<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998.
REGISTRATION NO. 333-46533
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AZTEC TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 7379 04-3408450
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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52 ROLAND STREET
BOSTON, MASSACHUSETTS 02129
(617) 623-3100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES E. CLAYPOOLE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AZTEC TECHNOLOGY PARTNERS, INC.
52 ROLAND STREET
BOSTON, MASSACHUSETTS 02129
TELEPHONE NO. (617) 623-3100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH A COPY TO:
GEORGE P. STAMAS, ESQ.
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037
TELEPHONE NO. (202) 663-6000
FACSIMILE NO. (202) 663-6363
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as possible after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE
TO BE REGISTERED REGISTERED PER SHARE (2) OFFERING PRICE
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Common Stock, par value $.001 per share, to be distributed to
holders of U.S. Office Products Company common stock....... 100,000,000(1) $.875 $87,532,000
<CAPTION>
AMOUNT OF
TITLE OF SECURITIES REGISTRATION
TO BE REGISTERED FEE
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Common Stock, par value $.001 per share, to be distributed to
holders of U.S. Office Products Company common stock....... $25,822 (2)
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(1) Approximate number of shares of Aztec Technology Partners, Inc. common stock
expected to be distributed based upon a distribution ratio of one share of
Aztec Technology Partners, Inc. common stock for every five shares of U.S.
Office Products Company common stock held by each stockholder of U.S. Office
Products Company on the record date for the distribution.
(2) The Company has previously paid the Securities and Exchange Commission the
registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION STATEMENT/PROSPECTUS
[LOGO]
DISTRIBUTION OF UP TO 21,937,902 SHARES OF COMMON STOCK OF
AZTEC TECHNOLOGY PARTNERS, INC. TO STOCKHOLDERS OF U.S. OFFICE PRODUCTS COMPANY
This Information Statement/Prospectus is being furnished by U.S. Office
Products Company ("U.S. Office Products") in connection with the distribution to
its stockholders of the stock of Aztec Technology Partners, Inc. ("Aztec" or the
"Company"). Aztec is a Delaware corporation formed by U.S. Office Products that
will own substantially all the assets of, and will be responsible for
substantially all the liabilities associated with, U.S. Office Products'
Technology Solutions division. Pursuant to this distribution (the "Technology
Distribution"), all of the issued and outstanding shares of the common stock,
$.001 par value per share, of Aztec (the "Aztec Common Stock") will be
distributed to holders of record as of 5:00 p.m. EDT on June 9, 1998 (the
"Record Date") of the common stock, par value $.001 per share, of U.S. Office
Products ("U.S. Office Products Common Stock"). Each such holder will receive
one share of Aztec Common Stock for every five shares of U.S. Office Products
Common Stock held on the Record Date (the "Distribution Ratio"). Fractional
shares will be aggregated into whole shares of Aztec Common Stock and sold on
the open market by the Distribution Agent (as defined herein). The proceeds of
such sales will be distributed to holders who otherwise would be entitled to
receive fractional shares. See "The Technology Distribution--General."
Holders of U.S. Office Products Common Stock will not be required to pay any
consideration for the shares of Aztec Common Stock they receive in the
Technology Distribution. There is no current public trading market for the Aztec
Common Stock. The shares of Aztec Common Stock have been approved for inclusion,
subject to notice of issuance, on the Nasdaq National Market under the symbol
"AZTC.".
The Technology Distribution is an element of a comprehensive restructuring
plan adopted by the Board of Directors of U.S. Office Products, including
modifications made by the Board of Directors since first adopting this plan (as
so modified, the "Strategic Restructuring Plan"). The principal elements of the
Strategic Restructuring Plan are (1) a self-tender offer by U.S. Office Products
(the "Tender Offer") to purchase 37,037,037 shares of U.S. Office Products
Common Stock (including shares underlying options for U.S. Office Products'
Common Stock) at $27.00 per share (or, in the case of stock options, at $27.00
minus the exercise price of the options) and the incurrence of debt to pay a
portion of the purchase price in the Tender Offer; (2) after acceptance of
shares in the Tender Offer, the pro rata distribution to U.S. Office Products'
stockholders of shares of four companies that will conduct U.S. Office Products'
current print management, technology solutions, educational supplies and
corporate travel services businesses; and (3) the sale to an affiliate ("CD&R")
of an investment fund managed by Clayton, Dubilier & Rice, Inc. ("CD&R, Inc.")
of equity interests in U.S. Office Products (the "Equity Investment") following
acceptance of shares in the Tender Offer and the Record Date for the
Distributions.
All holders of U.S. Office Products Common Stock, including the executive
officers and directors of Aztec, had the right to participate in the Tender
Offer. All officers and directors of the Company who held shares or options for
U.S. Office Products' Common Stock tendered shares and options in the Tender
Offer.
IN REVIEWING THIS INFORMATION STATEMENT/PROSPECTUS, STOCKHOLDERS SHOULD
CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 7.
THIS INFORMATION STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
ABOUT BUSINESS STRATEGIES, MARKET POTENTIAL, FUTURE FINANCIAL PERFORMANCE AND
OTHER MATTERS. IN ADDITION, WHEN USED IN THIS INFORMATION STATEMENT/PROSPECTUS,
THE WORDS "INTENDS TO," "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
INVOLVE MANY RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH STATEMENTS, INCLUDING, WITHOUT LIMITATION, THOSE RISKS AND
UNCERTAINTIES DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS INFORMATION STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS IS JUNE 9, 1998
<PAGE>
ADDITIONAL INFORMATION
Aztec has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-1 (including exhibits, schedules and amendments
thereto, the "Aztec Form S-1") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to Aztec Common Stock. This
Information Statement/Prospectus, while forming a part of the Aztec Form S-1,
does not contain all of the information set forth in the Aztec Form S-1.
Reference is hereby made to the Aztec Form S-1 for further information with
respect to Aztec and the securities to be distributed to the U.S. Office
Products stockholders in the Technology Distribution. Statements contained
herein concerning the provisions of documents filed as exhibits to the Aztec
Form S-1 are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
The Aztec Form S-1 is available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Regional Offices of the SEC at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates, or on the Internet at http://www.sec.gov.
Following the Technology Distribution, Aztec will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the SEC that will be available for
inspection and copying at the SEC's public reference facilities referred to
above. Copies of such material can be obtained by mail at prescribed rates by
writing to the Public Reference Branch of the SEC at the address referred to
above.
Additional information regarding the Strategic Restructuring Plan and Aztec
may be found in reports, proxy statements and other information filed by U.S.
Office Products with the SEC, including U.S. Office Products Tender Offer
Statement on Schedule 13E-4 filed on May 4, 1998 and U.S. Office Products Proxy
Statement filed on May 1, 1998.
Aztec intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited consolidated financial
statements for each of the first three quarters of each fiscal year.
Questions concerning the Technology Distribution should be directed to Mark
D. Director, Executive Vice President-Administration, General Counsel and
Secretary of U.S. Office Products, or Donald H. Platt, Executive Vice President,
Chief Financial Officer and Treasurer of U.S. Office Products, at (202)
339-6700. After the Technology Distribution, holders of Aztec Common Stock
having inquiries related to their investment in Aztec should contact James E.
Claypoole, the Chairman of the Board of Directors and Chief Executive Officer of
Aztec, at (617) 623-3100.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
------------------------
Until July 4, 1998 the expiration of the twenty-fifth calendar day following
the Technology Distribution (as defined herein), all dealers effecting
transactions in registered securities, whether or not participating in this
distribution, may be required to deliver an Information Statement/Prospectus.
<PAGE>
TABLE OF CONTENTS
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PAGE
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SUMMARY.................................................................................................... 1
RISK FACTORS............................................................................................... 7
THE TECHNOLOGY DISTRIBUTION................................................................................ 16
THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS.................................................................... 27
DIVIDEND POLICY............................................................................................ 29
CAPITALIZATION............................................................................................. 30
SELECTED FINANCIAL DATA.................................................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 33
BUSINESS................................................................................................... 41
MANAGEMENT................................................................................................. 50
CERTAIN TRANSACTIONS....................................................................................... 60
PRINCIPAL STOCKHOLDERS..................................................................................... 61
DESCRIPTION OF AZTEC CAPITAL STOCK......................................................................... 62
EXPERTS.................................................................................................... 64
LEGAL MATTERS.............................................................................................. 64
AZTEC TECHNOLOGY PARTNERS, INC. INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY AND NOTES THERETO, THE UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION OF THE COMPANY AND THE NOTES THERETO, AND THE FINANCIAL STATEMENTS
OF CERTAIN COMPANIES ACQUIRED BY THE COMPANY AND THE NOTES THERETO, APPEARING
ELSEWHERE IN THE INFORMATION STATEMENT/PROSPECTUS. THIS INFORMATION
STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
INFORMATION STATEMENT/PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION
CONTAINED IN THIS INFORMATION STATEMENT/PROSPECTUS ASSUMES CONSUMMATION OF THE
TRANSACTIONS DESCRIBED UNDER "THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS."
UNLESS THE CONTEXT OTHERWISE INDICATES THE INFORMATION HEREIN DOES NOT
REFLECT THE PUBLIC OFFERING OF UP TO 4,200,000 SHARES OF COMPANY COMMON STOCK
(EXCLUDING EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION) BY THE COMPANY
(THE "OFFERING"). WHERE THE CONTEXT REQUIRES AND UNLESS THE CONTEXT INDICATES
OTHERWISE, THE INFORMATION HEREIN HAS BEEN ADJUSTED FOR THE DISTRIBUTION RATIO.
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO "COMMON STOCK OUTSTANDING AFTER
THE TECHNOLOGY DISTRIBUTION" ON A PRO FORMA BASIS SHALL MEAN 21,937,902 SHARES
OF COMMON STOCK. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "AZTEC" AND
THE "COMPANY" REFER TO AZTEC TECHNOLOGY PARTNERS, INC. AND INCLUDE ALL OF ITS
SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS AND SUBSIDIARIES.
THE COMPANY
Aztec is a single-source provider of a broad range of information technology
("IT") business solutions. Aztec currently consists of ten companies who have
been in business for an average of over 15 years, with a history of superior
client service. These companies offer complementary IT solutions, which allow
Aztec to be a "one-stop" IT solutions provider in the Northeast region of the
United States, while providing personalized services to its clients on a
regional and local basis. Aztec's clients include middle market and Fortune 1000
companies in a wide range of industries (including communications, health care,
financial services, government, manufacturing, pharmaceuticals, professional
services, and technology). In 1997, Aztec, which employs over 1,000 people
(approximately 65% of whom are technical professionals), provided services to
over 2,000 customers. For the fiscal year ended April 26, 1997, Aztec had
revenues of $136.3 million and net income of $6.7 million. Over the same period
of time and taking into account all purchase acquisitions since May 1, 1996, pro
forma revenues would have been $228.9 million and pro forma net income would
have been $9.5 million.
Aztec was initially formed in October 1996 with the acquisition of Bay State
Computer Group ("Bay State") by U.S. Office Products Company ("U.S. Office
Products"). Since that time, under the leadership of Aztec's current Chairman
and Chief Executive Officer, James E. Claypoole, nine complementary regional IT
solutions companies have been acquired. These companies are: (i) Aztec
International ("Aztec International"); (ii) Compel Corporation ("Compel"); (iii)
Digital Network Associates, Inc. ("Digital Network Associates"); (iv) Entra
Computer Corp. ("Entra"); (v) Fortran Corp. ("Fortran"); (vi) Mahon
Communications Corporation ("Mahon"); (vii) Office Equipment Service, Inc.
("Office Equipment Service"); (viii) Professional Computer Solutions, Inc.
("Professional Computer Solutions"); and (ix) Professional Network Services,
Inc. ("Professional Network Services"). The Company intends to continue to
pursue growth through targeted strategic acquisitions.
Aztec's broad range of complementary IT business solutions includes: (i)
consulting and engineering services; (ii) systems and network design and
implementation services; (iii) software development and implementation services;
(iv) IT support and operational services; and (v) telephony design and
integration services. Aztec is currently providing this broad range of services
in the Northeast region of the United States, and certain of these services in
the other regions of the United States. Aztec intends to extend its
<PAGE>
comprehensive services offerings to the other regions of the United States.
Aztec is dedicated to delivering IT services and support for all the major
technology needs of its clients, which include a variety of operating systems
(NT, Unix, VMS, Netware, SunOS, Digital Open VMS, and OS/2) on a variety of
hardware platforms (Intel, Sun, HP, and Digital). In addition, Aztec supports
its clients' hardware and software needs related to the World Wide Web and
high-end telephony services.
With the rapid evolution of technology, the market for IT solutions has
grown significantly. Based on industry sources that Aztec believes are reliable,
Aztec beleives that the United States market for outsourced IT services is
expected to grow from $13 billion in 1996 to approximately $24 billion in 2001.
Although companies recognize the importance of IT services to their business,
they are often unable to keep pace with the rate of technological change without
outsourcing their IT needs. This trend towards outsourcing has been compounded
by the scarcity of technical professionals in the United States, and has driven
the growth of the outsourced IT solutions industry.
Aztec's objective is to service its clients' strategic business needs by
becoming their sole IT solutions provider. Aztec intends to grow through a
combination of targeted strategic acquisitions and internal growth. Aztec's
acquisition strategy is to extend its range of services to the regions outside
of the Northeast by acquiring existing, profitable businesses, rather than
start-up operations. Aztec's internal growth strategies include (i) capitalizing
on existing cross-selling opportunities and (ii) expanding its IT solutions
offerings. Aztec plans to encourage and manage cross-selling through a
Company-developed proprietary software communication tool that will permit it to
review and manage sales leads generated at any level of Aztec's operations,
reinforced by compensation incentives.
Aztec's principal executive offices are located at 52 Roland Street, Boston,
Massachusetts 02129, telephone number (617) 623-3100.
BACKGROUND OF THE TECHNOLOGY DISTRIBUTION
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THE DISTRIBUTION.................. Shares of common stock, par value $.001 per share, of
Aztec (the "Company Common Stock" or "Aztec Common
Stock") are being distributed to the stockholders of
record of U.S. Office Products (the "Technology
Distribution" or "Distribution") as of 5:00 p.m. EDT on
June 9, 1998 (the "Record Date"). The Technology
Distribution is part of a comprehensive restructuring
plan adopted by the U.S. Office Products Board of
Directors. The principal elements of the plan including
modifications the Board of Directors has made since
first adopting this plan (as so modified, the "Strategic
Restructuring Plan") are:
- Pursuant to the Tender Offer, U.S. Office Products is
purchasing 37,037,037 shares of its common stock $.001
par value ("U.S. Office Products Common Stock")
(including shares that may be issued on exercise of
vested and unvested options for U.S. Office Products
Common Stock) at $27.00 per share (or, in the case of
stock options, at $27.00 minus the exercise price of
the options).
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2
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- After acceptance of shares in the Tender Offer, U.S.
Office Products is distributing to U.S. Office
Products' shareholders the shares of four separate
companies: Aztec, Workflow Management, Inc., School
Specialty, Inc., and Navigant Inc. (collectively, the
"Spin-Off Companies"). The distributions of the shares
of the Spin-Off Companies are referred to in this
Information Statement/Prospectus as the
"Distributions." The Spin-Off Companies hold U.S.
Office Products' current technology solutions, print
management, educational supplies, and corporate travel
services businesses, respectively.
- Following the Record Date, an affiliate ("CD&R") of an
investment fund managed by Clayton, Dubilier & Rice,
Inc. ("CD&R, Inc."), a private investment firm, is
acquiring, for $270.0 million, approximately
36,368,426 shares of U.S. Office Products Common Stock
representing 24.9% of the outstanding equity of U.S.
Office Products, after giving effect to the Tender
Offer and the issuance of shares to CD&R and warrants
to purchase additional U.S. Office Products Common
Stock (the "Equity Investment"). CD&R will not acquire
any interests in the Spin-Off Companies.
U.S. Office Products will retain its North American
Office Products Group (which includes the office supply,
office furniture, and office coffee and beverage
services businesses), Mail Boxes Etc., its New Zealand
and Australian operations, and its 49% interest in
Dudley Stationery Limited (a U.K. contract stationer).
In conjunction with the Strategic Restructuring Plan,
U.S. Office Products is undertaking the following
transactions (the "Financing Transactions"):
- Pursuant to a tender offer, U.S. Office Products is
purchasing $222.2 million principal amount of its
5 1/2% Convertible Subordinated Notes due 2003 (the
"2003 Notes") for a purchase price of 94.5% of the
principal amount and accrued interest (the "2003 Note
Tender").
- Pursuant to an exchange offer, U.S. Office Products
has exchanged approximately $131.0 million principal
amount of its 2001 Notes for 8,100,741 shares of U.S.
Office Products Common Stock (the "2001 Note Offer")
at an exchange rate of 61.483 shares per $1,000
principal amount, which effectively reduced the
conversion price of the 2001 Notes from $19.00 to
$16.17 while the 2001 Note Offer was open.
- U.S. Office Products is entering into a new $1.225
billion senior credit facility pursuant to an
agreement dated the date of this Information
Statement/Prospectus.
- U.S. Office Products has entered into an agreement to
issue and sell $400.0 million in 9 3/4% Senior
Subordinated Notes in a private placement.
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3
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REASONS FOR THE DISTRIBUTIONS..... The Distributions are intended to separate the Spin-Off
Companies from U.S. Office Products' other businesses so
that each can:
- adopt strategies and pursue objectives that are
appropriate to its respective industry and stage of
growth;
- pursue an independent acquisition program that allows
for a more focused use of resources and, where stock
is used as consideration, provide stock of a public
company that is in the same industry as the businesses
being acquired;
- be recognized by the financial community as a distinct
business that can be evaluated more readily and
compared more easily to industry peers; and
- implement more focused incentive compensation packages
that respond to specific industry and market
conditions and enhance employee retention objectives.
The Distributions are also integral to the objectives of
the Equity Investment which is conditioned on completion
of all of the Distributions. See "The Technology
Distribution--Reasons for the Distributions."
SHARES TO BE DISTRIBUTED.......... Approximately 21,937,902 shares of Aztec Common Stock
will be distributed to U.S. Office Products stockholders
in the Technology Distribution.
DISTRIBUTION RATIO................ Each U.S. Office Products stockholder will receive one
share of Aztec Common Stock for every five shares of
U.S. Office Products Common Stock held on the Record
Date.
FRACTIONAL SHARE INTERESTS........ Fractional share interests will be aggregated and sold
by the Distribution Agent and the cash proceeds will be
distributed to those U.S. Office Products stockholders
entitled to a fractional interest. See "The Technology
Distribution--General."
RECORD DATE....................... 5:00 p.m. EDT on June 9, 1998.
DISTRIBUTION DATE................. The effective time of the Distributions is expected to
be 11:59 p.m. EDT on June 9, 1998 (the "Distribution
Date").
MAILING DATE...................... Certificates representing shares of Aztec Common Stock
will be mailed to U.S. Office Products stockholders on
or about June 12, 1998 (the "Mailing Date").
DISTRIBUTION AGENT................ American Stock Transfer & Trust Company
TAX CONSEQUENCES.................. Wilmer, Cutler & Pickering has delivered an opinion
stating that, subject to the matters discussed therein,
for U.S. federal income tax purposes the receipt of
Aztec Common Stock by U.S. Office Products stockholders
will be tax-free to U.S. Office Products and the U.S.
Office Products stockholders (except with respect to
cash received in lieu of fractional shares). See "The
Technology Distribution--U.S. Federal Income Tax
Consequences of the Technology Distribution."
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4
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ARRANGEMENTS AFTER THE Aztec, U.S. Office Products, and the other Spin-Off
DISTRIBUTIONS................... Companies are entering into an agreement (the
"Distribution Agreement") in connection with the
Technology Distribution pursuant to which, among other
things, (i) equity interests in the U.S. Office Products
subsidiaries that engage in the technology solutions
business are being transferred to Aztec, (ii)
liabilities are being allocated among Aztec, U.S. Office
Products, and the other Spin-Off Companies, and (iii)
Aztec, U.S. Office Products and the other Spin-Off
Companies will indemnify one another for liabilities
allocated to them under the Distribution Agreement and a
share of certain other liabilities.
Aztec, U.S. Office Products, and the other Spin-Off
Companies are also entering into an agreement (the "Tax
Allocation Agreement") (i) allocating to each Spin-Off
Company responsibility for its share of U.S. Office
Products' consolidated tax liability for the years that
it was included in U.S. Office Products' consolidated
federal income tax returns, (ii) sharing certain state,
local, and foreign taxes, and (iii) providing for (a)
indemnification by Aztec for certain taxes if they are
assessed against U.S. Office Products as a result of the
Distributions and (b) joint and several indemnification
by Aztec and the other Spin-Off Companies for such taxes
resulting from certain acts taken by Aztec or any of the
other Spin-Off Companies. The liability to U.S. Office
Products for taxes resulting from such acts will be
allocated among the Spin-Off Companies pursuant to a
separate agreement (the "Tax Indemnification
Agreement"). As a consequence, Aztec will be primarily
liable for taxes resulting from acts taken by Aztec and
liable (subject to indemnification by the other Spin-Off
Companies) for any taxes resulting from acts taken by
the other Spin-Off Companies.
Aztec, U.S. Office Products, and the other Spin-Off
Companies are also entering into an agreement (the
"Employee Benefits Agreement") relating to the
allocation of assets, liabilities, and responsibilities
with respect to employee benefit plans and programs and
certain related matters. See "The Spin-Offs From U.S.
Office Products."
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SUMMARY RISK FACTORS
In reviewing this Information Statement/Prospectus, stockholders should
carefully consider the matters described under the heading "Risk Factors"
beginning on page 7, including, among others, risks associated with (i) the
potential volatility of the price of Aztec Common Stock, (ii) the fact that
Aztec has not operated as a stand-alone entity separate from U.S. Office
Products, (iii) the ability of Aztec to attract and retain qualified employees,
(iv) Aztec's dependence on acquisitions for its future growth, (v) integrating
acquisitions and acquisition financing, and (vi) financing of future
acquisitions.
5
<PAGE>
SUMMARY FINANCIAL DATA (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED
APRIL 26, --------------------------
--------------------
FISCAL YEAR ENDED MARCH 31, PRO
------------------------------------------ FORMA JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 (2) 1997 1998
--------- --------- --------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues....................... $ 46,152 $ 58,979 $ 88,999 $ 114,055 $ 136,278 $ 228,912 $ 101,295 $ 142,512
Cost of revenues............... 34,121 43,630 65,858 84,113 102,129 169,150 76,049 107,895
--------- --------- --------- --------- --------- --------- ------------ ------------
Gross profit................... 12,031 15,349 23,141 29,942 34,149 59,762 25,246 34,617
Selling, general and
administrative expenses...... 10,139 11,218 14,942 20,510 21,525 39,134 15,637 22,951
Goodwill amortization expense.. 1,651 414
Non-recurring acquisition
costs........................ 2,274 2,274 1,906
--------- --------- --------- --------- --------- --------- ------------ ------------
Operating income............... 1,892 4,131 8,199 9,432 10,350 16,703 7,703 11,252
Interest expense............... 412 297 331 420 324 400 310 169
Interest income................ (75) (54) (118) (416) (168) (169) (167)
Other (income) expense......... (77) (75) (111) (964) (53) (579) 234 (14)
--------- --------- --------- --------- --------- --------- ------------ ------------
Income before provision for
income taxes................. 1,632 3,963 8,097 10,392 10,247 16,882 7,328 11,264
Provision for income taxes
(4).......................... 210 232 401 750 3,524 7,428 1,771 4,692
--------- --------- --------- --------- --------- --------- ------------ ------------
Net income..................... $ 1,422 $ 3,731 $ 7,696 $ 9,642 $ 6,723 $ 9,454 $ 5,557 $ 6,572
--------- --------- --------- --------- --------- --------- ------------ ------------
--------- --------- --------- --------- --------- --------- ------------ ------------
Per share amounts:
Basic........................ $ 0.16 $ 0.42 $ 0.84 $ 0.71 $ 0.37 $ 0.43 $ 0.32 $ 0.29
--------- --------- --------- --------- --------- --------- ------------ ------------
--------- --------- --------- --------- --------- --------- ------------ ------------
Diluted...................... $ 0.16 $ 0.42 $ 0.84 $ 0.71 $ 0.36 $ 0.43 $ 0.32 $ 0.28
--------- --------- --------- --------- --------- --------- ------------ ------------
--------- --------- --------- --------- --------- --------- ------------ ------------
Weighted average shares
outstanding:
Basic........................ 8,852 8,852 9,112 13,509 18,005 21,938(5) 17,196 22,952
Diluted...................... 8,852 8,852 9,141 13,675 18,352 21,938(5) 17,565 23,437
<CAPTION>
PRO PRO PRO FORMA
FORMA FORMA AS ADJUSTED
JANUARY 25, JANUARY 24, JANUARY 24,
1997 (2) 1998 (2) 1998(3)
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues....................... $ 172,518 $ 191,074 $ 191,074
Cost of revenues............... 127,875 141,631 141,631
------------ ------------ ------------
Gross profit................... 44,643 49,443 49,443
Selling, general and
administrative expenses...... 28,876 31,235 31,235
Goodwill amortization expense.. 1,293 1,293 1,293
Non-recurring acquisition
costs........................ 1,906
------------ ------------ ------------
Operating income............... 12,622 16,969 16,969
Interest expense............... 300 300 41
Interest income................
Other (income) expense......... (232) (252) (252)
------------ ------------ ------------
Income before provision for
income taxes................. 12,554 16,921 17,180
Provision for income taxes
(4).......................... 5,524 7,445 7,559
------------ ------------ ------------
Net income..................... $ 7,030 $ 9,476 $ 9,621
------------ ------------ ------------
------------ ------------ ------------
Per share amounts:
Basic........................ $ 0.32 $ 0.43 $ 0.43
------------ ------------ ------------
------------ ------------ ------------
Diluted...................... $ 0.32 $ 0.43 $ 0.43
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares
outstanding:
Basic........................ 21,938(5) 21,938(5) 22,305(6)
Diluted...................... 21,938(5) 21,938(5) 22,305(6)
</TABLE>
<TABLE>
<CAPTION>
JANUARY
24, 1998
MARCH 31, ---------
--------------------------------- APRIL 30, APRIL 26,
1993 1994 1995 1996 1997 ACTUAL
--------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 4,253 $ 5,623 $ 10,669 $ 8,664 $ 13,268 $ 31,848
Total assets................................................ 14,890 16,423 28,106 33,945 37,311 142,347
Long-term debt, less current portion........................ 461 461 1,524 799 167 386
Long-term payable to U.S. Office Products................... 4,786 9,957
Stockholder's equity........................................ 5,382 6,745 11,062 10,497 11,626 90,119
<CAPTION>
PRO FORMA
PRO FORMA (7) AS ADJUSTED (3)
-------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 23,869 $ 68,837
Total assets................................................ 134,368 179,336
Long-term debt, less current portion........................ 4,696 386
Long-term payable to U.S. Office Products...................
Stockholder's equity........................................ 87,787 137,065
</TABLE>
- ------------------
(1) The historical financial information of the businesses that were acquired in
business combinations accounted for under the pooling-of-interests method
(the "Pooled Companies") have been combined on a historical cost basis in
accordance with generally accepted accounting principles ("GAAP") to present
this financial data as if the Pooled Companies had always been members of
the same operating group. The financial information of the businesses
acquired in the business combinations accounted for under the purchase
method (the "Purchased Companies") is included from the dates of their
respective acquisitions. The pro forma financial data reflect acquisitions
completed by Aztec through May 1, 1998. See Note 4 of the Company's Notes to
Consolidated Financial Statements for a description of the number and
accounting treatment of the acquisitions by the Company.
(2) Gives effect to the Technology Distribution and the purchase acquisitions
completed by Aztec since May 1, 1996 as if all such transactions had been
consummated on May 1, 1996. The pro forma statement of income data are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be construed
as representative of future operating results.
(3) Adjusted to give effect to the sale by the Company of 4,200,000 shares of
Common Stock in the Offering (assuming an initial public offering price of
$13.00 per share, which is equal to the midpoint of the range set forth in
the preliminary prospectus dated May 18, 1998) after deducting underwriting
discounts and estimated offering expenses payable by Aztec and the use of
estimated net proceeds therefrom. Aztec expects that the initial public
offering price in the Offering will be determined after the close of markets
on the date of this Information Statement/Prospectus. There can be no
assurance that the initial public offering price will be set at that time,
that the price will be within the range set forth in the preliminary
prospectus, or that the Offering will be completed. Information regarding
the initial public offering price, and "as adjusted" pro forma financial
statements based on that price, will be set forth in the final prospectus
related to the Offering, which will be publicly available within two
business days after the price is determined. See "Additional Information."
(4) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
(5) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 24,
1998 and January 25, 1997, see Note 2(i) of Notes to Pro Forma Combined
Financial Statements included herein.
(6) For calculation of the pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(k) of
Notes to Pro Forma Combined Financial Statements included herein.
(7) Gives effect to the Technology Distribution as if it had been made on
January 24, 1998. The pro forma balance sheet data are not necessarily
indicative of the financial position that would have been achieved had the
Technology Distribution actually then occurred and should not be construed
as representative of future financial position.
6
<PAGE>
RISK FACTORS
The following factors should be considered in addition to other information
included in this Information Statement/Prospectus.
POTENTIAL VOLATILITY OF STOCK PRICE, RISKS ASSOCIATED WITH SHARES ELIGIBLE FOR
IMMEDIATE SALE
As a result of the Technology Distribution, stockholders of U.S. Office
Products are acquiring 21,937,902 shares of Aztec Common Stock that are freely
tradeable at the time of this Offering without restrictions or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares held by "affiliates" of Aztec within the meaning
of the Securities Act will be subject to the resale limitations of Rule 144
promulgated under the Securities Act ("Rule 144"). Because the Technology
Distribution is being made to existing shareholders of U.S. Office Products, who
have not made an affirmative decision to invest in Aztec Common Stock, there can
be no assurance that some or all of those shareholders will not sell the shares
of Aztec Common Stock into the market shortly after the Technology Distribution.
In addition, U.S. Office Products is included in certain broad-based indices
tracked by a number of investment companies and other institutional investors,
and such investors can be expected to sell the shares of Aztec Common Stock they
receive in the Technology Distribution shortly thereafter. Until Aztec Common
Stock issued in the Technology Distribution is fully distributed, the price at
which such stock trades may fluctuate significantly and may be higher or lower
than the price that would be expected on a fully distributed issue.
In addition, upon completion of this Offering and the Technology
Distribution, Aztec will have outstanding (i) 26,137,902 shares of Aztec Common
Stock and (ii) immediately exerciseable options to acquire shares of Aztec
Common Stock (to be determined at the time of the Technology Distribution).
Certain executive officers and directors of Aztec who hold shares of Aztec
Common Stock have agreed not to sell, offer, make any short sale or otherwise
dispose of or enter into any contract, arrangement or other commitment to sell
or otherwise dispose of any Aztec Common Stock without the prior written consent
of BancAmerica Robertson Stephens for a period of 180 days from the date of this
Information Statement/ Prospectus (the "Lock-Up Agreements"). All the remaining
shares will be freely tradeable immediately upon completion of the Offering or,
in the case of options, upon vesting and exercise, except that shares held or
acquired by affiliates of Aztec will be subject to the resale limitations of
Rule 144. Following the Technology Distribution, in view of the large number of
shares freely tradeable and available for immediate sale, the market for Aztec
Common Stock could be highly volatile and could adversely affect the trading
price of Aztec Common Stock.
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
Aztec is the product of the consolidation by U.S. Office Products of ten
regional IT solutions companies. Aztec has not heretofore operated as an
independent entity. The operations of Aztec as a stand-alone, consolidated
entity may place significant demands on Aztec's management, operational, and
technical resources. Prior to the Technology Distribution, certain
administrative functions relating to Aztec's business (including some legal and
accounting services) were handled by U.S. Office Products. Aztec's future
performance will depend on its ability to function as a stand-alone entity, to
finance and manage expanding operations, and to adapt its information systems to
changes in its business. Aztec's expenses may be higher than when it was a part
of U.S. Office Products. Furthermore, the financial information included herein
may not necessarily reflect what the operating results and financial condition
would have been had Aztec been a separate, stand-alone entity during the periods
presented or be indicative of the future operating results and financial
condition of Aztec.
ATTRACTION AND RETENTION OF EMPLOYEES
Aztec's business involves the delivery of professional services and is labor
intensive. Aztec's success depends in large part on its ability to attract,
develop, motivate, and retain technical professionals.
7
<PAGE>
Approximately 65% of Aztec's employees are technical professionals. Qualified
technical professionals are in great demand and are likely to remain a limited
resource for the foreseeable future. There can be no assurance that Aztec will
be able to attract and retain sufficient numbers of technical professionals in
the future. Aztec has historically experienced turnover rates which it believes
are consistent with industry norms. It is possible that the spin-off of Aztec
from U.S. Office Products could cause more employees to leave Aztec. An increase
in turnover rates could have a material adverse effect on Aztec's business,
including its ability to secure and complete engagements and obtain new
business, which could have a material adverse effect on Aztec's operating
results and financial condition.
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH
One of Aztec's strategies is to expand its revenues and the markets it
serves through the acquisition of additional businesses. As with all companies
using an acquisition strategy to expand revenues, there can be no assurance that
suitable candidates can be identified, or, if suitable acquisition candidates
are identified, that such acquisitions can be completed on acceptable terms. The
pace of Aztec's acquisition program may be adversely affected by these and other
market factors, and may also be affected by the absence of U.S. Office Products'
legal and accounting support for the acquisitions. Further, Aztec intends to use
Aztec Common Stock to pay for certain of its acquisitions. If the owners of
potential acquisition candidates are not willing to receive shares of Aztec
Common Stock in exchange for their businesses, Aztec's acquisition program could
be adversely affected. Further, Aztec is subject to limitations on the number of
shares it can issue without jeopardizing the tax-free treatment of the
Technology Distribution. See "Possible Limitations on Issuance of Common Stock,"
"Material Amount of Goodwill," and "Inability to Use Pooling of Interests
Accounting."
RISKS RELATED TO INTEGRATION OF ACQUISITIONS
Integration of acquisitions may involve a number of special risks that could
have a material adverse effect on Aztec's operating results and financial
condition, including: adverse short-term effects on its reported operating
results (including restructuring charges associated with the acquisitions and
other expenses associated with a change of control, non-recurring acquisition
costs including accounting and legal fees, investment banking fees, amortization
of acquired intangible assets, recognition of transaction-related obligations,
and various other acquisition-related costs); diversion of management's
attention; difficulties with retention, hiring and training of key personnel;
and risks associated with unanticipated problems or legal liabilities. Although
Aztec will conduct due diligence and generally require representations,
warranties and indemnifications from the former owners of acquired companies,
there can be no assurance that such owners will have accurately represented the
financial and operating conditions of their companies. If an acquired company's
financial or operating results were misrepresented, or the acquired company
otherwise fails to perform as anticipated, the acquisition could have a material
adverse effect on the operating results and financial condition of Aztec.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION
Aztec currently intends to finance its future acquisitions by using shares
of Aztec Common Stock, cash, borrowed funds, or a combination thereof. If Aztec
Common Stock does not maintain a sufficient market value, if the price of Aztec
Common Stock is highly volatile, or if potential acquisition candidates are
otherwise unwilling to accept Aztec Common Stock as part of the consideration
for the sale of their businesses, Aztec may be required to use more of its cash
resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Aztec does not have sufficient cash resources, its
growth could be limited unless it is able to obtain additional capital through
debt or equity offerings. Prior to the Technology Distribution, Aztec was not
responsible for obtaining external sources of funding. Aztec has entered into a
commitment letter with BankBoston, N.A. regarding a $200.0 million credit
facility for a term of five years which is expected to be made available in
August 1998 and which is expected to be used
8
<PAGE>
for working capital and acquisitions (the "Proposed Credit Facility"). The
commitment letter is conditioned on, among other things, the absence of material
adverse changes to Aztec's business, and the Proposed Credit Facility itself
will be conditioned on, among other things, the satisfactory completion of due
diligence, Aztec having a satisfactory capital and corporate structure, and the
negotiation, execution and delivery of satisfactory documentation. There can be
no assurance that Aztec will be able to satisfy the conditions to the funding of
the Proposed Credit Facility or obtain other financing if and when it is needed
or that any other such financing will be available on terms it deems acceptable.
If Aztec does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity offerings.
However, the use of equity offerings in connection with the Technology
Distribution will also be subject to certain limitations on the number of shares
that Aztec can issue without jeopardizing the tax-free treatment of the
Technology Distribution. See "Possible Limitations on Issuances of Common Stock"
and "Tax Matters."
Aztec will have 150 million authorized shares of Aztec Common Stock, a
portion of which could be available (subject to the rules and regulations of
federal and state securities laws, applicable limits under U.S. Federal income
tax laws and rules, and rules of the Nasdaq Stock Market) to finance
acquisitions without obtaining stockholder approval for such issuances. The
issuance of additional shares of Aztec Common Stock may have a negative impact
on earnings per share and may negatively impact the market price of Aztec Common
Stock.
RELIANCE ON KEY PERSONNEL
Aztec's operations depend on the continued efforts of James E. Claypoole,
its Chairman and Chief Executive Officer, Ira Cohen, its Chief Operating
Officer, Douglas R. Johnson, its Executive Vice President and Chief Financial
Officer, its operating company presidents, and the senior management of certain
of its operating companies. Furthermore, Aztec's operations will likely depend
on the senior management of certain of the companies that it may acquire in the
future. If any of these people becomes unable to continue in his or her present
role, or if Aztec is unable to attract and retain other skilled professionals,
its business could be adversely affected. Aztec does not currently maintain key
man life insurance policies for any of its officers or other personnel. Aztec
intends to enter into employment agreements with its Chairman and Chief
Executive Officer, its Executive Vice President and Chief Financial Officer, its
Chief Operating Officer and its operating company presidents. Such agreements
will be generally terminable without cause on 30 days' notice by either Aztec or
the employee. In addition, Jonathan J. Ledecky will serve as a director and
employee of Aztec and is expected to provide services to Aztec after the
Technology Distribution pursuant to an employment agreement expected to be
entered into between Mr. Ledecky and Aztec. U.S. Office Products is permitted to
(and will) assign to Aztec certain rights of, and obligations under, U.S. Office
Products services agreement, as amended, with Mr. Ledecky dated January 13, 1998
(the "Ledecky Services Agreement") following the Technology Distribution. See
"Management--Ledecky Services Agreement." Mr. Ledecky will also serve as a
director and employee of each of the other Spin-Off Companies, and is a director
or an officer of two other public companies. Mr. Ledecky may be unable to devote
substantial time to the activities of Aztec.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company has experienced and may in the future continue to experience
fluctuations in its quarterly operating results. Factors that may cause the
Company's quarterly operating results to vary include the number of active
client projects, the requirements of client projects, the termination of major
client projects, the loss of major clients, the timing of new client
engagements, and the timing of personnel cost increases. Certain of these
factors may also affect the Company's personnel utilization rates which may
cause further variation in quarterly operating results. The timing of revenues
is difficult to forecast because the Company's sales cycle is relatively long
and the Company's services are impacted by both the financial condition and
management decisions of its clients and general economic conditions. Because a
high percentage of the Company's expenses are relatively fixed at the beginning
of any period and the
9
<PAGE>
Company's general policy is to not adjust its staffing levels based upon what it
views as short-term circumstances, a variation in the timing of the initiation
or the completion of client assignments, particularly at or near the end of any
quarter, can cause significant variations in operating results from quarter to
quarter and could result in losses for any particular period. In addition, many
of the Company's engagements are, and may be in the future, terminable by its
clients without penalty. A termination of a major project could require the
Company to maintain under-utilized employees, resulting in a higher than
expected percentage of unassigned professionals, or to terminate the employment
of excess personnel. Due to all of the foregoing factors, there can be no
assurance that the Company's results of operations will not be below the
expectations of investors for any given fiscal period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL CONFLICTS OF INTEREST IN THE DISTRIBUTIONS
Aztec is currently a wholly-owned subsidiary of U.S. Office Products. Aztec,
U.S. Office Products, and the other Spin-Off Companies are entering into the
Distribution Agreement, Tax Allocation Agreement, and Employee Benefits
Agreement, and the Spin-Off Companies are entering into the Tax Indemnification
Agreement. See "The Spin-Offs from U.S. Office Products." These agreements
provide for, among other things, U.S. Office Products and Aztec to indemnify
each other from tax and other liabilities relating to their respective
businesses prior to and following the Technology Distribution.
Certain indemnification obligations of Aztec and the other Spin-Off
Companies to U.S. Office Products are joint and several. Therefore, if one of
the other Spin-Off Companies fails to satisfy its indemnification obligations to
U.S. Office Products when such a loss occurs, Aztec may be required to reimburse
U.S. Office Products for all or a portion of the losses that otherwise would
have been allocated to such other Spin-Off Company. In addition, the agreements
will allocate certain liabilities, including general corporate and securities
liabilities of U.S. Office Products not specifically related to the specific
businesses to be conducted by the Spin-Off Companies and post-Distribution U.S.
Office Products among U.S. Office Products and each of the Spin-Off Companies.
Adverse developments involving U.S. Office Products or the other Spin-Off
Companies, or material disputes with U.S. Office Products following the
Technology Distribution, could have a material adverse effect on Aztec.
The terms of the agreements that will govern the relationships among Aztec,
U.S. Office Products and the other Spin-Off Companies were established by U.S.
Office Products in consultation with management of Aztec and the other Spin-Off
Companies prior to the Distributions and while Aztec and the other Spin-Off
Companies were wholly-owned subsidiaries of U.S. Office Products. The terms of
these agreements, including the allocation of general corporate and securities
liabilities among U.S. Office Products, Aztec, and the other Spin-Off Companies,
may not be the same as they would be if the agreements were the result of
arms'-length negotiations. In addition, the agreements must contain certain
terms specified in U.S. Office Products' agreement with CD&R relating to the
Equity Investment and must otherwise be reasonably acceptable to CD&R. CD&R will
not be a stockholder in any of the Spin-Off Companies and its interests may be
adverse to those of the Spin-Off Companies. See "The Spin-Offs from U.S. Office
Products." Accordingly, there can be no assurance that the terms and conditions
of the agreements are not more or less favorable to Aztec than those that might
have been obtained from unaffiliated third parties.
On the Distribution Date, Jonathan J. Ledecky, Chairman of the U.S. Office
Products Board of Directors (the "U.S. Office Products Board"), will receive
options for shares of each of the Spin-Off Companies exercisable for 7.5% of the
common stock of each Spin-Off Company. See "Management-- Ledecky Services
Agreement." As a result, Mr. Ledecky has interests in the Distributions that
differ in certain respects from, and may conflict with, the interests of other
stockholders of U.S. Office Products and Aztec.
10
<PAGE>
TAX MATTERS
Wilmer, Cutler & Pickering has delivered an opinion (the "Tax Opinion")
stating that for U.S. federal income tax purposes the Distributions, (including
the Technology Distribution) will qualify as tax-free spin-offs under Section
355 of the Internal Revenue Code of 1986, as amended, (the "Code"), and will not
be taxable under Section 355(e) of the Code. The Tax Opinion is based on certain
assumptions and the accuracy as of the time of the Distributions of factual
representations made by U.S. Office Products, the Spin-Off Companies and CD&R,
and certain other information, data, documentation and other materials as
Wilmer, Cutler & Pickering has deemed necessary. See "Technology
Distribution--U.S. Federal Income Tax Consequences of the Technology
Distribution."
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment of how
a court would rule. However, the opinion is not binding upon either the Internal
Revenue Service (the "IRS") or any court. A ruling has not been, and will not
be, sought from the IRS with respect to the U.S. federal income tax consequences
of the Technology Distribution. Accordingly, the IRS and/or a court could reach
a conclusion that differs from the conclusions in the Tax Opinion.
If the Technology Distribution fails to qualify under Section 355 as a
tax-free spin-off, each holder of U.S. Office Products Common Stock on the
Record Date will be treated as having received a taxable corporate distribution
in an amount equal to the fair market value (on the Distribution Date) of the
Aztec Common Stock distributed to such holder of U.S. Office Products Common
Stock including fractional shares. In addition, U.S. Office Products will
recognize gain equal to the difference between the fair market value of the
Aztec Common Stock on the Distribution Date and U.S. Office Products' adjusted
tax basis in the Aztec Common Stock on the Distribution Date. If U.S. Office
Products were to recognize gain on the Technology Distribution, such gain would
likely be substantial.
If the Technology Distribution is taxable under Section 355(e), but
otherwise satisfies the requirements for a tax-free spin-off, U.S. Office
Products will recognize gain equal to the difference between the fair market
value of the Aztec Common Stock on the Distribution Date and U.S. Office
Products' adjusted tax basis in the Aztec Common Stock on the Distribution Date.
If U.S. Office Products were to recognize gain on the Technology Distribution,
such gain would likely be substantial. However, no gain or loss will be
recognized by holders of U.S. Office Products Common Stock (except with respect
to cash received in lieu of fractional shares).
ABSENCE OF PUBLIC MARKET
Prior to the Technology Distribution and the Offering, there will be no
public market for the Company Common Stock. The initial public offering price of
the Aztec Common Stock in the Offering will be determined through negotiations
among the Company and the underwriters of the Offering and may not be indicative
of the market price for the Aztec Common Stock after the Offering and the
Technology Distribution. The trading price of the Aztec Common Stock also could
be subject to wide fluctuations in response to variations in the Aztec's
quarterly operating results, changes in earnings estimates by analysts,
conditions in the Aztec's businesses, general market or economic conditions or
other factors. In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. These fluctuations have had a substantial
effect on the market prices for many companies, often unrelated to the operating
performance of the specific companies. Such market fluctuations could have a
material adverse effect on the market price of the Aztec Common Stock. See
"--Potential Volatility of Stock Price, Risks Associated With Shares Eligible
for Immediate Sale."
RAPID TECHNOLOGICAL CHANGE
As with all IT solutions companies, Aztec's success will depend in part on
its ability to develop IT solutions that keep pace with continuing changes in
IT, evolving industry standards, and changing client preferences. There can be
no assurance that Aztec will be successful in adequately addressing these
developments on a timely basis or that, if these developments are addressed,
Aztec will be successful in the
11
<PAGE>
marketplace. In addition, there can be no assurance that products or
technologies developed by others will not render Aztec's services uncompetitive
or obsolete. Aztec's failure to address these developments could have a material
adverse effect on Aztec's operating results and financial condition.
COMPETITION
The IT solutions market includes a large number of participants, is subject
to rapid changes, and is highly competitive. The Company competes with, and
faces potential competition for client assignments and experienced personnel
from, a number of companies that have significantly greater financial, technical
and marketing resources, generate greater revenues, and have greater name
recognition than does the Company. The Company believes that the principal
competitive factors in the segment of the industry in which the Company competes
include scope of services, service delivery approach, technical and industry
expertise, perceived value, objectivity and results orientation. The Company
believes that its ability to compete also depends in part on a number of
competitive factors outside of its control, including the ability of its
competitors to hire, retain and motivate senior managers, the price at which
others offer comparable services and the extent of its competitors'
responsiveness to customer needs. There can be no assurance that the Company
will be able to compete successfully with its competitors in the future. See
"Business--Competition."
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
In connection with the Distributions, Aztec is entering into the Tax
Allocation Agreement with U.S. Office Products and the other Spin-Off Companies,
which provides that Aztec and the other Spin-Off Companies will jointly and
severally indemnify U.S. Office Products for any losses associated with taxes
related to the Distributions ("Distribution Taxes") if an action or omission (an
"Adverse Tax Act") of any of the Spin-Off Companies materially contributes to a
final determination that any or all of the Distributions are taxable. Aztec is
also entering into the Tax Indemnification Agreement with the other Spin-Off
Companies under which the Spin-Off Company that is responsible for the Adverse
Tax Act will indemnify the other Spin-Off Companies for any liability to
indemnify U.S. Office Products under the Tax Allocation Agreement. As a
consequence, Aztec will be liable for any Distribution Taxes resulting from any
Adverse Tax Act by Aztec and liable (subject to indemnification by the other
Spin-Off Companies) for any Distribution Taxes resulting from an Adverse Tax Act
by the other Spin-Off Companies. If there is a final determination that any or
all of the Distributions are taxable and it is determined that there has not
been an Adverse Tax Act by either U.S. Office Products or any of the Spin-Off
Companies, U.S. Office Products and each of the Spin-Off Companies will be
liable for its pro rata portion of the Distribution Taxes based on the value of
each company's common stock after the Distributions. As a result, Aztec could
become liable for a pro rata portion for Distribution Taxes with respect to not
only the Technology Distribution but any of the other Distributions. See "The
Spin-Offs from U.S. Office Products--Tax Allocation Agreement and Tax
Indemnification Agreement" and "The Technology Distribution--U.S. Federal Income
Tax Consequences of the Technology Distribution" for a detailed discussion of
the Tax Allocation Agreement, the Tax Indemnification Agreement and U.S. federal
income tax consequences of the Technology Distribution.
RISKS RELATED TO ALLOCATION FOR CERTAIN LIABILITIES
Under the Distribution Agreement, Aztec will be liable for (i) any
liabilities arising out of or in connection with the business conducted by it or
its subsidiaries, (ii) its liabilities under the Employee Benefits Agreement,
Tax Allocation Agreement and related agreements described under "The Spin-Offs
From U.S. Office Products", (iii) the U.S. Office Products debt that has been
allocated to the Company (see "The Spin-Offs From U.S. Office
Products--Distribution Agreement--Debt"), (iv) liabilities under the securities
laws relating to the Prospectus related to the Offering and portions of this
Information Statement/Prospectus, as well as other securities law liabilities
related to the Aztec business that arise from information supplied to U.S.
Office Products (or that should have been supplied, but was not) by Aztec,
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(v) U.S. Office Products' liabilities for earn-outs from acquisitions in respect
of Aztec and its subsidiaries, (vi) Aztec's costs and expenses related to the
Offering and its bank credit facility, and (vii) $1.0 million of the transaction
costs (including legal, accounting, investment banking and financial advisory)
and other fees incurred by U.S. Office Products in connection with its Strategic
Restructuring Plan. Each of the other Spin-Off Companies will be similarly
obligated to U.S. Office Products. Aztec and the other Spin-Off Companies have
also agreed to bear a pro rata portion of (i) U.S. Office Products' liabilities
under the securities laws (other than claims relating solely to a specific
Spin-Off Company or relating specifically to the continuing businesses of U.S.
Office Products) and (ii) U.S. Office Products' general corporate liabilities
(other than debt, except for that specifically allocated to the Spin-Off
Companies) incurred prior to the Distributions (i.e., liabilities not related to
the conduct of a particular distributed or retained subsidiary's business) (the
"Shared Liabilities"). If one of the other Spin-Off Companies defaults on an
obligation owed to U.S. Office Products, the other non-defaulting Spin-Off
Companies will be obligated on a pro rata basis to pay such obligation ("Default
Liability"). As a result of the Shared Liabilities and Default Liability, Aztec
could be obligated to U.S. Office Products in respect of obligations and
liabilities not related to its business or operations and over which neither it
nor its management has or has had any control or responsibility. The aggregate
of the Shared Liabilities and Default Liability for which any Spin-Off Company
may be liable is, however, limited to $1.75 million. See "--Potential Liability
for Taxes Related to the Distributions" and "The Spin-Offs From U.S. Office
Products." The Company's pro rata share of Shared Liabilities and Default
Liability is described in the Section captioned "The Spin-Offs from U.S. Office
Products--The Distribution Agreement--Liabilities."
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK
Section 355(e) of the Code, which was added in 1997, generally provides that
a company that distributes shares of a subsidiary in a spin-off that is
otherwise tax-free will incur U.S. federal income tax liability if 50% or more,
by vote or value, of the capital stock of either the company making the
distribution or the spun-off subsidiary is acquired by one or more persons
acting pursuant to a plan or series of related transactions that include the
spin-off. Stock acquired by certain related persons is aggregated in determining
whether the 50% test is met. There is a presumption that any acquisition
occurring two years before or after the spin-off is pursuant to a plan that
includes the spin-off. However, the presumption may be rebutted by establishing
that the spin-off and such acquisition are not part of a plan or series of
related transactions. As a result of the provisions of Section 355(e), there can
be no assurance that issuances of stock by Aztec, including issuances in
connection with an acquisition of another business by Aztec, will not create a
tax liability for U.S. Office Products.
Aztec is entering into a Tax Allocation Agreement and a Tax Indemnification
Agreement pursuant to which Aztec will be liable to U.S. Office Products and the
other Spin-Off Companies if its actions or omissions materially contribute to a
final determination that the Technology Distribution is taxable. See "The
Spin-Offs from U.S. Office Products--Tax Allocation Agreement and Tax
Indemnification Agreement."
This limitation could adversely affect the pace of Aztec's acquisitions and
its ability to issue Aztec Common Stock for other purposes, including equity
offerings.
MATERIAL AMOUNT OF GOODWILL
On a pro forma basis as of January 24, 1998, approximately $63.9 million, or
47.5% of Aztec's pro forma total assets and 72.8% of Aztec's stockholders'
equity represents goodwill. Goodwill represents the excess of cost over the fair
market value of net assets acquired in business combinations accounted for under
the purchase method of accounting. Aztec currently amortizes goodwill on a
straight line method over a period ranging from 25-40 years with the amount
amortized in a particular period constituting a non-cash expense that reduces
Aztec's net income. Amortization of goodwill resulting from certain past
acquisitions, and additional goodwill recorded in certain future acquisitions,
may not be deductible for tax
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purposes. In addition, Aztec will be required to periodically evaluate the
recoverability of goodwill by reviewing the anticipated undiscounted future cash
flows from the operations of the acquired companies and comparing such cash
flows to the carrying value of the associated goodwill. If goodwill becomes
impaired, Aztec would be required to write down the carrying value of the
goodwill and incur a related charge to its income. A reduction in net income
resulting from the amortization or write down of goodwill could have a material
and adverse impact upon the market price of Aztec Common Stock. Aztec believes
that anticipated cash flows associated with intangible assets recognized in the
acquisitions completed during the nine months ended January 24, 1998 will
continue over the period during which the associated goodwill will be amortized,
and there is no persuasive evidence that any material portion will dissipate
during such period.
INABILITY TO USE POOLING-OF-INTERESTS ACCOUNTING
Generally accepted accounting principles require that an entity be
autonomous for a period of two years before it is eligible to complete business
combinations accounted for under the pooling-of-interests method. As a result of
Aztec being a wholly-owned subsidiary of U.S. Office Products prior to the
Technology Distribution, Aztec will be unable to satisfy this criterion for a
period of two years following the Technology Distribution. Therefore, Aztec will
be precluded from completing business combinations accounted for under the
pooling-of-interests method for a period of two years and any business
combinations completed by Aztec during such period will be accounted for under
the purchase method resulting in the recording of goodwill. The amortization of
the goodwill will reduce income reported by Aztec below that which would have
been reported if the pooling-of-interests method had been used by Aztec.
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE
To date, the purchase prices of Aztec's acquisitions have not been
established by independent appraisals, but generally have been determined
through arm's-length negotiations between Aztec's management and representatives
of such acquired companies. The consideration paid for each such company has
been and will continue to be based primarily on the value of such company as a
going concern and not on the value of the acquired assets. Valuations of
acquired companies determined solely by appraisals of the acquired assets
typically would have been less than the consideration paid for the companies. No
assurance can be given that the future performance of such companies will be
commensurate with the consideration paid. Aztec does not expect to value future
acquisitions on the basis of asset appraisals. Therefore, this risk will apply
to future acquisitions as well.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Aztec Board has the authority to issue up to 1,000,000 shares of
preferred stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by Aztec stockholders. The
rights of the holders of Aztec Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of preferred stock. While Aztec
has no present intention to issue shares of preferred stock, such issuance,
while providing desired flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of Aztec and entrenching current management. In
addition, such preferred stock may have other rights, including economic rights
senior to those of the Aztec Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Aztec
Common Stock.
A number of provisions of Aztec's Certificate of Incorporation and By-Laws
and the Delaware General Corporation Law and regulations relating to matters of
corporate governance, certain rights of directors and the issuance of preferred
stock without stockholder approval, may be deemed to have and may have the
effect of making more difficult, and thereby discourage, a merger, tender offer,
proxy contest or assumption of control and change of incumbent management, even
when stockholders other than Aztec's principal stockholders consider such a
transaction to be in their best interest.
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In addition, the Aztec Board of Directors is evaluating the adoption of a
shareholder rights plan (a "Rights Plan") pursuant to which stockholders would
receive the right to acquire a fractional share of preferred stock upon certain
events, including the acquisition of more than 15% of the shares of outstanding
Aztec Common Stock, or the commencement of a tender offer for the purchase of
more than 15% of the outstanding Aztec Common Stock. The effect of such a Rights
Plan would be to defer takeover attempts for Aztec that were not approved in
advance by the Aztec Board of Directors.
INTELLECTUAL PROPERTY RIGHTS
The success of certain operating companies within Aztec is dependent in part
on certain methodologies these companies use in designing, installing, and
integrating computer software and systems and other proprietary intellectual
property rights. These operating companies rely on a combination of
nondisclosure and other contractual arrangements and trade secret, copyright,
and trademark laws to protect their proprietary rights and the proprietary
rights of third parties, enter into confidentiality agreements with their key
employees, and limit distribution of proprietary information. There can be no
assurance that the steps taken by these operating companies in this regard will
be adequate to deter misappropriation of proprietary information or that these
operating companies will be able to detect unauthorized use and take appropriate
steps to enforce their intellectual property rights.
Although Aztec believes that its services do not infringe the intellectual
property rights of others and that it has all rights necessary to utilize the
intellectual property employed in its business, Aztec is subject to the risk of
claims alleging infringement of third-party intellectual property rights. Any
such claims could require Aztec 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 an asserted infringement claim.
NO DIVIDENDS
The Company has never paid any cash dividends and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. Aztec's ability to
pay dividends will be restricted by the Proposed Credit Facility. See "Dividend
Policy."
RISK OF LOSS FROM POSSIBLE FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE
Several of Aztec's operating companies are using billing or other software
that is not Year 2000 compliant. Aztec has not quantified the costs of
addressing its Year 2000 issues, but it believes that the necessary adaptations
of these systems can be completed in the next 18 months, and that the costs of
achieving compliance will not be material. If Aztec is unable to make the
necessary adaptations on a timely basis, or if the costs are greater than
expected, the consequences of untimely resolution or the costs of complying
could have an adverse impact on Aztec's business or operations.
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<PAGE>
THE TECHNOLOGY DISTRIBUTION
GENERAL
Each holder of shares of U.S. Office Products Common Stock of record as of
5:00 p.m. EDT on June 9, 1998 (the "Record Date"), will receive one share of
Aztec Common Stock for every five shares of U.S. Office Products Common Stock
held on the Record Date. The Aztec Common Stock will be distributed on behalf of
U.S. Office Products by American Stock Transfer & Trust Company as the
Distribution Agent. No certificates or scrip representing fractional shares of
Aztec Common Stock will be issued. Fractional share interests will be aggregated
and sold by the Distribution Agent at such time as it shall determine in
open-market transactions effected through broker-dealers selected by it. The
cash proceeds will be distributed to those stockholders entitled to a fractional
interest with the distribution of payment for the tendered shares or as soon as
practical thereafter. Certificates representing shares of Aztec Common Stock are
expected to be distributed on June 15, 1998.
Aztec is a newly formed subsidiary of U.S. Office Products that holds
substantially all of the businesses and assets of, and will be responsible for
substantially all of the liabilities associated with, U.S. Office Products
Technology Solutions division. See "The Spin-Offs From U.S. Office Products--The
Distribution Agreement." Aztec includes the businesses of the following
wholly-owned subsidiaries of U.S. Office Products: Aztec International; Bay
State; Compel; Digital Network Associates; Entra; Fortran; Mahon; Office
Equipment Service; Professional Computer Solutions; and Professional Network
Services. Immediately prior to the Technology Distribution, U.S. Office Products
will hold all the issued and outstanding shares of Aztec Common Stock.
Approximately 21,937,902 shares of Aztec Common Stock will be distributed to
U.S. Office Products stockholders in the Technology Distribution.
THE STRATEGIC RESTRUCTURING PLAN
The Technology Distribution is part of the Strategic Restructuring Plan. The
principal elements of the Strategic Restructuring Plan are:
- Pursuant to the Tender Offer, U.S. Office Products is purchasing
37,037,037 shares of U.S. Office Products Common Stock (including shares
that may be issued on exercise of vested and unvested options for U.S.
Office Products Common Stock) at $27.00 per share (or, in the case of
stock options, at $27.00 minus the exercise price of the options), and is
incurring additional indebtedness to pay a substantial portion of the
purchase price for these shares.
- Pursuant to the Distributions, U.S. Office Products is distributing the
shares of the Spin-Off Companies to U.S. Office Products stockholders
based on the shares of U.S. Office Products Common Stock outstanding after
acceptance of shares in the Tender Offer. Each U.S. Office Products
stockholder will receive such stockholder's pro rata share of the stock of
each Spin-Off Company.
- Following the Record Date, CD&R will make the Equity Investment in U.S.
Office Products. CD&R will not acquire any interests in the Spin-Off
Companies.
Following completion of the Distributions, U.S. Office Products will retain
its North American Office Products Group (including its office supply, office
furniture, and office coffee and beverage services businesses), Mail Boxes Etc.,
its New Zealand and Australia operations, and its 49% interest in Dudley
Stationery Limited (a U.K. contract stationer). U.S. Office Products' print
management, technology solutions, educational supplies and corporate travel
services businesses will be operated by the Spin-Off Companies.
In conjunction with the Strategic Restructuring Plan, U.S. Office Products
is undertaking the following transactions:
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- Pursuant to the 2003 Note Tender, U.S. Office Products is purchasing
$222.2 million principal amount of its 2003 Notes for a purchase price of
94.5% of the principal amount and accrued interest.
- Pursuant to the 2001 Note Offer, U.S. Office Products exchanged
approximately $131.0 million principal amount of its 2001 Notes for
8,100,741 shares of U.S. Office Products Common Stock at an exchange rate
of 61.483 shares per $1,000 principal amount, which effectively reduced
the conversion price on the 2001 Notes from $19.00 to $16.17 while the
offer was open.
- U.S. Office Products is entering into a new $1.225 billion senior credit
facility pursuant to an agreement dated the date of this Information
Statement/Prospectus.
- U.S. Office Products has entered into an agreement to issue and sell
$400.0 million in 9 3/4% Senior Subordinated Notes in a private placement.
REASONS FOR THE DISTRIBUTIONS
The U.S. Office Products Board has approved the Strategic Restructuring
Plan, including the Distributions. The U.S. Office Products Board determined
that separation of the businesses of the Spin-Off Companies and the continuing
business of U.S. Office Products as part of the Strategic Restructuring Plan
would have advantages for the Spin-Off Companies and U.S. Office Products. The
Distributions will allow U.S. Office Products and the Spin-Off Companies to
adopt strategies and pursue objectives that are more appropriate to their
respective industries and geographic territories. After the Distributions, U.S.
Office Products will be focused on a narrower group of businesses that involve
primarily the distribution of office products and business services. Each of the
Spin-Off Companies will be focused primarily on its individual business.
The Distributions will allow the Spin-Off Companies to pursue independent
acquisition programs with a more focused use of resources and, where stock is
used as consideration, provide stock of a public company that is in the same
industry as the businesses being acquired. Before the Distributions, U.S. Office
Products acquired companies in, for example, the technology solutions business
using U.S. Office Products Common Stock. Sellers were thus required to accept
stock in a business that included office products, corporate travel services,
print management and educational supply businesses. Following the Technology
Distribution, Aztec will be able to offer stock in its own business, which will
be substantially the same as the businesses Aztec expects to acquire.
The Distributions will enable the financial community to evaluate U.S.
Office Products and the Spin-Off Companies as distinct businesses and compare
them more easily to industry peers. U.S. Office Products believes that this will
allow the financial community to better understand the businesses carried on by
U.S. Office Products and the Spin-Off Companies and more accurately value those
businesses.
The Distributions will also allow U.S. Office Products and the Spin-Off
Companies to offer their respective employees more focused incentive
compensation packages. The incentive compensation packages (which are expected
to consist primarily of stock options) will offer the officers and other key
employees of each Spin-Off Company equity interests in a company whose
performance is tied directly to the business for which they work. Aztec's
ability to issue stock options (as well as other equity) will be subject to
certain limitations in order to avoid triggering certain adverse federal income
tax consequences. See "U.S. Federal Income Tax Consequences of the Technology
Distribution."
The Equity Investment is conditioned on completion of all of the
Distributions (as well as completion of the Tender Offer). The U.S. Office
Products Board of Directors recognized that U.S. Office Products was making a
transition from an acquisition-oriented company to a business more focused on
growth through improvement and expansion of existing operations. The U.S. Office
Products Board concluded that the investment by CD&R in U.S. Office Products,
and support of the management of U.S. Office Products by CD&R, Inc., would
contribute to U.S. Office Products' development. CD&R, Inc. has
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substantial experience in providing companies in which its affiliates invest
with financial and managerial advisory services aimed at building value and
improving operational, marketing, and financial performance. CD&R, Inc. is also
experienced in advising and assisting companies in managing high levels of debt.
OTHER ELEMENTS OF THE STRATEGIC RESTRUCTURING PLAN
TENDER OFFER. Pursuant to the Tender Offer, U.S. Office Products offered to
repurchase 37,037,037 shares (including shares that may be issued on exercise of
vested and unvested stock options) of U.S. Office Products Common Stock at a
price of $27.00 per share (or, in the case of stock options, at $27.00 minus the
exercise price of the options).
U.S. Office Products is financing the aggregate tender price through a
combination of a new senior credit facility for $1.225 billion (the "USOP Credit
Facility"), the net proceeds of the Equity Investment, and issuance of $400.0
million of 9 3/4% senior subordinated debt securities in a private placement.
U.S. Office Products anticipates that the foregoing borrowings will increase its
outstanding debt by approximately $454.2 million. Approximately $377.4 million
was outstanding under U.S. Office Products existing bank credit facility as of
May 23, 1998.
The Record Date for the Distributions is occurring after acceptance of
shares under the Tender Offer. Accordingly, U.S. Office Products stockholders
who tendered their shares of U.S. Office Products Common Stock in the Tender
Offer will not receive the Distributions to the extent their U.S. Office
Products shares are accepted in the Tender Offer. Because the Tender Offer was
for only 37,037,037 shares of U.S. Office Products Common Stock (including
shares that may be issued on exercise of vested and unvested options for U.S.
Office Products Common Stock) and approximately 160.0 million shares were
validly tendered in the Tender Offer, approximately 23.2% of the shares tendered
by any U.S. Office Products stockholder has been accepted. U.S. Office Products
stockholders who tendered their shares will receive the Distributions with
respect to approximately 76.8% of their shares of U.S. Office Products Common
Stock.
EQUITY INVESTMENT. Pursuant to the Investment Agreement dated as of January
12, 1998, as amended, between U.S. Office Products and CD&R (the "Investment
Agreement"), U.S. Office Products will issue and sell approximately 36,368,426
shares of U.S. Office Products Common Stock and warrants to purchase additional
shares of U.S. Office Products Common Stock (as described below) to CD&R for a
purchase price of $270.0 million. As a result of the Equity Investment, CD&R
will acquire (a) shares of U.S. Office Products Common Stock representing 24.9%
of the outstanding shares of U.S. Office Products Common Stock after giving
effect to the issuance of such shares; (b) rights ("Special Warrants") to
receive for nominal consideration additional shares of U.S. Office Products
Common Stock equal to 24.9% (after giving effect to issuance of such additional
shares upon exercise of the Special Warrants) of the additional shares that are
issuable upon the conversion of certain outstanding convertible debentures of
U.S. Office Products and of shares of U.S. Office Products Common Stock that are
actually issued pursuant to certain contingent rights under existing acquisition
agreements; and (c) warrants ("Common Stock Warrants") representing the right to
purchase one share of U.S. Office Products Common Stock for each share of U.S.
Office Products Common Stock purchased by CD&R at the date of the closing under
the Investment Agreement (the "Closing Date") and for each share of U.S. Office
Products Common Stock into which the Special Warrants become exercisable. The
Special Warrants are exercisable from and after the Closing Date until the 12th
anniversary thereof, subject to certain limitations, and the Common Stock
Warrants are exercisable from and after the second anniversary of the Closing
Date until such 12th anniversary. The aggregate exercise price of the Common
Stock Warrants is $405.0 million.
CD&R has contracted to purchase a 24.9% equity interest in U.S. Office
Products, including the shares issued to CD&R (the "Initial CD&R Acquisition").
CD&R's percentage ownership of U.S. Office Products will not increase or
decrease depending on the actual number of shares of U.S. Office Products Common
Stock outstanding on the closing date of the Initial CD&R Acquisition. The
Special Warrants
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will be issued to allow CD&R to maintain its 24.9% ownership interest if (i)
2001 Notes that remained outstanding after the 2001 Note Offer were converted
into U.S. Office Products Common Stock at the conversion price in effect after
adjusting for the Tender Offer and the Distributions, or (ii) additional shares
are issued under certain contracts for acquisitions completed by U.S. Office
Products.
Assuming (i) exercise of all options outstanding after the Tender Offer, and
(ii) all 2003 Notes that remain outstanding following the 2003 Note Tender were
converted in accordance with their existing terms, in each case without any
adjustment for the Strategic Restructuring Plan, and (a) exercise of the Special
Warrants in full, and (b) exercise of the Common Stock Warrants in full, CD&R
could own approximately 37.0% of outstanding U.S. Office Products Common Stock
on a fully-diluted basis. U.S. Office Products expects to make adjustments to
the number and exercise price of outstanding options, and to the conversion
price of any 2001 Notes and 2003 Notes remaining after the 2001 Note Offer and
the 2003 Note Tender, on account of the restructuring transactions, and these
adjustments will result in a greater number of shares that may be issued upon
exercise of the options and conversion of such notes. Although the amount of
these adjustments will not be known until after the completion of the Strategic
Restructuring Plan, the effect of these adjustments will be to reduce CD&R's
fully-diluted ownership interest in U.S. Office Products from the amounts set
forth above. If no outstanding options are exercised, exercise of the Special
Warrants and Common Stock Warrants could give CD&R approximately 39.9% of
outstanding U.S. Office Products Common Stock after implementation of the
Strategic Restructuring Plan.
Because the Record Date for the Distributions is before the closing of the
Equity Investment, CD&R will not receive any shares of the Spin-Off Companies in
the Distributions.
Prior to the closing of the Initial CD&R Acquisition, the Board of Directors
of U.S. Office Products will consist of nine persons, including the chief
executive officer, three designees of CD&R, three designees of the U.S. Office
Products' Board and two persons who are satisfactory to both CD&R and the U.S.
Office Products' Board. After the closing of the Initial CD&R Acquisition, the
existing members of the U.S. Office Products Board will have the right to
nominate six directors, which will include the chief executive officer. CD&R
will have the right to nominate three directors. So long as CD&R has the right
to nominate two or more directors, one of CD&R's nominees will serve as Chairman
of the Board. CD&R can nominate one additional person to the U.S. Office
Products' Board, if the directors of U.S. Office Products do not nominate its
chief executive officer to the Board.
In addition, three-fourths of the directors of U.S. Office Products must
approve the following transactions: (i) the sale by U.S. Office Products of
equity securities, other than (A) a specified amount made available under
employee benefit plans, such as option plans, or (B) a specified amount issued
to acquire companies or issued in public offerings; (ii) any merger, tender
offer involving U.S. Office Products equity securities or sale, lease or
disposition of all or substantially all of U.S. Office Products assets or other
business combination involving U.S. Office Products, unless the consideration
for such sale is all cash or is freely tradeable common stock of a public
company with a specified level of market capitalization; (iii) any major
recapitalization; (iv) certain amendments to stockholder rights plans; (v) any
dissolution or partial liquidation of U.S. Office Products; or (vi) any
modification to U.S. Office Products' organization documents or by-laws that is
inconsistent with CD&R's rights under the Investment Agreement or any other
agreements between U.S. Office Products and CD&R. The effect of this provision
is that as long as CD&R can nominate three directors, at least one of them must
vote in favor of any of the above actions for it to be approved.
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The following Table summarizes the right of CD&R to nominate directors of
U.S. Office Products and shows when the 75% super-majority voting requirement
will apply:
<TABLE>
<CAPTION>
PORTION OF SHARES OF U.S. NUMBER OF DIRECTORS RIGHT TO 75% BOARD
OFFICE PRODUCTS COMMON CD&R IS ENTITLED TO DESIGNATE APPROVAL
STOCK RETAINED BY CD&R(1)(2) NOMINATE (OUT OF NINE)(3)(4) CHAIRMAN REQUIREMENT(2)
- -------------------------------------------------------- ----------------------------- ------------- -----------------
<S> <C> <C> <C>
66 2/3% to 100%......................................... Three Yes Yes
33 1/2% to 66 2/3%...................................... Two Yes Yes
Less than 33 2/3% (but CD&R holds at least 5% of the
then outstanding U.S. Office Products voting stock.... One No No
Less than 5% of the then outstanding U.S. Office
Products voting stock................................. None No No
</TABLE>
- ----------------------
(1) Includes shares CD&R can acquire by exercising the Special Warrants.
(2) All of CD&R's corporate governance rights will expire on the earlier of the
fifth anniversary of the closing of the Initial CD&R Acquisition or if CD&R
ever acquires more than 50% of the voting power represented by U.S. Office
Products' then outstanding voting securities.
(3) CD&R can approve one additional nominee if the Chief Executive Officer of
U.S. Office Products is not a member of the Board or is not a Board nominee.
(4) The size of the Board can be increased up to a total of 12 members, in which
case the number of directors that CD&R has the right to nominate will
increase proportionately.
CD&R's obligation to consummate the Equity Investment is subject to the
satisfaction or waiver of various conditions. These include, among others: (i)
accuracy of U.S. Office Products representations and warrants and compliance by
U.S. Office Products with its obligations under the Investment Agreement; (ii)
receipt of necessary antitrust and other regulatory clearance; (iii) absence of
material litigation; (iv) U.S. Office Products stockholder approval of issuance
of shares in the Equity Investment; (v) completion of the Distributions in
accordance with Distribution Agreements containing certain terms specified in
the Investment Agreement and otherwise as reasonably approved by CD&R; (vi)
execution and delivery of the Tax Allocation Agreement containing certain terms
specified in the Investment Agreement and otherwise as reasonably approved by
CD&R; (vii) execution of documents relating to financing for the Tender Offer
satisfactory in form and substance to CD&R; (viii) completion of the Tender
Offer; (ix) execution of a consulting agreement with CD&R Inc. providing for
payment of an annual fee of $500,000, and a registration rights agreement with
CD&R; (x) absence of any development since October 25, 1997 that would have a
material adverse effect on U.S. Office Products after giving effect to the
Distributions; (xi) no person or group (other than CD&R or its affiliates)
having entered into an agreement with U.S. Office Products with respect to a
tender or exchange offer for any shares of U.S. Office Products Common Stock, or
a merger, consolidation, or other business combination with or involving the
Company; and (xii) U.S. Office Products debt immediately following completion of
the transactions contemplated by the Strategic Restructuring Plan shall not
exceed $1.4 billion (assuming conversion of certain convertible debt) and the
outstanding debt of the Spin-Off Companies shall be at least $130.0 million plus
expenditures by such entities for acquisitions after the date of the Investment
Agreement. See "The Spin-Offs from U.S. Office Products--Distribution
Agreement"; and "--Tax Allocation Agreement." If U.S. Office Products does not
proceed with the Distributions, or if the Equity Investment does not occur for
certain other reasons, CD&R can terminate the Investment Agreement and CD&R
would receive a termination fee of $25.0 million plus CD&R's reasonable fees and
expenses. If the Equity Investment is completed, CD&R Inc. will receive a
transaction fee of $15.0 million and reimbursement for expenses it incurs in
connection with the transaction. For additional information concerning the
Equity Investment, investors should refer to U.S. Office Products proxy
statement for its special meeting of stockholders held to consider the issuance
of shares in Equity Investment. See "Additional Information."
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RELATED TRANSACTIONS. Jonathan J. Ledecky, the founder, Chairman of the
Board and former Chief Executive Officer of U.S. Office Products, will resign as
Chairman of the U.S. Office Products Board upon completion of the Distributions.
In connection with the adoption of the Strategic Restructuring Plan, U.S. Office
Products Board of Directors and Mr. Ledecky concluded that it was important to
the achievement of the objectives of the Strategic Restructuring Plan that the
Spin-Off Companies obtain the benefit of Mr. Ledecky's skills and experience.
Accordingly, U.S. Office Products entered into the Ledecky Services Agreement.
It is expected that Aztec will enter into an employment agreement with Mr.
Ledecky which will implement assigned portions of the Ledecky Services
Agreement. The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that will continue for four years after the
Technology Distribution has been completed. U.S. Office Products is permitted to
(and will) assign to Aztec the ability to enforce the non-competition provisions
described above as to its own business, which will then constitute part of Mr.
Ledecky's employment agreement with Aztec. Mr. Ledecky will receive options to
purchase up to 7.5% of the outstanding shares of common stock of each Spin-Off
Company as of the Distribution Date, without regard to the Offering. For
additional information on the terms of the Ledecky Services Agreement and the
options to be granted by Aztec to Mr. Ledecky, see "Management-- Ledecky
Services Agreement" and "--1998 Stock Incentive Plan."
Aztec has filed a Registration Statement with the Commission for the
issuance of shares of Aztec Common Stock in the Offering. The Offering is
expected to be for 4,200,000 shares (plus 630,000 shares subject to the
underwriters' option to purchase shares to cover over-allotments). A preliminary
prospectus dated May 18, 1998 estimated that the initial public offering price
will be between $12.00 and $14.00 per share. Aztec expects that the initial
public offering price in the Offering will be determined after the close of
markets on the date of this Information Statement/Prospectus. There can be no
assurance that the initial public offering price will be set at that time, that
the price will be within the range set forth in the preliminary prospectus, or
that the Offering will be completed. Information regarding the initial public
offering price, and "as adjusted" pro forma financial statements based on that
price, will be set forth in the final prospectus related to the Offering, which
will be publicly available within two business days after the price is
determined. See "Additional Information."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TECHNOLOGY DISTRIBUTION
Wilmer, Cutler & Pickering has delivered the Tax Opinion on the material
U.S. federal income tax consequences of the Technology Distribution to U.S.
Office Products and holders of U.S. Office Products Common Stock on the Record
Date. The Tax Opinion is based on the Code, and regulations, rulings, and
judicial decisions as of the date thereof, all of which may be repealed,
revoked, or modified so as to result in U.S. federal income tax consequences
different from those described below. Such changes could be applied
retroactively in a manner that could adversely affect a holder of U.S. Office
Products Common Stock. In addition, the authorities on which the Tax Opinion is
based are subject to various interpretations. It is therefore possible that the
U.S. federal income tax treatment of the Technology Distribution, and of the
holding and disposition of Aztec Common Stock may differ from the treatment
described below.
The Tax Opinion applies only to holders of U.S. Office Products Common Stock
who are U.S. persons and who hold U.S. Office Products Common Stock as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code. A U.S. person is the beneficial owner of U.S. Office Products
Common Stock that is (i) for U.S. federal income tax purposes a citizen or
resident of the United States (including certain former citizens and former
long-term residents), (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) a trust with respect
to the administration of which a court within the United States is able to
exercise primary supervision and one or more U.S. persons have the authority to
control all substantial decisions of the trust. The Tax Opinion does not address
tax considerations applicable to a holder of U.S. Office Products Common Stock's
particular circumstances or to a holder that may be
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subject to special tax rules (such as holders subject to the alternative minimum
tax) or other special situations, such as those of dealers in securities or
currencies, financial institutions, insurance companies, persons holding U.S.
Office Products Common Stock as part of a hedging or conversion transaction or a
straddle, persons whose "functional currency" is not the U.S. dollar, and
certain U.S. expatriates.
The Tax Opinion does not address all aspects of U.S. federal income taxation
that may be relevant to holders of U.S. Office Products Common Stock in light of
their particular circumstances, nor will it address any tax consequences arising
under the laws of any state, local, or foreign taxing jurisdiction. Holders of
U.S. Office Products Common Stock should consult their tax advisors about the
particular U.S. federal income tax consequences to them of the Technology
Distribution, or the holding and disposition of Aztec Common Stock, as well as
any tax consequences arising under the laws of any state, local, or foreign
taxing jurisdiction.
EFFECT ON U.S. OFFICE PRODUCTS AND HOLDERS OF U.S. OFFICE PRODUCTS COMMON
STOCK. Subject to the foregoing, the Tax Opinion states Wilmer, Cutler &
Pickering's opinion that for U.S. federal income tax purposes the Distributions
(including the Technology Distribution) will qualify as tax-free spin-offs under
Section 355 of the Code and will not be taxable under Section 355(e) of the
Code. The Tax Opinion is based on the accuracy as of the time of the
Distributions of factual representations made by U.S. Office Products, the
Spin-Off Companies and CD&R and certain other information, data, documentation
and other materials that Wilmer, Cutler & Pickering has deemed necessary.
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment of how
a court would rule. However, the Tax Opinion is not binding upon either the IRS
or any court. A ruling has not been, and will not be, sought from the IRS with
respect to the U.S. federal income tax consequences of the Technology
Distribution.
Assuming the Technology Distribution qualifies as a tax-free spin-off under
Section 355 and is not taxable under Section 355(e):
1. No gain or loss will be recognized by holders of U.S. Office
Products Common Stock as a result of their receipt of Aztec Common Stock in
the Technology Distribution. Holders of U.S. Office Products Common Stock
will recognize gain or loss on the receipt of cash in lieu of fractional
shares (as discussed below).
2. No gain or loss will be recognized by U.S. Office Products as a
result of the Technology Distribution.
3. A stockholder's tax basis in such stockholder's U.S. Office Products
Common Stock immediately before the Technology Distribution will be
allocated among U.S. Office Products Common Stock and Spin-Off Companies'
common stock (including any fractional shares) received with respect to such
U.S. Office Products Common Stock in proportion to their relative fair
market values on the Distribution Date. Such allocation must be calculated
separately for each block of U.S. Office Products Common Stock (shares
purchased at the same time and at the same cost) with respect to which the
Spin-Off Companies' common stock is received.
4. The holding period of the Aztec Common Stock (including any
fractional shares) received in the Technology Distribution will include the
holding period of the U.S. Office Products Common Stock with respect to
which it was distributed.
Treasury regulations governing Section 355 require that each holder of U.S.
Office Products Common Stock who receives shares of Aztec Common Stock pursuant
to the Technology Distribution attach a statement to the U.S. federal income tax
return that will be filed by such stockholder for the taxable year in which the
stockholder receives Aztec Common Stock in the Technology Distribution. The
regulations require that the statement show the applicability of Section 355 to
the Technology Distribution. U.S. Office
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Products will provide each U.S. Office Products stockholder of record on the
Record Date with information necessary to comply with this requirement.
CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. As noted
above, the Tax Opinion is not binding on the IRS or the courts. Holders of U.S.
Office Products Common Stock should be aware that the requirements of Section
355 pertaining to business purpose, active trade or business, and absence of a
device for distribution of earnings and profits, as well as the requirements of
Section 355(e) pertaining to a plan or series of related transactions to acquire
50% or more by vote or value of a company, are highly dependent on factual
interpretations, are to a significant extent subjective in nature, and have a
relative absence of authority addressing their application to the particular
facts presented by the Technology Distribution. Accordingly, the IRS and/or a
court could reach a conclusion that differs from the conclusions in the Tax
Opinion.
BUSINESS PURPOSE. In order for the Technology Distribution to qualify as a
tax-free spin-off under Section 355, it must be motivated, in whole or
substantial part, by one or more corporate business purposes. U.S. Office
Products has represented that the Technology Distribution was motivated, in
whole or substantial part, to allow U.S. Office Products and Aztec to adopt
strategies and pursue objectives that are more appropriate to their respective
industries and stages of growth; to allow Aztec to pursue an independent
acquisition program with a more focused use of resources and, where stock is
used as consideration, to allow Aztec to provide stock of a public company that
is in the same industry as the business being acquired; to allow U.S. Office
Products and Aztec to offer their respective employees more focused compensation
packages; and to make possible the Equity Investment, which the Board of
Directors of U.S. Office Products concluded would contribute to U.S. Office
Products development, based on the skills and experience of CD&R, Inc. Based on
these representations and certain other information, data, documentation and
other materials, Wilmer, Cutler & Pickering has delivered an opinion that the
Technology Distribution satisfies the business purpose requirement of Section
355 of the Code. However, although similar rationales have been accepted by the
IRS in other circumstances as sufficient to meet the business purpose
requirement of Code Section 355, there can be no assurances that the IRS will
not assert that the business purpose requirement is not satisfied.
ACTIVE TRADE OR BUSINESS. In order for the Technology Distribution to
qualify as a tax-free spin-off under Section 355, both Aztec and U.S. Office
Products must be engaged in an active trade or business that has been actively
conducted for the five-year period preceding the Technology Distribution, taking
into account only businesses that have been acquired in transactions in which no
gain or loss was recognized. Whether current and historical business activity
constitutes an active trade or business, and whether any gain or loss should
have been recognized in an acquisition structured and reported as a nontaxable
transaction, turn in some instances on the application of subjective legal
standards and on factual determinations, such as intentions of the parties
involved. Based on the representations of U.S. Office Products and Aztec,
Wilmer, Cutler & Pickering has delivered an opinion that the Technology
Distribution satisfies the active trade or business requirement. However,
because of the inherently subjective nature of important elements of the active
trade or business requirement, and because the IRS may challenge the
representations upon which Wilmer, Cutler & Pickering relies, there can be no
assurance that the IRS will not assert that the active trade or business
requirement is not satisfied.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. The
Technology Distribution will not qualify as a tax-free spin-off under Section
355 if the Technology Distribution was used principally as a device for the
distribution of the earnings and profits of U.S. Office Products or Aztec.
Treasury regulations provide that this test is applied based on all the facts
and circumstances, including the presence or absence of factors described in the
Regulations as "device factors" and "nondevice factors." Application of this
test is uncertain in part because of its subjective nature. Based on the
representations of U.S. Office Products and Aztec, Wilmer, Cutler & Pickering
has delivered an opinion that the Technology Distribution is not a transaction
used principally as a device for the distribution of earnings and profits of
either U.S.
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Office Products or Aztec. However, because of the inherently subjective nature
of the device test (including the subjectivity involved in assigning weight to
various factors), and because the IRS may challenge the representations upon
which Wilmer, Cutler & Pickering relies, there can be no assurance that the IRS
will not assert that the Technology Distribution is a transaction used
principally as a device for the distribution of earnings and profits of U.S.
Office Products or Aztec.
If the Technology Distribution fails to qualify as a tax-free spin-off under
Section 355:
1. U.S. Office Products will recognize gain equal to the difference
between the fair market value of the Aztec Common Stock on the Distribution
Date and U.S. Office Products adjusted tax basis in the Aztec Common Stock
on the Distribution Date. If U.S. Office Products were to recognize gain on
the Technology Distribution, such gain would likely be substantial.
2. Each holder of U.S. Office Products Common Stock will be treated as
having received a taxable corporate distribution in an amount equal to the
fair market value (on the Distribution Date) of the Aztec Common Stock
distributed to such stockholder, including fractional shares. The
distribution would generally be treated as ordinary dividend income to a
U.S. Office Products stockholder to the extent of such U.S. Office Products
stockholder's pro rata share of U.S. Office Products accumulated and current
earnings and profits. To the extent the amount of the distribution exceeds
such U.S. Office Products stockholder's pro rata share of U.S. Office
Products accumulated and current earnings and profits, such excess would be
treated first as a basis-reducing, tax-free return of capital to the extent
of the stockholder's tax basis in his or her U.S. Office Products Common
Stock and then as capital gain. For corporate stockholders, the portion of
the taxable distribution that constitutes a dividend would be eligible for
the dividends-received deduction (subject to certain limitations in the
Code) and could be subject to the Code's extraordinary dividend provisions
which, if applicable, would require a reduction in a corporate stockholder's
basis in its U.S. Office Products Common Stock to the extent of such
deduction and the recognition of gain to the extent the deduction exceeds
the corporate stockholder's tax basis in its U.S. Office Products Common
Stock.
3. Each U.S. Office Products stockholder's tax basis in the Aztec
Common Stock would equal the fair market value on Distribution Date of the
Aztec Common Stock (including fractional shares) distributed to such
stockholder.
4. The holding period of the Aztec Common Stock (including fractional
shares) received in the Technology Distribution would begin with, and
include, the day after the Distribution Date.
Whether or not the Technology Distribution is taxable, cash received by a
holder of U.S. Office Products Common Stock in lieu of a fractional share of
Aztec Common Stock will be treated as received in exchange for such fractional
share and the stockholder will recognize gain or loss for U.S. federal income
tax purposes measured by the difference between the amount of cash received and
the stockholder's tax basis in the fractional share. Such gain or loss will be
capital gain or loss to the stockholder.
EFFECT OF POST DISTRIBUTION TRANSACTIONS. Section 355(e), which was added
in 1997, generally provides that a company that distributes shares of a
subsidiary in a spin-off that is otherwise tax-free will incur U.S. federal
income tax liability of 50% or more, by vote or value, of the capital stock of
either the company making the distribution or the subsidiary is acquired by one
or more persons acting pursuant to a plan or series of related transactions that
includes the spin-off. Stock acquired by certain related persons is aggregated
in determining whether this 50% test is met. There is a presumption that any
acquisition of 50% or more, by vote or value, of the capital stock of the
company or the subsidiary occurring two years before or after the spin-off
pursuant to a plan that includes the spin-off. However, the presumption may be
rebutted by establishing that the spin-off and the acquisition are not part of a
plan or series of related transactions. Based on the representations of U.S.
Office Products, Aztec and CD&R, and the assumption that the Technology
Distribution is not part of a plan that is outside the knowledge of U.S. Office
Products and Aztec pursuant to which one or more persons will acquire directly
or indirectly 50% or more by vote or
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value of the capital stock of U.S. Office Products or Aztec, Wilmer, Cutler &
Pickering has delivered an opinion that the Technology Distribution will not be
taxable under Section 355(e). However, there can be no assurance that the IRS
will not assert that the Technology Distribution is taxable under Section
355(e).
If the Technology Distribution is taxable under Section 355(e), U.S. Office
Products will recognize gain equal to the difference between the fair market
value of the Aztec Common Stock on the Distribution Date and U.S. Office
Products tax basis in the Aztec Common Stock on the Distribution Date. If U.S.
Office Products were to recognize gain on the Technology Distribution, such gain
would likely be substantial. However, no gain or loss will be recognized by
holders of Aztec Common Stock (except with respect to cash received in lieu of
fractional shares).
LIABILITY FOR DISTRIBUTION TAXES. Under the Tax Allocation Agreement, Aztec
and the other Spin-Off Companies will jointly and severally indemnify U.S.
Office Products for any Distribution Taxes assessed against U.S. Office Products
if an Adverse Tax Act of any of the Spin-Off Companies materially contributes to
a final determination that any of the Distributions is taxable. Aztec is also
entering into the Tax Indemnification Agreement with the other Spin-Off
Companies under which the Spin-Off Company that is responsible for the Adverse
Tax Act will indemnify the other Spin-Off Companies for any liability to U.S.
Office Products under the Tax Allocation Agreement. As a consequence, Aztec will
be primarily liable for any Distribution Taxes resulting from an Adverse Tax Act
by Aztec and liable (subject to indemnification by the other Spin-Off Companies)
for any Distribution Taxes resulting from an Adverse Tax Act by the other
Spin-Off Companies. Additionally, U.S. Office Products and each of the Spin-Off
Companies will be liable for its pro rata portion of any Distribution Taxes,
based on the value of each company's common stock after the Distributions, if it
is determined that there has not been an Adverse Tax Act by either U.S. Office
Products or any of the Spin-Off Companies. As a result, Aztec could become
liable for a pro rata portion of any Distribution Taxes with respect not only to
the Technology Distribution, but also to any of the other Distributions. See
"The Spin Offs from U.S. Office Products--Tax Allocation Agreement and Tax
Indemnification Agreement" for a detailed discussion of the Tax Allocation
Agreement and Tax Indemnification Agreement.
WILMER, CUTLER & PICKERING'S OPINION OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS OF U.S. OFFICE PRODUCTS COMMON STOCK DOES NOT PURPORT TO
COVER ALL U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MIGHT APPLY TO EVERY HOLDER
OF U.S. OFFICE PRODUCTS COMMON STOCK. ALL HOLDERS OF U.S. OFFICE PRODUCTS COMMON
STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR U.S.
FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE TECHNOLOGY
DISTRIBUTION TO THEM.
REPLACEMENT OF OUTSTANDING U.S. OFFICE PRODUCTS OPTIONS
All or substantially all vested and unvested options to acquire the U.S.
Office Products common stock that are held by Aztec employees ("U.S. Office
Products Options") on the Distribution Date are being replaced with options to
acquire shares of Aztec Common Stock ("Aztec Options"). As of the Distribution
Date, approximately 616,716 U.S. Office Products Options are held by employees
of Aztec (assuming all option holders tendered all of the shares underlying
their options in the Tender Offer). The number of Aztec Options that will be
outstanding after the Distributions will depend on the trading price of U.S.
Office Products common stock around the time of the Distributions and the public
offering price of the Aztec Common Stock in the Offering. For those reasons, the
number of Aztec Options into which the U.S. Office Products options will convert
is not yet determinable. The formulas will not affect when the options vest or
when employees can exercise the options. The following formulas will be used to
adjust the number and exercise price of U.S. Office Products Options. Such
formulas will adjust solely for the Distributions and not for other events, such
as the Tender Offer. The exercise price of U.S. Office Products Options will be
adjusted by applying the following formula:
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Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price of
Common Stock in the Offering
Trading Price of U.S. Office
Products Common Stock
Pre-Technology Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New)=Option Shares (Old) X Trading Price of U.S. Office Products
Common Stock Pre-Technology
Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Technology Distribution" will be the average closing price of U.S. Office
Products common stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the expiration
of the Tender Offer and the completion of the Distributions. If the initial
public offering price cannot be determined at the time of the adjustment, the
closing price on June 10, 1998 will be substituted for the initial public
offering price in the formula. The foregoing formula adjustments are intended to
preserve for the holder of U.S. Office Products Options the intrinsic value
perception, measured as the difference between the market value of one share of
U.S. Office Products Common Stock at the time of the Technology Distribution and
the exercise price of such option. The intrinsic value of the Aztec Options will
be no greater than the intrinsic value of the U.S. Office Products Options
immediately before the Distribution, and the ratio of exercise price to market
price will be not less than the ratio immediately before the Distributions.
It is anticipated that all other terms of the Aztec Options will be the same
as the terms of the U.S. Office Products Options they replace. As a result of
the adjustments described above, options held by Aztec employees after the
Technology Distribution would represent a greater percentage interest in Aztec
than the percentage interest in U.S. Office Products represented by such options
before the Distributions.
RESTRICTIONS ON TRANSFER
Shares of Aztec Common Stock distributed to U.S. Office Products
stockholders pursuant to the Technology Distribution will be freely transferable
under the Securities Act, except for shares received by any persons who may be
deemed to be "affiliates" of Aztec as that term is defined in Rule 144
promulgated under the Securities Act. Persons who may be deemed to be affiliates
of Aztec after the Technology Distribution generally include individuals or
entities that control, are controlled by, or are under common control with,
Aztec and may include certain officers and directors of Aztec as well as
principal stockholders of Aztec. Persons who are affiliates of Aztec will be
permitted to sell their shares of Aztec Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemptions
provided for private transactions or Rule 144 under the Securities Act.
EXPENSES OF THE DISTRIBUTIONS
U.S. Office Products estimates that legal, financial advisory, investment
banking, financing, accounting, printing, mailing, and other expenses (including
the fees of U.S. Office Products and the Spin-Off Companies transfer agents) of
the Strategic Restructuring Plan (including CD&R's fees and expenses), including
the Distributions, will total approximately $75.0 million. Upon request, U.S.
Office Products will pay the reasonable expenses of brokerage firms, custodians,
nominees, and fiduciaries who are record holders of U.S. Office Products shares
for forwarding this Information Statement/Prospectus to the beneficial owners of
such shares. The foregoing expenses will be allocated among U.S. Office Products
and the Spin-Off Companies pursuant to a formula to be determined. See "The
Spin-Offs from U.S. Office Products--Distribution Agreement."
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THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS
Following the Technology Distribution, U.S. Office Products and Aztec will
operate independently (except for interests U.S. Office Products may retain
pursuant to certain pledge agreements), and neither will have any stock
ownership, beneficial or otherwise, in the other. For the purposes of governing
certain of the ongoing relationships between and among U.S. Office Products,
Aztec and the other Spin-Off Companies after the Distributions, and to provide
mechanisms for an orderly transition, U.S. Office Products, Aztec and the other
Spin-Off Companies are entering into the Distribution Agreement, the Tax
Allocation Agreement, and the Employee Benefits Agreement, and the Spin-Off
Companies are entering into the Tax Indemnification Agreement. The terms of the
Distribution Agreement, Tax Allocation Agreement, Tax Indemnification Agreement,
and Employee Benefits Agreement have been determined while Aztec is a
wholly-owned subsidiary of U.S. Office Products. In addition, the Investment
Agreement specifies certain terms of these agreements and provides that they are
subject to CD&R's reasonable approval. Therefore, they are not the result of
arm's-length negotiations between independent parties.
DISTRIBUTION AGREEMENT
TRANSFER OF SUBSIDIARIES AND ASSETS. The Distribution Agreement provides
for the transfer from U.S. Office Products to Aztec of substantially all of the
equity interests in the U.S. Office Products subsidiaries that are engaged in
Aztec's business as well as the transfer in certain instances of other assets
related to the business of Aztec. It also provides that the recovery on any
claims that U.S. Office Products may have against the persons who sold
businesses to U.S. Office Products that will become part of Aztec in connection
with the Technology Distribution (the "Aztec Acquisition Indemnity Claims") will
be allocated 100% to Aztec. In addition, to the extent that Aztec Acquisition
Indemnity Claims are secured by the pledge of stock of U.S. Office Products and
the Spin-Off Companies that are owned by persons who sold businesses to U.S.
Office Products that will become part of Aztec (and no previous claims have been
made against such shares), the pledged shares will be used, subject to final
resolution of the claim, to reimburse U.S. Office Products and the applicable
Spin-Off Company for their respective damages, expenses in accordance with the
agreed upon allocation of recovery rights, which will be determined prior to the
Technology Distribution.
DEBT. The Distribution Agreement allocates a specified amount of U.S.
Office Products' debt outstanding under its credit facilities to each Spin-Off
Company and requires each Spin-Off Company, on or prior to the Distributions, to
obtain credit facilities to borrow funds under such facilities and to use the
proceeds of such borrowings to pay off the U.S. Office Products after January
12, 1998 (the date of the Investment Agreement) in connection with the
acquisition of any entity that has become or will become a subsidiary of such
Spin-Off Company. Under the Distribution Agreement, U.S. Office Products has
allocated $5.0 million of debt to Aztec. Aztec will borrow $4.3 million under an
existing working capital credit facility to pay off debt to U.S. Office
Products.
LIABILITIES. Under the Distribution Agreement, Aztec will be responsible
for (i) any liabilities arising out of or in connection with the businesses
conducted by Aztec and/or its subsidiaries, (ii) its liabilities under the
Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement
and related agreements, (iii) the U.S. Office Products' debt that has been
allocated to Aztec as described above, (iv) liabilities under the securities
laws relating to the Prospectus related to the Offering and portions of this
Information Statement/Prospectus, as well as other securities law liabilities
related to the Aztec business that arise from information supplied to U.S.
Office Products (or that should have been supplied but was not) by Aztec, (v)
any liabilities of U.S. Office Products relating to earn-out or bonus payments
in respect of Aztec or its subsidiaries, (vi) Aztec's costs and expenses related
to the Offering and its bank credit facility, and (vii) $1.0 million of the
transaction costs (including legal, accounting, investment banking and financial
advisory) and other fees incurred by U.S. Office Products in connection with the
Strategic Restructuring Plan. Each of the other Spin-Off Companies will be
similarly obligated to U.S. Office Products. Aztec and the other Spin-Off
Companies have also agreed to bear a pro rata share of
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(i) any liabilities of U.S. Office Products under the securities laws (other
than claims relating solely to a specific Spin-Off Company or relating
specifically to the continuing businesses of U.S. Office Products), and (ii)
U.S. Office Products' general corporate liabilities (other than debt, except for
that specifically allocated to the Spin-Off Companies) incurred prior to the
Distributions (I.E., liabilities not related to the conduct of a particular
distributed or retained subsidiary's business). If one of the Spin-Off Companies
defaults on an obligation owed to U.S. Office Products, the other non-defaulting
Spin-Off Companies will be obligated on a pro rata basis to pay such obligation.
The Spin-Off Companies' pro rata share of Shared Liabilities will be, based
upon the fiscal year ended April 25, 1998, the average of (a) their revenues
relative to those of U.S. Office Products and (b) their operating income
relative to that of U.S. Office Products. The residual will be U.S. Office
Products' pro rata share. Based upon financial data for the nine-month period
ended January 24, 1998, the Company's pro rata share of Shared Liabilities would
have been 8.2%, the other Spin-Off Companies' pro rata share would have
aggregated 26.2% and U.S. Office Products' pro rata share would have been 65.6%.
As to any Default Liability, each non-defaulting company's pro rata share will
be increased to include a portion of the defaulting company's pro rata share.
The aggregate of the Shared Liabilities and Default Liability for which any
Spin-Off Company may be liable is, however, limited to $1.75 million.
The Distribution Agreement provides that each party will indemnify and hold
all of the other parties harmless from any and all liabilities for which the
former assumed liability under the Distribution Agreement. All indemnity
payments will be subject to adjustment upward or downward to take account of tax
costs or tax benefits as well as insurance proceeds. If there are any claims
made under U.S. Office Products' existing insurance policies, the amount of any
deductible or retention will be allocated by U.S. Office Products among the
claimants in a fair and reasonable manner.
OTHER PROVISIONS. The Distribution Agreement will have other customary
provisions including provisions relating to mutual release, access to
information, witness services, confidentiality and alternative dispute
resolution.
TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT
The Tax Allocation Agreement provides that each Spin-Off Company will be
responsible for its respective share of U.S. Office Products' consolidated tax
liability for the years that each such corporation was included in U.S. Office
Products' consolidated U.S. federal income tax return. The Tax Allocation
Agreement also provides for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.
The Tax Allocation Agreement further provides that the Spin-Off Companies
will jointly and severally indemnify U.S. Office Products for any Distribution
Taxes assessed against U.S. Office Products if an Adverse Tax Act of any of the
Spin-Off Companies materially contributes to a final determination that any or
all of the Distributions are taxable. Aztec is also entering into the Tax
Indemnification Agreement with the other Spin-Off Companies under which the
Spin-Off Company that is responsible for the Adverse Tax Act will indemnify the
other Spin-Off Companies for any liability to U.S. Office Products under the Tax
Allocation Agreement. As a consequence, Aztec will be liable for any
Distribution Taxes resulting from any Adverse Tax Act by Aztec and liable
(subject to indemnification by the other Spin-Off Companies) for any
Distribution Taxes resulting from an Adverse Tax Act by the other Spin-Off
Companies. If there is a final determination that any or all of the
Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
each of U.S. Office Products and the Spin-Off Companies will be liable for its
pro rata portion of such Distribution Taxes based on the value of each company's
common stock after the Distributions. As a result, Aztec could become liable for
a pro rata portion of any Distribution Taxes with respect to not only the
Technology Distribution but also any other Distribution. The liabilities of
Aztec under the Tax Allocation Agreement and the Tax Indemnification Agreement
are not subject to any limits.
28
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
In connection with the Distributions, U.S. Office Products is entering into
the Employee Benefits Agreement with Aztec and the other Spin-Off Companies to
provide for an orderly transition of benefits coverage between U.S. Office
Products and the Spin-Off Companies. Pursuant to this agreement, the respective
Spin-Off Companies will retain or assume liability for employment-related claims
and severance for persons currently or previously employed by the respective
Spin-Off Companies and their subsidiaries, while U.S. Office Products and its
post-Distribution subsidiaries will retain or assume responsibility for their
current and previous employees. The Employee Benefits Agreement reflects U.S.
Office Products' expectation that each of the Spin-Off Companies will establish
401(k) plans for their respective employees effective as of, or shortly after,
the Distribution Date, and that U.S. Office Products will transfer 401(k)
accounts to those plans as soon as practicable. The agreement also provides for
spinning off of portions of the U.S. Office Products' cafeteria plan that relate
to employees of the Spin-Off Companies (and their subsidiaries) and having those
spun-off plans assume responsibilities for claims submitted on or after the
Distribution Date.
DIVIDEND POLICY
Aztec does not anticipate declaring and paying cash dividends on Aztec
Common Stock in the foreseeable future. The decision whether to apply any
legally available funds to the payment of dividends on Aztec Common Stock will
be made by the Aztec Board of Directors from time to time in the exercise of its
business judgment, taking into account Aztec's financial condition, results of
operations, existing and proposed commitments for use of Aztec's funds and other
relevant factors. Aztec's ability to pay dividends may be restricted from time
to time by financial covenants in its credit agreements.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Aztec as of January 24,
1998 (i) on an actual basis, (ii) on a pro forma basis to reflect the Technology
Distribution and the allocation of $5.0 million of debt by U.S. Office Products
as described in "The Spin-Offs From U.S. Office Products," and (iii) on a pro
forma, as adjusted basis to give effect to the Offering at an assumed initial
public offering price of $13.00 per share (which is equal to the midpoint of the
range set forth in the preliminary prospectus dated May 18, 1998 related to the
Offering) after deduction of estimated offering expenses and underwriting
discounts and commissions and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Position and Results of Operations," the
historical consolidated financial statements and the pro forma combined
financial statements of Aztec, and the related notes to each thereof, included
elsewhere in this Information Statement/Prospectus.
<TABLE>
<CAPTION>
JANUARY 24, 1998
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED(2)
---------- ----------- --------------
<S> <C> <C> <C>
(In thousands)
Short-term debt........................................................... $ 304 $ 304 $ 304
---------- ----------- --------------
---------- ----------- --------------
Long-term debt............................................................ $ 386 $ 4,696 $ 386
Long-term payable to U.S. Office Products................................. 9,957
Stockholder's equity:
Preferred Stock, $0.001 par value.....................................
1,000,000 shares authorized, no shares outstanding..................
Common Stock, $0.001 par value, 150,000,000 shares authorized, no
shares actual, 21,937,902 shares pro forma, 26,137,902 shares pro
forma, as adjusted (1).............................................. 22 26
Additional paid-in capital............................................ 80,796 130,070
Divisional equity..................................................... 80,818
Retained earnings..................................................... 9,301 6,969 6,969
---------- ----------- --------------
Total stockholders' equity.......................................... 90,119 87,787 137,065
---------- ----------- --------------
Total capitalization.............................................. $ 100,462 $ 92,483 $ 137,451
---------- ----------- --------------
---------- ----------- --------------
</TABLE>
- ------------------
(1) Excludes options to acquire shares of Aztec Common Stock to be reserved for
issuance upon exercise of options. See "Management--Replacement of
Outstanding U.S. Office Products Options" and "1998 Stock Incentive Plan."
(2) The net proceeds of the Offering are estimated to be $49.3 million ($56.9
million if the underwriters' overallotment option is exercised in full)
based on an assumed initial offering price of $13.00 per share. The net
proceeds will be used to repay $4.3 million of indebtedness to U.S. Office
Products, and for working capital and general corporate purposes, including
future acquisitions. Aztec expects that the initial public offering price in
the Offering will be determined after the close of markets on the date of
this Information Statement/Prospectus. There can be no assurance that the
initial public offering price will be set at that time, that the price will
be within the range set forth in the preliminary prospectus, or that the
Offering will be completed. Information regarding the initial public
offering price, and "as adjusted" pro forma financial statements based on
that price, will be set forth in the final prospectus related to the
Offering, which will be publicly available within two business days after
the price is determined. See "Additional Information."
30
<PAGE>
SELECTED FINANCIAL DATA
The historical Selected Financial Data for the fiscal years ended March 31,
1995 and 1996 and April 26, 1997 (except pro forma amounts) have been derived
from Aztec's consolidated financial statements that have been audited and are
included elsewhere in this Information Statement/Prospectus. The historical
Selected Financial Data for the fiscal years ended March 31, 1993 and 1994 have
been derived from unaudited consolidated financial statements that are not
included elsewhere in this Information Statement/Prospectus or incorporated
herein by reference. The Selected Financial Data for the nine months ended
January 25, 1997 and January 24, 1998 (except pro forma amounts) have been
derived from unaudited consolidated financial statements that appear elsewhere
in this Information Statement/Prospectus. These unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for the periods presented.
The pro forma financial data gives effect, as applicable, to the Technology
Distribution and the purchase acquisitions completed by Aztec between May 1,
1996 and May 1, 1998 as if all such transactions had been consummated on May 1,
1996. In addition, the pro forma information is based on available information
and certain assumptions and adjustments.
The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto, the pro
forma financial information, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Information Statement/Prospectus.
31
<PAGE>
SELECTED FINANCIAL DATA (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED
APRIL 26, ------------------------
--------------------
FISCAL YEAR ENDED MARCH 31, PRO
------------------------------------------ FORMA JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 (2) 1997 1998
--------- --------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $ 46,152 $ 58,979 $ 88,999 $ 114,055 $ 136,278 $ 228,912 $ 101,295 $ 142,512
Cost of revenues................. 34,121 43,630 65,858 84,113 102,129 169,150 76,049 107,895
--------- --------- --------- --------- --------- --------- ----------- -----------
Gross profit..................... 12,031 15,349 23,141 29,942 34,149 59,762 25,246 34,617
Selling, general and
administrative expenses........ 10,139 11,218 14,942 20,510 21,525 39,134 15,637 22,951
Goodwill amortization expense.... 1,651 414
Non-recurring acquisition
costs.......................... 2,274 2,274 1,906
--------- --------- --------- --------- --------- --------- ----------- -----------
Operating income................. 1,892 4,131 8,199 9,432 10,350 16,703 7,703 11,252
Interest expense................. 412 297 331 420 324 400 310 169
Interest income.................. (75) (54) (118) (416) (168) (169) (167)
Other (income) expense........... (77) (75) (111) (964) (53) (579) 234 (14)
--------- --------- --------- --------- --------- --------- ----------- -----------
Income before provision for
income taxes................... 1,632 3,963 8,097 10,392 10,247 16,882 7,328 11,264
Provision for income taxes (4)... 210 232 401 750 3,524 7,428 1,771 4,692
--------- --------- --------- --------- --------- --------- ----------- -----------
Net income....................... $ 1,422 $ 3,731 $ 7,696 $ 9,642 $ 6,572 $ 9,454 $ 5,557 $ 6,572
--------- --------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- --------- ----------- -----------
Per share amounts:
Basic.......................... $ 0.16 $ 0.42 $ 0.84 $ 0.71 $ 0.37 $ 0.43 $ 0.32 $ 0.29
--------- --------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- --------- ----------- -----------
Diluted........................ $ 0.16 $ 0.42 $ 0.84 $ 0.71 $ 0.36 $ 0.43 $ 0.32 $ 0.28
--------- --------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- --------- ----------- -----------
Weighted average shares
outstanding:
Basic.......................... 8,852 8,852 9,112 13,509 18,005 21,938(5) 17,196 22,952
Diluted........................ 8,852 8,852 9,141 13,675 18,352 21,938(5) 17,565 23,437
<CAPTION>
JANUARY 24, 1998
-----------------------------------
MARCH 31, PRO FORMA
------------------------------- APRIL 30, APRIL 26, PRO FORMA AS ADJUSTED
1993 1994 1995 1996 1997 ACTUAL (7) (3)
--------- --------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 4,253 $ 5,623 $ 10,669 $ 8,664 $ 13,268 $ 31,848
Total assets................................................ 14,890 16,423 28,106 33,945 37,311 142,347
Long-term debt, less current portion........................ 461 461 1,524 799 167 386
Long-term payable to U.S. Office Products................... 4,786 9,957
Stockholder's equity........................................ 5,382 6,745 11,062 10,497 11,626 90,119
<CAPTION>
PRO PRO PRO FORMA
FORMA FORMA AS ADJUSTED
JANUARY 25, JANUARY 24, JANUARY 24,
1997 (2) 1998 (2) 1998(3)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $ 172,518 $ 191,074 $ 191,074
Cost of revenues................. 127,875 141,631 141,631
----------- ----------- -----------
Gross profit..................... 44,643 49,443 49,443
Selling, general and
administrative expenses........ 28,876 31,235 31,235
Goodwill amortization expense.... 1,239 1,239 1,239
Non-recurring acquisition
costs.......................... 1,906
----------- ----------- -----------
Operating income................. 12,622 16,969 16,969
Interest expense................. 300 300 41
Interest income..................
Other (income) expense........... (232) (252) (252)
----------- ----------- -----------
Income before provision for
income taxes................... 12,554 16,921 17,180
Provision for income taxes (4)... 5,524 7,445 7,559
----------- ----------- -----------
Net income....................... $ 7,030 $ 9,476 $ 9,621
----------- ----------- -----------
----------- ----------- -----------
Per share amounts:
Basic.......................... $ 0.32 $ 0.43 $ 0.43
----------- ----------- -----------
----------- ----------- -----------
Diluted........................ $ 0.32 $ 0.43 $ 0.43
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares
outstanding:
Basic.......................... 21,938(5) 21,938(5) 22,305(6)
Diluted........................ 21,938(4) 21,938(4) 22,305(6)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 23,869 $ 68,837
Total assets................................................ 134,368 179,336
Long-term debt, less current portion........................ 4,696 386
Long-term payable to U.S. Office Products...................
Stockholder's equity........................................ 87,787 137,065
<CAPTION>
BALANCE SHEET DATA:
Working capital.............................................
Total assets................................................
Long-term debt, less current portion........................
Long-term payable to U.S. Office Products...................
Stockholder's equity........................................
</TABLE>
- ------------------
(1) The historical financial information of the Pooled Companies has been
combined on a historical cost basis in accordance with GAAP to present this
financial data as if the Pooled Companies had always been members of the
same operating group. The financial information of the Purchased Companies
is included from the dates of their respective acquisitions. The pro forma
financial data reflect acquisitions completed by Aztec through May 1, 1998.
See Note 4 of the Company's Notes to Consolidated Financial Statements for a
description of the number and accounting treatment of the acquisitions by
the Company.
(2) Gives effect to the Technology Distribution and the purchase acquisitions
completed by Aztec since May 1, 1996 as if all such transactions had been
consummated on May 1, 1996. The pro forma statement of income data are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be construed
as representative of future operating results.
(3) Adjusted to give effect to the sale by the Company of 4,200,000 shares of
Common Stock in the Offering (assuming an initial public offering price of
$13.00 per share, which is equal to the midpoint of the range set forth in
the preliminary prospectus dated May 18, 1998) after deducting underwriting
discounts and estimated offering expenses payable by Aztec and the use of
estimated net proceeds therefrom. Aztec expects that the initial public
offering price in the Offering will be determined after the close of markets
on the date of this Information Statement/Prospectus. There can be no
assurance that the initial public offering price will be set at that time,
that the price will be within the range set forth in the preliminary
prospectus, or that the Offering will be completed. Information regarding
the initial public offering price, and "as adjusted" pro forma financial
statements based on that price, will be set forth in the final prospectus
related to the Offering, which will be publicly available within two
business days after the price is determined. See "Additional Information."
(4) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
(5) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 24,
1998 and January 25, 1997, see Note 2(i) of Notes to Pro Forma Combined
Financial Statements included herein. The pro forma balance sheet data are
not necessarily indicative of the financial position that would have been
achieved had these events actually then occurred and should not be construed
as representative of future financial position.
(6) For calculation of the pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(k) of
Notes to Pro Forma Combined Financial Statements included herein.
(7) Gives effect to the Technology Distribution as if it had been made on
January 24, 1998. The pro forma balance sheet data are not necessarily
indicative of the financial position that would have been achieved had the
Technology Distribution actually then occurred and should not be construed
as representative of future financial position.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
that involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," "expect," and similar expressions are intended to
identify such forward-looking statements. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Conditions
and Results of Operations," and "Business," as well as those discussed elsewhere
in this Prospectus.
OVERVIEW
Aztec was initially formed in October 1996 with the acquisition of Bay State
by U.S. Office Products. Since that time, under the leadership of Aztec's
current Chairman and Chief Executive Officer, James E. Claypoole, nine
complementary regional IT solutions companies were acquired. These companies
are: (i) Aztec International; (ii) Compel; (iii) Digital Network Associates;
(iv) Entra; (v) Fortran; (vi) Mahon; (vii) Office Equipment Service; (viii)
Professional Computer Solutions; and (ix) Professional Network Services.
Aztec generates revenues principally from (i) fees for services rendered to
customers (including consulting and engineering services, systems and network
implementation services, software development and implementation services, IT
support and operational services, and telephony design and integration services)
and (ii) sales of products to customers within these business sectors (including
telephony systems and network and systems hardware and software).
Aztec's consolidated financial statements give retroactive effect to the
five business combinations accounted for under the pooling-of-interests method
during the period from October 1996 through April 1997 (the "Pooled Companies")
and include the results of five companies acquired during the nine months ended
January 24, 1998 in business combinations accounted for under the purchase
method (the "Purchased Companies") from their respective acquisition dates.
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results for years ending on March 31 and December 31.
Upon acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from March 31 and December 31 to conform to U.S. Office Products' fiscal year,
which ends on the last Saturday in April. In the following discussion, "fiscal
1995" and "fiscal 1996" refer to the Company's fiscal years ended March 31, 1995
and 1996, respectively.
The following discussion should be read in conjunction with Aztec's
consolidated financial statements and related notes thereto and pro forma
financial statements and related notes thereto appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the fiscal years ended March 31, 1995, 1996 and April 26, 1997 and for the nine
months ended January 25, 1997 and January 24, 1998, as well as for the fiscal
year ended April 26, 1997 and for the nine months ended January 25, 1997
33
<PAGE>
and January 24, 1998 on a pro forma basis reflecting the Technology Distribution
and the results of the Purchased Companies as if such transactions had occurred
on May 1, 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOR THE NINE MONTHS ENDED
-------------------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA
MARCH 31, MARCH 31, APRIL 26, APRIL 26, JANUARY 25, JANUARY 24, JANUARY 25,
1995 1996 1997 1997 1997 1998 1997
------------- ------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........... 74.0 73.7 74.9 73.9 75.1 75.7 74.1
----- ----- ----- ----- ----- ----- -----
Gross profit........... 26.0 26.3 25.1 26.1 24.9 24.3 25.9
Selling, general and
administrative
expenses................. 16.8 18.0 15.8 17.8 15.4 16.4 17.5
Non-recurring acquisition
costs.................... 1.7 1.0 1.9 1.1
----- ----- ----- ----- ----- ----- -----
Operating income....... 9.2 8.3 7.6 7.3 7.6 7.9 7.3
Interest (income) expense,
net...................... 0.2 0.1 0.2 0.1 0.2
Other income............... (0.1) (0.8) (0.3) 0.3 (0.2)
----- ----- ----- ----- ----- ----- -----
Income before provision for
income taxes............. 9.1 9.1 7.5 7.4 7.2 7.9 7.3
Provision for income
taxes.................... 0.5 0.6 2.6 3.3 1.7 3.3 3.2
----- ----- ----- ----- ----- ----- -----
Net income................. 8.6% 8.5% 4.9% 4.1% 5.5% 4.6% 4.1%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
PRO FORMA
JANUARY 24,
1998
-------------
<S> <C>
Revenues................... 100.0%
Cost of revenues........... 74.1
-----
Gross profit........... 25.9
Selling, general and
administrative
expenses................. 17.0
Non-recurring acquisition
costs....................
-----
Operating income....... 8.9
Interest (income) expense,
net...................... 0.2
Other income............... (0.2)
-----
Income before provision for
income taxes............. 8.9
Provision for income
taxes.................... 3.9
-----
Net income................. 5.0%
-----
-----
</TABLE>
COMPARISON OF THE NINE MONTHS ENDED JANUARY 24, 1998 TO THE NINE MONTHS ENDED
JANUARY 25, 1997
REVENUES. Consolidated revenues increased 40.7%, from $101.3 million for
the nine months ended January 25, 1997, to $142.5 million for the nine months
ended January 24, 1998. This increase was primarily due to sales to new accounts
and increased sales to existing customers in the consulting and engineering
services sector, the systems and network integration sector, and the telephony
integration services sector of the business resulting from the expansion of
Aztec's customer base. Revenues in these sectors have a higher concentration of
service related revenue. In addition, revenues of Purchased Companies acquired
at the end of the nine months ended January 24, 1998 contributed to the increase
in revenues. The majority of the purchased Companies' revenues are
service-related.
GROSS PROFIT. Gross profit increased 37.1%, from $25.2 million, or 24.9% of
revenues, for the nine months ended January 25, 1997 to $34.6 million, or 24.3%
of revenues, for the nine months ended January 24, 1998. This decrease in gross
profit as a percentage of revenues was due to a higher concentration of business
in the systems and network design and implementation services sector which has
inherently lower gross margin percentages than the other sectors.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 49.4%, from $15.6 million, or 15.4% of revenues, for the nine
months ended January 25, 1997 to $23.4 million, or 16.4% of revenues, for the
nine months ended January 24, 1998. The increase in selling, general and
administrative expenses as a percentage of revenues was primarily due to
increases in corporate overhead at one of the operating companies of Aztec.
NON-RECURRING ACQUISITION COSTS. Aztec incurred non-recurring acquisition
costs of $1.9 million for the nine months ended January 25, 1997 in conjunction
with three business combinations accounted for under the pooling-of-interests
method. These non-recurring acquisition costs included accounting, legal and
investment banking fees, real estate and environmental assessments and
appraisals and various regulatory fees. Generally accepted accounting principles
("GAAP") require Aztec to expense all acquisition costs (both those paid by
Aztec and those paid by the sellers of the acquired companies) related to
business combinations accounted for under the pooling-of-interests method. In
accordance with generally accepted accounting principles, the Company will be
unable to utilize the pooling-of-interests method to account for acquisitions
for a period of two years following the completion of the Strategic
Restructuring Plan. During this period, the Company will not reflect any
non-recurring acquisition costs in its results of
34
<PAGE>
operations, as all costs incurred of this nature would be related to
acquisitions accounted for under the purchase method and would, therefore, be
capitalized as a portion of the purchase consideration.
INTEREST EXPENSE. Interest expense, net of interest income, decreased
$139,000, from net interest expense of $141,000 for the nine months ended
January 25, 1997, to $2,000 for the nine months ended January 24, 1998. The
decrease was due primarily to the Company's pay down of debt due to an increase
in cash flows from operations during the nine months ended January 24, 1998.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from $1.8
million for the nine months ended January 25, 1997 to $4.7 million for the nine
months ended January 24, 1998, reflecting effective income tax rates of 24.2%
and 41.7%, respectively. The low effective income tax rate for the nine months
ended January 25, 1997, compared to the federal statutory rate of 35.0% plus
state taxes, is the result of certain companies included in the results, which
were acquired in business combinations accounted for under the
pooling-of-interests method, not being subject to federal income taxes on a
corporate level as they had elected to be treated as subchapter S corporations
prior to being acquired by Aztec.
COMPARISON OF FISCAL YEAR ENDED APRIL 26, 1997 TO FISCAL YEAR ENDED MARCH 31,
1996
REVENUES. Consolidated revenues increased 19.5%, from $114.1 million in
fiscal 1996 to $136.3 million in fiscal 1997. This increase was primarily due to
increased sales to existing customers and sales to new customers in the
consulting and engineering services sector, the systems and network integration
sector, and the software development and integration services sector of the
business. Revenues in these sectors have a higher concentration of service
related revenues.
GROSS PROFIT. Gross profit increased 14.1%, from $29.9 million, or 26.3% of
revenues, in fiscal 1996 to $34.1 million, or 25.1% of revenues, in fiscal 1997.
The decrease in gross profit as a percentage of revenues was due primarily to a
higher concentration of business in the systems and network design and
implementation services sector which has inherently lower gross margin
percentages than the other sectors.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 4.9%, from $20.5 million, or 18.0% of revenues, in fiscal
1996 to $21.5 million, or 15.8% of revenues, in fiscal 1997. The decrease in
selling, general and administrative expenses as a percentage of revenues was due
primarily to operating efficiencies employed at Aztec and Aztec's ability to
increase its revenue base without a corresponding increase in fixed operating
costs.
NON-RECURRING ACQUISITION COSTS. Aztec incurred non-recurring acquisition
costs of $2.3 million in fiscal 1997 in conjunction with five business
combinations accounted for under the pooling-of-interests method.
INTEREST EXPENSE. Interest expense, net of interest income, increased
$152,000, from $4,000 in fiscal 1996 to $156,000 in fiscal 1997. The net
increase was due primarily to the reduction in interest income related to
short-term investments at one of the Pooled Companies. The proceeds from the
short-term investments were used to fund other working capital needs.
OTHER INCOME. Other income decreased $911,000, from $964,000 in fiscal 1996
to $53,000 in fiscal 1997. In fiscal 1996, other income consisted primarily of a
gain on the sale of a non-core line of business at one of the Pooled Companies
prior to its acquisition by Aztec.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from
$750,000 in fiscal 1996 to $3.5 million in fiscal 1997, reflecting effective
income tax rates of 7.2% and 34.4%, respectively. The low effective income tax
rate for fiscal 1996, compared to the federal statutory rate of 35.0% plus state
taxes, is the result of certain companies included in the results, which were
acquired in business combinations accounted for under the pooling-of-interests
method, not being subject to federal income taxes on a
35
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corporate level as they had elected to be treated as subchapter S corporations
prior to being acquired by Aztec.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1996 TO FISCAL YEAR ENDED MARCH 31,
1995
REVENUES. Consolidated revenues increased 28.2%, from $89.0 million in
fiscal 1995, to $114.1 million in fiscal 1996. This increase was primarily due
to increased sales to existing customers and sales to new customers in the
consulting and engineering services sector, the systems and network integration
sector, and the software development, and integration services sector of the
business resulting from the expansion of Aztec's customer base. Revenues in
these sectors have a higher concentration of service related revenue.
GROSS PROFIT. Gross profit increased 29.4%, from $23.1 million, or 26.0% of
revenues, in fiscal 1995 to $29.9 million, or 26.3% of revenues, in fiscal 1996.
The increase in gross profit as a percentage of revenues was due primarily to
increased sales in the consulting and engineering services sector and the
telephony integration services sector of Aztec's business.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 37.3%, from $14.9 million, or 16.8% of revenues, in fiscal
1995 to $20.5 million, or 18.0% of revenues, in fiscal 1996. The increase in
selling, general and administrative expenses as a percentage of revenues was due
primarily to bonuses that were paid to the shareholders of one of the Pooled
Companies after the completion of the sale of a non-core line of business and
bonuses paid to the shareholders of other Pooled Companies for subchapter S
corporation tax payments.
INTEREST EXPENSE. Interest expense, net of interest income, decreased
$209,000, from $213,000 in fiscal 1995 to $4,000 in fiscal 1996. The net
decrease was due primarily to an increase in interest income at one of the
Pooled Companies which invested excess cash from operations in short-term
investments.
OTHER INCOME. Other income increased $853,000, from $111,000 in fiscal
1995, to $964,000 in fiscal 1996. In fiscal 1996, other income consisted
primarily of a gain on the sale of a non-core line of business at one of the
Pooled Companies prior to its acquisition by Aztec.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from
$401,000 in fiscal 1995 to $750,000 in fiscal 1996, reflecting effective income
tax rates of 5.0% and 7.2%, respectively. The low effective income tax rates for
fiscal 1995 and fiscal 1996, compared to the federal statutory rate of 35.0%
plus state taxes, are the result of certain companies included in the results,
which were acquired in business combinations accounted for under the
pooling-of-interests method, not being subject to federal income taxes on a
corporate level as they had elected to be treated as subchapter S corporations
prior to being acquired by Aztec.
COMPARISON OF PRO FORMA NINE MONTHS ENDED JANUARY 24, 1998 TO NINE MONTHS ENDED
JANUARY 25, 1997
The pro forma combined financial data discussed herein does not purport to
represent the results that the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
applicable periods, as assumed, or the future results of the Company.
REVENUES. Pro forma revenues increased 10.8%, from $172.5 million for the
nine months ended January 25, 1997 to $191.1 million for the nine months ended
January 24, 1998. This increase was primarily due to increased sales to existing
customers and sales to new customers in the consulting and engineering services
sector, the systems and network integration sector, and the telephony
integration services sector of the business. Revenues in these sectors have a
higher concentration of service related revenue.
GROSS PROFIT. Pro forma gross profit increased 10.8%, from $44.6 million,
or 25.9% of pro forma revenues, for the nine months ended January 25, 1997, to
$49.4 million, or 25.9% of pro forma revenues for the nine months ended January
24, 1998.
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SELLING, GENERAL AND ADMINISTRATIVE. Pro forma selling, general and
administrative expenses increased 7.8%, from $30.1 million, or 17.5% of pro
forma revenues, for the nine months ended January 25, 1997, to $32.5 million, or
17.0% of pro forma revenues for the nine months ended January 24, 1998. This
decrease in selling, general and administrative expenses as a percentage of
revenues was primarily due to the Company's revenues increasing at a faster rate
than the selling, general and administrative expenses which were predominantly
fixed in nature during the nine months ended January 24, 1998.
PROVISION FOR INCOME TAXES. Provision for income taxes has been estimated
using an effective income tax rate of 44.0%. The high effective tax rate,
compared to the federal statutory rate of 35.0%, was primarily due to
nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
At January 24, 1998, Aztec had cash of $117,000 and working capital of $31.8
million. Aztec's capitalization, defined as the sum of long-term debt, long-term
payables to U.S. Office Products and stockholder's equity, at January 24, 1998
was approximately $100.5 million. On a pro forma basis at January 24, 1998,
Aztec had working capital of $23.9 million and capitalization of $92.5 million.
During the nine months ended January 24, 1998, net cash provided by
operating activities was $7.3 million. Net cash used in investing activities was
$1.4 million, which consisted primarily of $1.3 used for additions of property,
plant, and equipment. Net cash used in financing activities was $6.9 million,
including $1.5 million that was paid to U.S. Office Products as part of U.S.
Office Products' centralized cash management process, $1.3 million in dividends
paid by one of the Pooled Companies and the repayment of $2.1 million in
short-term debt. After the Technology Distribution such cash paid to U.S. Office
Products would be retained but Aztec will need to use its own cash resources for
acquisitions and other cash requirements.
During the nine months ended January 25, 1997, net cash provided by
operating activities was $5.3 million. Net cash used in investing activities was
$3.3 million, which consisted primarily of a tax deposit at one of the Pooled
Companies of $1.3 million and $1.2 used to pay non-recurring acquisition costs.
Net cash used in financing activities was $5.3 million, which resulted primarily
from $4.1 million in dividends paid by certain Pooled Companies.
During fiscal 1997, net cash provided by operating activities was $6.3
million. Net cash used in investing activities was $3.9 million, which consisted
primarily of $1.8 million in payments of non-recurring acquisition costs in
conjunction with the acquisitions of certain Pooled Companies and a tax deposit
at one of the Pooled Companies of $1.3 million. Net cash used in financing
activities of $6.8 million resulted from the repayment of $5.5 million in
short-term debt and $4.3 million in dividends paid by certain of the Pooled
Companies. These cash outflows were partially offset by $3.6 million in advances
from U.S. Office Products.
During fiscal 1996, net cash provided by operating activities was $4.3
million. Net cash provided by investing activities was $306,000 consisting of
$1.3 million in proceeds from the sale of a non-core line of business at one of
the Pooled Companies which was partially offset by $552,000 used for additions
to property and equipment and $421,000 paid in deposits. Net cash used in
financing activities was $3.0 million which resulted from $7.4 million in
dividends paid by certain of the Pooled Companies, partially offset by
borrowings of $3.7 million and $1.2 million in short-term and long-term debt,
respectively.
During fiscal 1995, net cash provided by operating activities was $6.1
million. Net cash used in investing activities was $959,000, which primarily
resulted from $888,000 used in additions to property and equipment. Net cash
used in financing activities was $1.7 million, which primarily consisted of $3.1
million in dividends paid by certain of the Pooled Companies partially offset by
$2.1 million in additional long-term borrowings.
37
<PAGE>
Aztec's anticipated capital expenditures budget for the next twelve months
is approximately $4.0 million. The largest items include $1.5 million for Year
2000 compliance, and other amounts for infrastructure improvements (including
computer equipment and service vehicles).
The Distribution Agreement with U.S. Office Products calls for the
allocation of $5.0 million of debt by U.S. Office Products resulting in
incremental debt of $2.3 million at January 24, 1998, which will be reflected in
the financial statements as a reduction in stockholder's equity. Aztec has
entered into a commitment letter with BankBoston, N.A. for the $200 million
Proposed Credit Facility. The commitment is conditioned on, among other things,
the absence of material adverse changes to Aztec's business, and the Proposed
Credit Facility itself will be conditioned on, among other things, the
satisfactory completion of due diligence, Aztec having a satisfactory capital
and corporate structure, and the negotiation, execution, and delivery of
satisfactory documentation. There can be no assurance that these conditions will
be satisfied. On closing of the Proposed Credit Facility, which is expected to
occur on the earlier of 75 days following the Spin-Off or August 15, 1998, Aztec
will have access to the full $200 million amount; as of June 9, Aztec will have
access to an interim unsecured $15 million working capital line of credit. The
Proposed Credit Facility will mature five years from the closing date of the
Proposed Credit Facility; will be secured by all material assets of Aztec; and
will be subject to terms and conditions customary for facilities of this kind,
including certain financial covenants. Interest rate options will be available
to Aztec depending on the satisfaction of certain specified financial ratios.
As a result of the provisions of Section 355 of the Internal Revenue Code,
the Company may be subject to constraints in its ability to issue additional
shares of Common Stock in certain transactions for two years following the date
of the Technology Distribution. In particular, if 50% or more, by vote or value,
of the capital stock of Aztec is acquired by one or more persons acting pursuant
to a plan or series of transactions that includes the Technology Distribution,
Aztec will suffer significant tax liability. Aztec will evaluate any significant
future issuance of capital stock to avoid the imposition of such tax liability.
See "Risk Factors--Possible Limitations on Issuance of Common Stock."
On March 6, 1998, the Company filed a Registration Statement with the SEC
for the issuance of Common Stock in an underwritten public offering that is
expected to close prior to or concurrent with the Aztec Distribution. The public
offering is expected to be for 4,200,000 shares (plus 630,000 shares subject to
the underwriters' option to purchase shares to cover over-allotments). A
preliminary prospectus dated May 18, 1998 estimated that the initial public
offering price will be between $12.00 and $14.00 per share. Aztec expects that
the initial public offering price in the Offering will be determined after the
close of markets on the date of this Information Statement/Prospectus. There can
be no assurance that the initial public offering price will be set at that time,
that the price will be within the range set forth in the preliminary prospectus,
or that the Offering will be completed. Information regarding the initial public
offering price, and "as adjusted" pro forma financial statements based on that
price, will be set forth in the final prospectus related to the Offering, which
will be publicly available within two business days after the price is
determined. See "Additional Information." The Company anticipates that its
current cash on hand, cash flow from operations, the net proceeds from the
Offering and additional financing available under the Credit Facility will be
sufficient to meet the Company's liquidity requirements for its operations
through the end of fiscal 1999. However, the Company intends to pursue
acquisitions which are expected to be funded through a combination of cash and
shares of Common Stock. There can be no assurances that additional sources of
financing will not be required during the next 12 months or thereafter.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company has experienced and may in the future continue to experience
fluctuations in its quarterly operating results. Factors that may cause the
Company's quarterly operating results to vary include the number of active
client projects, the requirements of client projects, the termination of major
client projects, the loss of major clients, the timing of new client
engagements, and the timing of personnel cost increases. Certain of these
factors may also affect the Company's personnel utilization rates which may
cause further variation in quarterly operating results. The timing of revenues
is difficult to forecast
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<PAGE>
because the Company's sales cycle is relatively long and the Company's services
are impacted by both the financial condition and management decisions of its
clients and general economic conditions. Because a high percentage of the
Company's expenses are relatively fixed at the beginning of any period and the
Company's general policy is to not adjust its staffing levels based upon what it
views as short-term circumstances, a variation in the timing of the initiation
or the completion of client assignments, particularly at or near the end of any
quarter, can cause significant variations in operating results from quarter to
quarter and could result in losses for any particular period. In addition, many
of the Company's engagements are, and may be in the future, terminable by its
clients without penalty. A termination of a major project could require the
Company to maintain under-utilized employees, resulting in a higher than
expected percentage of unassigned professionals, or to terminate the employment
of excess personnel. Due to all of the foregoing factors, there can be no
assurance that the Company's results of operations will not be below the
expectations of investors for any given fiscal period.
The following table sets forth certain unaudited quarterly financial data
for fiscal 1996, fiscal 1997 and the three fiscal quarters ended January 24,
1998 (in thousands). The information has been derived from unaudited
consolidated financial statements that, in the opinion of management, reflect
adjustments consisting only of normal recurring accruals necessary for a fair
presentation of such quarterly information.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.............................................................. $ 30,536 $ 27,653 $ 27,173 $ 28,693
Gross profit.......................................................... 9,490 7,462 6,249 6,741
Operating income (loss)............................................... 5,296 3,036 1,222 (122)
Net income............................................................ 5,315 2,936 1,103 288
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.............................................................. $ 34,263 $ 31,898 $ 35,134 $ 34,983
Gross profit.......................................................... 7,982 7,608 9,656 8,903
Operating income (1).................................................. 2,695 1,779 3,229 2,647
Net income............................................................ 2,617 1,315 1,625 1,166
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING APRIL 25,
1998
-------------------------------
FIRST SECOND THIRD
--------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.............................................................. $ 42,730 $ 36,875 $ 62,907
Gross profit.......................................................... 9,047 9,718 15,852
Operating income...................................................... 2,749 3,687 4,816
Net income............................................................ 1,636 2,233 2,703
</TABLE>
- ------------------
(1) Reflects a one-time charge of $1,105, $801, and $368 for the second, third,
and fourth quarters, respectively, for non-recurring acquisition costs.
INFLATION
Aztec does not believe that inflation has had a material impact on its
results of operations during fiscal 1995, fiscal 1996 or fiscal 1997.
NEW ACCOUNTING PRONOUNCEMENT
REPORTING COMPREHENSIVE INCOME. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Aztec intends to adopt SFAS No.
130 in the fiscal year ended April 24, 1999.
39
<PAGE>
YEAR 2000 ISSUE
Many existing computer programs were designed and developed without
considering the impact of the upcoming change in the century and consequently
use only two digits to identify a year in the date field. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000 (the "Year 2000 Issue"). The Company has reviewed the potential impact of
the Year 2000 Issue on its business, operations and financial condition and has
concluded that it will not be material.
40
<PAGE>
BUSINESS
The following discussion of the Company's business contains forward-looking
statements that involve risks and uncertainties. When used herein, the words
"anticipate," "believe," "estimate," "expect," and similar expressions are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors," "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," and "Business," as well as those
discussed elsewhere in this Information Statement/Prospectus.
OVERVIEW
Aztec is a single-source provider of a broad range of IT business solutions.
Aztec currently consists of ten companies who have been in business for an
average of over 15 years, with a history of superior client service. These
companies offer complementary IT solutions, which allow Aztec to be a "one-stop"
IT solutions provider in the Northeast region of the United States while
providing personalized services to its clients on a regional and local basis.
Aztec's clients include middle market and Fortune 1000 companies in a wide range
of industries (including communications, health care, financial services,
government, manufacturing, pharmaceuticals, professional services, and
technology). In 1997, Aztec, which employs over 1,000 people (approximately 65%
of whom are technical professionals), provided services to over 2,000 customers.
For the fiscal year ended April 26, 1997, Aztec had revenues of $136.3 million
and net income of $6.7 million. Over the same period of time and taking into
account all purchase acquisitions since May 1, 1996, pro forma revenues would
have been $228.9 million and pro forma net income would have been $9.5 million.
Aztec's broad range of complementary IT business solutions includes: (i)
consulting and engineering services; (ii) systems and network design and
implementation services; (iii) software development and implementation services;
(iv) IT support and operational services; and (v) telephony design and
integration services. Aztec is currently providing this broad range of services
in the Northeast region of the United States, and certain of these services in
other regions of the United States. Aztec intends to extend its comprehensive
services offerings to the other regions of the United States. Aztec is dedicated
to delivering IT services and support for all the major technology needs of its
clients, which include a variety of operating systems (NT, Unix, VMS, Netware,
SunOS, Digital Open VMS, and OS/2) on a variety of hardware platforms (Intel,
Sun, HP, and Digital). In addition, Aztec supports its clients' hardware and
software needs related to the World Wide Web and high-end telephony systems.
Aztec's objective is to service its clients' strategic business needs by
becoming their sole IT solutions provider. Aztec intends to grow through a
combination of targeted strategic acquisitions and internal growth. Aztec's
acquisition strategy is to extend its range of services to the regions outside
of the Northeast by acquiring existing, profitable businesses, rather than
start-up operations. Aztec's internal growth strategies include (i) capitalizing
on existing cross-selling opportunities and (ii) expanding its IT solutions
offerings. Aztec plans to encourage and manage cross-selling through a
company-developed proprietary software communication tool that will permit it to
review and manage sales leads generated at any level of Aztec's operations,
reinforced by compensation incentives.
Aztec was initially formed in October 1996 with the acquisition of Bay State
by U.S. Office Products. Since that time, under the leadership of Aztec's
current Chairman and Chief Executive Officer, James E. Claypoole, nine
complementary regional IT solutions companies have been acquired. A brief
description of Aztec's constituent operating companies follows.
AZTEC INTERNATIONAL
Founded in 1983, Aztec International is a leading provider of cost-effective
service for telecommunications equipment. With facilities strategically
positioned across the United States, Aztec International is
41
<PAGE>
able to provide OEM rework, secondary telecommunications equipment sales, and
repair for key systems, telephone PBX, telephones and printed circuit boards.
Aztec International holds the distinction of being among the few organizations
in the tele-service industry that is trained for and has been awarded ISO-9002
Certification. Aztec International is headquartered in South Norwalk,
Connecticut, and as of December 31, 1997, had 91 employees.
BAY STATE COMPUTER GROUP
Founded in 1984, Bay State is a leading enterprise service provider,
offering solutions to both mid-size and large corporate entities. As a
full-service, multi-platform design and implementation company, Bay State
provides the engineering expertise to design, configure, implement, manage and
support a wide variety of enterprise IT environments. Bay State's areas of
expertise include strategic design and process re-engineering, Internet/intranet
development, IT infrastructure, connectivity and security services, performance
management, and engineering outsourcing for both short- and long-term technology
projects. Bay State is headquartered in Boston, Massachusetts and as of December
31, 1997, had 175 employees.
COMPEL CORPORATION
Founded in 1979, Compel designs and installs full-service communication
networks, providing a broad spectrum of solutions to handle data, voice, and
video. Using a staff of Registered Communications Distribution Designers, Compel
integrates fiber optics into customer networks. Compel's expertise ranges from
developing enterprise criteria, documenting topology, and providing
implementation to evaluating performance. Compel is headquartered in Silver
Springs, California, and as of December 31, 1997, had 321 employees.
DIGITAL NETWORK ASSOCIATES
Founded in 1986, Digital Network Associates designs, installs, and supports
complex enterprise IT solutions. Digital Network Associates' solutions encompass
strategic planning, network design, project management, training, customer
support, and engineering services. Digital Network Associates also provides
application development in client/server, wireless client/server, groupware
collaboration, and multimedia applications. Digital Network Associates is
headquartered in New York City, and as of December 31, 1997, had 45 employees.
ENTRA COMPUTER CORP.
Founded in 1984, Entra's professional programmers develop specialized,
integrated applications for a variety of vertical industries, integrating
software for customers using popular programming languages and database
software. Entra also has a large engineering staff who design and integrate
enterprises as well as a dedicated division of Computer Aided Design engineers,
and a team that provides training for operating systems and applications. Entra
is headquartered in Youngstown, Ohio, and as of December 31, 1997, had 49
employees.
FORTRAN
Founded in 1983 by telecommunications engineers, Fortran has experience with
the attributes of a wide variety of telecommunications systems, and uses this
experience to develop failsafe systems for specific client environments ranging
from simple turnkey systems to complex voice data communications systems.
Fortran designs and integrates telecommunications systems and solutions to meet
the individual needs and requirements of its clients. Fortran engineers have
expertise in Integrated Services Digital Networks ("ISDN"), and in integrating
LAN, data and voice communications, video conferencing, voicemail and voice
processing into the ISDN of the future. Fortran is headquartered in Newington,
Virginia, and as of December 31, 1997, had 58 employees.
42
<PAGE>
MAHON
Founded in 1979, Mahon develops turnkey data, voice and video integrated
solutions. Mahon designs, installs, and maintains enterprise, telephone/voice
processing systems, and video conferencing systems. Mahon maintains a large
staff of Registered Communications Distribution Designers who provide custom
solutions for complete voice, data and video infrastructures that scale to
individual customer requirements. Mahon also has expertise in telephony
applications, including automatic call distribution, unified messaging, and
interactive voice response. Mahon is headquartered in Boston, Massachusetts, and
as of December 31, 1997, had 97 employees.
OFFICE EQUIPMENT SERVICE
Founded in 1972, Office Equipment Service provides enterprise services,
including document management solutions and technical support. Office Equipment
Service provides consultations to evaluate customer needs using a variety of
diagnostic methods and tools, ranging from user surveys to sophisticated
enterprise-monitoring devices that pinpoint areas for improvement. Office
Equipment Service is headquartered in Memphis, Tennessee, and as of December 31,
1997, had 89 employees.
PROFESSIONAL COMPUTER SOLUTIONS
Founded in 1985, Professional Computer Solutions is a leading software
development and consulting firm specializing in groupware and messaging systems,
data warehousing, Web-based development, n-tier client/server, and application
rightsizing. Professional Computer Solutions provides failsafe solutions to
clients' business needs, delivering complete enterprise designs with application
development and post-implementation support to ensure that clients realize all
of the system's benefits. Professional Computer Solutions is headquartered in
Englewood, New Jersey, and as of December 31, 1997, had 80 employees.
PROFESSIONAL NETWORK SERVICES
Founded in 1989, Professional Network Services provides comprehensive
enterprise solutions and helps organizations evaluate constantly-changing
technologies. Professional Network Services designs infrastructure, defines
service level objectives, and develops appropriate enterprise management
practices to support service levels. Professional Network Services also provides
video-conferencing and technical support to customers. Professional Network
Services is headquartered in Trumbull, Connecticut, and as of December 31, 1997,
had 62 employees.
MARKET AND INDUSTRY OVERVIEW
Since the mid-1980's, dramatic changes have occurred in the delivery of IT
solutions to end users. With the development of the personal computer, computing
power has migrated from centralized mainframes using proprietary software
applications to decentralized, scalable architectures and Web-enabled systems
integrating personal computers, client/server networking technology, and
fourth-generation object-oriented programs. Attendant to this major expansion of
distributive data processing are corresponding cultural changes in the corporate
delivery of IT services. No longer is information processed, controlled, and
disseminated by a single central corporate data processing function. The arrival
of distributive data processing has reduced the extent to which IT manufacturers
directly relate to end users. The IT fulfillment process has shifted from
manufacturers to third-party IT providers such as Aztec.
Businesses increasingly turn to outside organizations such as Aztec for
efficient design, development, and implementation of IT systems. Based on
industry sources that Aztec believes are reliable, Aztec believes that the
United States market for outsourced IT services is expected to grow from
approximately $13 billion in 1996 to approximately $24 billion in 2001. Due in
part to the rapid pace of technological change coupled with the scarcity of
skilled IT professionals, business solutions frequently are too sophisticated
and complex for a company to undertake itself. Moreover, Aztec believes the cost
of
43
<PAGE>
developing complex business solutions in-house has generally exceeded the
internal resources of the business. In addition, the increased use of outside IT
solutions firms is being driven by competitive pressures requiring rapid
implementation of new systems and the adverse effects of selecting inappropriate
or outdated technology. Additionally, many companies have made a strategic
decision to focus on their core competencies, minimize their fixed costs, and
reduce their workforce, thereby preventing them from investing in large IT
staffs.
The business community increasingly demands multifunctional networks that
can simultaneously support any combination of voice, data, and video services
accessible from wireline and wireless terminal devices. For example,
telecommunications service providers are beginning to offer multifunctional
services, such as ISDN, which allows for the dynamic allocation of bandwidth
between any combination of voice, data, and video, and individual call routing.
Aztec believes that traditionally distinct telecommunications networks and data
networks increasingly will be built on the same technical platforms.
Data communication solutions have also become standard commodity solutions
where hubs and routers are now available to solve the complex problems of
enterprise-wide information flow. These products were developed by a multitude
of new small IT manufacturers. No longer do a few large computer manufacturers
have a stranglehold on data communication system configuration and deployment.
Today, an optimal IT business solution can be designed and implemented by small,
agile business solution providers who have the professional expertise to bring
together products and services from a multitude of vendors.
More recent technological developments have introduced applications that
capitalize on "cyberspace" and create additional opportunities for business
solution companies to provide: (i) programming and consulting services for
Web-enabled applications that allow them to be accessed by customers, employees,
and trading partners using low-cost Internet/intranet technology; (ii)
consulting and design services for Internet-specific products, such as
firewalls, Internet security systems, and network management; and (iii)
integrated voice and data systems that provide networks replacing existing
separate telephone systems and cable plants.
Demand for IT services has grown significantly and the nature of the IT
services industry has changed. Based on industry sources that Aztec believes are
reliable, Aztec believes that the domestic market for IT professional services
(consulting, systems integration, applications development, and outsourcing
services) was approximately $73 billion in 1996 and is estimated to grow to
approximately $148 billion by the year 2001. Based on industry sources that
Aztec believes are reliable, Aztec believes that consulting, development, and
integration markets are experiencing record growth, with revenue growth for the
top 20 consulting, development and integration companies averaging 25% between
1995 and 1996. Furthermore, the IT service industry is highly-fragmented, with a
small number of large national service providers and a large number of small and
medium-sized providers, typically regional in scope. Recently, the industry has
experienced an increase in consolidation activity that Aztec believes is driven
in part by corporate demands for single-source IT providers.
Aztec believes it is well positioned to capitalize on these developments by
providing focused IT expertise in a cost-effective manner to existing and
potential clients, and by identifying and acquiring complementary businesses in
this industry.
BUSINESS STRATEGY
Aztec's objective is to service its clients' strategic business needs by
becoming their sole IT solutions provider. By fostering a long-term relationship
with the customer and providing a superior level of service, Aztec will seek to
expand its current market presence and reputation. Aztec intends to grow through
a combination of targeted strategic acquisitions and internal growth.
44
<PAGE>
GROWTH BY ACQUISITION.
Aztec's acquisition strategy is to identify profitable, well-managed
companies that provide services that complement the services already provided by
Aztec, and facilitate Aztec's expansion throughout the United States. Aztec's
acquisition program will have as its goals the extension of the IT business
solutions offerings that it already has in place in the Northeast region of the
United States and the expansion of its cross-selling opportunities. Aztec will
seek to expand its geographic scope by acquiring existing, profitable
businesses, rather than through start-up operations. Given the highly fragmented
nature of the IT services and solutions industry, Aztec believes significant
acquisition opportunities exist. Aztec intends to retain the distinctive skills
of the companies it acquires so as to avoid diluting the focus and market
identity of such acquired companies.
In furtherance of its acquisition strategy, Aztec routinely reviews, and
conducts investigations of, potential acquisitions of technology solutions
businesses. When Aztec believes a favorable opportunity exists, it enters into
discussions with the owners of such businesses regarding the possibility of an
acquisition by Aztec. As of the date of this Prospectus, Aztec currently does
not have any agreements for pending acquisitions and no acquisitions are
probable.
INTERNAL GROWTH.
CAPITALIZING ON EXISTING CROSS-SELLING OPPORTUNITIES. Aztec's operating
companies are each regional IT solutions providers that provide complementary IT
solutions. Because each of these companies has extensive project management
experience and client relationships, each has familiarity with the needs of
their particular clients that can be shared with other operating companies.
Similarly, clients value having a "one-stop shopping" relationship with a
technology solutions provider who is familiar with their technical environment.
Accordingly, Aztec believes that its existing long-term client relationships
provide substantial cross-selling opportunities. Aztec plans to encourage and
manage cross-selling through a Company-developed proprietary software
communication tool that will permit it to review and manage sales leads
generated at any level of Aztec's operations, reinforced by compensation
incentives.
EXPANDING IT SOLUTIONS OFFERINGS. Aztec has historically derived a greater
portion of its revenues from IT projects involving consulting and engineering
services. Aztec plans to continue to focus on these services, which are
described below under "--The Aztec Solution, Consulting and Engineering
Services." Aztec has contractual strategic alliances with IBM, Sun Microsystems,
Hewlett Packard, Compaq, Digital, and over fifty other manufacturers of IT
equipment. As a result, Aztec can recommend the best IT business solutions for
its clients without being restricted by narrow product offerings, providing
Aztec the opportunity to grow its consulting and engineering business.
Aztec also believes that it has significant opportunities to expand its
software development and implementation services, which are described below
under "The Aztec Solution--Software Development and Implementation Services."
This business has historically accounted for a smaller portion of Aztec's
revenues, and Aztec believes that it has the expertise to extend these services
to other regions in the United States where the Company does not currently offer
them.
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THE AZTEC SOLUTION
Aztec offers its clients a single source for IT business solutions and
services. Aztec seeks to foster a relationship with the client that will allow
Aztec to become its clients' "one-stop shop" for total IT business solutions.
The five sectors of Aztec's business and the services provided within each
sector are:
CONSULTING AND ENGINEERING SERVICES
- Business process reengineering
- IT needs analysis
- Technology infrastructure planning and design
- Systems architecture development
- Decision support planning and analysis
- Year 2000 planning and consulting
- Solution design and development
Aztec's technical and sales professionals deliver these IT business
solutions through the client's chief information officer or chief financial
officer. In providing these consulting and engineering services, Aztec
establishes long-term relationships with its clients that it believes will offer
future opportunities to expand the level of service and support required to meet
clients' needs.
SYSTEMS AND NETWORK DESIGN AND IMPLEMENTATION SERVICES
- LAN and WAN client/server design and
integration
- Internet/intranet infrastructure design and integration
- Voice and data communication infrastructure
- Communication network solutions involving hubs, routers, and switches
- Capacity planning
- Network performance management
- Connectivity and security services
Aztec delivers enterprise-wide turnkey IT business solutions by combining
its business knowledge with technical expertise concerning hardware, software,
and support capabilities to achieve the client's goals. These solutions address
client needs for high bandwidth applications, from transaction processing to
Internet commerce.
Aztec designs, develops, and installs full application-ready, distributed
client/server computing platforms and integrates them into existing IT
infrastructures. Capabilities include project planning, technology integration
and installation that maximizes system performance and delivery of computing
solutions in the most cost-effective way, assuring flexible, open systems
capable of integrating into tomorrow's new technologies.
SOFTWARE DEVELOPMENT AND IMPLEMENTATION SERVICES
- Custom client/server software design and development
- Internet/intranet software solutions design
and development
- Customization of business software
- Data warehousing design and development
- Object-oriented design and development
- Reseller of leading fourth-generation
database tools and applications
- Reseller of document management and
imaging software
Aztec designs systems that allow groups of various sizes in multiple
locations to collaborate across business lines and functions. It uses data
warehousing tools and technology processes to give clients decision support
information, sales and marketing intelligence systems, and other strategic
knowledge tools. Aztec's Internet services help clients exploit the full
potential of information processing on both the global Internet and on corporate
intranets. Aztec is a certified reseller and supporter of products of the
leading software manufacturers, including Microsoft, Oracle, Sybase, and
Borland, incorporating the latest technology and techniques. Aztec emphasizes
keeping up with the rapid change of technology by
46
<PAGE>
employing highly-qualified strategists and technologists, forming alliances with
key tool and database vendors, participating in beta programs for new products,
and by participating in and attending major technical conferences.
IT SUPPORT AND OPERATIONAL SERVICES
- Outsourcing of IT professional services
- Outsourcing of IT product procurement
- Engineering and network management
services
- Facility infrastructure cabling and installation
- Warranty support
- Help desk support
- Hardware and software maintenance and
support
Aztec provides both short- and long-term temporary technical expertise to
address a wide range of network operation and project needs, including LAN and
WAN management, systems management, and system administration.
TELEPHONY DESIGN AND INTEGRATION SERVICES
- Design and integrate telecommunications systems
- Design and integrate ISDN networks
- Telephone PBX and key-system procurement and installation
- Voicemail systems installation
- Voice response units installation
- Warranty support
Aztec seeks to maintain current knowledge of the attributes of all
telecommunications systems, and to use this knowledge to develop systems for
specific client environments--from simple key systems to complex voice/data
communications systems.
Aztec recognizes the importance of global ISDN communication, and has the
ability to integrate LAN, data and voice communications, video conferencing,
voicemail and voice processing into the ISDN of the future.
47
<PAGE>
The following graphic shows the IT business solutions offered by each of
Aztec's ten operating companies: Aztec International, Bay State, Compel, Digital
Network Associates ("DNA"), Entra, Fortran, Mahon, Office Equipment Service
("OES"), Professional Computer Solutions ("PCSI") and Professional Network
Services, Inc. ("PNS"):
[LOGO]
OPERATIONS
DECENTRALIZED MANAGEMENT. Each of Aztec's operating companies currently
manages its own business on a decentralized basis, with management direction and
oversight provided by the Chairman and Chief Executive Officer of Aztec, the
Chief Operating Officer, the Executive Vice President and Chief Financial
Officer and with functional support from U.S. Office Products. Aztec intends to
continue to operate with a decentralized management structure that it believes
will enable it to deliver superior client service and a motivating environment
for its operating companies, and that will minimize corporate-level overhead.
Aztec anticipates that finance, accounting, legal, management information
systems, treasury, employee benefits, and certain purchasing arrangements will
be managed or provided on a centralized basis. In addition, Aztec's senior
management will be responsible for implementing the Company's internal growth
and acquisition strategies. In particular, senior management will be assigned
responsibility for expanding cross-selling opportunities among the operating
companies.
Each of the present operating companies and any subsequently acquired
businesses will manage the professional services and technical support of their
respective businesses in a manner consistent with their traditional local
practices and as dictated by client needs. Depending on its size and the
services it provides, each operating company will employ its own senior
technical and sales professionals, including project managers, engineers,
technicians and developers, marketing personnel, and recruiters and
administrative personnel. Aztec will seek to identify and implement
opportunities to consolidate overlapping
48
<PAGE>
functions and achieve cost savings, if consistent with the client-service
objectives of the operating companies. As Aztec grows through acquisitions,
especially into other geographic regions, it may consider establishing regional
divisions to consolidate and improve administrative support functions.
SALES AND MARKETING. Aztec will focus its sales and marketing efforts on
companies with complex computing and communications requirements located
throughout the United States. To develop its clients, who will be principally
the chief information officers and chief financial officers of corporations,
Aztec will use a combination of sales engineering and consulting sales services,
including trade shows, professional seminars and radio advertisements. As of
December 31, 1997, Aztec employed 133 sales people across the country.
RETENTION OF SKILLED TECHNICAL AND SALES PROFESSIONALS. Aztec believes that
it must be able to attract and retain skilled technical and sales professionals
to achieve its business goals. To maximize the long-term retention of these
professionals, Aztec intends to put in place an aggressive performance-based
employee retention program. The program is expected to include: stock options; a
professional education policy; a progressive human resources program; and other
benefits designed to enhance long-term employee retention.
COMPETITION
The IT solutions market includes a large number of participants, is subject
to rapid changes, and is highly competitive. The Company competes with, and
faces potential competition for client assignments and experienced personnel
from, a number of companies that have significantly greater financial, technical
and marketing resources, generate greater revenues than does the Company, and
have greater name recognition. The Company believes that the principal
competitive factors in the segment of the industry in which the Company competes
include scope of services, service delivery approach, technical and industry
expertise, perceived value, objectivity and results orientation. The Company
believes that its ability to compete also depends in part on a number of
competitive factors outside of its control, including the ability of its
competitors to hire, retain and motivate senior project managers, the price at
which others offer comparable services and the extent of its competitors'
responsiveness to customer needs. There can be no assurance that the Company
will be able to compete successfully with its competitors in the future.
Aztec's principal competitors include Lucent Technologies Inc., Bell
Atlantic Corporation, Sapient Corporation, Cambridge Technology Partners
(Massachusetts), Inc., Digital Equipment Corporation, and International Business
Machines Corporation.
LEGAL PROCEEDINGS
Aztec is involved from time to time in legal proceedings arising in the
ordinary course of business. There are currently no material legal proceedings
pending to which Aztec is a party or to which any of its property is subject.
EMPLOYEES
As of January 1, 1998, Aztec employed 1,067 persons, of whom approximately
692 were technical professionals. Most of Aztec's employees work in professional
(including sales), admistrative, and technical positions. 297 of Aztec's
employees are represented by a labor union or subject to a collective bargaining
agreement. Aztec believes that its employee relations are generally good.
PROPERTIES
Aztec's headquarters are located in Boston, Massachusetts. In addition to
its headquarters, Aztec leases office and warehouse space in a number of
locations across the United States. Aztec does not believe that any of these
locations are material to its operations. The leases expire at various times
between 1998 and 2004.
49
<PAGE>
MANAGEMENT
DIRECTORS, OFFICERS, AND KEY EMPLOYEES
Following the Offering, it is anticipated that the directors, officers, and
key employees of Aztec will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
James E. Claypoole.................... 64 Chairman, Chief Executive Officer and Director*
Ira Cohen............................. 44 Chief Operating Officer*
Douglas R. Johnson.................... 45 Executive Vice President and Chief Financial Officer*
Lawrence M. Howell(1)(2).............. 53 Director
Jonathan J. Ledecky................... 40 Director
Clifford Mitman, Jr.(1)(2)............ 59 Director
Benjamin Tandowski(2)................. 50 Director and President of Professional Computer Solutions
Phillip Arturi........................ 40 President of Professional Network Services
Richard G. Erickson................... 36 President of Digital Network Associates
Thomas J. Foley....................... 43 President of Bay State
Larry Glaser.......................... 38 President of Fortran
Kelby Knoedler........................ 47 President of Entra
James Mahon........................... 50 President of Mahon
Robert McClory........................ 53 President of Compel
Jack Meehan........................... 48 President of Aztec International
Darren Metz........................... 35 President of Office Equipment Service
</TABLE>
- ------------------
* Executive Officer
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
JAMES E. CLAYPOOLE has served as Chairman, Chief Executive Officer and
Director of Aztec since February 1998. He founded and has served as President of
Bay State Computer Group, an operating company of Aztec, since 1984 and as
Chairman of U.S. Office Products' Technology Solutions division since 1996. For
the past 15 years, Mr. Claypoole has served as a member of the board of
directors of the Digital Dealers Association and was its President from 1992 to
1994. He was Chairman of the Digital Dealers Association in 1995. Mr. Claypoole
has also served on a variety of manufacturers' councils.
IRA COHEN has served as Chief Operating Officer of Aztec since March 1998.
Since 1996, Mr. Cohen had worked as an independent consultant. Mr. Cohen founded
Copley Management Associates, a technology management consulting company, in
1979. In 1984, Mr. Cohen merged Copley Management Associates with DataTrend to
form Copley Systems, Inc. In 1993, after selling Copley Systems, Inc. (which had
grown from $2 million in annual revenue to $104 million in annual revenue over
the preceding nine years), Mr. Cohen was employed by CIC Systems as Chief
Operating Officer of its Copley Division from 1993 through 1996. Mr. Cohen's
non-compete agreement with CIC Systems has expired.
DOUGLAS R. JOHNSON has served as Executive Vice President and Chief
Financial Officer of Aztec since March 1998. Prior to coming to Aztec, Mr.
Johnson held the position of Vice President and Chief Financial Officer of Clam
Associates Incorporated during 1997. Mr. Johnson was Executive Vice President
and Chief Financial Officer of Discreet Logic Incorporated from 1995 to 1996. He
also held the position of Vice President of Finance and Administration and Chief
Financial Officer of Fusion Systems Corporation from 1993 to 1995. From 1990 to
1993, Mr. Johnson was Chief Financial Officer and Treasurer of Excalibur
Technology Corporation. From 1981 to 1990, Mr. Johnson held various financial
management positions at the Marriott Corporation, serving finally as Vice
President of Finance in that company's services group. Mr. Johnson is a
Certified Public Accountant.
50
<PAGE>
LAWRENCE M. HOWELL has served as Director of Aztec since June 1998. Since
January 1996, Mr. Howell has been Managing Partner of Howell Capital, an
investment banking advisory firm. From January 1993 to January 1996, Mr. Howell
was employed by Morgan Stanley & Co. Incorporated, an investment banking firm,
where he served as Managing Director and most recently as Advisory Director.
From May 1970 to January 1993, he was employed in the investment banking
division of Goldman Sachs & Co., an investment banking firm. Mr. Howell holds a
Bachelor of Business Administration from the University of Texas and a Master of
Business Administration from Southern Methodist University. Mr. Howell is a
Director of ULTRADATA Corporation, a NASDAQ listed information management
software company serving the financial institution industry.
JONATHAN J. LEDECKY has served as a Director of Aztec since June 1998 and
will serve as an employee of Aztec and the other Spin-Off Companies as of the
Distribution Date. Mr. Ledecky founded U.S. Office Products in October 1994,
will serve as Chairman of the Board until the Distribution Date, and served as
its Chief Executive Officer until November 1997. He founded Consolidation
Capital Corporation in February 1997 and serves as its Chairman and Chief
Executive Officer. Mr. Ledecky has also served as non-executive Chairman of the
Board of USA Floral Products, Inc. since April 1997 and as director of
UniCapital Corporation, since October 1997. Mr. Ledecky served from 1989 to 1991
as the President of The Legacy Fund, Inc., a wholly owned subsidiary of
Steelcase Inc. Prior to his tenure at The Legacy Fund, Inc., Mr. Ledecky was a
partner at Adler and Company and Senior Vice President at Allied Capital
Corporation, an investment management company.
CLIFFORD MITMAN, JR. has served as a Director of Aztec since June 1998. For
the past six years, Mr. Mitman has been President of Mitman Associates, a firm
that provides executive compensation and organization consulting services to a
wide range of companies. Prior to 1992, Mr. Mitman was a Vice President and
Senior Consultant with the firms of Towers, Perrin and The Wyatt Company. Mr.
Mitman graduated from Yale University and the Wharton School of Business.
BENJAMIN TANDOWSKI has served as a Director of Aztec since June 1998. He
will continue to serve as President of Professional Computer Solutions. Mr.
Tandowski founded Professional Computer Solutions in 1984 and has been its
President since that date. Previously, Mr. Tandowski was employed by Exxon
Research and Union Carbide Chemical and Plastics Division. He holds a Ph.D. in
mechanical engineering from the City University of New York, where he was a
National Science Fellow.
PHILLIP ARTURI, PRESIDENT OF PROFESSIONAL NETWORK SERVICES, has 17 years of
experience in LAN/WAN infrastructure design, application engineering, and
systems integration. Prior to establishing Professional Network Services in
1989, Mr. Arturi implemented distributed processing solutions at GTE, and served
Caldor as MIS manager.
RICHARD G. ERICKSON, PRESIDENT OF DIGITAL NETWORK ASSOCIATES, has been a
principal of Digital Network Associates since 1986 and has over 15 years of
computer systems integration experience. He holds a B.S. in mechanical
engineering from Villanova University. Prior to joining Digital Network
Associates, Mr. Erickson held positions at Banyan Systems and Novell.
THOMAS J. FOLEY, PRESIDENT OF BAY STATE COMPUTER GROUP, has 19 years of
Network Systems/Applications experience. Mr. Foley has been employed by Bay
State Computer Group since 1985. Prior to his years at Bay State, Mr. Foley was
employed by a Boston computer company for six years. Mr. Foley holds a B.S. from
Suffolk University, and has taken extensive graduate business courses.
LARRY GLASER, PRESIDENT OF FORTRAN, established Fortran in the late 1970's
as a service and repair organization for telecommunications equipment. He has
been President of Fortran since that date.
KELBY KNOEDLER, PRESIDENT OF ENTRA, established Entra in 1984 after selling
his ownership-interest in CADO Business Systems of Ohio, which he founded in
1978. Since 1984, he has been the General Manager and President of Entra. He was
previously employed with Burroughs Corporation.
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<PAGE>
JAMES MAHON, PRESIDENT OF MAHON, has over 26 years of diverse experience in
the communications industry. Mr. Mahon was a founder and past president of
Computer Telephone Corporation, which went public in 1985. Mr. Mahon, who has
also held corporate-level positions at Rolm and Executone, founded Mahon in 1989
and has been President of Mahon since that date.
ROBERT M. MCCLORY, PRESIDENT OF COMPEL, founded Compel in 1972 and has been
its President since that date. From 1972 to 1979, he was General Manager of
Parsons Electric Company, a general contractor in Los Angeles, California. He is
a Registered Communications Distribution Designer.
JACK MEEHAN, PRESIDENT OF AZTEC INTERNATIONAL, founded Aztec International
in 1984 and has been its President and Chief Executive Officer since that date.
Previously, Mr. Meehan was employed by New York Telephone Company and by
Tie/communications.
DARREN METZ, PRESIDENT OF OFFICE EQUIPMENT SERVICE, has been the President
of Office Equipment Service since 1986. He holds a B.A. in computer science from
the University of Tennessee, and an M.B.A. from the University of Memphis.
DIRECTORS AND EXECUTIVE OFFICERS; COMMITTEES OF THE BOARD
Directors are elected for one year terms and hold office until their
successors have been elected and qualified or until such director's earlier
resignation or removal, though the Aztec Board may adopt a classified board
before the Offering. Executive officers are elected annually and hold office
until the next meeting of stockholders or until such executive officer's earlier
resignation or removal.
The Aztec Board has an Audit Committee. The Audit Committee is charged with
reviewing Aztec's annual audit and meeting with Aztec's independent accountants
to review Aztec's internal control and financial management practices. Messrs.
Howell and Mitman are members of the Audit Committee.
The Aztec Board has a Compensation Committee. The Compensation Committee is
charged with making recommendations to the Aztec Board regarding compensation of
Aztec's executive officers and administering any stock option plan Aztec may
adopt. Messrs. Howell, Mitman, and Tandowski are members of the Compensation
Committee.
DIRECTOR COMPENSATION
The Aztec Board intends to establish cash compensation for non-employee
directors of $1500 per quarter plus, $500 per teleconference meeting, and $1000
per in-person meeting. In addition, the Company anticipates that non-employee
directors will receive stock options under the Non-Employee Initial Director
Stock Option Plan. See "--Non-Employee Initial Director Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by Aztec for services rendered during the year ended April 25, 1998 to the
Chief Executive Officer and the other highly compensated executive officers of
Aztec (the "Named Officers").
52
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
--------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------------------------------------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C>
James E. Claypoole....................................... $ 307,500(1) $ 50,000 $ 54,360(2)
Chairman and Chief Executive Officer
Ira Cohen................................................
Chief Operating Officer (3)
Douglas Johnson..........................................
Executive Vice President and Chief Financial Officer
(4)
Elizabeth M. Claypoole................................... $ 160,000(5) 7,500(6)
Vice President, Treasurer, and Secretary
</TABLE>
- ----------------------
(1) Mr. Claypoole's salary was increased from $300,000 to $315,000 in November
1997.
(2) Includes life insurance premiums of $42,360 paid by Bay State on life
insurance policies for which Mr. Claypoole's estate is the beneficiary and
payment of automobile expenses of $12,000.
(3) Mr. Cohen was hired by Aztec on March 2, 1998. His salary is expected to be
$200,000 during his first year with Aztec.
(4) Mr. Johnson was hired on March 31, 1998. His salary is expected to be
$175,000 during his first year with Aztec.
(5) As of the end of fiscal year 1998, Ms. Claypoole was no longer an executive
officer of Aztec. Ms. Claypoole is currently employed by Aztec in a
non-executive officer capacity.
(6) Options to purchase U.S. Office Products Common Stock.
OPTIONS GRANTED IN FISCAL YEAR 1998
The following table sets forth certain information regarding options to
acquire U.S. Office Products Common Stock granted to the Named Officers during
the year ended April 25, 1998. All options were granted by U.S. Office Products
as options to acquire U.S. Office Products Common Stock and are expected to be
replaced with options to acquire Aztec Common Stock in connection with the
Technology Distribution. See "The Spin-Offs From U.S. Office Products."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM(4)
OPTIONS GRANTED IN EXERCISE EXPIRATION -----------------------
NAME GRANTED (#)(1)(2) FISCAL YEAR(3) PRICE ($/SH) DATE(2) 5%($) 10%($)
- ------------------------------- ----------------- --------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James E. Claypoole............. 45,000 10.5% $ 15.17 4/28/07 $ 429,315 $ 1,087,968
Elizabeth M. Claypoole......... 6,000 1.4% $ 15.17 4/28/07 $ 57,242 $ 145,062
</TABLE>
- ----------------------
(1) The options granted are non-qualified stock options which are exercisable at
the market price on the date of grant generally beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares and which
expire ten years from the date of grant.
(2) The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
<TABLE>
<S> <C>
Exercise Price (New) = Exercise Price Initial Public Offering Price of Common Stock in the Offering
(Old) x
Trading Price of U.S. Office Products Common Stock Pre-Technology Distribution
</TABLE>
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
<TABLE>
<S> <C>
Option Shares (New) = Option Shares (Old) Trading Price of U.S. Office Products Common Stock Pre-Technology Distribution
x
Initial Public Offering Price of Common Stock in the Offering
</TABLE>
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Technology Distribution" will be the average closing price of U.S.
Office Products Common Stock for the lesser of (a) ten business days
preceding the Distributions or (b) the number of business days falling
between the expiration of the Tender Offer and the completion of the
Distributions. If the initial public offering price cannot be determined at
the time of the adjustment, the closing price on June 10, 1998 will be
substituted for the initial public offering price in the formula. The
foregoing formula adjustments are intended to preserve for the holder of
U.S. Office Products Options the intrinsic value per option, measured as
the difference between the market value
53
<PAGE>
of one share of U.S. Office Products Common Stock at the time of the
Technology Distribution and the exercise price of such option. The
intrinsic value of the Aztec Options will be no greater than the intrinsic
value of the U.S. Office Products Options before the Distributions and the
ratio of exercise price to market price will be not less than the ratio
before the Distributions.
(3) Total Options granted means all options granted to employees of Aztec.
(4) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of 5% and 10%. These assumed
rates of growth were selected by the SEC for illustration purposes only.
They are not intended to forecast possible future appreciation, if any, of
stock prices. No gain to the optionees is possible without an increase in
stock prices, which will benefit all stockholders.
AGGREGATED OPTIONS FISCAL YEAR ENDED APRIL 25, 1998 AND FISCAL YEAR-END 1998
OPTION VALUES
The following table sets forth certain information regarding unexercised
options held by the Named Officers at April 25, 1998. No options were exercised
by the Named Officers during the fiscal year ended April 26, 1998. As described
above, all options were granted by U.S. Office Products as options to acquire
U.S. Office Products Common Stock and are expected to be replaced with options
to acquire shares of Aztec Common Stock in connection with the Technology
Distribution. See "The Spin-Offs From U.S. Office Products" and "Replacement of
Outstanding U.S. Office Products Options."
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS HELD FISCAL YEAR
SHARES ACQUIRED AT APRIL 25, 1998(4) END($)(1)(4)(5)
ON EXERCISE VALUE -------------------------- --------------------------
NAME (#)(2) REALIZED($)(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Claypoole.............. -- -- -- 45,000 -- --
Elizabeth M. Claypoole.......... -- -- -- 6,000 -- --
</TABLE>
- ----------------------
(1) The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
<TABLE>
<CAPTION>
Exercise Price (New) = Exercise Price
(Old) x Initial Public Offering Price of Common Stock in the Offering
<S> <C>
Trading Price of U.S. Office Products Common Stock Pre-Technology Distribution
</TABLE>
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
<TABLE>
<S> <C>
Option Shares (New) = Option Shares (Old) Trading Price of U.S. Office Products Common Stock Pre-Technology Distribution
x
Initial Public Offering Price of Common Stock in the Offering
</TABLE>
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Technology Distribution" will be the average closing price of U.S.
Office Products Common Stock for the lesser of (a) ten business days
preceding the Distributions, or (b) the number of business days falling
between the expiration of the Tender Offer and the completion of the
Distributions. If the initial public offering price cannot be determined at
the time of the adjustment, the closing price on June 10, 1998 will be
substituted for the initial public offering price in the formula. The
foregoing formula adjustments are intended to preserve for the holder of
U.S. Office Products Options the intrinsic value per option, measured as
the difference between the market value of one share of U.S. Office
Products Common Stock at the time of the Technology Distribution and the
exercise price of such option. The intrinsic value of the Aztec options
will be no greater than the intrinsic value of the U.S. Office Products
Options before the Distributions and the ratio of exercise price to market
price will be not less than the ratio before the Distributions.
(2) Represents the number of shares received upon exercise or, if no shares were
received, the number of shares with respect to which options were exercised.
(3) The value of exercised options represents the difference between the
exercise price of such options and the closing market price of the U.S.
Office Products Common Stock on the date of exercise.
(4) Options are "in-the-money" if the closing market price of U.S. Office
Products Common Stock exceeds the exercise price of the options.
(5) The value of unexercised options represents the difference between the
exercise price of such options and $16.875, the closing market price of U.S.
Office Products Common Stock at April 24, 1998.
REPLACEMENT OF OUTSTANDING U.S. OFFICE PRODUCTS OPTIONS
Aztec expects that all or substantially all vested and unvested options to
acquire shares of U.S. Office Products Common Stock that are held by Aztec
employees on the Distribution Date will be replaced with options to acquire
shares of Aztec Common Stock. As of the Distribution Date, approximately 616,716
U.S. Office Products Options are held by employees of Aztec (assuming all option
holders tendered all of the shares underlying their options in the Tender
Offer). The number of Aztec Options that will be outstanding after the
Distributions will depend on the trading prices of U.S. Office Products Common
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Stock around the time of the Distributions and the public offering price of the
Aztec Common Stock in the Offering. For those reasons, the number of Aztec
Options into which the U.S. Office Products Options will convert is not yet
determinable. The following formulas will be used to adjust the number and
exercise price of U.S. Office Products Options. Such formulas will adjust solely
for the Distributions and not for other events, such as the Tender Offer. The
exercise price of U.S. Office Products Options will be adjusted by applying the
following formula:
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price of
Common Stock in the
Offering__________________
Trading Price of U.S. Office
Products Common Stock
Pre-Technology Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New)=Option Shares (Old) ] Trading Price of U.S. Office Products
Common Stock Pre-Technology
Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Technology Distribution" will be the average closing price of U.S. Office
Products Common Stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the expiration
of the Tender Offer and the completion of the Distributions. If the initial
public offering price cannot be determined at the time of the adjustment, the
closing price on June 10, 1998 will be substituted for the initial public
offering price in the formula. The foregoing formula adjustments are intended to
preserve for the holder of U.S. Office Products Options the intrinsic value per
option, measured as the difference between the market value of one share of U.S.
Office Products Common Stock at the time of the Technology Distribution and the
exercise price of such option. The intrinsic value of the adjusted Aztec Options
will be no greater than the intrinsic value of the U.S. Office Products Options
immediately before the Distribution, and the ratio of exercise price to market
price will be not less than the ratio immediately before the Distributions.
1998 STOCK INCENTIVE PLAN
Aztec has adopted the 1998 Stock Incentive Plan (the "Plan"). The purpose of
the Plan is to promote the long-term growth and profitability of Aztec by
providing employees with incentives to improve stockholder value and contribute
to the growth and financial success of Aztec, and by enabling Aztec to attract,
retain and reward highly motivated and qualified employees. The maximum number
of shares of Aztec Common Stock that may be issued with respect to awards
granted under the Plan is 24% of the outstanding Aztec Common Stock following
the Technology Distribution and the Offering. The maximum number of shares that
may be issued with respect to awards granted under the Plan to an individual in
a calendar year may not exceed 500,000 shares except that in the year in which a
person first becomes an employee, the number increases to 1.7 million shares.
The Plan will be administered by the Compensation Committee of the Board of
Directors. All employees of the Company and its subsidiaries, as well as non-
employee directors of the Company, are eligible to receive awards under the
Plan. The Plan authorizes the Compensation Committee to make awards of stock
options, restricted stock, and other stock-based awards. The Compensation
Committee will determine the prices, vesting schedules, expiration dates and
other material conditions under which such awards may be exercised.
Mr. Ledecky is receiving a stock option for Common Stock from Aztec,
pursuant to the Plan, as of the Distribution Date. The option is intended to
compensate Mr. Ledecky for his services to Aztec as an employee. The option
covers 7.5% of the outstanding Common Stock determined as of the Distribution
Date without regard to the Offering. The option will have a per share exercise
price equal to the initial public offering price of Aztec Common Stock.
Mr. Ledecky's option is fully vested when granted but will not be
exercisable until the 12-month anniversary of the Technology Distribution. Mr.
Ledecky's option from the Company will be exercisable immediately if Mr. Ledecky
dies before the option expires or if Aztec accelerates the exercise schedule of
options for substantially all management option holders. (In this latter case,
Mr. Ledecky's option will become exercisable on the same accelerated schedule as
the other management option holders.) All
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unexercised portions of the option will expire ten years after its date of grant
or, if applicable, as of the date Mr. Ledecky violates his non-competition
agreement with Aztec.
The Company expects that James E. Claypoole will also receive an option (the
"Claypoole Option") pursuant to the Plan for 4.5% of the outstanding Aztec
Common Stock as of the Distribution Date without regard to the Offering. The
Claypoole Option is anticipated to have the same terms as Mr. Ledecky's option,
including an exercise price equal to the initial public offering price of the
Aztec Common Stock. The estimated value of the Claypoole Option depends on the
initial public offering price of Aztec Common Stock and the trading volatility
of Aztec Common Stock. Based on an assumed initial public offering price of
$13.00 (which is equal to the mid-point of the price range set forth in the
preliminary prospectus for the Offering) and an assumed trading volatility index
of Aztec Common Stock of 45%, the estimated value of the option is approximately
$2.8 million, net of taxes at an assumed 40% rate. In addition, management
currently expects to recommend option grants to certain executive officers and
key personnel of the Company for approximately 2% of the Common Stock following
the Offering and the Technology Distribution, also at an exercise price equal to
the initial public offering price of the Aztec Common Stock.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
will become effective following this Offering. The 1998 Purchase Plan is
intended to allow eligible participating employees an opportunity to purchase
shares of Common Stock at a discount. A maximum of 1,000,000 shares of Common
Stock will be available for issuance under the 1998 Purchase Plan. The 1998
Purchase Plan will be administered by the Compensation Committee of the Board of
Directors. All employees of the Company, except officers within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, or employees who
own five percent or more of the Company's stock, whose customary employment is
more than 20 hours per week, are eligible to participate in the 1998 Purchase
Plan. To participate in the 1998 Purchase Plan, an employee must authorize the
Company to deduct an amount (up to ten percent of a participant's regular pay)
from his or her pay during six-month periods commencing on January 1 and July 1
of each year (each a "Payment Period"). The maximum number of shares of Common
Stock that an employee may purchase in any Payment Period is a certain number of
shares determined by applying the formula stated in the 1998 Purchase Plan. The
exercise price for the option for each Payment Period is 85% of the lesser of
the average market price of the Company's Common Stock on the first or last
business day of the Payment Period. If an employee is not a participant on the
last day of the Payment Period, such employee is not entitled to exercise his or
her option, and the amount of his or her accumulated payroll deductions will be
refunded. An employee's rights under the 1998 Purchase Plan terminate upon his
or her voluntary withdrawal from the plan at any time or upon termination of
employment. A participant in the 1998 Purchase Plan shall be restricted from
selling any shares of Common Stock purchased under the 1998 Purchase Plan until
the shares have been held for at least 12 months, except for any participant who
is no longer an employee of the Company, in which case the restriction shall
lapse.
NON-EMPLOYEE INITIAL DIRECTOR STOCK OPTION PLAN
The Directors' Plan will become effective following this Offering. The
Directors' Plan provides for the grant of options to non-employee directors of
the Company to purchase a maximum of 300,000 shares of Common Stock of the
Company. The Directors' Plan is administered by the Board of Directors. The
Directors' Plan provides that each non-employee director will receive an
automatic grant of a nonqualified stock option to purchase 25,000 shares of
Common Stock upon initial election to the Board of Directors (vesting upon the
date of grant). An option to purchase 10,000 shares of Common Stock will be
granted to each incumbent non-employee director on the date of each annual
meeting of stockholders beginning with the 1998 annual meeting (vesting in three
equal annual installments beginning on the date of grant). An option to purchase
5,000 shares of Common Stock will be granted to each non-employee director who
is
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<PAGE>
also the chairperson of a committee of the Board of Directors upon initial
appointment to such position and for each full year of service thereafter
(vesting in three equal annual installments beginning on the date of grant,
except for the initial grant, which shall vest in full upon the date of grant).
Options granted under the Directors' Plan expire ten years from the date of
grant. The option price for options granted under the Directors' Plan is equal
to the fair market value of a share of Common Stock as of the date of grant. For
option grants to be made following this Offering, this will be the price per
share of Common Stock in this Offering. The Company has reserved a total of
300,000 shares of Common Stock for issuance under the Director's Plan, all of
which are currently available for future grant.
401(K) PLAN
Effective June 7, 1998, the Company implemented a 401(k) Plan Savings and
Retirement Plan (the "401(k) Plan"), a tax-qualified plan covering all of its
employees who are at least 21 years of age and have completed six months of
service with the Company. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $10,000
in calendar 1998) and have the amount of the reduction contributed to the 401(k)
Plan. Subject to Board approval, the Company may contribute an additional amount
to the 401(k) Plan on behalf of the participant employee. Employees vest in
Company contributions ratably over a five-year period.
LEDECKY SERVICES AGREEMENT
Jonathan J. Ledecky entered into an agreement (the "Ledecky Services
Agreement") with U.S. Office Products on January 13, 1998, effective on the
Distribution Date and contingent on the consummation of the Distributions, which
agreement has been amended as of June 8, 1998. The Ledecky Services Agreement
will expire on September 30, 1998 if none of the Distributions has occurred by
that date. If the Ledecky Services Agreement becomes effective, it will replace
his November 4, 1997 employment agreement with U.S. Office Products. The
principal terms of this agreement are summarized here.
The Ledecky Services Agreement governs Mr. Ledecky's continuing obligations
to U.S. Office Products. Under the Ledecky Services Agreement, Mr. Ledecky will
report to the U.S. Office Products Board and will provide high-level acquisition
negotiation services and strategic business advice. Under the Agreement, Mr.
Ledecky will remain an employee of U.S. Office Products, at an annual salary of
$48,000 through June 30, 2001. As a continuing employee of U.S. Office Products,
Mr. Ledecky will also retain his existing U.S. Office Products Options despite
his reduction in services to U.S. Office Products. U.S. Office Products can
terminate Mr. Ledecky's employment only for "cause" where cause consists of (i)
his conviction of or guilty or nolo contendere plea to a felony demonstrably and
materially injurious to U.S. Office Products or (ii) his violation of the
noncompetition provision as it relates to U.S. Office Products. If Mr. Ledecky
resigns or is terminated, he will cease to vest in his U.S. Office Products
stock options and will have 90 days to exercise any vested options.
Aztec is entering into an employment agreement with Mr. Ledecky, effective
as of June 10, 1998 that will implement assigned portions of the Ledecky
Services Agreement. Under the employment agreement, Mr. Ledecky will report to
the Board of Directors and senior management of Aztec. In such capacity, Mr.
Ledecky will provide high-level acquisition negotiation services and strategic
business advice. Aztec can require Mr. Ledecky's performance of such services,
consistent with his other contractual obligations to Consolidation Capital
Corporation, U.S. Office Products and the Other Spin-Off Companies. As an
employee, Mr. Ledecky will also be subject to the generally applicable personnel
policies of Aztec and will be eligible for such benefit plans in accordance with
their terms. Aztec will pay Mr. Ledecky an annual salary of $48,000 for up to
two years. Aztec may terminate Mr. Ledecky's employment with "cause," where
cause is defined as in the Ledecky Services Agreement as modified to refer to
Aztec.
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that continue until the end of a specified
restricted period, which, for Aztec, means the later of June 10, 2000 or the
date one year after Mr. Ledecky leaves Aztec's employ. These provisions
generally restrict
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<PAGE>
Mr. Ledecky from, among other things, investing in or working for or on behalf
of any business selling any products or services in direct competition with U.S.
Office Products, or other Spin-Off Companies (collectively, the "U.S. Office
Products Companies"), within 100 miles of any location where the relevant U.S.
Office Products Company regularly maintains an office with employees. (For this
purpose, "products or services" are those that U.S. Office Products offered on
January 13, 1998.) Notwithstanding this prohibition, Mr. Ledecky may serve in a
policy making role (but not engage in direct personal competition) with respect
to the following businesses: (i) any electrical contracting business with more
than 50% of its revenue from electrical contracting and maintenance services and
any other business with less than $15 million in annual revenue from businesses
competitive with Aztec, provided that neither category allows competition in
certain specified lines of Aztec business; (ii) businesses selling, supplying,
or distributing janitorial or sanitary products or services; (iii) businesses
managing or servicing office equipment (other than computers); (iv) businesses
providing internet access services; (v) UniCapital Corporation's current
businesses (which include equipment leasing); or (vi) U.S. Marketing Services
shelf-stocking and merchandising point-of-purchase display creation, and
incentive marketing businesses (as currently publicly described, but must cease
serving as a director and be solely an investor after that company is public).
The Ledecky Services Agreement prohibits Mr. Ledecky from trying to hire away
managerial employees of Aztec and the other Spin-Off Companies or from calling
upon customers of Aztec and the other Spin-Off Companies to solicit or sell
products or services in direct competition with Aztec and the other Spin-Off
Companies. Mr. Ledecky also may not hire away for Consolidation Capital
Corporation any person then or in the preceding one year employed Aztec, or the
other Spin-Off Companies. U.S. Office Products is permitted to (and will) assign
to Aztec, the ability to enforce the non-competition provisions described above,
which will then constitute part of his employment agreement with Aztec.
Mr. Ledecky will receive a stock option for Aztec Common Stock from Aztec as
of the Distribution Date. The option is intended to compensate Mr. Ledecky for
his services to Aztec as an employee. That option will be granted under the
Plan. The option will cover 7.5% of the outstanding Aztec Common Stock,
determined as of the Distribution Date, without regard to the Offering. The
option will have a per share exercise price equal to the initial public offering
price of the Aztec Common Stock. The estimated value of this option depends on
its exercise price and the trading volatility of Aztec Common Stock. Based on an
assumed initial public offering price of $13.00 (which is equal to the mid-point
of the price range set forth in the preliminary prospectus for the Offering) and
an assumed trading volatility index of Aztec Common Stock of 45%, the estimated
value of the option is approximately $4.6 million, net of taxes at an assumed
40% rate.
It is expected that Mr. Ledecky's option will become fully vested when
granted but will not be exercisable until the twelve-month anniversary of the
Technology Distribution. Mr. Ledecky's option from Aztec will be exercisable
immediately if Mr. Ledecky dies before the option expires or, if Aztec
accelerates the exercise schedule of options for substantially all management
option holders. (In this latter case, Mr. Ledecky's option will become
exercisable on the same accelerated schedule as the other management option
holders. All unexercised portions of the option will expire ten years after its
date of grant or, if applicable, as of the date Mr. Ledecky violates his
non-competition agreement with Aztec.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
In October 1996, Bay State entered into an employment agreement with James
E. Claypoole, its then Chief Executive Officer and President. The employment
agreement provides for an initial three-year term and successive one-year
extensions at the option of Bay State. Pursuant to this agreement, Mr. Claypoole
is entitled to receive a minimum annual salary of $300,000, incentive bonuses as
determined by the Board of Directors of Bay State and all perquisites and
benefits customarily provided by Bay State to its employees. In the event that
Mr. Claypoole's employment is terminated for any reason other than cause, Mr.
Claypoole's employment agreement provides that Mr. Claypoole is entitled to
receive his base salary and benefits for the longer of (i) three months from the
date of termination or (ii) the remaining time under the initial term of the
employment agreement. The employment agreement also prohibits
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Mr. Claypoole from engaging in certain activities deemed competitive with Bay
State or its affiliates during the duration of his employment with Bay State and
for the longer of (i) a period of two years thereafter or (ii) as long as Mr.
Claypoole continues to receive severance payments from Bay State. Aztec
anticipates that immediately following the Technology Distribution, Mr.
Claypoole's current employment agreement with Bay State will be terminated and
Aztec will enter into a new employment agreement with Mr. Claypoole under which
he will serve as Aztec's Chairman and Chief Executive Officer and a director.
While the terms of this new agreement are subject to negotiation and no binding
agreement has yet been reached, it is anticipated that the agreement will be for
a three year term, provide for a base salary of approximately $375,000 and an
annual bonus of up to that amount if certain objectives have been realized. In
addition, the proposed agreement will have other terms typical of agreements
with chief executive officers of public companies in the technology area.
In October 1996, Bay State entered into an employment agreement with
Elizabeth M. Claypoole, its then Vice President and Chief Financial Officer. The
employment agreement provides for an initial three-year term and successive
one-year extensions at the option of Bay State. Pursuant to this agreement, Ms.
Claypoole is entitled to receive a minimum annual salary of $140,000, incentive
bonuses as determined by the President of Bay State and all perquisites and
benefits customarily provided by Bay State to its employees. In the event that
Ms. Claypoole's employment is terminated for any reason other than cause, Ms.
Claypoole's employment agreement provides that Ms. Claypoole is entitled to
receive her base salary and benefits for the longer of (i) three months from the
date of termination, or (ii) the remaining time under the initial term of the
employment agreement. The employment agreement also prohibits Ms. Claypoole from
engaging in certain activities deemed competitive with Bay State or its
affiliates during the duration of her employment with Bay State and for the
longer of (i) a period of two years thereafter, or (ii) as long as Ms. Claypoole
continues to receive severance payments from Bay State.
On March 2, 1998, Aztec hired Ira Cohen as its Chief Operating Officer.
Aztec expects to enter into an employment agreement with Mr. Cohen following the
Technology Distribution.
On March 31, 1998, Aztec hired Douglas R. Johnson as its Executive Vice
President and Chief Financial Officer. Aztec expects to enter into an employment
agreement with Mr. Johnson following the Technology Distribution.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Aztec Board has ever been an officer of Aztec or any of its
subsidiaries, except that Mr. Ledecky was the Chief Executive Officer of U.S.
Office Products until November 5, 1997 and will be Chairman of U.S. Office
Products until the Distribution Date, and Mr. Claypoole has been Chairman of
U.S. Office Products' Technology Solutions division.
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CERTAIN TRANSACTIONS
On October 15, 1996, U.S. Office Products acquired Bay State, which will be
a wholly-owned subsidiary of Aztec following the Technology Distribution, from
James E. Claypoole, Bay State's then Chief Executive Officer and President, and
Thomas J. Foley, Executive Vice President of Bay State, for 906,576 shares of
U.S. Office Products Common Stock valued at $20.74 per share. In connection with
the acquisition, Bay State also entered into an employment agreement with Mr.
Claypoole at a minimum annual base salary of $300,000 and an employment
agreement with Elizabeth M. Claypoole, Bay State's then Vice President and Chief
Financial Officer, at a minimum annual base salary of $140,000. See
"Management--Employment Contracts and Related Matters." These transactions with
U.S. Office Products were the subject of arm's-length negotiations.
For a discussion of matters related to the spin-off of Aztec from U.S.
Office Products, see "The Spin-Offs from U.S. Office Products."
For a discussion of transactions between Aztec and Mr. Ledecky, see
"Management--Replacement of Outstanding U.S. Office Products Options,--Ledecky
Services Agreement."
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PRINCIPAL STOCKHOLDERS
The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned as of May 15, 1998 and as adjusted to
reflect the Offering and the Technology Distribution (assuming no exercise of
the Underwriters' over-allotment) by (i) all persons known by Aztec to own
beneficially more than 5% of the Common Stock, (ii) each director and each Named
Officer who is a stockholder, and (iii) all directors and executive officers as
a group. Except as otherwise indicated, the business address of each of the
following is 52 Roland Street, Boston, Massachusetts 02129.
<TABLE>
<CAPTION>
PERCENT OF NUMBER OF
NUMBER OF U.S. OFFICE SHARES OF
SHARES OF PRODUCTS AZTEC COMMON PERCENT OF
U.S. OFFICE COMMON STOCK STOCK AZTEC COMMON
PRODUCT COMMON PRIOR TO AS STOCK AS
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OFFERING ADJUSTED(1) ADJUSTED
- ---------------------------------------------------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
James E. Claypoole (6).................................... 774,136(2) * 117,123 *
Jonathan J. Ledecky (6)................................... 2,428,125(3) 1.8% 372,780 1.4%
Elizabeth M. Claypoole (6)................................ 4,317(4) * 145 *
Douglas R. Johnson........................................
Ira Cohen.................................................
Lawrence M. Howell........................................
Clifford Mitman, Jr.......................................
Benjamin Tandowski........................................ 57,986 * 8,902 *
All current executive officers and directors as a group 3,264,564 2.4% 498,950 1.9%
(seven persons)(6)......................................
5% STOCKHOLDERS:
FMR Corp (5).............................................. 15,754,406 11.2% 2,418,711 9.3%
Devonshire Street
Boston, MA 02109
Massachusetts Financial Services Company (5).............. 8,262,886 5.9% 1,268,568 4.9%
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------
* Less than 1%.
(1) The "Number of Shares of Aztec Common Stock, As Adjusted" reflects the
results of the Tender Offer (assuming each person tendered all their shares
and shares underlying options in the Tender Offer), the application of the
Distribution Ratio and the Offering. It assumes no options are exercisable
within 60 days.
(2) Includes 11,250 shares which may be acquired upon exercise of options
exercisable within 60 days following the Offering. Excludes Mr. Claypoole's
option for 4.5% of the Aztec Common Stock that Aztec expects to grant under
the 1998 Stock Incentive Plan, which will not be exercisable until the
12-month anniversary of the Technology Distribution. See "Management-- 1998
Stock Incentive Plan".
(3) Excludes options for U.S. Office Products Common Stock that will not be
converted into options for Aztec Common Stock at the time of the Technology
Distribution. Also excludes Mr. Ledecky's option for 7.5% of the Aztec
Common Stock that will be granted under the Company's 1998 Stock Incentive
Plan, which will not be exercisable until the 12-month anniversary of the
Technology Distribution. See "Management--Ledecky Services Agreement."
(4) Includes 3,375 shares which may be acquired upon exercise of options
exercisable within 60 days following the Offering.
(5) Based upon a Schedule 13G filed with the SEC with respect to U.S. Office
Products Common Stock.
(6)The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price
of Common Stock in the
Offering
Trading Price of U.S. Office
Products Common Stock
Pre-Technology Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products Common Stock
Pre-Technology Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Technology Distribution" will be the average closing price of U.S.
Office Products Common Stock for the lesser of (a) ten business days
preceding the Distributions, or (b) the number of business days falling
between the expiration of the Tender Offer and the completion of the
Distributions. If the initial public offering price cannot be determined at
the time of the adjustment, the closing price on June 10, 1998 will be
substituted for the initial public offering price in the formula. The
foregoing formula adjustments are intended to preserve for the holder of
U.S. Office Products Options the intrinsic value per option, measured as
the difference between the market value of one share of U.S. Office
Products Common Stock at the time of the Technology Distribution and the
exercise price of such option. The intrinsic value of the Aztec Options
will be no greater than the intrinsic value of the U.S. Office Products
Options before the Distributions and the ratio of exercise price to market
price will be not less than the ratio before the Distributions. The
formulas will not affect when the options vest or when employees can
exercise the options.
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DESCRIPTION OF AZTEC CAPITAL STOCK
GENERAL
At the time of the Technology Distribution and the Offering Aztec's
authorized capital stock will consist of 150 million shares of Aztec Common
Stock, par value $.001 per share, and 1 million shares of preferred stock, par
value $.001 per share (the "Preferred Stock"). Upon completion of the Offering
and following the Technology Distribution, Aztec will have outstanding
approximately 26,137,902 shares of Aztec Common Stock and no shares of Preferred
Stock. Set forth below is a summary of the terms of Aztec's authorized capital
stock.
AZTEC COMMON STOCK
The holders of Aztec Common Stock are entitled to one vote for each share on
all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of Aztec Common Stock are entitled to such dividends as may be declared
in the discretion of the Aztec Board out of funds legally available therefore.
See "Dividend Policy." The holders of Aztec Common Stock are entitled to share
ratably in the net assets of Aztec upon liquidation after payment or provision
for all liabilities and any preferential liquidation rights of any Preferred
Stock then outstanding. The holders of Aztec Common Stock have no preemptive
rights to purchase shares of stock of Aztec. Shares of Aztec Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of Aztec. All of the shares of Aztec Common Stock to be distributed
pursuant to the Technology Distribution will be fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Aztec Board as
shares of one or more classes or series. Subject to the provisions of Aztec's
Certificate of Incorporation and limitations prescribed by law, the Aztec Board
is expressly authorized to adopt resolutions to issue the shares, to fix the
number of shares and to change the number of shares constituting any series, and
to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights, and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the
stockholders. Aztec has no current plans to issue any shares of Preferred Stock
of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Aztec Board to render more difficult or to discourage an attempt to obtain
control of Aztec by means of a tender offer, proxy contest, merger or otherwise,
and thereby to protect the continuity of Aztec's management. The issuance of
shares of the Preferred Stock pursuant to the Aztec Board's authority described
above may adversely affect the rights of the holders of Aztec Common Stock. For
example, Preferred Stock issued by Aztec may rank prior to Aztec Common Stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Aztec Common Stock.
Accordingly, the issuance of shares of Preferred Stock may discourage bids for
Aztec Common Stock or may otherwise adversely affect the market price of Aztec
Common Stock.
ANTI-TAKEOVER PROVISIONS
CLASSIFIED BOARD
Aztec's Certificate of Incorporation may include provisions dividing the
Aztec Board's membership into three classes, each of which serves until the
third succeeding annual meeting with one class being
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elected at each annual meeting of stockholders. Under Delaware law, each class
will be as nearly equal in number as possible. As a result, at least two annual
meetings of stockholders may be required for Aztec's stockholders to change a
majority of the members of the Aztec Board. Aztec believes that a classified
Board of Directors will assure continuity and stability of Aztec's management
and policies, without diminishing accountability to stockholders. Aztec's
classified Board will ensure that a majority of directors at any given time will
have experience in the business and competitive affairs of Aztec.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation and Bylaws may provide that stockholder
action can be taken only at an annual or special meeting and cannot be taken by
written consent in lieu of a meeting. The Certificate of Incorporation and
Bylaws may also provide that special meetings of the stockholders can be called
only by the Chairman of the Board, or by holders of at least 33 1/3% of the
outstanding shares of Aztec stock entitled to vote generally for the election of
directors.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The Bylaws may establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an annual
or special meeting at which directors are to be elected. Only such business may
be conducted at an annual meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Aztec Board, or by a stockholder who has
given to the Secretary of Aztec timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The chairman
of such meeting has the authority to make the determination of whether business
has been properly brought before such meeting. Only persons who are nominated
by, or at the direction of, the Aztec Board, or who are nominated by a
stockholder who has given timely written notice, in proper form, to the
Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of Aztec. These provisions are intended to
establish orderly procedures for the conduct of Aztec's business and to allow
the Board of Directors adequate time to evaluate and respond to stockholder
initiatives. They may have the effect of impeding the ability of a stockholder
to present proposals or make limitations in a change of control context if the
requisite notice provision cannot be satisfied.
SHAREHOLDER RIGHTS PLAN
Aztec's Board of Directors is evaluating the adoption of a Rights Plan
pursuant to which stockholders would receive the right to acquire preferred
stock. This right would be triggered under certain circumstances occurring after
any group or person acquires more than 15% of the outstanding Aztec Common
Stock, or the commencement of a tender offer for the purchase of more than 15%
of the outstanding Aztec Common Stock. In such event, each holder of a right
would be entitled to receive a fraction of a share of preferred stock for a
nominal price. The rights have certain anti-takeover effects that would cause
substantial dilution to a person or group attempting to acquire a significant
interest in Aztec without first obtaining the approval of Aztec's Board of
Directors.
STATUTORY BUSINESS COMBINATION PROVISION
Aztec is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate, or associate of such person, who is
an "interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder
63
<PAGE>
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined as any
person who is: (i) the owner of 15% or more of the outstanding voting stock of
the corporation; or (ii) an affiliate or associate of the corporation if such
affiliate or associate was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder. Under Aztec's Certificate of Incorporation, the
affirmative vote of a majority of the directors is required to approve an
interested stockholder transaction.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. Aztec has not adopted such an amendment to
its Certificate of Incorporation or Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to Aztec's Certificate of Incorporation and under Delaware law,
directors of Aztec are not liable to Aztec or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or any transaction in
which a director has derived an improper personal benefit. Aztec's by-laws
provide that Aztec will, to the fullest extent permitted under Delaware law,
indemnify its officers and directors against any damages arising out of their
actions as officers or directors of Aztec.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Aztec Common Stock will be American
Stock Transfer & Trust Company.
EXPERTS
The consolidated financial statements of Aztec Technology Partners, Inc. as
of April 30, 1996 and April 26, 1997 and for each of the fiscal years ended
March 31, 1995, March 31, 1996 and April 26, 1997 included in this Information
Statement/Prospectus, except as they relate to Fortran as of March 31, 1996 and
March 31, 1995 and for each of the three years in the period ended March 31,
1996, have been audited by Price Waterhouse LLP, independent accountants, and
insofar as they related to Fortran Corp. by Rubin Koelmstedt and Nadler,
independent accountants, whose report dated June 7, 1996 thereon appears herein.
Such financial statements have been so included in reliance on the reports of
such independent accountants given on the authority of such firms as experts in
auditing and accounting.
The combined financial statements of Aztec East Inc. and Affiliates as of
December 31, 1996 and 1995 and for the years then ended included in this
Prospectus have been so included in reliance on the June 22, 1997 report of B.N.
Kozin Company, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Compel Corporation as of December 31, 1996 and
1995 and for the years then ended included in this Prospectus have been so
included in reliance on the January 30, 1998 report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of shares of Aztec Common Stock and certain tax matters
relating to the Distributions will be passed upon on behalf of Aztec and U.S.
Office Products by Wilmer, Cutler & Pickering, Washington, D.C.
64
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
---------
AZTEC TECHNOLOGY PARTNERS, INC. HISTORICAL FINANCIAL STATEMENTS
Report of Price Waterhouse LLP, Independent Accountants F-2
Report of Rubin, Koehmstedt and Nadler, Independent Auditors F-3
Consolidated Balance Sheet as of April 30, 1996, April 25, 1997 and January 24,
1998 (unaudited) F-4
Consolidated Statement of Income for the years ended March 31, 1995 and 1996, the
fiscal year ended April 26, 1997 and the nine months ended January 25, 1997
(unaudited) and January 24, 1998 (unaudited) F-5
Consolidated Statement of Stockholder's Equity for the years ended March 31, 1995
and 1996, the fiscal year ended April 26, 1997 and the nine months ended January
24, 1998 (unaudited) F-6
Consolidated Statement of Cash Flows for the years ended March 31, 1995 and 1996,
the fiscal year ended April 26, 1997 and the nine months ended January 25, 1997
(unaudited) and January 24, 1998 (unaudited) F-7
Notes to Consolidated Financial Statements F-9
AZTEC EAST, INC. AND AFFILIATES
Report of B.N. Kozin Company, Independent Accountants F-22
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997 (unaudited) F-23
Statement of Operations for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited) F-24
Statement of Shareholders' Equity for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997 (unaudited) F-25
Statement of Cash Flows for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited) F-26
Notes to Financial Statements F-27
COMPEL CORPORATION
Report of Price Waterhouse LLP, Independent Accountants F-30
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997 (unaudited) F-31
Statement of Income for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1996 (unaudited) and 1997 (unaudited) F-32
Statement of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996 and the nine months ended September 30, 1997 (unaudited) F-33
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and
the nine months ended September 30, 1996 (unaudited) and 1997 (unaudited) F-34
Notes to Financial Statements F-35
AZTEC TECHNOLOGY PARTNERS, INC. PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Introduction to Pro Forma Financial Information (unaudited) F-41
Pro Forma Combined Balance Sheet as of January 24, 1998 (unaudited) F-42
Pro Forma Combined Statement of Income for the nine months ended January 24, 1998
(unaudited) F-43
Pro Forma Combined Statement of Income for the nine months ended January 25, 1997
(unaudited) F-44
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997
(unaudited) F-45
Notes to Pro Forma Combined Financial Statements (unaudited) F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Aztec Technology Partners, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Aztec Technology Partners, Inc.
("Aztec") and its subsidiaries at April 30, 1996 and April 26, 1997, and the
results of their operations and their cash flows for the fiscal years ended
March 31, 1995, March 31, 1996 and April 26, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Aztec's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Fortran Corp., a wholly-owned subsidiary, which
statements reflect total revenues of $20,243,000 and $20,775,000 for the fiscal
years ended March 31, 1995 and 1996, respectively. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Fortran
Corp., is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
February 4, 1998, except for Note 1 and the last paragraph of
Note 3, which are as of May 14, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Fortran Corp.
Newington, Virginia
We have audited the accompanying balance sheet of Fortran Corp. as of March
31, 1996, and 1995 and the related statements of earnings, changes in
stockholders' equity, and cash flows for the years ended March 31, 1996, 1995,
and 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to and above present
fairly, in all material respects, the financial position of Fortran Corp. as of
March 31, 1996, and 1995 and the results of its operations and its cash flows
for three years ended March 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.
RUBIN, KOEHMSTEDT AND NADLER
Springfield, Virginia
June 7, 1996, except for Note 9,
as to which the date is
October 24, 1996
F-3
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
(NOTE 3)
APRIL 30, APRIL 26, JANUARY 24, JANUARY 24,
ASSETS 1996 1997 1998 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Current assets:
Cash and cash equivalents......................... $ 5,609 $ 1,106 $ 117 $
Accounts receivable, less allowance for doubtful
accounts of $123, $351 and $790, respectively... 19,966 22,342 46,615 46,615
Inventories....................................... 4,451 3,904 12,578 12,578
Receivable from U.S. Office Products.............. 1,216 7,862
Unbilled percentage of completion revenues........ 725 2,871 1,452 1,452
Prepaid expenses and other current assets......... 562 1,704 4,252 4,252
--------- --------- ----------- -----------
Total current assets.......................... 31,313 33,143 72,876 64,897
Property and equipment, net......................... 1,755 2,163 5,074 5,074
Goodwill, net....................................... 63,891 63,891
Other assets........................................ 877 2,005 506 506
--------- --------- ----------- -----------
Total assets.................................. $ 33,945 $ 37,311 $ 142,347 $ 134,368
--------- --------- ----------- -----------
--------- --------- ----------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Short-term debt................................... $ 5,580 $ 76 $ 304 $ 304
Accounts payable.................................. 10,805 11,803 23,329 23,329
Accrued compensation.............................. 1,857 1,651 3,898 3,898
Deffered revenue.................................. 2,536 2,499 5,402 5,402
Income taxes payable.............................. 389 679 4,652 4,652
Accrued subchapter S corporation distributions.... 1,320
Other accrued liabilities......................... 1,482 1,847 3,443 3,443
--------- --------- ----------- -----------
Total current liabilities..................... 22,649 19,875 41,028 41,028
Long-term debt...................................... 799 167 386 4,696
Long-term payable to U.S. Office Products........... 4,786 9,957
Deferred income taxes............................... 857 857 857
--------- --------- ----------- -----------
Total liabilities............................. 23,448 25,685 52,228 46,581
--------- --------- ----------- -----------
Commitments and contingencies
Stockholder's equity:
Divisional equity................................. 148 8,897 80,818 80,818
Retained earnings................................. 10,349 2,729 9,301 6,969
--------- --------- ----------- -----------
Total stockholder's equity.................... 10,497 11,626 90,119 87,787
--------- --------- ----------- -----------
Total liabilities and stockholder's equity.... $ 33,945 $ 37,311 $ 142,347 $ 134,368
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
----------- ----------- ---------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products.......................................... $ 74,645 $ 97,567 $ 97,253 $ 72,494 $ 91,662
Services.......................................... 14,354 16,488 39,025 28,801 50,850
----------- ----------- ---------- ----------- -----------
Total revenues.................................. 88,999 114,055 136,278 101,295 142,512
----------- ----------- ---------- ----------- -----------
Cost of revenues:
Products.......................................... 58,351 75,640 91,148 67,782 86,074
Services.......................................... 7,507 8,473 10,981 8,267 21,821
----------- ----------- ---------- ----------- -----------
Total cost of revenues.......................... 65,858 84,113 102,129 76,049 107,895
----------- ----------- ---------- ----------- -----------
Gross profit.................................... 23,141 29,942 34,149 25,246 34,617
Selling, general and administrative expenses........ 14,942 20,510 21,525 15,637 22,951
Goodwill amortization expense....................... 414
Non-recurring acquisition costs..................... 2,274 1,906
----------- ----------- ---------- ----------- -----------
Operating income................................ 8,199 9,432 10,350 7,703 11,252
Other (income) expense:
Interest expense.................................. 331 420 324 310 169
Interest income................................... (118) (416) (168) (169) (167)
Other............................................. (111) (964) (53) 234 (14)
----------- ----------- ---------- ----------- -----------
Income before provision for income taxes............ 8,097 10,392 10,247 7,328 11,264
Provision for income taxes.......................... 401 750 3,524 1,771 4,692
----------- ----------- ---------- ----------- -----------
Net income.......................................... $ 7,696 $ 9,642 $ 6,723 $ 5,557 $ 6,572
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Weighted-average shares outstanding:
Basic............................................. 9,112 13,509 18,005 17,196 22,952
Diluted........................................... 9,141 13,675 18,352 17,565 23,437
Per share amounts:
Basic............................................. $0.84 $0.71 $0.37 $0.32 $0.29
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Diluted........................................... $0.84 $0.71 $0.36 $0.32 $0.28
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Unaudited pro forma net income (see Note 8)......... $ 4,592 $ 4,033 $ 6,572
---------- ----------- -----------
---------- ----------- -----------
Unaudited pro forma income per share:
Basic............................................. $0.26 $0.23 $0.29
---------- ----------- -----------
---------- ----------- -----------
Diluted........................................... $0.25 $0.23 $0.28
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
DIVISIONAL RETAINED STOCKHOLDER'S
EQUITY EARNINGS EQUITY
----------- --------- -------------
<S> <C> <C> <C>
Balance at March 31, 1994................................................... $ 440 $ 6,305 $ 6,745
Transactions of Pooled Companies:
Capital distribution.................................................... (292) (292)
Cash dividends.......................................................... (3,087) (3,087)
Net income................................................................ 7,696 7,696
----------- --------- -------------
Balance at March 31, 1995................................................... 148 10,914 11,062
Cash dividends at Pooled Companies........................................ (7,389) (7,389)
Adjustments to conform the fiscal year-ends of Pooled Companies........... (2,818) (2,818)
Net income................................................................ 9,642 9,642
----------- --------- -------------
Balance at April 30, 1996................................................... 148 10,349 10,497
Transactions of Pooled Companies:
Undistributed earnings of subchapter S corporations..................... 8,749 (8,749)
Cash dividends paid and declared........................................ (5,594) (5,594)
Net income................................................................ 6,723 6,723
----------- --------- -------------
Balance at April 26, 1997................................................... 8,897 2,729 11,626
Unaudited data:
Issuance of U.S. Office Products common stock in conjunction with
acquisitions............................................................ 71,921 71,921
Net income................................................................ 6,572 6,572
----------- --------- -------------
Balance at January 24, 1998 (unaudited)..................................... $ 80,818 $ 9,301 $ 90,119
----------- --------- -------------
----------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
----------- ----------- ----------- ------------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 7,696 $ 9,642 $ 6,723 $ 5,557 $ 6,572
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 454 494 541 359 1,140
Non-recurring acquisition costs.................. 2,274 1,906
Gain on sale of division at Pooled Company....... (761)
Deferred taxes................................... (66) 645
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (5,963) (5,441) (2,376) (4,463) (7,815)
Inventory...................................... (2,162) 595 547 1,066 (2,171)
Prepaid expenses and other current assets...... 140 (585) (3,120) (1,789) 3,153
Accounts payable............................... 4,272 (475) 997 1,973 2,875
Accrued liabilities............................ 1,652 867 20 706 3,571
----------- ----------- ----------- ------ -----------
Net cash provided by operating activities.... 6,089 4,270 6,251 5,315 7,325
----------- ----------- ----------- ------ -----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals........................................ (888) (552) (949) (806) (1,290)
Payments of non-recurring acquisition costs........ (1,814) (1,235) (460)
Deposits........................................... (83) (421) (1,312) (1,287)
Cash received in sale of division at Pooled
Company.......................................... 1,275
Cash received in acquisitions...................... 320
Other.............................................. 12 4 161
----------- ----------- ----------- ------ -----------
Net cash provided by (used in) investing
activities................................. (959) 306 (3,914) (3,328) (1,430)
----------- ----------- ----------- ------ -----------
Cash flows from financing activities:
Proceeds from (payments of) short-term debt, net... (491) 3,683 (5,504) (3,396) (2,105)
Proceeds from issuance of long-term debt........... 2,126 1,196 305 236
Payments of long-term debt......................... (698) (937) (281) (1,984)
Payments of dividends at Pooled Companies.......... (3,087) (7,389) (4,274) (4,104) (1,320)
Advances from (payments to) U.S. Office Products
Company.......................................... 3,570 2,276 (1,475)
Capital distributed to stockholder's of Pooled
Company.......................................... (292)
Net change in cash due to conforming fiscal year-
ends of certain Pooled Companies................. 176
----------- ----------- ----------- ------ -----------
Net cash used in financing activities........ (1,744) (3,032) (6,840) (5,269) (6,884)
----------- ----------- ----------- ------ -----------
Net increase (decrease) in cash and cash
equivalents........................................ 3,386 1,544 (4,503) (3,282) (989)
Cash and cash equivalents at beginning of period..... 679 4,065 5,609 5,609 1,106
----------- ----------- ----------- ------ -----------
Cash and cash equivalents at end of period........... $ 4,065 $ 5,609 $ 1,106 $ 2,327 $ 117
----------- ----------- ----------- ------ -----------
----------- ----------- ----------- ------ -----------
</TABLE>
F-7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEAR ENDED MONTHS ENDED
----------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
------------- ------------- ----------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 335 $ 526 $ 282 $ 213 $ 123
Income taxes paid.................................. $ 422 $ 452 $ 2,460 $ 1,087 $ 1,444
</TABLE>
The Company issued common stock in connection with certain business
combinations during the nine months ended January 24, 1998. The fair values of
the assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JANUARY 24,
1998
---------------
<S> <C>
(UNAUDITED)
Accounts receivable.............................................................................. $ 16,457
Inventories...................................................................................... 6,503
Prepaid expenses and other current assets........................................................ 2,608
Property and equipment........................................................................... 2,347
Goodwill......................................................................................... 64,305
Other assets..................................................................................... 174
Short-term debt.................................................................................. (2,332)
Accounts payable................................................................................. (8,651)
Accrued liabilities.............................................................................. (7,607)
Long-term debt................................................................................... (2,203)
-------
Net assets acquired.......................................................................... $ 71,601
-------
-------
The acquisitions were funded as follows:
Common stock..................................................................................... $ 71,921
Cash received.................................................................................... (320)
-------
Total........................................................................................ $ 71,601
-------
-------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
1. BACKGROUND
Aztec Technology Partners, Inc. (the "Company") is a Delaware corporation
which is a wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Technology Solutions division as an independent publicly owned
company. This transaction is expected to be effected through the distribution of
shares of the Company to U.S. Office Products shareholders effective on or about
June 9, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office
Products plans to contribute its equity interests in certain wholly-owned
subsidiaries] associated with U.S. Office Products' Technology Solutions
division to the Company. U.S. Office Products and the Company will enter into a
number of agreements to facilitate the Distribution and the transition of the
Company to an independent business enterprise. Additionally, in connection with
the Distribution, the Company anticipates selling 4.2 million shares of its
common stock (4.83 million shares if the over-allotment is sold) in an initial
public offering ("IPO").
The Technology Solutions division was created by U.S. Office Products in
October 1996 and completed five business combinations accounted for under the
pooling-of-interests method during the period from October 1996 to April 1997
("the Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.
2. BASIS OF PRESENTATION
The consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. The Company's statement of income
includes all of the related costs of doing business including an allocation of
certain general corporate expenses of U.S. Office Products which were not
directly related to these businesses including certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing, human resources as well as other general overhead
costs. These allocations were based on a variety of factors, dependent upon the
nature of the costs being allocated, including revenues, number and size of
acquisitions and number of employees. Management believes these allocations were
made on a reasonable basis.
U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income includes
an allocation of interest expense on all debt allocated to the Company. See Note
7 for further discussion of interest expense.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-9
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CHANGE IN FISCAL YEAR
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on March 31 and December 31.
Upon acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from March 31 and December 31 to conform to U.S. Office Products' fiscal year,
which ends on the last Saturday in April.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
GOODWILL
Goodwill represents the excess of cost over the fair value of assets
acquired in business combinations accounted for under the purchase method.
Substantially all goodwill is amortized on a straight line basis over estimated
useful lives of 25-40 years. Management periodically evaluates the
recoverability of goodwill, which would be adjusted for a permanent decline in
value, if any, by comparing anticipated undiscounted future cash flows from
operations to net book value.
F-10
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.
INCOME TAXES
As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as Subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.
REVENUE RECOGNITION
Revenue from hardware and packaged software sales is recognized upon
shipment provided there are no uncertainties regarding customer acceptance and
collectibility of related receivable is considered probable.
Revenue from software development contracts is recognized as work is
performed on a "time and materials" basis.
Revenues related to fixed-price contracts are recognized using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to the estimated total cost at completion. This method is used because
management considers accumulated costs to be the best available measure of
progress on these contracts. The cumulative impact of any revision in estimates
of the percent complete is reflected in the period in which the changes become
known. Losses on projects in progress are recognized when known.
Service revenues from consulting, installation and maintenance is recognized
ratably over the contact period or as the service is provided.
Payments received by the Company in advance of product delivery or
performance of services are deferred until earned.
The American Institute of Certified Public Accountants has approved a new
Statement of Position ("SOP"), SOP 97-2, "Software Revenue Recognition" which
will supersede SOP 91-1. Management has assessed this new SOP and believes that
its adoption will not have a material effect on the timing of the Company's
revenue recognition or cause changes to its revenue recognition policies.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Advertising costs are included in the consolidated statement of income as a
component of selling, general and administrative expenses. Advertising expense
for the fiscal years ended March 31, 1995 and 1996 and the fiscal year ended
April 26, 1997 was $404, $480 and $661, respectively. The Company also earns
co-op funds from certain vendors which can be used for advertising, trade shows
and telemarketing campaigns. These funds are included in the consolidated
statement of income as a credit to the corresponding selling, general and
F-11
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
administrative expense. Co-op funds for the fiscal years ended March 31, 1995
and 1996 and the fiscal year ended April 26, 1997 were $(564), $(789) and
$(1,453), respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations in the year
incurred. Research and development costs are included in the consolidated
statement of income as a component of selling, general and administrative
expenses.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals and various regulatory fees.
NET INCOME PER SHARE
Net income per share is calculated in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS").
SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The difference between the
weighted-average number of shares of common shares used for the diluted EPS is
comprised of the dilutive effect of outstanding common stock options. However, a
portion of the Company's employee stock options outstanding during the periods
presented were not included in the computation of diluted EPS as they were
anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
the fiscal year ended April 24, 1999.
UNAUDITED INTERIM FINANCIAL DATA
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of January 24, 1998 and the results
of operations and of cash flows for the nine months ended January 25, 1997 and
January 24, 1998, as presented in the accompanying unaudited consolidated
financial data.
F-12
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
PRO FORMA INFORMATION (UNAUDITED)
The pro forma balance sheet information at January 24, 1998 adjusts the
historical January 24, 1998 balances to give effect to the allocation of $5,000
of total debt to the Company by U.S. Office Products. The Company will pay
$4,427 to U.S. Office Products (consisting of (i) the net of the $9,957 payable
to U.S. Office Products and the $7,862 receivable from U.S. Office Products and
(ii) a distribution of $2,332) with the use of available cash of $117 and $4,310
in borrowings drawn from the Company's existing working capital credit facility.
DISTRIBUTION RATIO
On May 14, 1998, the U.S. Office Products Board of Directors approved the
distribution ratio for the Company in connection with the Distribution. At the
date of Distribution, the Company will issue to U.S. Office Products
shareholders one share of its common stock for every five shares of U.S. Office
Products common stock held by each respective shareholder. The share data
reflected in the accompanying financial statements represents the historical
share data for U.S. Office Products for the period or as of the date indicated,
and retroactively adjusted to give effect to the one for five distribution
ratio.
4. BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued 4,775,757 shares of U.S. Office Products
common stock to acquire the Pooled Companies.
The Pooled Companies and the number of shares issued are as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMPANY NAME SHARES ISSUED
- ------------------------------------------------------------------------------- -------------
<S> <C>
Bay State Computer Group....................................................... 906,576
Digital Network Associates, Inc. .............................................. 761,946
Fortran Corp. ................................................................. 1,650,000
Office Equipment Service, Inc. ................................................ 661,656
Professional Computer Solutions, Inc. ......................................... 795,579
-------------
Total shares issued.......................................................... 4,775,757
-------------
-------------
</TABLE>
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. All of the
Pooled Companies previously reported on fiscal years ending other than April 30,
1996 and April 26, 1997. Upon completion of the acquisitions of the Pooled
Companies, their year-ends were changed to U.S. Office Products' year-end of the
last Saturday in April.
Commencing on May 1, 1996, the year-ends of the Pooled Companies were
changed to April 26, 1997, resulting in an adjustment to retained earnings of
$(2,818) during the fiscal year ended April 30, 1996. This adjustment consisted
of revenues, costs and expenses, and dividends of $17,294, $15,026 and $5,086,
respectively, during the period of time between the Pooled Companies most
recently completed year-end and April 30, 1996.
F-13
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:
<TABLE>
<CAPTION>
AZTEC TECHNOLOGY POOLED
PARTNERS, INC. COMPANIES COMBINED
---------------- ----------- ----------
<S> <C> <C> <C>
For the fiscal year ended March 31, 1995
Revenues............................................................. $ $ 88,999 $ 88,999
Net income........................................................... $ $ 7,696 $ 7,696
For the fiscal year ended March 31, 1996
Revenues............................................................. $ $ 114,055 $ 114,055
Net income........................................................... $ $ 9,642 $ 9,642
For the fiscal year ended April 26, 1997
Revenues............................................................. $ 57,656 $ 78,622 $ 136,278
Net income........................................................... $ 2,109 $ 4,614 $ 6,723
For the nine months ended January 25, 1997 (unaudited):
Revenues............................................................. $ 29,030 $ 72,265 $ 101,295
Net income........................................................... $ 1,670 $ 3,887 $ 5,557
For the nine months ended January 24, 1998 (unaudited):
Revenues............................................................. $ 142,512 $ $ 142,512
Net income........................................................... $ 6,572 $ $ 6,572
</TABLE>
PURCHASE METHOD
During the nine months ended January 24, 1998, the Company made five
acquisitions accounted for under the purchase method for an aggregate purchase
price of $71,601, consisting of 3,255,107 shares of common stock with a market
value of $71,921 and a net of $320 of cash acquired. The total assets related to
these acquisitions were $92,394, including intangible assets of $64,305. The
results of these acquisitions have been included in the Company's results from
their respective dates of acquisition.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Land..................................................................... $ 143 $ 143
Buildings................................................................ 374 374
Furniture and fixtures................................................... 2,277 3,184
Warehouse equipment...................................................... 323 272
Equipment under capital leases........................................... 169 252
Leasehold improvements................................................... 211 155
--------- ---------
3,497 4,380
Less: Accumulated depreciation........................................... (1,742) (2,217)
--------- ---------
Net property and equipment............................................... $ 1,755 $ 2,163
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the fiscal years ended March 31, 1995 and 1996 and
April 26, 1997 was $454, $494 and $541, respectively.
F-14
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
6. GOODWILL
Goodwill consists of the following:
<TABLE>
<CAPTION>
JANUARY 24,
1998
-----------
<S> <C>
(UNAUDITED)
Goodwill......................................................................... $ 64,305
Less: Accumulated amortization................................................... (414)
-----------
Net goodwill................................................................... $ 63,891
-----------
-----------
</TABLE>
Amortization expense for the nine months ended January 24, 1998 was $414.
7. CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Credit facility with bank, average interest rate of 8.5% at April 30,
1996. ................................................................. $ 4,080 $
Payable to Pooled Company shareholder.................................... 1,208
Current maturities of long-term debt..................................... 292 76
----------- ---
Total short-term debt.................................................... $ 5,580 $ 76
----------- ---
----------- ---
</TABLE>
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.8% to 8.4%. ............................................ $ 1,002 $ 111
Capital lease obligations................................................ 89 132
----------- -----------
1,091 243
Less: Current maturities of long-term debt............................... (292) (76)
----------- -----------
Total long-term debt............................................... $ 799 $ 167
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1998................................................................ $ 76
1999................................................................ 124
2000................................................................ 43
---------
Total maturities of long-term debt $ 243
---------
---------
</TABLE>
PAYABLE TO U.S. OFFICE PRODUCTS
The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses.
Interest has been allocated to the Company based upon the Company's average
outstanding payable balance with U.S. Office Products at U.S. Office Products
average interest rate during such period. An analysis of the activity in this
account is as follows:
<TABLE>
<S> <C>
Balance at April 30, 1996........................................... $
Payments of long-term debt of Pooled Companies upon acquisition..... 1,710
Payments of acquisition costs....................................... 1,362
Allocated corporate expenses........................................ 388
Operating costs paid by U.S. Office Products........................ 1,326
---------
Balance at April 26, 1997........................................... 4,786
Unaudited data:
Payments of long-term debt of Purchased Companies upon
acquisition......................................................... 1,159
Payments of acquisition costs....................................... 2,274
Allocated corporate expenses........................................ 838
Operating costs paid by U.S. Office Products........................ 900
---------
Balance at January 24, 1998 (unaudited)............................. $ 9,957
---------
---------
</TABLE>
The Company has earned interest on the receivable from U.S. Office Products
at the weighted average interest rate of U.S. Office Products in effect during
the periods. The receivable from U.S. Office Products was generated by the
Company primarily as a result of U.S. Office Products sweeping the Company's
excess cash through the centralized cash management system, which involves daily
advances or sweeps of cash to keep the cash balance at or near zero on a daily
basis. The Company's financial statements include allocations of net interest
expense from U.S. Office Products totaling $130 for the fiscal year ended
January 24, 1998.
At the date of Distribution, the Company has agreed to the allocation of
$5,000 in debt from U.S. Office Products. The allocation will first include debt
outstanding with third parties and the balance will represent intercompany debt
payable to U.S. Office Products. The debt payable to U.S. Office Products will
be payable upon the completion of the Distribution.
F-16
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
8. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes currently payable:
Federal................................................... $ 211 $ 485 $ 2,102
State..................................................... 190 331 777
----- ----- -----------
401 816 2,879
----- ----- -----------
Deferred income tax expense (benefit)....................... (66) 645
----- ----- -----------
Total provision for income taxes...................... $ 401 $ 750 $ 3,524
----- ----- -----------
----- ----- -----------
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory.............................................................. $ 50 $ 105
Allowance for doubtful accounts........................................ 16 49
Accrued liabilities.................................................... 124
--- -----
Total current deferred tax assets.................................. 66 278
--- -----
Long-term deferred tax liabilities:
Property and equipment................................................. 24
Other.................................................................. (881)
--- -----
Total long-term deferred tax liabilities........................... (857)
--- -----
Net deferred tax asset (liability)................................. $ 66 $ (579)
--- -----
--- -----
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 2.3 3.0 5.9
Subchapter S corporation income not subject to corporate
level taxation............................................ (32.3) (30.8) (20.8)
Nondeductible acquisition costs............................. 7.8
Other....................................................... 6.5
----- ----- -----
Effective income tax rate................................... 5.0% 7.2% 34.4%
----- ----- -----
----- ----- -----
</TABLE>
Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their
F-17
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
individual stockholders. Accordingly, the specific Pooled Companies provided no
federal income tax expense prior to their acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the specific Pooled Companies had been subject to
federal income taxes for the entire periods presented.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
APRIL 26,
1997
-------------------------
<S> <C>
Net income per consolidated statement of income...................... $ 6,723
Pro forma income tax provision adjustment............................ 2,131
------
Pro forma net income................................................. $ 4,592
------
------
</TABLE>
9. LEASE COMMITMENTS
The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998..................................................................... $ 76 $ 653
1999..................................................................... 58 598
2000..................................................................... 19 496
2001..................................................................... 479
2002..................................................................... 192
Thereafter............................................................... 431
----- -----------
Total minimum lease payments............................................. 153 $ 2,849
-----------
-----------
Less: Amounts representing interest...................................... (21)
-----
Present value of net minimum lease payments.............................. $ 132
-----
-----
</TABLE>
Rent expense for all operating leases for the fiscal years ended March 31,
1995 and 1996 and April 26, 1997 was $724, $778 and $871, respectively.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements, as no change of control has occurred.
F-18
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
DISTRIBUTION
On or before the date of the Distribution, the Company, U.S. Office Products
and the other Spin-Off Companies, will enter into a Distribution Agreement, Tax
Allocation Agreement, and Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement. These agreements
are expected to provide, among other things, for U.S. Office Products and the
Company to indemnify each other from tax and other liabilities relating to their
respective businesses prior to and following the Distribution. Certain of the
obligations of the Company and the other Spin-Off Companies to indemnify U.S.
Office Products are joint and several. Therefore, if one of the other Spin-Off
Companies fails to satisfy its indemnification obligations to U.S. Office
Products when such a loss occurs, the Company may be required to reimburse U.S.
Office Products for all or a portion of the losses that otherwise would have
been allocated to other Spin-Off Companies. In addition, the agreements will
allocate liabilities, including general corporate and securities liabilities of
U.S. Office Products not specifically related to the technology business,
between U.S. Office Products and the Company and the other Spin-Off Companies.
11. EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For the fiscal years ended March 31,
1995 and 1996 and April 26, 1997, the subsidiaries incurred expenses totaling
$314, $367 and $390, respectively, related to these plans.
12. STOCKHOLDER'S EQUITY
EMPLOYEE STOCK PLANS
Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company expects to adopt an employee stock option plan
at approximately the time of the Distribution. Upon the Distribution, the
Company expects to replace the options to purchase shares of common stock of
U.S. Office Products held by employees with options to purchase shares of common
stock of the Company.
U.S. Office Products granted 580,027 options to Company employees under the
Plan during fiscal 1997; and the Company accounted for these options in
accordance with APB Opinion No. 25. Accordingly, because the exercise prices of
the options have equaled the market price on the date of grant, no compensation
expense was recognized for the options granted. Had compensation expense been
recognized based upon the fair value of the stock options on the grant date
under the methodology prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per share for the year
ended April 26, 1997 would not have been materially effected.
Under a services agreement entered into with Jonathan J. Ledecky ("the
Ledecky Services Agreement"), the Board of Directors of U.S. Office Products has
agreed that Jonathan J. Ledecky will receive a stock option for Company Common
Stock from the Company as of the date of the Distribution. The U.S.
F-19
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
Office Products Board intends the option to be compensation for Mr. Ledecky's
services as a director of the Company, and certain services as an employee of
the Company. The option will cover 7.5% of the outstanding Company Common Stock
determined as of the date of the Distribution, with no anti-dilution provisions
in the event of issuance of additional shares of Common Stock (other than with
respect to stock splits or reverse stock splits). The option will have a per
share exercise price equal to the price of the IPO.
Immediately following the effective date of the registration statements
filed in connection with the IPO and the Distribution, the Company's Board of
Directors is expected to grant options covering approximately 6.9% of the
outstanding shares of the Company's common stock, immediately following the
Distribution and prior to the IPO, to certain executive management personnel and
non-employee directors. The options will be granted under the 1998 Stock
Incentive Plan (the "Plan") and will have a per share exercise price equal to
the IPO price, with other terms to be determined by the Company's Board of
Directors. Total options available for grant under the Plan will be 24.0% of the
outstanding shares of the Company's common stock immediately following the
Distribution and the IPO, including the options to be granted to Mr. Ledecky on
that date.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for the
fiscal years ended March 31, 1996 and April 26, 1997 and the fiscal year ending:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 30,536 $ 27,653 $ 27,173 $ 28,693 $ 114,055
Gross profit.............................................. 9,490 7,462 6,249 6,741 29,942
Operating income (loss)................................... 5,296 3,036 1,222 (122) 9,432
Net income................................................ 5,315 2,936 1,103 288 9,642
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 34,263 $ 31,898 $ 35,134 $ 34,983 $ 136,278
Gross profit.............................................. 7,982 7,608 9,656 8,903 34,149
Operating income.......................................... 2,695 1,779 3,229 2,647 10,350
Net income................................................ 2,617 1,315 1,625 1,166 6,723
Pro forma income (see Note 8)............................. 1,787 898 1,348 559 4,592
</TABLE>
F-20
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING APRIL 25, 1998
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 42,730 $ 36,875 $ 62,907 $ 142,512
Gross profit.............................................. 9,047 9,718 15,852 34,617
Operating income.......................................... 2,749 3,687 4,816 11,252
Net income................................................ 1,636 2,233 2,703 6,572
Pro forma income (see Note 8)............................. 1,636 2,233 2,703 6,572
</TABLE>
14. SUBSEQUENT EVENTS (UNAUDITED)
DISTRIBUTION/ACQUISITION - PRO FORMA
On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed five business combinations accounted for
under the purchase method in exchange for U.S. Office Products common stock with
a market value on their respective dates of acquisition of approximately
$71,900. The results of operations for the nine months ended January 24, 1998
include the results of the acquired companies from their respective dates of
acquisition.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Distribution and acquisitions described above
had been consummated as of the beginning of fiscal 1997. The results presented
below include certain pro forma adjustments to reflect the amortization of
intangible assets, adjustments in executive compensation of $2,172, $1,823 and
$312 for the fiscal year ended April 26, 1997, the nine months ended January 25,
1997 and the nine months ended January 24, 1998, respectively. and the inclusion
of a federal income tax provision on all earnings:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR --------------------------------
ENDED JANUARY 25, JANUARY 24,
APRIL 26, 1997 1997 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
Revenues................................ $ 228,912 $ 172,518 $ 191,074
Net income.............................. 9,454 7,030 9,476
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1997 or the
results which may occur in the future.
PROPOSED CREDIT FACILITY
Aztec has entered into a commitment letter with BankBoston, N.A. for the
$200,000 Proposed Credit Facility. On closing of the Proposed Credit Facility,
which will occur on the earlier of 75 days following the Spin-Off or August 15,
1998, Aztec will have access to the full $200,000 amount; as of June 9, Aztec
will have access to an interim unsecured $15,000 working capital line of credit.
The Proposed Credit Facility will mature five years from the closing date of the
Proposed Credit Facility; will be secured by all material assets of Aztec; and
will be subject to terms and conditions customary for facilities of this kind,
including certain financial covenants. Interest rate options will be available
to Aztec depending on the satisfaction of certain specified financial ratios.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Aztec East Inc. and Affiliates
We have audited the accompanying combined balance sheet of Aztec East Inc.
and Affiliates as of December 31, 1996 and 1995 and the related combined
statements of operations, of shareholders' equity and of cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aztec East Inc. and
Affiliates as of December 31, 1996 and 1995, and the combined results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
B.N. KOZIN COMPANY
Melville, New York
June 22, 1997
F-22
<PAGE>
AZTEC EAST INC. AND AFFILIATES
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C> <C>
1995 1996
--------- ---------
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
ASSETS
Current assets:
Cash in banks................................................................. $ 486 $ 340 $ 1,186
Accounts receivable, less allowance for uncollectible of $25, $35, and $34,
respectively................................................................ 3,216 3,045 2,502
Notes receivable.............................................................. 320
Inventory..................................................................... 619 1,474 1,263
Prepaid expenses and other current assets..................................... 634 808 801
--------- --------- ------
Total current assets........................................................ 4,955 5,987 5,752
Property and equipment, net..................................................... 260 274 202
Intangible assets, net.......................................................... 347 318
Other assets.................................................................... 99 99
--------- --------- ------
Total assets................................................................ $ 5,314 $ 6,707 $ 6,272
--------- --------- ------
--------- --------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,199 $ 1,817 $ 698
Notes payable--bank........................................................... 900 400 400
Loans payable--stockholders................................................... 665 605
Accrued expenses.............................................................. 387 460 1,748
Taxes payable................................................................. 72 84 122
--------- --------- ------
Total current liabilities................................................... 3,223 3,366 2,968
Notes payable--bank............................................................. 1,366 1,066
--------- --------- ------
Total liabilities........................................................... 3,223 4,732 4,034
Stockholders' equity:
Capital stock, .01 par value, 100,000 shares authorized, 51,539 issued and
outstanding................................................................. 1 1 1
Paid-in capital............................................................... 37 37 37
Retained earnings............................................................. 2,053 1,937 2,200
--------- --------- ------
Total stockholders' equity.................................................. 2,091 1,975 2,238
--------- --------- ------
Total liabilities and stockholders' equity.................................. $ 5,314 $ 6,707 $ 6,272
--------- --------- ------
--------- --------- ------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
AZTEC EAST INC. AND AFFILIATES
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................................................. $ 22,613 $ 23,340 $ 17,399 $ 15,507
Cost of revenues...................................................... 15,927 15,923 11,900 9,425
--------- --------- --------- ---------
Gross profit...................................................... 6,686 7,417 5,499 6,082
Selling, general and administrative expenses.......................... 4,968 5,732 4,444 4,054
--------- --------- --------- ---------
Operating income...................................................... 1,718 1,685 1,055 2,028
Other (income) expenses:
Interest, net....................................................... (76) 24 23 61
Other, net.......................................................... (172) (86)
--------- --------- --------- ---------
(76) 24 (149) (25)
--------- --------- --------- ---------
Income before income taxes.......................................... 1,794 1,661 1,204 2,053
Provision for income taxes............................................ 84 68 49 122
--------- --------- --------- ---------
Net income............................................................ $ 1,710 $ 1,593 $ 1,155 $ 1,931
--------- --------- --------- ---------
--------- --------- --------- ---------
Unaudited pro forma information (see Note 1):
Income before provision from income taxes........................... $ 1,794 $ 1,661 $ 1,204 $ 2,053
Provision for income taxes.......................................... 718 664 482 821
--------- --------- --------- ---------
Pro forma net income................................................ $ 1,076 $ 997 $ 722 $ 1,232
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
AZTEC EAST INC. AND AFFILIATES
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994............................. 51,539 $ 1 $ 37 $ 1,742 $ 1,780
Stockholder distributions.............................. (1,399) (1,399)
Net income............................................. 1,710 1,710
--------- ----------- ----------- ----------- ------
Balance at December 31, 1995............................. 51,539 1 37 2,053 2,091
Stockholder distributions.............................. (1,709) (1,709)
Net income............................................. 1,593 1,593
--------- ----------- ----------- ----------- ------
Balance at December 31, 1996............................. 51,539 1 37 1,937 1,975
Unaudited data:
Stockholder distributions.............................. (1,668) (1,668)
Net income............................................. 1,931 1,931
--------- ----------- ----------- ----------- ------
Balance at September 30, 1997 (unaudited)................ 51,539 $ 1 $ 37 $ 2,200 $ 2,238
--------- ----------- ----------- ----------- ------
--------- ----------- ----------- ----------- ------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
AZTEC EAST INC. AND AFFILIATES
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ----------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
--------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,710 $ 1,593 $ 1,155 $ 1,931
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 109 165 104 141
Changes in operating assets and liabilities:
Accounts receivable, net.................................... (522) 171 334 543
Inventory................................................... (221) (856) (698) 212
Prepaid expenses and other current assets................... (262) (174) (489) 327
Other assets................................................ (31) (249) 99
Intangible assets........................................... (361)
Accounts payable and accrued liabilities.................... 64 691 593 (398)
Income taxes payable........................................ 13 12
--------- ---------- ---------- ----------
Net cash provided by operating activities................. 860 1,241 750 2,855
--------- ---------- ---------- ----------
Cash flow from investing activities:
Purchases of equipment.......................................... (269) (165) (80) (41)
Issuance of notes receivable.................................... (320)
--------- ---------- ---------- ----------
Net cash used in investing activities..................... (269) (485) (80) (41)
--------- ---------- ---------- ----------
Cash flow from financing activities:
Principal payments on long-term debt............................ (100) (300)
Proceeds from long-term debt.................................... 1,567
Proceeds from notes payable..................................... 900 867
Payment on short-term debt...................................... (500)
Payments on loans payable to stockholders....................... (60)
Proceeds from loan payable to stockholders...................... 372
Distributions to stockholders................................... (1,399) (1,709) 114 (1,668)
--------- ---------- ---------- ----------
Net cash provided by (used in) financing activities....... (127) (902) 1,081 (1,968)
--------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.............. 464 (146) 1,751 846
Cash and cash equivalents, beginning of year...................... 22 486 486 340
--------- ---------- ---------- ----------
Cash and cash equivalents, end of year............................ $ 486 $ 340 $ 2,237 $ 1,186
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest.......................................... $ 73 $ 218 $ 158 $ 171
Cash paid for taxes............................................. $ 84 $ 84 $ $ 121
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
AZTEC EAST INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Aztec East Inc. and Affiliates ("the Company") is in the business of rework,
re-manufacture and repair of electronic and electromechanical equipment and
assemblies for the telecommunications industry and other commercial /industrial
markets. The Company also performs logistics management functions for their
major accounts. As of January 1, 1997, the Company changed its name to Aztec
International.
PROPERTY AND EQUIPMENT
The Company has elected to recover the cost of assets on the straight-line
method with useful lives ranging from 3-5 years.
INTANGIBLE ASSETS
The Company has elected to recover the costs of its intangible assets on the
straight-line method with an amortization period ranging from 60-180 months.
INCOME TAXES
The Company elected sub "S" status; therefore, there is no provision for
federal taxes on a corporate level. As of January 1, 1997, the Affiliated
Companies have merged and changed their names to Aztec International Inc.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
2. INVENTORIES
Inventories are stated at the lower of cost or market.
3. LEASE COMMITMENTS
The Company leases its facilities under operating leases expiring at various
times through 2006.
<TABLE>
<S> <C>
1997.............................................................. $ 399,196
1998.............................................................. 260,586
1999.............................................................. 263,292
2000.............................................................. 263,292
2001.............................................................. 203,882
2002-2006......................................................... 192,000
</TABLE>
4. NOTE RECEIVABLE
The notes receivable of $320,000 is at an interest rate of 10% and is
payable in twelve equal installments.
F-27
<PAGE>
AZTEC EAST INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PREPAIDS AND OTHER CURRENT ASSETS
The prepaids and other current assets include $592,467 and $4,496 loaned to
Unaffiliated Corporations owned by the stockholders. The loans were at a rate of
the average 30 day investment rate and are payable on demand.
6. OTHER ASSETS
The other receivables include $72,230 loaned to a stockholder in the
Company. This is payable over three years with interest based on prime.
7. BUSINESS CONCENTRATIONS
The Company receives 60% of its sales from one customer who is under
contract due to expire in 1998. The Companies have been performing services for
this customer on an ongoing basis since 1984.
8. BANK LINE OF CREDIT
The Company currently has a revolving credit line of $1,000,000 with First
Union Bank of Connecticut at an interest rate of .25% above bank's base rate.
The Company has collateralized the line with its entire assets. As at December
31, 1996, the Company has nothing outstanding. The credit line is due to expire
May 22, 1998.
9. NOTE PAYABLE
The Company has borrowed $2,000,000 from First Union Bank of Connecticut to
finance the Acquisition of Tie Communications Inc., Repair Department. The
interest rate on this debt is 2.25% above the Libor Rate and has a term of 60
months payable monthly. The current balance outstanding as of December 31, 1996
was $1,766,667.
10. LOANS PAYABLE--STOCKHOLDERS
Stockholders' loans are payable on demand and bear 12% interest.
11. 401(K) RETIREMENT PLAN
In December 1994, the Company established a defined contribution plan
(401(k)) for substantially all of its eligible employees. Employees may
contribute a percentage of their salary to the plan subject to statutory limits.
The Company will match these contributions up to certain limits.
12. STOCK OPTION PLAN
In August 1996, the Company established an Employee Incentive Stock Option
Plan. As of December 31, 1996, none of these options issued have been exercised.
13. UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the nine month periods ended September
30, 1996 and 1997 have been prepared from the unaudited financial records of the
Company and in the opinion of management, reflect all adjustments, consisting
only of normal recurring items, necessary for a fair
F-28
<PAGE>
AZTEC EAST INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. UNAUDITED INTERIM FINANCIAL INFORMATION (CONTINUED)
presentation of the financial position, results of operations and cash flows for
the interim periods presented.
14. SUBSEQUENT EVENT (UNAUDITED)
The Company and its stockholders have entered into a definitive agreement
with U.S. Office Products Company (U.S. Office Products) pursuant to which U.S.
Office Products will acquire all outstanding shares of the Company's common
stock in exchange for common stock of U.S. Office Products.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Compel Corporation
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Compel Corporation at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
January 30, 1998
F-30
<PAGE>
COMPEL CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 239,667 $ 235,703 $ 791,618
Trade accounts receivable, less allowance for doubtful accounts of
$122, $118 and $212, respectively................................ 5,412,655 6,372,103 7,052,999
Costs in excess of billings on uncompleted contracts............... 728,040 2,008,697 2,126,407
Inventories........................................................ 388,914 96,354
Prepaid expenses................................................... 230,256 205,755 36,279
Other current assets............................................... 72,000 68,300 162,056
------------ ------------- -------------
Total current assets........................................... 7,071,532 8,986,912 10,169,359
Property and equipment, net.......................................... 1,300,173 1,200,507 1,269,518
Other assets......................................................... 201,161 166,503 25,178
------------ ------------- -------------
Total assets................................................... $ 8,572,866 $ 10,353,922 $ 11,464,055
------------ ------------- -------------
------------ ------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Line of credit..................................................... $ 1,700,000 $ 1,300,000
Current portion of long-term debt.................................. 458,086 $ 130,656 636,636
Note payable....................................................... 147,931 129,631
Accounts payable................................................... 1,552,858 3,170,087 2,404,812
Accrued liabilities................................................ 568,460 622,058 1,549,864
Due to affiliates and stockholders................................. 170,000 845,000
Billings in excess of costs on uncompleted contracts............... 468,052 1,467,673 803,167
------------ ------------- -------------
Total current liabilities...................................... 5,065,387 6,365,105 6,694,479
Long-term debt, excluding current portion............................ 294,037 322,262 214,765
Other long-term liabilities.......................................... 6,000 5,300
------------ ------------- -------------
Total liabilities.............................................. 5,365,424 6,692,667 6,909,244
Stockholders' equity:
Common stock, no par value. 1,000 shares authorized, 282 shares
issued and outstanding........................................... 14,100 14,100 14,100
Retained earnings.................................................. 3,193,342 3,647,155 4,540,711
------------ ------------- -------------
Total stockholders' equity..................................... 3,207,442 3,661,255 4,554,811
------------ ------------- -------------
Total liabilities and stockholders' equity..................... $ 8,572,866 $ 10,353,922 $ 11,464,055
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
COMPEL CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenue..................... $ 21,691,207 $ 26,293,606 $ 32,537,850 $ 23,035,599 $ 26,374,678
Contract costs....................... 16,943,984 20,192,713 24,806,202 17,472,934 19,402,422
------------- ------------- ------------- ------------- -------------
Gross profit................... 4,747,223 6,100,893 7,731,648 5,562,665 6,972,256
Selling, general and administrative
expenses........................... 4,142,486 4,468,271 4,740,899 3,607,253 4,159,972
------------- ------------- ------------- ------------- -------------
Income from operations......... 604,737 1,632,622 2,990,749 1,955,412 2,812,284
------------- ------------- ------------- ------------- -------------
Other (income) expense:
Interest expense................... 93,447 189,849 145,528 124,678 89,498
Interest income.................... (37,164) (28,419) (21,797) (15,291) (30,828)
Other expense (income)............. (22,217) (10,368) (80,795) (72,503) (31,727)
------------- ------------- ------------- ------------- -------------
34,066 151,062 42,936 36,884 26,943
------------- ------------- ------------- ------------- -------------
Income before provision for
income taxes................. 570,671 1,481,560 2,947,813 1,918,528 2,785,341
------------- ------------- ------------- ------------- -------------
Provision for state income taxes..... 6,000 21,000 30,000 38,753 50,785
------------- ------------- ------------- ------------- -------------
Net income........................... $ 564,671 $ 1,460,560 $ 2,917,813 $ 1,879,775 $ 2,734,556
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Unaudited pro forma information (see
Note 1):
Income before provision for income
taxes............................ $ 570,671 $ 1,481,560 $ 2,947,813 $ 1,918,528 $ 2,785,341
Provision for income taxes......... 228,269 592,624 1,179,125 767,411 1,114,136
------------- ------------- ------------- ------------- -------------
Pro forma net income............... $ 342,402 $ 888,936 $ 1,768,688 $ 1,151,117 $ 1,671,205
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
COMPEL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993..................................... 282 $ 14,100 $ 3,434,500 $3,448,600
Stockholder distributions...................................... (1,114,389) (1,114,389)
Net income..................................................... 564,671 564,671
--- --------- ------------ ------------
Balance at December 31, 1994..................................... 282 14,100 2,884,782 2,898,882
Stockholder distributions...................................... (1,152,000) (1,152,000)
Net income..................................................... 1,460,560 1,460,560
--- --------- ------------ ------------
Balance at December 31, 1995..................................... 282 14,100 3,193,342 3,207,442
Stockholder distributions...................................... (2,464,000) (2,464,000)
Net income..................................................... 2,917,813 2,917,813
--- --------- ------------ ------------
Balance at December 31, 1996..................................... 282 14,100 3,647,155 3,661,255
Unaudited data:
Stockholder distributions...................................... (1,841,000) (1,841,000)
Net income..................................................... 2,734,556 2,734,556
--- --------- ------------ ------------
Balance at September 30, 1997 (unaudited)........................ 282 $ 14,100 $ 4,540,711 $4,554,811
--- --------- ------------ ------------
--- --------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
COMPEL CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 564,671 $ 1,460,560 $ 2,917,813 $ 1,879,775 $ 2,734,556
Adjustments to reconcile net income:
Deprecation and amortization expense....... 351,553 370,361 381,904 291,154 271,439
Gain on sale of property, plant and
equipment................................ (10,603) (3,710) (11,385) (17,027) (19,545)
Changes in current assets and liabilities:
Accounts receivable...................... (1,128,424) (369,182) (959,448) (1,082,316) (680,896)
Costs in excess of billings on
uncompleted contracts.................. 393,233 437,722 (1,280,657) (54,261) (117,710)
Inventory................................ (388,914) 292,560 292,560 96,354
Prepaid expenses and other current
assets................................. (46,244) (53,705) 24,501 (82,893) 169,476
Other assets............................. (28,394) 93,693 37,658 53,916 42,269
Accounts payable......................... 458,824 (50,357) 1,617,229 235,900 (765,275)
Accrued expenses......................... (107,725) 86,789 53,598 451,668 927,806
Billings in excess of costs on
uncompleted contracts.................. 262,283 (383,846) 999,621 755,692 (664,506)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities........................... 709,174 1,199,411 4,073,394 2,724,168 1,993,968
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment.......... (209,596) (382,261) (204,584) (245,294) (449,647)
Proceeds from sale of equipment.............. 25,595 35,850 67,422 46,126 128,742
------------ ------------ ------------ ------------ ------------
Net cash used by investing
activities........................... (184,001) (346,411) (137,162) (199,168) (320,905)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) on line of
credit..................................... 500,000 100,000 (1,700,000) (1,545,000) 1,300,000
Net borrowings (payments) from affiliates and
stockholders............................... 155,000 (25,000) 675,000 675,000 (230,380)
Net borrowings (payments) of notes payable... 18,611 37,122 (18,300) (13,725) (129,631)
Proceeds from issuance of long-term debt..... 125,180 500,000 85,009
Payments on long-term debt................... (268,247) (355,412) (432,896) (104,477) (301,146)
Distributions to stockholders................ (1,114,389) (1,152,000) (2,464,000) (1,416,000) (1,841,000)
------------ ------------ ------------ ------------ ------------
Net cash used by financing
activities........................... (583,845) (895,290) (3,940,196) (2,404,202) (1,117,148)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................. (58,672) (42,290) (3,964) 120,798 555,915
Cash and cash equivalents at beginning of
period....................................... 340,629 281,957 239,667 239,667 235,703
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period..... $ 281,957 $ 239,667 $ 235,703 $ 360,465 $ 791,618
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Supplemental disclosures:
Interest paid................................ $ 97,525 $ 189,849 $ 145,528 $ 124,678 $ 89,498
Income taxes paid............................ $ 80,000 $ 16,000 $ 20,000 $ 15,000 $ 18,000
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Compel Corporation (the Company), a California corporation, is engaged
principally in the design, installation and maintenance of wiring, cabling and
equipment related to data processing and communications systems. As a general
and electrical contractor, the Company serves a wide variety of commercial
customers throughout the western United States from offices in California and
Arizona.
Effective October 24, 1997, the Company and its stockholders entered into a
definitive agreement with U.S. Office Products Company (U.S. Office Products)
pursuant to which U.S. Office Products acquired all outstanding shares of the
Company's common stock in exchange for common stock of U.S. Office Products.
CONTRACT REVENUE AND COST RECOGNITION
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date to estimated total costs for each contract. Management considers costs to
be the best available measure of progress on these contracts.
A contract is considered complete when all significant costs have been
incurred and the installation is operating according to specifications or has
been accepted by the customer.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers cash
equivalents to include all short-term investments with original maturities of
three months or less.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value using
the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment held under
capital leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets which range between 6 to 15
years. Property and equipment held under capital leases and leasehold
improvements are amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 prescribes the accounting treatment for long-lived assets,
identifiable intangibles and goodwill related to those assets when there are
indications that the carrying values of those assets may not be recoverable. The
adoption of SFAS No. 121 in 1996 did not have a material effect on the Company's
financial position or results of operations.
F-35
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FEDERAL INCOME TAXES
The Company has elected to be treated as an S-Corporation for federal income
tax purposes and accordingly, no liability for federal income taxes has been
recorded. The Company is subject to franchise taxes in the state of California,
which has been appropriately reflected in the financial statements. The
unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
STATE FRANCHISE TAXES
State franchise taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Realization of the deferred tax asset is dependent an generating sufficient
taxable income in future years. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax asset will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
2. DUE FROM AFFILIATE
Due from affiliate represents amounts due from an affiliated company bearing
interest at prime plus 1% and maturing December 31, 1999. The note is secured by
the affiliate's accounts receivable, inventory and property and equipment. The
outstanding balances, net of current portion, at December 31, 1995 and 1996 are
$180,000 and $120,000, respectively, and are included in other assets.
3. CONTRACTS IN PROGRESS
Amounts included in the financial statements which relate to contracts in
progress at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts........................... $ 3,738,534 $ 6,093,997
Billings on uncompleted contracts................................. 3,478,546 5,552,973
------------ ------------
$ 259,988 $ 541,024
------------ ------------
------------ ------------
</TABLE>
F-36
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONTRACTS IN PROGRESS (CONTINUED)
Amounts billed but not paid by customers under retainage provisions amounted
to $24,355 and $114,863 for December 31, 1995 and 1996, respectively, are
included in accounts receivable.
<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Included in the accompanying balance sheet under the following
captions:
Costs in excess of billings on uncompleted contracts.............. $ 728,040 $ 2,008,697
Billings in excess of costs on uncompleted contracts.............. 468,052 1,467,673
---------- ------------
$ 259,988 $ 541,024
---------- ------------
---------- ------------
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Transportation equipment.......................................... $ 1,447,655 $ 1,422,210
Machinery and equipment........................................... 1,533,360 1,710,497
Furniture and fixtures............................................ 152,429 155,772
Leasehold improvements............................................ 118,409 118,409
------------ ------------
3,251,853 3,406,888
Less accumulated depreciation and amortization.................... (1,951,680) (2,206,381)
------------ ------------
Property and equipment, net....................................... $ 1,300,173 $ 1,200,507
------------ ------------
------------ ------------
</TABLE>
Property and equipment includes property and equipment held under capital
leases of $358,204 and $470,029 and related accumulated amortization of $79,185
and $145,931 at December 31, 1995 and 1996, respectively.
Depreciation expense recorded for the years ended December 31, 1995 and 1996
was $291,176 and $235,973, respectively.
5. LEASES
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1997................................................................ $ 139,041 $ 241,314
1998................................................................ 118,755 231,191
1999................................................................ 75,751 92,876
2000................................................................ 28,755 --
2001................................................................ 793 --
---------- ----------
Total minimum lease payments........................................ 363,095 $ 565,381
----------
----------
Less estimated executory costs...................................... (18,106)
----------
Net minimum lease payments.......................................... 344,989
Less imputed interest............................................... (43,843)
----------
Present value of net minimum capital lease payments................. 301,146
Less current portion of obligations under capital leases............ (108,640)
----------
Obligations under capital leases, excluding current portion......... $ 192,506
----------
----------
</TABLE>
F-37
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
During the years ended December 31, 1995 and 1996, the Company incurred rent
expense of approximately $263,000 and $279,000, respectively.
6. DUE TO AFFILIATES AND STOCKHOLDERS
A summary of amounts due to affiliates and stockholders at December 31, 1995
and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Prime rate unsecured note payable to an affiliated company, due on
demand.............................................................. $ 50,000 $ 500,000
Prime rate plus 2% unsecured notes payable to an affiliated company,
due on demand....................................................... 80,000 105,000
Prime rate unsecured notes payable to stockholders, due on demand..... -- 200,000
8.25% unsecured note payable to a relative of a stockholder, due on
demand.............................................................. 40,000 40,000
---------- ----------
$ 170,000 $ 845,000
---------- ----------
---------- ----------
</TABLE>
7. NOTES PAYABLE
Notes payable represents a short-term loan from an insurance company. The
unsecured note bears interest at 5.49% and is due on demand.
8. BANK LINE OF CREDIT
The Company has a $2,000,000 revolving line of credit with a bank. The line
of credit allows the Company to borrow up to 70% of eligible accounts
receivable. Bank advances on the credit line are payable on demand. The Company
is given the option to request advances at the bank's prime rate or 2% over the
London Interbank Offered Rate (LIBOR). The credit line is secured by all
accounts receivable, inventory, equipment and other assets. The credit line is
guaranteed by the stockholders of the Company and an affiliated company up to
$1,500,000 each. The line of credit agreement contains certain restrictions and
covenants. The Company must maintain certain levels of working capital and net
worth and maintain certain financial ratios. The line of credit agreement
expires May 31, 1997. At December 31, 1995, $1,700,000 was outstanding. At
December 31, 1996, no borrowings were outstanding under this agreement. The line
of credit agreement has been extended for 90 days which expires on July 31,
1997.
F-38
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
A summary of long-term debt as of December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Prime rate plus 1.5% note payable with monthly installments of $2,136, due June 2003,
secured by transportation equipment................................................... $ 150,970 $ 139,637
8.9% note payable with monthly installments of $349, due August 1998, secured by
transportation equipment.............................................................. 9,912 6,467
6.9% note payable with monthly installments of $533, due November 1997, secured by
transportation equipment.............................................................. 12,701 5,668
London Interbank Offered Rate (LIBOR) plus 2%, note payable to a bank, with monthly
installments of $50,000, plus interest, with the entire outstanding balance due in
full in February 1996, secured by substantially all assets of the Company............. 300,000 --
Prime rate plus 1% note payable to a bank, payable with monthly installments of $7,333,
plus interest, due May 1996, secured by substantially all assets of the Company....... 15,791 --
Capital lease obligations............................................................... 262,749 301,146
----------- -----------
752,123 452,918
Less current portion of long-term debt.................................................. (458,086) (130,656)
----------- -----------
Long-term debt, excluding current portion............................................... $ 294,037 $ 322,262
----------- -----------
----------- -----------
</TABLE>
A summary of long-term debt matures as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 22,016
1998.............................................................. 16,251
1999.............................................................. 14,968
2000.............................................................. 16,535
2001.............................................................. 18,267
Thereafter........................................................ 63,735
---------
$ 151,772
---------
---------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
BUY/SELL AGREEMENT
The Company has an agreement with its two stockholders which, upon the death
of a stockholder, requires the Company to purchase the shares from the
stockholder's estate. The purchase price of such shares has been defined in the
Agreement and is covered by life insurance.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
F-39
<PAGE>
COMPEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. BUSINESS AND CREDIT CONCENTRATIONS
During the year ended December 31, 1995 and 1996, five and three customers
accounted for approximately 31% and 29% of the Company's total revenues,
respectively. Accounts receivable from these customers totaled $1,180,459 and
$682,268 as of December 31, 1995 and 1996, respectively.
During the year ended December 31, 1995 and 1996, two vendors accounted for
approximately 45% and 43% of the Company's purchases, respectively. Accounts
payable to these vendors totaled $337,902 and $767,908 as of December 31, 1995
and 1996, respectively.
12. RELATED PARTY TRANSACTIONS
The stockholders of the Company own significant ownership in several
affiliated companies. The principal business activities of the affiliated
companies are to design, install, service and maintain data grade environmental
conditioning systems; electrical contracting; and manufacturing data cabinets.
The Company purchases materials and services, as well as sells materials and
services to these affiliated companies.
The Company is a guarantor of a line of credit totaling $100,000 and an
equipment loan totaling $224,500 for an affiliated company.
During 1995 and 1996, the Company sold approximately $71,000 and $89,000 in
materials and services, charged $106,000 and $441,000 in corporate fees and
expenses to affiliated companies, respectively. Additionally, the Company
purchased $620,000 and $1,151,000 of materials and services from affiliated
companies. Included in trade payables at December 31, 1995 and 1996 is $0 and
$149,000, respectively, due to affiliated companies.
13. 401(K) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan for the benefit of employees
who are 21 years of age, have completed at least one year of service and elect
to participate in the plan. The Company's management determines, at its
discretion, the Company's annual contribution, if any, to the plan. The
Company's annual contributions to the plan, if any, will be expensed in the year
they accrue. The Company made no contributions to the plan during 1995 or 1996.
14. UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the nine month periods ended September
30, 1996 and 1997 have been prepared from the unaudited financial records of the
Company and in the opinion of management, reflect all adjustments, consisting
only of normal recurring items, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim periods
presented.
F-40
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to the spin-off of
Aztec Technology Partners, Inc. (the "Company"), formerly the Technology
Solutions division of U.S. Office Products Company ("U.S. Office Products"),
through the distribution of shares of the Company to U.S. Office Products
stockholders (the "Distribution") and to acquisitions completed through May 1,
1998.
The pro forma combined balance sheet gives effect to the Technology
Distribution as if such transaction had occurred as of the Company's most recent
balance sheet date, January 24, 1998.
The pro forma combined statements of income for the fiscal year ended April
26, 1997 and the nine month periods ended January 24, 1998 and January 25, 1997
give effect to the Technology Distribution and the acquisitions of Compel
Corporation, Aztec East, Inc. and Affiliates ("Aztec East, Inc.") and three
other individually insignificant companies in business combinations accounted
for under the purchase method which have been completed during the fiscal year
ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"), as if all such
transactions had occurred on May 1, 1996.
The pro forma combined statement of income for the year ended April 26, 1997
includes the audited financial information of the Company for the year ended
April 26, 1997 and the unaudited financial information of the Fiscal 1998
Purchase Acquisitions for the period from May 1, 1996 through April 26, 1997.
The pro forma combined statements of income for the nine months ended
January 24, 1998 includes the unaudited financial information of the Company for
the nine months ended January 24, 1998 and the unaudited financial information
of the Fiscal 1998 Purchase Acquisitions for the period from April 27, 1997
through the earlier of their respective dates of acquisition or January 24,
1998.
The pro forma combined statement of income for the nine months ended January
25, 1997 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisitions for the period from May 1, 1996 through
January 25, 1997.
The historical financial statements of the Company give retroactive effect
to the results of the five companies acquired by the Company during the fiscal
year ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.
The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing and human resources, as well as other general
overhead costs. These corporate overhead costs have been allocated to the
Company using one of several factors, dependent on the nature of the costs being
allocated, including, revenues, number and size of acquisitions and number of
employees. Interest costs have been allocated to the Company based upon the
Company's average intercompany balance with U.S. Office Products at U.S. Office
Products' weighted average interest rate during such periods.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma combined financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Prospectus.
F-41
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED BALANCE SHEET
JANUARY 24, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AZTEC
TECHNOLOGY PRO FORMA
PARTNERS, PRO FORMA PRO FORMA OFFERING PRO FORMA
INC. ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 117 $ (117)(a) $ $ 49,278(c) $ 44,968
(4,310)(c)
Accounts receivable, net........... 46,615 46,615 46,615
Inventories........................ 12,578 12,578 12,578
Receivable from U.S. Office
Products......................... 7,862 (7,862)(a)
Unbilled percentage of completion
revenues......................... 1,452 1,452 1,452
Prepaid and other current assets... 4,252 4,252 4,252
------------- ----------- ---------- ----------- ----------
Total current assets........... 72,876 (7,979) 64,897 44,968 109,865
Property and equipment, net.......... 5,074 5,074 5,074
Goodwill, net........................ 63,891 63,891 63,891
Other assets......................... 506 506 506
------------- ----------- ---------- ----------- ----------
Total assets................... $ 142,347 $ (7,979) $ 134,368 $ 44,968 $ 179,336
------------- ----------- ---------- ----------- ----------
------------- ----------- ---------- ----------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt.................... $ 304 $ $ 304 $ $ 304
Accounts payable................... 23,329 23,329 23,329
Accrued compensation............... 3,898 3,898 3,898
Deferred revenue................... 5,402 5,402 5,402
Income taxes payable............... 4,652 4,652 4,652
Other accrued liabilities.......... 3,443 3,443 3,443
------------- ----------- ---------- ----------- ----------
Total current liabilities...... 41,028 41,028 41,028
Long-term debt....................... 386 4,310(a) 4,696 (4,310)(c) 386
Long-term payable to U.S. Office
Products........................... 9,957 (9,957)(a)
Deferred income taxes................ 857 857 857
------------- ----------- ---------- ----------- ----------
Total liabilities.............. 52,228 (5,647) 46,581 (4,310) 42,271
------------- ----------- ---------- ----------- ----------
Stockholder's equity:
Common stock....................... 22(b) 22 4(c) 26
Additional paid-in capital......... 80,796(b) 80,796 49,274(c) 130,070
Divisional equity.................. 80,818 (80,818)(b)
Retained earnings.................. 9,301 (2,332)(a) 6,969 6,969
------------- ----------- ---------- ----------- ----------
Total stockholder's equity..... 90,119 (2,332) 87,787 49,278 137,065
------------- ----------- ---------- ----------- ----------
Total liabilities and
stockholder's equity......... $ 142,347 $ (7,979) $ 134,368 $ 44,968 $ 179,336
------------- ----------- ---------- ----------- ----------
------------- ----------- ---------- ----------- ----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-42
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 24, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998
TECHNOLOGY INDIVIDUALLY PRO FORMA
PARTNERS, AZTEC COMPEL INSIGNIFICANT PRO FORMA OFFERING PRO FORMA
INC EAST, INC. CORPORATION ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ 142,512 $ 9,808 $ 20,545 $ 18,209 $ $ 191,074 $ 191,074
Cost of revenues.. 107,895 6,056 14,452 13,228 141,631 141,631
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
Gross
profit.... 34,617 3,752 6,093 4,981 49,443 49,443
Selling, general
and
administrative
expenses........ 22,951 2,407 2,914 3,275 (312)(d) 31,235 31,235
Amortization
expense......... 414 12 813(f) 1,239 1,239
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
Operating
income.... 11,252 1,333 3,179 1,706 (501) 16,969 16,969
Other (income)
expense:
Interest
expense....... 169 87 71 127 (154)(g) 300 (259)(j) 41
Interest
income........ (167) (39) (20) 226(g)
Other........... (14) (117) (30) (91) (252) (252)
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
Income before
provision for
income taxes.... 11,264 1,402 3,158 1,670 (573) 16,921 259 17,180
Provision for
income taxes.... 4,692 55 49 339 2,310(h) 7,445 114(h) 7,559
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
Net income........ $ 6,572 $ 1,347 $ 3,109 $ 1,331 $ (2,883) $ 9,476 $ 145 $ 9,621
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
Weighted average
shares
outstanding:
Basic........... 22,952 21,938(i) 22,305(k)
Diluted......... 23,437 21,938(i) 22,305(k)
Net income per
share:
Basic........... $ 0.29 $ 0.43 $ 0.43
------------ --------- -----------
------------ --------- -----------
Diluted......... $ 0.28 $ 0.43 $ 0.43
------------ --------- -----------
------------ --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-43
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AZTEC FISCAL 1998
TECHNOLOGY INDIVIDUALLY PRO FORMA
PARTNERS, AZTEC COMPEL INSIGNIFICANT PRO FORMA OFFERING PRO FORMA
INC. EAST, INC. CORPORATION ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 101,295 $ 18,289 $ 25,873 $ 27,061 $ $ 172,518 $ $ 172,518
Cost of revenues.... 76,049 12,319 19,754 19,753 127,875 127,875
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.. 25,246 5,970 6,119 7,308 44,643 44,643
Selling, general and
administrative
expenses.......... 15,637 4,729 3,533 6,161 (1,823)(d) 28,876 28,876
639(e)
Amortization
expense........... 16 1,223(f) 1,239 1,239
Non-recurring
acquisition
costs............. 1,906 1,906 1,906
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating
income...... 7,703 1,225 2,586 1,147 (39) 12,622 12,622
Other (income)
expense:
Interest expense.. 310 127 104 151 (392)(g) 300 (259)(j) 41
Interest income... (169) (89) (18) (1) 277(g)
Other............. 234 (291) (64) (111) (232) (232)
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
provision for
income taxes...... 7,328 1,478 2,564 1,108 76 12,554 259 12,813
Provision for income
taxes............. 1,771 64 30 338 3,321(h) 5,524 114(h) 5,638
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.......... $ 5,557 $ 1,414 $ 2,534 $ 770 $ (3,245) $ 7,030 $ 145 $ 7,175
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average
shares
outstanding:
Basic............. 17,196 21,938(i) 22,305(k)
Diluted........... 17,565 21,938(i) 22,305(k)
Net income per
share:
Basic............. $ 0.32 $ 0.32 $ 0.32
------------- ----------- -----------
------------- ----------- -----------
Diluted........... $ 0.32 $ 0.32 $ 0.32
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-44
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AZTEC FISCAL 1998
TECHNOLOGY INDIVIDUALLY PRO FORMA
PARTNERS, AZTEC COMPEL INSIGNIFICANT PRO FORMA OFFERING PRO FORMA
INC. EAST INC. CORPORATION ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 136,278 $ 23,626 $ 33,630 $ 35,378 $ $ 228,912 $ $ 228,912
Cost of revenues.... 102,129 15,553 25,407 26,061 169,150 169,150
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.. 34,149 8,073 8,223 9,317 59,762 59,762
Selling, general and
administrative
expenses.......... 21,525 6,063 4,961 8,028 (2,172)(d) 39,134 39,134
729(e)
Amortization
expense........... 22 1,629(f) 1,651 1,651
Non-recurring
acquisition
costs............. 2,274 2,274 2,274
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating
income...... 10,350 1,988 3,262 1,289 (186) 16,703 16,703
Other (income)
expense:
Interest expense.. 324 174 124 210 (432)(g) 400 (345)(j) 55
Interest income... (168) (111) (27) (3) 309(g)
Other............... (53) (323) (67) (136) (579) (579)
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
provision for
income taxes...... 10,247 2,248 3,232 1,218 (63) 16,882 345 17,227
Provision for income
taxes............. 3,524 112 39 245 3,508(h) 7,428 152(h) 7,580
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.......... $ 6,723 $ 2,136 $ 3,193 $ 973 $ (3,571) $ 9,454 $ 193 $ 9,647
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average
shares
outstanding:
Basic............. 18,005 21,938(i) 22,305(k)
Diluted........... 18,352 21,938(i) 22,305(k)
Net income per
share:
Basic............. $ 0.37 $ 0.43 $ 0.43
------------- ----------- -----------
------------- ----------- -----------
Diluted........... $ 0.36 $ 0.43 $ 0.43
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-45
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
1. BALANCE SHEET
(a) Represents the allocation of $5,000 of total debt to the Company by U.S.
Office Products. The Company will repay $4,427 to U.S. Office Products
(consisting of (i) the net of the $9,957 payable to U.S. Office Products and
the $7,862 receivable from U.S. Office Products and (ii) a distribution of
$2,332) with the use of available cash of $117 and $4,310 in borrowings
drawn from the Company's existing working capital credit facility.
(b) Adjustment to reflect the reclassification of divisional equity to common
stock and additional paid-in-capital as a result of the Aztec Distribution.
The Aztec Distribution will result in the issuance of 21,938 shares of
Common Stock.
(c) Adjustment to reflect $49,278 of proceeds (net of expenses and underwriting
discount) from the sale of 4,200 shares of Common Stock as part of the
Offering (assuming an initial public offering price of $13.00 per share,
which is equal to the midpoint of the range set forth in the preliminary
prospectus dated May 18, 1998 related to the Offering) and the utilization
of $4,310 of the proceeds to repay debt. The Company expects that the
initial public offering price in the Offering will be determined after the
close of markets on the date of this Information Statement/Prospectus. There
can be no assurance that the initial public offering price will be set at
that time, that the price will be within the range set forth in the
preliminary prospectus, or that the Offering will be completed.
2. STATEMENT OF INCOME
(d) Adjustment to reflect reductions in executive compensation as a result of
the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions. The
Company believes that these reductions are expected to remain in place for
the foreseeable future and are not reasonably likely to affect operating
performance.
(e) Adjustment to reflect additional corporate overhead during the period prior
to the formation of the Technology Solutions division by U.S. Office
Products as if the division had been formed at May 1, 1996.
(f) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition.
The Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over periods ranging from 25-40 years.
(g) Adjustment to reflect the reductions in interest expense and interest
income. Interest expense is being calculated on the debt outstanding at
January 24, 1998 of $5,000 at a weighted average interest rate of
approximately 8.0%. The adjustment also reflects a reduction in interest
income to zero as the company expects to use all available cash to repay
debt rather than for investment purposes. Pro forma interest expense will
fluctuate $55 on an annual basis for each 0.125% change in interest expense.
(h) Adjustment to calculate the provision for income taxes on the combined pro
forma results at an effective income tax rate of approximately 44%. The
difference between the effective tax rate of 44% and the statutory tax rate
of 35% relates primarily to state income taxes and non-deductible goodwill.
F-46
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
2. STATEMENT OF INCOME (CONTINUED)
This adjustment assumes that all companies were taxed at 44% regardless of
how they were taxed prior to being acquired by the Company, including those
companies that previously paid no taxes under subchapter S.
(i) The weighted average shares outstanding used to calculate pro forma earnings
per share of 21,938 is calculated based upon approximately 109,690 shares of
U.S. Office Products common stock outstanding on the date of the Aztec
Distribution divided by five, which is the Distribution Ratio.
(j) Adjustment to reflect a decrease in interest expense as a result of the
utilization of a portion of the net proceeds from the Offering of $4,310 to
repay debt at an annual interest rate of 8.0%.
(k) The weighted average shares outstanding used to calculate pro forma as
adjusted earnings per share of 22,305 is based upon the 21,938 shares of
common stock issued as a result of the Aztec Distribution and 367 shares
issued in the Offering that were used to repay debt.
F-47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND TECHNOLOGY DISTRIBUTION
The following table sets forth the fees and expenses payable by the Company
in connection with the issuance and distribution of the securities. All of such
expenses except the Securities and Exchange Commission registration fee are
estimated:
<TABLE>
<S> <C>
SEC Registration................................................ $ 25,822
Nasdaq Listing Fee.............................................. $ 47,500
Legal Fees and Expenses......................................... $ 500,000
Accounting Fees and Expenses.................................... $ 500,000
Printing Fees and Expenses...................................... $ 350,000
Miscellaneous................................................... $ 1,678
Total....................................................... $1,500,000
</TABLE>
- ------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Nine of Aztec's Certificate of Incorporation provides that Aztec
shall indemnify its directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Eight of Aztec's Certificate of Incorporation states that directors
of Aztec will not be liable to Aztec or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to Aztec or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the state of Delaware, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit.
Article IV of the Aztec's Bylaws provides that Aztec shall indemnify its
officers and directors (and those serving at the request of Aztec as an officer
or director of another corporation, partnership, joint venture, trust or other
enterprise), and may indemnify its employees and agents (and those serving at
the request of Aztec as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred, if such officer, director, employee or agent
acted in good faith and in a
II-1
<PAGE>
manner reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In a derivative action,
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such officer, director, employee or agent in
the defense or settlement of such action or suit, and no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to Aztec unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
Unless the Aztec Board of Directors otherwise determines in a specific case,
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the officer or director to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS
See index to exhibits.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act the Registrant has duly
caused this registration statement on to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 9, 1998.
AZTEC TECHNOLOGY PARTNERS, INC.
By: /s/ DOUGLAS R. JOHNSON
--------------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
* Chairman of the Board of
- ----------------------------------- Directors and Chief
James E. Claypoole Executive Officer June 9, 1998
(Principal Executive
Officer)
/s/ DOUGLAS R. JOHNSON Executive Vice President
- ----------------------------------- and
Douglas R. Johnson Chief Financial Officer
(Principal Financial June 9, 1998
Officer and Principal
Accounting Officer)
*
- ----------------------------------- Director June 9, 1998
Lawrence M. Howell
- ----------------------------------- Director
Jonathan J. Ledecky
*
- ----------------------------------- Director June 9, 1998
Clifford Mitman, Jr.
*
- ----------------------------------- Director June 9, 1998
Benjamin Tandowski
*/s/ DOUGLAS R. JOHNSON
- -----------------------------------
Douglas R. Johnson
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------------------
<C> <S>
3.1 ** Certificate of Incorporation
3.2 ** Certificate of Amendment of Certificate of Incorporation
3.3 ** Certificate of Amendment of Certificate of Incorporation
3.4 * Certificate of Amendment of Certificate of Incorporation
3.5 ** By-laws
3.6 * Amended By Laws
4.1 ** Form of certificate representing shares of Common Stock
5 * Opinion of Wilmer, Cutler & Pickering as to legality of securities being offered
8 * Tax opinion of Wilmer, Cutler & Pickering
10.1 ** Form of Distribution Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.2 ** Form of Tax Allocation Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.3 ** Employment Agreement, dated October 15, 1996, between Bay State Computer Group and James E. Claypoole.
10.4 * Ledecky Services Agreement, as amended
10.5 ** Employment Agreement, dated October 15, 1996, between Bay State Computer Group and Elizabeth M.
Claypoole
10.6 ** Form of Tax Indemnification Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.7 ** Form of Employee Benefits Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.8 * Form of 1998 Stock Incentive Plan
10.9 * Form of Executive Employment Agreement
10.10* Form of Employment Agreement between Aztec and Jonathan Ledecky
10.11* Form of Employment Agreement between Aztec and James Claypoole
10.12* Form of Employment Agreement between Aztec and Douglas Johnson
10.13* Form of Employment Agreement between Aztec and Ira Cohen
10.14* Form of Employee Stock Purchase Plan
10.15* Form of Non-Employee Initial Director Stock Option Plan
21 ** Subsidiaries of Registrant
23.1 * Consent of Wilmer, Cutler & Pickering (contained in Exhibits 5 and 8 hereto)
23.2 * Consent of Price Waterhouse LLP
23.3 * Consent of Rubin, Koehmstedt and Nadler
23.4 * Consent of B.N. Kozin Company
23.5 * Consent of Price Waterhouse LLP
23.6 ** Consent of Jonathan Ledecky to be named as a director
23.7 ** Consent of James E. Claypoole to be named as a director
23.8 ** Consent of Clifford Mitman, Jr. to be named as director
23.9 ** Consent of Benjamin Tandowski to be named as director
23.10** Consent of Lawrence M. Howell to be named as director
24.1 ** Power of Attorney
27 ** Financial data schedule
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
<PAGE>
Exhibit 3.4
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AZTEC TECHNOLOGY PARTNERS, INC.
Aztec Technology Partners, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on February 12, 1998, which was
amended by a Certificate of Retirement of Stock filed on even date herewith.
2. By a Written Action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141(f), 242 and 245 of the
General Corporation Law of the State of Delaware, setting forth an Amended
and Restated Certificate of Incorporation of the Corporation and declaring
said Amended and Restated Certificate of Incorporation advisable. The
stockholders of the Corporation duly approved said proposed Amended and
Restated Certificate of Incorporation by written consent in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said restatement. The
resolution setting forth the Amended and Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be
and hereby is amended and restated in its entirety so that the same shall
read as follows:
FIRST. The name of the Corporation is:
<PAGE>
Aztec Technology Partners, Inc.
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 151,000,000 shares, consisting
of (i) 150,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 1,000,000 shares of Preferred Stock, $.001 par value per
share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of
Directors upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the
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<PAGE>
Corporation available for distribution to its stockholders, subject to any
preferential rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in
the resolution or resolutions providing for the issue of such series adopted
by the Board of Directors of the Corporation as hereinafter provided. Any
shares of Preferred Stock which may be redeemed, purchased or acquired by the
Corporation may be reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to constitute different
classes of shares for the purposes of voting by classes unless expressly
provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing
for the issue of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock
of any other series to the extent permitted by law. Except as otherwise
provided in this Certificate of Incorporation, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the designation or
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation, the right
to have such vote being expressly waived by all present and future holders of
the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of
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<PAGE>
Delaware may, on the application in a summary way of this corporation or of
any creditor or stockholder thereof, or on the application of any receiver or
receivers appointed for this corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision
of law imposing such liability. No amendment to or repeal of this provision
shall apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment.
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was, or has agreed to
become, a director or officer of the Corporation, or is or was serving, or
has agreed to serve, at the request of the Corporation, as a director,
officer or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or
omitted in such capacity, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in this Article, except as set forth
in
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<PAGE>
Section 7 below, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated
by the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation. Notwithstanding anything to the contrary in
this Article, the Corporation shall not indemnify an Indemnitee to the extent
such Indemnitee is reimbursed from the proceeds of insurance, and in the
event the Corporation makes any indemnification payments to an Indemnitee and
such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving, or has agreed
to serve, at the request of the Corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in
such capacity, against all expenses (including attorneys' fees) and, to the
extent permitted by law, amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of Delaware shall determine upon application that,
despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the Court of
Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of
any claim, issue or matter therein, or on appeal from any such action, suit
or proceeding, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection therewith. Without limiting the foregoing, if any action, suit or
proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to
the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee,
(iv) an adjudication that the Indemnitee did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and (v) with respect to any criminal proceeding, an
adjudication that the Indemnitee had reasonable cause to believe his conduct
was unlawful, the Indemnitee shall be considered for the purposes hereof to
have been wholly successful with respect thereto.
-5-
<PAGE>
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or
investigation involving him for which indemnity will or could be sought. With
respect to any action, suit, proceeding or investigation of which the
Corporation is so notified, the Corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume
such defense, the Corporation shall not be liable to the Indemnitee for any
legal or other expenses subsequently incurred by the Indemnitee in connection
with such claim, other than as provided below in this Section 4. The
Indemnitee shall have the right to employ his own counsel in connection with
such claim, but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of counsel for the
Indemnitee shall be at the expense of the Corporation, except as otherwise
expressly provided by this Article. The Corporation shall not be entitled,
without the consent of the Indemnitee, to assume the defense of any claim
brought by or in the right of the Corporation or as to which counsel for the
Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom
shall be paid by the Corporation in advance of the final disposition of such
matter; provided, however, that the payment of such expenses incurred by an
Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of an undertaking by or on behalf of the Indemnitee to
repay all amounts so advanced in the event that it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such
repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in
such request such documentation and information as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless
-6-
<PAGE>
with respect to requests under Section 1, 2 or 5 the Corporation determines
within such 60-day period that the Indemnitee did not meet the applicable
standard of conduct set forth in Section 1 or 2, as the case may be. Such
determination shall be made in each instance by (a) a majority vote of the
directors of the Corporation consisting of persons who are not at that time
parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are
not at that time parties to the action, suit or proceeding in question, (c)
independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or
if no disposition thereof is made within the 60-day period referred to above
in Section 6. Unless otherwise required by law, the burden of proving that
the Indemnitee is not entitled to indemnification or advancement of expenses
under this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to
-7-
<PAGE>
the extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or
other persons serving the Corporation and such rights may be equivalent to,
or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and
any appeal therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of
such expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement to which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan) against any
expense, liability or loss incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the General Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the
surviving corporation, the surviving corporation shall assume the obligations
of the Corporation under this Article with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring prior to the date of such merger or
consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
in connection with any action, suit, proceeding or investigation, whether
civil, criminal or administrative, including an action by or in the right of
the Corporation, to the fullest extent permitted by any applicable portion of
this Article that shall not have been invalidated and to the fullest extent
permitted by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons
to the fullest extent permitted by the General Corporation Law of Delaware,
as so amended.
-8-
<PAGE>
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or
in the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained
in the quotient arrived at by dividing the designated number of directors by
three, then, if such fraction is one-third, the extra director shall be a
member of Class I, and if such fraction is two-thirds, one of the extra
directors shall be a member of Class I and one of the extra directors shall
be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1998; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 1999; and each initial director in Class III shall serve
for a term ending on the date of the annual meeting in 2000; and provided
further, that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or
removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or
decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of
which he is a member and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one
class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated
directorships shall be subtracted from those
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<PAGE>
classes whose terms of offices are to expire at the earliest dates following
such allocation, unless otherwise provided from time to time by resolution
adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each director
so disqualified, provided that in no case shall less than one-third of the
number of directors fixed pursuant to Section 1 of this Article Eleventh
constitute a quorum. If at any meeting of the Board of Directors there shall
be less than such a quorum, a majority of those present may adjourn the
meeting from time to time. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present
shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-Laws of the Corporation or by this
Amended and Restated Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be
filled only by a vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to
fill a vacancy shall be elected to hold office until the next election of the
class for which such director shall have been chosen, subject to the election
and qualification of his successor and to his earlier death, resignation or
removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting of stockholders shall
be given in the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
this Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Amended and Restated Certificate of Incorporation or the By-Laws of
the Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of capital stock of the Corporation
issued and
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<PAGE>
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may only be called by
the Chairman of the Board, the Chief Executive Officer, a vote of the
majority of the entire board, or by holders of at least 33 1/3% of
outstanding shares of Aztec stock entitled to vote generally for the election
of directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting. Notwithstanding any other provision of law, this Amended
and Restated Certificate of Incorporation or the By-Laws of the Corporation,
and notwithstanding the fact that a lesser percentage may be specified by
law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to
be signed by its President this day 10th of June, 1998.
AZTEC TECHNOLOGY PARTNERS, INC.
By:
----------------------------
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<PAGE>
Exhibit 3.6
AMENDED AND RESTATED BY-LAWS
OF
AZTEC TECHNOLOGY PARTNERS, INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Stockholders...................................................................................-1-
1.1 Place of Meetings....................................................................-1-
1.2 Annual Meeting.......................................................................-1-
1.3 Special Meetings.....................................................................-1-
1.4 Notice of Meetings...................................................................-1-
1.5 Voting List..........................................................................-2-
1.6 Quorum...............................................................................-2-
1.7 Adjournments.........................................................................-2-
1.8 Voting and Proxies...................................................................-2-
1.9 Action at Meeting....................................................................-3-
1.10 Nomination of Directors..............................................................-3-
1.11 Notice of Business at Annual Meetings................................................-4-
1.12 Action without Meeting...............................................................-5-
1.13 Organization.........................................................................-5-
1.14 Inspectors...........................................................................-6-
ARTICLE 2 - Directors......................................................................................-6-
2.1 General Powers.......................................................................-6-
2.2 Number; Election and Qualification...................................................-6-
2.3 Classes of Directors.................................................................-7-
2.4 Terms of Office......................................................................-7-
2.5 Allocation of Directors Among Classes in the
Event of Increases or Decreases in the Number of Directors...........................-7-
2.6 Vacancies............................................................................-7-
2.7 Resignation..........................................................................-7-
2.8 Regular Meetings.....................................................................-7-
2.9 Special Meetings.....................................................................-8-
2.10 Notice of Special Meetings...........................................................-8-
2.11 Meetings by Telephone Conference Calls...............................................-8-
2.12 Quorum...............................................................................-8-
2.13 Action at Meeting....................................................................-8-
2.14 Action by Consent....................................................................-9-
2.15 Removal..............................................................................-9-
2.16 Committees...........................................................................-9-
2.17 Compensation of Directors............................................................-9-
ARTICLE 3 - Officers......................................................................................-10-
3.1 Enumeration.........................................................................-10-
<PAGE>
3.2 Election............................................................................-10-
3.3 Qualification.......................................................................-10-
3.4 Tenure..............................................................................-10-
3.5 Resignation and Removal.............................................................-10-
3.6 Vacancies...........................................................................-11-
3.7 Chairman of the Board and Vice Chairman of the Board................................-11-
3.8 President...........................................................................-11-
3.9 Vice Presidents.....................................................................-11-
3.10 Secretary and Assistant Secretaries.................................................-11-
3.11 Treasurer and Assistant Treasurers..................................................-12-
3.12 Giving of Bond by Officers..........................................................-12-
3.13 Voting Upon Stocks..................................................................-12-
3.14 Salaries............................................................................-13-
ARTICLE 4 - Capital Stock.................................................................................-13-
4.1 Issuance of Stock...................................................................-13-
4.2 Certificates of Stock...............................................................-13-
4.3 Transfers...........................................................................-13-
4.4 Lost, Stolen or Destroyed Certificates..............................................-14-
4.5 Record Date.........................................................................-14-
4.6 Dividends...........................................................................-14-
ARTICLE 5 - General Provisions............................................................................-15-
5.1 Fiscal Year.........................................................................-15-
5.2 Corporate Seal......................................................................-15-
5.3 Waiver of Notice....................................................................-15-
5.4 Voting of Securities................................................................-15-
5.5 Evidence of Authority...............................................................-15-
5.6 Certificate of Incorporation........................................................-15-
5.7 Transactions with Interested Parties................................................-15-
5.8 Severability........................................................................-16-
5.9 Pronouns............................................................................-16-
ARTICLE 6 - Amendments....................................................................................-16-
6.1 By the Board of Directors...........................................................-16-
6.2 By the Stockholders.................................................................-17-
6.3 Certain Provisions..................................................................-17-
</TABLE>
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
AZTEC TECHNOLOGY PARTNERS, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held within six months after
the end of each fiscal year of the corporation on a date to be fixed by the
Board of Directors or the President (which date shall not be a legal holiday
in the place where the meeting is to be held) at the time and place to be
fixed by the Board of Directors or the President and stated in the notice of
the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall
be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may only be
called by the Chairman of the Board, the Chief Executive Officer, a vote of a
majority of the entire Board, or by holders of at least 33 1/3% of
outstanding shares of Aztec stock entitled to vote generally for the election
of directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which
the meeting is called. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
<PAGE>
address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place
within the city where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
of the meeting, and may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may
be held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than 30 days if the time and place of
the adjourned meeting are announced at the meeting at which adjournment is
taken, unless after the adjournment a new record date is fixed for the
adjourned meeting. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided by the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these By-Laws. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons
to vote or act for him by written proxy executed by the stockholder or his
authorized agent and delivered to the Secretary of the corporation. No such
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on a
matter) shall decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express provision of
law, the Certificate of Incorporation or these By-Laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
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<PAGE>
Shares of capital stock of the corporation belonging to the
corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held,
directly or indirectly, by the corporation, shall neither be entitled to vote
nor be counted for quorum purposes.
1.10 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the
corporation at a meeting of stockholders may be made by the Board of
Directors or by any stockholder of the corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 1.10. Such nominations, other than those made by or
on behalf of the Board of Directors, shall be made by notice in writing
delivered or mailed by first class United States mail, postage prepaid, to
the Secretary, and received not less than 60 days nor more than 90 days prior
to such meeting; provided, however, that if less than 70 days' notice or
prior public disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed or delivered to the Secretary not
later than the close of business on the 10th day following the date on which
the notice of the meeting was mailed or such public disclosure was made,
whichever occurs first. Such notice shall set forth (a) as to each proposed
nominee (i) the name, age, business address and, if known, residence address
of each such nominee, (ii) the principal occupation or employment of each
such nominee, (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder.
The corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the
corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors, or (c) otherwise properly brought before an annual
meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, if such business relates to the election of
directors of the corporation, the procedures in Section 1.10 must be
-3-
<PAGE>
complied with. If such business relates to any other matter, the stockholder
must have given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the date on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever occurs first. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (b) the
name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
Section 1.11 and except that any stockholder proposal which complies with
Rule 14a-8 of the proxy rules (or any successor provision) promulgated under
the Securities Exchange Act of 1934, as amended, and is to be included in the
corporation's proxy statement for an annual meeting of stockholders shall be
deemed to comply with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1.11, and if he
should so determine, the chairman shall so declare to the meeting that any
such business not properly brought before the meeting shall not be transacted.
1.12 Action without Meeting. No action may be taken by stockholders
without a meeting; action must be taken at an annual or special meeting of
stockholders and may not be taken by written consent.
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1.13 Organization. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to
order, and shall act as chairman of such meeting; provided, however, that the
Board of Directors may appoint any stockholder to act as chairman of any
meeting in the absence of the Chairman of the Board. The Secretary of the
corporation shall act as secretary at all meetings of the stockholders; but
in the absence of the Secretary at any meeting of the stockholders, the
presiding officer may appoint any person to act as secretary of the meeting.
1.14 Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and take in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or
rejection of votes shall be decided at any meeting of the stockholders by two
or more Inspectors who may be appointed by the Board of Directors before the
meeting, or if not so appointed, shall be appointed by the presiding officer
at the meeting. If any person so appointed fails to appear or act, the
vacancy may be filled by appointment in like manner.
ARTICLE 2 - Directors
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2.1 General Powers. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws. In the event of a
vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board until
the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors
which shall constitute the whole Board of Directors shall be determined by
resolution of the Board of Directors, but in no event shall be less than
three. The number of directors may be decreased at any time and from time to
time by a majority of the directors then in office, but only to eliminate
vacancies existing by reason of the death, resignation, removal or expiration
of the term of one or more directors. The directors shall be elected at the
annual meeting of stockholders by such stockholders as have the right to vote
on such election. Directors need not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which
such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting of
stockholders in 1998; each initial director in Class II shall serve for a
term ending on the date of the annual meeting of stockholders in 1999; and
each initial director in Class III shall serve for a term ending on the date
of the annual meeting of stockholders in 2000; and provided further, that the
term of each director shall be subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases
or Decreases in the Number of Directors. In the event of any increase or
decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of
which he is a member and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one
class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated
directorships shall be subtracted from those classes whose terms of offices
are to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the Board of
Directors.
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2.6 Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board,
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
election of the class for which such director shall have been chosen, subject
to the election and qualification of his successor and to his earlier death,
resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination
is made shall be given notice of the determination. A regular meeting of the
Board of Directors may be held without notice immediately after and at the
same place as the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single
director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to
each director (i) by giving notice to such director in person or by telephone
at least 24 hours in advance of the meeting, (ii) by sending a telegram,
telecopy, or telex, or delivering written notice by hand, to his last known
business or home address at least 24 hours in advance of the meeting, or
(iii) by mailing written notice to his last known business or home address at
least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the
meeting. An amendment of these By-Laws may be acted upon if the notice shall
have stated that the amendment of these By-Laws is one on the purposes of the
meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any
members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
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2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for
each such director so disqualified; provided, however, that in no case shall
less than one-third (1/3) of the number so fixed constitute a quorum. In the
absence of a quorum at any such meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
2.15 Removal. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote.
2.16 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no such committee shall have the power
or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution; and unless
such resolution, these By-laws, or the Certificate of Incorporation expressly
so provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Each such committee shall
keep minutes and make such reports as the Board of Directors may from time to
time request.
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Except as the Board of Directors may otherwise determine, any committee may
make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these ByLaws for the Board of
Directors.
2.17 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
3.2 Election. The President, Treasurer, and Secretary and Assistant
Secretary shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the Board of Directors at such meeting or at any other meeting.
The election or appointment of an officer shall not of itself create
contract rights.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until
his successor is elected and qualified, unless a different term is specified
in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
Any officer may be removed at any time, with or without cause, by
vote of a majority of the entire number of directors then in office. Except
as noted below, the removal of any officer without cause shall be without
prejudice to his contract rights if any.
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Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month
or by the year or otherwise, unless such compensation is expressly provided
in a duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of President,
Treasurer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board
of Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess
such powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the
Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of
the corporation. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, if he is a director, at
all meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the
corporation. The President shall perform such other duties and shall have
such other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties
and possess such powers as the Board of Directors or the President may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The
Board of Directors may assign to any Vice President the title of Executive
Vice President, Senior Vice President or any other title selected by the
Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall
perform such duties and shall have such powers as the Board of Directors or
the President may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office
of the secretary, including without limitation the duty and power to give
notices of all meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of Directors
and keep a record of the proceedings, to
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maintain a stock ledger and prepare lists of stockholders and their addresses
as required, to be custodian of corporate records and the corporate seal and
to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned
to him by the Board of Directors or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office
of treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws,
to disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Treasurer, the Assistant Treasurer (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
3.12 Giving of Bond by Officers. All officers of the corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
corporation for the faithful performance of their duties, in such penalties
and with such conditions and security as the Board shall require.
3.13 Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the President or any Vice President shall have full power and
authority on behalf of the corporation to attend and to act and to vote, or
in the name of the corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the corporation may hold stock, and
at any such meeting shall possess and may exercise, in person or by proxy,
any and all rights, powers and privileges incident to the ownership of such
stock. The Board of Directors may from time to time, by resolution, confer
like powers upon any other person or persons.
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3.14 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole
or any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the
authorized capital stock of the corporation held in its treasury may be
issued, sold, transferred or otherwise disposed of by vote of the Board of
Directors in such manner, for such consideration and on such terms as the
Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation. Any or all of the signatures on the certificate
may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these By-Laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the
requirements of these ByLaws.
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4.4 Lost, Stolen or Destroyed Certificates. The corporation may
issue a new certificate of stock in place of any previously issued
certificate alleged to have been lost, stolen, or destroyed, upon such terms
and conditions as the Board of Directors may prescribe, including the
presentation of reasonable evidence of such loss, theft or destruction and
the giving of such indemnity as the Board of Directors may require for the
protection of the corporation or any transfer agent or registrar. Upon the
stub of every new certificate so issued shall be noted the fact of such issue
and the number, date and the name of the registered owner of the lost, stolen
or descried certificate in lieu of which the new certificate is issued.
4.5 Record Date. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any
other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice
is given, or, if notice is waived, at the close of business on the day before
the day on which the meeting is held. The record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating to such
purpose.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
4.6 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed
for the payment of any dividend shall in any year fall upon a legal holiday,
then the dividend payable on such date shall be paid on the next day not a
legal holiday.
ARTICLE 5 - General Provisions
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5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of May in each year and end on the last day of April in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or
any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to
time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or
between the corporation and any other corporation, partnership, association,
or other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such
purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
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(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the
Board of Directors in which the notice of the meeting stated that the
amendment of these By-laws is one of the purposes of the meeting and at which
a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section
6.3, these By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote at any regular or special meeting of stockholders, provided notice of
such alteration, amendment, repeal or adoption of new by-laws shall have been
stated in the notice of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law,
the Certificate of Incorporation or these By-Laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote
of the holders of at least seventy-five percent (75%) of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
shall be
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required to amend or repeal, or to adopt any provision inconsistent with
Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article
2 or Article 6 of these By-Laws.
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Exhibit 5
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
June 9, 1998
Aztec Technology Partners, Inc.
52 Roland Street
Boston, MA 02129
Gentlemen:
As special counsel for Aztec Technology Partners, Inc., a Delaware
corporation (the "Company"), we are familiar with the Company's Registration
Statement on Form S-1, first filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act"), on
March 6, 1998, as amended by Amendment No. 1 to the Registration Statement filed
with the Commission on May 1, 1998, Amendment No. 2 to the Registration
Statement filed with the Commission on May 18, 1998 and Amendment No. 3 to the
Registration Statement filed with the Commission on June 4, 1998, as may be
further amended or supplemented (collectively, the "Registration Statement"),
with respect to the offering (the "Offering") of up to 4,200,000 shares of the
Company's Common Stock, $.001 par value, by the Company (the "Firm Shares"),
and up to an additional 630,000 shares of Common Stock by the Company (the
"Option Shares") subject to an Underwriters' over-allotment option (the
"Over-allotment Option"). The Firm Shares and the Option Shares are
collectively referred to hereafter as the "Shares."
In connection with the foregoing, we have examined (i) the Certificate of
Incorporation of the Company filed with the Secretary of State of Delaware on
February 12, 1998, (ii) the Certificate of Amendment to the Certificate of
Incorporation filed with the Secretary of State of Delaware on April 2, 1998;
(iii) the Certificate of Amendment to the Certificate of Incorporation filed
with the Secretary of State of Delaware on April 23, 1998; (iv) the Certificate
of Amendment to the Certificate of Incorporation to be filed with the Secretary
of the State of Delaware; (v) the By-Laws of the Company (amended and restated);
(vi) the proposed form of Underwriting Agreement to be filed as an Exhibit to
the Registration Statement with respect to the Shares (the "Underwriting
Agreement"); (vii) the form of stock certificate for the common stock of the
Company, and (viii) such records of the corporate proceedings of the Company,
such certificates of public officials and such other documents as we deemed
necessary to render this opinion.
Based on such examination and assumption, we are of the opinion that:
<PAGE>
Aztec Technology Partners, Inc.
June 9, 1998
Page 2
1. The Company is a corporation duly incorporated and existing under the
laws of the State of Delaware.
2. The Shares have been duly authorized and when sold, issued and paid
for pursuant to the duly executed Underwriting Agreement (in substantially the
form filed as an exhibit to the Registration Statement) will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this Opinion as Exhibit 5 to the
Registration Statement and the reference to us in the Prospectus which is part
of the Registration Statement.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ Thomas W. White
-------------------------------------
Thomas W. White, a partner
<PAGE>
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
June 9, 1998
To the Persons on the Attached Schedule A:
We have represented U.S. Office Products Company ("U.S. Office
Products") in connection with the distributions (each, a "Distribution" and
collectively, the "Distributions") by U.S. Office Products of all of the common
stock of Aztec Technology Partners, Inc., Workflow Management, Inc., School
Specialty, Inc., and Navigant International, Inc. ("Navigant"), all Delaware
corporations (collectively, the "Spin-Off Companies"), and the registration of
the common stock of the Spin-Off Companies pursuant to Registration Statements
on Forms S-1 as originally filed with the Securities and Exchange Commission on
February 19, 1998 as amended through the date of the final amendment dated June
9, 1998 (the "Information Statements"). We have also represented U.S. Office
Products in connection with the proposed equity investment in U.S. Office
Products by an affiliate (the "Investor") of Clayton, Dubilier & Rice, Inc.
("CD&R") and in connection with the other transactions described in the
Information Statements that are taking place in connection with the
Distributions. Professional Travel Corporation ("Professional Travel"),
Associated Travel, Inc., Aztec International, Inc., Bay State Computer Group,
Inc., Compel Corporation, School Specialty, Inc., a Wisconsin Corporation, The
Re-Print Corporation, SFI Corporation, United Envelope Company, Inc., Mile High
Office Supply, Inc., J. Thayer Company, Carithers-Wallace-Courtenay, Inc., W.J.
Saunders & Company, Inc., Office Connection, Inc., and Brasan, Inc. will be
referred to herein as the "Lead Companies." Capitalized terms not otherwise
defined in this letter shall have the meaning given such terms in the
Information Statements.
For purposes of rendering this opinion, we have reviewed the
Information Statements, including all exhibits thereto; the Investment
Agreement; the Distribution Agreement; the Tax Allocation Agreement; the Tax
Indemnification Agreement; the Employee Benefits Agreement; certain
documentation relating to the organization of the Spin-Off Companies; agreements
of merger pursuant to which U.S. Office Products acquired all of the stock of
each Lead Company through the merger of a subsidiary of U.S. Office Products
into each Lead Company; certain agreements, tax returns, and financial records
relating to past and
<PAGE>
current activities of the Lead Companies; agreements of merger and other
documentation relating to transactions pursuant to which U.S. Office Products,
Professional Travel, and the Spin-Off Companies (other than Navigant) have
acquired the assets and businesses of the Lead Companies; agreements and other
documentation pursuant to which Navigant acquired the stock of Professional
Travel; agreements and other documentation pursuant to which Professional Travel
and the Spin-Off Companies (other than Navigant) have acquired the stock of
certain subsidiaries of U.S. Office Products; and such other documents as we
have deemed relevant for purposes of this opinion. We have assumed that all
parties to agreements that we have examined have acted, and will act, in
accordance with the terms of such agreements.
We have also relied on the accuracy of the representations contained
in the letter from U.S. Office Products to us, the letters from each Spin-Off
Company to us, and the letter from the Investor to us of even date herewith
containing certain factual representations. We have also relied on the views of
Morgan Stanley & Co. Incorporated contained in its letter to us of even date
herewith (the "Morgan Stanley Letter"). We have not attempted to verify
independently such representations and opinion, but in the course of our
representation, nothing has come to our attention which would cause us to
question the accuracy thereof.
We have assumed the genuineness of all signatures, the proper
execution of all documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, and the authenticity of the originals of any such copies. The letters
of representation referenced in the preceding paragraph include representations
that, based on the knowledge of those parties, no Distribution is part of a plan
or series of transactions pursuant to which one or more persons will acquire
directly or indirectly stock representing 50% or more of either the voting power
or value of U.S. Office Products or any of the Spin-Off Companies. We have also
assumed that no Distribution is or will be part of any such plan that is outside
the knowledge of such parties as of the date of this opinion.
This opinion represents our best judgement of how a court would rule
if presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinions will not be challenged by the IRS or rejected by a
court.
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have deemed necessary or appropriate, it is our
opinion, under presently applicable U.S. federal income tax law, that:
1. Each Distribution will qualify under Section 355 of the Code.
2. No Distribution will be taxable under Section 355(e) of the
Code.
3. With respect to each Spin-Off Company, the transactions
pursuant to which such Spin-Off Company acquires the assets that it
will hold at the time of
2
<PAGE>
the Distribution, together with the Distribution of the common stock
of such Spin-Off Company, will qualify as reorganizations described in
Section 368 of the Code.
4. No gain or loss will be recognized by holders of U.S. Office
Products Common Stock as a result of their receipt of Common stock of
any Spin-Off Company. Holders of U.S. Office Products Common Stock
will recognize gain or loss on the receipt of cash in lieu of
fractional shares.
5. No gain or loss will be recognized by U.S. Office Products or
any of the Spin-Off Companies as a result of any of the Distributions.
6. A stockholder's basis in such stockholder's U.S. Office
Products Common Stock immediately before the Distributions will be
allocated among the U.S. Office Products Common Stock and the Spin-Off
Companies' common stock (including any fractional shares) received
with respect to such U.S. Office Products Common Stock in proportion
to their relative fair market values on the date of the Distributions.
Such allocation must be calculated separately for each block of U.S.
Office Products Common Stock (shares purchased at the same time and at
the same cost) with respect to which the Spin-Off Companies' common
stock is received.
7. The holding period of the Spin-Off Companies' common stock
(including any fractional shares) received in the Distributions will
include the holding period of the U.S. Office Products Common Stock
with respect to which it was distributed.
You should be aware, however, that the requirements of Code Section 355
pertaining to business purpose, active trade or business, and absence of a
device for distribution of earnings and profits, as well as the requirement of
Code Section 355(e) pertaining to a plan or series of related transactions to
acquire 50% or more by vote or value of a company, are highly dependent on
factual interpretations, are to a significant extent subjective in nature, and
have a relative absence of authority addressing their application to the
particular facts presented by the Distributions. Accordingly, the IRS and/or a
court could reach a different conclusion.
BUSINESS PURPOSE. In order for a distribution of the stock of a
subsidiary to qualify under Section 355, it must be motivated, in whole or
substantial part, by one or more corporate business purposes. U.S. Office
Products has represented that the Distributions were motivated, in whole or
substantial part, to allow U.S. Office Products and the Spin-Off Companies to
adopt strategies and pursue objectives that are more appropriate to their
respective industries and stages of growth; to allow the Spin-Off Companies to
pursue independent acquisition programs with a more focused use of resources
and, where stock is used as consideration, provide stock of a public company
that is in the same industry as the business
3
<PAGE>
being acquired; to allow U.S. Office Products and the Spin-Off Companies to
offer their respective employees more focused compensation packages; and to make
possible the Equity Investment by the Investor and the consulting agreement with
CD&R, which the Board of Directors of U.S. Office Products concluded would
contribute to U.S. Office Products' development, based on the skills and
experience of CD&R. These representations of U.S. Office Products have been
supplemented and supported by the representations made by the Investor and by
the Morgan Stanley Letter. Based on these representations and the Morgan
Stanley Letter, it is our opinion that each Distribution satisfies the business
purpose requirement of Code Section 355. Although similar rationales have been
accepted by the IRS in other circumstances as sufficient to meet the business
purpose requirement of Code Section 355, there can be no assurances that the IRS
will not assert that the business purpose requirement is not satisfied.
ACTIVE TRADE OR BUSINESS. In order for the distribution of the stock
of a Spin-Off Company (other than Navigant) to qualify under Code Section 355,
both the Spin-Off Company and U.S. Office Products must be engaged in an active
trade or business that was actively conducted for the five year period preceding
the Distribution, taking into account only businesses that have been acquired in
transactions in which no gain or loss was recognized. In order for the
distribution of the stock of Navigant to qualify under Code Section 355,
substantially all of the assets of Navigant must consist of the stock of
Professional Travel, and Professional Travel and U.S. Office Products must meet
the requirements described in the preceding sentence. Whether current and
historical business activity constitutes an active trade or business, and
whether any gain or loss should have been recognized in an acquisition
structured and reported as a nontaxable transaction, turn in some instances on
the application of subjective legal standards and on factual determinations,
such as intentions of the parties involved. Based on the representations made
to us and our review of documents, both as referenced above, it is our opinion
that each Distribution satisfies the active trade or business requirement.
However, because of the inherently subjective nature of important elements of
the active trade or business requirement, and because the IRS may challenge the
representations upon which we rely, there can be no assurance that the IRS will
not assert that the active trade or business requirement is not satisfied in the
case of any of the Distributions.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. Code
Section 355 does not apply to a transaction used principally as a device for the
distribution of the earnings and profits of the distributing corporation or the
corporation being distributed. Treasury regulations provide that this test is
applied based on all the facts and circumstances, including the presence or
absence of factors described in the Regulations as "device factors" and
"nondevice factors." Application of this test is uncertain in part because of
its subjective nature. Based on the representations made to us, it is our
opinion that none of the Distributions is a transaction used principally as a
device for the distribution of earnings and profits of either U.S. Office
Products or any of the Spin-Off Companies. However, because of the inherently
subjective nature of the device test (including the subjectivity involved in
assigning weight to various factors), and because the IRS may challenge the
representations upon which we rely, there can be
4
<PAGE>
no assurance that the IRS will not assert that any of the Distributions are
transactions used principally as a device for the distribution of earnings and
profits.
This opinion is based on relevant provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated
thereunder, and interpretations of the foregoing as expressed in court decisions
and administrative determinations, as currently in effect. We undertake no
obligation to update or supplement this opinion to reflect any changes in laws
that may occur.
This opinion does not address all aspects of U.S. federal income
taxation that may be relevant to particular holders of U.S. Office Products
Common Stock and may not be applicable to holders who are not citizens or
residents of the United States. This opinion may not apply to certain classes
of taxpayers, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who have
acquired U.S. Office Products Common Stock pursuant to the exercise or
termination of employee stock options or otherwise as compensation, or persons
who hold their U.S. Office Products Common Stock in a hedging transaction or as
a part of a straddle or conversion transaction.
This opinion has been prepared in connection with the filing of the
Information Statements and should not be quoted in whole or in part or otherwise
be referred to, nor otherwise be filed with or furnished to any governmental
agency or other person or entity, without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Information Statements and to the references to this opinion in the Information
Statement. In giving this consent, we do not hereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ William J. Wilkins
-----------------------
William J. Wilkins
A Partner
5
<PAGE>
SCHEDULE A
U.S. Office Products Company
Aztec Technology Partners, Inc.
Navigant International, Inc.
School Specialty, Inc.
Workflow Management, Inc.
The Lenders party from time to time to that certain Credit Agreement dated as
of June 9, 1998 among U.S. Office Products, Blue Star Group Limited, Merrill
Lynch Capital Corporation as Documentation Agent, Bankers Trust Company as
Syndication Agent and The Chase Manhattan Bank as Administrative Agent.
6
<PAGE>
/__/ Employee's Copy
/__/ Company's Copy
AMENDED SERVICES AGREEMENT
To Jonathan J. Ledecky:
This Agreement, amended as of June 8, 1998, establishes the terms of your
continuing employment with U.S. Office Products Company, a Delaware
corporation (the "Company"), and replaces your amended and restated
employment agreement with the Company dated as of November 4, 1997 (the "1997
Agreement"), as amended. This Agreement is contingent on and subject to the
closing of the distributions (the "Distributions") to the Company's
stockholders of the stock of Aztec Technology Partners, Inc., Navigant
International, Inc., School Speciality, Inc., and Workflow Management, Inc.
(the "Spincos"). If the Distributions do not close by September 30, 1998,
this Agreement will have no force or effect and your 1997 Agreement will
remain in place and in effect. You are resigning from the Board effective as
of and contingent on the Distributions.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's Board of Directors (the "Board"). The Board
can require such reports of your activities on the Company's
behalf as it reasonably deems appropriate. It can require
your services to the extent consistent with your other
contractual employment obligations to Consolidation Capital
Corporation ("CCC") and the Spincos, with the specific timing
of your services to be mutually agreed. You agree to comply
with the Company's generally applicable personnel policies to
the extent applicable to a person working on your schedule
and consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distributions (the "Closing Date")
through June 30, 2001, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Company Your Company options will continue to vest and be exercisable
on their
<PAGE>
Options current schedules unless and until the Company properly
terminates your employment for Cause under this Agreement.
The Company will adjust the exercise price of your options
consistent with adjustments for substantially all of the
other optionholders' options.
Your existing Company options will not convert into Spinco
options.
The Company will accelerate your options if and to the extent
that the Company accelerates the exercisability of options
for substantially all management optionholders.
You waive any claim to participate in any matching or reload
program that may apply to other employees of the Company.
The unexercised portions of your Company options will expire
under their current terms or if, as finally determined by a
court, you violate the No Competition provision as it applies
to the Company.
Disgorging If a court finds that you violated the No
Option Competition provision, you agree that your
Gain unexercised options are retroactively
forfeited as of the date of the violation and
that, if you have exercised the options since
the violation began, you will promptly pay the
Company any Option Gain, net of any taxes
actually paid on the options. For purposes
of this Agreement, the "Option Gain" per share
you received on exercise of options on or
after the violation is
Stock for stock you have sold, the greater
Sold of (i) the spread between closing price
on the date of exercise and the exercise
price paid ("Exercise Spread") and (ii)
the spread between the price at which you
sold the stock and the exercise price
paid, and
Stock for stock you have retained, the greater
Retained of (i) Exercise Spread and (ii) the
spread between the closing price on the
date of the court's final determination
and the exercise price paid.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse
Amended Services Agreement with Jonathan J. Ledecky Page 2 of 12
<PAGE>
you for reasonable business expenses relating to the
direct performance of such services to the Company
(including expenses incurred before the date of this
Agreement but not previously submitted, as long as you
submit the expenses by June 30, 1998), subject to limits
to be mutually agreed in advance, upon proper and timely
substantiation.
Amended Services Agreement with Jonathan J. Ledecky Page 3 of 12
<PAGE>
Spinco You will receive options in the Spincos in consideration for
Compensation your services as an employee of each Spinco.
Option Your Spinco options will cover 7.5% of the
outstanding common stock of each Spinco
determined as of the Distribution Date
(excluding the stock under the Spinco's
initial public offering), with no
anti-dilution provisions in the event of
issuance of additional shares of common stock
(other than with respect to stock splits or
reverse stock splits).
Term Each Spinco option will expire ten years from
the Closing Date.
Price Each Spinco option will have a per share
exercise price equal to the offering price in
the initial public offerings for each
Spinco or, if no initial public offering
commences on the Closing Date, at the fair
market value of the Spinco's common stock,
as determined under the Spinco's option
plan, for the date of the grant.
Schedule Each Spinco option will be fully vested when
granted, but may not be exercised until the
first anniversary of the Closing Date.
Your Spinco options with respect to a
particular Spinco will become exercisable
before that first anniversary if and to the
extent the relevant Spinco accelerates the
options for substantially all management
optionholders.
All unexercised portions of Spinco options
with respect to a particular Spinco will
expire if, as finally determined by a court,
you violate the No Competition provision as it
applies to the respective Spinco.
If a court finds that you violated the No
Competition provision with respect to a
particular Spinco, you agree that your
unexercised options from that Spinco are
retroactively forfeited as of the date of the
violation and that, if you have exercised the
options from that Spinco since the violation
began, you will promptly pay that Spinco any
Option Gain, net of any taxes actually paid
on the options.
All unexpired options will vest and be
exercisable at your death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any
Amended Services Agreement with Jonathan J. Ledecky Page 4 of 12
<PAGE>
salary you received from the Company between the date of the
violation and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay, your salary will end, and your Company
options will cease vesting. Except to the extent the law or
the terms of an applicable plan requires otherwise, neither
you nor your beneficiary or estate will have any rights or
claims under this Agreement or otherwise to receive severance
or any other compensation or to participate in any other
plan, arrangement, or benefit, after your termination of
employment, other than with respect to your options.
No Competition The Company hereby releases you, effective for acts or
omissions after the Closing Date, from any obligation under
your 1997 Agreement to notify the Company regarding corporate
opportunities.
Consistent with certain of your prior obligations under the
1997 Agreement, you will not, until after the end of the
Restricted Period, for any reason whatsoever, directly or
indirectly, for yourself or on behalf of or in conjunction
with any other person, persons, company, partnership,
corporation, or business of whatever nature:
Competition (i) engage, as an officer, director,
shareholder, owner, partner, joint venturer,
or in a managerial capacity, whether as an
employee, independent contractor, consultant,
or advisor, or as a sales representative, in
any business (other than an Excluded Business,
as defined below) selling any products or
services in direct competition with the
Company within 100 miles of where the Company
or where any of the Company's subsidiaries or
affiliates regularly maintains any of its or
their offices with employees (the
"Territory"), where "products or services" are
determined for this clause with respect to
products or services offered on or before
January 13, 1998 by the Company and/or any of
the Spincos and where the geographic
limitation is determined with reference to the
applicable entity and its subsidiaries (e.g.,
competition with respect to a Spinco is
determined by reference to the location where
that Spinco has an office with employees and
not to the locations of others);
Employees (ii) call upon any person who is, at that
time, within the Territory, an employee of the
Company (including the respective subsidiaries
and/or affiliates thereof) in a managerial
capacity for the purpose
Amended Services Agreement with Jonathan J. Ledecky Page 5 of 12
<PAGE>
or with the intent of enticing such employee
away from or out of the Company's employ
(including the respective subsidiaries and/or
affiliates thereof) other than a member of
your immediate family; or
Customers (iii) call upon any person or entity that is,
at that time, or that has been, within one
year prior to that time, a customer of the
Company (including the respective subsidiaries
and/or affiliates thereof) within the
Territory for the purpose of soliciting or
selling products or services in direct
competition with the Company (including the
respective subsidiaries and/or affiliates
thereof) within the Territory other than on
behalf of an Excluded Business.
For purposes of this Agreement, the
"Restricted Period" ends, for the Company and
its subsidiaries and affiliates after the
Closing Date, on the second anniversary of the
Closing Date, and ends, for each Spinco and
its subsidiaries and affiliates after the
Closing Date, on the later of the second
anniversary of the Closing Date and the date
one year after you leave employment with the
Spinco and its subsidiaries and affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following
(i) any electrical contracting
business that, at the time of its
creation or acquisition and at all
later times, derives more than 50% of
its revenues from electrical
contracting and maintenance services,
without regard to whether it would
otherwise violate the No Competition
clause because it is also engaged in a
business directly competitive with
Aztec Technology Partners, Inc. or any
of its subsidiaries (together,
"Aztec"), provided that this exclusion
does not permit the business to engage
in any of the lines of business
described under "Consulting and
Engineering Services," "Systems and
Network Design and Implementation
Services" and "Software Development
and Implementation Services" in the
Aztec Form S-1 filed on June 3, 1998
(the "Aztec Specified Businesses")
other than as provided under (ii) or (vi)
in the Excluded Businesses;
Amended Services Agreement with Jonathan J. Ledecky Page 6 of 12
<PAGE>
(ii) any business whose revenue from
activities that compete with Aztec and
its subsidiaries, at the time of the
business's creation or acquisition and
at all later times, is less than $15
million per year, provided that this
exclusion does not permit the business
to engage in the Aztec Specified
Businesses other than (i) as provided
under (vi) in the Excluded Businesses
or (ii) through the pending CCC
acquisitions of National Network
Systems in Denver, Colorado and of
Chambers Electronics Communications in
Phoenix, Arizona;
(iii) any business engaged, and only to
the extent it is so engaged, in computer
monitoring for facilities management;
(iv) any business engaged, and only to
the extent that it is so engaged, in the
business of selling, supplying, or
distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to
the extent it is so engaged, in the
managing or servicing of office
equipment (other than computers);
(vi) any business engaged, and only to
the extent it is so engaged, in providing
internet access services and
activities supportive of such services;
(vii) UniCapital Corporation's
business as described in its prospectus
as of the date of this Agreement; and
(viii) U.S. Marketing Services Inc.'s
("USM") shelf-stocking and merchandising,
and point of purchase display creation
and incentive marketing businesses,
as described in its registration
statement filed on the date of this
Agreement, so long as you are solely
an investor in USM and not an officer,
director, or employee of or consultant
to, USM; provided however, that your
service as a director will not violate
the foregoing requirement as long as
you cease to be a director no later
than the 90th day after the effective
date of USM's initial public offering;
Amended Services Agreement with Jonathan J. Ledecky Page 7 of 12
<PAGE>
provided, that in each case you are engaged in
such business only in a policy making role and
not in the entity's business in a manner that
would involve you in direct personal
competition with the Company (and its
subsidiaries) or the applicable Spinco (and
its subsidiaries), provided further that
this proviso does not prevent your
activities in furtherance of acquisitions
of Excluded Businesses, and provided further
that you will comply with your fiduciary
duties as a director of each of the Spincos
in connection with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company and each Spinco (or their subsidiaries), you will
inform the relevant entity of any opportunities for it
associated with any of the Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time; or
provides (or within the prior year provided) substantial
service to the Company or a subsidiary of the Company as
part of an entity that is or was a vendor or other
outside service provider to the Company or any
subsidiary; provided, however, that this provision
regarding vendors and outside service providers will not
apply after the Closing Date. In addition, the Company
specifically agrees that you may hire Jackie Scott and
Amy Blodgett, notwithstanding anything to the contrary
in the 1997 Agreement.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than 4.9% of the capital stock of a
competing business, whose stock is traded on a national
securities exchange or over-the-counter, provided that
such actions do not otherwise breach your obligations
hereunder; and provided further that actions of CCC after
you have ceased to be a director, officer, and employee of
CCC will not constitute a breach of this covenant despite
your continued stock ownership, so long as you are not
then directly assisting any competitive actions.
Amended Services Agreement with Jonathan J. Ledecky Page 8 of 12
<PAGE>
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to the Company,
any of the Spincos, or their respective subsidiaries, even
if one of those entities engages in direct competition
with another. You and the Company agree that CCC's
acquisition or retention of Wilson Electric Company, Inc.
("Wilson") and Wilson's engaging in any lines of business
in place as of the Closing Date do not violate the No
Competition provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and business (including the Company's
subsidiaries and/or affiliates) on the date of the execution
of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your
Amended Services Agreement with Jonathan J. Ledecky Page 9 of 12
<PAGE>
agreements and covenants made in this provision shall be
effective, is computed by excluding from such computation any
time during which you are in violation of any provision of
the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
You specifically agree that the Company and the Spincos have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assignment of this provision to
the Spincos.
After the Distributions, you agree that the Company will
assign to each Spinco the ability to enforce the
noncompetition provisions as to its own business.
Other The Company acknowledges that you are also employed by CCC
Employment and the Spincos, and agrees that such dual employment does
not breach this Agreement, unless and to the extent that you
thereby violate the No Competition provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade You agree that you will not, during or after the term of this
Secrets Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or
Amended Services Agreement with Jonathan J. Ledecky Page 10 of 12
<PAGE>
purpose whatsoever. For CCC or any other businesses with
which you are affiliated or in which you are a stockholder,
you may reach agreement on comparable terms with significant
vendors to the Company, so long as you do not provide copies
of or otherwise disclose the specific terms of the Company's
relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
or the 1997 Agreement then the Company must indemnify you
against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, as actually and
reasonably incurred by you in connection therewith to the
fullest extent provided by Delaware law and in accordance
with the Company's Bylaws. Further, while you are expected at
all times to use your best efforts to faithfully discharge
your duties under this Agreement, the Company will not hold
you liable to itself or its subsidiaries or affiliates for
errors or omissions made in good faith where you have not
exhibited gross, willful, or wanton negligence or misconduct
or performed criminal or fraudulent acts that materially
damage the business of the Company; provided, however, that
this sentence shall not apply to acts or omissions between
the effective date of the 1997 Agreement and the Closing
Date.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreements have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it
Amended Services Agreement with Jonathan J. Ledecky Page 11 of 12
<PAGE>
cannot be varied, contradicted, or supplemented by evidence
of any prior or contemporaneous oral or written agreements.
This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the
Company and you, and no term of this Agreement may be waived
except by writing signed by the party waiving the benefit of
such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Attention: General Counsel
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party may change
the address for notice by notifying the other party of such
change in accordance with this Notice provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed according
to the laws of the State of Delaware, other than those
relating to conflicts of laws. Any decision as to breaches of
this Agreement or any provision herein shall be made pursuant
to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company and each of the
and Assignment Spincos, each of their respective successors or assigns, and
your heirs and the personal representatives of your estate.
Without the Company's prior written consent, you may not
assign or delegate this Agreement or any or
Amended Services Agreement with Jonathan J. Ledecky Page 12 of 12
<PAGE>
all rights, duties, obligations, or interests under it. You
specifically agree that the Company may assign its rights
under No Competition, in whole or in part, to each Spinco
with respect to such Spinco's business.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (including specifically your 1997 Agreement
(including but not limited to its Change of Control
provisions) but specifically excluding your options to
purchase Company stock). Contingent upon the Closing and
effective only in that event, the 1997 Agreement will
terminate as of the Closing Date. Except as set forth above,
this Agreement supersedes all prior or contemporaneous
negotiations, commitments, agreements, and writings with
respect to the subject matter of this Agreement. All such
other negotiations, commitments, agreements, and writings
will have no further force or effect; and the parties to any
such other negotiation, commitment, agreement, or writing
will have no further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
U.S. OFFICE PRODUCTS COMPANY
Date: By: /s/ Thomas Morgan
-------------------- -----------------------------------
Thomas Morgan
President and Chief Executive Officer
I agree to and accept these terms:
Date: /s/ Jonathan J. Ledecky
-------------------- -----------------------------------
Jonathan J. Ledecky
Amended Services Agreement with Jonathan J. Ledecky Page 13 of 12
<PAGE>
Exhibit 10.8
AZTEC TECHNOLOGY PARTNERS, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Aztec
Technology Partners, Inc., a Delaware corporation (the "Company"), is to advance
the interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of the Company, as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. Eligibility.
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation.
(a) Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the Company the
power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
<PAGE>
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards.
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 5,000,000 shares of Common Stock. Of these
5,000,000 shares, the maximum number that may be granted as incentive stock
options is 600,000. If any Award expires or is terminated, surrendered or
canceled without having been fully exercised or is forfeited in whole or in part
or results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 500,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Code Section 162(m). Notwithstanding the foregoing, in
the year that a Participant first becomes an employee of the Company, the
maximum number of shares that an employee may be granted is 1,700,000.
5. Stock Options.
(a) General. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable Federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Code Section 422 (an "Incentive Stock
Option") shall only be granted to employees of the Company and shall be subject
to and construed consistently with the requirements of Code Section 422. The
Company shall have no liability to a Participant, or any other party, if an
Option (or any part thereof) which is intended to be an Incentive Stock Option
is not an Incentive Stock Option.
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<PAGE>
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the Company
of a written notice of exercise signed by the proper person or by any other form
of notice (including electronic notice) approved by the Board together with
payment in full as specified in Section 5(f) for the number of shares for which
the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(3) at such time as the Common Stock is registered under the Exchange
Act, delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board in
good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion (i)
by delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) by payment of such other lawful consideration
as the Board may determine; or
(5) any combination of the above permitted forms of payment.
6. Restricted Stock.
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
3
<PAGE>
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards.
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events.
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 14 business days prior to
the effective date of such liquidation or dissolution, and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition and Change in Control Events
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<PAGE>
(1) Definitions
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash,
securities or other property; or
(ii) any exchange of shares of the Company for cash, securities
or other property pursuant to a statutory share exchange
transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership of any capital
stock of the Company if, after such acquisition, such
Person beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) [30]% or more of
either (x) the then-outstanding shares of Common Stock
(the "Outstanding Company Common Stock"), or (y) the
combined voting power of the then-outstanding securities
of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not
constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding an
acquisition pursuant to the exercise, conversion or
exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting
securities of the Company, unless the Person
exercising, converting or exchanging such security
acquired such security directly from the Company or an
underwriter or agent of the Company), (B) any acquisition
by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled
by the Company, or (C) any acquisition by any corporation
pursuant to a Business Combination (as defined below)
which complies with clauses (x) and (y) of subsection
(iii) of this definition; or
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<PAGE>
(ii) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if
applicable, the Board of Directors of a successor
corporation to the Company), where the term "Continuing
Director" means at any date a member of the Board (x) who
was a member of the Board on the date of the initial
adoption of this Plan by the Board, or (y) who was
nominated or elected subsequent to such date by at least a
majority of the directors who were Continuing Directors at
the time of such nomination or election or whose election
to the Board was recommended or endorsed by at least a
majority of the directors who were Continuing Directors at
the time of such nomination or election; provided,
however, that there shall be excluded from this clause (y)
any individual whose initial assumption of office occurred
as a result of an actual or threatened election contest
with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the
Board; or
(iii) the consummation of a merger, consolidation,
reorganization or statutory share exchange involving the
Company or a sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), unless, immediately following
such Business Combination, each of the following two
conditions is satisfied: (x) all or substantially all of
the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than [50]% of the then-outstanding shares
of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in
the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination
(which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or
substantially all of the Company's assets either directly
or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the
"Acquiring Corporation") in substantially the same
proportions as their
6
<PAGE>
ownership of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination, and (y) no
Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, [50]% or more
of the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power of
the then-outstanding securities of such corporation
entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior to
the Business Combination).
(2) Effect on Options
(a) Acquisition Event. Upon the occurrence of an Acquisition Event
(regardless of whether such event also constitutes a Change in
Control Event), or the execution by the Company of any
agreement with respect to an Acquisition Event (regardless of
whether such event will result in a Change in Control Event),
the Board shall provide that all outstanding Options shall be
assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof);
provided that (i) any options substituted for Incentive Stock
Options shall satisfy, in the determination of the Board, the
requirements of Section 424(a) of the Code, and (ii) if such
Acquisition Event also constitutes a Change in Control Event,
except to the extent specifically provided to the contrary in
the instrument evidencing any Option or any other agreement
between a Participant and the Company, such assumed or
substituted options shall be immediately exercisable in full
upon the occurrence of such Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree
to assume, or substitute for, such Options, then the Board
shall (x) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as
of a specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such
Acquisition Event, and/or (y) in the event of an Acquisition
Event under the terms of
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<PAGE>
which holders of Common Stock will receive upon consummation
thereof a cash payment for each share of Common Stock
surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options
shall terminate upon consummation of such Acquisition Event and
each Participant shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such
Options.
(b) Change in Control Event that is not an Acquisition Event. Upon
the occurrence of a Change in Control Event that does not also
constitute an Acquisition Event, except to the extent
specifically provided to the contrary in the instrument
evidencing any Option or any other agreement between a
Participant and the Company, all Options then-outstanding shall
automatically become immediately exercisable in full.
(3) Effect on Restricted Stock Awards
(a) Acquisition Event that is not a Change in Control Event. Upon
the occurrence of an Acquisition Event that is not a Change in
Control Event, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to
the benefit of the Company's successor and shall apply to the
cash, securities or other property which the Common Stock was
converted into or exchanged for pursuant to such Acquisition
Event in the same manner and to the same extent as they applied
to the Common Stock subject to such Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, all restrictions and
conditions on all Restricted Stock Awards then-outstanding
shall automatically be deemed terminated or satisfied.
(4) Effect on Other Awards
(a) Acquisition Event that is not a Change in Control Event. The
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<PAGE>
Board shall specify the effect of an Acquisition Event that is
not a Change in Control Event on any other Award granted under
the Plan at the time of the grant of such Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any other Award or any other agreement between a
Participant and the Company, all other Awards shall become
exercisable, realizable or vested in full, or shall be free of
all conditions or restrictions, as applicable to each such
Award.
9. General Provisions Applicable to Awards.
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, an Award shall not be sold, assigned, transferred,
pledged or otherwise encumbered by the person to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument in
such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
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<PAGE>
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Award shall be free of restrictions in full or in part or that any other Award
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous.
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
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(c) Effective Date and Term of Plan. The Plan shall become effective on the
date on which it is adopted by the Board. No Award shall be granted under the
Plan after the completion of ten (10) years from the earlier of (i) the date on
which the Plan was adopted by the Board, or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
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<PAGE>
Exhibit 10.9
[Form of]
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
-------------------
____________, 1998
<PAGE>
[Form of]
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term of Employment.......................................................................................1
2. Title; Capacity..........................................................................................1
2.1 Authority.......................................................................................1
2.2 Attention.......................................................................................1
2.3 Base of Operations..............................................................................2
2.4 Representation and Warranty of Employee.........................................................2
2.5 Representation and Warranty of Company..........................................................2
3. Compensation and Benefits................................................................................2
3.1 Salary..........................................................................................2
3.2 Bonus...........................................................................................3
3.3 Reimbursement of Expenses.......................................................................3
3.4 Fringe Benefits; Vacation.......................................................................3
3.5 Other Plans.....................................................................................3
3.6 Stock Options...................................................................................4
4. Employment Termination...................................................................................4
4.1 By the Terms of This Agreement..................................................................4
4.2 By the Company..................................................................................4
4.3 By Death........................................................................................4
4.4 By the Employee.................................................................................4
5. Effect of Termination....................................................................................5
5.1 Termination by the Company Without Cause, by the Employee for Cause or Upon
Expiration......................................................................................5
5.2 Termination for Death...........................................................................6
5.3 Termination Upon Change in Control of the Company...............................................6
5.4 Taxes...........................................................................................7
5.5 Termination By the Company for Cause............................................................8
5.6 No Mitigation...................................................................................8
5.7 Survival........................................................................................9
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6. Restrictions on Competition..............................................................................9
6.1 Non-Compete.....................................................................................9
6.2 Investment......................................................................................9
6.3 Future Employment..............................................................................10
6.4 Severability...................................................................................10
6.5 Defenses.......................................................................................10
6.6 Fairness.......................................................................................10
7. Proprietary Information.................................................................................11
7.1 Proprietary Information........................................................................11
7.2 Exceptions.....................................................................................11
7.3 Company Property...............................................................................11
7.4 Other Agreements...............................................................................12
8. Legal and Professional Fees.............................................................................12
9. Notices.................................................................................................12
10. Pronouns................................................................................................12
11. Entire Agreement........................................................................................12
12. Amendment...............................................................................................12
13. Governing Law...........................................................................................12
14. Successors and Assigns..................................................................................13
15. Definitions.............................................................................................13
16. Miscellaneous...........................................................................................14
16.1 Waiver.........................................................................................14
16.2 Section Headings...............................................................................14
16.3 Severability...................................................................................14
16.4 Counterparts...................................................................................14
</TABLE>
- iii -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this ____ day of
____________, 1998, is entered into by and between Aztec Technology Partners,
Inc., a Delaware corporation with its principal place of business at 52 Roland
Street, Boston, Massachusetts 02129 (the "Company"), and _______________,
residing at _______________________________________________ (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the parties to this
Agreement, the parties agree as follows:
1. Term of Employment. The Company agrees to employ the Employee, and
the Employee accepts employment with the Company, upon the terms set forth in
this Agreement, for the period commencing on _____________, 1998 (the
"Commencement Date") and, subject to the provisions of Section 4, ending on
____________, 1999, unless extended by mutual agreement (the "Employment
Period").
2. Title; Capacity.
2.1 Authority. During the Employment Period, the Employee shall serve
as _______________________ of the Company. In such capacity, the Employee shall
report to the [Chief Executive Officer ("CEO")] of the Company. During the
Employment Period, the Employee shall have such authority as is delegated to him
by the [CEO], including, without limitation, the authority and responsibility
for ______________________________________. The Employee accepts such employment
and agrees to undertake the duties and responsibilities normally inherent in
such position and such other duties and responsibilities as the [CEO] shall from
time to time reasonably assign to him consistent with his position as
___________________.
2.2 Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Employee is entitled, the Employee shall
devote principal attention and time during normal business hours to the
Company's business and affairs and, to the extent necessary to discharge the
responsibilities assigned to the Employee under this Agreement, use the
Employee's reasonable best efforts and abilities to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the above for the Employee to (A) serve on corporate, civic or
charitable boards or committees (excluding those which would create a conflict
of interest), (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions, and (C) manage personal investments, so long as such
activities do not materially interfere with the performance of the Employee's
responsibilities as an employee of the Company in accordance with this
Agreement. In the event that the Employee
1
<PAGE>
engages in any such activities, other than in his capacity as ______________,
the Employee shall not be required to pay to the Company the compensation
that he earns from engaging in such activities.
2.3 Base of Operations. The Employee's base of operations under this
Agreement shall be _____________________, although the Employee may from time to
time render services from other locations on a temporary basis. The Employee
shall not be required to relocate or render services, on other than a temporary
basis, outside of such city.
2.4 Representation and Warranty of Employee. The Employee hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment agreement for cause or
good reason, pursuant to Section 4 of this Agreement.
3. Compensation and Benefits.
3.1 Salary. For all services rendered by the Employee in any capacity
under this Agreement, the Company shall pay the Employee, during the Period of
Employment, as compensation an annual base salary of not less than $__________,
which amount shall be subject to increase as provided below (the "Annual Base
Salary"). Such Annual Base Salary shall be payable in accordance with the
Company's customary payroll practices (but not less frequently than monthly).
[FOR MULTI-YEAR AGREEMENTS ONLY: The Company agrees to review the Employee's
Annual Base Salary on at least an annual basis no later than 120 days after the
end of each fiscal year commencing in _____ to consider an increase (but not
decrease) in such Annual Base Salary for the fiscal year. Any such increase
shall be effective as of the first day of the fiscal year and shall be at the
sole discretion of the Board. Any increase in the Annual Base Salary shall not
limit or reduce any other obligation of the Company under this Agreement.]
3.2 Bonus. [FOR MULTI-YEAR AGREEMENTS ONLY: For each fiscal year of
the Company,] The Employee shall be entitled to receive a cash bonus with an
annual target award opportunity of up to _____ percent of Annual Base Salary
awarded to the Employee by the Board or by a Committee designated by the Board.
Each annual bonus shall be paid in a single cash lump sum not later than 90 days
after the end of the fiscal year or portion thereof for which the bonus is
awarded, unless the Employee elects in writing, before the beginning of the
fiscal year for which the annual bonus is to be awarded, to defer receipt of the
annual bonus. Notwithstanding anything in this Agreement to the contrary, in the
event of any termination of the Employee's employment with the Company for any
reason whatsoever (whether by the Employee or the Company), any unpaid bonus
payable in accordance with this Section 3.2 for the fiscal year preceding the
fiscal year in which such termination occurs shall be paid to the Employee in
accordance with this Section 3.2.
2
<PAGE>
3.3 Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for all business travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement. Such expenses shall
be appropriately submitted and approved in accordance with the Company's
policies applicable to senior executives, as well as applicable Federal and
state tax record keeping requirements.
3.4 Fringe Benefits; Vacation. The Employee shall participate in and
shall receive during the Period of Employment employee benefit plans and fringe
benefits of the Company in accordance with the most favorable plans, practices,
programs and policies of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, including, without
limitation, plans providing retirement benefits, medical insurance, life
insurance, disability insurance and accidental death or dismemberment insurance.
The paid vacation entitlement of the Employee shall be ____ weeks per year.
3.5 Other Plans. Nothing in this Agreement shall be construed as
making the Employee ineligible to participate in and receive awards or grants
under any equity incentive plan of the Company in accordance with the terms
thereof in which the Employee would otherwise be eligible to participate.
3.6 Stock Options. The parties contemplate that promptly upon
execution of this Agreement, the Employee shall be granted options for the
purchase of _____ shares of the Company's common stock, $0.001 par value per
share. The options shall vest 1/3 on the date of grant, 1/3 12 months after the
date of grant, and 1/3 24 months after the date of grant. The option exercise
price will be equal to the fair market value of the Company's stock on the date
of grant.
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 By the Terms of This Agreement. Expiration of the Employment
Period in accordance with Section 1.
4.2 By the Company. At the election of the Company, for cause, upon
written notice by the CEO to the Employee. For the purposes of this Section 4.2,
"cause" for termination shall be deemed to exist solely upon (a) the occurrence
of willful and continued failure of the Employee to substantially perform the
Employee's reasonable duties under this Agreement (other than as a result of
physical or mental illness or injury) which is material, related to his duties
as an employee of the Company, and continues for 30 days after the CEO delivers
to the Employee a written demand for substantial performance that specifically
identifies the manner in which the CEO believes that the Employee has not
substantially performed the Employee's duties, or (b) the conviction of the
Employee of, or the entry of a pleading of guilty or nolo contendere by the
Employee to, any crime involving moral turpitude or any felony that results in
material and demonstrable damage to the business or reputation of the Company.
3
<PAGE>
4.3 By Death. Thirty (30) days after the death of the Employee.
4.4 By the Employee. At the election of the Employee, upon not less
than 30 days' prior written notice to the Company given within 60 days after a
good faith determination by the Employee that any of the following has occurred:
(a) material and adverse diminution of the Employee's duties, authority,
position, compensation or aggregate benefits, including, without limitation,
failure to cause the Employee to retain the position of _______________________
of the Company; (b) the assignment to the Employee of any duties inconsistent
with Section 2 of this Agreement; (c) the Company's purported termination of the
Employee's employment for cause other than in accordance with the requirements
of this Agreement; or (d) any other material breach of this Agreement by the
Company. In addition, the Employee may terminate his employment with the
Company, for any reason, during the 30-day period immediately following the
one-year anniversary of a Change in Control, as defined below.
5. Effect of Termination.
5.1 Termination by the Company Without Cause, by the Employee for
Cause or Upon Expiration.
(a) Severance. In the event the Employee's employment is
terminated by the Company without cause or by the Employee pursuant to Section
4.4 (each, a "Qualifying Termination") or the Company does not offer to renew
this Agreement upon expiration of the Employment Period, the Company shall pay
to the Employee (i) a pro rata portion of the Severance Bonus Amount (as defined
below) for the fiscal year in which such termination is effective determined by
multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"),
the numerator of which shall be the number of days between the first day of the
fiscal year and the date on which the termination is effective and the
denominator of which shall be 365, plus (ii) an amount equal to the Annual Base
Salary through _________. For purposes of this Agreement, the Severance Bonus
Amount for a fiscal year shall equal the average of the bonuses paid to the
Employee pursuant to Section 3.2 of this Agreement for the fiscal years, if any,
immediately preceding such fiscal year or $_________, whichever is greater.
(b) Severance Period; Timing of Payments. The Company shall make
the severance payment called for by Section 5.1(a)(i) within 30 days of the date
the Employee's termination is effective, and shall make the payments called for
by Section 5.1(a)(ii) to the Employee at a monthly rate equal to one-twelfth of
the Annual Base Salary. All severance payments provided for in this Section 5.1
shall be made in semi-monthly installments in arrears on the 15th day and the
last day of each fiscal month. Such installments shall be appropriately adjusted
in the event a severance payment is due for any partial fiscal month.
(c) Severance Benefits. Following any Qualifying Termination or
if this Agreement is not renewed for any reason at the end of the Employment
Period, the Company
4
<PAGE>
shall continue to pay for or provide to the Employee the fringe benefits as may
have been provided to the Employee in accordance with Section 3.4 immediately
prior to such Qualifying Termination or termination (subject to changes in the
terms of health, disability or life insurance coverage by the provider as may be
applicable to the Company as a whole) for a period ending on the earliest of (i)
the date of the Employee's employment by a third party on a substantially
full-time basis if the Employee is eligible to receive comparable life, medical,
dental, health, and accident or disability insurance benefits under another
employer-provided plan, on terms at least as favorable to the Employee and his
family, (ii) ____________, or (iii) the death of the Employee but in the case of
the Employee's death his health benefits shall be continued for the benefit of
his wife for a one year period following his death. The Employee shall notify
the Company promptly following his acceptance of any offer of employment by a
third party. The Employee shall be under no obligation to seek other employment
following any Qualifying Termination, and any amounts he earns in any other
employment shall not reduce or offset the severance payments or other amounts
due hereunder except for the fringe benefits specifically referred to in this
Section 5.1(c).
5.2 Termination for Death. In the event the Employee's employment is
terminated by death pursuant to Section 4.3 (a "Section 4.3 Termination"), the
Company shall pay or provide to the estate of the Employee the compensation
(including, without limitation, in lieu of the bonuses and payments provided for
in Sections 3.2, the Pro Rata Fraction of the Severance Bonus Amount for the
fiscal year in which such termination is effective, which shall be paid in a
one-time lump sum payment within 30 days of the last day of the Employee's
actual employment by the Company) and benefits payable or provided to him under
Section 3 through the last day of his actual employment by the Company.
5.3 Termination Upon Change in Control of the Company.
(a) Change in Control Severance Payment. In the event the
Employee's employment is terminated without cause or pursuant to Section 4.4 of
this Agreement within 24 months following a Change in Control (as defined below)
of the Company, the Company shall make a one-time lump sum severance payment
(the "Change in Control Severance Payment") to the Employee in an amount equal
to the product of _____ multiplied by his Annual Base Salary. In such event, the
Employee shall not be entitled to the payments to which he would otherwise be
entitled pursuant to Section 5.1(a), but shall continue to be entitled to
benefits provided by the Company pursuant to and in accordance with Section
5.1(e).
(b) Parachute Payments. The Change in Control Severance Payment
payable under this Section 5.3 shall be made without regard to whether the
deductibility of such payment (or any other "parachute payments," as that term
is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for the Employee's benefit) would be limited or precluded by Code
Section 280G.
5
<PAGE>
(c) Change in Control. A "Change in Control" of the Company shall
occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company, acquires
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (other than
through an acquisition of securities directly from the Company);
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities;
or
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
5.4 Taxes.
(a) Gross-Up Payment. In the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall, within
30 days after the date of such Change in Ownership or Control determine and
notify the Employee (with reasonable detail regarding the basis for its
determinations) (i) which of the payments or benefits due to the Employee
following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Code Section 4999, by the
Employee with respect to such Contingent Compensation Payment, and (iii) the
amount of the Gross-Up Payment (as defined below) due to the Employee with
respect to such Contingent Compensation Payment. Within 30 days after delivery
of such notice to the Employee, the Employee shall deliver a response to the
Company (the "Employee Response") stating either (A) that he agrees with the
Company's determination pursuant to the preceding sentence, or (B) that he
disagrees with such determination, in which case he shall indicate which payment
and/or benefits should be
6
<PAGE>
characterized as a Contingent Compensation Payment, the amount of the Excise Tax
with respect to such Contingent Compensation Payment and the amount of the
Gross-Up Payment due to the Employee with respect to such Contingent
Compensation Payment. The amount and characterization of any item in the
Employee Response shall be final; provided, however, that in the event that the
Employee fails to deliver an Employee Response on or before the required date,
the Company's initial determination shall be final. Within ninety (90) days
after the due date of each Contingent Compensation Payment to the Executive, the
Company shall pay to the Employee, in cash, the Gross-Up Payment with respect to
such Contingent Compensation Payment, in the amount determined pursuant to this
Section 5.4(a).
(b) Definitions. For purposes of this Section 5.4, the following
terms shall have the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Code Section 280G(b)(2).
(ii) "Contingent Compensation Payment" shall mean any
payment (or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Code Section 280G(c)) and that is
contingent (within the meaning of Code Section 280G(b)(2)(A)(i)) on a Change in
Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an amount equal to the
sum of (i) the amount of the Excise Tax payable with respect to a Contingent
Compensation Payment and (ii) the amount necessary to pay all additional taxes
imposed on (or economically borne by) the Employee (including the Excise Taxes,
state and federal income taxes and all applicable withholding taxes)
attributable to the receipt of such Gross-Up Payment. For purposes of the
preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
5.5 Termination By the Company for Cause. In the event the Employee's
employment is terminated by the Company for cause, the Company shall pay to the
Employee his Annual Base Salary to and including the effective date of such
termination.
5.6 No Mitigation. Except as provided with respect to fringe benefits
in Section 5.1(e), the severance benefits payable to the Employee under this
Agreement shall not be reduced by payments received by the Employee from a
subsequent employer.
5.7 Survival. The provisions of Sections 5, 6 and 7 shall survive
the termination of this Agreement.
6. Restrictions on Competition.
7
<PAGE>
6.1 Non-Compete. For so long as the Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
and thereafter for a period of one (1) year, the Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services in direct competition with the
Company, within one thousand five hundred (1,500) miles of any location where
the Company conducts business (the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or has
been, within one (1) year prior to that time, a customer of the Company within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
(iv) on the Employee's own behalf or on behalf of any competitor,
call upon any Person as a prospective acquisition candidate who or that, during
the Employee's employment by the Company was either called upon by the Company
as a prospective acquisition candidate or was the subject of an acquisition
analysis conducted by the Company.
6.2 Investment. The foregoing covenants shall not be deemed to
prohibit the Employee from acquiring as an investment not more than one percent
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or through the automated quotation system of a
registered securities association.
6.3 Future Employment. It is agreed further that, in the event that
the Employee shall cease to be employed by the Company and enters into a
business or pursues other activities that, at such time, are not in competition
with the Company, Employee shall not be chargeable with a violation of this
Section 6 if the Company subsequently enters the same (or a similar) competitive
business or activity or commences competitive operations within one hundred
(100) miles of the Employee's new business or activities. In addition, if the
Employee has no actual knowledge that his actions violate the terms of this
Section 6, the Employee shall not be deemed to have breached the restrictive
covenants contained in this Agreement if, promptly after being notified by the
Company of such breach, the Employee ceases the prohibited actions.
8
<PAGE>
6.4 Severability. The covenants in this Section 6 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 6 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
6.5 Defenses. All of the covenants in this Section 6 shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement or the Company of such covenants; provided, that
upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon thirty (30) days' prior written notice to the
Company, waive his right to receive any such compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of one (1) year stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.6 Fairness. The Employee has carefully read and considered the
provisions of this Section 6, and, having done so, agrees that the restrictive
covenants in this Section 6 impose a fair and reasonable restraint on the
Employee and are reasonably required to protect the interests of the Company,
and its officers, directors, employees, and stockholders.
7. Proprietary Information. The Employee's relationship with the Company is
one of high trust and confidence and in the course of his employment by the
Company he will have access to and contact with Proprietary Information. The
Employee agrees that he will not, during the Employment Period or at any time
thereafter, disclose to others, or use for the benefit of others, any
Proprietary Information, except in the good faith performance of his duties
under this Agreement.
7.1 Proprietary Information. For purposes of this Agreement,
Proprietary Information shall mean all information (whether or not patentable
and whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, formula, formulation, vendor
information, customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software, software
documentation, hardware design, technology, marketing or business plan,
forecast, unpublished financial statement, budget, license, price, cost and
employee list that is
9
<PAGE>
communicated to, learned of, developed or otherwise acquired by the Employee in
the course of his employment by the Company.
7.2 Exceptions. The Employee's obligations under this Section 7 shall
not apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Employee of the terms of this
Section 7, (ii) is generally disclosed to third parties by the Company without
restriction on such third parties, (iii) is approved for release by written
authorization of the Board or an authorized employee of the Company, (iv) is
communicated to the Employee by a third party under no duty of confidentiality
with respect to such information to the Company or another party, or (v) is
required to be disclosed by the Employee to comply with applicable laws,
governmental regulations, or court order, provided that the Employee provides
prior written notice of such disclosure to the Company and an opportunity for
the Company to object to such disclosure and further provided that the Employee
cooperates with the Company and takes reasonable and lawful actions requested by
the Company (the out-of-pocket costs of which shall be paid by the Company) to
avoid and/or minimize the extent of such disclosure.
7.3 Company Property. Upon termination of this Agreement or at any
other time upon request by the Company, the Employee shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials in his possession or control)
belonging to the Company.
7.4 Other Agreements. The Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. If the Employee's duties under this Agreement
will require disclosures to be made to him subject to such obligations and
restrictions, the Employee agrees to be bound by them and to take all action
necessary to discharge the obligations of the Company under such agreements.
8. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or three days
after deposit in the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, addressed to the other party at the
address shown above and, in the case of any notice to the Employee, with a copy
to Alexander A. Bernhard, Esq., Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, or at such other address or addresses of which either party
shall notify the other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
10
<PAGE>
10. Entire Agreement. This Agreement and the Employee Options constitute
the entire agreement between the parties and supersede all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement and the Employee Options.
11. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by the Company except
to a corporation or other person or entity reasonably acceptable to the Employee
and with which or into which the Company may be merged, consolidated or
otherwise combined or which may succeed to all or substantially all of its
assets or business and which assumes in a writing satisfactory in form and
substance to Employee all of the obligations of the Company under this Agreement
and under all Employer Stock Option Plans. The obligations of the Employee are
personal and shall not be assigned by him.
14. Definitions. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.3(c)(i)
Board 2
Cause for Termination 4.2
Change in Control 5.3(c)
Change in Control Severance Payment 5.3(a)
Change in Ownership 5.4
Code 5.3(b)
Commencement Date 1
Company Introduction
Contingent Compensation Payments 5.4
Employee Introduction
Employee Response 5.4
Employer Stock Option Plan 3.6
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Employment Period 1
Exchange Act 5.3(c)(i)
Excise Taxes 5.4
Failure of the Employee to Perform 4.2
Gross-up Payment 5.4
Incumbent Board 5.3(c)(ii)
Merger Agreement 6.7
Parachute Payments 5.3(b)
Person 6.1
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Section 4.3 Termination 5.2
Territory 6.1
</TABLE>
15. Miscellaneous.
15.1 Waiver. No delay or omission by either party in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by either party on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15.2 Section Headings. The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
15.3 Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
15.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Rest of page intentionally left blank.]
12
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
By:
-------------------------------
Title:
----------------------------
EMPLOYEE:
By:
-------------------------------
Title:
----------------------------
13
<PAGE>
/__/ Employee's Copy
/__/ Employer's Copy
[FORM OF]
AZTEC TECHNOLOGY PARTNERS, INC.
EMPLOYMENT AGREEMENT
To Jonathan J. Ledecky:
This Agreement establishes the terms of your employment with Aztec
Technology Partners, Inc., a Delaware corporation (the "Company"), as of June
10, 1998. This Agreement is contingent on and subject to the closing of the
distribution (the "Distribution") to the U.S. Office Products Company
("USOP") stockholders of the Company's stock. If the Distribution does not
close by September 30, 1998, this Agreement will have no force or effect.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's senior management and its Board of Directors
(the "Board"). The Board can require such reports of your
activities on the Company's behalf as it reasonably deems
appropriate. It can require your services to the extent
consistent with your other contractual employment obligations
to Consolidation Capital Corporation ("CCC"), USOP, and the
other subsidiaries ("Other Spincos") of USOP whose common
stock will be distributed to the USOP stockholders concurrent
with the Company's stock, with the specific timing of your
services to be mutually agreed. You agree to comply with the
Company's generally applicable personnel policies to the
extent applicable to a person working on your schedule and
consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distribution (the "Closing Date")
through June 30, 2000, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Employment Agreement between Aztec and Jonathan J. Ledecky
<PAGE>
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse you for
reasonable business expenses relating to the direct
performance of such services, to limits to be mutually agreed
in advance, upon proper and timely substantiation.
Options You are receiving options for the Common Stock of the Company
in consideration for services as an employee of the Company.
Option Your options will cover 7.5% of the Company's
outstanding common stock determined as of the
Distribution Date (excluding the stock under the
Company's initial public offering), with no
anti-dilution provisions in the event of issuance of
additional shares of common stock (other than with
respect to stock splits or reverse stock splits).
Term Your option will expire ten years from the Closing Date.
Price Your option will have a per share exercise price equal
to the offering price in the Company's initial public
offering, or if no initial public offering commences
on the Closing Date, at the fair market value of the
Company's common stock, as determined under the
Company's option plan, for the date of grant.
Schedule Your option will be fully vested when granted, but may
not be exercised until the first anniversary of the
Closing Date.
Your option will become exercisable before that first
anniversary if and to the extent that the Company
accelerates the exercisability of the options for
substantially all management optionholders.
All unexercised portions of your options will expire if,
as finally determined by a court, you violate the No
Competition provision.
Disgorging If a court finds that you violated the No Competition
Option provision, you agree that your unexercised options are
Gain retroactively forfeited as of the date of the violation
and that, if you have exercised the options since the
violation began, you will promptly pay the Company any
Option Gain, net of any taxes actually paid on the
options. For purposes of this Agreement, the "Option
Gain" per share you received on exercise of options on
or after the violation is
Stock for stock you have sold, the greater of (i) the spread
Sold between closing price on the date of exercise and the
exercise price paid ("Exercise Spread") and (ii) the
spread between the price at which you sold the stock and
the exercise price paid, and
Employment Agreement between Aztec and Jonathan J. Ledecky Page 2 of 10
<PAGE>
Stock for stock you have retained, the greater of (i) Exercise
Retained Spread and (ii) the spread between the closing price on
the date of the court's final determination and the
exercise price paid.
All unexpired options will vest and be exercisable at your
death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any salary you
received from the Company between the date of the violation
and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay and your salary will end. Except to the
extent the law or the terms of an applicable plan requires
otherwise, neither you nor your beneficiary or estate will
have any rights or claims under this Agreement or otherwise
to receive severance or any other compensation or to
participate in any other plan, arrangement, or benefit, after
your termination of employment, other than with respect to
your options.
No Competition Consistent with certain of your prior obligations to USOP,
you will not, until after the end of the Restricted Period,
for any reason whatsoever, directly or indirectly, for
yourself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation, or
business of whatever nature:
Competition (i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor,
consultant, or advisor, or as a sales representative, in
any business (other than an Excluded Business, as
defined below) selling any products or services in
direct competition with the Company within 100 miles of
where the Company or where any of the Company's
subsidiaries or affiliates regularly maintains any of
its or their offices with employees (the "Territory"),
where "products or services" are determined for this
clause with respect to products or services offered on
or before January 13, 1998 by the Company and/or any of
its subsidiaries or
Employment Agreement between Aztec and Jonathan J. Ledecky Page 3 of 10
<PAGE>
the predecessor companies combined to form the Company
in connection with Distribution and where the geographic
limitation is determined with reference to the Company
and its subsidiaries and not to USOP or the other
Spincos (e.g., competition with respect to the
Company is determined by reference to the location
where the Company or its subsidiary has an office
with employees and not to the locations of offices of
other Spincos);
Employees (ii) call upon any person who is, at that time, within
the Territory, an employee of the Company (including the
respective subsidiaries and/or affiliates thereof) in a
managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the
Company's employ (including the respective subsidiaries
and/or affiliates thereof) other than a member of your
immediate family; or
Customers (iii) call upon any person or entity that is, at that
time, or that has been, within one year prior to that
time, a customer of the Company (including the
respective subsidiaries and/or affiliates thereof)
within the Territory for the purpose of soliciting or
selling products or services in direct competition with
the Company (including the respective subsidiaries
and/or affiliates thereof) within the Territory other
than on behalf of an Excluded Business.
For purposes of this Agreement, the "Restricted Period"
ends, on the later of the second anniversary of the
Closing Date and the date one year after you leave
employment with the Company and its subsidiaries and
affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following:
(i) any electrical contracting business that, at
the time of its creation or acquisition and at
all later times, derives more than 50% of its
revenues from electrical contracting and
maintenance services, without regard to whether
it would otherwise violate the No Competition
clause because it is engaged in a business
directly competitive with the Company or any of
its subsidiaries (together, "Aztec"), provided
that this exclusion does not permit the business
to engage in any of the lines of business
described under "Consulting and Engineering
Services," "Systems and Network Design and
Implementation Services," and "Software
Development and Implementation Services" in the
Aztec Form S-1 filed on June 3, 1998 (the "Aztec
Specified Businesses") other than as provided
under (ii) or (vi) in the Excluded Businesses;
Employment Agreement between Aztec and Jonathan J. Ledecky Page 4 of 10
<PAGE>
(ii) any business whose revenue from activities
that compete with Aztec and its subsidiaries, at
the time of the business's creation or
acquisition and at all later times, is less than
$15 million per year, provided that this
exclusion does not permit the business to engage
in the Aztec Specified Businesses other than (i)
as provided under (vi) in the Excluded
Businesses or (ii) through the pending CCC
acquisitions of National Network Systems in
Denver, Colorado and of Chamber Electronics
Communications in Phoenix, Arizona
(iv) any business engaged, and only to the extent
that it is so engaged, in the business of selling,
supplying, or distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to the extent
it is so engaged, in the managing or servicing of
office equipment (other than computers);
(vi) any business engaged, and only to the extent
it is so engaged, in providing internet access
services and activities supportive of such
services;
(vii) UniCapital Corporation's business as
described in its prospectus as of the date of
this Agreement; and
Employment Agreement between Aztec and Jonathan J. Ledecky Page 5 of 10
<PAGE>
(viii) U.S. Marketing Services Inc's ("USM")
shelf-stocking and merchandising, and point of
purchase display creation and incentive
marketing businesses, as described in its
registration statement filed on the date of this
Agreement, so long as you are solely an investor
in USM and not an officer, director, or employee
of, or consultant to, USM; provided, however,
that your service as a director will not violate
the foregoing requirement as long as you cease
to be a director no later than the 90th day
after the effective date of the registration of
USM's initial public offering;
provided, that in each case you are engaged in such
business only in a policy making role and not in the
entity's business in a manner that would involve you in
direct personal competition with the Company (and its
subsidiaries), provided further that this proviso does
not prevent your activities in furtherance of
acquisitions of Excluded Businesses, and provided
further that you will comply with your fiduciary
duties as a director of the Company in connection
with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company (or its subsidiaries), you will inform the relevant
entity of any opportunities for it associated with any of the
Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than one percent (1%) of the
capital stock of a competing business, whose stock is
traded on a national securities exchange or
over-the-counter, provided that such actions do not
otherwise breach your obligations hereunder; and provided
further that actions of CCC after you have ceased to be a
director, officer, and employee of CCC will not constitute
a breach of this covenant, despite your continued stock
ownership, so long as you are not then directly assisting
any competitive actions.
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to USOP, any of
the Spincos, or their respective subsidiaries, even if one
of those entities engages in direct competition with
another. You and the Company agree that CCC's acquisition
or retention of Wilson Electric Company, Inc. ("Wilson")
and Wilson's engaging in any lines of business in place as
of the Closing Date do not violate the No Competition
provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and
Employment Agreement between Aztec and Jonathan J. Ledecky Page 6 of 10
<PAGE>
business (including the Company's subsidiaries and/or
affiliates) on the date of the execution of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your agreements and covenants made in
this provision shall be effective, is computed by excluding
from such computation any time during which you are in
violation of any provision of the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
Employment Agreement between Aztec and Jonathan J. Ledecky Page 7 of 10
<PAGE>
You specifically agree that USOP and the Company have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assumption of such benefits by
the Company. You specifically consent to USOP's assignment to
the Company of the right to enforce the No Competition
provisions of the Amended Ledecky Services Agreement, as
those provisions are incorporated in this Agreement.
Other The Company acknowledges that you are also employed by CCC,
Employment USOP, and the Other Spincos, and agrees that such dual
employment does not breach this Agreement, unless and to the
extent that you thereby violate the No Competition
provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade Secrets You agree that you will not, during or after the term of this
Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever. For CCC or any
other businesses with which you are affiliated or in which
you are a stockholder, you may reach agreement on comparable
terms with significant vendors to the Company, so long as you
do not provide copies of or otherwise disclose the specific
terms of the Company's relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
then the Company must indemnify you against all expenses
(including attorneys'
Employment Agreement between Aztec and Jonathan J. Ledecky Page 8 of 10
<PAGE>
fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by you in connection
therewith to the fullest extent provided by Delaware law and
in accordance with the Company's Bylaws.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreement have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral
or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly
authorized officer of the Company and you, and no term of
this Agreement may be waived except by writing signed by the
party waiving the benefit of such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Aztec Technology Partners, Inc.
Attention: Chief Executive Officer
52 Roland St
Boston, MA 02129
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party
Employment Agreement between Aztec and Jonathan J. Ledecky Page 9 of 10
<PAGE>
may change the address for notice by notifying the other
party of such change in accordance with this Notice
provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed
according to the laws of the State of Delaware, other than
those relating to conflicts of laws. Any decision as to
breaches of this Agreement or any provision herein shall be
made pursuant to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company, each of its
and Assignment successors or assigns, and your heirs and the personal
representatives of your estate. Without the Company's prior
written consent, you may not assign or delegate this
Agreement or any or all rights, duties, obligations, or
interests under it.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (specifically excluding your options to purchase
Company stock). Except as set forth above, this Agreement
supersedes all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to the
subject matter of this Agreement. All such other
negotiations, commitments, agreements, and writings will have
no further force or effect; and the parties to any such other
negotiation, commitment, agreement, or writing will have no
further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
AZTEC TECHNOLOGY PARTNERS, INC.
Date: By:
-------------------- -----------------------------------
James Claypoole
Employment Agreement between Aztec and Jonathan J. Ledecky Page 10 of 10
<PAGE>
President and Chief Executive Officer
I agree to and accept these terms, specifically including the assignment of the
No Competition provision.
Date:
-------------------- -----------------------------------
Jonathan J. Ledecky
Employment Agreement between Aztec and Jonathan J. Ledecky Page 11 of 10
<PAGE>
Exhibit 10.11
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
James E. Claypoole
June 10, 1998
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
JAMES E. CLAYPOOLE
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term of Employment.....................................................1
2. Title; Capacity........................................................1
2.1 Authority.........................................................1
2.2 Attention.........................................................2
2.3 Base of Operations................................................2
2.4 Representation and Warranty of Employee...........................2
2.5 Representation and Warranty of Company............................2
3. Compensation and Benefits..............................................3
3.1 Salary............................................................3
3.2 Bonus.............................................................3
3.3 Reimbursement of Expenses.........................................3
3.4 Fringe Benefits; Vacation.........................................3
3.5 Other Plans.......................................................4
3.6 Stock Options.....................................................4
4. Employment Termination.................................................5
4.1 By the Terms of This Agreement....................................5
4.2 By the Company....................................................5
4.3 By Death..........................................................5
4.4 By the Employee...................................................5
5. Effect of Termination..................................................6
5.1 Termination by the Company Without Cause, by the Employee for
Cause or Upon Expiration.........................................6
5.2 Termination for Death.............................................7
5.3 Termination Upon Change in Control of the Company.................7
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
5.4 Taxes.............................................................9
5.5 Termination By the Company for Cause.............................10
5.6 No Mitigation....................................................10
5.7 Survival.........................................................10
6. Restrictions on Competition...........................................10
6.1 Non-Compete......................................................10
6.2 Investment.......................................................11
6.3 Future Employment................................................11
6.4 Severability.....................................................11
6.5 Defenses.........................................................12
6.6 Fairness.........................................................12
7. Proprietary Information...............................................12
7.1 Proprietary Information..........................................12
7.2 Exceptions.......................................................12
7.3 Company Property.................................................13
7.4 Other Agreements.................................................13
8. Legal and Professional Fees...........................................13
9. Notices...............................................................13
10. Pronouns..............................................................14
11. Entire Agreement......................................................14
12. Amendment.............................................................14
13. Governing Law.........................................................14
14. Successors and Assigns................................................14
15. Definitions...........................................................14
16. Miscellaneous.........................................................15
16.1 Waiver...........................................................15
16.2 Section Headings.................................................15
16.3 Severability.....................................................16
16.4 Counterparts.....................................................16
Exhibit 3.6...............................................................A1
</TABLE>
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 10th day of June,
1998, is entered into by and between Aztec Technology Partners, Inc., a Delaware
corporation with its principal place of business at 52 Roland Street, Boston,
Massachusetts 02129 (the "Company"), and James E. Claypoole, residing at 3
Pinecrest Road, Hingham, Massachusetts 02043 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the parties to this
Agreement, the parties agree as follows:
1. Term of Employment. The Company agrees to employ the Employee, and the
Employee accepts employment with the Company, upon the terms set forth in this
Agreement, for the period commencing on June 10, 1998 (the "Commencement Date")
and, subject to the provisions of Section 4, ending on June 10, 2001, unless
extended by mutual agreement (the "Employment Period").
2. Title; Capacity.
2.1 Authority. During the Employment Period, the Employee shall serve
as Chief Executive Officer of the Company. In such capacity, the Employee shall
at all times be the senior-most officer of the Company reporting directly and
solely to the Board of Directors of the Company (the "Board"). During the
Employment Period, the Employee shall have such authority as is delegated to him
by the Board consistent with his position as Chief Executive Officer, including,
without limitation, the authority and responsibility for acquisitions,
divestitures, finance and investor relations, and the authority to make all
operating decisions, plan the strategic direction of the Company, expend capital
resources of the Company and to hire, promote and terminate employment of all
personnel. The Employee accepts such employment and agrees to undertake the
duties and responsibilities normally inherent in such position and such other
duties and responsibilities as the Board shall from time to time reasonably
assign to him consistent with his position as Chief Executive Officer.
2.2 Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Employee is entitled, the Employee shall
devote principal attention and time during normal business hours to the
Company's business and affairs and, to the extent necessary to discharge the
responsibilities assigned to the Employee under this Agreement, use the
Employee's reasonable best efforts and abilities to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the above for the Employee to (A) serve on corporate, civic or
charitable boards or committees (excluding those which would create a conflict
of interest), (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not materially interfere with the performance of the Employee's
responsibilities as
<PAGE>
an employee of the Company in accordance with this Agreement. In the event that
the Employee engages in any such activities, other than in his capacity as Chief
Executive Officer, the Employee shall not be required to pay to the Company the
compensation that he earns from engaging in such activities.
2.3 Base of Operations. The Employee's base of operations under this
Agreement shall be Boston, Massachusetts, although the Employee may, at his
election, render his services from other locations. The Employee shall not be
required to relocate or render services, on other than a temporary basis,
outside of such city.
2.4 Representation and Warranty of Employee. The Employee hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment agreement for cause or
good reason, pursuant to Section 4 of this Agreement.
2.5 Representation and Warranty of Company. The Company hereby
represents and warrants to the Employee that (i) it is not aware of any fact,
circumstance or event which would give rise to any breach of any term or
provision of this Agreement or any agreement covering any Employee Stock Option
Plan (as defined in Section 3.8(a)), or which would form the basis for any claim
or allegation that (A) the Employee's employment hereunder could be terminated
for cause or good reason under this Agreement, or (B) the rights of the Employee
under any Employee Stock Option Plan should be in whole or any part limited,
forfeited or otherwise restricted; and (ii) it has prepared all authorizations
and has taken all actions, necessary or appropriate for the due execution,
delivery and performance of this Agreement, and for all Employee Stock Option
Plans, including all amendments thereto effected by this Agreement.
3. Compensation and Benefits.
3.1 Salary. For all services rendered by the Employee in any capacity
under this Agreement, the Company shall pay the Employee, during the Period of
Employment, as compensation an annual base salary of not less than $375,000,
which amount shall be subject to increase as provided below (the "Annual Base
Salary"). Such Annual Base Salary shall be payable in accordance with the
Company's customary payroll practices (but not less frequently than monthly).
The Company agrees to review the Employee's Annual Base Salary on at least an
annual basis no later than 120 days after the end of each fiscal year,
commencing with the Company's fiscal year ending in 1999, to consider an
increase (but not decrease) in such Annual Base Salary for the fiscal year. Any
such increase shall be effective as of the first day of the fiscal year and
shall be at the sole discretion of the Board. Any increase in the Annual Base
Salary shall not limit or reduce any other obligation of the Company under this
Agreement. The
2
<PAGE>
Employee's Annual Base Salary shall at all times be no less than the salary of
any other executive of the Company.
3.2 Bonus. For each fiscal year of the Company, the Employee shall be
entitled to receive a cash bonus with an annual target award opportunity of up
to 100 percent of Annual Base Salary awarded to the Employee by the Board or by
a Committee designated by the Board. Each annual bonus shall be paid in a single
cash lump sum not later than 90 days after the end of the fiscal year or portion
thereof for which the bonus is awarded, unless the Employee elects in writing,
before the beginning of the fiscal year for which the annual bonus is to be
awarded, to defer receipt of the annual bonus. Notwithstanding anything in this
Agreement to the contrary, in the event of any termination of the Employee's
employment with the Company for any reason whatsoever (whether by the Employee
or the Company), any unpaid bonus payable in accordance with this Section 3.2
for the fiscal year preceding the fiscal year in which such termination occurs
shall be paid to the Employee in accordance with this Section 3.2.
3.3 Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for all business travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement. Such expenses shall
be appropriately submitted and approved in accordance with the Company's
policies applicable to senior executives, as well as applicable federal and
state tax record keeping requirements.
3.4 Fringe Benefits; Vacation. The Employee shall participate in and
shall receive during the Period of Employment employee benefit plans and fringe
benefits of the Company in accordance with the most favorable plans, practices,
programs and policies of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, including, without
limitation, plans providing retirement benefits, medical insurance, life
insurance, disability insurance and accidental death or dismemberment insurance.
The paid vacation entitlement of the Employee shall be four weeks per year. The
Employee shall receive a car for his use while he is employed by the Company.
The Employee shall at all times have a personal secretary.
3.5 Other Plans. Nothing in this Agreement shall be construed as making
the Employee ineligible to participate in and receive awards or grants under any
equity incentive plan of the Company in accordance with the terms thereof in
which the Employee would otherwise be eligible to participate.
3.6 Stock Options.
(a) Unvested Options. Promptly following the execution of this
Agreement, the Company shall assume all stock options to purchase shares of
capital stock of U.S. Office Products Company ("USOP") granted to the Employee
pursuant to any stock plan or other employee benefit arrangement of the Company
(an "Employer Stock Option Plan"), which
3
<PAGE>
are outstanding as of the effective date of this Agreement. The Company agrees
that any stock options to purchase shares of capital stock of the Company
granted to the Employee during the Employment Period pursuant to this Agreement
or to any Employer Stock Option Plan shall include the provisions set forth on
Exhibit 3.6 to this Agreement.
(b) Vested Options. The parties contemplate that promptly upon
execution of this Agreement, the Employee shall be granted options for the
purchase of shares of the Company, equal to 4.5% of the total outstanding shares
of Company common stock (calculated on a fully diluted basis), par value $0.001
per share, of which the maximum number permitted by law will be incentive stock
options and the remainder will be non-statutory stock options, all of which
shall be granted pursuant to the 1998 Aztec Technology Partners, Inc. Stock
Option Plan in accordance with this Section 3.6. All options granted in
accordance with this Section 3.6, other than incentive stock options, will be
transferable to the extent permitted by law. The options granted to the Employee
pursuant to this Agreement shall (i) have an exercise price which is equal to
the price of the first trade on the day the Company's stock is first publicly
traded, and (ii) be 100 percent vested as of the date of grant; however, such
options shall not be exercisable until June 10, 1999. All subsequent options
shall (x) vest 1/3 upon the date of grant, 1/3 12 months after the date of
grant, and 1/3 24 months after the date of grant, and (y) have an exercise price
which is equal to the fair market value on the date of grant.
(c) Prior Employment. For all purposes under this Agreement, the
Employee's service and compensation with Bay State Computer Group, Inc. shall be
treated as service and compensation with the Company except to the extent that
such treatment would be impermissible under applicable law.
(d) Registration Rights. The Company shall register the shares of
capital stock of the Company issuable upon the Employee's exercise of his stock
options pursuant to the appropriate form of registration statement under the
Securities Act of 1933 and shall maintain such registration statement's
effectiveness at all required times.
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 By the Terms of This Agreement. Expiration of the Employment Period
in accordance with Section 1.
4.2 By the Company. At the election of the Company, for cause, upon
written notice by the Board to the Employee, the giving of which shall have been
authorized by a vote of not less than 50% of all disinterested directors of the
Company then in office, and which shall include a written statement of the
particular acts or circumstances which are the basis for the termination for
cause. For the purposes of this Section 4.2, "cause" for termination shall be
deemed to exist solely upon (a) the occurrence of willful and continued failure
of the Employee to substantially perform the Employee's reasonable duties under
this Agreement (other than as a
4
<PAGE>
result of physical or mental illness or injury) which is material, related to
his duties as an employee of the Company, and continues for 30 days after the
Board delivers to the Employee a written demand for substantial performance that
specifically identifies the manner in which the Board believes that the Employee
has not substantially performed the Employee's duties, or (b) the conviction of
the Employee of, or the entry of a pleading of guilty or nolo contendere by the
Employee to, any crime involving moral turpitude or any felony that results in
material and demonstrable damage to the business or reputation of the Company.
4.3 By Death. Thirty days after the death of the Employee.
4.4 By the Employee. At the election of the Employee, upon not less
than 30 days' prior written notice to the Company given within 60 days after a
good faith determination by the Employee that any of the following has occurred:
(a) material and adverse diminution of the Employee's duties, authority,
position, compensation or aggregate benefits, including, without limitation,
failure to cause the Employee to retain the position of Chief Executive Officer
of the Company; (b) the assignment to the Employee of any duties inconsistent
with Section 2 of this Agreement; (c) the failure of the Employee to be elected
to and remain a member of the Board throughout the Employment Period (provided
the Employee is willing to serve as such on the same terms and conditions as
other employee-directors), unless the Employee is removed from the Board of
Directors in connection with the termination of the Employee's employment
pursuant to Section 4.2; (d) a change by the Company (other than on the
Employee's recommendation) in the location at which the Employee performs his
principal duties for the Company to a new location that is both (i) outside a
radius of 35 miles from the Employee's principal residence immediately prior to
the change, and (ii) more than 20 miles from the location at which the Employee
performed his principal duties for the Company immediately prior to the change;
(e) the Company's purported termination of the Employee's employment for cause
other than in accordance with the requirements of this Agreement; or (f) any
other material breach of this Agreement by the Company. In addition, the
Employee may terminate his employment with the Company, for any reason, during
the 30-day period immediately following the one-year anniversary of a Change in
Control, as defined below.
5. Effect of Termination.
5.1 Termination by the Company Without Cause, by the Employee for Cause
or Upon Expiration.
(a) Severance. In the event the Employee's employment is
terminated by the Company without cause or by the Employee pursuant to Section
4.4 (each, a "Qualifying Termination") or the Company does not offer to renew
this Agreement upon expiration of the Employment Period, the Company shall pay
to the Employee (i) a pro rata portion of the Severance Bonus Amount (as defined
below) for the fiscal year in which such termination is effective determined by
multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"),
the numerator of which shall be the number of days between the first day of the
fiscal
5
<PAGE>
year and the date on which the termination is effective and the denominator of
which shall be 365, plus (ii) an amount equal to the Annual Base Salary through
June 10, 2002. For purposes of this Agreement, the Severance Bonus Amount for a
fiscal year shall equal the average of the bonuses paid to the Employee pursuant
to Section 3.2 of this Agreement for the fiscal years, if any, immediately
preceding such fiscal year or $187,500, whichever is greater.
(b) Severance Period; Timing of Payments. The Company shall make
the severance payment called for by Section 5.1(a) (i) within 30 days of the
date the Employee's termination is effective, and shall make the payments called
for by Section 5.1(a)(ii) to the Employee at a monthly rate equal to one-twelfth
of the Annual Base Salary. All severance payments provided for in this Section
5.1 shall be made in semi-monthly installments in arrears on the 15th day and
the last day of each fiscal month. Such installments shall be appropriately
adjusted in the event a severance payment is due for any partial fiscal month.
(c) Severance Benefits. Following any Qualifying Termination or if
this Agreement is not renewed for any reason at the end of the Employment
Period, the Company shall continue to pay for or provide to the Employee the
fringe benefits as may have been provided to the Employee in accordance with
Section 3.4 immediately prior to such Qualifying Termination or termination
(subject to changes in the terms of health, disability or life insurance
coverage by the provider as may be applicable to the Company as a whole) for a
period ending on the earliest of (i) the date of the Employee's employment by a
third party on a substantially full-time basis if the Employee is eligible to
receive comparable life, medical, dental, health, and accident or disability
insurance benefits under another employer-provided plan, on terms at least as
favorable to the Employee and his family, (ii) June 10, 2002, or (iii) the death
of the Employee but in the case of the Employee's death his health benefits
shall be continued for the benefit of his wife for a one year period following
his death. The Employee shall notify the Company promptly following his
acceptance of any offer of employment by a third party. The Employee shall be
under no obligation to seek other employment following any Qualifying
Termination, and any amounts he earns in any other employment shall not reduce
or offset the severance payments or other amounts due hereunder except for the
fringe benefits specifically referred to in this Section 5.1(c).
5.2 Termination for Death. In the event the Employee's employment is
terminated by death pursuant to Section 4.3 (a "Section 4.3 Termination"), the
Company shall pay or provide to the estate of the Employee the compensation
(including, without limitation, in lieu of the bonuses and payments provided for
in Sections 3.2, (i) the Pro Rata Fraction of the Severance Bonus Amount for the
fiscal year in which such termination is effective, and (ii) in the event that
the termination is effective prior to June 10, 2001, $375,000, which amounts
will be paid in a one-time lump sum payment within 30 days of the last day of
the Employee's actual employment by the Company) and benefits payable or
provided to him under Section 3 through the last day of his actual employment by
the Company.
6
<PAGE>
5.3 Termination Upon Change in Control of the Company.
(a) Change in Control Severance Payment. In the event the
Employee's employment is terminated without cause or pursuant to Section 4.4 of
this Agreement within 24 months following a Change in Control (as defined below)
of the Company, the Company shall make a one-time lump sum severance payment
(the "Change in Control Severance Payment") to the Employee in an amount equal
to the product of 2.99 multiplied by his Annual Base Salary. In such event, the
Employee shall not be entitled to the payments to which he would otherwise be
entitled pursuant to Section 5.1(a), but shall continue to be entitled to
benefits provided by the Company pursuant to and in accordance with Section
5.1(e).
(b) Parachute Payments. The Change in Control Severance Payment
payable under this Section 5.3 shall be made without regard to whether the
deductibility of such payment (or any other "parachute payments," as that term
is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for the Employee's benefit) would be limited or precluded by
Section 280G.
(c) Change in Control. A "Change in Control" of the Company shall
occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company, acquires
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities (other than through an acquisition
of securities directly from the Company);
(ii) individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or
7
<PAGE>
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
5.4 Taxes.
(a) Gross-Up Payment. In the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall, within
30 days after the date of such Change in Ownership or Control determine and
notify the Employee (with reasonable detail regarding the basis for its
determinations) (i) which of the payments or benefits due to the Employee
following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), by the Employee with respect to
such Contingent Compensation Payment and (iii) the amount of the Gross-Up
Payment (as defined below) due to the Employee with respect to such Contingent
Compensation Payment. Within 30 days after delivery of such notice to the
Employee, the Employee shall deliver a response to the Company (the "Employee
Response") stating either (A) that he agrees with the Company's determination
pursuant to the preceding sentence or (B) that he disagrees with such
determination, in which case he shall indicate which payment and/or benefits
should be characterized as a Contingent Compensation Payment, the amount of the
Excise Tax with respect to such Contingent Compensation Payment and the amount
of the Gross-Up Payment due to the Employee with respect to such Contingent
Compensation Payment. The amount and characterization of any item in the
Employee Response shall be final; provided, however, that in the event that the
Employee fails to deliver an Employee Response on or before the required date,
the Company's initial determination shall be final. Within 90 days after the due
date of each Contingent Compensation Payment to the Executive, the Company shall
pay to the Employee, in cash, the Gross-Up Payment with respect to such
Contingent Compensation Payment, in the amount determined pursuant to this
Section 5.4(a).
(b) Definitions. For purposes of this Section 5.4, the following
terms shall have the following respective meanings:
8
<PAGE>
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "Contingent Compensation Payment" shall mean any payment
(or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Section 280G(c) of the Code) and that
is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a
Change in Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an amount equal to the
sum of (i) the amount of the Excise Tax payable with respect to a Contingent
Compensation Payment and (ii) the amount necessary to pay all additional taxes
imposed on (or economically borne by) the Employee (including the Excise Taxes,
state and federal income taxes and all applicable withholding taxes)
attributable to the receipt of such Gross-Up Payment. For purposes of the
preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
5.5 Termination By the Company for Cause. In the event the Employee's
employment is terminated by the Company for cause, the Company shall pay to the
Employee his Annual Base Salary to and including the effective date of such
termination.
5.6 No Mitigation. Except as provided with respect to fringe benefits
in Section 5.1(e), the severance benefits payable to the Employee under this
Agreement shall not be reduced by payments received by the Employee from a
subsequent employer.
5.7 Survival. The provisions of Sections 5, 6 and 7 shall survive the
termination of this Agreement.
6. Restrictions on Competition.
6.1 Non-Compete. For so long as the Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
and thereafter for a period equal to the longer of (x) two years, or (y) the
period during which the Employee is receiving any severance pay from the Company
pursuant to Section 5, the Employee shall not, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation, business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant, advisor, or sales representative,
in any business selling any products or services in direct competition with the
Company, within 100 miles of any location where the Company conducts business
(the "Territory");
9
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(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or
has been, within one year prior to that time, a customer of the Company within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
(iv) on the Employee's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate who or
that, during the Employee's employment by the Company was either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company.
6.2 Investment. The foregoing covenants shall not be deemed to prohibit
the Employee from acquiring as an investment not more than one percent of the
capital stock of a competing business, whose stock is traded on a national
securities exchange or through the automated quotation system of a registered
securities association.
6.3 Future Employment. It is agreed further that, in the event that the
Employee shall cease to be employed by the Company and enters into a business or
pursues other activities that, at such time, are not in competition with the
Company, Employee shall not be chargeable with a violation of this Section 6 if
the Company subsequently enters the same (or a similar) competitive business or
activity or commences competitive operations within 100 miles of the Employee's
new business or activities. In addition, if the Employee has no actual knowledge
that his actions violate the terms of this Section 6, the Employee shall not be
deemed to have breached the restrictive covenants contained in this Agreement
if, promptly after being notified by the Company of such breach, the Employee
ceases the prohibited actions.
6.4 Severability. The covenants in this Section 6 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 6 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
6.5 Defenses. All of the covenants in this Section 6 shall be construed
as an agreement independent of any other provision of this Agreement, and the
existence of any claim or cause of action of the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement or the Company of such
10
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covenants; provided, that upon the failure of the Company to make any payments
required under this Agreement, the Employee may, upon 30 days' prior written
notice to the Company, waive his right to receive any such compensation pursuant
to this Agreement and engage in any activity prohibited by the covenants of this
Section 6. It is specifically agreed that the period of two years stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.6 Fairness. The Employee has carefully read and considered the
provisions of this Section 6, and, having done so, agrees that the restrictive
covenants in this Section 6 impose a fair and reasonable restraint on the
Employee and are reasonably required to protect the interests of the Company,
and its officers, directors, employees, and stockholders.
7. Proprietary Information. The Employee's relationship with the Company is
one of high trust and confidence and in the course of his employment by the
Company he will have access to and contact with Proprietary Information. The
Employee agrees that he will not, during the Employment Period or at any time
thereafter, disclose to others, or use for the benefit of others, any
Proprietary Information, except in the good faith performance of his duties
under this Agreement.
7.1 Proprietary Information. For purposes of this Agreement,
Proprietary Information shall mean all information (whether or not patentable
and whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, formula, formulation, vendor
information, customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software, software
documentation, hardware design, technology, marketing or business plan,
forecast, unpublished financial statement, budget, license, price, cost and
employee list that is communicated to, learned of, developed or otherwise
acquired by the Employee in the course of his employment by the Company.
7.2 Exceptions. The Employee's obligations under this Section 7 shall
not apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Employee of the terms of this
Section 7, (ii) is generally disclosed to third parties by the Company without
restriction on such third parties, (iii) is approved for release by written
authorization of the Board or an authorized employee of the Company, (iv) is
communicated to the Employee by a third party under no duty of confidentiality
with respect to such information to the Company or another party, or (v) is
required to be disclosed by the Employee to comply with applicable laws,
governmental regulations, or court order, provided that the Employee provides
prior written notice of such disclosure to the Company and an opportunity for
the Company to object to such disclosure and further provided that the Employee
cooperates with the Company and takes reasonable and lawful actions requested by
the Company (the out-of-pocket costs of which shall be paid by the Company) to
avoid and/or minimize the extent of such disclosure.
11
<PAGE>
7.3 Company Property. Upon termination of this Agreement or at any
other time upon request by the Company, the Employee shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials in his possession or control)
belonging to the Company.
7.4 Other Agreements. The Company from time to time may have agreements
with other persons or with the United States Government, or agencies thereof,
that impose obligations or restrictions on the Company regarding inventions made
during the course of work under such agreements or regarding the confidential
nature of such work. If the Employee's duties under this Agreement will require
disclosures to be made to him subject to such obligations and restrictions, the
Employee agrees to be bound by them and to take all action necessary to
discharge the obligations of the Company under such agreements.
8. Legal and Professional Fees. The Company shall pay or reimburse the
Employee for (A) all reasonable legal and other reasonable professional fees and
disbursements incurred by the Employee in connection with the negotiation and
preparation of this Agreement and (B) all reasonable legal and other reasonable
professional fees and disbursements incurred by the Employee in connection with
any dispute over the enforcement of the Employee's rights under this Agreement,
unless the Employee is adjudicated to have brought such action not in good
faith. In addition, the Company shall continue to pay to the Employee his Annual
Base Salary and benefits during the pendency of such a dispute.
9. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or three days
after deposit in the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, addressed to the other party at the
address shown above and, in the case of any notice to the Employee, with a copy
to Alexander A. Bernhard, Esq., Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109, or at such other address or addresses of which either party
shall notify the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
11. Entire Agreement. This Agreement and the Employee Options constitute the
entire agreement between the parties and supersede all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement and the Employee Options. The Employment Agreement dated as of October
15, 1996 between Bay State Computer Group, Inc. and the Employee (the "Previous
Employment Agreement") is hereby terminated and superseded by this Agreement and
that prior agreement shall have no further
12
<PAGE>
affect except for such payments, if any, that are due under that agreement to
the Employee as of the date of the termination of that agreement.
12. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
14. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by the Company except
to a corporation or other person or entity reasonably acceptable to the Employee
and with which or into which the Company may be merged, consolidated or
otherwise combined or which may succeed to all or substantially all of its
assets or business and which assumes in a writing satisfactory in form and
substance to Employee all of the obligations of the Company under this Agreement
and under all Employer Stock Option Plans. The obligations of the Employee are
personal and shall not be assigned by him.
15. Definitions. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.3(c)(i)
Board 2
Cause for Termination 4.2
Change in Control 5.3(c)
Change in Control Severance Payment 5.3(a)
Change in Ownership 5.4
Code 5.3(b)
Commencement Date 1
Company Introduction
Contingent Compensation Payments 5.4
Employee Introduction
Employee Response 5.4
Employer Stock Option Plan 3.6
Employment Period 1
Exchange Act 5.3(c)(i)
Excise Taxes 5.4
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Failure of the Employee to Perform 4.2
Gross-up Payment 5.4
Incumbent Board 5.3(c)(ii)
Merger Agreement 6.7
Parachute Payments 5.3(b)
Person 6.1
Previous Employment Agreement 11
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Section 4.3 Termination 5.2
Territory 6.1
</TABLE>
16. Miscellaneous.
16.1 Waiver. No delay or omission by either party in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by either party on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
16.2 Section Headings. The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
16.3 Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
16.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Aztec Technology Partners, Inc. Employee
By:
------------------------------ -------------------------------
James E. Claypoole
Title:
Agreed to solely for the purposes of Section 11 above.
14
<PAGE>
Bay State Computer Group, Inc.
By
----------------------------
Title:
-------------------------
15
<PAGE>
Exhibit 3.6
Provisions to be Included in Employee Options
A. If, prior to the expiration date of the stock option, the Employee's
employment with the Company is terminated by the Company pursuant to Section 4.2
of the Employment Agreement dated as of June 10, 1998 between the Company and
the Employee, as amended from time to time (the "Employment Agreement"), or by
the Employee pursuant to Section 4.4 of the Employment Agreement, then,
notwithstanding anything in such stock option to the contrary,
(i) upon the effective date of termination of the Employee's employment
with the Company (the "Employment Termination Date"), the exercisability of such
stock option shall be accelerated by two years so that such stock option shall
become exercisable to purchase the number of shares of Common Stock that the
Employee would otherwise have been entitled to purchase under the stock option
if the Employee's employment had been terminated on the second anniversary of
the Employment Termination Date; and
(ii) such stock option shall become exercisable for a period of two
years following the Employment Termination Date; provided that if such stock
option is an incentive stock option, then the exercise of the stock option after
the three-month period following the Employment Termination Date shall be
treated as the exercise of a non-statutory stock option.
B. (i) If, prior to the expiration date of the stock option, a Change in
Control (as defined in the Employment Agreement) of the Company occurs, then
notwithstanding anything in such stock option to the contrary,
(a) if the Change in Control of the Company, regardless of when it
is to be consummated, is not to be accounted for as a "pooling of interests" for
financial accounting purposes, or if the Initiation Date of the Change in
Control of the Company (as defined by generally accepted accounting principles
as in effect from time to time), regardless of whether such Change in Control of
the Company is to be accounted for as a "pooling of interests" for financial
accounting purposes, occurs on or after the second anniversary of the date of
the Employment Agreement, then, effective upon the consummation of the Change in
Control of the Company, the exercisability of such stock option shall be
accelerated in full (without regard to the application of Section 280G of the
Code) so that such stock option shall become exercisable to purchase all of the
shares of Common Stock covered by such stock option;
(b) if the Change in Control of the Company is to be accounted for
as a "pooling of interests" for financial accounting purposes and if the
Initiation Date of the Change in Control of the Company occurs prior to the
second anniversary of the date of the Employment Agreement, then (I) the portion
of such stock option that has not vested as of the date
A1
<PAGE>
immediately prior to the consummation of the Change in Control of the Company
(the "Unvested Portion") shall terminate and (II) the Employee shall be entitled
to receive, upon the consummation of the Change in Control of the Company,
shares of Common Stock of the person that acquired shares of the Company's
Common Stock in connection with the Change in Control (the "Acquiror") having a
Fair Market Value (as defined below) equal to the Inherent Equity Value of the
Unvested Portion (as defined below); and
(c) such stock option shall become exercisable for a period of two
years following the Employment Termination Date; provided that if such stock
option is an incentive stock option, then the exercise of the stock option after
the three-month period following the Employment Termination Date shall be
treated as the exercise of a non-statutory stock option.
(ii) For purposes of this Paragraph B, the following terms shall have
the meanings set forth below:
(a) The "Fair Market Value" of the Common Stock of the Acquiror
shall be determined by dividing (I) the Fair Market Value of Aztec Technology
Partners, Inc. Common Stock (as defined below) by (II) the number of shares of
the Acquiror's Common Stock for which one share of Common Stock of the Company
will be exchanged in the Change of Control of the Company.
(b) If there is a written agreement between the Company and the
Acquiror for the Change in Control of the Company, and such agreement
establishes an amount as the fair market value per share of the Company's Common
Stock for purposes of the Change in Control of the Company, then such amount
shall be deemed to be the "Fair Market Value of Aztec Technology Partners, Inc.
Common Stock". If there is not a written agreement between the Company and the
Acquiror for the Change in Control of the Company, or if any such agreement does
not establish an amount as the fair market value per share of the Company's
Common Stock for purposes of the Change in Control of the Company, the "Fair
Market Value of Aztec Technology Partners, Inc. Common Stock" shall be the last
reported sale price per share of the Company's Common Stock on the Nasdaq
National Market, or on such other nationally recognized exchange or trading
system upon which the Company's Common Stock is listed, on such date or, if no
such price is reported on such date, such price on the most recent preceding
business day for which such price is reported.
(c) The "Inherent Equity Value of the Unvested Portion" shall
equal the fair market value of the Unvested Portion on the last business day
immediately preceding the consummation of the Change in Control of the Company,
as determined by discounting, at the then current interest rate on one-year
Treasury Bills, to such day from the dates of future vesting of the Unvested
Portion, the difference between the Fair Market Value of Aztec Technology
Partners, Inc. Common Stock and the exercise prices of the Unvested Portion,
multiplied by the number of shares vesting on such future dates.
A2
<PAGE>
(iii) Notwithstanding the foregoing, if the Change in Control of the
Company is intended to be accounted for as a "pooling of interests" for
financial accounting purposes, and if any provision contained in this paragraph
B would preclude accounting for the Change in Control of the Company as a
"pooling of interests" for financial accounting purposes, then any such
provision in this paragraph B shall be null and void.
A3
<PAGE>
A4
<PAGE>
Exhibit 10.12
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
Douglas Johnson
____________, 1998
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
DOUGLAS JOHNSON
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term of Employment.......................................................................................1
2. Title; Capacity..........................................................................................1
2.1 Authority.......................................................................................1
2.2 Attention.......................................................................................1
2.3 Base of Operations..............................................................................2
2.4 Representation and Warranty of Employee.........................................................2
2.5 Representation and Warranty of Company..........................................................2
3. Compensation and Benefits................................................................................2
3.1 Salary..........................................................................................2
3.2 Bonus...........................................................................................3
3.3 Reimbursement of Expenses.......................................................................3
3.4 Fringe Benefits; Vacation.......................................................................3
3.5 Other Plans.....................................................................................3
3.6 Stock Options...................................................................................4
4. Employment Termination...................................................................................4
4.1 By the Terms of This Agreement..................................................................4
4.2 By the Company..................................................................................4
4.3 By Death........................................................................................4
4.4 By the Employee.................................................................................4
5. Effect of Termination....................................................................................5
5.1 Termination by the Company Without Cause, by the Employee for Cause or Upon
Expiration......................................................................................5
5.2 Termination for Death...........................................................................6
5.3 Termination Upon Change in Control of the Company...............................................6
5.4 Taxes...........................................................................................7
5.5 Termination By the Company for Cause............................................................8
5.6 No Mitigation...................................................................................8
5.7 Survival........................................................................................9
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6. Restrictions on Competition..............................................................................9
6.1 Non-Compete.....................................................................................9
6.2 Investment......................................................................................9
6.3 Future Employment..............................................................................10
6.4 Severability...................................................................................10
6.5 Defenses.......................................................................................10
6.6 Fairness.......................................................................................10
7. Proprietary Information.................................................................................11
7.1 Proprietary Information........................................................................11
7.2 Exceptions.....................................................................................11
7.3 Company Property...............................................................................11
7.4 Other Agreements...............................................................................12
8. Legal and Professional Fees.............................................................................12
9. Notices.................................................................................................12
10. Pronouns................................................................................................12
11. Entire Agreement........................................................................................12
12. Amendment...............................................................................................12
13. Governing Law...........................................................................................12
14. Successors and Assigns..................................................................................13
15. Definitions.............................................................................................13
16. Miscellaneous...........................................................................................14
16.1 Waiver.........................................................................................14
16.2 Section Headings...............................................................................14
16.3 Severability...................................................................................14
16.4 Counterparts...................................................................................14
</TABLE>
- iii -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this ____ day of
____________, 1998, is entered into by and between Aztec Technology Partners,
Inc., a Delaware corporation with its principal place of business at 52 Roland
Street, Boston, Massachusetts 02129 (the "Company"), and _______________,
residing at _______________________________________________ (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the parties to this
Agreement, the parties agree as follows:
1. Term of Employment. The Company agrees to employ the Employee, and
the Employee accepts employment with the Company, upon the terms set forth in
this Agreement, for the period commencing on _____________, 1998 (the
"Commencement Date") and, subject to the provisions of Section 4, ending on
____________, 1999, unless extended by mutual agreement (the "Employment
Period").
2. Title; Capacity.
2.1 Authority. During the Employment Period, the Employee shall serve
as _______________________ of the Company. In such capacity, the Employee shall
report to the [Chief Executive Officer ("CEO")] of the Company. During the
Employment Period, the Employee shall have such authority as is delegated to him
by the [CEO], including, without limitation, the authority and responsibility
for ______________________________________. The Employee accepts such employment
and agrees to undertake the duties and responsibilities normally inherent in
such position and such other duties and responsibilities as the [CEO] shall from
time to time reasonably assign to him consistent with his position as
___________________.
2.2 Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Employee is entitled, the Employee shall
devote principal attention and time during normal business hours to the
Company's business and affairs and, to the extent necessary to discharge the
responsibilities assigned to the Employee under this Agreement, use the
Employee's reasonable best efforts and abilities to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the above for the Employee to (A) serve on corporate, civic or
charitable boards or committees (excluding those which would create a conflict
of interest), (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions, and (C) manage personal investments, so long as such
activities do not materially interfere with the performance of the Employee's
responsibilities as an employee of the Company in accordance with this
Agreement. In the event that the Employee
1
<PAGE>
engages in any such activities, other than in his capacity as ______________,
the Employee shall not be required to pay to the Company the compensation
that he earns from engaging in such activities.
2.3 Base of Operations. The Employee's base of operations under this
Agreement shall be _____________________, although the Employee may from time to
time render services from other locations on a temporary basis. The Employee
shall not be required to relocate or render services, on other than a temporary
basis, outside of such city.
2.4 Representation and Warranty of Employee. The Employee hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment agreement for cause or
good reason, pursuant to Section 4 of this Agreement.
3. Compensation and Benefits.
3.1 Salary. For all services rendered by the Employee in any capacity
under this Agreement, the Company shall pay the Employee, during the Period of
Employment, as compensation an annual base salary of not less than $__________,
which amount shall be subject to increase as provided below (the "Annual Base
Salary"). Such Annual Base Salary shall be payable in accordance with the
Company's customary payroll practices (but not less frequently than monthly).
[FOR MULTI-YEAR AGREEMENTS ONLY: The Company agrees to review the Employee's
Annual Base Salary on at least an annual basis no later than 120 days after the
end of each fiscal year commencing in _____ to consider an increase (but not
decrease) in such Annual Base Salary for the fiscal year. Any such increase
shall be effective as of the first day of the fiscal year and shall be at the
sole discretion of the Board. Any increase in the Annual Base Salary shall not
limit or reduce any other obligation of the Company under this Agreement.]
3.2 Bonus. [FOR MULTI-YEAR AGREEMENTS ONLY: For each fiscal year of
the Company,] The Employee shall be entitled to receive a cash bonus with an
annual target award opportunity of up to _____ percent of Annual Base Salary
awarded to the Employee by the Board or by a Committee designated by the Board.
Each annual bonus shall be paid in a single cash lump sum not later than 90 days
after the end of the fiscal year or portion thereof for which the bonus is
awarded, unless the Employee elects in writing, before the beginning of the
fiscal year for which the annual bonus is to be awarded, to defer receipt of the
annual bonus. Notwithstanding anything in this Agreement to the contrary, in the
event of any termination of the Employee's employment with the Company for any
reason whatsoever (whether by the Employee or the Company), any unpaid bonus
payable in accordance with this Section 3.2 for the fiscal year preceding the
fiscal year in which such termination occurs shall be paid to the Employee in
accordance with this Section 3.2.
2
<PAGE>
3.3 Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for all business travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement. Such expenses shall
be appropriately submitted and approved in accordance with the Company's
policies applicable to senior executives, as well as applicable Federal and
state tax record keeping requirements.
3.4 Fringe Benefits; Vacation. The Employee shall participate in and
shall receive during the Period of Employment employee benefit plans and fringe
benefits of the Company in accordance with the most favorable plans, practices,
programs and policies of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, including, without
limitation, plans providing retirement benefits, medical insurance, life
insurance, disability insurance and accidental death or dismemberment insurance.
The paid vacation entitlement of the Employee shall be ____ weeks per year.
3.5 Other Plans. Nothing in this Agreement shall be construed as
making the Employee ineligible to participate in and receive awards or grants
under any equity incentive plan of the Company in accordance with the terms
thereof in which the Employee would otherwise be eligible to participate.
3.6 Stock Options. The parties contemplate that promptly upon
execution of this Agreement, the Employee shall be granted options for the
purchase of _____ shares of the Company's common stock, $0.001 par value per
share. The options shall vest 1/3 on the date of grant, 1/3 12 months after the
date of grant, and 1/3 24 months after the date of grant. The option exercise
price will be equal to the fair market value of the Company's stock on the date
of grant.
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 By the Terms of This Agreement. Expiration of the Employment
Period in accordance with Section 1.
4.2 By the Company. At the election of the Company, for cause, upon
written notice by the CEO to the Employee. For the purposes of this Section 4.2,
"cause" for termination shall be deemed to exist solely upon (a) the occurrence
of willful and continued failure of the Employee to substantially perform the
Employee's reasonable duties under this Agreement (other than as a result of
physical or mental illness or injury) which is material, related to his duties
as an employee of the Company, and continues for 30 days after the CEO delivers
to the Employee a written demand for substantial performance that specifically
identifies the manner in which the CEO believes that the Employee has not
substantially performed the Employee's duties, or (b) the conviction of the
Employee of, or the entry of a pleading of guilty or nolo contendere by the
Employee to, any crime involving moral turpitude or any felony that results in
material and demonstrable damage to the business or reputation of the Company.
3
<PAGE>
4.3 By Death. Thirty (30) days after the death of the Employee.
4.4 By the Employee. At the election of the Employee, upon not less
than 30 days' prior written notice to the Company given within 60 days after a
good faith determination by the Employee that any of the following has occurred:
(a) material and adverse diminution of the Employee's duties, authority,
position, compensation or aggregate benefits, including, without limitation,
failure to cause the Employee to retain the position of _______________________
of the Company; (b) the assignment to the Employee of any duties inconsistent
with Section 2 of this Agreement; (c) the Company's purported termination of the
Employee's employment for cause other than in accordance with the requirements
of this Agreement; or (d) any other material breach of this Agreement by the
Company. In addition, the Employee may terminate his employment with the
Company, for any reason, during the 30-day period immediately following the
one-year anniversary of a Change in Control, as defined below.
5. Effect of Termination.
5.1 Termination by the Company Without Cause, by the Employee for
Cause or Upon Expiration.
(a) Severance. In the event the Employee's employment is
terminated by the Company without cause or by the Employee pursuant to Section
4.4 (each, a "Qualifying Termination") or the Company does not offer to renew
this Agreement upon expiration of the Employment Period, the Company shall pay
to the Employee (i) a pro rata portion of the Severance Bonus Amount (as defined
below) for the fiscal year in which such termination is effective determined by
multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"),
the numerator of which shall be the number of days between the first day of the
fiscal year and the date on which the termination is effective and the
denominator of which shall be 365, plus (ii) an amount equal to the Annual Base
Salary through _________. For purposes of this Agreement, the Severance Bonus
Amount for a fiscal year shall equal the average of the bonuses paid to the
Employee pursuant to Section 3.2 of this Agreement for the fiscal years, if any,
immediately preceding such fiscal year or $_________, whichever is greater.
(b) Severance Period; Timing of Payments. The Company shall make
the severance payment called for by Section 5.1(a)(i) within 30 days of the date
the Employee's termination is effective, and shall make the payments called for
by Section 5.1(a)(ii) to the Employee at a monthly rate equal to one-twelfth of
the Annual Base Salary. All severance payments provided for in this Section 5.1
shall be made in semi-monthly installments in arrears on the 15th day and the
last day of each fiscal month. Such installments shall be appropriately adjusted
in the event a severance payment is due for any partial fiscal month.
(c) Severance Benefits. Following any Qualifying Termination or
if this Agreement is not renewed for any reason at the end of the Employment
Period, the Company
4
<PAGE>
shall continue to pay for or provide to the Employee the fringe benefits as may
have been provided to the Employee in accordance with Section 3.4 immediately
prior to such Qualifying Termination or termination (subject to changes in the
terms of health, disability or life insurance coverage by the provider as may be
applicable to the Company as a whole) for a period ending on the earliest of (i)
the date of the Employee's employment by a third party on a substantially
full-time basis if the Employee is eligible to receive comparable life, medical,
dental, health, and accident or disability insurance benefits under another
employer-provided plan, on terms at least as favorable to the Employee and his
family, (ii) ____________, or (iii) the death of the Employee but in the case of
the Employee's death his health benefits shall be continued for the benefit of
his wife for a one year period following his death. The Employee shall notify
the Company promptly following his acceptance of any offer of employment by a
third party. The Employee shall be under no obligation to seek other employment
following any Qualifying Termination, and any amounts he earns in any other
employment shall not reduce or offset the severance payments or other amounts
due hereunder except for the fringe benefits specifically referred to in this
Section 5.1(c).
5.2 Termination for Death. In the event the Employee's employment is
terminated by death pursuant to Section 4.3 (a "Section 4.3 Termination"), the
Company shall pay or provide to the estate of the Employee the compensation
(including, without limitation, in lieu of the bonuses and payments provided for
in Sections 3.2, the Pro Rata Fraction of the Severance Bonus Amount for the
fiscal year in which such termination is effective, which shall be paid in a
one-time lump sum payment within 30 days of the last day of the Employee's
actual employment by the Company) and benefits payable or provided to him under
Section 3 through the last day of his actual employment by the Company.
5.3 Termination Upon Change in Control of the Company.
(a) Change in Control Severance Payment. In the event the
Employee's employment is terminated without cause or pursuant to Section 4.4 of
this Agreement within 24 months following a Change in Control (as defined below)
of the Company, the Company shall make a one-time lump sum severance payment
(the "Change in Control Severance Payment") to the Employee in an amount equal
to the product of _____ multiplied by his Annual Base Salary. In such event, the
Employee shall not be entitled to the payments to which he would otherwise be
entitled pursuant to Section 5.1(a), but shall continue to be entitled to
benefits provided by the Company pursuant to and in accordance with Section
5.1(e).
(b) Parachute Payments. The Change in Control Severance Payment
payable under this Section 5.3 shall be made without regard to whether the
deductibility of such payment (or any other "parachute payments," as that term
is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for the Employee's benefit) would be limited or precluded by Code
Section 280G.
5
<PAGE>
(c) Change in Control. A "Change in Control" of the Company shall
occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company, acquires
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (other than
through an acquisition of securities directly from the Company);
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities;
or
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
5.4 Taxes.
(a) Gross-Up Payment. In the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall, within
30 days after the date of such Change in Ownership or Control determine and
notify the Employee (with reasonable detail regarding the basis for its
determinations) (i) which of the payments or benefits due to the Employee
following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Code Section 4999, by the
Employee with respect to such Contingent Compensation Payment, and (iii) the
amount of the Gross-Up Payment (as defined below) due to the Employee with
respect to such Contingent Compensation Payment. Within 30 days after delivery
of such notice to the Employee, the Employee shall deliver a response to the
Company (the "Employee Response") stating either (A) that he agrees with the
Company's determination pursuant to the preceding sentence, or (B) that he
disagrees with such determination, in which case he shall indicate which payment
and/or benefits should be
6
<PAGE>
characterized as a Contingent Compensation Payment, the amount of the Excise Tax
with respect to such Contingent Compensation Payment and the amount of the
Gross-Up Payment due to the Employee with respect to such Contingent
Compensation Payment. The amount and characterization of any item in the
Employee Response shall be final; provided, however, that in the event that the
Employee fails to deliver an Employee Response on or before the required date,
the Company's initial determination shall be final. Within ninety (90) days
after the due date of each Contingent Compensation Payment to the Executive, the
Company shall pay to the Employee, in cash, the Gross-Up Payment with respect to
such Contingent Compensation Payment, in the amount determined pursuant to this
Section 5.4(a).
(b) Definitions. For purposes of this Section 5.4, the following
terms shall have the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Code Section 280G(b)(2).
(ii) "Contingent Compensation Payment" shall mean any
payment (or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Code Section 280G(c)) and that is
contingent (within the meaning of Code Section 280G(b)(2)(A)(i)) on a Change in
Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an amount equal to the
sum of (i) the amount of the Excise Tax payable with respect to a Contingent
Compensation Payment and (ii) the amount necessary to pay all additional taxes
imposed on (or economically borne by) the Employee (including the Excise Taxes,
state and federal income taxes and all applicable withholding taxes)
attributable to the receipt of such Gross-Up Payment. For purposes of the
preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
5.5 Termination By the Company for Cause. In the event the Employee's
employment is terminated by the Company for cause, the Company shall pay to the
Employee his Annual Base Salary to and including the effective date of such
termination.
5.6 No Mitigation. Except as provided with respect to fringe benefits
in Section 5.1(e), the severance benefits payable to the Employee under this
Agreement shall not be reduced by payments received by the Employee from a
subsequent employer.
5.7 Survival. The provisions of Sections 5, 6 and 7 shall survive
the termination of this Agreement.
6. Restrictions on Competition.
7
<PAGE>
6.1 Non-Compete. For so long as the Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
and thereafter for a period of one (1) year, the Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services in direct competition with the
Company, within one thousand five hundred (1,500) miles of any location where
the Company conducts business (the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or has
been, within one (1) year prior to that time, a customer of the Company within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
(iv) on the Employee's own behalf or on behalf of any competitor,
call upon any Person as a prospective acquisition candidate who or that, during
the Employee's employment by the Company was either called upon by the Company
as a prospective acquisition candidate or was the subject of an acquisition
analysis conducted by the Company.
6.2 Investment. The foregoing covenants shall not be deemed to
prohibit the Employee from acquiring as an investment not more than one percent
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or through the automated quotation system of a
registered securities association.
6.3 Future Employment. It is agreed further that, in the event that
the Employee shall cease to be employed by the Company and enters into a
business or pursues other activities that, at such time, are not in competition
with the Company, Employee shall not be chargeable with a violation of this
Section 6 if the Company subsequently enters the same (or a similar) competitive
business or activity or commences competitive operations within one hundred
(100) miles of the Employee's new business or activities. In addition, if the
Employee has no actual knowledge that his actions violate the terms of this
Section 6, the Employee shall not be deemed to have breached the restrictive
covenants contained in this Agreement if, promptly after being notified by the
Company of such breach, the Employee ceases the prohibited actions.
8
<PAGE>
6.4 Severability. The covenants in this Section 6 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 6 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
6.5 Defenses. All of the covenants in this Section 6 shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement or the Company of such covenants; provided, that
upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon thirty (30) days' prior written notice to the
Company, waive his right to receive any such compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of one (1) year stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.6 Fairness. The Employee has carefully read and considered the
provisions of this Section 6, and, having done so, agrees that the restrictive
covenants in this Section 6 impose a fair and reasonable restraint on the
Employee and are reasonably required to protect the interests of the Company,
and its officers, directors, employees, and stockholders.
7. Proprietary Information. The Employee's relationship with the Company is
one of high trust and confidence and in the course of his employment by the
Company he will have access to and contact with Proprietary Information. The
Employee agrees that he will not, during the Employment Period or at any time
thereafter, disclose to others, or use for the benefit of others, any
Proprietary Information, except in the good faith performance of his duties
under this Agreement.
7.1 Proprietary Information. For purposes of this Agreement,
Proprietary Information shall mean all information (whether or not patentable
and whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, formula, formulation, vendor
information, customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software, software
documentation, hardware design, technology, marketing or business plan,
forecast, unpublished financial statement, budget, license, price, cost and
employee list that is
9
<PAGE>
communicated to, learned of, developed or otherwise acquired by the Employee in
the course of his employment by the Company.
7.2 Exceptions. The Employee's obligations under this Section 7 shall
not apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Employee of the terms of this
Section 7, (ii) is generally disclosed to third parties by the Company without
restriction on such third parties, (iii) is approved for release by written
authorization of the Board or an authorized employee of the Company, (iv) is
communicated to the Employee by a third party under no duty of confidentiality
with respect to such information to the Company or another party, or (v) is
required to be disclosed by the Employee to comply with applicable laws,
governmental regulations, or court order, provided that the Employee provides
prior written notice of such disclosure to the Company and an opportunity for
the Company to object to such disclosure and further provided that the Employee
cooperates with the Company and takes reasonable and lawful actions requested by
the Company (the out-of-pocket costs of which shall be paid by the Company) to
avoid and/or minimize the extent of such disclosure.
7.3 Company Property. Upon termination of this Agreement or at any
other time upon request by the Company, the Employee shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials in his possession or control)
belonging to the Company.
7.4 Other Agreements. The Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. If the Employee's duties under this Agreement
will require disclosures to be made to him subject to such obligations and
restrictions, the Employee agrees to be bound by them and to take all action
necessary to discharge the obligations of the Company under such agreements.
8. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or three days
after deposit in the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, addressed to the other party at the
address shown above and, in the case of any notice to the Employee, with a copy
to Alexander A. Bernhard, Esq., Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, or at such other address or addresses of which either party
shall notify the other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
10
<PAGE>
10. Entire Agreement. This Agreement and the Employee Options constitute
the entire agreement between the parties and supersede all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement and the Employee Options.
11. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by the Company except
to a corporation or other person or entity reasonably acceptable to the Employee
and with which or into which the Company may be merged, consolidated or
otherwise combined or which may succeed to all or substantially all of its
assets or business and which assumes in a writing satisfactory in form and
substance to Employee all of the obligations of the Company under this Agreement
and under all Employer Stock Option Plans. The obligations of the Employee are
personal and shall not be assigned by him.
14. Definitions. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.3(c)(i)
Board 2
Cause for Termination 4.2
Change in Control 5.3(c)
Change in Control Severance Payment 5.3(a)
Change in Ownership 5.4
Code 5.3(b)
Commencement Date 1
Company Introduction
Contingent Compensation Payments 5.4
Employee Introduction
Employee Response 5.4
Employer Stock Option Plan 3.6
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Employment Period 1
Exchange Act 5.3(c)(i)
Excise Taxes 5.4
Failure of the Employee to Perform 4.2
Gross-up Payment 5.4
Incumbent Board 5.3(c)(ii)
Merger Agreement 6.7
Parachute Payments 5.3(b)
Person 6.1
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Section 4.3 Termination 5.2
Territory 6.1
</TABLE>
15. Miscellaneous.
15.1 Waiver. No delay or omission by either party in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by either party on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15.2 Section Headings. The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
15.3 Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
15.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Rest of page intentionally left blank.]
12
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
By:
-------------------------------
Title:
----------------------------
EMPLOYEE:
By:
-------------------------------
Title:
----------------------------
13
<PAGE>
Exhibit 10.13
[Form of]
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
Ira Cohen
____________, 1998
<PAGE>
[Form of]
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
IRA COHEN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term of Employment.......................................................................................1
2. Title; Capacity..........................................................................................1
2.1 Authority.......................................................................................1
2.2 Attention.......................................................................................1
2.3 Base of Operations..............................................................................2
2.4 Representation and Warranty of Employee.........................................................2
2.5 Representation and Warranty of Company..........................................................2
3. Compensation and Benefits................................................................................2
3.1 Salary..........................................................................................2
3.2 Bonus...........................................................................................3
3.3 Reimbursement of Expenses.......................................................................3
3.4 Fringe Benefits; Vacation.......................................................................3
3.5 Other Plans.....................................................................................3
3.6 Stock Options...................................................................................4
4. Employment Termination...................................................................................4
4.1 By the Terms of This Agreement..................................................................4
4.2 By the Company..................................................................................4
4.3 By Death........................................................................................4
4.4 By the Employee.................................................................................4
5. Effect of Termination....................................................................................5
5.1 Termination by the Company Without Cause, by the Employee for Cause or Upon
Expiration......................................................................................5
5.2 Termination for Death...........................................................................6
5.3 Termination Upon Change in Control of the Company...............................................6
5.4 Taxes...........................................................................................7
5.5 Termination By the Company for Cause............................................................8
5.6 No Mitigation...................................................................................8
5.7 Survival........................................................................................9
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6. Restrictions on Competition..............................................................................9
6.1 Non-Compete.....................................................................................9
6.2 Investment......................................................................................9
6.3 Future Employment..............................................................................10
6.4 Severability...................................................................................10
6.5 Defenses.......................................................................................10
6.6 Fairness.......................................................................................10
7. Proprietary Information.................................................................................11
7.1 Proprietary Information........................................................................11
7.2 Exceptions.....................................................................................11
7.3 Company Property...............................................................................11
7.4 Other Agreements...............................................................................12
8. Legal and Professional Fees.............................................................................12
9. Notices.................................................................................................12
10. Pronouns................................................................................................12
11. Entire Agreement........................................................................................12
12. Amendment...............................................................................................12
13. Governing Law...........................................................................................12
14. Successors and Assigns..................................................................................13
15. Definitions.............................................................................................13
16. Miscellaneous...........................................................................................14
16.1 Waiver.........................................................................................14
16.2 Section Headings...............................................................................14
16.3 Severability...................................................................................14
16.4 Counterparts...................................................................................14
</TABLE>
- iii -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this ____ day of
____________, 1998, is entered into by and between Aztec Technology Partners,
Inc., a Delaware corporation with its principal place of business at 52 Roland
Street, Boston, Massachusetts 02129 (the "Company"), and _______________,
residing at _______________________________________________ (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the parties to this
Agreement, the parties agree as follows:
1. Term of Employment. The Company agrees to employ the Employee, and
the Employee accepts employment with the Company, upon the terms set forth in
this Agreement, for the period commencing on _____________, 1998 (the
"Commencement Date") and, subject to the provisions of Section 4, ending on
____________, 1999, unless extended by mutual agreement (the "Employment
Period").
2. Title; Capacity.
2.1 Authority. During the Employment Period, the Employee shall serve
as _______________________ of the Company. In such capacity, the Employee shall
report to the [Chief Executive Officer ("CEO")] of the Company. During the
Employment Period, the Employee shall have such authority as is delegated to him
by the [CEO], including, without limitation, the authority and responsibility
for ______________________________________. The Employee accepts such employment
and agrees to undertake the duties and responsibilities normally inherent in
such position and such other duties and responsibilities as the [CEO] shall from
time to time reasonably assign to him consistent with his position as
___________________.
2.2 Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Employee is entitled, the Employee shall
devote principal attention and time during normal business hours to the
Company's business and affairs and, to the extent necessary to discharge the
responsibilities assigned to the Employee under this Agreement, use the
Employee's reasonable best efforts and abilities to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the above for the Employee to (A) serve on corporate, civic or
charitable boards or committees (excluding those which would create a conflict
of interest), (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions, and (C) manage personal investments, so long as such
activities do not materially interfere with the performance of the Employee's
responsibilities as an employee of the Company in accordance with this
Agreement. In the event that the Employee
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<PAGE>
engages in any such activities, other than in his capacity as ______________,
the Employee shall not be required to pay to the Company the compensation
that he earns from engaging in such activities.
2.3 Base of Operations. The Employee's base of operations under this
Agreement shall be _____________________, although the Employee may from time to
time render services from other locations on a temporary basis. The Employee
shall not be required to relocate or render services, on other than a temporary
basis, outside of such city.
2.4 Representation and Warranty of Employee. The Employee hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment agreement for cause or
good reason, pursuant to Section 4 of this Agreement.
3. Compensation and Benefits.
3.1 Salary. For all services rendered by the Employee in any capacity
under this Agreement, the Company shall pay the Employee, during the Period of
Employment, as compensation an annual base salary of not less than $__________,
which amount shall be subject to increase as provided below (the "Annual Base
Salary"). Such Annual Base Salary shall be payable in accordance with the
Company's customary payroll practices (but not less frequently than monthly).
[FOR MULTI-YEAR AGREEMENTS ONLY: The Company agrees to review the Employee's
Annual Base Salary on at least an annual basis no later than 120 days after the
end of each fiscal year commencing in _____ to consider an increase (but not
decrease) in such Annual Base Salary for the fiscal year. Any such increase
shall be effective as of the first day of the fiscal year and shall be at the
sole discretion of the Board. Any increase in the Annual Base Salary shall not
limit or reduce any other obligation of the Company under this Agreement.]
3.2 Bonus. [FOR MULTI-YEAR AGREEMENTS ONLY: For each fiscal year of
the Company,] The Employee shall be entitled to receive a cash bonus with an
annual target award opportunity of up to _____ percent of Annual Base Salary
awarded to the Employee by the Board or by a Committee designated by the Board.
Each annual bonus shall be paid in a single cash lump sum not later than 90 days
after the end of the fiscal year or portion thereof for which the bonus is
awarded, unless the Employee elects in writing, before the beginning of the
fiscal year for which the annual bonus is to be awarded, to defer receipt of the
annual bonus. Notwithstanding anything in this Agreement to the contrary, in the
event of any termination of the Employee's employment with the Company for any
reason whatsoever (whether by the Employee or the Company), any unpaid bonus
payable in accordance with this Section 3.2 for the fiscal year preceding the
fiscal year in which such termination occurs shall be paid to the Employee in
accordance with this Section 3.2.
2
<PAGE>
3.3 Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for all business travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement. Such expenses shall
be appropriately submitted and approved in accordance with the Company's
policies applicable to senior executives, as well as applicable Federal and
state tax record keeping requirements.
3.4 Fringe Benefits; Vacation. The Employee shall participate in and
shall receive during the Period of Employment employee benefit plans and fringe
benefits of the Company in accordance with the most favorable plans, practices,
programs and policies of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, including, without
limitation, plans providing retirement benefits, medical insurance, life
insurance, disability insurance and accidental death or dismemberment insurance.
The paid vacation entitlement of the Employee shall be ____ weeks per year.
3.5 Other Plans. Nothing in this Agreement shall be construed as
making the Employee ineligible to participate in and receive awards or grants
under any equity incentive plan of the Company in accordance with the terms
thereof in which the Employee would otherwise be eligible to participate.
3.6 Stock Options. The parties contemplate that promptly upon
execution of this Agreement, the Employee shall be granted options for the
purchase of _____ shares of the Company's common stock, $0.001 par value per
share. The options shall vest 1/3 on the date of grant, 1/3 12 months after the
date of grant, and 1/3 24 months after the date of grant. The option exercise
price will be equal to the fair market value of the Company's stock on the date
of grant.
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 By the Terms of This Agreement. Expiration of the Employment
Period in accordance with Section 1.
4.2 By the Company. At the election of the Company, for cause, upon
written notice by the CEO to the Employee. For the purposes of this Section 4.2,
"cause" for termination shall be deemed to exist solely upon (a) the occurrence
of willful and continued failure of the Employee to substantially perform the
Employee's reasonable duties under this Agreement (other than as a result of
physical or mental illness or injury) which is material, related to his duties
as an employee of the Company, and continues for 30 days after the CEO delivers
to the Employee a written demand for substantial performance that specifically
identifies the manner in which the CEO believes that the Employee has not
substantially performed the Employee's duties, or (b) the conviction of the
Employee of, or the entry of a pleading of guilty or nolo contendere by the
Employee to, any crime involving moral turpitude or any felony that results in
material and demonstrable damage to the business or reputation of the Company.
3
<PAGE>
4.3 By Death. Thirty (30) days after the death of the Employee.
4.4 By the Employee. At the election of the Employee, upon not less
than 30 days' prior written notice to the Company given within 60 days after a
good faith determination by the Employee that any of the following has occurred:
(a) material and adverse diminution of the Employee's duties, authority,
position, compensation or aggregate benefits, including, without limitation,
failure to cause the Employee to retain the position of _______________________
of the Company; (b) the assignment to the Employee of any duties inconsistent
with Section 2 of this Agreement; (c) the Company's purported termination of the
Employee's employment for cause other than in accordance with the requirements
of this Agreement; or (d) any other material breach of this Agreement by the
Company. In addition, the Employee may terminate his employment with the
Company, for any reason, during the 30-day period immediately following the
one-year anniversary of a Change in Control, as defined below.
5. Effect of Termination.
5.1 Termination by the Company Without Cause, by the Employee for
Cause or Upon Expiration.
(a) Severance. In the event the Employee's employment is
terminated by the Company without cause or by the Employee pursuant to Section
4.4 (each, a "Qualifying Termination") or the Company does not offer to renew
this Agreement upon expiration of the Employment Period, the Company shall pay
to the Employee (i) a pro rata portion of the Severance Bonus Amount (as defined
below) for the fiscal year in which such termination is effective determined by
multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"),
the numerator of which shall be the number of days between the first day of the
fiscal year and the date on which the termination is effective and the
denominator of which shall be 365, plus (ii) an amount equal to the Annual Base
Salary through _________. For purposes of this Agreement, the Severance Bonus
Amount for a fiscal year shall equal the average of the bonuses paid to the
Employee pursuant to Section 3.2 of this Agreement for the fiscal years, if any,
immediately preceding such fiscal year or $_________, whichever is greater.
(b) Severance Period; Timing of Payments. The Company shall make
the severance payment called for by Section 5.1(a)(i) within 30 days of the date
the Employee's termination is effective, and shall make the payments called for
by Section 5.1(a)(ii) to the Employee at a monthly rate equal to one-twelfth of
the Annual Base Salary. All severance payments provided for in this Section 5.1
shall be made in semi-monthly installments in arrears on the 15th day and the
last day of each fiscal month. Such installments shall be appropriately adjusted
in the event a severance payment is due for any partial fiscal month.
(c) Severance Benefits. Following any Qualifying Termination or
if this Agreement is not renewed for any reason at the end of the Employment
Period, the Company
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<PAGE>
shall continue to pay for or provide to the Employee the fringe benefits as may
have been provided to the Employee in accordance with Section 3.4 immediately
prior to such Qualifying Termination or termination (subject to changes in the
terms of health, disability or life insurance coverage by the provider as may be
applicable to the Company as a whole) for a period ending on the earliest of (i)
the date of the Employee's employment by a third party on a substantially
full-time basis if the Employee is eligible to receive comparable life, medical,
dental, health, and accident or disability insurance benefits under another
employer-provided plan, on terms at least as favorable to the Employee and his
family, (ii) ____________, or (iii) the death of the Employee but in the case of
the Employee's death his health benefits shall be continued for the benefit of
his wife for a one year period following his death. The Employee shall notify
the Company promptly following his acceptance of any offer of employment by a
third party. The Employee shall be under no obligation to seek other employment
following any Qualifying Termination, and any amounts he earns in any other
employment shall not reduce or offset the severance payments or other amounts
due hereunder except for the fringe benefits specifically referred to in this
Section 5.1(c).
5.2 Termination for Death. In the event the Employee's employment is
terminated by death pursuant to Section 4.3 (a "Section 4.3 Termination"), the
Company shall pay or provide to the estate of the Employee the compensation
(including, without limitation, in lieu of the bonuses and payments provided for
in Sections 3.2, the Pro Rata Fraction of the Severance Bonus Amount for the
fiscal year in which such termination is effective, which shall be paid in a
one-time lump sum payment within 30 days of the last day of the Employee's
actual employment by the Company) and benefits payable or provided to him under
Section 3 through the last day of his actual employment by the Company.
5.3 Termination Upon Change in Control of the Company.
(a) Change in Control Severance Payment. In the event the
Employee's employment is terminated without cause or pursuant to Section 4.4 of
this Agreement within 24 months following a Change in Control (as defined below)
of the Company, the Company shall make a one-time lump sum severance payment
(the "Change in Control Severance Payment") to the Employee in an amount equal
to the product of _____ multiplied by his Annual Base Salary. In such event, the
Employee shall not be entitled to the payments to which he would otherwise be
entitled pursuant to Section 5.1(a), but shall continue to be entitled to
benefits provided by the Company pursuant to and in accordance with Section
5.1(e).
(b) Parachute Payments. The Change in Control Severance Payment
payable under this Section 5.3 shall be made without regard to whether the
deductibility of such payment (or any other "parachute payments," as that term
is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for the Employee's benefit) would be limited or precluded by Code
Section 280G.
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<PAGE>
(c) Change in Control. A "Change in Control" of the Company shall
occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company, acquires
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (other than
through an acquisition of securities directly from the Company);
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities;
or
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
5.4 Taxes.
(a) Gross-Up Payment. In the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall, within
30 days after the date of such Change in Ownership or Control determine and
notify the Employee (with reasonable detail regarding the basis for its
determinations) (i) which of the payments or benefits due to the Employee
following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Code Section 4999, by the
Employee with respect to such Contingent Compensation Payment, and (iii) the
amount of the Gross-Up Payment (as defined below) due to the Employee with
respect to such Contingent Compensation Payment. Within 30 days after delivery
of such notice to the Employee, the Employee shall deliver a response to the
Company (the "Employee Response") stating either (A) that he agrees with the
Company's determination pursuant to the preceding sentence, or (B) that he
disagrees with such determination, in which case he shall indicate which payment
and/or benefits should be
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<PAGE>
characterized as a Contingent Compensation Payment, the amount of the Excise Tax
with respect to such Contingent Compensation Payment and the amount of the
Gross-Up Payment due to the Employee with respect to such Contingent
Compensation Payment. The amount and characterization of any item in the
Employee Response shall be final; provided, however, that in the event that the
Employee fails to deliver an Employee Response on or before the required date,
the Company's initial determination shall be final. Within ninety (90) days
after the due date of each Contingent Compensation Payment to the Executive, the
Company shall pay to the Employee, in cash, the Gross-Up Payment with respect to
such Contingent Compensation Payment, in the amount determined pursuant to this
Section 5.4(a).
(b) Definitions. For purposes of this Section 5.4, the following
terms shall have the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Code Section 280G(b)(2).
(ii) "Contingent Compensation Payment" shall mean any
payment (or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Code Section 280G(c)) and that is
contingent (within the meaning of Code Section 280G(b)(2)(A)(i)) on a Change in
Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an amount equal to the
sum of (i) the amount of the Excise Tax payable with respect to a Contingent
Compensation Payment and (ii) the amount necessary to pay all additional taxes
imposed on (or economically borne by) the Employee (including the Excise Taxes,
state and federal income taxes and all applicable withholding taxes)
attributable to the receipt of such Gross-Up Payment. For purposes of the
preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
5.5 Termination By the Company for Cause. In the event the Employee's
employment is terminated by the Company for cause, the Company shall pay to the
Employee his Annual Base Salary to and including the effective date of such
termination.
5.6 No Mitigation. Except as provided with respect to fringe benefits
in Section 5.1(e), the severance benefits payable to the Employee under this
Agreement shall not be reduced by payments received by the Employee from a
subsequent employer.
5.7 Survival. The provisions of Sections 5, 6 and 7 shall survive
the termination of this Agreement.
6. Restrictions on Competition.
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6.1 Non-Compete. For so long as the Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
and thereafter for a period of one (1) year, the Employee shall not, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation, business, group, or other entity (each, a
"Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services in direct competition with the
Company, within one thousand five hundred (1,500) miles of any location where
the Company conducts business (the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or has
been, within one (1) year prior to that time, a customer of the Company within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
(iv) on the Employee's own behalf or on behalf of any competitor,
call upon any Person as a prospective acquisition candidate who or that, during
the Employee's employment by the Company was either called upon by the Company
as a prospective acquisition candidate or was the subject of an acquisition
analysis conducted by the Company.
6.2 Investment. The foregoing covenants shall not be deemed to
prohibit the Employee from acquiring as an investment not more than one percent
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or through the automated quotation system of a
registered securities association.
6.3 Future Employment. It is agreed further that, in the event that
the Employee shall cease to be employed by the Company and enters into a
business or pursues other activities that, at such time, are not in competition
with the Company, Employee shall not be chargeable with a violation of this
Section 6 if the Company subsequently enters the same (or a similar) competitive
business or activity or commences competitive operations within one hundred
(100) miles of the Employee's new business or activities. In addition, if the
Employee has no actual knowledge that his actions violate the terms of this
Section 6, the Employee shall not be deemed to have breached the restrictive
covenants contained in this Agreement if, promptly after being notified by the
Company of such breach, the Employee ceases the prohibited actions.
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<PAGE>
6.4 Severability. The covenants in this Section 6 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 6 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
6.5 Defenses. All of the covenants in this Section 6 shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement or the Company of such covenants; provided, that
upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon thirty (30) days' prior written notice to the
Company, waive his right to receive any such compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of one (1) year stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.6 Fairness. The Employee has carefully read and considered the
provisions of this Section 6, and, having done so, agrees that the restrictive
covenants in this Section 6 impose a fair and reasonable restraint on the
Employee and are reasonably required to protect the interests of the Company,
and its officers, directors, employees, and stockholders.
7. Proprietary Information. The Employee's relationship with the Company is
one of high trust and confidence and in the course of his employment by the
Company he will have access to and contact with Proprietary Information. The
Employee agrees that he will not, during the Employment Period or at any time
thereafter, disclose to others, or use for the benefit of others, any
Proprietary Information, except in the good faith performance of his duties
under this Agreement.
7.1 Proprietary Information. For purposes of this Agreement,
Proprietary Information shall mean all information (whether or not patentable
and whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, formula, formulation, vendor
information, customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software, software
documentation, hardware design, technology, marketing or business plan,
forecast, unpublished financial statement, budget, license, price, cost and
employee list that is
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<PAGE>
communicated to, learned of, developed or otherwise acquired by the Employee in
the course of his employment by the Company.
7.2 Exceptions. The Employee's obligations under this Section 7 shall
not apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Employee of the terms of this
Section 7, (ii) is generally disclosed to third parties by the Company without
restriction on such third parties, (iii) is approved for release by written
authorization of the Board or an authorized employee of the Company, (iv) is
communicated to the Employee by a third party under no duty of confidentiality
with respect to such information to the Company or another party, or (v) is
required to be disclosed by the Employee to comply with applicable laws,
governmental regulations, or court order, provided that the Employee provides
prior written notice of such disclosure to the Company and an opportunity for
the Company to object to such disclosure and further provided that the Employee
cooperates with the Company and takes reasonable and lawful actions requested by
the Company (the out-of-pocket costs of which shall be paid by the Company) to
avoid and/or minimize the extent of such disclosure.
7.3 Company Property. Upon termination of this Agreement or at any
other time upon request by the Company, the Employee shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials in his possession or control)
belonging to the Company.
7.4 Other Agreements. The Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. If the Employee's duties under this Agreement
will require disclosures to be made to him subject to such obligations and
restrictions, the Employee agrees to be bound by them and to take all action
necessary to discharge the obligations of the Company under such agreements.
8. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or three days
after deposit in the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, addressed to the other party at the
address shown above and, in the case of any notice to the Employee, with a copy
to Alexander A. Bernhard, Esq., Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, or at such other address or addresses of which either party
shall notify the other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
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10. Entire Agreement. This Agreement and the Employee Options constitute
the entire agreement between the parties and supersede all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement and the Employee Options.
11. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by the Company except
to a corporation or other person or entity reasonably acceptable to the Employee
and with which or into which the Company may be merged, consolidated or
otherwise combined or which may succeed to all or substantially all of its
assets or business and which assumes in a writing satisfactory in form and
substance to Employee all of the obligations of the Company under this Agreement
and under all Employer Stock Option Plans. The obligations of the Employee are
personal and shall not be assigned by him.
14. Definitions. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.3(c)(i)
Board 2
Cause for Termination 4.2
Change in Control 5.3(c)
Change in Control Severance Payment 5.3(a)
Change in Ownership 5.4
Code 5.3(b)
Commencement Date 1
Company Introduction
Contingent Compensation Payments 5.4
Employee Introduction
Employee Response 5.4
Employer Stock Option Plan 3.6
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Employment Period 1
Exchange Act 5.3(c)(i)
Excise Taxes 5.4
Failure of the Employee to Perform 4.2
Gross-up Payment 5.4
Incumbent Board 5.3(c)(ii)
Merger Agreement 6.7
Parachute Payments 5.3(b)
Person 6.1
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Section 4.3 Termination 5.2
Territory 6.1
</TABLE>
15. Miscellaneous.
15.1 Waiver. No delay or omission by either party in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by either party on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
15.2 Section Headings. The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
15.3 Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
15.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Rest of page intentionally left blank.]
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AZTEC TECHNOLOGY PARTNERS, INC.
By:
-------------------------------
Title:
----------------------------
EMPLOYEE:
By:
-------------------------------
Title:
----------------------------
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<PAGE>
Exhibit 10.14
AZTEC TECHNOLOGY PARTNERS, INC.
Form of
1998 EMPLOYEE STOCK PURCHASE PLAN
June 7, 1998
The purpose of this Plan is to provide eligible employees of Aztec
Technology Partners, Inc. (the "Company") and certain of its subsidiaries
with opportunities to purchase shares of the Company's common stock, $0.001
par value (the "Common Stock"), commencing on June 7, 1998. One Million
(1,000,000) shares of Common Stock in the aggregate have been approved for
this purpose.
1. Administration. The Plan will be administered by the Company's
Board of Directors (the "Board") or by a Committee appointed by the Board
(the "Committee"). The Board or the Committee has authority to make rules
and regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted
nor denied contrary to the requirements of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder. All employees of the Company, including Directors who are
employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from
time to time (a "Designated Subsidiary"), other than employees of the Company
or any Designated Subsidiary who are "highly compensated" within the meaning
of Section 414(q) of the Code, are eligible to participate in any one or more
of the offerings of Options (as defined in Section 9) to purchase Common
Stock under the Plan provided that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than twenty (20) hours a week and for more than ten
(10) months in a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least 30 days prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary
on the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total
combined voting power or value of the stock of the Company or any subsidiary.
For purposes of the preceding sentence, the attribution rules of
Section 424(d) of the Code shall apply in determining the stock ownership of
an employee, and all stock which the employee has a contractual right to
purchase shall be treated as stock owned by the employee.
<PAGE>
3. Offerings. The Company will make one or more offerings
("Offerings") to employees to purchase stock under this Plan. Offerings will
begin each July 1 and January 1, or the first business day thereafter (the
"Offering Commencement Dates"). Each Offering Commencement Date will begin a
6-month period (a "Plan Period") during which payroll deductions will be made
and held for the purchase of Common Stock at the end of the Plan Period.
Notwithstanding the foregoing, the initial Offering Commencement Date shall
be June 7, 1998, and the initial Plan Period shall end on December 31, 1998.
The Board or the Committee may, at its discretion, choose a different Plan
Period of twelve (12) months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's
appropriate payroll office at least 7 days prior to the applicable Offering
Commencement Date. The form will authorize a regular payroll deduction from
the Compensation received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan
as long as the Plan remains in effect. The term "Compensation" means the
amount of money reportable on the employee's Federal Income Tax Withholding
Statement.
5. Deductions. The Company will maintain payroll deduction accounts
for all participating employees. With respect to any Offering made under
this Plan, an employee may authorize a payroll deduction in any dollar amount
up to a maximum of 15% of the Compensation he or she receives during the Plan
Period or such shorter period during which deductions from payroll are made.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
stock purchase plan of the Company and its subsidiaries, to accrue at a rate
which exceeds $25,000 of the fair market value of such Common Stock
(determined at the Offering Commencement Date of the Plan Period) for each
calendar year in which the Option is outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his
payroll deduction once during any Plan Period, by filing a new payroll
deduction authorization form. However, an employee may not increase his
payroll deduction during a Plan Period. If an employee elects to discontinue
his payroll deductions during a Plan Period, but does not elect to withdraw
his funds pursuant to Section 8 hereof, funds deducted prior to his election
to discontinue will be applied to the purchase of Common Stock on the
Exercise Date (as defined below).
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<PAGE>
7. Interest. Interest will not be paid on any employee accounts,
except to the extent that the Board or the Committee, in its sole discretion,
elects to credit employee accounts with interest at such per annum rate as it
may from time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the
close of business on the last business day in a Plan Period and for any
reason permanently draw out the balance accumulated in the employee's account
and thereby withdraw from participation in an Offering. Partial withdrawals
are not permitted. The employee may not begin participation again during the
remainder of the Plan Period. The employee may participate in any subsequent
Offering in accordance with terms and conditions established by the Board or
the Committee, except that employees who are also directors or officers of
the Company within the meaning of Section 16 of the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules promulgated there under may not
participate again for a period of at least six months as provided in
Rule 16b-3(d)(2)(i) or any successor provision.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price
hereinafter provided for, the largest number of whole shares of Common Stock
of the Company as does not exceed the number of shares determined by dividing
(a) the product of $2,083 and the number of whole months in such Plan Period,
by (b) the closing price (as defined below) on the Offering Commencement Date
of such Plan Period or such other number as may be determined by the Board
prior to the Offering Commencement Date.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period
or (ii) the Exercise Date, whichever closing price shall be less. Such
closing price shall be (a) the closing price on any national securities
exchange on which the Common Stock is listed, (b) the closing price of the
Common Stock on the Nasdaq National Market or (c) the average of the closing
bid and asked prices in the over-the-counter-market, whichever is applicable,
as published in The Wall Street Journal. If no sales of Common Stock were
made on such a day, the price of the Common Stock for purposes of clauses (a)
and (b) above shall be the reported price for the next preceding day on which
sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option
Price on such date and shall be deemed to have purchased from the Company the
number of full shares of Common Stock reserved for the purpose of the Plan
that his accumulated payroll deductions on such date will pay for pursuant to
the formula set forth above (but not in excess of the maximum number
determined in the manner set forth above).
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<PAGE>
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except
that any balance which is less than the purchase price of one share of Common
Stock will be carried forward into the employee's payroll deduction account
for the following Offering, unless the employee elects not to participate in
the following Offering under the Plan, in which case the balance in the
employee's account shall be refunded.
10. Restriction on Sale of Shares. While the employee is employed by
the Company, the employee shall be prohibited from selling Shares purchased
under the Plan until such employee has held such Shares for at least 12
months from the date of purchase. The certificates evidencing such Shares
purchased by the employee shall have the following legend affixed to the back
of such certificate:
The shares of stock evidenced by this certificate are subject
to a restriction on resale, and may not be sold or transferred
by the holder while such holder is an employee of the
Company until such employee has held such shares of stock
for a twelve-month period.
11. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as
joint tenants with rights of survivorship, or (in the Company's sole
discretion) in the street name of a brokerage firm, bank or other nominee
holder designated by the employee.
12. Rights on Retirement, Death or Termination of Employment. In the
event of a participating employee's termination of employment prior to the
last business day of a Plan Period, no payroll deduction shall be taken from
any pay due and owing to an employee and the balance in the employee's
account shall be paid to the employee or, in the event of the employee's
death, (a) to a beneficiary previously designated in a revocable notice
signed by the employee (with any spousal consent required under state law),
or (b) in the absence of such a designated beneficiary, to the executor or
administrator of the employee's estate, or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such
other person(s) as the Company may, in its discretion, designate. If, prior
to the last business day of the Plan Period, the Designated Subsidiary by
which an employee is employed shall cease to be a subsidiary of the Company,
or if the employee is transferred to a subsidiary of the Company that is not
a Designated Subsidiary, the employee shall be deemed to have terminated
employment for the purposes of this Plan.
13. Optionees Not Stockholders. No employee shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares.
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<PAGE>
Notwithstanding the foregoing, in the event that the Company effects a split
of its Common Stock by means of a stock dividend and the exercise price of
and the number of shares subject to such Option are adjusted as of the date
of the distribution of the dividend (rather than as of the record date for
such dividend), then an optionee who is deemed to have exercised an option
between the record date and the distribution date for such stock dividend
shall be entitled to receive, on the distribution date, the stock dividend
with respect to the shares of Common Stock acquired under such Option
exercise, notwithstanding the fact that such shares were not outstanding as
of the close of business on the record date for such stock dividend.
14. Rights Not Transferable. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
15. Application of Funds. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used
for any corporate purpose.
16. Adjustment in Case of Changes Affecting Common Stock. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and
the share limitation set forth in Section 9, shall be increased
proportionately, and such other adjustment shall be made as may be deemed
equitable by the Board or the Committee. In the event of any other change
affecting the Common Stock, such adjustment shall be made as may be deemed
equitable by the Board or the Committee to give proper effect to such event.
17. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least
50% by voting power of the capital stock of the surviving corporation
("Continuity of Control"), the holder of each Option then outstanding will
thereafter be entitled to receive at the next Exercise Date upon the exercise
of such Option for each share as to which such Option shall be exercised the
securities or property which a holder of one share of the Common Stock was
entitled to upon and at the time of such merger, and the Committee shall take
such steps in connection with such merger as the Committee shall deem
necessary to assure that the provisions of Paragraph 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said
securities or property as to which such holder of such Option might
thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a
sale of all or
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substantially all of the assets of the Company while unexercised Options
remain outstanding under the Plan, (a) subject to the provisions of clauses
(b) and (c), after the effective date of such transaction, each holder of an
outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any
such transaction and all payroll deductions shall be paid out to the
participating employees; or (c) all outstanding Options may be cancelled by
the Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account as of
a date determined by the Board or the Committee, which date shall not be less
than seven (7) days preceding the effective date of such transaction.
18. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423
of the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not
be effected without such approval, and (b) in no event may any amendment be
made which would cause the Plan to fail to comply with Section 16 of the
Exchange Act and the rules promulgated thereunder, as in effect from time to
time, or Section 423 of the Code.
19. Insufficient Shares. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering
plus the number of shares purchased under previous Offerings under this Plan
exceeds the maximum number of shares issuable under this Plan, the Board or
the Committee will allot the shares then available on a pro rata basis.
20. Termination of the Plan. This Plan may be terminated at any time
by the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national
stock exchange or quotation on the Nasdaq National Market and the approval of
all governmental authorities required in connection with the authorization,
issuance or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
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The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. Any provision
inconsistent with such Rule shall to that extent be inoperative and shall not
affect the validity of the Plan.
22. Issuance of Shares. Shares may be issued upon exercise of an
Option from authorized but unissued Common Stock, from shares held in the
treasury of the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by
entering the Plan, to promptly give the Company notice of any disposition of
shares purchased under the Plan where such disposition occurs within two
years after the date of grant of the Option pursuant to which such shares
were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take
effect on June 7, 1998 subject to approval by the shareholders of the Company
as required by Rule 16b-3 under the Exchange Act and by Section 423 of the
Code, which approval must occur within twelve months of the adoption of the
Plan by the Board.
Adopted by the Board of Directors
on June 7, 1998
Approved by the stockholders
on , 1998
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7
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Exhibit 10.15
AZTEC TECHNOLOGY PARTNERS, INC.
Form of
1998 NON-EMPLOYEE INITIAL DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this 1998 Non-Employee Director Stock Option Plan (the
"Plan") of Aztec Technology Partners, Inc. (the "Company") is to encourage
ownership in the Company by Lawrence Howell and Clifford Mitman, non-employee
directors of the Company (the "Directors"), whose continued services are
considered essential to the Company's future progress and to provide them
with a further incentive to remain as Directors.
2. Administration.
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all
questions concerning interpretation of the Plan or any options granted under
it shall be resolved by the Board of Directors and such resolution shall be
final and binding upon all persons having an interest in the Plan. The Board
of Directors may, to the full extent permitted by or consistent with
applicable laws or regulations, delegate any or all of its powers under the
Plan to a committee appointed by the Board of Directors, and if a committee
is so appointed, all references to the Board of Directors in the Plan shall
mean and relate to such committee.
3. Participation in the Plan.
The Directors shall be eligible to receive options under the Plan.
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's Common Stock, par value
$0.001 per share ("Common Stock"), which may be issued under the Plan shall be
three hundred thousand (300,000) shares, subject to adjustment as provided in
Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE>
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grant Dates. Options shall automatically be granted to all
The Directors as follows:
(i) each Director after the closing date (the "Closing Date") of
the Company's initial public offering of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
shall be granted an option to purchase 25,000 shares of Common Stock in
respect of his or her initial election to the Board of Directors;
(ii) each Director shall be granted an option to purchase 10,000
shares of Common Stock on the date of each Annual Meeting of Stockholders of
the Company commencing with the 1998 Annual Meeting of Stockholders, provided
that he or she is serving as a Director immediately following such Annual
Meeting;
(iii) beginning with the date of his or her original appointment,
each Director who serves as chairperson of a Committee of the Board of
Directors shall be granted an option to purchase 5,000 shares of Common Stock
in respect of each year such Director service as chairperson of such
Committee; and
(iv) beginning with the 1999 Annual Meeting of Stockholders, each
Director who serves as chairperson of a Committee of the Board of Directors
shall be granted an option to purchase 5,000 shares of Common Stock in
respect of service as chairperson of such Committee.
The options enumerated in 5(a)(i) and 5(a)(iii) shall be hereinafter
referred to as the "Special Options."
(b) Option Exercise Price.
(i) General. Except as set forth in subparagraph (ii) below, the
option exercise price per share for each option granted under the Plan shall
equal (x) the last reported sales price per share of the Company's Common
Stock on the Nasdaq National Market (or if the Common Stock is traded on a
national securities exchange on the date of grant, the reported closing sales
price per share of the Company's Common Stock on such exchange) on the date
of grant (or if no such price is reported on such date such price as reported
on the nearest preceding day), or (y) if the Common Stock is not traded on
the Nasdaq National Market or a national securities exchange, the fair market
value per share on the date of grant as most recently determined by the Board
of Directors.
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(ii) Special Options. The option exercise price for each Special
Option granted under the Plan shall be the price per share at which shares of
the Company's Common Stock are sold to the public in its initial public
offering.
(c) Transferability of Options. Except as the Board may otherwise
determine or provide in an option granted under the Plan, any option granted
under the Plan to an optionee shall be transferable by the optionee to any
transferee, and shall be exercisable during the optionee's lifetime by the
optionee or any authorized transferee or such optionee's or authorized
transferee's guardian or legal representative. References to an optionee, to
the extent relevant in the context, shall include references to authorized
transferees.
(d) Vesting Period.
(i) Annual Options. Except as set forth in subparagraph (ii)
below, each option granted under the Plan shall become exercisable in three
equal installments, 1/3 on the Option Grant Date, 1/3 12 months after the
Option Grant Date, and 1/3 24 months after the Option Grant Date; provided,
however, that the optionee has continued to serve as a Director until at
least the Annual Meeting of Stockholders immediately preceding such vesting
date.
(ii) Special Options. The Special Options shall be fully vested on
the date of grant, but may not be exercised earlier than 12 months after the
date of grant.
(iii) Acceleration Upon Change in Control. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full in the event a Change in Control (as defined in
Section 8) of the Company occurs.
(e) Termination. Each option shall terminate, and may no longer be
exercised, on the earlier of the (i) the date ten years after the grant date
of such option or (ii) the date 90 days after the optionee ceases to serve as
a Director of the Company; provided that, in the event an optionee ceases to
serve as a Director due to his or her death or disability (within the meaning
of Section 22(e)(3) of the Code or any successor provision), then the
exercisable portion of the option may be exercised, within the period of 180
days following the date the optionee ceases to serve as a Director (but in no
event later than ten years after the Option Grant Date), by the optionee or
by the person to whom the option is transferred in accordance with the terms
of this Plan and the applicable option agreement, or by written notice
pursuant to Section 5(g).
(f) Exercise Procedure. An option may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in
cash or by certified or bank check of the full consideration for the shares
as to which they are exercised, (ii) delivery of outstanding shares of Common
Stock (which, in the case of shares acquired from the Company, have been
outstanding for at least six months) having a fair market value on the last
business day preceding the date of exercise equal to the option exercise
price, or (iii) an irrevocable undertaking by a broker (who is a member of
the New York
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<PAGE>
Stock Exchange) to deliver promptly to the Company sufficient funds to pay
the exercise price or delivery of irrevocable instructions to a broker (who
is a member of the New York Stock Exchange) to deliver promptly to the
Company cash or a check sufficient to pay the exercise price.
(g) Exercise by Representative Following Death of Director. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the
right to exercise all or a portion of the option. If the person or persons
so designated wish to exercise any portion of the option, they must do so
within the term of the option as provided herein. Any exercise by a
representative shall be subject to the provisions of the Plan.
6. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain the optionee as a Director for any
period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her
option until the date of the issuance to him or her of a stock certificate
therefor, and no adjustment will be made for dividends or other rights
(except as provided in Section 7) for which the record date is prior to the
date such certificate is issued.
(c) Compliance with Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or the disclosure
of non-public information or the satisfaction of any other condition is
necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
Transactions.
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar transaction, (i) the outstanding shares of
Common Stock are exchanged for a different number or kind of securities of
the Company or of another entity, or (ii) additional shares or new or
different shares or other securities of the Company or of another entity are
distributed with respect to such shares of Common Stock, the Board
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<PAGE>
of Directors shall make an appropriate and proportionate adjustment in (x)
the maximum number and kind of shares reserved for issuance under the Plan,
(y) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (z) the price for each share subject
to any then outstanding options under the Plan (without changing the
aggregate purchase price for such options), to the end that each option shall
be exercisable, for the same aggregate exercise price, for such securities as
such option holder would have held immediately following such event if he had
exercised such option immediately prior to such event. No fractional shares
will be issued under the Plan on account of any such adjustments.
8. Change in Control.
For purposes of the Plan, a "Change in Control" shall be deemed to have
occurred only if any of the following events occurs: (i) any "person", as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities; (ii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; (iii) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or (iv) individuals who, on the date on which the Plan was
adopted by the Board of Directors, constituted the Board of Directors of the
Company, together with any new Director whose election by the Board of
Directors or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the Directors then still in
office who were Directors on the date on which the Plan was adopted by the
Board of Directors or whose election or nomination was previously so approved
(except for any individual whose election as a Director occurs as a result of
an actual or threatened election contest with respect to the election or
removal of Directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board of Directors),
cease for any reason to constitute at least a majority of the Board of
Directors.
9. Termination and Amendment of the Plan.
The Board of Directors may suspend or terminate the Plan or amend it in
any respect whatsoever.
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10. Notice.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the internal laws of the State of Delaware (without
regard to any applicable conflicts of laws or principles).
12. Effective Date.
The Plan shall become effective on the Closing Date.
Adopted by the Board of Directors on
June 7, 1998.
Approved by the stockholders as of
, 1998.
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6
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 4, 1998 (except
for Note 1 and the last paragraph of Note 3, which are as of May 14, 1998),
relating to the financial statements of Aztec Technology Partners, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, MN
June 3, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1, as amended, of our report dated June 7,
1996, except for Note 9, as to which the date is October 24, 1996, relating to
the financial statements of Fortran Corp. which report appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
RUBIN, KOEHMSTEDT AND NADLER
Springfield, Virginia
June 3, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 22, 1997, relating
to the combined financial statements of Aztec East Inc. and Affiliates, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts".
B.N. KOZIN COMPANY
Melville, New York
June 3, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 30, 1998,
relating to the financial statements of Compel Corporation which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, MN
June 3, 1998
