(7) any statute of limitations or any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than the obligation of the principal;
(8) any "single action" or "anti-deficiency" law which would otherwise
prevent the Lenders from bringing any action, including any claim for a
deficiency, against such Guarantor before or after the Agent's or the
Lenders' commencement or completion of any foreclosure action, whether
judicially, by exercise of power of sale or otherwise, or any other law
which would otherwise require any election of remedies by the Agent or the
Lenders; and
(9) all demands and notices of every kind with respect to the
foregoing.
Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 2.3.
No delay or omission on the part of the Agent or the Lenders in exercising
any right under any Credit Document or under any other guarantee of the Credit
Obligations or with respect to the Credit Security shall operate as a waiver or
relinquishment of such right. No action which the Agent or the Lenders or the
Company or any other Obligor may take or refrain from taking with respect to the
Credit Obligations shall affect the provisions of this Agreement or the
obligations of each Guarantor hereunder. None of the Lenders' or the Agent's
rights shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or any other Obligor, or by any
noncompliance by the
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<PAGE> 8
Company or any other Obligor with any Credit Document, regardless of any
knowledge thereof which the Agent or the Lenders may have or otherwise be
charged with.
2.4. LENDERS' POWER TO WAIVE, ETC. Each Guarantor grants to the Agent and
the Lenders full power in their discretion, without notice to or consent of such
Guarantor, such notice and consent being expressly waived to the fullest extent
permitted by applicable law, and without in any way affecting the liability of
such Guarantor under its guarantee hereunder:
(1) To waive compliance with, and any Default under, and to consent to
any amendment to or modification or termination of any provision of, or to
give any waiver in respect of, the Credit Agreement, any other Credit
Document, the Credit Security, the Credit Obligations or any guarantee
thereof (each as from time to time in effect);
(2) To grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to effect any
total or partial release (by operation of law or otherwise), discharge,
compromise or settlement with respect to the obligations of the Obligors or
any other Person in respect of the Credit Obligations, whether or not
rights against such Guarantor under this Agreement are reserved in
connection therewith;
(3) To take security in any form for the Credit Obligations, and to
consent to the addition to or the substitution, exchange, release or other
disposition of, or to deal in any other manner with, any part of any
property contained in the Credit Security whether or not the property, if
any, received upon the exercise of such power shall be of a character or
value the same as or different from the character or value of any property
disposed of, and to obtain, modify or release any present or future
guarantees of the Credit Obligations and to proceed against any of the
Credit Security or such guarantees in any order;
(4) To collect or liquidate or realize upon any of the Credit
Obligations or the Credit Security in any manner or to refrain from
collecting or liquidating or realizing upon any of the Credit Obligations
or the Credit Security; and
(5) To extend credit under the Credit Agreement, any other Credit
Document or otherwise in such amount as the Lenders may determine,
including increasing the amount of credit and the interest rate and fees
with respect thereto, even though the condition of the Obligors (financial
or otherwise, on an individual or Consolidated basis) may have deteriorated
since the date hereof.
2.5. INFORMATION REGARDING THE COMPANY, ETC. Each Guarantor has made such
investigation as it deems desirable of the risks undertaken by it in entering
into this Agreement and is fully satisfied that it understands all such risks.
Each Guarantor waives any obligation
-5-
<PAGE> 9
which may now or hereafter exist on the part of the Agent or the Lenders to
inform it of the risks being undertaken by entering into this Agreement or of
any changes in such risks and, from and after the date hereof, each Guarantor
undertakes to keep itself informed of such risks and any changes therein. Each
Guarantor expressly waives any duty which may now or hereafter exist on the part
of the Agent or the Lenders to disclose to such Guarantor any matter related to
the business, operations, character, collateral, credit, condition (financial or
otherwise), income or prospects of the Company and its Affiliates or their
properties or management, whether now or hereafter known by the Agent or the
Lenders. Each Guarantor represents, warrants and agrees that it assumes sole
responsibility for obtaining from the Company all information concerning the
Credit Agreement and all other Credit Documents and all other information as to
the Company and its Affiliates or their properties or management as such
Guarantor deems necessary or desirable.
2.6. CERTAIN GUARANTOR REPRESENTATIONS. Each Guarantor represents that:
(1) it is in its best interest and in pursuit of the purposes for
which it was organized as an integral part of the business conducted and
proposed to be conducted by the Company and its Subsidiaries, and
reasonably necessary and convenient in connection with the conduct of the
business conducted and proposed to be conducted by them, to induce the
Lenders to enter into the Credit Agreement and to extend credit to the
Company by making the Guarantee contemplated by this Section 2;
(2) the credit available under the Credit Agreement will directly or
indirectly inure to its benefit;
(3) after giving effect to the foregoing considerations, the assets
and liabilities of the Company and the Guarantors and rights of
contribution among the Guarantors, including the rights provided in Section
2.10:
(1) it will not be rendered insolvent as a result of entering
into this Agreement;
(2) after giving effect to the transactions contemplated by this
Agreement, it will have assets having a fair saleable value in excess
of the amount required to pay its probable liability on its existing
debts as such debts become absolute and matured;
(3) it has, and will have, access to adequate capital for the
conduct of its business; and
(4) it has the ability to pay its debts from time to time
incurred in connection therewith as such debts mature;
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(4) it has been advised by the Agent that the Lenders are unwilling to
enter into the Credit Agreement unless the Guarantee contemplated by this
Section 2 is given by it; and
(5) except as otherwise permitted pursuant to the Credit Agreement,
all of its equity or ownership interests are owned, directly or indirectly,
by the Company.
2.7. SUBROGATION. Each Guarantor agrees that, until the Credit Obligations
are paid in full, it will not exercise any right of reimbursement, subrogation,
contribution, offset or other claims against the Company or any other Obligor
arising by contract or operation of law in connection with any payment made or
required to be made by such Guarantor under this Agreement. After the payment in
full of the Credit Obligations, each Guarantor shall be entitled to exercise
against the Company and the other Obligors all such rights of reimbursement,
subrogation, contribution and offset, and all such other claims, to the fullest
extent permitted by law.
2.8. SUBORDINATION. Each Guarantor covenants and agrees that all
Indebtedness, claims and liabilities then or thereafter owing by the Company or
any other Obligor to such Guarantor whether arising hereunder or otherwise are
subordinated to the prior payment in full of the Credit Obligations and are so
subordinated as a claim against such Obligor or any of its assets, whether such
claim be in the ordinary course of business or in the event of voluntary or
involuntary liquidation, dissolution, insolvency or bankruptcy, so that no
payment with respect to any such Indebtedness, claim or liability will be made
or received while any Event of Default exists; PROVIDED, HOWEVER, that the
foregoing provisions shall not limit the right of any Guarantor to receive
payments in respect of such Indebtedness, claims or liabilities so long as no
Event of Default exists.
2.9. FUTURE SUBSIDIARIES; FURTHER ASSURANCES. The Company will from time to
time cause (a) any present Wholly Owned Subsidiary that is not a Guarantor
within 30 days after notice from the Agent or (b) any future Wholly Owned
Subsidiary within 30 days after any such Person becomes a Wholly Owned
Subsidiary, to join this Agreement as a Guarantor pursuant to a joinder
agreement in form and substance satisfactory to the Agent; PROVIDED, HOWEVER,
that in the event such a Wholly Owned Subsidiary is prohibited by any valid law,
statute, rule or regulation from guaranteeing the Credit Obligations, or if such
a guarantee by any Foreign Subsidiary would result in a repatriation of foreign
earnings under the Code (including the "deemed dividend" provisions of section
956 of the Code), (i) such guarantee will be limited to the extent necessary to
comply with such prohibition or to prevent such repatriation of foreign earnings
or (ii) if such limitation on the guaranteed amount is not sufficient to avoid
such prohibition or repatriation, the Company and its other Subsidiaries will
pledge the stock of such Wholly Owned Subsidiary (or as much of such stock as
may be pledged without resulting in such a repatriation) to the Agent to secure
the Credit Obligations
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pursuant to a pledge agreement in form and substance satisfactory to the Agent.
Each Guarantor will, promptly upon the request of the Agent from time to time,
execute, acknowledge and deliver, and file and record, all such instruments, and
take all such action, as the Agent deems necessary or advisable to carry out the
intent and purpose of this Section 2.
2.10. CONTRIBUTION AMONG GUARANTORS. The Guarantors agree that, as among
themselves in their capacity as guarantors of the Credit Obligations, the
ultimate responsibility for repayment of the Credit Obligations, in the event
that the Company fails to pay when due its Credit Obligations, shall be
equitably apportioned, to the extent consistent with the Credit Documents, among
the respective Guarantors (a) in the proportion that each, in its capacity as a
guarantor, has benefited from the extensions of credit to the Company by the
Lenders under the Credit Agreement, or (b) if such equitable apportionment
cannot reasonably be determined or agreed upon among the affected Guarantors, in
proportion to their respective net worths determined on or about the date hereof
(or such later date as such Guarantor becomes party hereto). In the event that
any Guarantor, in its capacity as a guarantor, pays an amount with respect to
the Credit Obligations in excess of its proportionate share as set forth in this
Section 2.10, each other Guarantor shall, to the extent consistent with the
Credit Documents, make a contribution payment to such Guarantor in an amount
such that the aggregate amount paid by each Guarantor reflects its proportionate
share of the Credit Obligations. In the event of any default by any Guarantor
under this Section 2.10, each other Guarantor will bear, to the extent
consistent with the Credit Documents, its proportionate share of the defaulting
Guarantor's obligation under this Section 2.10. This Section 2.10 is intended to
set forth only the rights and obligations of the Guarantors among themselves and
shall not in any way affect the obligations of any Guarantor to the Lenders
under the Credit Documents (which obligations shall at all times constitute the
joint and several obligations of all the Guarantors).
3. SECURITY.
3.1. CREDIT SECURITY. As security for the payment and performance of the
Credit Obligations, each Obligor party hereto mortgages, pledges and
collaterally grants and assigns to the Agent for the benefit of the Lenders and
the holders from time to time of any Credit Obligation, and creates a security
interest in favor of the Agent for the benefit of the Lenders and such holders
in, all of such Obligor's right, title and interest in and to (but none of its
obligations or liabilities with respect to) the items and types of present and
future property described in Sections 3.1.1 through 3.1.14 (subject, however, to
Section 3.1.15), whether now owned or hereafter acquired, all of which shall be
included in the term "CREDIT SECURITY":
3.1.1. TANGIBLE PERSONAL PROPERTY. All goods, machinery, equipment,
inventory and all other tangible personal property of any nature
whatsoever, wherever located, including raw materials, work in process,
finished parts and products, supplies, spare parts, replacement parts,
merchandise for resale, computers, tapes, disks and computer equipment.
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3.1.2. RIGHTS TO PAYMENT OF MONEY. All rights to receive the payment
of money, including accounts and receivables, rights to receive the payment
of money under contracts, franchises, licenses, permits, subscriptions or
other agreements (whether or not earned by performance), and rights to
receive payments from any other source (all such rights, other than
Financing Debt, being referred to herein as "ACCOUNTS").
3.1.3. INTANGIBLES. All of the following (to the extent not included
in Section 3.1.2): (a) contracts, franchises, licenses, permits,
subscriptions and other agreements and all rights thereunder; (b) rights
granted by others which permit such Obligor to sell or market items of
personal property; (c) United States and foreign common law and statutory
copyrights and rights in literary property and rights and licenses
thereunder; (d) trade names, United States and foreign trademarks, service
marks, internet domain names, registrations of any of the foregoing and
related good will; (e) United States and foreign patents and patent
applications; (f) computer software, designs, models, know-how, trade
secrets, rights in proprietary information, formulas, customer lists,
backlog, orders, subscriptions, royalties, catalogues, sales material,
documents, good will, inventions and processes; (g) judgments, causes in
action and claims, whether or not inchoate, and (h) all other general
intangibles and intangible property and all rights thereunder.
3.1.4. PLEDGED STOCK. (a) All shares of capital stock or other
evidence of beneficial interest in any corporation, business trust or
limited liability company, (b) all limited partnership interests in any
limited partnership, (c) all general partnership interests in any general
or limited partnership, (d) all joint venture interests in any joint
venture and (e) all options, warrants and similar rights to acquire such
capital stock or such interests. All such capital stock, interests,
options, warrants and other rights are collectively referred to as the
"PLEDGED STOCK".
3.1.5. PLEDGED RIGHTS. All rights to receive profits or surplus of, or
other Distributions (including income, return of capital and liquidating
distributions) from, any partnership, joint venture or limited liability
company, including any distributions by any such Person to partners, joint
venturers or members. All such rights are collectively referred to as the
"PLEDGED RIGHTS".
3.1.6. PLEDGED INDEBTEDNESS. All Financing Debt from time to time
owing to such Obligor from any Person (all such Financing Debt being
referred to as the "PLEDGED INDEBTEDNESS").
3.1.7. CHATTEL PAPER, INSTRUMENTS, ETC. All chattel paper,
non-negotiable instruments, negotiable instruments, documents and
investment property.
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3.1.8. LEASES. All leases of personal property, whether such Obligor
is the lessor or the lessee thereunder.
3.1.9. DEPOSIT ACCOUNTS. All general or special deposit accounts,
including any demand, time, savings, passbook or similar account maintained
by such Obligor with any bank, trust company, savings and loan association,
credit union or similar organization, and all money, cash and cash
equivalents of such Obligor, whether or not deposited in any such deposit
account.
3.1.10. COLLATERAL. All collateral granted by third parties to, or
held by, such Obligor with respect to the Accounts, Pledged Securities,
chattel paper, instruments, leases and other items of Credit Security.
3.1.11. BOOKS AND RECORDS. All books and records, including books of
account and ledgers of every kind and nature, all electronically recorded
data (including all computer programs, disks, tapes, electronic data
processing media and software used in connection with maintaining such
Obligor's books and records), all files, correspondence and all containers
for the foregoing.
3.1.12. INSURANCE. All insurance policies which insure against any
loss or damage to any other Credit Security or which are otherwise owned by
such Obligor.
3.1.13. ALL OTHER PROPERTY. All other property, assets and items of
value of every kind and nature, tangible or intangible, absolute or
contingent, legal or equitable.
3.1.14. PROCEEDS AND PRODUCTS. All proceeds, including insurance
proceeds, and products of the items of Credit Security described or
referred to in Sections 3.1.1 through 3.1.13 and, to the extent not
included in the foregoing, all Distributions with respect to the Pledged
Securities.
3.1.15. EXCLUDED PROPERTY. Notwithstanding Sections 3.1.1 through
3.1.14 and 3.2.1, the payment and performance of the Credit Obligations
shall not be secured by, and the definitions of "Accounts", "Credit
Security", "Pledged Indebtedness", "Pledged Rights" and "Pledged Stock", as
applicable, shall not include:
(1) any contract, license, permit, lease or franchise that validly
prohibits the creation by such Obligor of a security interest in such
contract, license, permit, lease or franchise (or in any rights or property
obtained by such Obligor under such contract, license, permit, lease or
franchise); PROVIDED, HOWEVER, that the provisions of this Section 3.1.15
shall not prohibit the security interests created by this Agreement from
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extending to the proceeds of such contract, license, permit, lease or
franchise (or such rights or property) or to the monetary value of the good
will and other general intangibles of the Obligors relating thereto;
(2) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property
prohibits the creation of a security interest therein; PROVIDED, HOWEVER,
that the provisions of this Section 3.1.15 shall not prohibit the security
interests created by this Agreement from extending to the proceeds of such
rights or property or to the monetary value of the good will and other
general intangibles of the Obligors relating thereto;
(3) any lease of real or personal property to the extent that the
creation of a security interest or lien would result in a breach or default
by such Obligor under such lease or any other matter requiring the consent
of the other party to such lease;
(4) more than 66% of the outstanding voting stock or other voting
equity in any Foreign Subsidiary to the extent that the pledge of voting
stock or other voting equity above such amount would result in a
repatriation of foreign earnings under the Code (including the "deemed
dividend" provisions of section 956 of the Code); or
(5) the items described in Section 3.2 (but only in the event and to
the extent the Agent has not specified that such items be included in the
Credit Security pursuant thereto).
In addition, in the event any Obligor disposes of assets to third parties
in a transaction permitted by section 6.11 of the Credit Agreement, such assets,
but not the proceeds or products thereof, shall be released from the Lien on the
Credit Security created hereunder.
3.2. ADDITIONAL CREDIT SECURITY. As additional Credit Security, each
Obligor covenants that it will mortgage, pledge and collaterally grant and
assign to the Agent for the benefit of the Lenders and the holders from time to
time of any Credit Obligation, and will create a security interest in favor of
the Agent for the benefit of the Lenders and such holders in, all of its right,
title and interest in and to (but none of its obligations with respect to) such
of the following present or future items as the Agent may from time to time
specify by notice to such Obligor, whether now owned or hereafter acquired, and
the proceeds and products thereof, except to the extent consisting of rights or
property of the types referred to in Section 3.1.15(a) through (c), subject only
to Liens permitted by Section 3.3.3, all of which shall thereupon be included in
the term "CREDIT SECURITY":
3.2.1. REAL PROPERTY. All real property and immovable property and
fixtures, leasehold interests and easements wherever located, together with
all estates and interests of such Obligor therein, including lands,
buildings, stores, manufacturing
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facilities and other structures erected on such property, fixed plant,
fixed equipment and all permits, rights, licenses, benefits and other
interests of any kind or nature whatsoever in respect of such real and
immovable property.
3.2.2. MOTOR VEHICLES AND AIRCRAFT. All motor vehicles and aircraft.
3.3. CERTAIN COVENANTS WITH RESPECT TO CREDIT SECURITY. Each Obligor
covenants that:
3.3.1. PLEDGED STOCK. All shares of capital stock, limited partnership
interests, membership interests and similar securities included in the
Pledged Stock shall be at all times duly authorized, validly issued, fully
paid and (in the case of capital stock and limited partnership interests)
nonassessable. Each Obligor will deliver to the Agent certificates
representing the Pledged Stock, registered, if the Agent so requests, in
the name of the Agent or its nominee or accompanied by a stock transfer
power executed in blank and, if the Agent so requests, with the signature
guaranteed, all in form and manner reasonably satisfactory to the Agent.
Pledged Stock that is not evidenced by a certificate will be registered in
the name of the Agent or its nominee on the issuer's records or an
appropriate control statement with respect thereto shall be provided to the
Agent, all in form and substance reasonably satisfactory to the Agent. The
Agent may at any time after the occurrence and during the continuance of an
Event of Default transfer into its name or the name of its nominee any
Pledged Stock. In the event the Pledged Stock includes any Margin Stock,
the Obligors will furnish to the Lenders Federal Reserve Form U-1 and take
such other action as the Agent may reasonably request to ensure compliance
with applicable laws.
3.3.2. ACCOUNTS AND PLEDGED INDEBTEDNESS. Each Obligor will,
immediately upon the receipt thereof, deliver to the Agent any promissory
note or similar instrument, but not in any event including normal invoices
in the ordinary course of business, representing any Account or Pledged
Indebtedness, after having endorsed such promissory note or instrument in
blank.
3.3.3. NO LIENS OR RESTRICTIONS ON TRANSFER OR CHANGE OF CONTROL. All
Credit Security shall be free and clear of any Liens and restrictions on
the transfer thereof, including contractual provisions which prohibit the
assignment of rights under contracts, except for Liens permitted by section
6.8 of the Credit Agreement or by this Section 3.3.3. Without limiting the
generality of the foregoing, each Obligor will in good faith attempt to
exclude from agreements, instruments, deeds or leases to which it becomes a
party after the date hereof provisions that would prevent such Obligor from
creating a security interest in such agreement, instrument, deed or lease
or any rights or property acquired thereunder as contemplated hereby. None
of the Pledged Stock shall be subject to any option to purchase or similar
rights of any Person. Except with
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the written consent of the Agent, which consent will not be unreasonably
withheld, each Obligor will in good faith attempt to exclude from any
agreement, instrument, deed or lease provisions that would restrict the
change of control or ownership of the Company or any of its Subsidiaries,
or the creation of a security interest in the ownership of the Company or
any of its Subsidiaries.
3.3.4. LOCATION OF CREDIT SECURITY. Each Obligor shall at all times
keep its records concerning the Accounts at its chief executive office and
principal place of business, which office and place of business shall be as
set forth in exhibit 7.1 to the Credit Agreement (as from time to time
supplemented in accordance with sections 6.4.1 and 6.4.2 of the Credit
Agreement) or, so long as such Obligor shall have taken all steps
reasonably necessary to perfect the Lenders' security interest in the
Credit Security with respect to such new address, at such other address as
such Obligor may specify by notice actually received by the Agent not less
than 10 Banking Days prior to such change of address. No Obligor shall at
any time keep tangible personal property of the type referred to in Section
3.1.1 in any jurisdiction other than the jurisdictions specified in such
exhibit 7.1 (as so supplemented) or, so long as such Obligor shall have
taken all steps reasonably necessary to perfect the Lenders' security
interest in the Credit Security with respect to such other jurisdiction,
other jurisdictions as such Obligor may specify by notice actually received
by the Agent not less than 10 days prior to moving such tangible personal
property into such other jurisdiction.
3.3.5. TRADE NAMES. No Obligor will adopt or do business under any
name other than its name or names designated in exhibit 7.1 to the Credit
Agreement (as from time to time supplemented in accordance with sections
6.4.1 and 6.4.2 of the Credit Agreement) or any other name specified by
notice actually received by the Agent not less than 10 Banking Days prior
to the conduct of business under such additional name. Since its inception,
no Obligor has changed its name or adopted or conducted business under any
trade name other than a name specified in such exhibit 7.1 (as so
supplemented).
3.3.6. INSURANCE. Each insurance policy included in, or insuring
against loss or damage to, the Credit Security shall name the Agent as
additional insured party or as loss payee. No such insurance policy shall
be cancelable or subject to termination or reduction in amount or scope of
coverage until after at least 30 days' prior written notice from the
insurer to the Agent. At least 10 days prior to the expiration of any such
insurance policy for any reason, each Obligor shall furnish the Agent with
a renewal or replacement policy and evidence of payment of the premiums
therefor when due. Each Obligor grants to the Agent full power and
authority as its attorney-in-fact, effective upon notice to such Obligor
after the occurrence and during the continuance of an Event of Default, to
obtain, cancel, transfer, adjust and settle any such insurance policy and
to endorse any drafts thereon. Any amounts that the Agent receives under
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any such policy (including return of unearned premiums) insuring against
loss or damage to the Credit Security when no Event of Default has occurred
and is continuing shall be delivered to the Obligors for the replacement,
restoration and maintenance of the Credit Security. Any such amounts that
the Agent receives after the occurrence and during the continuance of an
Event of Default shall, at the Agent's option, be applied to payment of the
Credit Obligations or to the replacement, restoration and maintenance of
the Credit Security. If any Obligor fails to provide insurance as required
by this Agreement, the Agent may, at its option, purchase such insurance,
and such Obligor will on demand pay to the Agent the amount of any payments
made by the Agent or the Lenders for such purpose, together with interest
on the amounts so disbursed from five Banking Days after the date demanded
until payment in full thereof at the Overdue Reimbursement Rate.
3.3.7. INTELLECTUAL PROPERTY. Exhibit 7.3 to the Credit Agreement (as
supplemented from time to time in accordance with sections 6.4.1 and 6.4.2
of the Credit Agreement) shall set forth the following items as of the
dates reports are required under such sections (collectively, the
"INTELLECTUAL PROPERTY"):
(1) all copyrights owned by the Obligors that are registered with the
United States Copyright Office (or any office maintaining registration of
copyrights in any foreign jurisdiction) and all applications for such
registration and
(2) all trademarks, tradenames, service marks, service names and
patents owned by the Obligors that are registered with the United States
Patent and Trademark Office (or any office maintaining registration of such
items in any state of the United States of America or any foreign
jurisdiction) and all applications for such registration.
The Obligors shall duly authorize, execute and deliver to the Agent
separate memoranda of security interests provided by the Agent with respect
to the foregoing Intellectual Property (other than Intellectual Property
excluded from the Credit Security pursuant to Section 3.2) for filing in
the offices described above. In the event any additional Intellectual
Property is registered (or applications therefor are filed) in the offices
described above, the Obligors shall (at least quarterly, as contemplated by
sections 6.4.1 and 6.4.2 of the Credit Agreement) notify the Agent and duly
authorize, execute and deliver to the Agent separate memoranda of security
interests covering such additional Intellectual Property for filing in such
offices.
3.3.8. DEPOSIT ACCOUNTS. Each Obligor shall keep all its bank and
deposit accounts only with the Agent, other Lenders or the financial
institutions listed on exhibit 7.3 to the Credit Agreement (as from time to
time supplemented in accordance with sections 6.4.1 and 6.4.2 of the Credit
Agreement) or such other financial institutions specified by notice
actually received by the Agent not less than 10
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Banking Days prior to the establishment of such bank or deposit account
with such other financial institution. Each Obligor shall use reasonable
efforts to cause such financial institutions (other than the Lenders and
the Agent) to enter into depository agreements with the Agent in form and
substance reasonably satisfactory to the Agent, in the case of existing
deposit accounts, by March 31, 2000 and in the case of future deposit
accounts, within 30 days after such deposit account is established.
3.3.9. MODIFICATIONS TO CREDIT SECURITY. Except with the prior written
consent of the Agent, which consent will not be unreasonably withheld, no
Obligor shall amend or modify, or waive any of its rights under or with
respect to, any material Accounts, general intangibles, Pledged Securities
or leases if the effect of such amendment, modification or waiver would be
to materially reduce the amount of any such items or to materially extend
the time of payment thereof, to waive any default by any other party
thereto, or to waive or impair any material remedies of the Obligors or the
Lenders under or with respect to any such Accounts, general intangibles,
Pledged Securities or leases, in each case other than consistent with past
practice in the ordinary course of business and on an arm's-length basis.
Each Obligor will promptly give the Agent written notice of any request by
any Person for any material credit or adjustment with respect to any such
Account, general intangible, Pledged Securities or leases.
3.3.10. DELIVERY OF DOCUMENTS. Upon the Agent's request, each Obligor
shall deliver to the Agent, promptly upon such Obligor's receipt thereof,
copies of any agreements, instruments, documents or invoices comprising or
relating to the Credit Security. Pending such request, such Obligor shall
keep such items at its chief executive office and principal place of
business (as specified pursuant to Section 3.3.4).
3.3.11. PERFECTION OF CREDIT SECURITY. This Agreement shall create in
favor of the Agent, for the benefit of the Lenders, a legal, valid and
enforceable security interest in the Credit Security described herein,
subject only (in the case of Credit Security other than Pledged Stock) to
Liens permitted by section 6.8 of the Credit Agreement. In the case of the
Pledged Stock, when stock certificates representing such Pledged Stock and
stock powers related thereto duly executed in blank by the relevant Pledgor
are delivered to the Agent, and in the case of the other Credit Security
described in this Agreement, when financing statements in appropriate form
are filed in the jurisdictions specified on exhibit 7.1 to the Credit
Agreement or when Intellectual Property filings in appropriate form are
filed in appropriate offices, as set forth in Section 3.3.7, this Agreement
shall provide a fully perfected, first priority Lien on, and security
interest in, all right, title and interest of the Obligors in such Credit
Security, as security for the Credit Obligations, in each case prior and
superior in right to any other Person (except, in the case of Credit
Security other than Pledged Stock, Liens permitted by section 6.8 of the
Credit Agreement). Upon the Agent's reasonable request from time to time,
the Obligors will execute and deliver, and file
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and record in the proper filing and recording places, all such instruments,
including financing statements, collateral assignments of copyrights,
trademarks and patents, mortgages or deeds of trust and notations on
certificates of title, and will take all such other action, as the Agent
deems reasonably necessary for confirming to it the Credit Security or to
carry out any other purpose of this Agreement or any other Credit Document.
3.4. ADMINISTRATION OF CREDIT SECURITY. The Credit Security shall be
administered as follows, and if an Event of Default shall have occurred and be
continuing, Section 3.5 shall also apply.
3.4.1. USE OF CREDIT SECURITY. Until the Agent provides written notice
to the contrary, each Obligor may use, commingle and dispose of any part of
the Credit Security in the ordinary course of its business, all subject to
section 6.11 of the Credit Agreement.
3.4.2. ACCOUNTS. To the extent specified by prior written notice from
the Agent after the occurrence and during the continuance of an Event of
Default, all sums collected or received and all property recovered or
possessed by any Obligor in connection with any Credit Security shall be
received and held by such Obligor in trust for and on the Lenders' behalf,
shall be segregated from the assets and funds of such Obligor, and shall be
delivered to the Agent for the benefit of the Lenders. Without limiting the
foregoing, upon the Agent's request after the occurrence and during the
continuance of an Event of Default, each Obligor shall institute depository
collateral accounts, lock-box receipts and similar credit procedures
providing for the direct receipt of payment on Accounts at a separate
address, the segregation of such proceeds for direct payment to the Agent
and appropriate notices to Account debtors. Upon the Agent's request after
the occurrence and during the continuance of an Event of Default, each
Obligor will cause its accounting books and records to be marked with such
legends and segregated in such manner as the Agent may specify.
3.4.3. DISTRIBUTIONS ON PLEDGED SECURITIES.
(1) Until an Event of Default shall occur and be continuing, the
respective Obligors shall be entitled, to the extent permitted by the
Credit Documents, to receive all Distributions on or with respect to the
Pledged Securities (other than Distributions constituting additional
Pledged Securities). All Distributions constituting additional Pledged
Securities will be retained by the Agent (or if received by any Obligor
shall be held by such Person in trust and shall be immediately delivered by
such Person to the Agent in the original form received, endorsed in blank)
and held by the Agent as part of the Credit Security.
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(2) If an Event of Default shall have occurred and be continuing, all
Distributions on or with respect to the Pledged Securities shall be
retained by the Agent (or if received by any Obligor shall be held by such
Person in trust and shall be immediately delivered by it to the Agent in
the original form received, endorsed in blank) and held by the Agent as
part of the Credit Security or applied by the Agent to the payment of the
Credit Obligations in accordance with Section 3.5.6.
3.4.4. VOTING PLEDGED SECURITIES.
(1) Until an Event of Default shall occur and be continuing, the
respective Obligors shall be entitled to vote or consent with respect to
the Pledged Securities in any manner not inconsistent with the terms of any
Credit Document, and the Agent will, if so requested, execute appropriate
revocable proxies therefor.
(2) If an Event of Default shall have occurred and be continuing, if
and to the extent that the Agent shall so notify in writing the Obligor
pledging the Pledged Securities in question, only the Agent shall be
entitled to vote or consent or take any other action with respect to the
Pledged Securities (and any Obligor will, if so requested, execute
appropriate proxies therefor).
3.5. RIGHT TO REALIZE UPON CREDIT SECURITY. Except to the extent prohibited
by applicable law that cannot be waived, this Section 3.5 shall govern the
Lenders' and the Agent's rights to realize upon the Credit Security if any Event
of Default shall have occurred and be continuing. The provisions of this Section
3.5 are in addition to any rights and remedies available at law or in equity and
in addition to the provisions of any other Credit Document. In the case of a
conflict between this Section 3.5 and any other Credit Document, this Section
3.5 shall govern.
3.5.1. ASSEMBLY OF CREDIT SECURITY; RECEIVER. Each Obligor shall, upon
the Agent's request, assemble the Credit Security and otherwise make it
available to the Agent. The Agent may have a receiver appointed for all or
any portion of the Obligors' assets or business which constitutes the
Credit Security in order to manage, protect, preserve, sell and otherwise
dispose of all or any portion of the Credit Security in accordance with the
terms of the Credit Documents, to continue the operations of the Obligors
and to collect all revenues and profits therefrom to be applied to the
payment of the Credit Obligations, including the compensation and expenses
of such receiver.
3.5.2. GENERAL AUTHORITY. To the extent specified in written notice
from the Agent to the Obligor in question, each Obligor grants the Agent
full and exclusive power and authority, subject to the other terms hereof
and applicable law, to take any of the following actions (for the sole
benefit of the Agent on behalf of the Lenders and the holders from time to
time of any Credit Obligations, but at such Obligor's expense):
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<PAGE> 21
(1) To ask for, demand, take, collect, sue for and receive all
payments in respect of any Accounts, general intangibles, Pledged
Securities or leases which such Obligor could otherwise ask for, demand,
take, collect, sue for and receive for its own use.
(2) To extend the time of payment of any Accounts, general
intangibles, Pledged Securities or leases and to make any allowance or
other adjustment with respect thereto.
(3) To settle, compromise, prosecute or defend any action or
proceeding with respect to any Accounts, general intangibles, Pledged
Securities or leases and to enforce all rights and remedies thereunder
which such Obligor could otherwise enforce.
(4) To enforce the payment of any Accounts, general intangibles,
Pledged Securities or leases, either in the name of such Obligor or in its
own name, and to endorse the name of such Obligor on all checks, drafts,
money orders and other instruments tendered to or received in payment of
any Credit Security.
(5) To notify the third party payor with respect to any Accounts,
general intangibles, Pledged Securities or leases of the existence of the
security interest created hereby and to cause all payments in respect
thereof thereafter to be made directly to the Agent; PROVIDED, HOWEVER,
that whether or not the Agent shall have so notified such payor, such
Obligor will at its expense render all reasonable assistance to the Agent
in collecting such items and in enforcing claims thereon.
(6) To sell, transfer, assign or otherwise deal in or with any Credit
Security or the proceeds thereof, as fully as such Obligor otherwise could
do.
3.5.3. MARSHALING, ETC. Neither the Agent nor the Lenders shall be
required to make any demand upon, or pursue or exhaust any of their rights
or remedies against, any Obligor or any other guarantor, pledgor or any
other Person with respect to the payment of the Credit Obligations or to
pursue or exhaust any of their rights or remedies with respect to any
collateral therefor or any direct or indirect guarantee thereof. Neither
the Agent nor the Lenders shall be required to marshal the Credit Security
or any guarantee of the Credit Obligations or to resort to the Credit
Security or any such guarantee in any particular order, and all of its and
their rights hereunder or under any other Credit Document shall be
cumulative. To the extent it may lawfully do so, each Obligor absolutely
and irrevocably waives and relinquishes the benefit and advantage of, and
covenants not to assert against the Agent or the Lenders, any valuation,
stay, appraisement, extension, redemption or similar laws now or hereafter
existing which, but for this provision, might be applicable to the sale of
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<PAGE> 22
any Credit Security made under the judgment, order or decree of any court,
or privately under the power of sale conferred by this Agreement, or
otherwise. Without limiting the generality of the foregoing, each Obligor
(a) agrees that it will not invoke or utilize any law which might prevent,
cause a delay in or otherwise impede the enforcement of the rights of the
Agent or any Lender in the Credit Security and (b) waives its rights under
all such laws. In addition, each Obligor waives any right to prior notice
(except to the extent expressly required by this Agreement) or judicial
hearing in connection with foreclosure on or disposition of any Credit
Security, including any such right which such Obligor would otherwise have
under the Constitution of the United States of America, any state or
territory thereof or any other jurisdiction.
3.5.4. SALES OF CREDIT SECURITY. All or any part of the Credit
Security may be sold for cash or other value in any number of lots at
public or private sale, without demand, advertisement or notice; PROVIDED,
HOWEVER, that unless the Credit Security to be sold threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
the Agent shall give the Obligor granting the security interest in such
Credit Security 10 days' prior written notice of the time and place of any
public sale, or the time after which a private sale may be made, which
notice each of the Obligors and the Agent agrees to be reasonable. At any
sale or sales of Credit Security, any Lender or any of its respective
officers acting on its behalf, or such Lender's assigns, may bid for and
purchase all or any part of the property and rights so sold, may use all or
any portion of the Credit Obligations owed to such Lender as payment for
the property or rights so purchased, and upon compliance with the terms of
such sale may hold and dispose of such property and rights without further
accountability to the respective Obligors, except for the proceeds of such
sale or sales pursuant to Section 3.5.6. The Obligors acknowledge that any
such sale will be made by the Agent on an "as is" basis with disclaimers of
all warranties, whether express or implied. The respective Obligors will
execute and deliver or cause to be executed and delivered such instruments,
documents, assignments, waivers, certificates and affidavits, will supply
or cause to be supplied such further information and will take such further
action, as the Agent shall reasonably request in connection with any such
sale.
3.5.5. SALE WITHOUT REGISTRATION. If, at any time when the Agent shall
determine to exercise its rights hereunder to sell all or part of the
securities included in the Credit Security, the securities in question
shall not be effectively registered under the Securities Act (or other
applicable law), the Agent may, in its sole discretion, sell such
securities by private or other sale not requiring such registration in such
manner and in such circumstances as the Agent may deem necessary or
advisable in order that such sale may be effected in accordance with
applicable securities laws without such registration and the related
delays, uncertainty and expense. Without limiting the generality of the
foregoing, in any event the Agent may, in its sole discretion, (a)
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<PAGE> 23
approach and negotiate with a single purchaser or one or more possible
purchasers to effect such sale, (b) restrict such sale to one or more
purchasers each of whom will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such securities and (c) cause to be placed on
certificates representing the securities in question a legend to the effect
that such securities have not been registered under the Securities Act (or
other applicable law) and may not be disposed of in violation of the
provisions thereof. Each Obligor agrees that such manner of disposition is
commercially reasonable, that it will upon the Agent's request give any
such purchaser access to such information regarding the issuer of the
securities in question as the Agent may reasonably request and that the
Agent and the Lenders shall not incur any responsibility for selling all or
part of the securities included in the Credit Security at any private or
other sale not requiring such registration, notwithstanding the possibility
that a substantially higher price might be realized if the sale were
deferred until after registration under the Securities Act (or other
applicable law) or until made in compliance with certain other rules or
exemptions from the registration provisions under the Securities Act (or
other applicable law). Each Obligor acknowledges that no adequate remedy at
law exists for breach by it of this Section 3.5.5 and that such breach
would not be adequately compensable in damages and therefore agrees that
this Section 3.5.5 may be specifically enforced.
3.5.6. APPLICATION OF PROCEEDS. The proceeds of all sales and
collections in respect of any Credit Security or other assets of any
Obligor, all funds collected from the Obligors and any cash contained in
the Credit Security, the application of which is not otherwise specifically
provided for herein, shall be applied as follows:
(1) First, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of the Agent and the reasonable fees
and expenses of its special counsel;
(2) Second, any surplus then remaining to the payment of the Credit
Obligations in such order and manner as the Agent may in its reasonable
discretion determine; PROVIDED, HOWEVER, that any such payment shall be
distributed to the Lenders in accordance with the Credit Agreement and the
other Credit Documents; and
(3) Third, any surplus then remaining shall be paid to the Obligors,
or as otherwise provided in the UCC.
3.6. CUSTODY OF CREDIT SECURITY. Except as provided by applicable law that
cannot be waived, the Agent will have no duty as to the custody and protection
of the Credit Security, the collection of any part thereof or of any income
thereon or the preservation or exercise of
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<PAGE> 24
any rights pertaining thereto, including rights against prior parties, except
for the use of reasonable care in the custody and physical preservation of any
Credit Security in its possession. The Lenders will not be liable or responsible
for any loss or damage to any Credit Security, or for any diminution in the
value thereof, by reason of the act or omission of any agent selected by the
Agent acting in good faith.
4. GENERAL. Addresses for notices, consent to jurisdiction, jury trial
waiver, defeasance and numerous other provisions applicable to this Agreement
are contained in the Credit Agreement. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof, and any invalid or unenforceable provision shall be modified
so as to be enforceable to the maximum extent of its validity or enforceability.
The headings in this Agreement are for convenience of reference only and shall
not limit, alter or otherwise affect the meaning hereof. This Agreement and the
other Credit Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral. This Agreement
is a Credit Document and may be executed in any number of counterparts, which
together shall constitute one instrument. This Agreement shall be governed by
and construed in accordance with the laws (other than the conflict of laws
rules) of the Commonwealth of Massachusetts, except as may be required by the
UCC of other jurisdictions with respect to matters involving the perfection of
the Agent's Lien on the Credit Security located in such other jurisdictions.
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<PAGE> 25
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first written above.
NEXTERA ENTERPRISES, INC.
By: ______________________________________
Name:
Title:
CE ACQUISITION CORP.
CRITIAS, INC.
ERG ACQUISITION CORP.
LEXECON INC.
NEONEXT LLC
NETNEXT, INC.
NEXTERA BUSINESS PERFORMANCE
SOLUTIONS GROUP, INC.
NEXTERA INTERACTIVE, INC.
THE PLANNING TECHNOLOGIES
GROUP, L.L.C.
PYRAMID IMAGING, INC.
SCANADA, INC.
SIBSON & COMPANY, LLC
SIBSON INTERNATIONAL, LLC
TIMAEUS, INC.
By: _____________________________________________
As an authorized officer of each of the
foregoing corporations and limited liability
companies
BANKBOSTON, N.A.,
as Agent under the Credit Agreement
By: ______________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.48
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as
of November 15, 1999 by and between Nextera Enterprises, Inc., a Delaware
corporation ("Nextera") and Gresham T. Brebach, Jr. (the "Executive").
RECITALS
WHEREAS, Executive was employed by Nextera as President and Chief
Executive Officer pursuant to a written employment agreement between Executive
and Education Technology Consulting Holding, L.L.C. effective as of March 3,
1997 (the "Employment Agreement") until he was terminated by Nextera without
cause effective October 28, 1999 (the "Termination Date"); and
WHEREAS, Executive continues to serve on the Board of Directors of
Nextera and as a director of Nextera's subsidiaries; and
WHEREAS, Executive wishes voluntarily to resign from the Board of
Directors of Nextera, and from his other director positions with Nextera's
subsidiaries; and
WHEREAS, Nextera and Executive (together, "the Parties") mutually desire
fully and finally to settle any and all disputes arising from the termination of
Executive's employment;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
1. Separation Payments and Benefits.
a. Pursuant to Section 13.3 of the Employment Agreement, Nextera
will pay to the Executive his current base salary, on Nextera's normal payroll
schedule, and subject to all applicable withholding, through March 3, 2000 (the
"End of the Employment Term"). Nextera will pay Executive for any accrued,
unused vacation through the Termination Date.
b. Nextera shall reimburse Executive for any business expenses
incurred prior to the Termination Date to which Executive is entitled to
reimbursement under Section 9 of the Employment Agreement, including without
limitation such expenses related to planning the Nextera Christmas party.
c. Executive acknowledges and agrees that he is not entitled to the
guaranteed bonus described in Section 7.2 of the Employment Agreement subsequent
to the Termination Date, and that excepting his vacation pay and
post-Termination Date base salary referred to in subparagraph 1(a), and
unreimbursed expenses (if any) referred to in subparagraph 1(b), as of the date
of this Agreement he has received all monies, bonuses, commissions, and other
compensation or perquisites he earned or was due during his employment by
Nextera.
d. Nextera will pay the full cost for maintaining (i) the
Executive's existing life insurance coverage, and (ii) existing group medical
and dental coverage through COBRA for Executive and his eligible dependents
(except to the extent any one or more of such plans may be modified by Nextera
for its employees generally) through the earlier to occur of (x) the End of the
Employment Term or (y) the date upon which the Executive has commenced full time
employment with another employer and has qualified for comparable coverage under
the benefit plans of such employer.
<PAGE> 2
e. Except as expressly provided for in this Agreement, Executive's
entitlement to benefits from Nextera, and eligibility to participate in
Nextera's benefit plans, shall cease on the End of the Employment Term, except
to the extent that the Executive has conversion or continuation rights pursuant
to the relevant plan documents or is eligible to and chooses to continue his
medical and dental coverage at his expense pursuant to COBRA.
2. Additional Payments and Benefits.
Executive acknowledges and agrees that his execution of this
Agreement and the expiration of the revocation period set forth in paragraph 6
below are conditions precedent to his entitlement to receive the additional
payments and benefits described below:
a. Nextera will pay to the Executive a bonus in the amount of
$94,000, in lieu of any bonus compensation to which the Executive would have
been entitled had the Executive continued to be employed by Nextera through
December 31, 1999 pursuant to Section 7.3 of the Employment Agreement; such
bonus shall be paid within five (5) days of the expiration of the revocation
period set forth in paragraph 6 below.
b. Nextera will promptly reimburse Executive for carrying costs not
to exceed $6,000 per month on Executive's Beverly Hills, California condominium
(the "Condo") for 120 days after the Termination Date or until Executive closes
escrow on the sale of the Condo, whichever occurs first. Executive shall use his
best efforts to list and sell the Condo as promptly as reasonably practicable.
Upon close of escrow, Nextera will reimburse Executive for brokerage commissions
for such sale not exceeding six percent (6%) of the purchase price. Any net
proceeds of such sale shall belong to Executive.
c. Nextera will use its best efforts promptly to amend the
Stockholders Agreement dated August 31, 1998, as amended, and any other
applicable agreements, to permit Executive's transfer or sale of his Nextera
shares; provided, however, that Executive shall remain subject to the IPO lockup
restrictions to the extent applicable.
d. Executive's indebtedness to Nextera in the current amount of
approximately $358,134, as evidenced in the Note dated January 2, 1998 shall be
deemed repaid and Executive hereby relinquishes all his rights and interest
under any and all Debentures issued by Nextera with an original maturity date of
May 1, 2002.
e. Executive shall be allowed to keep up to two (2) laptop computers
furnished by and belonging to Nextera. Executive shall promptly return all other
office equipment or other property purchased by Nextera for his use.
f. Nextera will use its best efforts to transfer Executive's
existing disability insurance policy to Executive at Executive's sole expense.
3. Resignation from Board of Directors.
Effective as of the date of this Agreement, Executive hereby resigns
from the Board of Directors of Nextera and from all other director positions
held by the Executive with Nextera or any of its subsidiaries. Executive agrees
to execute any documentation necessary to effectuate such resignations, provided
that such documentation is reasonably acceptable to the Parties.
4. Release of Claims.
a. By Executive. In consideration for Nextera's agreement to provide
the additional payments and benefits set forth in paragraph 2, the adequacy of
which is hereby acknowledged, Executive, on behalf of himself and his heirs,
executors, administrators, successors, agents, and assigns, agrees to release
fully and without limitation and forever discharge Nextera and each of its
respective shareholders, parents, owners, subsidiaries, divisions, officers,
directors, agents, employees, consultants, insurers, representatives, lawyers,
affiliates, predecessors, successors and assigns, employee welfare benefit plans
and pension, profit-sharing or deferred compensation plans under Section 401 of
the Internal Revenue Code of 1986, as amended, and their trustees,
<PAGE> 3
administrators and other fiduciaries, and all persons acting by, through, under
or in concert with them, or any of them ("Releasees"), both individually and
collectively, from any and all rights, claims, demands, liabilities, actions,
causes of action, damages, losses, costs, expenses and compensation, of whatever
nature whatsoever, known or unknown, fixed or contingent, in law or in equity
("Claims"), which Executive may have, or now claim to have against, or in the
future claim from the Releasees by reason of any matter, cause, or thing
whatsoever, from the beginning of time to the date hereof, including, without
limiting the generality of the foregoing, any Claims arising out of, based upon,
or relating to Executive's recruitment, hire, employment, benefits, remuneration
(including salary; bonus; incentive or other compensation; vacation, sick leave
or medical insurance benefits; and/or benefits from any employee stock
ownership, stock option, pension, profit-sharing and/or any deferred
compensation plan under Section 401 of the Internal Revenue Code of 1986, as
amended) or separation by Nextera, or any contract, agreement, or compensation
arrangement between Executive and the Releasees, or any of them, including
without limitation the Employment Agreement. Without limiting the generality of
the foregoing, the Parties acknowledge and agree that the Employment Agreement
shall be of no further force and effect after the date hereof, and that
Executive shall not be entitled to any salary, bonus compensation or other
benefits under the Employment Agreement except as expressly set forth in
paragraphs 1 and 2 of this Agreement.
As part of this Agreement, Executive expressly waives any Claims
arising out of any federal, state or other governmental statute, regulation or
ordinance, including, without limitations: (1) Title VII of the Civil Rights Act
of 1964, as amended; (2) the Equal Pay Act, as amended; (3) the Age
Discrimination in Employment Act, as amended; (4) the Family and Medical Leave
Act of 1993; (5) the California Fair Employment and Housing Act of 1993, as
amended; (6) the California Labor Code (including but not limited to Section
970); (7) the Fair Labor Standards Act, as amended; (8) the federal and state
wage and hour laws; (9) the Americans With Disabilities Act, as amended; (10)
the Employee Retirement Income Security Act of 1974, as amended; (11) the
California Family Rights Act; (12) the Worker Adjustment and Retraining
Notification Act; (13) the California common law of fraud, misrepresentation,
negligence, defamation, infliction of emotional distress, breach of contract, or
wrongful termination; (14) Executive Order 11246; (15) Executive Order 11141;
(16) the Rehabilitation Act of 1973, including sections 503 and 504; and/or (17)
any other local, state or federal law, rule, or regulation governing employment,
discrimination in employment or the payment of wages and benefits. This
Agreement does not include waiver of (1) any rights or Claims which may arise
after the date hereof, (2) any rights or Claims arising from breach of this
Agreement, and (3) Executive's right to indemnification as an officer or
director of Nextera, as determined by applicable law.
Notwithstanding anything to the contrary contained in this
Agreement, Executive shall retain any vested benefits to which Executive may be
entitled under Nextera's 401k Retirement Savings Plan as of the Termination
Date.
This Agreement shall not affect Executive's ownership of or rights
in shares of common stock of Nextera or Knowledge Universe, L.L.C. (or its
subsidiaries and affiliates) as to which Executive was the holder of record (or
an option holder) on the Termination Date; provided, however, that Executive
relinquishes and waives his right to purchase any equity interest in Nextera or
its predecessors pursuant to Section 7.4 of the Employment Agreement.
b. By Nextera. Nextera, on behalf of itself and its successors,
shareholders, subsidiaries, corporate affiliates, agents, and assigns agrees to
release fully and without limitation and forever discharge Executive and his
heirs, executors, administrators, successors, agents, and assigns, from any and
all rights, claims, demands, liabilities, actions, causes of action, damages,
losses, costs, expenses and compensation, of whatever nature whatsoever, fixed
or contingent, in law or in equity, that are known to the Board of Directors of
Nextera (other than Executive) as of the effective date of this Agreement. The
claims released herein include, without limiting the generality of the
foregoing, any claims arising out of, based upon, or relating to Executive's
recruitment, hire, employment, benefits, remuneration or separation by Nextera,
or any contract, agreement, or compensation arrangement between Executive and
the Releasees, or any of them, including without limitation the Employment
Agreement.
<PAGE> 4
5. Knowing and Voluntary Waiver of Unknown Claims by Executive.
Executive understands that California law includes Civil Code Section
1542 which says that releases usually do not apply to certain unknown claims.
Specifically, Section 1542 of the California Civil Code states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
With full awareness and understanding of the above provisions, Executive hereby
waives any rights he may have under Section 1542, as well as under any other
statutes or common law principles of similar effect. Executive intends to, and
hereby does, release Releasees from claims which he does not presently know or
suspect to exist at this time.
6. Older Workers Benefit Protection Act.
In accordance with the Older Workers Benefit Protection Act of 1990,
Executive acknowledges that:
a. This Agreement includes a waiver and release of Executive's
claims under the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et
seq.
b. Executive has the right to consult with an attorney before
signing this Agreement.
c. Executive has twenty-one (21) days from November 15, 1999 to
consider this Agreement but he may waive that period by signing it earlier.
d. Executive has seven (7) days after signing this Agreement to
revoke this Agreement and with the exception of paragraph 3 this Agreement will
not be effective until that revocation period has expired. Written notice of
revocation must be delivered in person to Nextera Enterprises, Inc., c/o Richard
V. Sandler, Maron & Sandler, 844 Moraga Drive, Los Angeles, CA 90049. If
Executive revokes this Agreement, Executive will not receive the payments and
benefits described in paragraph 2 of this Agreement.
7. Cooperation.
a. Until the End of the Employment Term and for a period of two (2)
years thereafter, Executive agrees to cooperate fully with Nextera (including
its Board of Directors and any special committees of the Board) and its counsel
or accountants in any financial audits or internal investigation involving
securities, financial or accounting matters, and in its defense, assertion,
prosecution, or other participation in, any administrative, judicial, or other
proceeding, claim, or dispute relating to the period during which Executive was
engaged in employment with Nextera. Any such activities shall be scheduled, to
the extent reasonably possible, to accommodate Executive's business and personal
obligations at the time. Nextera shall pay Executive's reasonable travel and
incidental out-of-pocket expenses incurred in connection with any such
cooperation, provided such expenses are documented and approved in advance.
Except as otherwise required by applicable law or regulation, Executive further
agrees not to disparage or otherwise publish or communicate negative statements
or opinions about Nextera, its officers, directors, shareholders, parents,
subsidiaries or affiliates in any way. Except as required by law or authorized
in advance by the Board of Directors, Executive shall not communicate, directly
or indirectly, with shareholders of Nextera or their representatives concerning
the management of Nextera, the operations of Nextera, or the financial status of
Nextera. Executive shall take no action detrimental to the interests of Nextera
or its management.
b. Except as otherwise required by applicable law or regulation,
Nextera will not disparage or otherwise publish or communicate negative
statements about Executive to any third person. Nextera will not make any
derogatory statements about Executive to any prospective employer.
<PAGE> 5
8. Indemnification.
Nextera shall, to the maximum extent permitted by law, indemnify,
defend, and hold Executive harmless for all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, and deficiencies,
including reasonable attorneys' fees, that Executive shall incur or suffer that
arise from, result from, or relate to the discharge of Executive's duties under
the Employment Agreement or as a consultant under this Agreement, except to the
extent that Executive has acted in bad faith or shall be guilty of willful
misconduct, fraud, gross negligence or a wrongful taking.
9. Non-Admission of Liability.
Executive and Nextera agree that neither the payment of any sum of
money nor the execution of this Agreement shall constitute or be construed as an
admission of any liability by either Executive of Nextera.
10. Encouragement to Consult with Attorney; Tax Consequences.
Executive has the right to consult with an attorney and is encouraged
to do so before signing this Agreement. Executive understands that whether or
not to do so is Executive's decision and if it is done, it is done at
Executive's expense. Executive further acknowledges that the benefits provided
in this Agreement may have tax consequences, that Nextera has not provided any
tax advice, and that Executive is free to consult with an accountant, legal
counsel, or other tax advisor regarding the tax consequences.
11. Confidential Arbitration.
The Parties agree that any and all disputes, controversies or claims
based on, arising out of, or relating to this Agreement, or the alleged breach
thereof, shall be submitted to final and binding arbitration. Such arbitration
proceeding shall be conducted confidentially and under seal. The arbitration
shall take place in the county of Los Angeles, and may be compelled and enforced
according to the California Arbitration Act (Code of Civil Procedure
Sections 1280 et seq.). Unless the Parties mutually agree otherwise, the
arbitration shall be conducted before the American Arbitration Association,
according to its Employment Dispute Resolution Rules. Judgment on the award the
arbitrator renders may be entered in any court having jurisdiction over the
Parties. Arbitration shall be initiated in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association.
12. Proprietary Information and Return of Documents.
Upon the Separation Date, Executive shall promptly return to Nextera
the original and all copies of all accounts, notes, data, sketches, drawings,
reports, studies and other documents and records, materials and physical items
of any kind, which are the property of Nextera or which relate in any way to the
business, products, practices or techniques of Nextera. Executive further agrees
that he will not disclose to any person or use for his own account any such
information, observations or data, or Nextera's trade secrets, including without
limitation information relating to intellectual property, patents, trademarks,
trade secrets, supplier lists, customer lists, pricing or cost data, bidding
procedures, marketing studies, business plans, sales projections, product
research and development, strategic plans, consultant reports, customer surveys,
financing techniques and sources, and non-public financial information, without
the prior written consent of the Board of Directors, Chairman, or Chief
Executive Officer of Nextera. Executive shall hold all such information in trust
and confidence for Nextera and shall not use or disclose any such information,
and shall be liable for damages incurred by Nextera as a result of any
disclosure of such information by Executive. Executive acknowledges that any
unauthorized use or misuse of the above described confidential, proprietary or
trade secret information will cause irreparable harm to Nextera and will give
rise to an immediate action by Nextera for injunctive relief.
13. Non-Solicitation.
a. Until the End of the Employment Term and for a period of two (2)
years thereafter, Executive agrees that he will not directly or indirectly
(whether as an employee, director, owner, stockholder, consultant, limited or
general partner, or otherwise), for himself or for any other person or entity:
(i) solicit, induce or entice, or
<PAGE> 6
attempt to solicit, induce, or entice, any person who is (or was within the
prior ninety (90) days) an employee of Nextera to terminate such employment
relationship or to become employed by any other person, firm or entity; or (ii)
solicit, induce or entice, or attempt to solicit, induce, or entice, any
customer of Nextera to purchase from another person or entity products or
services of the type then marketed by Nextera.
b. Executive acknowledges that any unauthorized solicitation
or diversion of Nextera's employees or customers in violation of paragraph 13 of
this Agreement will result in irreparable harm to Nextera and will give rise to
an immediate action by Nextera for injunctive relief.
14. No Adequate Remedy at Law.
a. Equitable Relief. In the event that Executive shall breach any of
the provisions of paragraphs 12 or 13 hereof, or in the event that any such
breach is threatened by Executive, in addition to and without limiting or
waiving any other remedies available to Nextera in law or in equity, Nextera
shall be entitled to immediate injunctive relief in any court, domestic or
foreign, having the capacity to grant such relief, to restrain such breach or
threatened breach and to enforce the provisions of such paragraphs. Executive
acknowledges that it is impossible to measure in money the damages that Nextera
will sustain in the event that Executive breaches or threatens to breach any of
the provisions of such paragraphs and, in the event that Nextera shall institute
any action or proceeding to enforce those provisions seeking injunctive relief,
Executive hereby waives and agrees not to assert and shall not use as a defense
thereto the claim or defense that Nextera has an adequate remedy at law. The
foregoing shall not prejudice the right of Nextera to require Executive to
account for and pay over to it the amount of any actual damages incurred by
Nextera as a result of any such breach.
b. Enforcement. The Parties acknowledge that (i) the provisions of
paragraphs 12 and 13 are essential to protect the business, goodwill, and trade
secrets of Nextera, and (ii) the foregoing restrictions are under all of the
circumstances reasonable and necessary for the protection of Nextera and its
business. If, however, at the time of enforcement of any or such paragraphs or
any other provision of this Agreement, a court or arbitrator shall hold that the
duration, scope or area restriction or any other provision hereof is
unreasonable under circumstances now or then existing, the Parties hereto agree
that the maximum duration, scope or area reasonable under the circumstances
shall be substituted for the stated duration, scope or area.
15. Miscellaneous Provisions.
a. This Agreement shall be interpreted as a whole in accordance with
its fair meaning and in accordance with the laws of the State of California. The
language in the Agreement shall not be construed for or against any particular
party.
b. If any party to this Agreement brings an action to enforce his or
its rights hereunder, the prevailing party shall be entitled to recover his or
its costs and expenses, including court costs and attorneys' fees, if any,
incurred in connection with such suit.
c. If Executive willfully breaches his obligations under this
Agreement, including without limitation the obligations set forth in paragraphs
12 and 13, Nextera, in addition to its other rights and remedies, shall be
permitted to discontinue any payments or benefits otherwise due Executive, and
Executive shall forfeit his right to any additional payments or benefits
pursuant to paragraph 2.
16. Notices.
Any notice, consent, waiver, demand, or other communication required or
permitted to be given by or to any person pursuant to this Agreement
(collectively "Notice") will be in writing, and will be given either by personal
service, facsimile transmission, by certified mail, return receipt requested, or
by Federal Express or similar commercial overnight courier service, to a party
at the address set forth below:
If to Nextera:
<PAGE> 7
Nextera Enterprises, Inc.
844 Moraga Drive
Los Angeles, CA 90049
Attention: Steve Fink
With a copy to:
Richard V. Sandler
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
and
Mark S. Pulliam
Latham & Watkins
701 B Street, Suite 2100
San Diego, CA 92101
If to Executive:
Gresham T. Brebach, Jr.
400 Ocean Avenue
Marblehead, MA 01945
In the case of personal service, Notice will be deemed effective on the
date of service. In all other cases, Notice will be deemed effective on the date
of delivery, as shown on the return receipt or other written evidence of
delivery, if any, or five (5) days after dispatch if there is not return receipt
or written evidence of delivery. A party may change the address at which Notice
is to be given, at any time and from time to time, by giving Notice of the new
address to the other parties in accordance with this Section.
17. Severability.
The provisions of this Agreement are severable. If any part of this
Agreement is found to be invalid or unenforceable, the other provisions shall
remain fully valid and enforceable.
18. Entire Agreement.
This Agreement sets forth the entire agreement between Executive and
Nextera, and except as expressly set forth in this Agreement supersedes the
Employment Agreement and any and all prior oral or written arrangements or
understandings between Employee and Nextera concerning the subject matter of
this Agreement. This Agreement may not be altered, amended, or modified, except
by a further writing signed by Executive and the newly-appointed Chairman of the
Board, or the successor thereto, of Nextera.
19. Executive Acknowledgments.
a. Executive acknowledges and agrees that he has read this Agreement
carefully, understands all of its terms, and agrees to those terms voluntarily.
b. EXECUTIVE ACKNOWLEDGES AND UNDERSTANDS THAT THIS AGREEMENT
INCLUDES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
dates indicated below.
<PAGE> 8
EXECUTIVE NEXTERA ENTERPRISES, INC.
/s/GRESHAM T. BREBACH, JR. /s/STEVEN B. FINK
- ------------------------------------- -----------------------------------
Gresham T. Brebach, Jr. Name: Steven B. Fink
Dated: November 30, 1999 Title: Chief Executive Officer
Dated: November 29, 1999
<PAGE> 1
EXHIBIT 10.49
December 23, 1999
Mrs. Debra Bergevine
224 Prospect Street
Franklin, MA 02038
Dear Deb:
This letter agreement confirms and explains the terms by which you and Nextera
Enterprises, Inc. (Nextera), have mutually agreed to end your employment at
Nextera. At the outset, it is important to acknowledge that both you and Nextera
have agreed not to make any statements to any third parties which could
reasonably be expected to be harmful to the business or goodwill of each other;
in short, we have resolved to be mutually supportive and respectful of each
other. If asked the reason for your departure, Nextera will respond, when
appropriate, that you resigned to pursue other interests and opportunities.
It is further acknowledged that the terms and conditions outlined in this letter
are confidential and will not be divulged to other employees (current or former)
or third parties with the exception of personally retained legal counsel. Such
action will render this agreement null and void.
Your last day of active employment at Nextera will be December 31, 1999. You
will be entitled to receive salary continuation, at your current salary level,
for a period of six months, extending through June 30, 2000. By signing below
you agree to make yourself available on a reasonable basis to facilitate the
transition of projects during the salary continuation period.
Nextera agrees that effective January 1, 2000 you may work in the management and
technology consulting field performing work similar to Nextera's current
business, but that you shall not solicit or cause to be solicited, or aid in the
solicitation of any past or current client or current employee of Nextera for a
period of one year from the effective date of this letter.
Your enrollment in Nextera's medical and dental plans will continue at normal
premium rates through the salary continuation period ( six months ). You may
elect to continue your healthcare benefits after the salary continuation period
for up to eighteen months in accordance with the provisions of COBRA
(Consolidated Omnibus Budget Reconciliation Act).
Nextera will pay you for any vacation days accrued but unused up to your last
day of active employment. You will not accrue vacation days during the salary
continuation period.
During the salary continuation period, you will not be able to make
contributions to your 401(k) plan. A memo with information concerning your
insurance, your 401(k) account and other matters will be sent to you.
You will be entitled to receive a bonus for the 1999 year, in the amount of
$40,000, payable in the payroll of December 31, 1999.
In addition, Nextera waives its right to repurchase any of your shares of common
stock pursuant to your employment agreement. However, your shares remain subject
to the transfer restrictions imposed on "Founders Interests" in Section 4.5 of
the Stockholders Agreement dated as of August 31, 1998, as amended, to which you
are a party. Nextera will commit to circulate for approval an amendment to the
Stockholders Agreement to the parties thereto to secure a waiver of the
restrictions for resale of these shares, although no assurance can be made that
the waiver will be obtained.
<PAGE> 2
Following your final day of employment with Nextera, you will no longer be
subject to Nextera's insider trading policies, including the requirement to seek
pre-clearance before trading in Nextera securities. However, to the extent you
are aware of material, non-public information concerning Nextera, you must
continue to comply with the securities laws.
You agree fully and finally to waive and release all your rights and claims to
your proportionate share of Nextera's Debentures (approximately $45,545.00) in
return for the cancellation of your loan from Nextera amounting to approximately
$32,901.00 including accrued interest, plus a cash payment from Nextera of
$12,644.00 to make up any difference between these two sums as of December 31,
1999.
You will be entitled to professional outplacement assistance for up to $2,500 of
services actually provided.
In exchange for these benefits, you hereby release Nextera and each of its past,
present and future owners, shareholders, affiliates, subsidiaries, officers,
directors, employees and agents, from any and all claims, causes of action and
liabilities of every name and nature, in any way related to or arising out of
your employment at Nextera, or pursuant to any state, federal or local laws,
regulations, executive orders or common law doctrines, including without
limitation any arising under the Age Discrimination in Employment Act, which you
ever had or might now have as of the date of this agreement.
By signing below, you acknowledge that you have been advised to consult with
your own accountant, legal counsel or other tax advisor regarding the tax
consequence of this letter and the benefits described herein to you, and that
none of Nextera Enterprises, Inc., or any of their affiliates has provided any
tax advice to you.
In signing this agreement, you acknowledge that you have been afforded a period
of not less than 21 days to consider its terms, and have been advised to consult
an attorney. You may waive that period by signing earlier. You may revoke your
acceptance of this agreement within 7 days after your execution thereof, and
this agreement shall not become effective or enforceable until after that
revocation period has expired. If you do not so revoke your acceptance, then
this letter shall take effect as a binding agreement between you and Nextera on
the basis set forth above.
Please indicate your assent to the terms of this letter by signing below, where
indicated, and returning one signed copy to us. By your assent, you agree that
Nextera has no other obligations to you and that you have no claims for any
other matters against Nextera, subject to our compliance with the terms of this
letter. By our agreement to the terms of this letter, Nextera agrees that you
have no other obligations to it and that it has no further claims against you,
subject to your compliance with the terms of this agreement. The obligations of
Nextera relative to your salary continuation and your continued enrollment in
benefit plans during the continuation period are conditional upon our receipt of
your signed consent.
Yours truly,
I agree to the terms of this letter:
Signature: /s/DEBORAH BERGEVINE
------------------------
Date: December 30, 1999
------------------------
<PAGE> 1
EXHIBIT 10.50
December 31, 1999
Mr. Ronald K. Bohlin
9 Partridge Hill Road
Dover, MA 02030
Dear Ron:
This letter agreement confirms and explains the terms by which you and Nextera
Enterprises, Inc. (Nextera), have mutually agreed to end your employment at
Nextera. At the outset, it is important to acknowledge that both you and Nextera
have agreed not to make any statements to any third parties which could
reasonably be expected to be harmful to the business or goodwill of each other;
in short, we have resolved to be mutually supportive and respectful of each
other. If asked the reason for your departure, Nextera will respond, when
appropriate, that you resigned to pursue other interests and opportunities.
It is further acknowledged that the terms and conditions outlined in this letter
are confidential and will not be divulged to other employees (current or former)
or third parties with the exception of personally retained legal counsel. Any
breach of the preceding sentence will render this agreement null and void.
Your last day of active employment at Nextera will be December 31, 1999, and
except as otherwise provided herein, any employment agreement between you and
Nextera shall terminate on said date. You will be entitled to receive salary
continuation, at the level of $450,000 per year, through June 30, 2000. By
signing below you agree to make yourself available on a reasonable basis to
facilitate the transition of projects during the salary continuation period.
Nextera agrees that effective January 1, 2000 you may work in the management and
technology consulting field performing work similar to Nextera's current
business, but that you shall not solicit or cause to be solicited, or aid in the
solicitation of any past or current client or current employee of Nextera for a
period of one year from the effective date of this letter.
Your enrollment in Nextera's medical and dental plans will continue at normal
premium rates through the salary continuation period ( six months ). You may
elect to continue your healthcare benefits after the salary continuation period
for up to eighteen months in accordance with the provisions of COBRA
(Consolidated Omnibus Budget Reconciliation Act).
Nextera will pay you for any vacation days accrued but unused up to your last
day of active employment (December 31, 1999). You will not accrue vacation days
during the salary continuation period.
During the salary continuation period, you will not be able to make
contributions to your 401(k) plan. A memo with information concerning your
insurance, your 401(k) account and other matters will be sent to you.
You will be entitled to receive a bonus for the 1999 year, in the amount of
$101,000 payable within 15 days of the signing of this agreement.
In addition, Nextera waives its right to repurchase any of your shares of common
stock pursuant to your employment agreement. However, your shares remain subject
to the transfer restrictions imposed on "Founders Interests" in Section 4.5 of
the Stockholders Agreement dated as of August 31, 1998, as amended, to which you
are a party. Nextera will commit to circulate by February 1, 2000 for approval
an amendment to the Stockholders Agreement to the parties thereto to secure a
waiver of the restrictions for resale of these shares, although no assurance can
be made that the waiver will be obtained.
<PAGE> 2
Following your final day of employment with Nextera, you will no longer be
subject to Nextera's insider trading policies, including the requirement to seek
pre-clearance before trading in Nextera securities. However, you must continue
to comply with the securities laws.
You agree fully and finally to waive and release all your rights and claims to
your proportionate share of Nextera's Debentures in return for a cash payment
from Nextera of $32,160 which represents your proportional share of the
principal plus accrued interest in the Debenture with an original maturity of
May 1, 2002, to be paid within 15 days of the signing of this agreement.
You will be entitled to professional outplacement assistance for up to $10,000
of services actually provided.
You will be allowed to keep your laptop computer furnished by Nextera.
In exchange for these benefits, you hereby release Nextera and each of its past,
present and future owners, shareholders, affiliates, subsidiaries, officers,
directors, employees and agents, from any and all claims, causes of action and
liabilities of every name and nature, in any way, directly or indirectly,
related to or arising out of your employment at Nextera, or pursuant to any
state, federal or local laws, regulations, executive orders or common law
doctrines, including without limitation any arising under the Age Discrimination
in Employment Act, which you ever had or might now have as of the date of this
agreement. This agreement does not include a waiver of (1) any rights or claims
which may arise after the date hereof, (2) any rights or claims arising from
breach of this agreement, or (3) Executive's right to indemnification as an
officer of Nextera, as determined by applicable law.
Executive understands that California law includes Civil Code Section 1542 which
says that releases usually do not apply to certain unknown claims. Specifically,
Section 1542 of the California Civil Code states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
With full awareness and understanding of the above provisions, Executive hereby
waives any rights he may have under Section 1542, as well as under any other
statutes or common law principles of similar effect. Executive intends to, and
hereby does, release Releases from claims which he does not presently know or
suspect to exist at this time.
By signing below, you acknowledge that you have been advised to consult with
your own accountant, legal counsel or other tax advisor regarding the tax
consequence of this letter and the benefits described herein to you, and that
none of Nextera Enterprises, Inc., or any of their affiliates has provided any
tax advice to you.
In signing this agreement, you acknowledge that you have been afforded a period
of not less than 21 days to consider its terms, and have been advised to consult
an attorney. You may waive that period by signing earlier. You may revoke your
acceptance of this agreement within 7 days after your execution thereof, and
this agreement shall not become effective or enforceable until after that
revocation period has expired. If you do not so revoke your acceptance, then
this letter shall take effect as a binding agreement between you and Nextera on
the basis set forth above.
Please indicate your assent to the terms of this letter by signing below, where
indicated, and returning one signed copy to us. By your assent, you agree that
Nextera has no other obligations to you and that you have no claims for any
other matters against Nextera, subject to our compliance with the terms of this
letter. By our agreement to the terms of this letter, Nextera agrees that you
have no other obligations to it and that it has no further claims against you,
subject to your compliance with the terms of this agreement. The obligations of
Nextera relative to your salary continuation and your continued enrollment in
benefit plans during the continuation period are conditional upon our receipt of
your signed consent.
Yours truly,
<PAGE> 3
/s/STEVEN B. FINK
Steven B. Fink
Chairman and Chief Executive Officer
Nextera Enterprises, Inc.
I agree to the terms of this letter:
Signature: /s/RONALD K. BOHLIN
-------------------
Date: January 14, 2000
<PAGE> 1
EXHIBIT 10.51
NON-QUALIFIED STOCK OPTION AGREEMENT
OF
NEXTERA ENTERPRISES, INC.
THIS AGREEMENT is made by and between Nextera Enterprises,
Inc., a Delaware corporation (the "COMPANY"), and Steven B. Fink, Chief
Executive Officer of the Company ("OPTIONEE"):
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its Class A Common Stock;
WHEREAS, the Company wishes to carry out the Plan (the terms
of which are hereby incorporated by reference and made a part of this
Agreement); and
WHEREAS, the Committee appointed to administer the Plan has
determined effective October 29, 1999 (the "COMMITMENT DATE") that it would be
to the advantage and best interest of the Company and its stockholders to grant
the Non-Qualified Option provided for herein to the Optionee for the reasons
described above and as an inducement to enter into or remain in the service of
the Company and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officer to issue
said Option.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates. All capitalized terms
used herein without definition shall have the meanings ascribed to such terms in
the Plan.
SECTION 1.1 - AGREEMENT
"AGREEMENT" shall mean this Non-Qualified Stock Option
Agreement of Nextera Enterprises, Inc.
SECTION 1.3 - CAUSE
"CAUSE" shall mean acts of disloyalty or dishonesty, which
results in or is intended to result in personal enrichment to the Optionee at
the expense of the Company; acts of moral turpitude or illegal or unprofessional
conduct which may adversely affect the reputation of the Company or its
relationships with its customers or suppliers; fraudulent conduct in connection
with the business or affairs of the Company, without regard to the intent of any
such conduct; or material and intentional violation by the Optionee of
directives from the Board.
<PAGE> 2
SECTION 1.3 - OPTION
"OPTION" shall mean the option to purchase Class A Common
Stock of the Company granted under this Agreement. This Option shall not be an
incentive stock option within the meaning of Section 422 of the Code.
SECTION 1.4 - PLAN
"PLAN" shall mean The 1998 Equity Participation Plan of
Nextera Enterprises, Inc., as the same may be restated, amended, modified or
supplemented.
ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
In consideration of the Optionee's agreement to remain in the
employ of the Company or its Subsidiaries and for other good and valuable
consideration, on the date hereof the Company irrevocably grants to the Optionee
the option to purchase any part or all of an aggregate of 800,000 shares of its
Class A Common Stock upon the terms and conditions set forth in this Agreement
and the Plan. This Option shall not be an incentive stock option within the
meaning of Section 422 of the Code.
SECTION 2.2 - PURCHASE PRICE
The purchase price of the shares of stock covered by this
Option shall be equal to $5.3125 per share without commission or other charge.
SECTION 2.3 - CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to render faithful and efficient services to the
Company, with such duties and responsibilities as the Company shall from time to
time prescribe. Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of the Company or any Subsidiary,
or shall interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at
any time for any reason whatsoever, with or without Cause.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) The Option shall become exercisable in installments
as follows:
(i) The first installment shall consist of 200,000
shares of Class A Common Stock covered by the Option and shall become
exercisable at such time as the closing price for the
2
<PAGE> 3
Class A Common Stock on the Nasdaq National Market or such other
national securities exchange upon which the Class A Common Stock may in
the future be listed, for a period of twenty (20) consecutive trading
days equals or exceeds $7.50 per share.
(ii) The second installment shall consist of 200,000
shares of Class A Common Stock covered by the Option and shall become
exercisable at such time as the closing price for the Class A Common
Stock on the Nasdaq National Market or such other national securities
exchange upon which the Class A Common Stock may in the future be
listed, for a period of twenty (20) consecutive trading days equals or
exceeds $10.00 per share.
(iii) The third installment shall consist of 400,000
shares of Class A Common Stock covered by the Option and shall become
exercisable at such time as the closing price for the Class A Common
Stock on the Nasdaq National Market or such other national securities
exchange upon which the Class A Common Stock may in the future be
listed, for a period of twenty (20) consecutive trading days equals or
exceeds $12.50 per share.
(b) Subject to Section 3.4, no portion of the Option which is
unexercisable at Termination of Employment shall thereafter become exercisable.
SECTION 3.2 - DURATION OF EXERCISABILITY
The installments provided for in Section 3.1 hereof are
cumulative. Each such installment which becomes exercisable pursuant to Section
3.1 hereof shall remain exercisable until it becomes unexercisable under Section
3.3 or as otherwise provided under the Plan.
SECTION 3.3 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after
the first to occur of the following events:
(a) The expiration of ten (10) years from the Commitment Date;
or
(b) The expiration of ninety (90) days from the date of the
Optionee's Termination of Employment for any reason except death or for Cause;
or
(c) The expiration of three hundred and ninety (390) days from
the date of the Optionee's Termination of Employment due to the Optionee's
death; or
(d) The date of the Termination of Employment if such
termination is for Cause.
SECTION 3.4 - ACCELERATION OF EXERCISABILITY
(a) Notwithstanding Section 3.1 hereof, in the event of
Optionee's death prior to the vesting of one or more installments of the Option
set forth in Section 3.1, such installment(s) shall be deemed to be exercisable
if such installment(s) would have become exercisable in accordance with the
terms of Section 3.1 within the twelve (12) months following the Optionee's
death.
3
<PAGE> 4
(b) Notwithstanding Section 3.1 hereof, in the event of
Optionee's Termination of Employment by the Company not for Cause, the Option
shall become fully exercisable immediately upon the Optionee's Termination of
Employment.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only the Optionee may
exercise the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3 hereof or as otherwise provided under the Plan,
be exercised by the Optionee's personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3 hereof or as otherwise provided under the Plan; provided, however,
that each partial exercise shall be for not less than ten (10) shares and shall
be for whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3 hereof or as otherwise provided under the Plan:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion; and
(b) (i) Full cash payment to the Secretary of the Company for
the shares with respect to which the Option or portion is exercised; or
(ii) With the consent of the Committee, shares of the
Company's Class A Common Stock which have been owned by the Optionee for a
period of more than six months, duly endorsed for transfer to the Company, with
a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; or
(iii) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Committee. The Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law; or
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<PAGE> 5
(iv) With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
and
(c) A bona fide written representation and agreement, in the
form attached hereto as EXHIBIT A (or, at the discretion of the Committee, such
other form which the Committee deems satisfactory), signed by the Optionee or
other person then entitled to exercise the Option or portion, stating that the
shares of stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or any of
them except as may be permitted under the Securities Act and then applicable
rules and regulations thereunder, and that the Optionee or other person then
entitled to exercise the Option or portion will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on the Option exercise does not violate the Securities Act, and may issue
stop-transfer orders covering such shares. Share certificates evidencing stock
issued on exercise of this Option shall bear an appropriate legend referring to
the provisions of the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; or with the consent of the
Committee, the consideration described in clauses (ii) and (iii) of Section
4.3(b) above equal to the sums required to be withheld, may be used to make all
or part of such payment; and; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 hereof by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of the Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification
of such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any
5
<PAGE> 6
other governmental regulatory body, which the Committee shall, in its absolute
discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency, including any approval which may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, which the Committee shall, in its absolute discretion, determine to be
necessary or advisable; and
(d) The receipt by the Company of full payment for such
shares, including payment of all amounts which, under federal, state or local
tax law, the Company (or other employer corporation) is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience. SECTION 4.5 - RIGHTS AS STOCKHOLDER
The holder of the Option shall not be, nor have any of the
rights or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret, amend
or revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Optionee, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan and this Agreement
except with respect to matters which under Rule 16b-3 or Section 162(m) of the
Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part
thereof shall be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent and distribution, unless and until the
Option has been exercised (and, in such event, solely in accordance with the
terms and conditions of this Agreement and the Plan), or the shares underlying
the Option have been issued, and all restrictions applicable to such shares have
lapsed. Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall
6
<PAGE> 7
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of Class A Common Stock as will
be sufficient to satisfy the requirements of this Agreement.
SECTION 5.4 - NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. All such notices
and communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five (5) business days after being
deposited in the mail, postage prepaid, if mailed; when answered back if
telexed; when receipt acknowledged, if telecopied; and the next business day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
SECTION 5.5 - TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
SECTION 5.6 - CONSTRUCTION
This Agreement shall be administered, interpreted and enforced
under the internal laws of the State of Delaware without regard to conflicts of
laws thereof.
SECTION 5.7 - CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the Securities
and Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and the Option is granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
7
<PAGE> 8
SECTION 5.8 - AMENDMENTS
This Agreement and the Plan may be amended without the consent
of the Optionee provided that such amendment would not impair any rights of the
Optionee under this Agreement. No amendment of this Agreement shall, without the
consent of the Optionee, impair any rights of the Optionee under this Agreement.
SECTION 5.9 - INCORPORATION OF PLAN
This Agreement is made pursuant to the provisions of the Plan
which is incorporated by reference herein. Terms used herein shall have the
meaning employed by the Plan, unless the context clearly requires otherwise. In
the event of a conflict between the provisions of the Plan and the provisions of
this Agreement, the provisions of the Plan shall govern.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
Dated: ________, 2000
NEXTERA ENTERPRISES, INC.,
a Delaware corporation
By
-----------------------------------
Name: Stanley E. Maron
Title: Secretary
- ------------------------------------
Steven B. Fink
Optionee
- ------------------------------------
- ------------------------------------
Address
Optionee's Taxpayer
Identification Number:
- ------------------------------------
8
<PAGE> 9
EXHIBIT A
NEXTERA ENTERPRISES, INC.
NOTICE OF EXERCISE OF OPTION
Name: _________________________________________________________________________
Social Security Number: _______________________________________________________
I hereby give notice of the exercise of the following shares:
- --------------------------------------------------------------------------------
Type of Date Number of Option Payment
Option Granted Shares Price Due
------ ------- ------ ----- ---
X =
- ----------- ---------- ----------- -------- --------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Method of
Payment: ____ Personal Check ____ Wire Transfer ____ Previously Owned Shares
In the case of an exercise using previously-owned shares, I hereby certify
ownership of sufficient number of shares of Class A Common Stock for a period of
at least six months to effect such exercise.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax Withholding
Method: ____ Personal Check ____ Wire Transfer
- --------------------------------------------------------------------------------
Address to be used for
Stockholder Mailings: _________________________________________________________
- --------------------------------------------------------------------------------
Address where Certificate
should be mailed: _____________________________________________________________
- --------------------------------------------------------------------------------
In connection with the purchase of the Class A Common Stock, par value $.001 per
share (the "Securities") of Nextera Enterprises, Inc., a Delaware corporation
(the "Company"), the undersigned optionee ("Optionee") represents to the Company
the following:
1. Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire
the Securities. Optionee is acquiring these Securities for
investment for Optionee's own account only and not with a view to,
or for resale in connection with any "distribution" thereof within
the meaning of the Securities Act of
<PAGE> 10
1933, as amended (the "Securities Act"), except as may be
permitted under the Securities Act and applicable rules and
regulations promulgated thereunder.
2. Optionee agrees to indemnify the Company against and hold it free
and harmless from any loss, damage, expense or liability resulting
to the Company if the purchase or any sale or distribution of the
Securities by Optionee is contrary to the representation and
agreement referred to above.
In connection with this stock option exercise, please contact:
- The Company's legal counsel if you plan to sell the shares issued
upon the exercise of this option.
- The Company's accounting department regarding your tax withholding
liability for this option exercise.
- ---------------------------- -----------------------------------------------
Date Optionee's Signature
INSIDER TRADING (SECTION 10b-5) REMINDERS Both the federal securities laws and
Company policy prohibit transactions in the Company's Common Stock at a time
when you may be in possession of material information about the Company which
has not been publicly disclosed. This also applies to members of your household,
anyone receiving information regarding the Company from you, as well as all
others whose transactions may be attributable to you. Material information, in
short, is any information which could affect the stock price. Either positive or
negative information may be material.
YOU MAY BE SUBJECT TO ADDITIONAL LEGAL RESTRICTIONS AND REQUIREMENTS. CONTACT
THE COMPANY'S LEGAL COUNSEL WITH ANY QUESTIONS.
2
<PAGE> 1
EXHIBIT 21.1
NEXTERA ENTERPRISES, INC.
LIST OF SUBSIDIARIES
JURISDICTION OF
ORGANIZATION OR
NAME INCORPORATION
---- ---------------
The Alexander Corporation Limited United Kingdom
Nextera Business Performance Solutions Group, Inc. Massachusetts
Cranberry Hill Capital, L.L.C. Delaware
Critias, Inc. Delaware
Lexecon Inc. Illinois
Pyramid Imaging, Inc. California
Scanada, Inc. Delaware
Sibson Canada Co. Nova Scotia, Canada
Sibson International, LLC Delaware
Sibson & Company, LLC Delaware
Sibson UK Limited United Kingdom
Timaeus, Inc. Delaware
Neonext LLC Delaware
ERG Acquisition Corp. Delaware
CE Acquisition Corp. Delaware
Nextera Interactive, Inc. Delaware
NetNext, Inc. Delaware
Lexecon Strategy Group, Inc. Delaware
Sibson AP LLC Delaware
Sibson UK Holdings Limited United Kingdom
Next Universe, Inc. Delaware
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-80407 and 333-78825) pertaining to the Stock Option Plans of
Nextera Enterprises, Inc. of our report dated February 6, 2000, with respect to
the consolidated financial statements of Nextera Enterprises, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1999.
Our audits also included the financial statement schedule of Nextera
Enterprises, Inc., listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. 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.
ERNST & YOUNG LLP
March 28, 2000
<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 ANNUAL REPORT, TO WHICH THIS SCHEDULE IS AN EXHIBIT, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,496 7,011
<SECURITIES> 0 0
<RECEIVABLES> 32,361 39,883
<ALLOWANCES> 1,267 953
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,517 55,742
<PP&E> 9,332 15,002
<DEPRECIATION> 1,276 4,415
<TOTAL-ASSETS> 176,691 226,762
<CURRENT-LIABILITIES> 104,916 22,707
<BONDS> 0 0
0 0
0 0
<COMMON> 35,022 163,162
<OTHER-SE> (20,170) (17,105)
<TOTAL-LIABILITY-AND-EQUITY> 176,691 226,762
<SALES> 67,590 155,955
<TOTAL-REVENUES> 67,590 155,955
<CGS> 44,985 87,835
<TOTAL-COSTS> 24,825 49,698
<OTHER-EXPENSES> 7,969 7,405
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,723 8,836
<INCOME-PRETAX> (16,912) 2,181
<INCOME-TAX> 243 (884)
<INCOME-CONTINUING> (17,155) 3,065
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (14,997) 3,065
<EPS-BASIC> (1.14) 0.10
<EPS-DILUTED> (1.14) 0.10
</TABLE>
