EXHIBIT 10.4
NEXTERA ENTERPRISES, INC.
SUBORDINATION AGREEMENT
This Agreement, dated as of July 23, 2002, is among Nextera Enterprises,
Inc., a Delaware corporation (the "Company"), Knowledge Universe Inc., a
Delaware corporation ("Knowledge Universe"), and Knowledge Universe Capital Co.
LLC, a Delaware limited liability company ("KU Cap Co"). The parties agree as
follows:
1. Definitions. Certain capitalized terms are used in this
Agreement as specifically defined in this Section 1 as follows:
"Exchange Debenture" means the debenture in the original principal
amount of $21,292,550 dated July 23, 2002, executed by the Company in favor of
Knowledge Universe.
"Junior Creditor" means Knowledge Universe and each other Person
becoming a party to this Agreement (or to a subordination agreement in
substantially the form of this Agreement) pursuant to Section 9.1.
"KU Cap Co Debentures" means that certain debenture owed to KU Cap Co by
the Company, dated January 5, 1998, evidencing indebtedness in the original
principal amount of $24,970,000 (with a current balance of approximately
$12,809,094) and that certain debenture owed to KU Cap Co by the Company, dated
December 15, 2000, evidencing indebtedness in the original principal amount of
$10,000,000 (with a current balance of approximately $11,601,200).
"Reorganization" means any voluntary or involuntary dissolution,
winding-up, liquidation, reorganization by judicial proceedings, bankruptcy,
insolvency, receivership, or other statutory or common law proceedings,
including any proceeding under the federal Bankruptcy Code or any similar law of
any other jurisdiction, involving the Company or any guarantor of the Senior
Indebtedness or any of their present or future domestic subsidiaries or any of
their respective properties or the readjustment of the respective liabilities of
the Company or any such other Person or any assignment for the benefit of
creditors or any marshaling of the assets or liabilities of the Company or any
such other Person.
"Senior Indebtedness" means:
(i) The obligation to pay the KU Cap Co Debentures;
(ii) Obligations to pay interest owing under the KU Cap Co
Debentures, whether such obligations arise before or after the
institution of any Reorganization and whether or not such
obligations are allowed claims in such Reorganization; and
(iii) All renewals, extensions, and refinancings of the items
described in clauses (i) and (ii) above.
"Subordinated Indebtedness" means:
(a) The principal of and interest on the Exchange Debenture and
all other indebtedness of the Company and its subsidiaries to the
Junior Creditor; and
(b) All other obligations of the Company and its subsidiaries
to the Junior Creditor with respect to the items in clause (a),
whether now existing or hereafter arising, including intercompany
advances and any claim against the Company and its subsidiaries
in respect of rescission, indemnification, expenses, damages, or
otherwise.
2. Subordination Covenants. Each of the Company and the Junior
Creditor covenants that, so long as any part of the Senior Indebtedness is
outstanding, each of them will comply with the following provisions:
3. Subordination. To the extent and in the manner provided in this
Agreement, the payment of any Subordinated Indebtedness is and shall be
expressly subordinated and junior in right of payment to the prior payment in
full of all Senior Indebtedness, and the Subordinated Indebtedness is
subordinated as a claim against the Company, any of its subsidiaries, any
guarantor of the Senior Indebtedness or any of their
respective assets to the prior payment in full of the Senior Indebtedness, in
each case whether such claim is (a) in the ordinary course of business or (b) in
the event of any Reorganization.
4. Restricted Payments. Without the written consent of KU Cap Co,
the Company and its subsidiaries will not make, and the Junior Creditor will not
accept or receive, any payment of any Subordinated Indebtedness, whether in
cash, securities, or other property or by way of conversion, exchange or set-off
or otherwise, and no such payment shall become due.
5. Reorganization. In the event of any Reorganization, all Senior
Indebtedness shall first be paid in full before any payment is made on account
of any Subordinated Indebtedness. In any proceedings seeking to effect a
Reorganization any payment or distribution of any kind or character, whether in
cash, property, or securities, which may be payable or deliverable in respect of
any such Subordinated Indebtedness shall be paid or delivered directly to KU Cap
Co for application to payment of the Senior Indebtedness, unless and until all
Senior Indebtedness shall have been paid in full.
6. Specific Powers in Reorganization. In any proceedings with
respect to any Reorganization, the Junior Creditor irrevocably authorizes KU
Cap Co:
7. To prove and enforce any claims on the Subordinated Indebtedness
owed by the Company and its subsidiaries to the Junior Creditor;
8. To vote claims comprising any such Subordinated Indebtedness and
to accept or reject on behalf of the Junior Creditor any plan proposed in
connection with any such Reorganization;
9. To accept and execute receipts for any payment or distribution
made with respect to any such Subordinated Indebtedness and to apply such
payment or distribution to the payment of the Senior Indebtedness; and
10. To take any action and to execute any instruments necessary to
effectuate the foregoing.
11. Payments Held in Trust. If, notwithstanding the foregoing, any
payment or distribution of the assets of the Company or any of its present or
future subsidiaries of any kind or character (other than payments permitted by
Section 2.2) shall be received, by way of set-off or otherwise, by the Junior
Creditor before all Senior Indebtedness is paid in full, such payment or
distribution and the amount of any such set-off shall be held in trust by the
Junior Creditor and promptly paid over to KU Cap Co (who shall have the right to
convert any such assets into cash) for application to the payment of Senior
Indebtedness until all such Senior Indebtedness shall have been paid in full,
after giving effect to any concurrent payment or distribution to the holders of
Senior Indebtedness.
12. Restrictions on Acceleration. Notwithstanding any contrary
provision of any Subordinated Indebtedness or of any agreement or instrument
relating thereto, (a) no Subordinated Indebtedness (other than payments
permitted by Section 2.2) shall become or be declared to be due and payable
prior to the date on which the Senior Indebtedness becomes or is declared to be
due and payable and (b) if any Senior Indebtedness shall have become or been
declared to be due and payable prior to its stated maturity, the Subordinated
Indebtedness shall become immediately due and payable.
13. Effect of Provisions; Subrogation.
14. Effect of Provisions; Relative Rights. The provisions hereof as
to subordination are solely for the purpose of defining the relative rights of
the holders of Senior Indebtedness on one hand and the Junior Creditor on the
other hand, and such provisions shall not impair as between the Company and the
Junior Creditor the obligation of the Company, which is unconditional and
absolute, to pay to the Junior Creditor the principal of any Subordinated
Indebtedness owed by the Company to the Junior Creditor and interest thereon,
and all other amounts in respect thereof, nor shall any such provisions prevent
the Junior Creditor from exercising all remedies otherwise permitted by
applicable law or under the terms of such Subordinated Indebtedness upon the
occurrence and during the continuance of a default thereunder, except to the
extent prohibited by this Agreement.
15. Subrogation. When all Senior Indebtedness then outstanding has
been paid in full, the Junior Creditor shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions
of assets of the Company or any of its subsidiaries that would be deemed
payable on the Senior Indebtedness until the Subordinated Indebtedness
shall be paid in full. For the purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash,
property, or securities to which the Junior Creditor would be entitled
except for the provisions of this Agreement, and no payment over pursuant
to the provisions of this Agreement to the holders of Senior Indebtedness
by the Junior Creditor, shall, as between the Company or any of its
subsidiaries and their creditors other than the holders of Senior
Indebtedness, on one hand, and the Junior Creditor, on the other hand, be
deemed to be a payment by the Company or any of its subsidiaries to or on
account of Senior Indebtedness.
16. Legend, etc. Each of the Company and the Junior Creditor covenants to
cause each instrument or certificate representing or evidencing any of the
Subordinated Indebtedness to have affixed upon it a legend substantially as
follows:
"This instrument is subject to the Subordination Agreement dated
as of July 23, 2002, as from time to time in effect, among the
maker, the payee, and Knowledge Universe Capital Co. LLC, which,
among other things, subordinates the obligations of the obligor
hereunder to the prior payment of certain obligations of the
obligor to the holders of Senior Indebtedness as defined
therein."
The Company shall cause any financial statement describing or listing or
otherwise reflecting the existence of any Indebtedness included in the
Subordinated Indebtedness to indicate clearly the subordinated character
thereof.
17. Further Assurances. Each of the Company and the Junior Creditor
covenants to execute and deliver to KU Cap Co such further instruments and to
take such further action as KU Cap Co may at any time or times reasonably
request in order to carry out the provisions and intent of this Agreement.
18. Representations and Warranties. In order to induce KU Cap Co to enter
into this Agreement, the Company represents and warrants that:
19. Organization and Business. The Company is a duly organized and
validly existing entity, in good standing under the laws of the
jurisdiction of its organization, with all power and authority necessary
(a) to enter into and perform this Agreement and (b) to 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 KU Cap Co and are correct and complete.
20. Authorization and Enforceability. The Company has taken all
corporate action required to execute, deliver and perform this Agreement.
This Agreement constitutes the legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
21. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement, nor the consummation of any transaction
referred to in or contemplated by this Agreement, nor the fulfillment of
the terms hereof or thereof or of any other agreement, instrument, deed,
or lease referred to in this Agreement, has constituted or resulted, or
will constitute or result, in:
22. Any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company is a party
or by which it is bound, or of the Charter or By-laws of the
Company; or
23. The violation of any law, statute, judgment, decree, or
governmental order, rule, or regulation applicable to the Company.
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 in connection
with the execution, delivery, and performance of this Agreement or the
transactions contemplated hereby.
24. Litigation. 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, threatened which may involve 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 in the Company's business, assets, financial
condition, income, or prospects or which seeks to enjoin the consummation,
or which questions the validity, of any of the transactions contemplated
by this Agreement. 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 which has resulted, or creates a
material risk of resulting, in any material adverse change in the
Company's business, assets, financial condition, income, or prospects.
25. Information Regarding the Company. The Junior Creditor expressly
acknowledges and agrees that it 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. The Junior Creditor waives
any obligation which may now or hereafter exist on the part of KU Cap Co or any
holder of any Senior Indebtedness to inform the Junior Creditor of the risks
being undertaken by entering into this Agreement or of any changes in such risks
and the Junior Creditor undertakes to keep itself informed of such risks and any
changes therein. The Junior Creditor expressly waives (except to the extent
prohibited by applicable law which cannot be waived) any duty which may now or
hereafter exist on the part of KU Cap Co or any holder of any Senior
Indebtedness to disclose to the Junior Creditor any matter related to the
business, operations, character, collateral, credit, condition (financial or
otherwise), income, or prospects of the Company or its affiliates, properties,
or management, whether now or hereafter known by any KU Cap Co. The Junior
Creditor represents, warrants, and agrees that it assumes sole responsibility
for obtaining from the Company and its affiliates all information concerning and
other information as to the Company and its subsidiaries and their respective
affiliates, properties, or management or anything relating to any of the above
as it deems necessary or desirable.
26. Continuing Agreement; Lender Powers; etc.
27. Continuing Agreement, etc. This Agreement shall be a continuing
agreement, shall be irrevocable by the Junior Creditor, and shall remain
in full force and effect until the payment in full of the Senior
Indebtedness.
28. No Impairment by Company, KU Cap Co, etc. No right of KU Cap Co
or any present or future holder of any Senior Indebtedness shall at any
time be prejudiced or impaired by any conduct on the part of the Company,
including any noncompliance by the Company with the terms of this
Agreement, or by any conduct, in good faith, by KU Cap Co or any such
holder, regardless of any knowledge thereof which KU Cap Co or any such
holder may have or otherwise be charged with.
29. Specific Performance. KU Cap Co is authorized to demand specific
performance of this Agreement at any time when the Company or the Junior
Creditor shall have failed to comply with any provision hereof applicable
to it, and each of them irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to the remedy
of specific performance hereof in any action brought therefor by KU Cap
Co.
30. Transfers; Successors and Assigns.
31. Transfers. The Junior Creditor will not sell, assign, transfer,
or otherwise dispose of any Subordinated Indebtedness except to another
Person which shall have entered into this Agreement or another agreement
with KU Cap Co, in a form satisfactory to KU Cap Co, providing for
subordination of such Subordinated Indebtedness to the prior payment of
the Senior Indebtedness on the terms provided in this Agreement.
32. Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of KU Cap Co and its successors and assigns and shall
be binding upon each of the Company and the Junior Creditor and their
respective successors and assigns. The Company and the Junior Creditor may
not assign their rights or obligations under this Agreement except to the
extent provided in Section 9.1.
33. Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be given if given in writing (including facsimile)
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 facsimile by receipt of a confirmation thereof) or
(b) in the case of a letter, five business days shall have elapsed after the
same shall have been deposited in the United States mails, with first-class
postage prepaid and registered or certified.
If to the Company, to it at ▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, to the attention of its chief financial officer.
If to Knowledge Universe, to it at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, to the attention of ▇▇▇▇▇▇▇ ▇▇▇▇▇.
If to Knowledge Universe Capital Co. LLC, to it at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, to the attention of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
34. Venue; Service of Process. Each of the Company, the Junior Creditor,
and KU Cap Co:
35. 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 the subject matter hereof
or thereof;
36. Waives to the extent not prohibited by applicable law, 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 any such
proceeding is improper, or that this Agreement, or the subject matter
hereof or thereof, may not be enforced in or by such court; and
37. Consents to service of process in any such proceeding in any
manner permitted by Chapter 223A of the General Laws of The Commonwealth
of Massachusetts and agrees that service of process by registered or
certified mail, return receipt requested, at its address specified in or
pursuant to Section 10 is reasonably calculated to give actual notice.
38. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF KU CAP CO, THE COMPANY, AND THE JUNIOR CREDITOR
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, DEMAND, OR ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, OR THE
SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH THE DEALINGS OF KU CAP CO,
THE COMPANY, OR THE JUNIOR CREDITOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT
OR OTHERWISE. Each of the Company and the Junior Creditor acknowledges that it
has been informed by KU Cap Co that the provisions of this Section 12 constitute
a material inducement upon which KU Cap Co has relied, is relying, and will rely
in entering into this Agreement, and that it has reviewed the provisions of this
Section 12 with its counsel. KU Cap Co, the Company, or the Junior Creditor may
file an original counterpart or a copy of this Section 12 with any court as
written evidence of the consent of KU Cap Co, the Company, and the Junior
Creditor to the waiver of the right to trial by jury.
39. General. All covenants, agreements, representations, and warranties
made in this Agreement shall be deemed to have been relied on by KU Cap Co,
notwithstanding any investigation made by KU Cap Co on its behalf, and shall
survive the execution and delivery to KU Cap Co. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other provision hereof, and any invalid or unenforceable
provision shall be modified so as to be enforced to the maximum extent of its
validity or enforceability. The headings in this Agreement are for convenience
of reference only and shall not limit, alter, or otherwise affect the meaning
hereof. This Agreement constitutes the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral. This Agreement
may be executed in any number of counterparts, which together shall constitute
one instrument.
This Agreement shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of The Commonwealth of Massachusetts.
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as of the date first written above.
NEXTERA ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Chief Financial Officer
KNOWLEDGE UNIVERSE CAPITAL CO. LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: Secretary
KNOWLEDGE UNIVERSE INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: Secretary
