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As filed with the Securities and Exchange Commission on July 24, 1998.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[_X_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 25, 1998
Commission file number: 0-24417
AZTEC TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 04-3408450
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<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
</TABLE>
50 BRAINTREE HILL OFFICE PARK, SUITE 220
BRAINTREE, MASSACHUSETTS 02184
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------------
Registrant's telephone number, including area code:
(781) 849-1702
------------------------
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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<S> <C>
Common Stock, $0.001 par value Nasdaq National Market
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant as of July 17, 1998 was approximately
$188,841,487. As of July 17, 1998, 21,937,902 shares of the registrant's common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents
Items 10, 11, 12 and 13 of Part III of this Report incorporate by reference
portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on September 25, 1998 to be filed with the Securities and Exchange
Commission on or about August 24, 1998 pursuant to Reg. 240.14a-6(b) under the
Securities Exchange Act of 1934.
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Company's Registration Statement on Form S-1 (File No. 333-46533) as
filed with the Securities and Exchange Commission on June 10, 1998.
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PART I
ITEM 1. 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 "Management's Discussion and Analysis of Financial Conditions and
Results of Operations," as well as those discussed elsewhere in this Annual
Report on Form 10-K.
Aztec Technology Partners, Inc. ("Aztec" or the "Company") was incorporated
under the laws of the State of Delaware in 1998. Unless the context otherwise
requires, the term "Company" as used herein includes Aztec and its subsidiaries.
Aztec was initially formed in October 1996 with the acquisition of Bay State
Computer Group by U.S. Office Products ("USOP"). Aztec became an independent
publicly-traded company upon the spin-off of Aztec from USOP in June 1998 (the
"Distribution").
THE DISTRIBUTION
Each holder of shares of USOP Common Stock of record on June 9, 1998 (the
"Record Date"), received one share of Aztec Common Stock for every five shares
of USOP Common Stock held on the Record Date. The Aztec Common Stock was
distributed on behalf of USOP by American Stock Transfer & Trust Company as the
Distribution Agent. No certificates or scrip representing fractional shares of
Aztec Common Stock were issued. Fractional share interests were aggregated and
sold by the Distribution Agent at such time as it determined in open-market
transactions effected through broker-dealers selected by it. The cash proceeds
were distributed to those stockholders entitled to a fractional interest with
the distribution of payment for the tendered shares or as soon as was practical
thereafter. Certificates representing shares of Aztec Common Stock were
distributed on June 15, 1998.
Aztec holds substantially all of the business and assets of, and is
responsible for substantially all of the liabilities associated with USOP
Technology Solutions divisions. Immediately prior to the Distribution, USOP held
all of the issued and outstanding shares of Aztec Common Stock. Approximately
21,937,902 shares of Aztec Common Stock were distributed to USOP stockholders in
the Distribution.
Before the Distribution, USOP acquired companies in, for example, the
technology solutions business using USOP Common Stock. Following the
Distribution, Aztec is able 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. The Distribution enables the financial community to evaluate Aztec as
a distinct business and to compare it more easily to its industry peers. The
Distribution also allows Aztec to offer respective employees more focused
incentive compensation packages. Aztec's ability to issue stock options (as well
as other equity) is subject to certain limitations in order to avoid triggering
certain adverse federal income tax consequences.
GENERAL
Aztec is a single-source provider of a broad range of IT business solutions.
Aztec currently consists of ten operating companies who have been in business
for an average of over 15 years. 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 range of complementary IT business solutions includes: (i)
consulting and engineering services; (ii) systems and network design and
implementation services; (iii) software development and
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implementation services; (iv) IT support and operational services; and (v)
telephony design and integration services. Aztec is currently providing its
range of services in the Northeast region of the United States, and certain of
these services in other regions of the United States. Aztec provides 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.
A brief description of Aztec's constituent operating companies follows.
AZTEC INTERNATIONAL
Aztec International, Inc. was founded in 1983. Aztec International, Inc.'s
successor, Aztec International LLC ("Aztec International") was formed on June 1,
1998, and on June 3, 1998, all of the assets of Aztec International, Inc. were
contributed to Aztec International. Aztec International is now a constituent
operating company of Aztec. Aztec International provides cost-effective services
for telecommunications equipment. With facilities strategically positioned
across the United States, Aztec International provides OEM rework, secondary
telecommunications equipment sales, and repair for key systems, telephone PBX,
telephones and printed circuit boards. Aztec International is among 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 July 1, 1998, had 99 employees.
BAY STATE
Bay State Computer Group, Inc. was founded in 1984. Bay State Computer
Group, Inc.'s successor, Bay State Computer Group LLC ("Bay State") was formed
on May 29, 1998, and on June 3, 1998 all of the assets of Bay State Computer
Group, Inc. were contributed to Bay State. Bay State is now a constituent
operating company of Aztec. Bay State is an 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 July 1,
1998, had 181 employees.
COMPEL
Compel Corporation was founded in 1979. Compel Corporation's successor,
Compel LLC ("Compel") was formed on April 1, 1998, and on June 3, 1998, all of
the assets of Compel Corporation were contributed to Compel. Compel is now a
constituent operating company of Aztec. 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 July 1, 1998, had 319 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 merged
into Professional Computer Solutions Inc. on
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June 5, 1998, but will continue to operate as a separate division, headquartered
in New York, NY, and as of July 1, 1998 had 56 employees.
ENTRA
Founded in 1984, Entra Computer Corporation ("Entra") provides 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 which 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 July 1, 1998, had 47 employees.
FORTRAN
Founded in 1983, Fortran Corporation ("Fortran") has experience with the
attributes of a wide variety of telecommunications systems, and uses this
experience to develop systems for specific client environments ranging from
simple turnkey systems to complex voice and 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 July 1, 1998, had 61 employees.
MAHON
Founded in 1979, Mahon Communications Corporation ("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 July 1, 1998, had 111 employees.
OFFICE EQUIPMENT SERVICE
Founded in 1972, Office Equipment Service Co., Inc. ("OES") provides
enterprise services, including document management solutions and technical
support. OES 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. OES is
headquartered in Memphis, Tennessee, and as of July 1, 1998, had 83 employees.
PROFESSIONAL COMPUTER SOLUTIONS
Founded in 1985, Professional Computer Solutions Inc. ("PCS") 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. PCS 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. PCS is headquartered in Englewood, New Jersey, and as of July 1, 1998,
had 86 employees, excluding its Digital Networks Associates division.
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PROFESSIONAL NETWORK SERVICES
Founded in 1989, Professional Network Services, Inc. ("PNS") provides
comprehensive enterprise solutions and helps organizations evaluate
constantly-changing technologies. PNS designs infrastructure, defines service
level objectives, and develops appropriate enterprise management practices to
support service levels. PNS also provides video-conferencing and technical
support to customers. PNS is headquartered in Trumbull, Connecticut, and as of
July 1, 1998, had 64 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 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)
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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.
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
- 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
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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. Aztec 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 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.
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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.
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, and the Executive Vice President and Chief Financial
Officer, with functional support from Aztec. In addition, Aztec's senior
management will be responsible for implementing the Company's internal growth
and acquisition strategies.
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 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 focuses 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 uses a combination of sales engineering and consulting sales services,
including trade shows, professional seminars and radio advertisements. As of
July 1, 1998, Aztec employed 154 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 is implementing 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
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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.
CUSTOMERS
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 fiscal 1998, Aztec, which employs over 1,100 people
(approximately 65% of whom are technical professionals), provided services to
over 2,000 customers.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
Aztec's operating companies own or have the right to use certain patents,
copyrights and trademarks. 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.
EMPLOYEES
As of July 1, 1998, Aztec employed 1,114 persons, of whom approximately 747
were technical professionals. Most of Aztec's employees work in professional
(including sales), administrative, and technical positions. Of Aztec's
employees, 256 are represented by a labor union or subject to a collective
bargaining agreement. Aztec believes that its employee relations generally are
good.
ITEM 2. PROPERTIES
Aztec's corporate headquarters are located in Braintree, 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The stockholder of Aztec, by written consent, has approved the following
actions: (1) on April 2, 1998, approval of the Certificate of Amendment to the
Certificate of Incorporation changing the name of the corporation from Paradigm
Concepts, Inc. to Aztec Consulting, Inc.; (2) on April 23, 1998, approval of the
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Certificate of Amendment to the Certificate of Incorporation changing the name
of the corporation from Aztec Consulting, Inc. to Aztec Technology Partners,
Inc.; (3) on May 28, 1998, enlargement of the Board of Directors from one member
to five members, appointment of Clifford Mitman, Jr., Benjamin Tandowski,
Lawrence Howell and Jonathan J. Ledecky to the Board of Directors to fill the
vacancies created by the enlargement; and (4) in June 1998, approval of the
Amended and Restated Certificate of Incorporation and the By-Laws of the
Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company listed its Common Stock on the Nasdaq National Market under the
symbol "AZTC," on June 10, 1998. In fiscal 1998, the Company did not have a
public market for its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The historical Selected Financial Data for the fiscal years ended April 25,
1998 (except pro forma amounts), April 26, 1997 and March 31, 1996 have been
derived from Aztec's consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP and are included elsewhere in this Annual Report on
Form 10-K. The PricewaterhouseCoopers LLP report on the financial statements is
based in part on reports of other independent accountants, which appear
elsewhere in this Annual Report on Form 10-K. The historical Selected Financial
Data for the fiscal year ended March 31, 1995 has been derived from Aztec's
consolidated financial statements that have been audited and for the fiscal year
ended March 31, 1994 has been derived from unaudited consolidated financial
statements that are not included elsewhere in this Annual Report on Form 10-K.
The 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 period presented.
The pro forma financial data gives effect, as applicable, to the
Distribution and the purchase acquisitions completed by Aztec between April 27,
1997 and April 25, 1998 as if all such transactions had been consummated on
April 27, 1997. 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, "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appear elsewhere in this Annual Report on Form 10-K.
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SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXPECT PER SHARE DATA)
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<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, ------------------------
--------------------------------- APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
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Statement of Income Data:
Revenues..................................................... $ 58,979 $ 88,999 $ 114,055 $ 136,278 $ 208,341
Cost of revenues............................................. 43,630 65,858 84,113 102,129 158,317
--------- --------- ----------- ----------- -----------
Gross profit................................................. 15,349 23,141 29,942 34,149 50,024
Selling, general and administrative expense.................. 11,218 14,942 20,510 21,525 35,185
Goodwill amortization expense................................ 840
Strategic restructuring costs................................ 1,750
Non-recurring acquisition costs.............................. 2,274
--------- --------- ----------- ----------- -----------
Operating income............................................. 4,131 8,199 9,432 10,350 12,249
Interest expense............................................. 297 331 420 324 807
Interest income.............................................. (54) (118) (416) (168) (785)
Other (income) expense....................................... (75) (111) (964) (53) (44)
--------- --------- ----------- ----------- -----------
Income before provision for income taxes..................... 3,963 8,097 10,392 10,247 12,271
Provision for income taxes (3)............................... 232 401 750 3,524 5,797
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Net income................................................... $ 3,731 $ 7,696 $ 9,642 $ 6,723 $ 6,474
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--------- --------- ----------- ----------- -----------
Per share amounts:
Basic........................................................ $ 0.42 $ 0.84 $ 0.71 $ 0.37 $ 0.27
Diluted...................................................... $ 0.42 $ 0.84 $ 0.71 $ 0.37 $ 0.27
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Weighted average shares outstanding:
Basic........................................................ 8,852 9,112 13,509 18,005 23,911
Diluted...................................................... 8,852 9,141 13,675 18,352 24,385
<CAPTION>
MARCH 31,
-------------------- APRIL 30, APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital.............................................. $ 5,623 $ 10,669 $ 8,664 $ 13,268 $ 36,292
Total assets................................................. 16,423 28,106 33,945 37,311 141,445
Long-term debt, less current portion......................... 461 1,524 799 167 309
Long-term payable to U.S. Office Products.................... 4,786
Stockholder's Equity......................................... 6,745 11,062 10,497 11,626 105,319
<CAPTION>
PRO FORMA
APRIL 25,
1998(2)
-----------
<S> <C>
Statement of Income Data:
Revenues..................................................... $ 256,903
Cost of revenues............................................. 192,053
-----------
Gross profit................................................. 64,850
Selling, general and administrative expense.................. 43,469
Goodwill amortization expense................................ 1,665
Strategic restructuring costs................................
Non-recurring acquisition costs..............................
-----------
Operating income............................................. 19,716
Interest expense............................................. 400
Interest income..............................................
Other (income) expense....................................... (282)
-----------
Income before provision for income taxes..................... 19,598
Provision for income taxes (3)............................... 8,622
-----------
Net income................................................... $ 10,976
-----------
-----------
Per share amounts:
Basic........................................................ $ 0.50
Diluted...................................................... $ 0.50
-----------
-----------
Weighted average shares outstanding:
Basic........................................................ 21,938(4)
Diluted...................................................... 21,938(4)
PRO FORMA
APRIL 25,
1998
-----------
<S> <C>
Balance Sheet Data:
Working Capital.............................................. $ 40,680
Total assets................................................. 141,445
Long-term debt, less current portion......................... 309
Long-term payable to U.S. Office Products.................... 4,388
Stockholder's Equity......................................... 105,319
</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 April 25,
1998. See Note 4 of Notes to the Consolidated Financial Statements for a
description of the number and accounting treatment of the acquisitions by
the Company.
(2) Gives effect to the Distribution and the purchase acquisitions completed by
Aztec since April 27, 1997 as if all such transactions had been consummated
on April 27, 1997. The pro forma statement of income data is 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) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of the 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.
(4) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 25, 1998, see Note 2(g) of Notes to the Pro Forma
Combined Financial Statements included herein.
11
<PAGE>
ITEM 7. 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 "Business" as well as those discussed elsewhere in this Annual Report on Form
10-K.
OVERVIEW
Aztec was initially formed in October 1996 with the acquisition of Bay State
Computer Group, Inc. 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 fiscal year ended
April 25, 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, 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 1996," "fiscal
1997" and "fiscal 1998" refer to the Company's fiscal years ended March 31,
1996, April 26, 1997 and April 25, 1998, 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
Annual Report on Form 10-K.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
fiscal 1996, 1997, and 1998, respectively.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
<S> <C> <C> <C>
MARCH 31, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Revenues......................................................................... 100.0% 100.0% 100.0%
Cost of revenues................................................................. 73.7 74.9 76.0
----- ----- -----
Gross profit................................................................... 26.3 25.1 24.0
Selling, general and administrative expenses..................................... 18.0 15.8 16.9
Goodwill amortization expense.................................................... 0.4
Strategic restructuring costs.................................................... 0.8
Non-recurring acquisition costs.................................................. 1.7
----- ----- -----
Operating income............................................................... 8.3 7.6 5.9
Interest (income) expense, net................................................... 0.1
Other income..................................................................... (0.8)
----- ----- -----
Income before provision for income taxes......................................... 9.1 7.5 5.9
Provision for income taxes....................................................... 0.6 2.6 2.8
----- ----- -----
Net income....................................................................... 8.5% 4.9% 3.1%
----- ----- -----
----- ----- -----
</TABLE>
COMPARISON OF FISCAL 1998 TO FISCAL 1997
REVENUES. Consolidated revenues increased 52.9%, from $136.3 million for
fiscal 1997, to $208.3 million for fiscal 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 during fiscal 1998 contributed to the increase in
revenues. The majority of the Purchased Companies' revenues are service-related.
GROSS PROFIT. Gross profit increased 46.5%, from $34.1 million, or 25.1% of
revenues, for fiscal 1997 to $50.0 million, or 24.0% of revenues, for fiscal
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 63.5%, from $21.5 million, or 15.8% of revenues, for fiscal
1997 to $35.2 million, or 16.9% of revenues, for fiscal 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, compensation related earnouts paid at three recently
acquired operating companies, an increased level of general bad debt reserves,
and increased Aztec corporate overhead due to the Strategic Restructuring.
STRATEGIC RESTRUCTURING COSTS. Strategic restructuring costs represent the
Company's portion of the costs incurred by U.S. Office Products as a result of
U.S. Office Products' recently completed comprehensive restructuring plan
including costs incurred related to the Company's withdrawn initial public
offering.
NON-RECURRING ACQUISITION COSTS. Aztec incurred non-recurring acquisition
costs of $2.3 million for fiscal 1997 in conjunction with five 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
13
<PAGE>
accounting principles 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.
INTEREST EXPENSE. Interest expense, net of interest income, decreased
$134,000, from net interest expense of $156,000 in fiscal 1997, to $22,000 in
fiscal 1998. The decrease was due primarily to the Company's pay down of debt
due to an increase in cash flows from operations during fiscal 1998.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from $3.5
million for fiscal 1997 to $5.8 million for fiscal 1998, reflecting effective
tax rates of 34.4% and 47.2%, respectively. The higher effective tax rate for
fiscal 1998 is the result of goodwill amortization and certain acquisition costs
not being deductible for tax purposes. The lower effective income tax rate for
fiscal 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 as subchapter S corporation prior to being acquired by Aztec.
COMPARISON OF FISCAL 1997 TO FISCAL 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.
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 tax 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
14
<PAGE>
taxes on a corporate level as such companies had elected to be treated as
subchapter S corporations prior to being acquired by Aztec.
LIQUIDITY AND CAPITAL RESOURCES
At April 25, 1998, Aztec had cash of $2.0 million and working capital of
$36.3 million. Aztec's capitalization, defined as the sum of long-term debt,
payable to U.S. Office Products and stockholder's equity, at April 25, 1998 was
approximately $110.3 million.
During fiscal 1998, net cash used in operating activities was $6.9 million.
Net cash used in investing activities was $2.9 million, which consisted
primarily of $2.6 million used for additions of property, plant, and equipment.
Net cash provided by financing activities was $10.6 million, including $15.3
million of capital contributed by U.S. Office Products in anticipation of the
strategic restructuring, $818,000 that was advanced by 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 $4.2
million in short-term and long-term debt.
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.
Aztec's anticipated capital expenditures budget for the next twelve months
is approximately $4.5 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 to Aztec of $5.0 million of debt by U.S. Office Products resulting in
a contribution to capital of $15.3 million at April 25, 1998, which has been
reflected in the financial statements as an increase in stockholder's equity. On
June 18, 1998, Aztec entered into a commitment letter with BankBoston, N.A. for
a $140 million proposed credit facility (the "Proposed Credit Facility"). The
Proposed Credit Facility is expected to mature five years from the closing date
of the Proposed Credit Facility; to be secured by all material assets of Aztec;
and to 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.
The commitment is conditioned on, among other things, the absence of material
adverse changes to Aztec's business, and the Proposed Credit Facility itself was
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.
The Company filed a Registration Statement with the SEC for the issuance of
Common Stock in an underwritten public offering that was expected to close prior
to or concurrent with the Distribution. However, the Company has elected not to
raise additional capital through an underwritten offering at this time. The
Company expects to close the Proposed Credit Facility by the end of July 1998.
As of June 9,
15
<PAGE>
1998, Aztec had access to an interim unsecured $15 million working capital line
of credit from BankBoston, N.A. Any advances made under this line of credit
would be due upon demand, or, if no demand is made, the earlier of (i) August
31, 1998, or (ii) the date on which Aztec enters into definitive loan
documentation with BankBoston, N.A. The Company anticipates that its working
capital line of credit and cash flow from operations 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.
While the Proposed Credit Facility is expected to fund the Company's acquisition
program, there can be no assurances that additional sources of financing will
not be required during the next 12 months or thereafter.
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 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 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.
The following table sets forth certain unaudited quarterly financial data
for fiscal 1996, fiscal 1997 and fiscal 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
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
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
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
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
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
Revenues.............................................................. $ 42,730 $ 36,875 $ 62,907 $ 65,829
Gross profit.......................................................... 9,047 9,718 15,852 15,407
Operating income (2).................................................. 2,749 3,687 4,816 997
Net income (loss)..................................................... 1,636 2,233 2,703 (98)
</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.
(2) Reflects, for the fourth quarter, one-time charges of $1,750 for strategic
restructuring costs and $1,500 for spin-off related costs.
16
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ from those indicated by forward-looking statements made in this Annual
Report on Form 10-K and presented elsewhere by management from time to time.
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. Prior to June 9, 1998, Aztec had not 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 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.
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 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.
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. 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.
17
<PAGE>
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
Distribution.
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 Distribution, Aztec was not responsible
for obtaining external sources of funding. On June 18, 1998, Aztec entered into
a commitment letter with BankBoston, N.A. for the $140 million Proposed Credit
Facility, up to $15 million of which may be used for working capital and other
general corporate purposes and up to $125 million may be used to fund permitted
acquisitions. The Proposed Credit Facility is expected to mature five years from
the closing date; to be secured by all assets of Aztec; and to be subject to
terms and conditions customary for facilities of this kind, including certain
financial covenants. The obligations of Aztec under the Proposed Credit Facility
will be guaranteed by all of Aztec's subsidiaries, which subsidiaries have
secured such guarantees by all of their assets. Interest rate options made
available to Aztec depend on the satisfaction of certain specified financial
ratios. The commitment is conditioned on, among other things, the absence of
material adverse charges to Aztec's business, and the Proposed Credit Facility
itself is 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.
18
<PAGE>
The Company filed a Registration Statement with the SEC for the issuance of
Common Stock in an underwritten public offering that was expected to close prior
to or concurrent with the Distribution. However, the Company has elected not to
raise additional capital through an underwritten offering at this time. The
Company anticipates that its working capital from its Proposed Credit Facility
and cash flow from operations 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 assurance that
additional sources of financing will not be required during the next twelve
months or thereafter.
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
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
Distribution.
Aztec has 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
has entered into an employment agreement with its Chairman and Chief Executive
Officer and intends to enter into employment agreements with 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 serves as a director and employee of Aztec
and provides services to Aztec pursuant to an employment agreement entered into
between Mr. Ledecky and Aztec. U.S. Office Products has assigned 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"). 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.
POTENTIAL CONFLICTS OF INTEREST IN THE DISTRIBUTIONS
Aztec, U.S. Office Products, and the other companies spun-off by U.S. Office
Products on June 9, 1998 (together with Aztec, the "Spin-Off Companies") entered
into the Distribution Agreement, Tax Allocation Agreement, and Employee Benefits
Agreement, and the Spin-Off Companies entered into the Tax Indemnification
Agreement. 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 Distribution.
19
<PAGE>
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
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
Distribution, could have a material adverse effect on Aztec.
The terms of the agreements that 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. 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"), received options
for shares of each of the Spin-Off Companies exercisable for 7.5% of the common
stock of each Spin-Off Company. 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.
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 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.
20
<PAGE>
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
In connection with the Distributions, Aztec entered 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 also
entered 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 will be 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
Distribution but any of the other Distributions.
RISKS RELATED TO ALLOCATION FOR CERTAIN LIABILITIES
Under the Distribution Agreement, Aztec is 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, (iii) the U.S. Office Products debt
that has been allocated to the Company, (iv) liabilities under the securities
laws relating to the Prospectus related to the Offering and portions of the
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)
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 a planned
public offering that did not occur 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.
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 federal income tax liability if 50% or more, by
vote or value, of the capital stock of either the company making the
distribution
21
<PAGE>
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 entered 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 Distribution is taxable.
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
As of April 25, 1998, approximately $63.8 million, or 45.1% of Aztec's total
assets and 60.6% 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 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 fiscal 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, 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
22
<PAGE>
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 Amended and Restated Certificate of
Incorporation and Amended and Restated 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.
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.
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<PAGE>
INFLATION
Aztec does not believe that inflation has had a material impact on its
results of operations during fiscal 1996, fiscal 1997, or fiscal 1998
NEW ACCOUNTING PRONOUNCEMENT
SOFTWARE REVENUE RECOGNITION. In October 1997, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP
97-2 provides guidance on the timing and amount of revenue recognition when
licensing, selling, leasing or otherwise marketing computer software. SOP 97-2
supersedes SOP 91-1 (also entitled "Software Revenue Recognition") and is
effective for transactions entered into during fiscal years beginning after
December 15, 1997. The adoption of SOP 97-2 is not expected to have a material
effect on the Company's financial position or its results of operations.
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 by the end of the 1998 calendar year. Implementation of this disclosure
standard will not affect the Company's financial position or results of
operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. It also requires related disclosures about products,
geographic areas, and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 by
the end of the 1998 calendar year. Implementation of this disclosure standard
will not affect the Company's financial position or results of operations.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to the Company's Consolidated Financial Statements and
Financial Statement Schedule and the accompanying consolidated financial
statements, notes and schedules which are filed as part of this Form 10-K
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item appears in sections captioned "Nominees,"
"Other Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement to be delivered to
stockholders in connection with the 1998 Annual Meeting of Stockholders to be
held on September 25, 1998 (the "1998 Proxy Statement"). Such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item appears in sections captioned "Directors'
Compensation," "Compensation Committee Interlocks and Insider Participation,"
"Compensation Committee Report on Executive Compensation," "Comparative Stock
Performance," "Executive Compensation," "Employment Arrangements," "Stock Option
Grants," "Option Exercises and Year-End Option Table," "Repricing of Options"
and "Compensation Committee Report on Option Repricing" in the 1998 Proxy
Statement. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item appears in section captioned "Security
Ownership of the Company" in the 1998 Proxy Statement. Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item appears in sections captioned "Directors'
Compensation" and "Certain Relationships and Related Transactions" in the 1998
Proxy Statement. Such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
1. Consolidated Financial Statements. The Consolidated Financial Statements
listed in the Index to Consolidated Financial Statements and Financial
Statement Schedule are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedule. The Financial Statement Schedule listed in
the Index to Consolidated Financial Statements and Financial Statement
Schedule is filed as part of this Annual Report on Form 10-K.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately preceding
such Exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K on July 2, 1998 reporting
that the Board of Directors voted to change the Company's fiscal year end from
the last Saturday in April to December 31. In addition, the July 2, 1998 Form
8-K press release exhibits announced year end and fourth quarter
25
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operating results for the period ending April 25, 1998, the signing of a letter
of intent for an acquisition and the signing of a commitment letter for a $140
million credit and acquisition facility.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------------------
<C> <S>
3.1 ** Amended and Restated Certificate of Incorporation
3.2 ** Amended and Restated By-laws
4.1 * Form of certificate representing shares of Common Stock
10.1 ** Distribution Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec Technology Partners,
Inc., Navigant International, Inc., and School Specialty, Inc.
10.2 ** 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 ** Tax Indemnification Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.7 **+ Employee Benefits Agreement among U.S. Office Products, Workflow Graphics, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School Specialty, Inc.
10.8 **+ 1998 Stock Incentive Plan
10.9 *+ Form of Employment Agreement between Aztec and Jonathan Ledecky
10.10**+ Employment Agreement between Aztec and James Claypoole
10.11*+ Form of Employment Agreement between Aztec and Douglas Johnson
10.12*+ Form of Employment Agreement between Aztec and Ira Cohen
10.13**+ 1998 Employee Stock Purchase Plan
10.14**+ 1998 Non-Employee Director Stock Option Plan
21** Subsidiaries of Registrant
23.1 ** Consent of PricewaterhouseCoopers LLP
23.2 ** Consent of Rubin, Koehmstedt & Nadler, PLC
27** Financial data schedule
</TABLE>
- ------------------------
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 333-46533) filed on June 10, 1998.
** Filed herewith.
+ Denotes management contract or compensatory plan or arrangement.
26
<PAGE>
The exhibits listed above are not contained in the copy of the annual report
on Form 10-K distributed to stockholders. Upon the request of any stockholder
entitled to vote at the 1998 Annual Meeting, the Registrant will furnish that
person, without charge, a copy of any exhibits listed above. Requests should be
sent in writing to:
Douglas R. Johnson
Executive Vice President & CFO
Aztec Technology Partners
50 Braintree Hill Office Park, Suite 220
Braintree, MA 02184
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on July 24, 1998.
AZTEC TECHNOLOGY PARTNERS, INC.
BY: /S/ JAMES E. CLAYPOOLE
-----------------------------------------
Name: James E. Claypoole
Title: Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
/s/ JAMES E. CLAYPOOLE Directors and Chief
- ------------------------------ Executive Officer July 24, 1998
James E. Claypoole (Principal Executive
Officer)
Executive Vice President
and Chief Financial
/s/ DOUGLAS R. JOHNSON Officer (Principal
- ------------------------------ Financial Officer and July 24, 1998
Douglas R. Johnson Principal Accounting
Officer)
/s/ LAWRENCE M. HOWELL Director
- ------------------------------ July 24, 1998
Lawrence M. Howell
Director
- ------------------------------ July , 1998
Jonathan J. Ledecky
/s/ CLIFFORD MITMAN, JR. Director
- ------------------------------ July 24, 1998
Clifford Mitman, Jr.
/s/ BENJAMIN TANDOWSKI Director
- ------------------------------ July 24, 1998
Benjamin Tandowski
28
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
AZTEC TECHNOLOGY PARTNERS, INC. HISTORICAL FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent Accountants F-2
Report of Rubin, Koehmstedt and Nadler, Independent Auditors F-3
Consolidated Balance Sheet as of April 25, 1998 and April 26, 1997 F-4
Consolidated Statement of Income for the fiscal years ended April 25, 1998,
April 26, 1997 and March 31, 1996 F-5
Consolidated Statement of Stockholder's Equity for the fiscal years ended
April 25, 1998, April 26, 1997 and March 31, 1996 F-6
Consolidated Statement of Cash Flows for the fiscal years ended April 25, 1998, April 26, 1997
and March 31, 1996 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedules: F-25
Schedule II--Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable.
AZTEC TECHNOLOGY PARTNERS, INC. PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Introduction to Pro Forma Financial Information (unaudited) F-26
Pro Forma Combined Balance Sheet as of April 25, 1998 (unaudited) F-27
Pro Forma Combined Statement of Income for the fiscal year ended
April 25, 1998 (unaudited) F-28
Notes to Pro Forma Combined Financial Statements (unaudited) F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Aztec Technology Partners, Inc.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Aztec Technology
Partners, Inc. ("Aztec") and its subsidiaries at April 25, 1998 and April 26,
1997, and the results of their operations and their cash flows for the fiscal
years ended April 25, 1998, April 26, 1997 and March 31, 1996, 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 $20,775,000 for the fiscal year ended March
31, 1996. 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 30, 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 year ended March 31, 1996 (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 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 the
year ended March 31, 1996 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>
APRIL 25, APRIL 26,
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 1,976 $ 1,106
Accounts receivable, less allowance for doubtful accounts of $1,626 and $351,
respectively........................................................................... 48,924 22,342
Inventories.............................................................................. 9,443 3,904
Receivable from U.S. Office Products..................................................... 1,216
Unbilled percentage of completion revenues............................................... 4,557 2,871
Prepaid expenses and other current assets................................................ 6,184 1,704
---------- ---------
Total current assets................................................................... 71,084 33,143
Property and equipment, net................................................................ 5,957 2,163
Goodwill, net.............................................................................. 63,828
Other assets............................................................................... 576 2,005
---------- ---------
Total assets........................................................................... $ 141,445 $ 37,311
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt..................................................... $ 303 $ 76
Payable to U.S. Office Products.......................................................... 4,388
Accounts payable......................................................................... 16,380 11,803
Accrued compensation..................................................................... 4,692 1,651
Deferred revenue......................................................................... 4,843 2,499
Accrued subchapter S corporation distributions........................................... 1,320
Other accrued liabilities................................................................ 4,186 2,526
---------- ---------
Total current liabilities.............................................................. 34,792 19,875
Long-term debt............................................................................. 309 167
Long-term payable to U.S. Office Products.................................................. 4,786
Deferred income taxes...................................................................... 1,025 857
---------- ---------
Total liabilities...................................................................... 36,126 25,685
---------- ---------
Commitments and contingencies--Note 10
Stockholder's equity:
Divisional equity........................................................................ 96,116 8,897
Retained earnings........................................................................ 9,203 2,729
---------- ---------
Total stockholder's equity............................................................. 105,319 11,626
---------- ---------
Total liabilities and stockholder's equity............................................. $ 141,445 $ 37,311
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------
<S> <C> <C> <C>
APRIL 25, APRIL 26, MARCH 31,
1998 1997 1996
---------- --------- -----------
Revenues:
Products..................................................................... $ 116,998 $ 97,253 $ 78,948
Services..................................................................... 91,343 39,025 35,107
---------- --------- -----------
Total revenues............................................................. 208,341 136,278 114,055
---------- --------- -----------
Cost of revenues:
Products..................................................................... 100,137 85,506 66,984
Services..................................................................... 58,180 16,623 17,129
---------- --------- -----------
Total cost of revenues..................................................... 158,317 102,129 84,113
---------- --------- -----------
Gross profit............................................................... 50,024 34,149 29,942
Selling, general and administrative expenses................................... 35,185 21,525 20,510
Goodwill amortization expense.................................................. 840
Strategic restructuring costs.................................................. 1,750
Non-recurring acquisition costs................................................ 2,274
---------- --------- -----------
Operating income........................................................... 12,249 10,350 9,432
Other (income) expense:
Interest expense............................................................. 807 324 420
Interest income.............................................................. (785) (168) (416)
Other........................................................................ (44) (53) (964)
---------- --------- -----------
Income before provision for income taxes....................................... 12,271 10,247 10,392
Provision for income taxes..................................................... 5,797 3,524 750
---------- --------- -----------
Net income..................................................................... $ 6,474 $ 6,723 $ 9,642
---------- --------- -----------
---------- --------- -----------
Weighted-average shares outstanding:
Basic........................................................................ 23,911 18,005 13,509
Diluted...................................................................... 24,385 18,352 13,675
Per share amounts:
Basic........................................................................ $ 0.27 $ 0.37 $ 0.71
---------- --------- -----------
---------- --------- -----------
Diluted...................................................................... $ 0.27 $ 0.37 $ 0.71
---------- --------- -----------
---------- --------- -----------
</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, 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 declared and paid........................................ (5,594) (5,594)
Net income................................................................ 6,723 6,723
----------- --------- -------------
Balance at April 26, 1997................................................... 8,897 2,729 11,626
Issuance of U.S. Office Products common stock in conjunction with
acquisitions............................................................ 71,921 71,921
Capital contribution by U.S. Office Products.............................. 15,298 15,298
Net income................................................................ 6,474 6,474
----------- --------- -------------
Balance at April 25, 1998................................................... $ 96,116 $ 9,203 $ 105,319
----------- --------- -------------
----------- --------- -------------
</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 FISCAL YEAR ENDED
----------------------------------
APRIL 25, APRIL 26, MARCH 31,
1998 1997 1996
---------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 6,474 $ 6,723 $ 9,642
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization expense...................................... 1,992 541 494
Non-recurring acquisition costs............................................ 2,274
Gain on sale of division at pooled company................................. (761)
Deferred income taxes...................................................... 123 645 (66)
Changes in current assets and liabilities (net of assets acquired and
liabilities assumed in business combinations accounted for under the
purchase method):
Accounts receivable...................................................... (10,125) (2,376) (5,441)
Inventories.............................................................. 964 547 595
Prepaid expenses and other current assets................................ (7) (3,120) (585)
Accounts payable......................................................... (4,074) 997 (475)
Accrued liabilities...................................................... (2,230) 20 867
---------- --------- -----------
Net cash provided by (used in) operating activities.................... (6,883) 6,251 4,270
---------- --------- -----------
Cash flows from investing activities:
Additions to property and equipment, net of disposals........................ (2,599) (949) (552)
Payments of non-recurring acquisition costs.................................. (460) (1,814)
Cash received in acquisitions................................................ 182
Deposits..................................................................... (1,312) (421)
Cash received in sale of division at pooled company.......................... 1,275
Other........................................................................ 161 4
---------- --------- -----------
Net cash provided by (used in) investing activities.................... (2,877) (3,914) 306
---------- --------- -----------
Cash flows from financing activities:
Proceeds from (payments of) short-term debt, net............................. (2,332) (5,504) 3,683
Proceeds from issuance of long-term debt..................................... 305 1,196
Payments of long-term debt................................................... (1,834) (937) (698)
Payments of dividends at pooled companies.................................... (1,320) (4,274) (7,389)
Advances from (payments to) U.S. Office Products............................. 818 3,570
Capital contribution by U.S. Office Products................................. 15,298
Net change in cash due to conforming fiscal year-ends of certain pooled
companies.................................................................. 176
---------- --------- -----------
Net cash provided by (used in) financing activities.................... 10,630 (6,840) (3,032)
---------- --------- -----------
Net increase (decrease) in cash and cash equivalents........................... 870 (4,503) 1,544
Cash and cash equivalents at beginning of period............................... 1,106 5,609 4,065
---------- --------- -----------
Cash and cash equivalents at end of period..................................... $ 1,976 $ 1,106 $ 5,609
---------- --------- -----------
---------- --------- -----------
</TABLE>
F-7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------
<S> <C> <C> <C>
APRIL 25, APRIL 26, MARCH 31,
1998 1997 1996
--------- --------- -----------
Supplemental disclosures of cash flow information:
Interest paid.................................................................. $ 759 $ 282 $ 526
Income taxes paid.............................................................. $ 9,305 $ 2,460 $ 452
</TABLE>
The Company issued common stock in connection with certain business
combinations during the fiscal year ended April 25, 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
FISCAL YEAR
ENDED
APRIL 25,
1998
-----------
<S> <C>
Accounts receivable................................................................................... $ 16,457
Inventories........................................................................................... 6,503
Prepaid expenses and other current assets............................................................. 2,608
Property and equipment................................................................................ 2,347
Goodwill.............................................................................................. 64,668
Other assets.......................................................................................... 174
Short-term debt....................................................................................... (2,332)
Accounts payable...................................................................................... (8,651)
Accrued liabilities................................................................................... (7,832)
Long-term debt........................................................................................ (2,203)
-----------
Net assets acquired................................................................................. $ 71,739
-----------
-----------
The acquisitions were funded as follows:
Common stock........................................................................................ $ 71,921
Cash received....................................................................................... (182)
-----------
Total............................................................................................. $ 71,739
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
Aztec Technology Partners, Inc. (the "Company") is a Delaware Corporation
which was a wholly-owned subsidiary of U.S. Office Products Company ("U.S.
Office Products") at April 25, 1998. On June 9, 1998, as part of its
comprehensive restructuring plan, U.S. Office Products spun-off its Technology
Solutions division as an independent publicly owned company. This transaction
was effected through the distribution of shares of the Company to U.S. Office
Products shareholders (the "Distribution"). Prior to the Distribution, U.S.
Office Products contributed 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 also entered into a number
of agreements to facilitate the Distribution and the transition of the Company
to an independent business enterprise (see Note 10). At the date of the
Distribution, U.S. Office Products allocated $5,000 in debt to the Company. The
debt payable to U.S. Office Products was repaid upon the completion of the
Distribution.
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. The
Company made five acquisitions accounted for under the purchase method during
the period from September 1997 to October 1997 (the "Purchased Companies"). The
results of these acquisitions have been included in the Company's results from
their respective dates of acquisition.
The Company is a provider of a broad range of information technology
business solutions principally to corporate customers. The Company provides 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.
NOTE 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 were 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.
F-9
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 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 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, 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.
On June 30, 1998, the Board of Directors of the Company voted to change the
Company's fiscal year end from the last Saturday in April, to December 31. The
Company will file a transition report on Form 10-K covering the period April 26,
1998 to December 31, 1998.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1998", "fiscal 1997" and "fiscal
1996" refer to the Company's fiscal years ended April 25, 1998, April 26, 1997
and March 31, 1996, respectively.
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 debt securities with 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.
F-10
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are 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 net 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 the carrying value of the goodwill.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and debt 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.
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. Revenues
related to fixed-price contracts which include both product and service
components are recorded as service revenues.
F-11
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Service revenues from consulting, installation and maintenance is recognized
ratably over the contract period or as the service is provided.
Revenue from software development contracts is recognized as work is
performed on a "time and materials" basis.
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 fiscal years 1998, 1997 and 1996 was $1,666, $661 and $480, 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 administrative expense. Co-op funds for fiscal years 1998,
1997 and 1996 were $(1,812), $(1,453) and $(789), respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations in the period
incurred. Research and development costs are included in the consolidated
statement of income as a component of selling, general and administrative
expenses.
STRATEGIC RESTRUCTURING COSTS
Strategic restructuring costs represent the Company's portion of the costs
incurred by U.S. Office Products as a result of U.S. Office Products' recently
completed comprehensive restructuring plan including costs incurred related to
the Company's withdrawn initial public offering (see Note 1).
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, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under the pooling-of-interests method.
F-12
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform
to the current year presentation. The reclassifications have no effect on prior
year operating results.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("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 period ended December 31, 1998. Implementation of this
disclosure standard will not affect the Company's financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. It also requires related disclosures about products,
geographic areas, and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 in
the period ended December 31, 1998. Implementation of this disclosure standard
will not affect the Company's financial position or results of operations.
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 issued to U.S. Office Products shareholders
one share of its common stock for every five shares of U.S. Office Products
F-13
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 has been
retroactively adjusted to give effect to the one for five distribution ratio.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued 955,151 shares of 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....................................................... 181,315
Digital Network Associates, Inc................................................ 152,389
Fortran Corp................................................................... 330,000
Office Equipment Service, Inc.................................................. 132,331
Professional Computer Solutions, Inc........................................... 159,116
-------------
Total shares issued...................................................... 955,151
-------------
-------------
</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 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.
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
PARTNERS, POOLED
INC. COMPANIES COMBINED
------------ ----------- ----------
<S> <C> <C> <C>
Fiscal 1997:
Revenues............................................. $ 57,656 $ 78,622 $ 136,278
Net Income........................................... $ 2,109 $ 4,614 $ 6,723
Fiscal 1996:
Revenues............................................. $ $ 114,055 $ 114,055
Net Income........................................... $ $ 9,642 $ 9,642
</TABLE>
F-14
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
PURCHASE METHOD
During fiscal 1998, the Company made five acquisitions accounted for under
the purchase method for an aggregate purchase price of $71,739, consisting of
651,021 shares of common stock with a market value of $71,921 and a net of $182
of cash acquired. The total assets related to these acquisitions were $92,757,
including intangible assets of $64,668. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisition.
The following presents the unaudited pro forma financial data of the Company
for fiscal 1998 and fiscal 1997 and includes the Company's consolidated
financial statements and the results of the Purchased Companies as if all such
purchase acquisitions had been made at the beginning of each year presented. The
results presented below include certain pro forma adjustments to reflect the
amortization of intangible assets and adjustments in executive compensation:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
FISCAL 1998 FISCAL 1997
----------- -----------
<S> <C> <C>
Revenues............................................................. $ 256,903 $ 228,912
Net income........................................................... 10,081 9,454
Per Share amounts:
Basic.............................................................. 0.46 0.43
Diluted............................................................ 0.46 0.43
</TABLE>
The unaudited pro forma financial data 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 each year presented or the results
which may occur in the future.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 25, APRIL 26,
1998 1997
--------- ---------
<S> <C> <C>
Land..................................................................... $ 143 $ 143
Buildings................................................................ 374 374
Furniture and fixtures................................................... 6,740 3,184
Warehouse equipment...................................................... 669 272
Equipment under capital leases........................................... 774 252
Leasehold improvements................................................... 467 155
--------- ---------
9,167 4,380
Less: Accumulated depreciation........................................... (3,210) (2,217)
--------- ---------
Net property and equipment............................................... $ 5,957 $ 2,163
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for fiscal years 1998, 1997 and 1996 was $1,152, $541
and $494, respectively.
F-15
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--GOODWILL
Goodwill consists of the following:
<TABLE>
<CAPTION>
APRIL 25,
1998
---------
<S> <C> <C>
Goodwill................................................................ $ 64,668
Less: Accumulated amortization.......................................... (840)
---------
Net goodwill.......................................................... $ 63,828
---------
---------
</TABLE>
Amortization expense for fiscal 1998 was $840.
NOTE 7--CREDIT FACILITIES
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 25, APRIL 26,
1998 1997
--------- -----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.8% to 8.4%.............................................. $ 180 $ 111
Capital lease obligations................................................ 432 132
--------- -----
612 243
Less: Current maturities of long-term debt............................... (303) (76)
--------- -----
Total long-term debt................................................... $ 309 $ 167
--------- -----
--------- -----
</TABLE>
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1999............................................................... $ 303
2000............................................................... 212
2001............................................................... 85
2002............................................................... 12
-----
Total maturities of long-term debt............................... $ 612
-----
-----
</TABLE>
F-16
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
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. 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
Payments of long-term debt of Purchased Companies upon
acquisition................................................... 1,159
Payments of acquisition costs................................... 2,501
Allocated corporate expenses.................................... 1,758
Operating costs paid by U.S. Office Products.................... 2,009
Income taxes paid by U.S. Office Products....................... 7,473
Capital contribution by U.S. Office Products.................... (15,298)
---------
Balance at April 25, 1998......................................... 4,388
---------
---------
</TABLE>
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'
weighted average interest rate during such period.
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 has earned interest based upon the average outstanding receivable from
U.S. Office Products at the weighted average interest rate of U.S. Office
Products in effect during the periods.
The Company's financial statements include allocations of net interest
expense from U.S. Office Products totaling $8 and $130 for fiscal years 1998 and
1997, respectively.
The Distribution Agreement allocated $5,000 of U.S. Office Products' debt
outstanding under its credit facilities to the Company and required the Company,
prior to the Distribution, 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' debt so allocated. Prior to the Distribution, the Company
entered into the credit facility and at the time of the Distribution borrowed
$5,000 under the facility to pay off debt of U.S. Office Products (see Note 15).
F-17
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
APRIL 25, APRIL 26, MARCH 31,
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Income taxes currently payable:
Federal.................................................... $ 4,484 $ 2,102 $ 485
State...................................................... 1,190 777 331
--------- ----------- -----------
5,674 2,879 816
--------- ----------- -----------
Deferred income tax expense (benefit)........................ 123 645 (66)
--------- ----------- -----------
Total provision for income taxes......................... $ 5,797 $ 3,524 $ 750
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 25, APRIL 26,
1998 1997
----------- -----------
<S> <C> <C> <C>
Current deferred tax assets:
Inventory.................................................. $ 400 $ 105
Allowance for doubtful accounts............................ 650 49
Accrued liabilities........................................ 1,176 124
----------- -----------
Total current deferred tax assets........................ 2,226 278
----------- -----------
Long-term deferred tax liabilities:
Property and equipment..................................... 23 24
Other...................................................... (1,048) (881)
----------- -----------
Total long-term deferred tax liabilities................. (1,025) (857)
----------- -----------
Net deferred tax asset (liability)....................... $ 1,201 $ (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
-----------------------------------
APRIL 25, APRIL 26, MARCH 31,
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit........ 6.4 5.9 3.0
Subchapter S corporation income not subject to corporate
level taxation............................................. (20.8) (30.8)
Nondeductible goodwill....................................... 2.4
Nondeductible acquisition costs.............................. 2.8 7.8
Other........................................................ 0.6 6.5
--------- ----------- -----------
Effective income tax rate.................................... 47.2% 34.4% 7.2%
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
F-18
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES (CONTINUED)
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 their acquisitions by the Company.
NOTE 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>
1999..................................................................... $ 246 $ 1,295
2000..................................................................... 163 1,009
2001..................................................................... 77 656
2002..................................................................... 14 584
2003..................................................................... 276
Thereafter............................................................... 22
----- -----------
Total minimum lease payments............................................. 500 $ 3,842
-----------
-----------
Less: Amounts representing interest...................................... (68)
-----
Present value of net minimum lease payments.............................. $ 432
-----
-----
</TABLE>
Rent expense for all operating leases for fiscal years 1998, 1997 and 1996
was $999, $871 and $778, respectively.
NOTE 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 25, 1998 or April
26, 1997 related to these agreements, as no change of control has occurred or is
probable.
DISTRIBUTION
At the date of the distribution, the Company, U.S. Office Products and the
other Spin-Off Companies entered into the Distribution Agreement, the Tax
Allocation Agreement and the Employee Benefits
F-19
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Agreement, and the Spin-Off Companies entered into the Tax Indemnification
Agreement. These agreements provided, 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 indemnify 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 allocated 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 each spin-off company.
NOTE 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. The Company adopted a 401(k) Retirement Plan at approximately the time
of the Distribution.
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 fiscal years 1998, 1997 and 1996,
the subsidiaries incurred expenses totaling $429, $390 and $367, respectively,
related to these plans.
NOTE 12--STOCKHOLDER'S EQUITY
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 requires the dual presentation of basic and diluted EPS on
the face of the consolidated statement of income. Basic EPS excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common 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 Company has adopted SFAS No. 128 during fiscal 1998 and has restated all
prior
F-20
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDER'S EQUITY (CONTINUED)
period EPS data. The following information presents the Company's computations
of basic and diluted EPS from continuing operations for the periods presented in
the consolidated statement of income.
<TABLE>
<CAPTION>
INCOME SHARES
(NUMERATOR) (DENOMINATOR) PER SHARE
------------- ------------- -----------
<S> <C> <C> <C>
FISCAL 1998:
Basic EPS................................................................ $ 6,474 23,911,206 $ 0.27
-----
-----
Effect of dilutive employee stock options................................ 474,229
------ -------------
Diluted EPS.............................................................. $ 6,474 24,385,435 $ 0.27
------ ------------- -----
------ ------------- -----
FISCAL 1997:
Basic EPS................................................................ $ 6,723 18,005,142 $ 0.37
-----
-----
Effect of dilutive employee stock options................................ 347,012
------ -------------
Diluted EPS.............................................................. $ 6,723 18,352,154 $ 0.37
------ ------------- -----
------ ------------- -----
FISCAL 1996:
Basic EPS................................................................ $ 9,642 13,508,937 $ 0.71
-----
-----
Effect of dilutive employee stock options................................ 165,824
------ -------------
Diluted EPS.............................................................. $ 9,642 13,674,761 $ 0.71
------ ------------- -----
------ ------------- -----
</TABLE>
CAPITAL CONTRIBUTION BY U.S. OFFICE PRODUCTS
During the fiscal year ended April 25, 1998, U.S. Office Products
contributed $15,298 of capital to the Company. The contribution reflects the
forgiveness of intercompany debt by U.S. Office Products, as it was agreed that
the Company would be allocated only $5,000 of debt upon the Distribution.
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 adopted an employee stock option plan at
approximately the time of the Distribution. Upon the Distribution, the Company
replaced 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.
In order to keep the option holders in the same economic position
immediately before and after the Distribution, the number of U.S. Office
Products' options held by Company personnel was multiplied by 1.577 and the
exercise price of these options was divided by 1.577 for purposes of the
replacement options. The vesting provisions and option period of the original
grants were not changed. All option data reflected below has been retroactively
restated to reflect the effects of the Distribution.
The Company accounts for options issued 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
F-21
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDER'S EQUITY (CONTINUED)
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
would have been impacted as indicated in the following table.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------
<S> <C> <C>
APRIL 25, APRIL 26,
1998 1997
------------- -------------
Net Income:
As reported....................................................................... $ 6,474 $ 6,723
Pro forma......................................................................... 5,364 6,615
Per share:
As reported:
Basic........................................................................... $ 0.27 $ 0.37
Diluted......................................................................... 0.27 0.37
Pro forma:
Basic........................................................................... $ 0.22 $ 0.37
Diluted......................................................................... 0.22 0.36
</TABLE>
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------
<S> <C> <C>
APRIL 25, APRIL 26,
1998 1997
------------- -------------
Expected life of option............................................................. 7 years 7 years
Risk free interest rate............................................................. 6.36% 6.66%
Expected volatility of USOP stock................................................... 44.1% 44.0%
</TABLE>
The weighted-average fair value of options granted was $6.59 and $4.55 for
fiscal 1998 and 1997, respectively.
F-22
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDER'S EQUITY (CONTINUED)
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE OPTIONS EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at April 30, 1996..................................
Granted.................................................... 928,032 $ 8.03
Exercised..................................................
Canceled................................................... (21,887) 11.30
------------ ------ ----------- -----
Balance at April 26, 1997.................................. 906,145 7.96 197,967 $ 0.29
Granted.................................................... 681,351 12.22
Exercised.................................................. (116,734) 0.29
Canceled................................................... (122,189) 10.19
------------ ------ ----------- -----
Balance at April 25, 1998 1,348,573 $ 10.57 127,995 $ 4.31
------------ ------ ----------- -----
------------ ------ ----------- -----
</TABLE>
The following table summarizes information about stock options outstanding
at April 25, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE
RANGE OF EXERCISE REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------------------------- ------------ ------------------- ----------------- ---------- -----------------
$0.29 81,233 8.76 $ 0.29 81,233 $ 0.29
$9.57-$11.99 981,475 8.95 9.99 46,762 11.31
$14.38-$15.83 285,865 9.48 15.51
------------ ------ ---------- ------
$0.29-$15.83 1,348,573 9.05 $ 10.57 127,995 $ 4.31
------------ ------ ---------- ------
------------ ------ ---------- ------
</TABLE>
Non-qualified options granted to employees are generally exercisable
beginning one year from the date of grant in cumulative yearly amounts of 25% of
the shares under option and generally expire ten years from date of grant.
Under a services agreement entered into with Jonathan J. Ledecky ("the
Ledecky Services Agreement"), the Board of Directors of U.S. Office Products
agreed to grant Jonathan J. Ledecky a stock option for Company Common Stock from
the Company as of the date of the Distribution. The U.S. 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 fair
value option covered 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).
Immediately following the effective date of the registration statements
filed in connection with the Distribution, the Company's Board of Directors
granted approximately 1.3 million options covering the Company's common stock to
certain executive management personnel and non-employee directors. The fair
value options were granted under the 1998 Stock Incentive Plan (the "Plan").
Total options available
F-23
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDER'S EQUITY (CONTINUED)
for grant under the Plan will be 45.6% of the outstanding shares of the
Company's common stock immediately following the Distribution, including the
options granted to Mr. Ledecky on that date.
NOTE 13--RELATED PARTY TRANSACTIONS
During fiscal 1998, product sales of approximately $4.5 million were made at
cost to a company owned by an officer of the Company.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for fiscal
years 1998 and 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 25, 1998
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 42,730 $ 36,875 $ 62,907 $ 65,829 $ 208,341
Gross profit.............................................. 9,047 9,718 15,852 15,407 50,024
Operating income.......................................... 2,749 3,687 4,816 997 12,249
Net income................................................ 1,636 2,233 2,703 (98) 6,474
Per share amounts:
Basic................................................... 0.08 0.10 0.11 (0.01) 0.27
Diluted................................................. 0.08 0.10 0.10 (0.01) 0.27
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
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
Per share amounts:
Basic................................................... 0.16 0.08 0.09 0.06 0.37
Diluted................................................. 0.16 0.07 0.09 0.06 0.37
</TABLE>
The Company recorded $1,750 of strategic restructuring costs during the
fourth quarter of fiscal 1998.
NOTE 15--SUBSEQUENT EVENTS
WORKING CAPITAL LINE OF CREDIT
As of June 9, 1998, Aztec has access to an unsecured $15,000 working capital
line of credit from BankBoston, N.A. Any advances made under this line of credit
would be due upon demand, or, if no demand is made, the earlier of (i) August
31, 1998, or (ii) the date on which Aztec enters into definitive loan
documentation with BankBoston N.A.
F-24
<PAGE>
FINANCIAL STATEMENT SCHEDULE
(IN THOUSANDS)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
CHARGED TO CHARGED TO BALANCE AT
BALANCE AT COSTS AND OTHER DEDUCTIONS/ APRIL 30,
DESCRIPTION MAY 1, 1995 EXPENSES ACCOUNTS WRITE-OFFS 1996
- -------------------------------------------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 106,000 $ 22,000 $ (5,000) $ -- $ 123,000
Accumulated amortization of intangibles -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO CHARGED TO BALANCE AT
BALANCE AT COSTS AND OTHER DEDUCTIONS/ APRIL 26,
DESCRIPTION MAY 1, 1996 EXPENSES ACCOUNTS WRITE-OFFS 1997
- -------------------------------------------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 123,000 $ 250,000 $ -- $ 22,000 $ 351,000
Accumulated amortization of intangibles -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
APRIL 26, COSTS AND OTHER DEDUCTIONS/ APRIL 25,
DESCRIPTION 1997 EXPENSES ACCOUNTS WRITE-OFFS 1998
- -------------------------------------------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 351,000 $ 1,142,000 $ 209,000 $ 76,000 $ 1,626,000
Accumulated amortization of intangibles -- 840,000 -- -- $ 840,000
</TABLE>
F-25
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined 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
April 25, 1998.
The unaudited 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, April 25, 1998.
The unaudited pro forma combined statements of income for the fiscal year
ended April 25, 1998 gives effect to the Technology Distribution and the
acquisitions of Compel Corporation, Aztec International, 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 April 27, 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
Product's weighted average interest rate during such periods.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management believes are appropriate.
The unaudited pro forma combined financial data presented herein does not
purport to represent 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 Annual Report.
F-26
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED BALANCE SHEET
APRIL 25, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AZTEC
TECHNOLOGY
PARTNERS, PRO FORMA PRO FORMA
INC. ADJUSTMENTS COMBINED
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,976 $ $ 1,976
Accounts receivable, net............................................... 48,924 48,924
Inventories............................................................ 9,443 9,443
Unbilled percentage of completion revenues............................. 4,557 4,557
Prepaid and other current assets....................................... 6,184 6,184
------------ ----------- -----------
Total current assets................................................. 71,084 71,084
Property and equipment, net.............................................. 5,957 5,957
Goodwill, net............................................................ 63,828 63,828
Other assets............................................................. 576 576
------------ ----------- -----------
Total assets......................................................... $ 141,445 $ $ 141,445
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt................................... $ 303 $ $ 303
Payable to U.S. Office Products........................................ 4,388 (4,388 (a)
Accounts payable....................................................... 16,380 16,380
Accrued compensation................................................... 4,692 4,692
Deferred revenue....................................................... 4,843 4,843
Other accrued liabilities.............................................. 4,186 4,186
------------ ----------- -----------
Total current liabilities............................................ 34,792 (4,388) 30,404
Long-term debt........................................................... 309 4,388(a) 4,697
Deferred income taxes.................................................... 1,025 1,025
------------ ----------- -----------
Total liabilities.................................................... 36,126 36,126
------------ ----------- -----------
Stockholder's equity:
Common stock........................................................... 22(a) 22
Additional paid-in capital............................................. 96,094(a) 96,094
Divisional equity...................................................... 96,116 (96,116 (a)
Retained earnings...................................................... 9,203 9,203
------------ ----------- -----------
Total stockholders's equity.......................................... 105,319 105,319
------------ ----------- -----------
Total liabilities and stockholder's equity........................... $ 141,445 $ $ 141,445
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-27
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AZTEC FISCAL 1998
TECHNOLOGY INDIVIDUALLY PRO FORMA
PARTNERS, AZTEC COMPEL INSIGNIFICANT PRO FORMA PRO FORMA DISTRIBUTION
INC. INTERNATIONAL CORPORATION ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS
------------- --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ 208,341 $ 9,808 $ 20,545 $ 18,209 $ $ 256,903 $
Cost of revenues....... 158,317 6,056 14,452 13,228 192,053
------------- ------ ------------- ----------- ------------- ----------- -------------
Gross profit......... 50,024 3,752 6,093 4,981 64,850
Selling, general and
administrative
expenses............. 35,185 2,407 2,914 3,275 (312)(b) 43,469
Goodwill amortization
expense.............. 840 12 813(c) 1,665
Strategic restructuring
costs................ 1,750 1,750 (1,750)(d)
------------- ------ ------------- ----------- ------------- ----------- -------------
Operating income..... 12,249 1,333 3,179 1,706 (501) 17,966 1,750
Other (income) expense:
Interest expense..... 807 87 71 127 1,092 (692)(e)
Interest income...... (785) (39) (20) (844) 844(e)
Other................ (44) (117) (30) (91) (282)
------------- ------ ------------- ----------- ------------- ----------- -------------
Income before provision
for income taxes..... 12,271 1,402 3,158 1,670 (501) 18,000 1,598
Provision for income
taxes................ 5,797 55 49 339 1,679(f) 7,919 703(f)
------------- ------ ------------- ----------- ------------- ----------- -------------
Net income............. $ 6,474 $ 1,347 $ 3,109 $ 1,331 $ (2,180) $ 10,081 $ 895
------------- ------ ------------- ----------- ------------- ----------- -------------
------------- ------ ------------- ----------- ------------- ----------- -------------
Weighted average shares
outstanding:
Basic................ 23,911
Diluted.............. 24,385
Net income per share:
Basic................ $ 0.27
-------------
-------------
Diluted.............. $ 0.27
-------------
-------------
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenues............... $ 256,903
Cost of revenues....... 192,053
-----------
Gross profit......... 64,850
Selling, general and
administrative
expenses............. 43,469
Goodwill amortization
expense.............. 1,665
Strategic restructuring
costs................
-----------
Operating income..... 19,716
Other (income) expense:
Interest expense..... 400
Interest income......
Other................ (282)
-----------
Income before provision
for income taxes..... 19,598
Provision for income
taxes................ 8,622
-----------
Net income............. $ 10,976
-----------
-----------
Weighted average shares
outstanding:
Basic................ 21,938
Diluted.............. 21,938
Net income per share:
Basic................ $ 0.50
-----------
-----------
Diluted.............. $ 0.50
-----------
-----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-28
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
1. BALANCE SHEET
(a) Adjustment to reflect the reclassification of divisional equity to
common stock and additional paid-in-capital and the utilization of $4,388 drawn
from the Company's Proposed Credit Facility to repay the U.S. Office Products
debt as a result of the Aztec Distribution. The Aztec Distribution resulted in
the issuance of 21,938 shares of Common Stock.
2. STATEMENT OF INCOME
(b) 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.
(c) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the period 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.
(d) Adjustment to reflect the reductions in operating expenses as a result
of the Company's portion of the costs incurred by U.S. Office Products as a
result of U.S. Office Products' recently completed comprehensive restructuring
plan (See Notes to Consolidated Financial Statements).
(e) Adjustment to reflect the reductions in interest expense and interest
income. Interest expense is being calculated on the debt outstanding at April
25, 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.
(f) Adjustment to calculate the provision for income tax 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 rate of 35%
relates primarily to state income taxes and non-deductible goodwill. This
adjustment assumes that all companies were taxed at 44% regardless of how they
were taxed prior to being acquired by the Company.
(g) 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.
F-29
<PAGE>
Exhibit 3.1
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, naming the
corporation, Paradigm Concepts, Inc. An amendment was filed on April 2, 1998
changing its name to Aztec Consulting, Inc. and on April 23, 1998 an amendment
was filed changing its name to, Aztec Technology Partners, Inc.
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:
<PAGE>
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:
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.
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<PAGE>
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 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:
-3-
<PAGE>
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 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
-4-
<PAGE>
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
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.
-5-
<PAGE>
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.
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.
-6-
<PAGE>
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 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
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.
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<PAGE>
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 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 above 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
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<PAGE>
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
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
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<PAGE>
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 16th day of July, 1998.
AZTEC TECHNOLOGY PARTNERS, INC.
By: /s/ Douglas R. Johnson
Douglas R. Johnson
Executive Vice President
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<PAGE>
Exhibit 3.2
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.................................................................-6-
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-
3.2 Election............................................................................-10-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 be called at
any time by the Chairman of the Board of Directors, the Chief Executive Officer
or (or, if there is no Chief Executive Officer, the President) the Board 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.
<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 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. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the
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<PAGE>
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware by hand or certified or registered mail, return receipt requested,
to its principal place of business or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Each such written consent shall bear the date of signature of each
stockholder who signs the consent. No written consent shall be effective to take
the corporate action referred to therein unless written consents signed by a
number of stockholders sufficient to take such action are delivered to the
corporation in the manner specified in this paragraph within sixty days of the
earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with
the foregoing, there shall be filed with the records of the meetings of
stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the Secretary of the corporation that such notice was given shall be filed
with the records of the meetings of stockholders.
In the event that the action which is consented to is such as would
have required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
Notwithstanding the foregoing, if at any time the corporation shall
have a class of stock registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, for so long as such class is registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
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
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<PAGE>
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
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.
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<PAGE>
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.
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
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<PAGE>
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
ByLaws may be acted upon if the notice shall have stated that the amendment of
these ByLaws 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.
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
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<PAGE>
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. 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 By-Laws 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.
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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 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.
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.
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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 maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be
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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
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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.
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
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<PAGE>
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 By-Laws.
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
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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
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
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<PAGE>
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;
(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
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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 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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AGREEMENT
AND
PLAN OF DISTRIBUTION
Dated as of June 9, 1998
between
U.S. Office Products Company,
Workflow Management, Inc.,
School Specialty, Inc.,
Aztec Technology Partners, Inc.
and
Navigant International, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C>
DEFINITIONS.......................................................................................................2
SECTION 1.01 General.........................................................................2
SECTION 1.02 References; Interpretation.....................................................16
ARTICLE II
PRELIMINARY TRANSACTIONS.........................................................................................16
SECTION 2.01 Stock Transfers................................................................16
SECTION 2.02 Liabilities....................................................................17
SECTION 2.03 Transfer of Certain Licenses and Permits.......................................17
SECTION 2.04 Transfer and Assumption Documentation..........................................18
SECTION 2.05 Intercompany Accounts..........................................................19
SECTION 2.06 Elimination of Guarantees......................................................19
SECTION 2.07 Assignments and Transfers Not Effected
Prior to the Distribution..............................................19
SECTION 2.08 Debt...........................................................................20
SECTION 2.09 Assignment of Acquisition Claims...............................................21
SECTION 2.10 Pledged Shares.................................................................21
SECTION 2.11 Other Transactions.............................................................21
SECTION 2.12 Certain Acquisition Expenses Not Resulting
in the Incurrence of Debt..............................................21
ARTICLE III
THE DISTRIBUTION.................................................................................................22
SECTION 3.01 Directors and Employees........................................................22
SECTION 3.02 Mechanics of Distribution......................................................22
SECTION 3.03 Timing of Distribution.........................................................23
ARTICLE IV
MUTUAL RELEASE...................................................................................................23
ARTICLE V
INDEMNIFICATION..................................................................................................24
SECTION 5.01 Indemnification by the Company.................................................24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 5.02 Indemnification by Printco.....................................................25
SECTION 5.03 Indemnification by Schoolco....................................................26
SECTION 5.04 Indemnification by Techco......................................................26
SECTION 5.05 Indemnification by Travelco....................................................27
SECTION 5.06 Limitations on Indemnification Obligations.....................................28
SECTION 5.07 Procedures for Indemnification of Third Party Claims...........................28
SECTION 5.08 Indemnification Payments.......................................................30
SECTION 5.09 Defaults.......................................................................30
SECTION 5.10 Tax Adjustments................................................................31
SECTION 5.11 MCI Agreement..................................................................31
SECTION 5.12 Survival of Indemnities........................................................31
ARTICLE VI
COVENANTS........................................................................................................32
SECTION 6.01 Provision of Corporate Records.................................................32
SECTION 6.02 Access to Information..........................................................32
SECTION 6.03 Retention of Records...........................................................32
SECTION 6.04 Witness Services...............................................................33
SECTION 6.05 Reimbursement..................................................................33
SECTION 6.06 Confidentiality................................................................33
SECTION 6.07 Further Assurances.............................................................34
ARTICLE VII
INSURANCE........................................................................................................34
SECTION 7.01 General........................................................................34
SECTION 7.02 Distributed Companies' Insurance...............................................34
SECTION 7.03 Access to the Company's Insurance Program......................................35
SECTION 7.04 Insurance Recoveries...........................................................35
SECTION 7.05 Insurance Representations......................................................35
SECTION 7.06 Assignment.....................................................................36
SECTION 7.07 Deductibles and Maximums.......................................................36
SECTION 7.08 Conflicts Between Article VII and the Company's
Insurance Program......................................................36
SECTION 7.09 Maintenance of Insurance Policies..............................................36
ARTICLE VIII
CONDITIONS.......................................................................................................36
SECTION 8.01 Conditions to Obligations of the Company.......................................36
</TABLE>
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ARTICLE IX
<TABLE>
<S> <C>
DISPUTE RESOLUTION...............................................................................................38
SECTION 9.01 Mediation and Binding Arbitration..............................................38
SECTION 9.02 Initiation of Negotiation......................................................38
SECTION 9.03 Submission to Mediation........................................................38
SECTION 9.04 Selection of Mediator..........................................................38
SECTION 9.05 Treatment of Negotiation and Mediation.........................................38
SECTION 9.06 Arbitration....................................................................39
SECTION 9.07 Confidentiality................................................................40
SECTION 9.08 Notices........................................................................40
SECTION 9.09 Consolidation..................................................................40
ARTICLE X
MISCELLANEOUS....................................................................................................40
SECTION 10.01 Modification, Amendment or Termination........................................40
SECTION 10.02 Waiver; Remedies..............................................................40
SECTION 10.03 Counterparts..................................................................41
SECTION 10.04 Notices.......................................................................41
SECTION 10.05 Entire Agreement..............................................................43
SECTION 10.06 Certain Obligations...........................................................43
SECTION 10.07 Assignment....................................................................43
SECTION 10.08 Captions......................................................................43
SECTION 10.09 Severability..................................................................43
SECTION 10.10 Equitable Relief..............................................................43
SECTION 10.11 Third Party Beneficiaries.....................................................44
SECTION 10.12 Expenses......................................................................44
SECTION 10.13 Exhibits and Schedules........................................................44
SECTION 10.14 Governing Law.................................................................44
SECTION 10.15 Consent to Jurisdiction.......................................................44
SECTION 10.16 Ancillary Agreements..........................................................44
SECTION 10.17 Survival of Agreements........................................................45
SECTION 10.18 Successors and Assigns........................................................45
EXHIBITS
Exhibit I Employee Benefits Services and Liabilities Agreement
Exhibit II Distributed Company Subsidiaries
Exhibit III Estimated Pro Rata Share Percentages
Exhibit IV Shared Liabilities
Exhibit V Shared Liabilities: Information Statement Sections
Exhibit VI Tax Allocation Agreement
</TABLE>
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<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.06 Specified Guarantees
Schedule 2.08 Debt Amounts
Schedule 2.09 Net Recovery Amounts
Schedule 2.10 Distribution of Pledged Shares
Schedule 2.11 Other Transactions
Schedule 5.11 Terms Applicable to MCI Agreement
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION
AGREEMENT AND PLAN OF DISTRIBUTION dated as of June 9, 1998
(the "Agreement"), between U.S. OFFICE PRODUCTS COMPANY, a Delaware corporation
(the "Company"), WORKFLOW MANAGEMENT, INC., a Delaware corporation and wholly
owned subsidiary of the Company ("Printco"), SCHOOL SPECIALTY, INC., a Delaware
corporation and wholly owned subsidiary of the Company ("Schoolco"), AZTEC
TECHNOLOGY PARTNERS, INC., a Delaware corporation and wholly owned subsidiary of
the Company ("Techco"), and NAVIGANT INTERNATIONAL, INC., a Delaware corporation
and wholly owned subsidiary of the Company ("Travelco"). Certain capitalized
terms used herein without definition have the meanings specified in Section
1.01.
W I T N E S S E T H:
WHEREAS the Board of Directors of the Company has approved the
form, terms and provisions of this Agreement, pursuant to which and subject to
the terms of which (a) the Company will distribute all the issued and
outstanding shares of common stock of the Distributed Companies held by the
Company (as to the shares of each Distributed Company, the "Printco Common
Shares," the "Schoolco Common Shares," the "Techco Common Shares," and the
"Travelco Common Shares") to the holders of record of shares of common stock of
the Company (the "Company Common Stock"), other than shares held in the treasury
of the Company, (b) each Distributed Company will assume entirely such
Distributed Company's Liabilities and other liabilities specified herein, (c)
each Distributed Company will agree to indemnify the Company and hold it
harmless from and against its Pro Rata Share of certain Shared Liabilities and
(d) certain other transactions will be consummated, all as set forth in Article
II hereof (the "Preliminary Transactions");
WHEREAS the purpose of the Preliminary Transactions and the
Distributions is to divest the Company of all businesses, operations and
Liabilities other than the Retained Business, Retained Assets and Retained
Liabilities of the Company and its Subsidiaries;
WHEREAS it is the intention of the parties to this Agreement
that for U.S. federal income tax purposes the Distributions shall qualify as
tax-free spin-offs under Section 355 of the Code and shall not be taxable under
Section 355(e) of the Code; and
WHEREAS in order to effect the separation of ownership of the
Company and the Distributed Companies, this Agreement sets forth the principal
corporate transactions required to effect the Preliminary Transactions and the
Distributions and sets forth other agreements that will govern certain other
matters following the Distributions.
NOW, THEREFORE, in consideration of the premises, and of the
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01 General. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"AAA" shall mean the American Arbitration Association.
"Acquisition Agreement" shall mean each of the merger, stock
purchase, asset purchase or other acquisition agreements pursuant to which
certain of the Distributed Company Subsidiaries (or divisions within such
Subsidiaries or Distributed Company) were acquired by the Company or any of its
Subsidiaries prior to the Distributions.
"Acquisition Claim" shall mean any and all rights or claims
that the Company or any of its Subsidiaries may have against the sellers of the
Distributed Company Subsidiaries under any of the Acquisition Agreements.
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Affiliate" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
"Agent" shall mean American Stock Transfer & Trust Company, as
transfer agent for the Company.
"Ancillary Agreements" shall mean the Employee Benefits
Agreement, the Tax Allocation Agreement, the Imagenet Licensing Agreement and
the Lead Generation System Licensing Agreement.
"Assets" shall mean any and all assets, properties and rights,
whether tangible or intangible, whether real, personal or mixed, whether fixed,
contingent or otherwise, and wherever located, including, without limitation,
the following:
(i) real property interests (including leases), land, plants,
buildings and improvements;
(ii) machinery, equipment, tooling, vehicles, furniture and
fixtures, leasehold improvements, repair parts, tools, plant,
and office equipment and other tangible personal property,
together with any rights or claims arising
2
<PAGE>
out of the breach of any express or implied warranty by the
manufacturers or sellers of any of such assets or any
component part thereof;
(iii) inventories, including raw materials, work-in-process,
finished goods, parts, accessories and supplies;
(iv) cash, bank accounts, notes, loans and accounts receivable
(whether current or not current), interests as beneficiary
under letters of credit, advances and performance and surety
bonds;
(v) certificates of deposit, banker's acceptances, shares of
stock, bonds, debentures, evidences of indebtedness,
certificates of interest or participation in profit-sharing
agreements, collateral-trust certificates, preorganization
certificates or subscriptions, transferable shares, investment
contracts, voting-trust certificates, puts, calls, straddles,
options, swaps, collars, caps and other securities or hedging
arrangements of any kind;
(vi) financial, accounting and operating data and records
including, without limitation, books, records, notes, sales
and sales promotional data, advertising materials, credit
information, cost and pricing information, customer and
supplier lists, reference catalogs, payroll and personnel
records, minute books, stock ledgers, stock transfer records
and other similar property, rights and information;
(vii) patents, patent applications, trademarks, trademark
applications and registrations, trade names, service marks,
service mark applications and registrations, service names,
copyrights and copyright applications and registrations,
commercial and technical information including engineering,
production and other designs, drawings, specifications,
formulae, technology, computer and electronic data processing
programs and software, inventions, processes, trade secrets,
know-how, confidential information and other proprietary
property, rights and interest and all rights thereto;
(viii) agreements, leases, contracts, sale orders, purchase
orders, open bids and other commitments and all rights
therein;
(ix) prepaid expenses, deposits and retentions held by third
parties;
(x) claims, causes of action, choses in action, rights under
insurance policies, rights under express or implied
warranties, rights of recovery, rights of set-off, rights of
subrogation and all other rights of any kind;
(xi) licenses, franchises, permits, authorizations and
approvals; and
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(xii) goodwill and going concern value.
"Assignee" shall have the meaning set forth in Section 2.07.
"Assignor" shall have the meaning set forth in Section 2.07.
"CDR-PC" shall mean CDR-PC Acquisition, L.L.C., a Delaware
limited liability company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the Treasury regulations promulgated thereunder, including any
successor legislation.
"Company" shall have the meaning set forth in the heading of
this Agreement.
"Company Debt" shall mean all Liabilities of the Company and
its Subsidiaries under or arising out of the Company Credit Agreement.
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.
"Company Credit Agreement" shall mean the Credit Agreement,
dated as of August 21, 1996, as amended, among the Company, various lending
institutions and Bankers Trust Company, as agent.
"Company Indemnitees" shall mean the Company, each Affiliate
of the Company after the Distribution Date, Clayton, Dubilier & Rice, Inc.,
CDR-PC, Clayton, Dubilier & Rice Fund V Limited Partnership, CD&R Associates V
Limited Partnership, each of their respective partners, members, directors,
officers, employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing.
"Company Transaction Costs" shall mean Transaction Costs
incurred by the Company in connection with the Transactions.
"Conveyancing and Assumption Instruments" shall have the
meaning set forth in Section 2.04.
"Conveyancing Instruments" shall have the meaning set forth in
Section 2.04.
"Covered Claims" shall mean those Liabilities that,
individually or in the aggregate, and if reported timely, are covered within the
terms and conditions of any Policy in the Insurance Program.
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"Defaulted Payment Obligation" shall have the meaning set
forth in Section 5.09.
"Dispute" shall have the meaning set forth in Section 9.01.
"Distributed Companies" shall mean Printco, Schoolco, Techco
and Travelco.
"Distributed Companies' Assets" shall mean the Printco Assets,
the Schoolco Assets, the Techco Assets and the Travelco Assets.
"Distributed Companies' Businesses" shall mean the Printco
Business, the Schoolco Business, the Techco Business and the Travelco Business.
"Distributed Companies' Indemnitees" shall mean the Printco
Indemnitees, the Schoolco Indemnitees, the Techco Indemnitees and the Travelco
Indemnitees.
"Distributed Companies' Liabilities" shall mean the Printco
Liabilities, the Schoolco Liabilities, the Techco Liabilities and the Travelco
Liabilities.
"Distributed Company Subsidiaries" shall mean the Printco
Subsidiaries, the Schoolco Subsidiaries, the Techco Subsidiaries and the
Travelco Subsidiaries.
"Distributed Company Transaction Costs" shall mean, as to any
Distributed Company, the Transaction Costs incurred by such Distributed Company
or the Company that relate to such Distributed Company's IPO or credit
facilities described in Section 2.08.
"Distribution Date" shall mean such date as hereafter may be
determined by the Company's Board of Directors as the date as of which the
Distributions shall be effected.
"Distribution Record Date" shall mean such date as hereafter
may be determined by the Company's Board of Directors as the record date for the
Distributions.
"Distribution Shares" shall mean the Printco Common Shares,
the Schoolco Common Shares, the Techco Common Shares and the Travelco Common
Shares.
"Distribution Time" shall mean 11:59 P.M. (Eastern time) on
the Distribution Date.
"Distributions" shall mean the distributions on the
Distribution Date to holders of record of shares of Company Common Stock, as of
the Distribution Record Date, other than shares held in the treasury of the
Company, of (i) all the Printco Common Shares on the basis of one Printco Common
Share for each seven and one-half (7.5) outstanding shares of Company Common
Stock, (ii) all the Schoolco Common Shares on the basis of one
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Schoolco Common Share for each nine (9) outstanding shares of Company Common
Stock, (iii) all the Techco Common Shares on the basis of one Techco Common
Share for each five (5) outstanding shares of Company Common Stock, and (iv) all
the Travelco Common Shares on the basis of one Travelco Common Share for each
ten (10) outstanding shares of Company Common Stock.
"Earn-Out Payment Liability" shall mean any contingent cash
payment required to be made after the Distribution Date by the Company or any of
its Subsidiaries to sellers of certain Distributed Company Subsidiaries (or
divisions within such Subsidiaries or Distributed Company) or Retained
Subsidiaries (or divisions within such Subsidiaries) under circumstances that
may arise under the Acquisition Agreements.
"Employee Benefits Agreement" shall mean the Employee Benefits
and Services Liabilities Agreement between the Company and the Distributed
Companies substantially in the form of Exhibit I hereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Guaranteed Liability" shall have the meaning set forth in
Section 2.06.
"Guaranteed Party" shall have the meaning set forth in Section
2.06.
"Guarantor" shall have the meaning set forth in Section 2.06.
"Imagenet Licensing Agreement" shall have the meaning set
forth in Schedule 2.11.
"Indemnifiable Losses" shall mean any and all losses,
liabilities, claims, damages, demands, costs or expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses and any and
all out-of-pocket expenses) arising from Third Party Claims or any Indemnifying
Party's breach of its obligations under the Ancillary Agreements or this
Agreement, including all losses, liabilities, claims, damages, demands, costs or
expenses reasonably incurred in investigating, preparing for or defending
against any Actions or potential Actions or in asserting, preserving or
enforcing any rights hereunder (including, without limitation, rights under
Article V) or under any Ancillary Agreement.
"Indemnifying Party" shall have the meaning set forth in
Section 5.06.
"Indemnitee" shall have the meaning set forth in Section 5.06.
"Information" of a party shall mean any and all information
that such party or any of its Representatives furnishes or has furnished to the
receiving party or any of its Representatives whether furnished orally or in
writing or by any other means or gathered by
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<PAGE>
inspection and regardless of whether the same is specifically marked or
designated as "confidential" or "proprietary," together with any and all notes,
memoranda, analyses, compilations, studies or other documents (whether in hard
copy or electronic media) prepared by the receiving party or any of its
Representatives which contain or otherwise reflect such Information, together
with any and all copies, extracts or other reproductions of any of the same;
provided, however, that for the purposes hereof all information relating to the
Distributed Companies, the Distributed Companies' Businesses or the Distributed
Companies' Assets in the possession of the Company at the Distribution Time
shall be deemed to have been furnished by the related Distributed Company and
all information relating to the Retained Business or the Retained Assets in the
possession of the Distributed Companies or any of the Distributed Company
Subsidiaries at the Distribution Time shall be deemed to have been furnished by
the Company; provided further, however, that the term "Information" does not
include information that:
(a) at the time of disclosure is generally available to
and known by the public (other than as a result of a violation of this Agreement
or any other confidentiality obligation, whether directly or indirectly, by a
party to this Agreement or any of its Representatives);
(b) is available to the receiving party on a
non-confidential basis from a source other than the providing party or its
Representatives, provided that such source is not known by the receiving party
to be subject to a confidentiality agreement regarding such information; or
(c) has been independently acquired or developed by the
receiving party without violation of any of the obligations of the receiving
party or its Representatives under this Agreement.
"Information Statements" shall mean the Information
Statements/Prospectuses to be sent to the holders of shares of Company Common
Stock, as of the Distribution Record Date, in connection with the Distributions,
including any amendments or supplements thereto, which are included as exhibits
to the registration statements on Forms S-1 filed by the Distributed Companies,
as applicable, under the Securities Act.
"Insurance Program" shall mean, collectively, the series of
policies pursuant to which various insurance carriers provide insurance coverage
to the Company and its Affiliates in respect of claims or occurrences relating
to, without limitation, property damage, bodily injury, business interruption,
transit, fire, non-owned aircrafts, crime, fiduciary liability, general
liability, products' liability, professional liability, automobile liability and
employer's liability.
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<PAGE>
"Investment Agreement" shall mean the Investment Agreement
dated as of January 12, 1998 between the Company and CDR-PC, as amended by
Amendment No. 1 thereto, dated February 3, 1998, and as the same may be amended
from time to time.
"IPO" shall mean, as to any Distributed Company, the initial
public offering of securities to be conducted by such company, which offering is
scheduled to occur on or about the Distribution Date.
"IPO Prospectus" shall mean, as to any Distributed Company,
the Registration Statement/Prospectus prepared in connection with such
Distributed Company's IPO.
"Liabilities" shall mean any and all debts, liabilities,
obligations, claims, damages, fees, costs and expenses, absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising, including, without limitation, those debts,
liabilities, obligations, claims, damages, fees, costs and expenses, arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any court, any governmental or other regulatory or administrative
agency or commission or any award of any arbitration tribunal, and those arising
under any contract, guarantee, commitment or undertaking.
"Mediation Period" shall have the meaning set forth in Section
9.03.
"MCI Agreement" shall mean the Special Customer Arrangement,
effective as of November 15, 1997, by and between MCI Telecommunications
Corporation and the Company.
"NASDAQ" shall mean the NASDAQ National Market System.
"Nonassignable Contract" shall have the meaning set forth in
Section 2.07.
"Person" shall mean any natural person, corporation, trust,
limited liability company, joint venture, association, company, partnership,
entity, unincorporated organization or government, or any agency or political
subdivision thereof.
"Pledged Shares" shall mean any Company Common Stock pledged
or assigned to the Company as of the Distribution Date as collateral security by
sellers of certain of the Distributed Company Subsidiaries (or divisions within
such Subsidiaries or Distributed Company) under the Acquisition Agreements.
"Policies" shall mean insurance policies and insurance
contracts of any kind (other than life and benefits policies or contracts),
including, without limitation, primary, excess and umbrella policies, commercial
general liability policies, fiduciary liability, automobile, aircraft, property
and casualty, workers' compensation and employee dishonesty
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<PAGE>
insurance policies, bonds and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
"Preliminary Transactions" shall have the meaning set forth in
the recitals to this Agreement.
"Printco" shall have the meaning set forth in the heading of
this Agreement.
"Printco Acquisition Claims" shall mean any and all rights or
claims that the Company or any of its Subsidiaries may have against the sellers
of Printco and the Printco Subsidiaries (or divisions within such Subsidiaries
or Printco) under the Acquisition Agreements pursuant to which Printco and the
Printco Subsidiaries (or divisions within such Subsidiaries or Printco) were
acquired by the Company or any of its Subsidiaries.
"Printco Assets" shall mean (a) the Assets of Printco and the
Printco Subsidiaries and (b) the rights of Printco and the Printco Subsidiaries
under this Agreement and the Ancillary Agreements; provided, however, that
Printco Assets shall not include any claim of Printco against the Company
relating to the payment of finders' fees or other compensation in respect of
customers referred to the Company by Printco or the payment of rebates or other
compensation in respect of office products sold by Printco.
"Printco Business" shall mean all the businesses, Assets and
operations heretofore, currently or hereafter conducted or owned by Printco and
the Printco Subsidiaries including all businesses, Assets and operations
conducted or owned by Printco and the Printco Subsidiaries that have been sold
or otherwise disposed of or discontinued.
"Printco Common Shares" shall have the meaning set forth in
the recitals to this Agreement.
"Printco Indemnitees" shall mean Printco, the Printco
Subsidiaries, their Affiliates, each of their respective directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Printco Liabilities" shall mean collectively, whenever
arising, whether prior to, at or following the Distribution Time, (i) all
Liabilities of Printco and the Printco Subsidiaries under this Agreement or the
Ancillary Agreements, (ii) all Liabilities of the Company and its Subsidiaries
arising primarily out of or relating primarily to the management or conduct of
the Printco Business or the administration of the Printco Subsidiaries, (iii)
all Specified Securities Liabilities of Printco, (iv) all Liabilities of the
Company relating to any Earn-Out Payment Liabilities arising out of any of the
Acquisition Agreements pursuant to which any of the Printco Subsidiaries or any
part of the Printco Business was acquired, (v) the Distributed Company
Transaction Costs of Printco,
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<PAGE>
(vi) $1,000,000 of the Company Transaction Costs and (vii) any Company Debt
allocated to Printco pursuant to Section 2.08 of this Agreement.
"Printco Subsidiaries" shall mean the Subsidiaries of Printco
as listed on Exhibit II.
"Pro Rata Share" shall mean, (i) as to any Distributed
Company, the percentage that is equal to the average of (a) the ratio of the pro
forma fiscal year 1998 revenues for such Distributed Company to the fiscal year
1998 consolidated revenues of the Company (prior to the Distributions), and (b)
the ratio of the pro forma fiscal year 1998 net income for such Distributed
Company to the fiscal year 1998 consolidated net earnings of the Company (prior
to the Distributions), and (ii) as to the Company, the percentage that is equal
to 100% less the sum of the Pro Rata Share percentages of the Distributed
Companies as defined in (i) above. Estimations of the Company's Pro Rata Share
and each Distributed Company's Pro Rata Share using financial data for the
nine-month period ended January 24, 1998 are set forth in Exhibit III.
"Proxy" shall mean the definitive proxy statement dated May 1,
1998, distributed by the Company to the holders of the Company Common Stock,
describing and seeking approval for (i) the investment provided for in the
Investment Agreement and (ii) a one-for-four reverse stock split, as the same
may be amended.
"Recovery" shall mean those monies received by an insured from
an insurance carrier or paid by an insurance carrier on behalf of an insured
pursuant to a claim under an insurance policy in the Insurance Program.
"Recovery Costs" shall have the meaning set forth in Section
7.04.
"Representatives" of either party shall mean such party's
Affiliates, directors, officers, partners, employees, agents or other
representatives (including attorneys, accountants and financial advisors).
"Retained Assets" shall mean (a) all the Assets of the Company
and its Subsidiaries except for the Distributed Companies' Assets, and (b) the
rights of the Company and its Subsidiaries under this Agreement and the
Ancillary Agreements.
"Retained Business" shall mean all the businesses, Assets and
operations heretofore, currently or hereafter conducted or owned by the Company
and the Retained Subsidiaries, including all businesses, Assets or operations
conducted or owned by the Company or its Subsidiaries that have been sold or
otherwise disposed of or discontinued, (other than the Distributed Companies'
Assets, Distributed Companies' Businesses and the business of managing and
administering the Distributed Companies' Subsidiaries).
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<PAGE>
"Retained Liabilities" shall mean collectively, whenever
arising, whether prior to, at or following the Distribution Time, (i) all
Liabilities of the Company and the Retained Subsidiaries under this Agreement or
the Ancillary Agreements, (ii) all Liabilities of the Company and its Retained
Subsidiaries arising primarily out of or relating primarily to the management or
conduct of the Retained Business or the administration of the Retained
Subsidiaries, (iii) all Specified Securities Liabilities of the Company, (iv)
all Liabilities of the Company relating to any Earn-Out Payment Liabilities
arising out of any of the Acquisition Agreements pursuant to which any of the
Retained Subsidiaries or any part of the Retained Business was acquired, (v) all
of the Company Transaction Costs (excluding, in aggregate, the $4,000,000 that
is treated as part of the Distributed Companies' Liabilities) and (vi) any
indebtedness for borrowed money of the Company other than Company Debt to be
allocated to the Distributed Companies pursuant to Section 2.08 of this
Agreement.
"Retained Subsidiaries" shall mean (x) all of the Subsidiaries
of the Company other than the Distributed Companies and the Distributed Company
Subsidiaries, and (y) 1186203 Ontario Limited, 1243231 Ontario Limited and
1203803 Ontario Limited, and their respective Subsidiaries.
"Schoolco" shall have the meaning set forth in the heading of
this Agreement.
"Schoolco Acquisition Claims" shall mean any and all rights or
claims that the Company or any of its Subsidiaries may have against the sellers
of Schoolco and the Schoolco Subsidiaries (or divisions within such Subsidiaries
or Schoolco) under the Acquisition Agreements pursuant to which Schoolco and the
Schoolco Subsidiaries (or divisions within such Subsidiaries or Schoolco) were
acquired by the Company or any of its Subsidiaries.
"Schoolco Assets" shall mean (a) the Assets of Schoolco and
the Schoolco Subsidiaries and (b) the rights of Schoolco and the Schoolco
Subsidiaries under this Agreement and the Ancillary Agreements; provided,
however, that Schoolco Assets shall not include any claim of Schoolco against
the Company relating to the payment of finders' fees or other compensation in
respect of customers referred to the Company by Schoolco or the payment of
rebates or other compensation in respect of office products sold by Schoolco.
"Schoolco Business" shall mean all the businesses, Assets and
operations heretofore, currently or hereafter conducted or owned by Schoolco and
the Schoolco Subsidiaries including all businesses, Assets or operations
conducted or owned by Schoolco and the Schoolco Subsidiaries that have been sold
or otherwise disposed of or discontinued.
"Schoolco Common Shares" shall have the meaning set forth in
the recitals to this Agreement.
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"Schoolco Indemnitees" shall mean Schoolco, the Schoolco
Subsidiaries, their Affiliates, each of their respective directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Schoolco Liabilities" shall mean collectively, whenever
arising, whether prior to, at or following the Distribution Time, (i) all
Liabilities of Schoolco and the Schoolco Subsidiaries under this Agreement or
the Ancillary Agreements, (ii) all the Liabilities of the Company and its
Subsidiaries or Affiliates, arising primarily out of or relating primarily to
the management or conduct of the Schoolco Business or the administration of the
Schoolco Subsidiaries, (iii) all Specified Securities Liabilities of Schoolco,
(iv) all Liabilities of the Company relating to any Earn-Out Payment Liabilities
arising out of any of the Acquisition Agreements pursuant to which any of the
Schoolco Subsidiaries or any part of the Schoolco Business was acquired, (v) the
Distributed Company Transaction Costs of Schoolco, (vi) $1,000,000 of the
Company Transaction Costs and (vii) any Company Debt allocated to Schoolco
pursuant to Section 2.08 of this Agreement.
"Schoolco Subsidiaries" shall mean the Subsidiaries of
Schoolco as listed on Exhibit II.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Securities Laws" shall mean the Exchange Act, the Securities
Act and foreign, provincial and state securities laws.
"Shared Liability" shall mean (i) any Liability of the Company
and its Subsidiaries, including without limitation a Liability arising under the
Securities Laws, that (x) arises out of an act or omission that occurred prior
to the Distribution Date, and (y) is not a Retained Liability, Printco
Liability, Schoolco Liability, Techco Liability or Travelco Liability, and (ii)
the Liabilities listed on Exhibit IV. By way of example and not of limitation,
Shared Liabilities shall include: any Liability arising in connection with the
Proxy, the 2001 Note Exchange Offer or Tender Offer (other than a liability
relating to information supplied by a specific subsidiary of the Company); and
any Liability relating to the operation of the Company's headquarters arising
prior to the Distribution Date; and any other liability not relating to the
business of any particular Retained Subsidiary or Distributed Company
Subsidiary.
"Special Insurance Recoveries" shall mean Recoveries whenever
received by the Company (i) relating to insured casualty losses of a Distributed
Company or Distributed Company Subsidiary occurring prior to the Distribution
Date and (ii) not actually used by the relevant Distributed Company or
Distributed Company Subsidiary to rebuild, reconstruct, renovate or repair
properties or facilities that suffered such loss.
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"Specified Securities Liabilities" shall mean (a) as to any
Distributed Company, any Liability under the Securities Laws arising out of or
relating to (x) the Information Statement (other than Liabilities relating to
those sections of the Information Statements specified on Exhibit V) and/or IPO
Prospectus of such Distributed Company, and (y) any other securities filings or
disclosures made by, or the failure to make filings or disclosures required to
be made by, the Company or any of its Subsidiaries prior to the Distribution
Date to the extent such Liability arises primarily out of material omissions
made by or materially incorrect, false, or misleading information supplied by
such Distributed Company or any of its Subsidiaries; and (b) as to the Company,
any Liability under the Securities Laws arising out of or relating to any
securities filings or disclosures made by, or the failure to make filings or
disclosures required to be made by, the Company, or any of its Subsidiaries
prior to the Distribution Date to the extent such Liability arises primarily out
of material omissions made by or materially incorrect, false or misleading
information supplied by the Retained Business or a Retained Subsidiary.
"Subsidiary" shall mean any corporation, partnership, joint
venture, limited liability company or other entity (i) in which another entity
owns, directly or indirectly, ownership interests sufficient to elect a majority
of the Board of Directors (or persons performing similar functions)
(irrespective of whether at the time any other class or classes of ownership
interests of such corporation, partnership, joint venture, limited liability
company or other entity shall or might have such voting power upon the
occurrence of any contingency) or (ii) of which another entity is a general
partner or an entity performing similar functions (e.g., a trustee or managing
member).
"Tax" shall mean all U.S. federal, state, local and foreign
taxes and assessments, including all interest, penalties and additions imposed
with respect to such amounts.
"Tax Allocation Agreement" shall mean the Tax Allocation
Agreement between the Company and the Distributed Companies substantially in the
form of Exhibit VI hereto, as and to the extent amended and restated as of the
closing of the Transactions.
"Techco" shall have the meaning set forth in the heading of
this Agreement.
"Techco Acquisition Claims" shall mean any and all rights or
claims that the Company or any of its Subsidiaries may have against the sellers
of Techco and the Techco Subsidiaries (or divisions within such Subsidiaries or
Techco) under the Acquisition Agreements pursuant to which Techco and the Techco
Subsidiaries (or divisions within such Subsidiaries or Techco) were acquired by
the Company or any of its Subsidiaries.
"Techco Assets" shall mean (a) the Assets of Techco and the
Techco Subsidiaries and (b) the rights of Techco and the Techco Subsidiaries
under this Agreement and the Ancillary Agreements; provided, however, that
Techco Assets shall not include any
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claim of Techco against the Company relating to the payment of finders' fees or
other compensation in respect of customers referred to the Company by Techco or
the payment of rebates or other compensation in respect of office products sold
by Techco.
"Techco Business" shall mean all the businesses, Assets and
operations heretofore, currently or hereafter conducted or owned by Techco and
the Techco Subsidiaries including all businesses, Assets or operations conducted
or owned by Techco and the Techco Subsidiaries that have been sold or otherwise
disposed of or discontinued.
"Techco Common Shares" shall have the meaning set forth in the
recitals to this Agreement.
"Techco Indemnitees" shall mean Techco, the Techco
Subsidiaries, their Affiliates, each of their respective directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Techco Liabilities" shall mean collectively, whenever
arising, whether prior to, at or following the Distribution Time, (i) all
Liabilities of Techco and the Techco Subsidiaries under this Agreement or the
Ancillary Agreements, (ii) all the Liabilities of the Company and its
Subsidiaries, arising primarily out of or relating primarily to the management
or conduct of the Techco Business or the administration of the Techco
Subsidiaries, (iii) all Specified Securities Liabilities of Techco, (iv) all
Liabilities of the Company relating to any Earn-Out Payment Liabilities arising
out of any of the Acquisition Agreements pursuant to which any of the Techco
Subsidiaries or any part of the Techco Business was acquired, (v) the
Distributed Company Transaction Costs of Techco, (vi) $1,000,000 of the Company
Transaction Costs and (vii) any Company Debt allocated to Techco pursuant to
Section 2.08 of this Agreement.
"Techco Subsidiaries" shall mean the Subsidiaries of Techco as
listed on Exhibit II.
"Tender Offer" shall mean, collectively, (i) the cash tender
offer by the Company to purchase approximately 37 million shares (including
shares issuable upon exercise of outstanding stock options) of Company Common
Stock at a price of $27 per share commenced on May 4, 1998 (the "Equity
Tender"), and (ii) the tender offer of the Company to purchase any and all of
its $230.0 million outstanding 5 1/2% Convertible Subordinated Notes due 2003
for a purchase price of 94.5% of the principal amount, plus accrued interest,
commenced on May 5, 1998.
"Third Party Claim" shall have the meaning set forth in
Section 5.07.
"Transaction Costs" shall mean all transaction costs including
legal, accounting, investment banking, financial advisory and other fees
incurred by a party hereto
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(or one of its Subsidiaries) in connection with the Transactions or any of the
other transactions described in, or contemplated by, IPO Prospectuses and
Section 2.08.
"Transactions" shall mean the execution, delivery and
performance of this Agreement, the Ancillary Agreements, and the Investment
Agreement and the consummation of the Preliminary Transactions, the
Distributions, the Proxy, the Tender Offer, the 2001 Note Exchange Offer and any
other transactions contemplated by this Agreement, the Ancillary Agreements and
the Investment Agreement, including without limitation the financing of the
Company related thereto, but not including the initial public offerings by the
Distributed Companies or the financings of the Distributed Companies.
"Transferred Policies" shall have the meaning set forth in
Section 7.02(b).
"Travelco" shall have the meaning set forth in the heading of
this Agreement.
"Travelco Acquisition Claims" shall mean any and all rights or
claims that the Company or any of its Subsidiaries may have against the sellers
of Travelco and the Travelco Subsidiaries (or divisions within such Subsidiaries
or Travelco) under the Acquisition Agreements pursuant to which Travelco and the
Travelco Subsidiaries (or divisions within such Subsidiaries or Travelco) were
acquired by the Company or any of its Subsidiaries.
"Travelco Assets" shall mean (a) the Assets of Travelco and
the Travelco Subsidiaries and (b) the rights of Travelco and the Travelco
Subsidiaries under this Agreement and the Ancillary Agreements; provided,
however, that Travelco Assets shall not include any claim of Travelco against
the Company relating to the payment of finders' fees or other compensation in
respect of customers referred to the Company by Travelco or the payment of
rebates or other compensation in respect of office products sold by Travelco.
"Travelco Business" shall mean all the businesses, Assets and
operations heretofore, currently or hereafter conducted or owned by Travelco and
the Travelco Subsidiaries including all businesses, Assets or operations
conducted or owned by Travelco and the Travelco Subsidiaries that have been sold
or otherwise disposed of or discontinued.
"Travelco Common Shares" shall have the meaning set forth in
the recitals to this Agreement.
"Travelco Indemnitees" shall mean Travelco, the Travelco
Subsidiaries, their Affiliates, each of their respective directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Travelco Liabilities" shall mean collectively, whenever
arising, whether prior to, at or following the Distribution Time, (i) all
Liabilities of Travelco and the Travelco
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Subsidiaries under this Agreement or the Ancillary Agreements, (ii) all the
Liabilities of the Company and its Subsidiaries, arising primarily out of or
relating primarily to the management or conduct of the Travelco Business or the
administration of the Travelco Subsidiaries, (iii) all Specified Securities
Liabilities of Travelco, (iv) all Liabilities of the Company relating to any
Earn-Out Payment Liabilities arising out of any of the Acquisition Agreements
pursuant to which any of the Travelco Subsidiaries or any part of the Travelco
Business was acquired, (v) the Distributed Company Transaction Costs of
Travelco, (vi) $1,000,000 of the Company Transaction Costs and (vii) any Company
Debt allocated to Travelco pursuant to Section 2.08 of this Agreement.
"Travelco Subsidiaries" shall mean the Subsidiaries of
Travelco as listed on Exhibit II.
"2001 Note Exchange Offer" shall mean the Company's offer to
exchange its 5 1/2% Convertible Subordinated Notes due 2001 for Company Common
Stock at a temporarily reduced conversion price commenced on May 1, 1998.
SECTION 1.02 References; Interpretation. References to an
"Exhibit" or to a "Schedule" are, unless otherwise specified, to one of the
Exhibits or Schedules attached to this Agreement, and references to a "Section"
or "Article" are, unless otherwise specified, to one of the Sections and
Articles of this Agreement. Any time the word "including" is used herein it
means "including without limitation".
ARTICLE II
PRELIMINARY TRANSACTIONS
SECTION 2.01 Stock Transfers.
(a) At or prior to the Distribution Time, the Company
shall transfer or otherwise convey to Printco all its right, title and interest
in and to all the shares of capital stock of the Printco Subsidiaries.
(b) At or prior to the Distribution Time, the Company
shall transfer or otherwise convey to Schoolco all its right, title and interest
in and to all the shares of capital stock of the Schoolco Subsidiaries.
(c) At or prior to the Distribution Time, the Company
shall transfer or otherwise convey to Techco all its right, title and interest
in and to all the shares of capital stock of the Techco Subsidiaries.
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(d) At or prior to the Distribution Time, the Company
shall transfer or otherwise convey to Travelco all its right, title and interest
in and to all the shares of capital stock of the Travelco Subsidiaries.
Immediately after the stock transfers set forth in this Section 2.01, the
Company shall not own any capital stock of (or other equity interest in) any of
the Distributed Company Subsidiaries.
SECTION 2.02 Liabilities.
(a) Effective as of the Distribution Time and except as
otherwise specifically provided in this Agreement or any of the Ancillary
Agreements, Printco hereby unconditionally agrees to cause each Printco
Subsidiary that has incurred a Printco Liability to pay, perform and discharge
such Liability when due in accordance with its terms.
(b) Effective as of the Distribution Time and except as
otherwise specifically provided in this Agreement or any of the Ancillary
Agreements, Schoolco hereby unconditionally agrees to cause each School
Subsidiary that has incurred a Schoolco Liability to pay, perform and discharge
such Liability when due in accordance with its terms.
(c) Effective as of the Distribution Time and except as
otherwise specifically provided in this Agreement or any of the Ancillary
Agreements, Techco hereby unconditionally agrees to cause each Techco Subsidiary
that has incurred a Techco Liability to pay, perform and discharge such
Liability when due in accordance with its terms.
(d) Effective as of the Distribution Time and except as
otherwise specifically provided in this Agreement or any of the Ancillary
Agreements, Travelco hereby unconditionally agrees to cause each Travelco
Subsidiary that has incurred a Travelco Liability to pay, perform and discharge
such Liability when due in accordance with its terms.
SECTION 2.03 Transfer of Certain Licenses and Permits.
(a) In furtherance of the transfer of the capital stock
of the Printco Subsidiaries to Printco and the assumption of the Printco
Liabilities set forth in this Article II, at or prior to the Distribution Time,
(i) all transferrable licenses, permits and authorizations issued by
governmental or regulatory entities which are used primarily in connection with
the Printco Business but which are held in the name of the Company or any
Retained Subsidiary shall be duly and validly transferred by the Company or such
Subsidiary to Printco or the appropriate Printco Subsidiary, and (ii) all
transferrable licenses, permits and authorizations issued by governmental or
regulatory entities which are used primarily in connection with the Retained
Business but which are held in the name of Printco or the Printco Subsidiaries
shall be duly and validly transferred by Printco or such Subsidiary to the
Company or the appropriate Subsidiary of the Company.
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(b) In furtherance of the transfer of the capital stock
of the Schoolco Subsidiaries to Schoolco and the assumption of the Schoolco
Liabilities set forth in this Article II, at or prior to the Distribution Time,
(i) all transferrable licenses, permits and authorizations issued by
governmental or regulatory entities which are used primarily in connection with
the Schoolco Business but which are held in the name of the Company or any
Retained Subsidiary shall be duly and validly transferred by the Company or such
Subsidiary to Schoolco or the appropriate Schoolco Subsidiary, and (ii) all
transferrable licenses, permits and authorizations issued by governmental or
regulatory entities which are used primarily in connection with the Retained
Business but which are held in the name of Schoolco or the Schoolco Subsidiaries
shall be duly and validly transferred by Schoolco or such Subsidiary to the
Company or the appropriate Subsidiary of the Company.
(c) In furtherance of the transfer of the capital stock
of the Techco Subsidiaries to Techco and the assumption of the Techco
Liabilities set forth in this Article II, at or prior to the Distribution Time,
(i) all transferrable licenses, permits and authorizations issued by
governmental or regulatory entities which are used primarily in connection with
the Techco Business but which are held in the name of the Company or any
Retained Subsidiary shall be duly and validly transferred by the Company or such
Subsidiary to Techco or the appropriate Techco Subsidiary, and (ii) all
transferrable licenses, permits and authorizations issued by governmental or
regulatory entities which are used primarily in connection with the Retained
Business but which are held in the name of Techco or the Techco Subsidiaries
shall be duly and validly transferred by Techco or such Subsidiary to the
Company or the appropriate Subsidiary of the Company.
(d) In furtherance of the transfer of the capital stock
of the Travelco Subsidiaries to Travelco and the assumption of the Travelco
Liabilities set forth in this Article II, at or prior to the Distribution Time,
(i) all transferrable licenses, permits and authorizations issued by
governmental or regulatory entities which are used primarily in connection with
the Travelco Business but which are held in the name of the Company or any
Retained Subsidiary shall be duly and validly transferred by the Company or such
Subsidiary to Travelco or the appropriate Travelco Subsidiary, and (ii) all
transferrable licenses, permits and authorizations issued by governmental or
regulatory entities which are used primarily in connection with the Retained
Business but which are held in the name of Travelco or the Travelco Subsidiaries
shall be duly and validly transferred by Travelco or such Subsidiary to the
Company or the appropriate Subsidiary of the Company.
SECTION 2.04 Transfer and Assumption Documentation. In
furtherance of the transfer of the capital stock of the Distributed Company
Subsidiaries to the relevant Distributed Companies and the assumption of the
Distributed Companies' Liabilities set forth in this Article II, at or prior to
the Distribution Time, (i) the parties hereto shall execute and deliver, and
cause their respective Subsidiaries to execute and deliver, such deeds, bills of
sale, stock powers, certificates of title, assignments of leases and contracts
and other instruments of contribution, grant, conveyance, assignment, transfer
and delivery necessary
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to evidence such contribution, grant, conveyance, assignment, transfer and
delivery (collectively, the "Conveyancing Instruments") and (ii) each party
hereto or the appropriate Subsidiary of such party shall execute and deliver
such instruments of assumption (together with the Conveyancing Instruments, the
"Conveyancing and Assumption Instruments") as and to the extent necessary to
evidence such assumption.
SECTION 2.05 Intercompany Accounts. All intercompany
receivables, payables and loans (other than receivables, payables and loans
otherwise specifically provided for in any of the Ancillary Agreements or
hereunder) between any Distributed Company or Distributed Company Subsidiary, on
the one hand, and the Company or any of the Retained Subsidiaries, on the other
hand, including, without limitation, in respect of any cash balances, any cash
balances representing deposited checks or drafts for which only a provisional
credit has been allowed or any cash held in any centralized cash management
system, shall be settled or otherwise eliminated prior to the Distribution Date.
SECTION 2.06 Elimination of Guarantees. To the extent that any
of the parties to this Agreement or any Subsidiary thereof is a guarantor of or
obligor for (a "Guarantor") any Liability of any other party to this Agreement
or any Subsidiary thereof (a "Guaranteed Party"), the Guarantor and the
Guaranteed Party shall use their commercially reasonable efforts to have, on or
prior to the Distribution Date, or as soon as practicable thereafter, the
Guarantor removed as guarantor of or obligor for such Liability of the
Guaranteed Party (a "Guaranteed Liability"). In the event that the Guarantor
cannot be removed as guarantor of or obligor for such Guaranteed Liability, the
Guaranteed Party agrees that until such Guaranteed Liability is discharged in
full, the Guaranteed Party shall take no action, and shall not permit any of its
Subsidiaries to take any action, which will have the effect of increasing the
contingent liability or exposure of the Guarantor or any of its Subsidiaries
with respect to such Guaranteed Liability. The first sentence of this Section
2.06 shall not apply, but the second sentence of this Section 2.06 shall apply,
to the obligations set forth on Schedule 2.06.
SECTION 2.07 Assignments and Transfers Not Effected Prior to
the Distribution. Anything contained herein to the contrary notwithstanding, (a)
this Agreement shall not constitute an agreement to assign or transfer any
agreement, contract, lease, license, permit, sales order, purchase order, open
bid or other commitment if an assignment, attempted assignment, transfer or
attempted transfer of the same without the consent of a third party would
constitute a breach thereof or in any way impair the rights of the Distributed
Companies or the Company or any of their respective Subsidiaries thereunder (any
such item being referred to as a "Nonassignable Contract") and (b) nothing
herein shall be deemed to require the transfer of any Assets or the assumption
of any Liabilities which by their terms or operation of law cannot be
transferred or assumed. To the extent that any assignments or transfers
contemplated by this Article II shall not have been consummated at or prior to
the Distribution Time, the parties hereto and their respective Subsidiaries
shall cooperate and use commercially reasonable efforts to obtain any necessary
consents or
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approvals for the assignment of all Nonassignable Contracts, the transfer of all
Assets and the assumption of all Liabilities contemplated to be assigned,
transferred or assumed pursuant to this Article II and shall otherwise cooperate
and use reasonable best efforts to effect any such assignments, transfers or
assumptions as promptly following the Distribution Time as shall be practicable.
In the event that any consent required with respect to a Nonassignable Contract
is not obtained or an attempted assignment thereof would be ineffective or would
impair either party's rights under any such Nonassignable Contract, then the
party obligated to assign such Nonassignable Contract (the "Assignor") will
promptly (i) pay or cause to be paid to the assignee thereof (the "Assignee"),
when received, all monies received by the Assignor with respect to any such
Nonassignable Contract and (ii) use commercially reasonable efforts to cause to
be tendered to the Assignee all non-monetary performance, and in consideration
thereof the Assignee shall pay, perform and discharge on behalf of the Assignor
all the Assignor's Liabilities, thereunder in a timely manner and in accordance
with the terms thereof. In the event that any such transfer of Assets or
assumption of Liabilities has not been consummated, from and after the
Distribution Time, the party retaining such Asset or Liability shall hold such
Asset in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) or retain such Liability for the account
of the party by whom such Liability is to be assumed pursuant hereto, as the
case may be. The parties hereto will take such other action as may be reasonably
requested by the Assignee or party to whom such Asset is to be transferred, or
by whom such Liability is to be assumed, as the case may be, in order to place
such party, insofar as is reasonably possible, in the same position as would
have existed had such Nonassignable Contract been assigned, or such Asset or
Liability been transferred or assumed, as contemplated hereby. As and when any
required consent to the assignment of a Nonassignable Contract is obtained or
any such Asset or Liability becomes transferable or able to be assumed, such
assignment, transfer or assumption shall be effected forthwith. The parties
agree that, as of the Distribution Time, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all Assets, together
with all rights, powers and privileges incident thereto, and shall be deemed to
have assumed all Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party is entitled to acquire or required to assume
pursuant to the terms of this Agreement or any of the Ancillary Agreements.
SECTION 2.08 Debt. On or prior to the consummation of all
transactions contemplated by the Investment Agreement, (a) each Distributed
Company shall obtain bank credit facilities, borrow funds under such facilities
and pay such moneys borrowed to reduce the Company Debt equal in amount to (i)
the amounts reflected in relation to such Distributed Company on Schedule 2.08,
and (ii) the amount of any debt incurred by the Company after January 12, 1998
(the original date of the Investment Agreement) in connection with the
acquisition of any entities that, upon the Distributions, will become a
Subsidiary of such Distributed Company, which money shall be paid to the Company
to be applied to the Company Debt; and (b) the Company shall repay the Company
Debt. Interest shall accrue on the amounts owed to the Company under this
Section 2.08 for each day such
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obligation remains unpaid, beginning with the day following consummation of the
Investment Agreement until, but not including, the date of payment. Such
interest shall accrue at the annual rate then in effect under the Company's bank
credit facility. The preceding sentence shall not be construed as a waiver of
any closing condition relating to the repayment of debt by the Distributed
Companies and their Subsidiaries in any agreement entered into in connection
with the Transactions.
SECTION 2.09 Assignment of Acquisition Claims. The Company
hereby contributes, grants, conveys, assigns, transfers and delivers to Printco,
Schoolco, Techco and Travelco all the Company's rights and interest in and to
the Printco Acquisition Claims, the Schoolco Acquisition Claims, the Techco
Acquisition Claims and the Travelco Acquisition Claims, respectively.
Notwithstanding the assignment of the foregoing Acquisition Claims under this
Section 2.09: (i) the net recoveries of Printco arising out of the Printco
Acquisition Claims shall be shared between Printco and the Company, as they are
collected, in a ratio of 20% to 80%, respectively, until the Company has
received the amount shown on Schedule 2.09 (including through any Special
Insurance Proceeds retained by the Company pursuant to Section 7.04), after
which time any net recoveries from the Printco Acquisition Claims shall be
shared, as they are collected, between Printco and the Company in a ratio of 95%
to 5%, respectively, (ii) the net recoveries of Schoolco arising out of the
Schoolco Acquisition Claims shall be shared, as they are collected, between
Schoolco and the Company in a ratio of 20% to 80%, respectively, until the
Company has received the amount shown on Schedule 2.09, after which time any net
recoveries from the Schoolco Acquisition Claims shall be shared, as they are
collected, between Schoolco and the Company in a ratio of 95% to 5%,
respectively, (iii) the net recoveries from the Techco Acquisition Claims shall
be assigned 100% to Techco, and (iv) the net recoveries from the Travelco
Acquisition Claims shall be assigned 100% to Travelco.
SECTION 2.10 Pledged Shares. The Company shall hold all
Pledged Shares for the purposes specified in, and distribute such Pledged Shares
as provided pursuant to, Schedule 2.10.
SECTION 2.11 Other Transactions. In furtherance of the
transfer of the capital stock of the Distributed Company Subsidiaries to the
relevant Distributed Companies and the assumption of the Distributed Companies'
Liabilities set forth in this Article II, at or prior to the Distribution Time,
the parties agree to effect the transactions, if any, described in Schedule 2.11
attached hereto.
SECTION 2.12 Certain Acquisition Expenses Not Resulting in the
Incurrence of Debt. On or prior to the consummation of all transactions
contemplated by the Investment Agreement, each of the Distributed Companies
shall pay to the Company in cash an amount equal to all amounts expended by such
Distributed Company and its respective Subsidiaries after January 12, 1998 in
connection with the acquisition of any entity that, upon the Distributions, will
become a Subsidiary of such Distributed Company (plus any and
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all fees and expenses incurred in connection with such acquisition) to the
extent that such amounts, fees and expenses were not paid with debt described
in Section 2.08(a)(ii).
ARTICLE III
THE DISTRIBUTION
SECTION 3.01 Directors and Employees.
(a) The Company shall cause all those individuals who
will be officers or directors of the Company or any Retained Subsidiary
immediately after the Distribution Time to resign, effective as of the
Distribution Time, from all officer or director positions with any of the
Distributed Companies or Distributed Company Subsidiaries in which they serve.
(b) The Company shall cause all those individuals who
will be officers or directors of any of the Distributed Companies or the
Distributed Company Subsidiaries immediately after the Distribution Time to
resign, effective as of the Distribution Time, from all officer or director
positions with the Company or any Retained Subsidiary in which they serve.
SECTION 3.02 Mechanics of Distribution.
(a) Delivery of Shares to Agent. Following consummation
of the transactions contemplated by Section 2.01 and subject to the closing
conditions set forth in Article VIII the Company shall deliver to the Agent, for
the benefit of holders of record of the Company Common Stock as at the close of
business on the Distribution Record Date, the share certificates representing
(i) all the Printco Common Shares, (ii) all the Schoolco Common Shares, (iii)
all the Techco Common Shares and (iv) all the Travelco Common Shares, and shall
instruct the Agent to distribute such share certificates to such holders of the
Company Common Stock upon notice from the Company that the conditions to the
obligation of the Company to consummate the Distributions have been satisfied or
waived and that the Agent is authorized to proceed with the distribution of the
Distribution Shares. Immediately following the Distributions, the Company shall
not own any capital stock of the Distributed Companies or the Distributed
Company Subsidiaries.
(b) Distribution of Certificates. The Distributions
shall be effected by the distribution to each holder of record of Company Common
Stock, as of the Distribution Record Date, of certificates representing one
Printco Common Share for each seven and one-half (7.5) shares of Company Common
Stock, one Schoolco Common Share for each nine (9) shares of Company Common
Stock, one Techco Common Share for each five (5) shares of Company Common Stock,
one Travelco Common Share for each ten (10) shares of Company Common Stock and
of cash in lieu of fractional shares as set forth in
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Section 3.02(c). The Company shall instruct the Agent to distribute the
Distribution Shares and the cash in lieu of fractional shares as promptly as
practicable after the Distribution Time.
(c) Payment for Fractional Shares. No certificate or
scrip representing fractional shares of the Distribution Shares shall be
distributed to holders of the Company Common Stock as part of the Distributions.
Each holder of Company Common Stock who would otherwise be entitled to receive a
fractional share of the common stock of any of the Distributed Companies
pursuant to the Distributions shall receive cash in lieu of such fractional
share. As soon as practicable after the Distribution Date, the Company shall
direct the Agent to determine the number of fractional shares of any of the
Distribution Shares allocable to each holder of record of Company Common Stock
as of the Distribution Record Date who will receive cash in lieu of such
fractional shares, to aggregate all such fractional shares into whole shares and
sell the whole shares obtained thereby in open market transactions or otherwise,
in each case at then prevailing trading prices, and to cause to be distributed
to each such holder, in lieu of any fractional share, such holder's ratable
share of the proceeds of such sale, after making appropriate deductions of the
amount required to be withheld for U.S. federal income tax purposes and after
deducting an amount equal to all brokerage charges, commissions and transfer
taxes attributed to such sale.
SECTION 3.03 Timing of Distribution. The Board of Directors of
the Company shall, or shall authorize certain officers of the Company to,
formally declare the Distributions and shall authorize the Company to effect the
Distributions at the Distribution Time, subject to the satisfaction or waiver of
the conditions set forth in Article VIII. The Distributions shall be deemed to
be effective upon notification by the Company to the Agent that the conditions
to the obligations of the Company to consummate the Distributions have been
satisfied or waived and that the Agent is authorized to proceed with the
distribution of the Distribution Shares.
ARTICLE IV
MUTUAL RELEASE
Effective as of the Distribution Time and except as otherwise
specifically set forth in this Agreement or any of the Ancillary Agreements,
each of the parties hereto, on its own behalf and on behalf of each of its
respective Subsidiaries, releases and forever discharges all of the other
parties hereto and their respective Subsidiaries, and their respective officers,
directors, agents, Affiliates, record and beneficial security holders
(including, without limitation, trustees and beneficiaries of trusts holding
such securities), advisors and Representatives (in their respective capacities
as such) and their respective heirs, executors, administrators, successors and
assigns, of and from all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, damages, claims and Liabilities
whatsoever of every name and nature, both in law and in equity, which the
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releasing party has or ever had, which arise out of or relate to the
Transactions or the IPOs; provided, however, that the foregoing general release
shall not apply to (i) any Liabilities (including Liabilities with respect to
indemnification) assumed, transferred, assigned, allocated or arising under this
Agreement, any of the Ancillary Agreements or the Investment Agreement and shall
not affect any party's right to enforce this Agreement, any Ancillary Agreement
or the Investment Agreement in accordance with their respective terms, (ii) any
Liabilities of the Company, any of its Subsidiaries or any seller of a Retained
Subsidiary or Distributed Company Subsidiary arising out of the agreement
pursuant to which such Retained Subsidiary or Distributed Company Subsidiary was
acquired by the Company or any of its Subsidiaries or any other agreement to
which the Company or any of its Subsidiaries and such a seller (acting in the
capacity of a seller) are parties, or (iii) any Liability arising out of an
agreement between any party to this Agreement and Jonathan J. Ledecky. Each
party understands and agrees that, except as otherwise specifically provided in
this Agreement, the Ancillary Agreements or any agreements entered into between
the Company and the Distributed Companies in connection with the transactions
contemplated by Section 2.01, none of the parties is, in this Agreement or the
Ancillary Agreements or otherwise, representing or warranting in any way as to
the Assets, business or Liabilities transferred, assumed or retained as
contemplated hereby or as to any consents or approvals required in connection
with the consummation of the transactions contemplated by this Agreement or the
Ancillary Agreements, it being agreed and understood that each party shall take
or keep all of its Assets "as is" and that it shall bear the economic and legal
risk that conveyance of such Assets shall prove to be insufficient or that the
title to any Assets shall be other than good and marketable and free from
encumbrances of any nature whatsoever; provided, however, that the foregoing
disclaimer shall not apply to any representations made by the Company, any of
its Subsidiaries or any seller of a Retained Subsidiary or Distributed Company
Subsidiary under the agreement pursuant to which such Retained Subsidiary or
Distributed Company Subsidiary was acquired.
ARTICLE V
INDEMNIFICATION
SECTION 5.01 Indemnification by the Company. Except as
otherwise specifically set forth in any provision of this Agreement or of any
Ancillary Agreement, (a) the Company and, as to any particular Indemnifiable
Loss, the Retained Subsidiary out of whose assets, business or operations the
Indemnifiable Loss arises, shall indemnify, defend and hold harmless the
Distributed Companies' Indemnitees from and against, and pay or reimburse the
Distributed Companies' Indemnitees for, any and all Indemnifiable Losses, as
incurred, of the Distributed Companies' Indemnitees arising out of, relating to
or resulting from (i) the Retained Liabilities, the Retained Assets or the
Retained Business or (ii) the breach by the Company or any of the Retained
Subsidiaries of any provision of this Agreement or of any Ancillary Agreement to
which the Company is a party, in each case, whether such Indemnifiable Losses
relate to or arise out of or result from events, occur-
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rences, actions, omissions, facts or circumstances occurring, existing or
asserted at, before or after the Distribution Time, and (b) the Company shall
bear the costs of and indemnify, defend and hold harmless the Printco
Indemnitees, the Schoolco Indemnitees, the Techco Indemnitees and the Travelco
Indemnitees from the Company's Pro Rata Share of Indemnifiable Losses, as
incurred, that relate to, arise out of or result from the Shared Liabilities;
provided, however, that the Company shall have no obligation to indemnify any of
the Distributed Companies' Indemnitees for any Indemnifiable Losses arising out
of, relating to or resulting from (y) the gross negligence, bad faith or wilful
misconduct of the relevant Distributed Company or Distributed Company Subsidiary
after the Distribution Time or (z) the failure of such Distributed Company or
any of its Subsidiaries to perform its obligations under any agreement in
accordance with the terms of such agreement after the Distribution Time.
SECTION 5.02 Indemnification by Printco. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, (a) Printco and, as to any particular Indemnifiable Loss, the Printco
Subsidiary out of whose assets, business or operations the Indemnifiable Loss
arises, shall indemnify, defend and hold harmless the Company Indemnitees, the
Schoolco Indemnitees, the Techco Indemnitees and the Travelco Indemnitees from
and against, and pay or reimburse such Indemnitees for, any and all
Indemnifiable Losses, as incurred, of the Company Indemnitees, the Schoolco
Indemnitees, the Techco Indemnitees and the Travelco Indemnitees arising out of,
relating to or resulting from (i) the Printco Liabilities, the Printco Assets,
the Printco Business or the Printco Acquisition Claims, (ii) the breach by
Printco or any of its Subsidiaries of any provision of this Agreement or of any
Ancillary Agreement to which Printco is a party, in each case, whether such
Indemnifiable Losses relate to, arise out of or result from events, occurrences,
actions, omissions, facts or circumstances occurring, existing or asserted at,
before or after the Distribution Time and (b) Printco shall bear the costs of
and indemnify, defend and hold harmless the Company Indemnitees, the Schoolco
Indemnitees, the Techco Indemnitees and the Travelco Indemnitees from Printco's
Pro Rata Share of Indemnifiable Losses, as incurred, that relate to, arise out
of or result from the Shared Liabilities; provided, however, that Printco shall
have no obligation to indemnify any of the Company Indemnitees, the Schoolco
Indemnitees, the Techco Indemnitees or the Travelco Indemnitees for any
Indemnifiable Losses relating to, arising out of or resulting from (x) the gross
negligence, bad faith or wilful misconduct of the Company, Schoolco, Techco,
Travelco, or any of their respective Subsidiaries, as applicable, after the
Distribution Time or (y) the failure of the Company, Schoolco, Techco or
Travelco, or any of their respective Subsidiaries, as applicable, to perform its
obligations under any agreement in accordance with the terms of such agreement
after the Distribution Time; provided further, however, that Printco shall have
no obligation to indemnify any of the Company Indemnitees, the Schoolco
Indemnitees, the Techco Indemnitees or the Travelco Indemnitees for any
Indemnifiable Losses (including such losses arising from Defaulted Payment
Obligations) pursuant to clause (b) of this Section 5.02 once Printco has
indemnified such Indemnitees for Losses pursuant to clause (b) of this Section
5.02 in an aggregate amount equal to $1.75 million.
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SECTION 5.03 Indemnification by Schoolco. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, (a) Schoolco and, as to any particular Indemnifiable Loss, the
Schoolco Subsidiary out of whose assets, business or operations the
Indemnifiable Loss arises, shall indemnify, defend and hold harmless the Company
Indemnitees, the Printco Indemnitees, the Techco Indemnitees and the Travelco
Indemnitees from and against, and pay or reimburse such Indemnitees for, any and
all Indemnifiable Losses, as incurred, of the Company Indemnitees, the Printco
Indemnitees, the Techco Indemnitees and the Travelco Indemnitees arising out of,
relating to or resulting from (i) the Schoolco Liabilities, the Schoolco Assets,
the Schoolco Business or the Schoolco Acquisition Claims and (ii) the breach by
Schoolco or any of its Subsidiaries of any provision of this Agreement or of any
Ancillary Agreement to which Schoolco is a party, in each case, whether such
Indemnifiable Losses relate to, arise out of or result from events, occurrences,
actions, omissions, facts or circumstances occurring, existing or asserted at,
before or after the Distribution Time, and (b) Schoolco shall bear the costs of
and indemnify, defend and hold harmless the Company Indemnitees, the Printco
Indemnitees, the Techco Indemnitees and the Travelco Indemnitees from Schoolco's
Pro Rata Share of Indemnifiable Losses, as incurred, that relate to, arise out
of or result from the Shared Liabilities; provided, however, that Schoolco shall
have no obligation to indemnify any of the Company Indemnitees, the Printco
Indemnitees, the Techco Indemnitees and the Travelco Indemnitees for any
Indemnifiable Losses relating to, arising out of or resulting from (x) the gross
negligence, bad faith or wilful misconduct of the Company, Printco, Techco or
Travelco, as applicable, after the Distribution Time or (y) the failure of the
Company, Printco, Techco or Travelco, or any of their respective Subsidiaries,
as applicable, to perform its obligations under any agreement in accordance with
the terms of such agreement after the Distribution Time; provided further,
however, that Schoolco shall have no obligation to indemnify any of the Company
Indemnitees, the Printco Indemnitees, the Techco Indemnitees or the Travelco
Indemnitees for any Indemnifiable Losses (including such losses arising from
Defaulted Payment Obligations) pursuant to clause (b) of this Section 5.03 once
Schoolco has indemnified such Indemnitees for Losses pursuant to clause (b) of
this Section 5.03 in an aggregate amount equal to $1.75 million.
SECTION 5.04 Indemnification by Techco. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, (a) Techco and, as to any particular Indemnifiable Loss, the Techco
Subsidiary out of whose assets, business or operations the Indemnifiable Loss
arises, shall indemnify, defend and hold harmless the Company Indemnitees, the
Printco Indemnitees, the Schoolco Indemnitees and the Travelco Indemnitees from
and against, and pay or reimburse such Indemnitees for, any and all
Indemnifiable Losses, as incurred, of the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Travelco Indemnitees arising out
of, relating to or resulting from (i) the Techco Liabilities, the Techco Assets,
the Techco Business or the Techco Acquisition Claims and (ii) the breach by
Techco or any of its Subsidiaries of any provision of this Agreement or of any
Ancillary Agreement to which Techco is a party, in each case, whether such
Indemnifiable Losses relate to, arise out of or result from events, occurrences,
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actions, omissions, facts or circumstances occurring, existing or asserted at,
before or after the Distribution Time, and (b) Techco shall bear the costs of
and indemnify, defend and hold harmless the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Travelco Indemnitees from Techco's
Pro Rata Share of Indemnifiable Losses, as incurred, that relate to, arise out
of or result from the Shared Liabilities; provided, however, that Techco shall
have no obligation to indemnify any of the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Travelco Indemnitees for any
Indemnifiable Losses relating to, arising out of or resulting from (x) the gross
negligence, bad faith or wilful misconduct of the Company, Printco, Schoolco or
Travelco, as applicable, after the Distribution Time or (y) the failure of the
Company, Printco, Schoolco or Travelco, or any of their respective Subsidiaries,
as applicable, to perform its obligations under any agreement in accordance with
the terms of such agreement after the Distribution Time; provided further,
however, that Techco shall have no obligation to indemnify any of the Company
Indemnitees, the Printco Indemnitees, the Schoolco Indemnitees or the Travelco
Indemnitees for any Indemnifiable Losses (including such losses arising from
Defaulted Payment Obligations) pursuant to clause (b) of this Section 5.04 once
Techco has indemnified such Indemnitees for Losses pursuant to clause (b) of
this Section 5.04 in an aggregate amount equal to $1.75 million.
SECTION 5.05 Indemnification by Travelco. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, (a) Travelco and, as to any particular Indemnifiable Loss, the
Travelco Subsidiary out of whose assets, business or operations the
Indemnifiable Loss arises, shall indemnify, defend and hold harmless the Company
Indemnitees, the Printco Indemnitees, the Schoolco Indemnitees and the Techco
Indemnitees from and against, and pay or reimburse such Indemnitees for, any and
all Indemnifiable Losses, as incurred, of the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Techco Indemnitees arising out of,
relating to or resulting from (i) the Travelco Liabilities, the Travelco Assets,
the Travelco Business or the Travelco Acquisition Claims and (ii) the breach by
Travelco or any of its Subsidiaries of any provision of this Agreement or of any
Ancillary Agreement to which Travelco is a party, in each case, whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted at, before or
after the Distribution Time, and (b) Travelco shall bear the costs of and
indemnify, defend and hold harmless the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Techco Indemnitees from Travelco's
Pro Rata Share of Indemnifiable Losses, as incurred, that relate to, arise out
of or result from the Shared Liabilities; provided, however, that Travelco shall
have no obligation to indemnify any of the Company Indemnitees, the Printco
Indemnitees, the Schoolco Indemnitees and the Techco Indemnitees for any
Indemnifiable Losses relating to, arising out of or resulting from (x) the gross
negligence, bad faith or wilful misconduct of the Company, Printco, Schoolco or
Techco, as applicable, after the Distribution Time or (y) the failure of the
Company, Printco, Schoolco or Techco, or any of their respective Subsidiaries,
as applicable, to perform its obligations under any agreement in accordance with
the terms of such agreement after the Distribution
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Time; provided further, however, that Travelco shall have no obligation to
indemnify any of the Company Indemnitees, the Printco Indemnitees, the Schoolco
Indemnitees or the Techco Indemnitees for any Indemnifiable Losses (including
such losses arising from Defaulted Payment Obligations) pursuant to clause (b)
of this Section 5.05 once Travelco has indemnified such Indemnitees for Losses
pursuant to clause (b) of this Section 5.05 in an aggregate amount equal to
$1.75 million.
SECTION 5.06 Limitations on Indemnification Obligations. The
amount that any party (an "Indemnifying Party") is or may be required to pay to
any other Person (an "Indemnitee") pursuant to Sections 5.01, 5.02, 5.03, 5.04
or 5.05, as applicable, shall be reduced (retroactively or prospectively) by any
Insurance Proceeds, settlement recoveries or other amounts actually recovered by
or on behalf of such Indemnitee in respect of the related Indemnifiable Loss. If
an Indemnitee shall have received the payment required by this Agreement from an
Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently
actually receive Insurance Proceeds, settlement recoveries or other amounts in
respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds,
settlement recoveries or other amounts actually received, up to the aggregate
amount of any payments made by such Indemnifying Party pursuant to this
Agreement in respect of such Indemnifiable Loss. Amounts paid by an Indemnifying
Party pursuant to clause (b) of Sections 5.01, 5.02, 5.03, 5.04 or 5.05 which
are paid with, or reimbursed by, Insurance Proceeds, settlement recoveries or
other amounts actually recovered, by or on behalf of an Indemnifying Party, in
respect of the related Indemnifiable Loss, shall not count toward the limit on
each party's Shared Liabilities set forth in the second proviso of Sections
5.01, 5.02, 5.03, 5.04 or 5.05, as applicable.
SECTION 5.07 Procedures for Indemnification of Third Party
Claims.
(a) If a claim or demand is made against an Indemnitee
by any person who is not a party, or an Affiliate of a party, to this Agreement
or any of the Ancillary Agreements (a "Third Party Claim") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim promptly (and in any event within 10 business
days) after receipt by such Indemnitee of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent that the
defense or conduct of such Third Party Claim by the Indemnifying Party shall
have been actually and materially prejudiced as a result of such failure (except
that the Indemnifying Party shall not be liable for any expenses incurred during
the period in which the Indemnitee failed to give such notice); provided
further, however, that in no event shall such failure to notify the Indemnifying
Party (i) constitute prejudice suffered by the Indemnifying Party if it has
otherwise received notice of the Third Party Claim or (ii) relieve it from any
liability or obligation that it may otherwise have to such Indemnitee.
Thereafter, the Indemnitee shall
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deliver to the Indemnifying Party, promptly (and in any event within 10 business
days) after the Indemnitee's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnitee relating to the
Third Party Claim.
(b) (i) If a Third Party Claim is made against an
Indemnitee, the Indemnifying Party shall be entitled to participate in the
defense thereof and, if it so chooses and acknowledges in writing its obligation
to indemnify the Indemnitee therefor, to assume the defense thereof with counsel
selected by the Indemnifying Party, provided that such counsel is not reasonably
objected to by the Indemnitee, and, thereafter, the Indemnifying Party shall not
be liable to the Indemnitee for legal or other expenses subsequently incurred by
the Indemnitee in connection with the defense thereof. If the Indemnifying Party
elects to assume the defense of a Third Party Claim pursuant to this subsection
(b)(i), the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by the Indemnifying Party, it being understood that the Indemnifying
Party shall have full control of such defense, and the Indemnifying Party shall
be liable for the reasonable fees and expenses of counsel employed by the
Indemnitee for any period during which the Indemnifying Party has failed to
assume the defense thereof.
(ii) Notwithstanding subsection (b)(i) of this
Section 5.07, if the Indemnitee reasonably believes that a Third Party Claim
could lead to a material adverse effect on its business, it shall be entitled to
retain control of (and the related Indemnifying Party shall not be entitled to
assume), or to reassert control over, the defense of the claim and shall be
entitled to be reimbursed for its reasonable out-of-pocket expenses attributable
to such defense. If the Indemnitee elects to retain control of, or to reassert
control over, the defense of a Third Party Claim pursuant to this subsection
(b)(ii), the Indemnifying Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnitee, it being understood that the Indemnitee
shall have full control of such defense.
(c) If the Indemnifying Party elects to assume the
defense of any Third Party Claim pursuant to subsection (b)(i) of this Section
5.07, all of the Indemnitees shall cooperate with the Indemnifying Party in the
defense or prosecution thereof. If the Indemnitee elects to retain control of,
or to reassert control over, the defense of any Third Party Claim pursuant to
subsection (b)(ii) of this Section 5.07, the Indemnifying Party shall cooperate
with the Indemnitee in the defense or prosecution thereof. Such cooperation
shall include the retention and, upon the Indemnitee's or Indemnifying Party's
request, as applicable, the provision to such party of records and information
which are reasonably relevant to such Third Party Claim and making employees
available on a mutually convenient basis to provide additional information
regarding any material provided hereunder.
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(d) Notwithstanding the foregoing, the Indemnifying
Party shall not be entitled to assume the defense of any Third Party Claim (and
shall be liable for the reasonable fees and expenses of counsel incurred by the
Indemnitee in defending such Third Party Claim) if the Third Party Claim seeks
an order, injunction or other equitable relief or relief for other than money
damages against the Indemnitee which the Indemnitee reasonably determines in
good faith, after conferring with its counsel, cannot be separated from any
related claim for money damages. If such equitable relief or other relief
portion of the Third Party Claim can be so separated from that for money
damages, the Indemnifying Party shall be entitled to assume the defense of the
portion relating to money damages.
(e) Notwithstanding the foregoing, the Indemnifying
Party shall not be entitled to assume the defense of any Third Party Claim (and
shall be liable for the reasonable fees and expenses of counsel incurred by the
Indemnitee in defending such Third Party Claim) if the Indemnitee reasonably
determines in good faith, after conferring with its counsel, that the Indemnitee
has available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnifying Party in
respect of such Third Party Claim.
(f) Whether or not the Indemnifying Party shall have
assumed the defense of a Third Party Claim, in no event will the Indemnitee
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the Indemnifying Party's prior written consent (which
consent shall not be unreasonably withheld or delayed); provided, however, that
the Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases in writing the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such settlement,
compromise or discharge would not otherwise adversely affect the Indemnifying
Party. If the Indemnifying Party shall have assumed the defense of a Third Party
Claim (and the Indemnitee shall not have reasserted control over the defense of
such claim pursuant to Section 5.07(b)(ii)), the Indemnitee shall agree to any
settlement, compromise or discharge of a Third Party Claim that the Indemnifying
Party may recommend and that by its terms does not obligate the Indemnitee to
pay any of the liability in connection with such Third Party Claim, releases the
Indemnitee completely and unconditionally in connection with such Third Party
Claim and does not provide for injunctive or other nonmonetary relief affecting
the Indemnitee.
SECTION 5.08 Indemnification Payments. Indemnification
required by this Article V shall be made by prompt periodic payments of the
amount thereof during the course of the investigation, preparation or defense,
as and when bills are received or loss, liability, claim, damage, cost or
expense is incurred.
SECTION 5.09 Defaults. In the event that any obligation of any
Indemnifying Party to indemnify an Indemnitee as required by Sections 5.02,
5.03, 5.04 and
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5.05 proves to be uncollectible by the Indemnitee despite reasonable collection
efforts (a "Defaulted Payment Obligation"), such Defaulted Payment Obligation
shall be treated as a Shared Liability and shall be shared by the Company and
the Distributed Companies as provided in clause (b) of Sections 5.02, 5.03, 5.04
and 5.05; provided, however, that for purposes of calculating each
non-defaulting party's Pro Rata Share of such Shared Liability, "Pro Rata Share"
for each non-defaulting party shall be calculated as the fraction (a) the
numerator of which is such party's Pro Rata Share and (b) the denominator of
which is the sum of each non-defaulting party's Pro Rata Share. Defaulted
Payment Obligations shall count toward the limit on each party's Shared
Liabilities set forth in the second proviso to Sections 5.02, 5.03, 5.04 and
5.05, as applicable.
SECTION 5.10 Tax Adjustments. The amount of any Indemnifiable
Loss shall be (i) increased by the amount of any net Tax cost actually incurred
by the Indemnitee arising from any payments required by this Article V (other
than this Section 5.10) and received from the Indemnifying Party, together with
such additional amounts as are necessary so that the aggregate payments received
from the Indemnifying Party on account of such Indemnifiable Loss, net of any
such net Tax cost and any net Tax cost actually incurred by the Indemnitee as a
result of the receipt or accrual of such additional amounts, is equal to the
amount of such Indemnifiable Loss; and (ii) reduced by the amount of any net Tax
benefit actually realized by the Indemnitee arising from the incurrence or
payment of any such Indemnifiable Loss; provided however, that in the event such
net Tax benefit is subsequently reduced as a result of the carryback of any
other Tax benefit, or disallowed, the Indemnifying party shall promptly pay the
Indemnitee the amount of such reduction or disallowance. For purposes of this
Section 5.10, a net Tax benefit shall be deemed to be "actually realized" only
to the extent of the excess of (i) the aggregate amount of Taxes that would have
been shown as due and payable on the U.S. federal, state and local income Tax
returns of the Indemnitee in the taxable period in which such net Tax benefit is
actually realized if such Indemnifiable Loss had not been incurred, and no
payment had been made in respect of such Indemnifiable Loss by the Indemnifying
Party over (ii) the aggregate amount of Taxes actually shown as due and payable
on such Tax returns.
SECTION 5.11 MCI Agreement. Notwithstanding Sections 5.01,
5.02, 5.03, 5.04 and 5.05, each of the parties hereto agrees to indemnify and
hold the other parties hereto harmless for any Liability under the MCI Agreement
attributable to the failure of such party to meet the required targets under the
MCI Agreement set forth on Schedule 5.11.
SECTION 5.12 Survival of Indemnities. The obligations of the
parties under this Article V shall survive the sale or other transfer by any of
them of any Assets or businesses or the assignment by any of them of any
Liabilities, with respect to any Indemnifiable Loss of any Indemnitee related to
such Assets, businesses or Liabilities.
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ARTICLE VI
COVENANTS
SECTION 6.01 Provision of Corporate Records. Prior to or as
promptly as practicable after the Distribution Time, the Company shall deliver
to each Distributed Company copies of, or, if in the possession of such
Distributed Company or its Subsidiaries, such Distributed Company shall retain,
all corporate books and records and the relevant portions (or copies thereof) of
all corporate books and records relating directly and primarily to such
Distributed Company's Assets, such Distributed Company's Business, or such
Distributed Company's Liabilities, including, in each case, all agreements,
litigation files and government filings, whether or not active; provided
however, that if original versions of the above documents are in the possession
of the Company and not in the possession of the relevant Distributed Company,
the Company shall deliver said originals to such relevant Distributed Company.
From and after the Distribution Time, all such books, records and other items or
such copies thereof shall be the property of such Distributed Company; provided
however, that nothing in this Section 6.01 shall preclude the Company from
retaining duplicates of all such corporate records that are delivered to a
Distributed Company.
SECTION 6.02 Access to Information. From and after the
Distribution Time each party hereto shall afford to each other party and their
respective authorized accountants, counsel and other designated representatives
reasonable access and duplicating rights (at such other party's expense) during
normal business hours and upon reasonable advance notice, subject to the
confidentiality provisions hereof and any additional appropriate restrictions
for classified, privileged or confidential information, to all Information
within the possession or control of such party or to which it has access
relating to the business, Assets or Liabilities of such other party as they
existed prior to the Distribution Time or relating to or arising in connection
with the relationship between the Retained Business, on the one hand, and the
Distributed Companies' Businesses, on the other hand, on or prior to the
Distribution Time, insofar as such access is reasonably required for a
reasonable purpose. Without limiting the foregoing, Information may be requested
under this Section 6.02 for audit, accounting, claims, litigation and Tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.
SECTION 6.03 Retention of Records. Except as provided in this
Agreement or any of the Ancillary Agreements or as otherwise agreed in writing,
if any Information relating to the business, Assets or Liabilities of a party
hereto, as they existed prior to the Distribution Time or as they are
transferred, assumed or imposed pursuant to this Agreement, is retained by one
of the other parties hereto, the party retaining such Information shall, and
shall cause its Subsidiaries to, retain all such Information in such party's
possession or under its control until such Information is at least ten years old
except that if, prior to the expiration of such period, the party retaining such
information wishes to destroy or dispose of any such Information that is at
least three years old, prior to destroying or disposing of any of such
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Information, (a) such party shall provide no less than 30 days' prior written
notice to the other party, specifying the Information proposed to be destroyed
or disposed of and (b) if, prior to the scheduled date for such destruction or
disposal, the other party requests in writing that any of the Information
proposed to be destroyed or disposed of be delivered to such other party, the
party proposing to dispose of or destroy such Information shall arrange for the
delivery of the requested Information to a location specified by, and at the
expense of, the requesting party.
SECTION 6.04 Witness Services. From and after the Distribution
Time, each of the parties hereto shall use commercially reasonable efforts to
make available to each other party hereto, upon reasonable written request, its
and its Subsidiaries' officers, directors, employees and agents as witnesses to
the extent that (i) such persons may reasonably be required in connection with
the prosecution, investigation or defense of any Action or threatened Action in
which the requesting party may from time to time be involved and (ii) there is
no conflict in the Action or threatened Action between the requesting party and
the other party.
SECTION 6.05 Reimbursement. Except to the extent otherwise
contemplated by any Ancillary Agreement, a party providing books and records,
access to Information or witness services to the other party under this Article
VI shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payments for supplies, disbursements and other out-of-pocket
expenses and direct and indirect costs of employees, as may be reasonably
incurred in providing such books and records, access to Information or witness
services.
SECTION 6.06 Confidentiality.
(a) Each party hereto shall keep, and shall cause its
Representatives to keep, the other party's Information strictly confidential and
will disclose such Information only to such of its Representatives who need to
know such Information and who agree to be bound by this Section 6.06 and not to
disclose such Information to any other Person or entity. Without the prior
written consent of the other party, each party and its Representatives shall not
disclose the other party's Information to any Person or entity except as may be
required by law or judicial process or in connection with the enforcement of its
rights under this Agreement or any of the Ancillary Agreements and, in each
case, in accordance with this Section 6.06. Each party agrees to be responsible
for any breach of this confidentiality provision by any of its Representatives.
(b) In the event that any party hereto or any of its
Representatives becomes legally compelled (by deposition, interrogatory, request
for documents, subpoena, civil investigative demand or similar process), or
determines that it is necessary in connection with the enforcement of its rights
under this Agreement or any of the Ancillary Agreements, to disclose all or any
part of the other party's Information, the receiving party or its
Representatives shall promptly notify the other party of such compulsion or
determination in writing, and consult with and assist the other party in seeking
a protective order or request for other appropriate remedy. In the event that
such protective order or other remedy is not obtained or the other party waives
compliance with the terms hereof, such receiving party
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or its Representatives, as the case may be, shall disclose only that portion of
the Information which, in the opinion of the receiving party's outside counsel,
is legally required to be disclosed, and shall exercise all commercially
reasonable efforts to assure that confidential treatment will be accorded such
Information by the Persons or entities receiving such Information. The providing
party shall be given an opportunity to review the Information prior to
disclosure.
SECTION 6.07 Further Assurances. In case at any time after the
Distribution Time any further action is reasonably necessary or desirable to
carry out the purposes of this Agreement and the Ancillary Agreements, the
proper officers at such time of each party to this Agreement shall promptly take
all such action. Without limiting the foregoing, the Company and the Distributed
Companies or their respective Subsidiaries, as appropriate, shall use
commercially reasonable efforts to obtain all consents and approvals, to enter
into all agreements and to make all filings and applications that may be
required or are reasonably necessary for the consummation of the Transactions,
including, without limitation, all applicable governmental and regulatory
filings. In addition, the Company shall use commercially reasonable efforts to
obtain releases of all liens on the Distributed Companies' Assets that exist as
a result of the Company Credit Agreement.
ARTICLE VII
INSURANCE
SECTION 7.01 General. Except as provided in this Article, the
Company shall keep in effect all policies under its Insurance Program as of the
date hereof insuring the Distributed Companies' Assets and the operations of the
Distributed Companies' Businesses until 12:00 midnight (Eastern time) on the
Distribution Date, except to the extent that a Distributed Company shall have
earlier obtained appropriate coverage and notified the Company in writing to
that effect. Beginning at 12:01 a.m. on the day following the Distribution Date,
the Distributed Companies will cease to be insured under all policies in the
Company's Insurance Program.
SECTION 7.02 Distributed Companies' Insurance.
(a) Each Distributed Company will purchase and pay for
the types and amounts of insurance coverage that it reasonably deems appropriate
and sufficient for the period beginning on and continuing after the Distribution
Date, including Broad Form Contractual Liability insurance coverage as to such
Distributed Company's indemnity obligations set forth in this Agreement.
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(b) Each Distributed Company agrees that the Company
has made no warranty, expressed or implied, and no representation that the
insurance described in Sections 7.01 or 7.02(a) above is or will be adequate or
sufficient to meet such Distributed Company's current or future insurance needs.
SECTION 7.03 Access to the Company's Insurance Program. Each
Distributed Company and its Affiliates shall have access through the Company
after the Distribution Date to such coverages and limits as may be available
under the Company's Insurance Program for Covered Claims occurring prior to the
Distribution Date. Such access shall be subject to available coverage and to all
of the terms, conditions, exclusions, retentions and limits of such Policies.
SECTION 7.04 Insurance Recoveries. The Company shall use
reasonable efforts to obtain Recoveries for the Distributed Companies and their
Affiliates from the Company's insurance carriers for coverage available under
Section 7.03 and shall keep the Distributed Companies reasonably informed of the
Company's efforts under this Section 7.04. The Company will reimburse the
Distributed Companies for any Recovery obtained by it on behalf of such
Distributed Company or Affiliate thereof pursuant to such claims; provided,
however, that Special Insurance Recoveries shall be shared between the Company
and the relevant Distributed Company in the same manner as any net recoveries of
an Acquisition Claim of such Distributed Company (payable at that time) would be
shared between the Company and such Distributed Company pursuant to Section
2.09, including that, if the net recoveries from an Acquisition Claim of such
Distributed Company are not required to be shared in any manner with the Company
pursuant to Section 2.09, any Special Insurance Recoveries related to such
Distributed Company should be entirely payable to it. Any Distributed Company
receiving a Recovery in its entirety under this Section 7.04 shall pay all costs
incurred by the Company after the Distribution Date in making the related claim
pursuant to this Section 7.04, including the salaries of the Company's officers
and employees based on the portion of time spent on such claims ("Recovery
Costs"), and such Recovery Costs incurred in pursuing the claim may be deducted
from the Recovery. As to any Recovery Costs incurred in relation to Special
Insurance Recoveries, the party or parties receiving such Special Insurance
Recoveries, or a portion thereof, shall bear the related Recovery Costs in
proportion to the share of the Special Insurance Recoveries such party receives.
Each Distributed Company agrees to make available to the Company such of its
employees as the Company may reasonably request as witnesses or deponents in
connection with the Company's management of claims, at such Distributed
Company's sole cost and expense notwithstanding Sections 6.04 and 6.05. Each
Distributed Company agrees that, if the Company has paid a Recovery to it for
such a claim and such Distributed Company receives proceeds from any other
person with respect to such claim, it will pay over to the Company the amount of
proceeds it has received.
SECTION 7.05 Insurance Representations. Each Distributed
Company hereby represents and warrants to the Company that no representation by
such Distributed
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Company (or any of its officers, directors or Subsidiaries) relating to
information underlying any Insurance Policy of the Company contains an untrue
statement of material fact or omits to state a material fact necessary to make a
statement contained therein, in light of the circumstances under which they were
made, not misleading with respect to such information.
SECTION 7.06 Assignment. Nothing in this Agreement shall be
deemed to constitute (or to reflect) an assignment of any insurance policy or
insurance benefit.
SECTION 7.07 Deductibles and Maximums.
(a) To the extent that there are deductible amounts or
retentions applicable to potential insurance recoveries for claims of the
Company or a Distributed Company that are not per-occurrence deductibles, the
Company shall allocate such deductibles or retentions in such manner as the
Company or a Distributed Company, as applicable, determines, in good faith, is
fair and reasonable. For purposes of this Section 7.07, the parties agree that
it is fair and reasonable to allocate the deductibles, if any, first to any
claims based on recklessness, bad faith or wilful misconduct.
(b) To the extent that the Recoveries for any
particular group of claims of the Company or a Distributed Company may be
subject to overall policy limits, the Company shall allocate Recoveries in such
manner as the Company determines, in good faith, is fair and reasonable.
SECTION 7.08 Conflicts Between Article VII and the Company's
Insurance Program. Any provision of this Agreement that conflicts with any term
or provision of the Company's applicable insurance policies shall be void.
SECTION 7.09 Maintenance of Insurance Policies. Each of the
Company and the Distributed Companies covenants to maintain insurance policies
related to such Company's or Distributed Company's indemnification obligations
under this Agreement with similar covenants, limits and deductibles as in effect
as of 12:01 a.m. on the day following the Distribution Date for a period of four
years from such date and time.
ARTICLE VIII
CONDITIONS
SECTION 8.01 Conditions to Obligations of the Company. The
obligation of the Company to consummate the Distributions hereunder shall be
subject to the satisfaction or waiver of each of the following conditions:
(a) All of the transactions contemplated by Article II
hereof to occur prior to the Distribution Time shall have been consummated.
36
<PAGE>
(b) The Distribution Shares to be issued in the
Distributions shall have been approved for trading on the NASDAQ, subject only
to official notice of issuance.
(c) All filings required to be made prior to the
Distribution Time with, and all consents, approvals and authorizations required
to be obtained prior to the Distribution Time from, any government or any court,
arbitral tribunal, administrative agency or commission or other regulatory
authority, agency or commission, governmental or otherwise, in connection with
the consummation of the Preliminary Transactions, the Distributions and any
other transaction contemplated hereby shall have been made or obtained, except
where the failure to make or obtain the same would not, individually or in the
aggregate, have a material adverse effect on the business, properties, results
of operations or financial condition of the Company, the Distributed Companies
or any of their respective Subsidiaries, or on the ability of any thereof to
consummate the transactions contemplated hereby, or to perform its obligations
under this Agreement or any of the Ancillary Agreements to which it is or will
be a party.
(d) Each of the Ancillary Agreements shall have been
executed and delivered by each of the parties thereto and shall be in full force
and effect in accordance with its terms.
(e) Each of the registration statements on Forms S-1
under the Securities Act filed with the SEC by the Distributed Companies in
connection with the Distributions shall have become effective under the Exchange
Act, no stop order suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been initiated by the SEC; and
the Information Statements shall have been or shall be simultaneously or
promptly mailed to holders of Distribution Shares in accordance with the rules,
regulations and policies of the SEC.
(f) No statute, rule or regulation or temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
shall be in effect that prohibits consummation of the Preliminary Transactions
or the Distributions.
(g) All conditions to the Tender Offer shall have been
satisfied or waived by the Company, and the Tender Offer shall have been
consummated prior to or on the Distribution Date.
(h) The Company and each of the Distributed Companies
shall have received an opinion of Wilmer, Cutler & Pickering, counsel to the
Company, that for U.S. federal income tax purposes the Distributions 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. In rendering such opinion, such
counsel shall be entitled to rely on certain assumptions and representations
provided by the Company, the Distributed Companies and CDR-PC and certain other
37
<PAGE>
information, data, documentation and other materials that Wilmer, Cutler &
Pickering deems necessary.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.01 Mediation and Binding Arbitration. Except as may
be expressly provided in any of the Ancillary Agreements or in any other
agreement between the parties entered into pursuant hereto, if a dispute,
controversy or claim (collectively, a "Dispute") between the Company and any of
the Distributed Companies or any of their respective Affiliates arises out of or
relates to this Agreement, any Ancillary Agreement, or any other agreement
entered into pursuant hereto or thereto, including, without limitation, the
breach, termination, enforceability, interpretation or validity of any such
agreement or any matter involving an Indemnifiable Loss, the Company and such
Distributed Company agree to use the following procedures, in lieu of either
party pursuing other available remedies and as the sole and exclusive remedy
(except as provided in Section 10.11 below), to resolve the Dispute.
SECTION 9.02 Initiation of Negotiation. A party seeking to
initiate the procedures shall provide written notice to the other party,
describing briefly the nature of the Dispute. A meeting shall be held between
the parties within 10 days of the receipt of such notice, attended by executives
who have decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
SECTION 9.03 Submission to Mediation. If, within 30 days after
such meeting, the parties have not succeeded in negotiating a resolution of the
Dispute, the parties agree to submit the Dispute at the earliest possible date
to mediation conducted in accordance with the Commercial Mediation Rules of the
AAA, and to bear equally the costs of the mediation. The parties agree to
participate in good faith in the mediation and negotiations related thereto for
a period of 30 days or such longer period as they may mutually agree following
the initial mediation session (the "Mediation Period").
SECTION 9.04 Selection of Mediator. The parties will jointly
appoint a mutually acceptable and neutral mediator. If they are unable to agree
upon such appointment within 20 days from the conclusion of the negotiation
period, a mediator shall be appointed by the AAA pursuant to the Commercial
Mediation Rules of the AAA.
SECTION 9.05 Treatment of Negotiation and Mediation. All
negotiations and mediations pursuant to this Article shall be treated as
compromise and settlement negotiations for purposes of Rule 408 of the Federal
Rules of Evidence and comparable state rules.
38
<PAGE>
SECTION 9.06 Arbitration.
(a) Notwithstanding the foregoing provisions of this
Article IX, at the end of the Mediation Period any party may submit the matter
to binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the AAA, by one or three arbitrators(s) selected in accordance with the
provisions of Section 9.06(b). Any arbitration proceeding hereunder shall be
held in the city of New York, New York, and shall be governed by the Federal
Arbitration Act, 9 U.S.C. ss.ss. 1-16, and judgment upon the award rendered by
the arbitrator(s) may be entered by any court having jurisdiction thereof or
having jurisdiction over the relevant party or its assets. Any arbitral award
hereunder shall be in writing, state the reasons for the award and be final and
binding on the parties.
(b) The parties shall seek to appoint jointly a
mutually acceptable sole arbitrator. If the parties cannot agree on an
acceptable sole arbitrator within 10 days after the commencement of the
arbitration, the Dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties within 20 days after commencement of the
arbitration, and the third arbitrator selected by the other two arbitrators
within 15 days of appointment of the first two arbitrators. If either side fails
to appoint an arbitrator within 20 days after the commencement of the
arbitration, then that arbitrator shall be appointed by the AAA, which shall
promptly notify the parties of such appointment. If the first two arbitrators
appointed fail to appoint a third arbitrator within the 15-day period prescribed
above, then the AAA shall appoint the third arbitrator and shall promptly notify
the parties of the appointment. References herein to the "Arbitrator" shall mean
the sole arbitrator or the three-arbitrator panel, as the case may be.
(c) In the event the Dispute involves (i) valuation of
a liability under (A) this Agreement, (B) any Ancillary Agreement or (C) any
other agreement entered into by the parties pursuant to this Agreement or any
Ancillary Agreement, (ii) an amount in controversy in a Dispute or (iii) the
amount of damages following a determination of liability, the arbitration shall
proceed in the following manner: Each party shall submit to the Arbitrator and
exchange with each other, on a schedule to be determined by the Arbitrator, a
proposed valuation, amount or damages, as the case may be, together with a
statement, including all supporting documents or other evidence upon which it
relies, setting forth such party's explanation as to why its proposal is
reasonable and appropriate. The Arbitrator, within 15 days of receiving such
proposals and supporting documents, shall choose between the two proposals and
shall be limited to awarding only one or the other of the two proposals
submitted.
(d) Cost of Arbitration. The costs of arbitration shall
be apportioned between the parties to the arbitration as determined by the
Arbitrator in such manner as the Arbitrator deems reasonable taking into account
the circumstances of the case, the conduct of the parties during the proceeding
and the result of the arbitration.
39
<PAGE>
(e) Arbitration Period. Any arbitration proceeding
shall be concluded in a maximum of six (6) months from the commencement of the
arbitration. The parties involved in the proceeding may agree in writing to
extend the arbitration period if necessary to appropriately resolve the Dispute.
SECTION 9.07 Confidentiality. All negotiation, mediation and
arbitration proceedings under this Article shall be treated as confidential
Information in accordance with the provisions of Section 6.06 hereof. Any
mediator or the Arbitrator shall be bound by an agreement containing
confidentiality provisions at least as restrictive as those contained in Section
6.06 hereof.
SECTION 9.08 Notices. All notices by one party to the other
party in connection with the dispute resolution provisions set forth in this
Article shall be in accordance with the provisions of Section 10.05 hereof.
SECTION 9.09 Consolidation. The Arbitrator may consolidate an
arbitration under this Agreement with any arbitration arising under or relating
to the Ancillary Agreements or any other agreement between the parties entered
into pursuant hereto, as the case may be, if the subject of the Disputes
thereunder arise out of or relate essentially to the same set of facts or
transactions. Such consolidated arbitration shall be determined by the
arbitrator appointed for the arbitration proceeding that was commenced first in
time.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Modification, Amendment or Termination. This
Agreement may not be modified, amended or terminated except by an agreement in
writing signed by each of the parties hereto and approved by the board of
directors of each of the parties hereto; provided, however, that (a) any
modification or amendment to this Agreement that is adverse to the rights or
interests of CDR-PC, as a stockholder or warrantholder of the Company, and (b)
any termination of this Agreement, shall not be effective unless such
modification, amendment or termination was approved by an affirmative vote of
not less than three-fourths of the members of the board of directors of the
Company; provided further, however, that the preceding proviso shall apply only
for so long as CDR-PC has the right to designate at least two nominees to the
board of directors of the Company pursuant to Section 4.01(b) of the Investment
Agreement; provided further, however, that Article V shall not be terminated,
modified or amended after the Distribution Time in respect of the third party
beneficiaries thereto without the consent of such persons.
SECTION 10.02 Waiver; Remedies. The conditions to the
Company's obligation to consummate the Distributions are for the sole benefit of
the Company and may be waived by the Company in whole or in part in its sole
discretion. No delay on the part of
40
<PAGE>
the Company or the Distributed Companies in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any waiver on the
part of either the Company or the Distributed Companies of any right, power or
privilege hereunder operate as a waiver of any other right, power or privilege
hereunder, nor will any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. Unless otherwise
provided, the rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which the parties may otherwise have at law
or in equity.
SECTION 10.03 Counterparts. For the convenience of the
parties, this Agreement may be executed in any number of separate counterparts,
each such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
SECTION 10.04 Notices. Any notice, request, instruction or
other communication to be given hereunder by any party to another shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered personally, or by telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service with proof of
delivery, or (iii) on the fifth business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.
(a) If to Printco:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, FL 33480
Attention: Thomas B. D'Agostino
Telefacsimile: (561) 659-7793
(b) If to Schoolco:
School Specialty, Inc.
1000 North Bluemound Drive
Appleton, Wisconsin 54914
Attention: Daniel P. Spalding
Telefacsimile: (920) 734-6276
(c) If to Techco:
Aztec Technology Partners, Inc.
41
<PAGE>
52 Roland Street
Boston, Massachusetts 02129
Attention: James E. Claypoole
Telefacsimile: (617) 623-5888
(d) If to Travelco:
Navigant International, Inc.
84 Inverness Circle East
Englewood, Colorado 80112-5314
Attention: Edward S. Adams
Telefacsimile: (303) 706-0770
(e) If to the Company:
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W., Suite 600 East
Washington, D.C. 20007-5490
Attention: Mark D. Director, Esq.
Kathleen Delaney, Esq.
Telefacsimile: (202) 339-6733
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Telefacsimile: (202) 663-6363
and
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
18th Floor
New York, NY 10152
Attention: Brian D. Finn
Telefacsimile: (212) 407-5200
and
Debevoise & Plimpton
875 Third Avenue
42
<PAGE>
New York, NY 10022
Attention: Franci J. Blassberg, Esq.
Telefacsimile: (212) 909-6836
SECTION 10.05 Entire Agreement. This Agreement and the
Ancillary Agreements (including Exhibits, Annexes and Schedules hereto and
thereto) constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, between the parties, with respect to the subject matter hereof and
thereof.
SECTION 10.06 Certain Obligations. Whenever any Ancillary
Agreement requires any of the Subsidiaries of any party to such Ancillary
Agreement to take any action, this Agreement will be deemed to include an
undertaking on the part of such party to cause such Subsidiary to take such
action.
SECTION 10.07 Assignment. This Agreement shall be assignable
in whole in connection with a merger or consolidation or the sale or transfer of
all or substantially all the Assets or stock of a party hereto so long as the
resulting, surviving or transferee entity assumes all the obligations of the
relevant party hereto by operation of law or pursuant to an agreement in form
and substance reasonably satisfactory to the other party. Otherwise, this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the prior written consent of the other party, and
any attempt to assign any rights or obligations arising under this Agreement
without such consent shall be void.
SECTION 10.08 Captions. The Article, Section and paragraph
captions herein are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
SECTION 10.09 Severability. If any provision of this Agreement
or any of the Ancillary Agreements or the application thereof to any person or
circumstance is determined to be invalid, void or unenforceable by a court of
competent jurisdiction or by one or more arbitrator(s), the remaining provisions
thereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated thereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
SECTION 10.10 Equitable Relief. No provision of this Agreement
shall preclude any party from seeking equitable relief to prevent any immediate,
irreparable harm to its interests, including multiple breaches of this Agreement
or the Ancillary Agreements by another party. Otherwise, the procedures set
forth in Article IX regarding dispute
43
<PAGE>
resolution are exclusive and shall be fully exhausted prior to the initiation of
litigation. Any party to this Agreement may also seek specific enforcement of
the Arbitrator's decision under Article IX; the opposing party's only defense to
such a request for specific performance shall be fraud by or on the Arbitrator.
SECTION 10.11 Third Party Beneficiaries. Except as provided in
Article V relating to Indemnitees and Sections 10.01 and 10.02 relating to
modification, amendment and termination, this Agreement is solely for the
benefit of the parties hereto and their respective Subsidiaries and Affiliates,
directors and officers, and should not be deemed to confer upon third parties
any remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
SECTION 10.12 Expenses. Except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses incurred after the Distribution Time.
SECTION 10.13 Exhibits and Schedules. The Exhibits and
Schedules to this Agreement shall be construed with and as an integral part of
this Agreement to the same extent as if the same had been set forth verbatim
herein.
SECTION 10.14 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such state,
without regard to the conflicts of law principles of such state.
SECTION 10.15 Consent to Jurisdiction. Each of the parties
irrevocably submits to the exclusive jurisdiction of the state and federal
courts of Delaware for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each of
the parties agree that service of any process, summons, notice or document by
U.S. registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction in this Section
10.17. Each of the parties irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in the state and federal
courts of Delaware, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
This consent to jurisdiction provision does not, in any way, limit the force and
effect of the requirements set forth in Article IX regarding resolution of
Disputes.
SECTION 10.16 Ancillary Agreements. This Agreement is not
intended to address, and should not be interpreted to address, the matters
specifically and expressly covered by the Ancillary Agreements.
44
<PAGE>
SECTION 10.17 Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Time.
SECTION 10.18 Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
45
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Distribution to be duly executed as of the day and year first above
written.
U.S. OFFICE PRODUCTS COMPANY
By /s/ Mark D. Director
-----------------------------
Name: Mark D. Director
Title: Executive Vice President-Administration
WORKFLOW MANAGEMENT, INC.
By /s/ Thomas B. D'Agostino
-----------------------------
Name: Thomas B. D'Agostino
Title: President
SCHOOL SPECIALTY, INC.
By
-----------------------------
Name:
Title:
AZTEC TECHNOLOGY PARTNERS, INC.
By
-----------------------------
Name:
Title:
NAVIGANT INTERNATIONAL, INC.
By
-----------------------------
Name:
Title:
46
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Distribution to be duly executed as of the day and year first above
written.
U.S. OFFICE PRODUCTS COMPANY
By
-----------------------------
Name:
Title:
WORKFLOW MANAGEMENT, INC.
By
-----------------------------
Name:
Title:
SCHOOL SPECIALTY, INC.
By /s/ Daniel P. Spalding
-----------------------------
Name: Daniel P. Spalding
Title: President
AZTEC TECHNOLOGY PARTNERS, INC.
By
-----------------------------
Name:
Title:
NAVIGANT INTERNATIONAL, INC.
By
-----------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Distribution to be duly executed as of the day and year first above
written.
U.S. OFFICE PRODUCTS COMPANY
By
-----------------------------
Name:
Title:
WORKFLOW MANAGEMENT, INC.
By
-----------------------------
Name:
Title:
SCHOOL SPECIALTY, INC.
By
-----------------------------
Name:
Title:
AZTEC TECHNOLOGY PARTNERS, INC.
By /s/ James E. Claypoole
-----------------------------
Name: James E. Claypoole
Title: Chairman
NAVIGANT INTERNATIONAL, INC.
By
-----------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Distribution to be duly executed as of the day and year first above
written.
U.S. OFFICE PRODUCTS COMPANY
By
-----------------------------
Name:
Title:
WORKFLOW MANAGEMENT, INC.
By
-----------------------------
Name:
Title:
SCHOOL SPECIALTY, INC.
By
-----------------------------
Name:
Title:
AZTEC TECHNOLOGY PARTNERS, INC.
By
-----------------------------
Name:
Title:
NAVIGANT INTERNATIONAL, INC.
By /s/ Edward S. Adams
-----------------------------
Name: Edward S. Adams
Title: President
<PAGE>
Exhibit II
Agreement and Plan of Distribution
Distributed Company Subsidiaries
I. Printco Subsidiaries
1. Astrid Offset Corp.
2. Data Business Forms Limited
3. Hano Document Printers, Inc.
4. Huxley Envelope Corp.
5. Pocono Envelope Corp.
6. Rex Envelope Co., Inc.
7. SFI of Delaware, LLC
8. United Envelope, LLC
9. 3303471 Canada Limited
10. Data Business Forms Limited
11. 1186202 Ontario Limited (1)
II. Schoolco Subsidiaries
1. Childcraft Education Corp.
2. Don Gresswell Ltd.
3. Sax Arts & Crafts, Inc.
4. School Specialty, Inc.
5. Re-Print, LLC
6. Bird-in-Hand, Inc.
III. Techco Subsidiaries
1. Aztec LLC
2. Bay State LLC
3. Compel LLC
4. Digital Network Associates, Inc.
5. Entra Computer Corp.
6. Fortran Corp.
- -------------------
(1) But excluding (x) 1186203 Ontario Limited, 1243231 Ontario Limited
and 1203803 Ontario Limited (and their respective Subsidiaries), all of which
are Retained Subsidiaries, and (y) 1255994 Ontario Limited and its
Subsidiaries, all of which are Travelco Subsidiaries.
<PAGE>
7. Mahon Communications Corporation
8. Office Equipment Services Co., Inc.
9. Professional Computer Solutions, Inc.
10. Professional Network Services, Inc.
IV. Travelco Subsidiaries
1. AQUA Software Products, Inc.
2. Associated Travel Services, LLC
3. Atlas Travel Service Ltd.
4. Envision Vacations, Inc.
5. Evans Travel Group, Inc.
6. Jekela Investments Ltd.
7. McGregor Travel Management, Inc.
8. MTA, Inc.
9. MTMUK Acquisition Corp.
10. Mutual Travel, Inc.
11. Omni Travel Service, Inc.
12. Professional Travel Corporation
13. Simmons Associates, Inc.
14. St. Pierre Enterprises, Inc.
15. Travel Arrangements, Inc.
16. Travel Consultants, Inc.
17. Wareheim Travel Services, Inc.
18. 1255994 Ontario Limited
II-2
<PAGE>
Exhibit III
Agreement and Plan of Distribution
Estimated Pro Rata Share Percentages
Navigant International, Inc. 5.2%
Aztec Technology Partners, Inc. 8.2%
School Specialty, Inc. 11.9%
Workflow Management, Inc. 9.1%
U.S. Office Products Company 65.6%
<PAGE>
Exhibit IV
Agreement and Plan of Distribution
Shared Liabilities
------------------
The following are Shared Liabilities under clause (ii) of the
definition of Shared Liability in the Agreement:
(1.) Liabilities arising out of Pierce v. Ledecky et al., filed
April 14, 1998, in the Court of Chancery of the State of Delaware.
<PAGE>
Exhibit V
Agreement and Plan of Distribution
Shared Liabilities: Information Statement Sections
--------------------------------------------------
Any Liability arising out of any of the following sections of
the Information Statements as indicated below shall be a Shared Liability:
<TABLE>
<CAPTION>
Information Sections
Statement
<S> <C>
All Distributed "Risk Factors -- Potential Conflicts of Interest in the Distributions"
Companies
"Risk Factors -- Tax Matters"
"Risk Factors -- Potential Liability for Taxes Related to the
Distributions"
"Risk Factors -- Possible Limitations on Issuances of Common Stock"
Workflow "Summary -- Background of the Workflow Distribution" and all
Management, Inc. subsections thereunder
"The Workflow Distribution" and all subsections thereunder
"Principal Stockholders of Workflow Management"
"The Spin-Offs from U.S. Office Products" and all subsections
thereunder
School Specialty, "Summary -- Background of the School Specialty Distribution" and all
Inc. subsections thereunder
"The School Specialty Distribution" and all subsections thereunder
"Principal Stockholders of School Specialty"
"The Spin-Offs from U.S. Office Products" and all subsections
thereunder
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Information Sections
Statement
<S> <C>
Aztec Technology "Summary -- Background of the Technology Distribution" and all
Partners, Inc. subsections thereunder
"The Technology Distribution" and all subsections thereunder
"Principal Stockholders"
"The Spin-Offs from U.S. Office Products" and all subsections
thereunder
Navigant "Summary -- Background of the Travel Distribution" and all subsections
International, Inc. thereunder
"The Travel Distribution" and all subsections thereunder
"Principal Stockholders of Navigant"
"Arrangements Among U.S. Office Products, Navigant and the Other
Spin-Off Companies After the Distributions" and all subsections
thereunder
</TABLE>
V-2
<PAGE>
Schedule 2.06
Agreement and Plan of Distribution
Specified Guarantees
--------------------
(1.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated
May 15. 1998 between Mario DiBenedetto and Aztec Technology Partners,
Inc. ("Aztec"), with obligations guaranteed by U.S. Office Products
Company;
(2.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Andrew Wright and Aztec, with obligations guaranteed
by U.S. Office Products Company;
(3.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Thomas Genega and Aztec, with obligations guaranteed
by U.S. Office Products Company;
(4.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between John Tammi and Aztec, with obligations guaranteed by
U.S. Office Products Company;
(5.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Mitchell Mond and Aztec, with obligations guaranteed
by U.S. Office Products Company;
(6.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Jim Silvey and Aztec, with obligations guaranteed
by U.S. Office Products Company;
(7.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Joseph Fung and Aztec, with obligations guaranteed
by U.S. Office Products Company; and
(8.) Aztec Technology Partners, Inc. PCSI Key Employee Agreement dated May
15, 1998 between Art Meisler and Aztec, with obligations guaranteed
by U.S. Office Products Companyx.
<PAGE>
Schedule 2.08
Agreement and Plan of Distribution
Debt Amounts
<TABLE>
<S> <C>
Workflow Management, Inc. $ 30.0 million
School Specialty, Inc. $ 80.0 million
Aztec Technology Partners, Inc. $ 5.0 million
Navigant International, Inc. $ 15.0 million
</TABLE>
<PAGE>
Schedule 2.09
Agreement and Plan of Distribution
Net Recovery Amounts
--------------------
<TABLE>
<S> <C>
Workflow Management, Inc. $20.0 million
School Specialty, Inc. $70.0 million
</TABLE>
<PAGE>
Schedule 2.10
Agreement and Plan of Distribution
Distribution of Pledged Shares
1. Statement of Purpose
Pursuant to the Distributions, any person who owns shares of
Company Common Stock as of the Distribution Record Date is entitled to receive
Distribution Shares in respect of such stock, including Distribution Shares in
respect of any Company Common Stock pledged as collateral security by such
shareholder as a seller under an Acquisition Agreement. However, under the
Acquisition Agreements with such selling stockholders, the Company is entitled
to retain as pledged shares all non-cash dividends paid on Company Common Stock.
Therefore, Distribution Shares distributed to such sellers in respect of any
Company Common Stock that remains pledged as of the Distribution Date shall be
considered pledged under the relevant Acquisition Agreement and shall be held by
the Company as set forth in Section 2.10 of the Agreement as security for the
payment of claims of the Company or the relevant Distributed Company against
such seller. The following provisions govern the holding, distribution and
valuation of the Pledged Shares after the Distributions.
2. Definitions
"Adjusted Value" shall mean, as to any Original Pledged Shares
or any Distributed Company Pledged Shares, the value of such shares after the
Distributions as determined pursuant to clause 4.
"Distributed Company Pledged Shares" shall mean all
Distribution Shares distributed in respect of the Original Pledged Shares
remaining subject to the pledge.
"Historical Value" shall mean, as to any Original Pledged
Share, the value assigned to it under the Acquisition Agreement pursuant to
which such Original Pledged Share was pledged.
"Original Pledged Share" shall mean any share of Company
Common Stock pledged or assigned to the Company prior to the Distribution Date
(and remaining pledged or assigned as of the Distribution Date) as collateral
security by a seller of a Distributed Company Subsidiary (or a division within
such Subsidiary or Distributed Company) under the Acquisition Agreement
governing such sale.
"Pledged Shares" shall mean, collectively, the Original
Pledged Shares and the Distributed Company Pledged Shares.
"Trading Price" shall mean, as to any share of common stock,
the price at which such share is trading on the open market at the close of the
trading on a specified day.
<PAGE>
3. Terms
(a) As of the Distribution Date, the Company shall continue to
hold all Original Pledged Shares pledged under the Acquisition Agreements
pursuant to which the Distributed Company Subsidiaries (or divisions within such
Subsidiaries or Distributed Companies) were acquired by the Company or any of
its Subsidiaries (or any cash resulting from liquidation of such Original
Pledged Shares or from the tender of such Original Pledged Shares in the Equity
Tender) for the benefit of the Company and the relevant Distributed Companies,
as applicable. The Company shall, after the Distribution Date, similarly hold
the Distributed Company Pledged Shares paid as a dividend on such Original
Pledged Shares. In the event it is determined after the Distribution Date that a
Distributed Company is entitled to a recovery under an Acquisition Claim and
such claim is secured by Pledged Shares held by the Company, the Company shall
distribute such shares as set forth below; provided, however, that, as to any
Acquisition Claim, no Pledged Shares shall be released to the Company or a
Distributed Company unless and until (i) the decision of the arbitrator or court
of competent jurisdiction concerning such Acquisition Claim is final and
non-appealable, or (ii) there has been a final settlement of such Acquisition
Claim and the Company has been released from all claims against it by the seller
under the related Acquisition Agreement (or the Company is otherwise reasonably
satisfied that the resolution of the Acquisition Claim will not impose liability
on it).
(b) In the event it is finally determined after the
Distribution Date that a Distributed Company is entitled to a recovery under an
Acquisition Claim and such claim is secured by Pledged Shares, the Company shall
distribute to such Distributed Company (in accordance with the provisions of the
related Acquisition Agreement) Pledged Shares (or cash related thereto) equal in
value to the value of the recovery to which the Distributed Company is entitled
(excluding the amount, if any, of the net recovery to which the Company is
entitled under Section 2.09 of the Agreement). The shares to be distributed
shall be distributed from the pool of Pledged Shares for that particular seller
in the following order of preference: (i) from the common shares of such
Distributed Company, to the extent available, (ii) from the common shares of the
other Distributed Companies in equal proportions, to the extent available, and
(iii) from Company Common Stock.
(c) In the event it is determined after the Distribution Date
that the Company is entitled to a recovery under an Acquisition Claim and such
claim is secured by Pledged Shares, the Company shall withdraw (in accordance
with the provisions of the related Acquisition Agreement) Pledged Shares (or
cash related thereto) equal in value to the net recovery to which it is
entitled. The shares to be withdrawn shall be withdrawn from the pool of Pledged
Shares in the following order of preference: (i) from Company Common Stock, to
the extent available, and (ii) from the common shares of the Distributed
Companies in equal proportions, to the extent available.
(d) In the event of a distribution or withdrawal of Pledged
Shares as described in (b) or (c) above, the Company shall first distribute or
withdraw, as applicable, all cash held in escrow as a result of the liquidation
or tender of the Pledged Shares, if any.
2
<PAGE>
4. Valuation. For purposes of determining the value of the Pledged Shares to be
released pursuant to Section 2.10 and this Schedule 2.10 under any Acquisition
Agreement for a transaction accounted for as a pooling or where the relevant
Acquisition Agreement does not provide for the valuation of Pledged Shares as of
a date after the Distribution Date, the per share value of the Original Pledged
Shares or Distributed Company Pledged Shares, as the case may be, shall equal
the product of (i) such entity's Allocable Share times (ii) the Historical Value
of one underlying Original Pledged Share. The Allocable Share with respect to
the Distributed Company Pledged Shares of any particular Distributed Company
shall be the fraction (x) the numerator of which is the initial public offering
price of such Distributed Company in the Offering and (y) the denominator of
which is the average closing price of the Company's Common Stock for the lesser
of (1) ten business days preceding the Distributions, or (2) the number of
business days falling between the expiration of the Equity Tender and the
completion of the Distributions. The Allocable Share with respect to the
Original Pledged Shares of the Company shall be the number one minus the
Allocable Shares for each of the Distributed Companies.
5. Restrictions of Revalued Pledged Shares. The parties agree that they will
dispose of any Original Pledged Shares and Distributed Company Pledged Shares
received pursuant to Section 2.10 and this Schedule 2.10 as follows:
(i) Each Distributed Company agrees to retire any and
all Pledged Shares comprised of its own common shares
that are received in respect of Acquisition Claims;
and
(ii) Each Distributed Company agrees to sell in
ordinary open market transactions, as soon as
practicable, any and all Pledged Shares comprised of
common shares of the Company and any other
Distributed Company that are received in respect of
Acquisition Claims.
(iii) The parties further agree and acknowledge that
any Company Common Stock received by the Distributed
Companies pursuant to Section 2.10 and this Schedule
2.10 may be restricted stock (as defined in Rule 144
of the Securities Act) and may not be resold without
registration or an opinion that such shares may be
transferred without registration under the Securities
Act.
3
<PAGE>
Schedule 2.11
Agreement and Plan of Distribution
Other Transactions
Licensing Agreement by and between the Company and Printco dated
_______________, 1998 in relation to Imagenet (the "Imagenet Licensing
Agreement").
<PAGE>
Schedule 5.11
Agreement and Plan of Distribution
Terms Applicable to MCI Agreement
1 Travelco will enter into a separate Special Customer Agreement
with MCI Incor porated (the "Travel SCA"). None of the
Company, Printco, Schoolco or Techco shall have any liability
or obligation under the Travel SCA.
2 The Company shall enter into an amended MCI Agreement (the
"Amended Company SCA") pursuant to which the Company will have
reduced obligations to buy capacity from MCI (the "Collective
Minimums"), reflecting the creation of a separate Travel SCA
with its own minimums. The Amended Company SCA will give the
Company the right to have counted toward the Collective
Minimums capacity purchased from MCI by its former
subsidiaries, Printco, Schoolco and Techco (each, an "SCA
Subpurchaser" and, collectively, the "SCA Subpurchasers").
Travelco shall not have any liability or obligation under the
Amended Company SCA, and the SCA Subpurchasers will have no
liabilities or obligations to MCI under the Amended Company
SCA, but will have potential liabilities to the Company under
this Exhibit 5.11 and the Distribution Agreement.
3 The Amended Company SCA will provide that if the Company --
together with the SCA Subpurchasers -- shall collectively fail
to achieve the Collective Minimums, penalties will be imposed
on the Company. In order to allocate fairly the obligations
under the Amended Company SCA, the Company and the SCA
Subpurchasers hereby agree that if any such penalties are
assessed against the Company, such liabilities shall be
allocated among them as follows:
3.1 Attachment I sets forth the Company's and each of the
SCA Subpurchasers' respective minimum purchasing
requirements in four categories -- Annual Minimum,
Local Minimum, Frame Minimum and Core Product Term
Minimum (the "Separate Minimums").
3.2 If a penalty is imposed on the Company because of the
failure to achieve any particular Collective Minimum
under the Amended Company SCA, then each SCA
Subpurchaser that failed to achieve its corresponding
Separate Minimum shall be liable to the Company for
that portion of the penalty imposed on the Company by
MCI with respect to such Collective Minimum
multiplied by the fraction (i) the numerator of which
is the amount by which such SCA Subpurchaser's
Separate Minimum exceeds the amount of such services
actually purchased by such SCA Subpurchaser over the
period for which the penalty applies, and (ii) the
denominator of which is the sum, as to the entities
listed on Attachment I that failed to achieve the
relevant
<PAGE>
Separate Minimum, of the amounts by which each such
entity's relevant Separate Minimum exceeds the amount
of such services actually purchased by such entity
over the relevant term.
4 The liabilities of any SCA Subpurchaser to the Company under
the terms of this Exhibit 5.11 shall be treated under the
Distribution Agreement as a Printco Liability, a Schoolco
Liability or a Techco Liability, as the case may be. Such
liabilities shall not be subject to the limitation on
liabilities set forth in the second proviso to Sections 5.02,
5.03, 5.04 and 5.05. The liabilities of Travelco under the
Travel SCA shall be treated as Travelco Liabilities under the
Distribution Agreement.
<PAGE>
US OFFICE PRODUCTS
MCI VOLUME COMMITMENTS
Table 1: Annual Minimum*
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
% $ % $ % $ Average (%)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
USOP 75.1% 3.83 74.9% 4.42 74.8% 5.09 74.9%
- ----------------------------------------------------------------------------------------------------------------------------
Print 11.7% 0.60 11.6% 0.68 11.6% 0.79 11.6%
- ----------------------------------------------------------------------------------------------------------------------------
Tech 4.0% 0.20 4.6% 0.27 4.7% 0.32 4.4%
- ----------------------------------------------------------------------------------------------------------------------------
Education 9.2% 0.47 8.9% 0.53 8.9% 0.61 9.0%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 100.0% 5.10 100.0% 5.90 100.0% 6.80 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
$ = millions
*Includes inter- and intra-state long distance, international long distance,
local, frame relay, access, leased lines, and dynamic routing.
Table 2: Local Minimum
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
% $ % $ % $ Average (%)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
USOP 92.5% 0.50 85.0% 0.46 85.0% 0.46 87.5%
- -------------------------------------------------------------------------------------------------------------------------------
Print 2.7% 0.01 6.0% 0.03 6.0% 0.03 4.9%
- -------------------------------------------------------------------------------------------------------------------------------
Tech 3.4% 0.02 6.0% 0.03 6.0% 0.03 5.1%
- -------------------------------------------------------------------------------------------------------------------------------
Education 1.4% 0.01 3.0% 0.02 3.0% 0.02 2.5%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.0% 0.54 100.0% 0.54 100.0% 0.54 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
$ = millions
Table 3: Frame Minimum*
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
% $ % $ % $ Average (%)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
USOP 73.6% 0.51 73.6% 0.51 73.6% 0.51 73.6%
- -------------------------------------------------------------------------------------------------------------------------------
Print 15.4% 0.11 15.4% 0.11 15.4% 0.11 15.4%
- -------------------------------------------------------------------------------------------------------------------------------
Tech 0.4% 0.00 0.4% 0.00 0.4% 0.00 0.4%
- -------------------------------------------------------------------------------------------------------------------------------
Education 10.6% 0.07 10.6% 0.07 10.6% 0.07 10.6%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.0% 0.69 100.0% 0.69 100.0% 0.69 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
$ = millions
*Includes port and frame relay service but excludes access.
Table 4: Core Product Term Minimum*
<TABLE>
<CAPTION>
% $
------------------------
<S> <C> <C>
USOP 74.9% 14.59
- ----------------------------------------------
Print 11.6% 2.26
- ----------------------------------------------
Tech 4.4% 0.86
- ----------------------------------------------
Education 9.0% 1.75
- ----------------------------------------------
- ----------------------------------------------
TOTAL 100.0% 19.47
- ----------------------------------------------
</TABLE>
$ = millions
*Includes inter- and intra-state long distance, dynamic routing, frame relay,
and access.
<PAGE>
EXECUTION COPY
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT, dated as of June 9, 1998
("Agreement"), among U.S. Office Products Company, a Delaware corporation
("USOP"), Workflow Management, Inc., a Delaware corporation ("Workflow
Management"), School Specialty, Inc., a Delaware corporation ("School
Specialty"), Aztec Technology Partners, Inc., a Delaware corporation
("Aztec") and Navigant International, Inc., a Delaware corporation
("Navigant"). USOP, Workflow Management, School Specialty, Aztec and Navigant
are hereinafter jointly referred to as the "Companies." Workflow Management,
School Specialty, Aztec and Navigant are hereinafter jointly referred to as
the "Spin-Off Companies."
WITNESSETH
WHEREAS, USOP is the common parent of an affiliated group of
domestic corporations, including the Spin-Off Companies, which has elected to
file consolidated federal income Tax returns;
WHEREAS, USOP and the Spin-Off Companies entered into an agreement,
dated as of June __, 1998 (the "Distribution Agreement"), to, among other
things, provide for the distribution by USOP of all of the issued and
outstanding shares of common stock of the Spin-Off Companies to the holders
of record of shares of common stock of USOP (other than shares held in the
treasury of USOP); divest USOP of all businesses, operations and liabilities
relating to the businesses to be conducted by the Spin-Off Companies after
the Distributions; and allocate and assign responsibility for certain
liabilities among USOP, the Spin-Off Companies and their respective
Subsidiaries;
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Workflow Subsidiaries to be merged into Workflow Management or into a
Workflow Subsidiary; (ii) USOP will contribute to Workflow Management (x) all
its right, title and interest in and to all the shares of capital stock (or
other ownership interests) that it owns, directly or indirectly, of the
Workflow Subsidiaries other than shares of stock (or other ownership
interests) of the Workflow Subsidiaries that are already owned, directly or
indirectly, by Workflow Management or that are to be merged into Workflow
Management or into a Workflow Subsidiary and (y) certain other assets; and
(iii) Workflow Management will assume certain liabilities so that the
Workflow Group is consolidated under Workflow Management prior to the
Workflow Distribution (such mergers, contributions and assumptions of
liabilities, the "Workflow Contribution");
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain School Specialty Subsidiaries to be merged into School Specialty or
into a School Specialty Subsidiary;(ii) USOP will contribute to School
Specialty (x) all its right, title and interest in and to all the shares of
capital stock (or other ownership interests) that it owns, directly or
indirectly,
<PAGE>
of the School Specialty Subsidiaries other than shares of stock (or other
ownership interests) of the School Specialty Subsidiaries that are already
owned, directly or indirectly, by School Specialty or that are to be merged
into School Specialty or into a School Specialty Subsidiary and (y) certain
other assets and (iii) School Specialty will assume certain liabilities so
that the School Specialty Group is consolidated under School Specialty prior
to the School Specialty Distribution defined herein (such mergers,
contributions and assumptions of liabilities, the "School Specialty
Contribution");
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Aztec Subsidiaries to be merged into Aztec or into an Aztec
Subsidiary; (ii) USOP will contribute to Aztec (x) all its right, title and
interest in and to all the shares of capital stock (or other ownership
interests) that it owns, directly or indirectly, of the Aztec Subsidiaries
other than shares of stock (or other ownership interests) of the Aztec
Subsidiaries that are already owned, directly or indirectly, by Aztec or that
are to be merged into Aztec or into an Aztec Subsidiary and (y) certain other
assets; and (iii) Aztec will assume certain liabilities so that the
Technology Group is consolidated under Aztec prior to the Technology
Distribution defined herein (such mergers, contributions and assumptions of
liabilities, the "Technology Contribution");
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Navigant Subsidiaries to be merged into a Navigant Subsidiary; (ii)
USOP will contribute to Navigant (x) all its right, title and interest in and
to all the shares of capital stock (or other ownership interests) that it
owns, directly or indirectly, of the Navigant Subsidiaries other than shares
of stock (or other ownership interests) of the Navigant Subsidiaries that are
already owned, directly or indirectly, by Navigant or that are to be merged
into Navigant or into a Navigant Subsidiary and (y) certain other assets; and
(iii) Navigant will assume certain liabilities so that the Travel Group is
consolidated under Navigant prior to the Travel Distribution defined herein
(such mergers, contributions and assumptions of liabilities, the "Travel
Contribution");
WHEREAS, pursuant to the Distribution Agreement, USOP will
distribute all the shares of stock that it owns in each of Workflow
Management (the "Workflow Distribution"), School Specialty (the "School
Specialty Distribution"), Aztec (the "Technology Distribution") and Navigant
(the "Travel Distribution") to its shareholders (collectively, the
"Distributions") and, as a result of the Distributions, the Spin-Off
Companies and their Subsidiaries will not be included in the consolidated
federal income Tax return of USOP for the portion of the year following the
Distributions or in future years; and
WHEREAS, the Companies desire to allocate the Tax burdens and
benefits of transactions which occurred on or prior to the Distribution Date,
and to provide for certain other Tax matters, including the assignment of
responsibility for the preparation and filing of Tax returns and the
prosecution and defense of any Tax controversies.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies (each on its own behalf and on behalf of each of its
Subsidiaries) hereby agree as follows:
2
<PAGE>
SECTION 1
Definitions
As used in this Agreement, the following terms shall have the following
meaning:
"Adverse Tax Act" shall mean, for any Person, (i) any action or
actions of such Person, or any omission or omissions by such Person of an
action or actions reasonably available to it, after the Distribution Date, or
(ii) a knowing or willful inaccuracy or inaccuracies of any representation
made by any Company by or on behalf of any member of such Company's Group to
USOP's outside tax counsel in connection with such firm's rendering an
opinion to the Companies as to certain Tax aspects of the Contributions and
Distributions as of the Distribution Date, if such action(s) or
inaccuracy(ies) materially contribute to a Final Determination that any of
the Contributions or Distributions results in the recognition of gain to USOP
by virtue of any of the Contributions or Distributions failing to qualify
under sections 355 or 368 of the Code, including without limitation, by
reason of any stock or securities of any of the Spin-Off Companies failing to
qualify as "qualified property" within the meaning of section 355(c)(2) of
the Code, or otherwise.
"Agreement" shall mean this Tax Allocation Agreement.
"Allocable Federal Income Tax Liability" shall mean, for any Group,
the Separate Consolidated Federal Income Tax Liability of such Group, as
adjusted to reflect (i) any AMT (but only if there is a consolidated AMT),
(ii) any Taxes for which USOP is obligated to indemnify such Groups pursuant
to Section 10(b) of this Agreement, and (iii) any Taxes for which such
Group's Spin-Off Company is obligated to indemnify USOP pursuant to Section
3(d) of this Agreement.
"AMT" shall mean the alternative minimum tax imposed by Section 55
of the Code.
"Aztec" shall have the meaning assigned to such term in the preamble
to this Agreement.
"Aztec Subsidiary" shall mean those entities that immediately after
the completion of the Distributions will be Subsidiaries of Aztec.
"Closing Date" shall have the meaning assigned to such term in the
Investment Agreement.
"Companies" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute.
3
<PAGE>
"Consolidated Returns" shall mean (i) the consolidated U.S. federal
income Tax return of USOP for the period ending on April 25, 1998 and (ii)
the consolidated U.S. federal income Tax return of USOP for the period
commencing on April 26, 1998 and including the Spin-Off Company Groups
through and including the Distribution Date and including the USOP Group
through and including April 24, 1999.
"Contributions" shall mean the Workflow Contribution, the School
Specialty Contribution, the Technology Contribution, and the Travel
Contribution, together with all property transfers and other transactions
undertaken for the purpose of accomplishing the Workflow Contribution, the
School Specialty Contribution, the Technology Contribution, or the Travel
Contribution.
"Controlled Return" shall mean (a) the Consolidated Returns, (b) any
Prior Period Consolidated Return and (c) any combined, affiliated or unitary
income Tax returns for any taxable period beginning on or prior to the
Distribution Date that includes USOP or any Retained Subsidiary.
"Distributing Tax Payor" shall have the meaning assigned to such
term in Section 10(a)(iii) of this Agreement.
"Distribution Agreement" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Distribution Date" shall mean the date on which the Distributions
are effective for U.S. federal income Tax purposes.
"Distributions" shall have the meaning assigned to such term in the
recitals to this Agreement.
"Final Determination" shall mean the final resolution of liability
for any Tax for any taxable period, including any related interest or
penalties, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order of a court of competent jurisdiction; (ii) a
closing agreement or accepted offer in compromise under Section 7121 or 7122
of the Code, or comparable agreement under the laws of other jurisdictions,
which resolves the entire Tax liability for such Tax for such taxable period;
(iii) any allowance of a refund or credit in respect of an overpayment of
Tax, but only after the expiration of all periods during which such refund
may be recovered (including by way of offset) by the applicable Taxing
jurisdiction; or (iv) any other final disposition, including by reason of the
expiration of the applicable statute of limitations.
"FTC" shall mean the foreign tax credit pursuant to Section 27 of
the Code.
"Group" shall mean the USOP Group, Workflow Group, School Specialty
Group, Technology Group and/or Travel Group, as the context may require.
4
<PAGE>
"Investment Agreement" shall mean the Investment Agreement dated as
of January 12, 1998 by and between USOP and CDR-PC Acquisition, L.L.C., a
Delaware limited liability company, as amended by Amendment No. 1 thereto,
dated as of February 3, 1998.
"IPO" shall mean, as to any Spin-Off Company, the initial public
offering of securities to be conducted by such company, which offering is
scheduled to occur on or about the Distribution Date.
"IRS" shall mean the Internal Revenue Service of the United States.
"Losses" shall mean any and all Taxes, claims, demands, liabilities,
obligations, losses, costs, expenses, fines or damages (whether absolute,
accrued, conditional or otherwise, and whether or not resulting from third
party claims), including interest and penalties with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting, preserving or enforcing any rights related thereto.
"Market Capitalization" shall mean, for any entity, the market
capitalization of such entity determined on the basis of the average closing
price for the common stock of such entity for the five-day period ending on
the tenth day after the Distribution Date.
"Navigant" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Navigant Subsidiary" shall mean those entities that immediately
after the completion of the Distributions will be Subsidiaries of Navigant.
"Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization,
government or department or agency of a government.
"Prime Rate" shall mean the 'prime rate' charged by Citibank, N.A.,
New York, New York, as such rate shall be changed from time to time,
compounded daily on the basis of a year of 365/366 days and actual days
elapsed.
"Prior Period Consolidated Return" shall mean any U.S. federal
consolidated income Tax return of USOP filed, or to be filed, for taxable
periods commencing prior to April 27, 1997.
"Retained Subsidiaries" shall mean all of the Subsidiaries of USOP
other than the Spin-Off Companies and the Spin-Off Company Subsidiaries.
"Restricted Transaction" shall mean for any Spin-Off Company (i) any
issuance of capital stock (including, without limitation, in connection with
any public offering or any acquisition by such Spin-Off Company, or in
connection with any merger or consolidation of
5
<PAGE>
another Person into such Spin-Off Company or any Subsidiary of such Spin-Off
Company, and including any delivery of capital stock from the treasury of
such Spin-Off Company), other than an IPO or in connection with the exercise
of any employee stock option granted on or prior to the Distribution Date;
(ii) any issuance of securities convertible into, or exercisable or
exchangeable for, capital stock of such Spin-Off Company; or (iii) any merger
or consolidation or other business combination of such Spin-Off Company into
another Person or any sale or transfer of all or substantially all of such
Spin-Off Company's assets to another Person.
"School Specialty" shall have the meaning assigned to such term in
the preamble to this Agreement.
"School Specialty Contribution" shall have the meaning assigned to
such term in the recitals to this Agreement.
"School Specialty Distribution" shall have the meaning assigned to
such term in the recitals to this Agreement.
"School Specialty Group" shall mean School Specialty and each School
Specialty Subsidiary.
"School Specialty Subsidiary" shall mean those entities that
immediately after the completion of the Distributions will be Subsidiaries of
School Specialty.
"Separate Consolidated Federal Income Tax Liability" shall mean, for
any Group and any taxable year or portion thereof during which it is included
in the Consolidated Returns or any Prior Period Consolidated Return, the U.S.
federal income Tax liability which such Group would have incurred if such
Group, on a stand-alone basis, had been an affiliated group eligible to file
a consolidated return for such taxable year or any portion thereof and had
filed such a return for such period, computed without regard to AMT.
"Spin-Off Companies" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Spin-Off Company Groups" shall mean the Workflow Group, the School
Specialty Group, the Technology Group and the Travel Group.
"Spin-Off Company Subsidiaries" shall mean the Workflow
Subsidiaries, the School Specialty Subsidiaries, the Aztec Subsidiaries and
the Navigant Subsidiaries.
"Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture or other entity (i) in which another Person
owns, directly or indirectly, ownership interests sufficient to elect a
majority of the Board of Directors (or Persons performing similar functions)
(irrespective of whether at the time any other class or classes of ownership
interests of such corporation, partnership, limited liability company, joint
venture or other entity shall or might have such voting power upon the
occurrence of any contingency) or (ii) of which another
6
<PAGE>
Person is a general partner or an entity performing similar functions (e.g.,
a trustee or managing member).
"Tax" or "Taxes" shall mean all forms of taxation, whenever created
or imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, foreign, federal or other
body, and without limiting the generality of the foregoing, shall include
income, sales, use, ad valorem, gross receipts, license, value added,
franchise, transfer, recording, withholding, payroll, wage withholding,
employment, excise, occupation, unemployment insurance, social security,
business license, business organization stamp, environmental, premium and
property taxes, together with any related interest, penalties and additions
to any such tax, or additional amounts imposed by any Taxing Authority.
"Tax Administrator" shall mean Don Platt, the Chief Financial
Officer of USOP, or such other person as USOP shall appoint with the consent
of each of the Spin-Off Companies, which consent shall not be unreasonably
withheld or delayed.
"Taxing Authority" shall mean any governmental or quasi-governmental
body, domestic or foreign, exercising any Taxing authority or Tax regulatory
authority.
"Tax Credits" shall include all credits against Tax pursuant to
Subtitle A, Chapter 1, Subchapter A, Part IV of the Code.
"Tax Item" shall mean any net operating loss, net capital loss,
deduction or credit (including, but not limited to, any FTC).
"Technology Contribution" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Technology Distribution" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Technology Group" shall mean Aztec and each Aztec Subsidiary.
"Travel Contribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Travel Distribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Travel Group" shall mean Navigant and each Navigant Subsidiary.
"USOP" shall have the meaning assigned to such term in the preamble
to this Agreement.
"USOP Group" shall mean USOP and each Retained Subsidiary.
7
<PAGE>
"USOP Stock Plan" shall mean any of the 1994 Amended and Restated
Long-Term Incentive Plan, the 1996 Non-Employee Directors' Stock Plan, the
1997A Stock Option Plan for Employees of Mail Boxes Etc., the 1997B Stock
Option Plan for Employees of Mail Boxes Etc. and the 1997 Stock Option Plan
for former Non-Employee Directors of Mail Boxes Etc. (and any underlying
original or predecessor plans).
"Workflow Contribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Workflow Distribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Workflow Group" shall mean Workflow Management and each Workflow
Subsidiary.
"Workflow Management" shall have the meaning assigned to such term
in the preamble to this Agreement.
"Workflow Subsidiary" shall mean those entities that immediately
after the completion of the Distributions will be Subsidiaries of Workflow
Management.
"1186202" shall have the meaning assigned to such term in Section
2(d) of this Agreement.
SECTION 2
Tax Returns to be Filed
(a) Consolidated Returns and Prior Period Consolidated
Returns.
(i) Each of the Companies will join, and will cause each of
their respective Subsidiaries to join, in the Consolidated Returns to the
extent each is eligible to join in such return under the provisions of the
Code and the regulations thereunder. The Tax Administrator will cause the
Consolidated Returns to be timely prepared and filed in accordance with
applicable law, provided that if the Tax Administrator prepares a
Consolidated Return in a manner that is inconsistent with the preparation and
filing of the Prior Period Consolidated Returns and such inconsistency would
have a material adverse effect on any Spin-Off Company or its Subsidiaries,
the Tax Administrator will obtain the prior written consent of such Spin-Off
Company, which consent shall not be unreasonably withheld. The Tax
Administrator will timely prepare and file any consents and requests for
extension of time within which to file the Consolidated Returns or any
related information or similar returns. The Tax Administrator shall make the
Consolidated Returns available to the Chief Financial Officers of the
Spin-Off Companies for their review prior to filing and shall furnish them a
copy of the return promptly after it is filed.
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(ii) Each of the Spin-Off Companies agrees that it will
cause its respective Chief Financial Officer to furnish to the Tax
Administrator on a timely basis such information, schedules, analyses and any
other items as may be reasonably required to prepare the Consolidated
Returns. Such information, schedules, analyses and other items will be
prepared in a manner consistent with existing practice and in accordance with
the work plan and schedule to be agreed upon among the Tax Administrator and
the Chief Financial Officer of each of the Spin-Off Companies, acting
reasonably, as soon as practicable after the Distribution Date.
(iii) The Companies hereby agree to execute and deliver all
documentation reasonably required (including powers of attorney, if
requested) to enable the Tax Administrator to timely file, and to take all
actions necessary or incidental to the filing of, the Consolidated Returns
(including, without limitation, the execution of Treasury Form 1122), any
amendment of the Consolidated Returns or any Prior Period Consolidated
Return, or any return for which USOP has filing responsibility under Section
2(d). The Tax Administrator shall decide in his reasonable discretion whether
to file an amended return, and no consent of any Company shall be required
for the filing of any such amended return.
(iv) Taxes with respect to the Consolidated Returns or any
Prior Period Consolidated Return shall be paid or caused to be paid by USOP,
which shall act as agent of the Spin-Off Companies and their includable
Subsidiaries in all Tax matters having to do with the Consolidated Returns or
any Prior Period Consolidated Return.
(b) Other Controlled Returns. The Tax Administrator shall cause any
other Controlled Returns and any amendment of any such Controlled Returns to
be timely prepared, filed and paid, utilizing procedures substantially
similar to those provided in Section 2(a) of this Agreement with respect to
the Consolidated Returns and Prior Period Consolidated Returns.
(c) Other Tax Returns. The Companies shall, and shall cause their
respective Subsidiaries to, timely prepare and file Tax returns for any
taxable period beginning prior to the Distribution Date (other than
Controlled Returns) in those jurisdictions in which they are required to do
so in a manner consistent with past practice. Taxes shown as payable on any
Tax return filed by one of the Companies pursuant to this Section 2(c) shall
be paid or caused to be paid by the Company responsible under this Section
2(c) for filing such return or causing such return to be filed. The Tax
Administrator shall have the right to approve any Tax returns filed pursuant
to this Section 2(c) prior to such filing if USOP could be liable for Taxes
due with respect to any such Tax returns under principles analogous to
Treasury regulation section 1.1502-6.
(d) 1186202 Ontario Limited. Notwithstanding Section 2(c), USOP
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for 1186202 Ontario Limited, an Ontario corporation ("1186202") for
all periods ending prior to the Distributions and for all periods that
include the Distributions. USOP shall pay or cause to be paid, on a timely
basis, Taxes of 1186202 shown on such Tax Returns to the extent such Taxes
are attributable to any period or portion thereof ending on or before the
Distribution Date. Workflow Management and 1186202 shall furnish such Tax
information to USOP as USOP shall request for the purpose
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of preparing such Tax Returns, and shall cooperate with USOP in the execution
and filing of such Tax Returns. Workflow Management and 1186202 shall permit
USOP and its advisors to control any audits of the Tax Returns of 1186202 to
the extent the audits relate to Tax for which USOP is responsible pursuant to
this Section 2(d).
SECTION 3
Consolidated Returns Computations of Tax and Payments
(a) Computations of Tax and Payments for the Consolidated Return
year ending on April 25, 1998:
(i) On or before July 14, 1998, an interim Tax settlement
payment shall be made to or by USOP by or to each of the Spin-Off Companies,
as the case may be, equal to the difference between their respective Group's
Separate Consolidated Federal Income Tax Liability (as reasonably determined
by the Tax Administrator) and the net amounts previously paid with respect to
estimated Taxes by such Group for the Consolidated Return year ending on
April 25, 1998.
(ii) Based on computations to be prepared by the affected
Spin-Off Company and approved by the Tax Administrator, an adjusting payment
equal to the difference between its Group's Allocable Federal Income Tax
Liability and the net amounts previously paid with respect to estimated Taxes
by such Group for the Consolidated Return year ending on April 25, 1998,
including payments pursuant to Section 3(a)(i) of this Agreement, shall be
made to or by USOP by or to such Spin-Off Company, as the case may be, on or
before February 15, 1999 based on the Consolidated Return for the year ending
April 25, 1998 as filed.
(b) Computations of Tax and Payments for the Consolidated Return
year ending on April 24, 1999:
(i) On or before April 14, 1999, each of the Spin-Off
Companies agrees to make payments to USOP equal to the excess, if any, of its
Group's estimated Separate Consolidated Federal Income Tax Liability for the
Consolidated Return year ending on April 24, 1999 (as reasonably determined
by the Tax Administrator) over such Group's prior payments, including any
payments with respect to estimated Taxes for such Consolidated Return year,
and USOP agrees to make payments to each of the Spin-Off Companies equal to
the excess, if any, of their respective Group's prior payments with respect
to estimated Taxes for the Consolidated Return year ending on April 24, 1999
over such Group's estimated Separate Consolidated Federal Income Tax
Liability (as reasonably determined by the Tax Administrator) for the
Consolidated Return year ending on April 24, 1999.
(ii) On or before July 14, 1999, an interim Tax settlement
payment shall be made to or by USOP by or to each of the Spin-Off Companies,
as the case may be, equal to the difference between their respective Group's
Separate Consolidated Federal Income Tax Liability (as reasonably determined
by the Tax Administrator) and the net amounts previously
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paid with respect to estimated Taxes by such Group for the Consolidated
Return year ending on April 24, 1999.
(iii) Based on computations to be prepared by the affected
Spin-Off Company and approved by the Tax Administrator, an adjusting payment
equal to the difference between its Group's Allocable Federal Income Tax
Liability and the net amounts previously paid by such Group with respect to
estimated Taxes for the Consolidated Return year ending on April 24, 1999,
including payments pursuant to Sections 3(b)(i) and 3(b)(ii) of this
Agreement, shall be made to or by USOP by or to such Spin-Off Company, as the
case may be, on or before February 15, 2000 based on the Consolidated Return
for the year ending April 24, 1999 as filed. Each of the Spin-Off Companies
shall increase or decrease, as the case may be, its Group's liability for
such adjusting payment by the amount of any AMT credit carryforward allocated
to its Group under the consolidated return regulations which exceeds or is
less than, as the case may be, the AMT calculated on a separate consolidated
basis.
(c) Computations of Tax and Payments for Controlled Returns Other
than Consolidated Returns. Tax Payments shall be made to or by USOP by or to
each of the Spin-Off Companies, as the case may be, utilizing procedures
substantially similar to, and determining the amount payable by or to each
Group using, to the extent possible, methods substantially similar to, those
provided in Sections 3(a) and 3(b) of this Agreement with respect to any
Controlled Return other than a Consolidated Return for any period beginning
prior to the Distribution Date and ending on or after April 25, 1998.
(d) Intercompany Transactions. Each of the Spin-Off Companies shall
be liable for and shall indemnify, defend and hold USOP harmless from and
against any Losses with respect to Taxes attributable to any "intercompany
transaction" to the extent such Loss is attributable to any "intercompany
item" that such Spin-Off Company or any of its Subsidiaries is required to
take into account immediately prior to the Distributions pursuant to Treasury
Regulations section 1.1502-13.
SECTION 4
Special Rules
(a) If the Tax liability (including any interest relating thereto)
for either Consolidated Return exceeds or is less than the total of the five
Groups' Allocable Federal Income Tax Liability (including any interest
relating thereto), a payment shall be made to or by USOP by or to each of the
Spin-Off Companies equal to each of the Spin-Off Companies' pro rata portion
of such excess or shortfall based on their respective Group's relative
Allocable Federal Income Tax Liability (including any interest relating
thereto) for such Consolidated Return; provided, that AMT in an amount equal
to any AMT credit carryforward from the Consolidated Returns allocated to a
Group shall be charged to and paid by such Group.
(b) A payment shall be made to or by USOP by or to each of the
Spin-Off Companies utilizing procedures substantially similar to those
provided in Section 4(a) of this
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Agreement with respect to any Controlled Return other than a Consolidated
Return for any period beginning prior to the Distribution Date and ending on
or after April 25, 1998.
(c) Each of the Companies agrees that, unless it obtains consent of
the Tax Administrator, all members of its Group will waive the carryback of
any net operating loss from a Tax period beginning on or after the
Distribution Date to the Consolidated Returns or Prior Period Consolidated
Return.
SECTION 5
Deductions Related to Exercise of Options
Notwithstanding anything to the contrary in Section 3 of this
Agreement, any Tax saving or other benefit attributable to any compensation
deduction arising from or in connection with the exercise by any employee of
any Company, or of any such Company's Subsidiaries (determined immediately
after the Distributions), of any option granted under any of the USOP Stock
Plans shall be apportioned to the entity whose shares were issued upon the
exercise of such option, provided that any compensation deduction arising
from or in connection with any such exercise on or prior to the Closing Date
by any employee of any Company or of any such Company's Subsidiaries
(determined immediately after the Closing Date) shall be apportioned to such
Company.
SECTION 6
Dispute Resolution
In the event of a disagreement between the Tax Administrator and any
or all of the Spin-Off Companies, all computations or recomputations of
federal or state and local income and franchise Tax liability, and all
computations or recomputations of any amount or any payment (including, but
not limited to, computations of the amount of the Tax liability, any loss or
credit or deduction, federal statutory Tax rate change for a year,
utilization of carryback items, interest, penalties, and adjustments) and all
determinations of the amount of payments or repayments, or determinations of
any other nature necessary to carry out the terms of this Agreement will be
reviewed by the national office of Deloitte & Touche LLP (unless the
disputing parties unanimously agree on another accounting firm of national
reputation), with the costs of such review being shared equally by such
disputing parties. If any disagreement remains after any such review,
including any disagreement as to the construction, applicability or binding
nature of this Agreement, that disagreement shall be resolved by an
arbitrator with the cost of such arbitration being shared equally by such
disputing parties; provided that such arbitrator shall be a retired or former
judge of the United States Tax Court or such other qualified person as the
relevant parties may agree to designate; provided further, that, in the event
that the relevant parties agree to designate a qualified person (other than a
retired or former judge of the United States Tax Court), such other qualified
person shall have had substantial experience with regard to settling complex
Tax disputes. The decision of the arbitrator shall be binding on the parties.
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If the procedures for resolving a dispute, controversy or claim
between the Companies or any of their respective Subsidiaries arising out of
or relating to this Agreement are not controlled by this Agreement, such
dispute, controversy or claim shall be resolved (and costs shall be
apportioned) pursuant to the procedures set forth in Article IX of the
Distribution Agreement.
SECTION 7
Survival of Terms
The provisions of this Agreement shall survive the Distribution Date
and remain in full force until all periods of limitations, including any
extension or waiver periods, as well as the ten-year statute of limitations
with respect to FTC redeterminations, for the Controlled Return taxable
periods, have expired and no further carrybacks to such periods are possible
and for 30 days thereafter; provided that the provisions of this Agreement
shall remain in full force and effect with respect to any pending claim under
this Agreement until the final resolution of such claim.
SECTION 8
Parties to Cooperate
Each of the Companies shall, and shall cause their respective
Subsidiaries to, cooperate fully and to the extent reasonably requested by
any other Company in connection with the preparation and filing of any return
or the conduct of any audit, dispute, proceeding, suit or action concerning
any issues or any other matter contemplated hereunder. Such cooperation shall
include, without limitation, (i) the retention and provision on demand of
books, records, documentation or other information relating to any Tax matter
until the later of (x) the expiration of the applicable statute of limitation
(giving effect to any extension, waiver, or mitigation thereof) and (y) in
the event any claim has been made under this Agreement for which such
information is relevant, until a Final Determination with respect to such
claim, (ii) the provision of additional information with respect to, and
explanations of, Tax practices (including elections, accounting methods,
conventions and principles of taxation) and the provision of material
described in clause (i) of this Section 8; (iii) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax return by any member of one of the Groups, or in connection
with any audit, proceeding, suit or action addressed in the preceding
sentence; and (iv) the use by each of the Companies of its reasonable efforts
to obtain any documentation from a governmental authority or a third party
that may be necessary or helpful in connection with the foregoing. Each of
the Companies shall make its employees and facilities available on a mutually
convenient basis to facilitate such cooperation and shall retain as permanent
records all documentation necessary to enable it to determine any obligation
under this Agreement. The records described above will be made available to
representatives of any of the Companies within a reasonable time upon request
and may be photocopied on an as needed basis. The requesting Company shall
pay the reasonable out of pocket costs incurred by any Company, or Subsidiary
thereof, in cooperating with the requesting Company pursuant to this Section 8.
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SECTION 9
Notices
Any notice, request, instruction or other communication to be given
hereunder by any party to another shall be in writing and shall be deemed to
have been duly given (i) on the date of delivery if delivered personally, or
by telefacsimile, upon confirmation of receipt, (ii) on the first business
day following the date of dispatch if delivered by Federal Express or other
nationally reputable next-day courier service with proof of delivery, or
(iii) on the fifth business day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive
such notice.
(a) If to Workflow Management:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Attention: Thomas B. D'Agostino
Telefacsimile: (561) 659-7793
(b) If to School Specialty:
School Specialty, Inc.
1000 North Bluemound Drive
Appleton, Wisconsin 54914
Attention: Daniel P. Spalding
Telefacsimile: (920) 734-6276
(c) If to Aztec:
Aztec Technology Partners, Inc.
52 Roland Street
Boston, Massachusetts 02129
Attention: James E. Claypoole
Telefacsimile: (617) 623-5888
(d) If to Navigant:
Navigant International, Inc.
84 Inverness Circle East
Englewood, Colorado 80112-5314
Attention: Edward S. Adams
Telefacsimile: (303) 706-0770
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(e) If to USOP:
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W., Suite 600 East
Washington, D.C. 20007-5490
Attention: Mark D. Director, Esq.
Kathleen Delaney, Esq.
Telefacsimile: (202) 339-6733
with copies to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
Eighteenth Floor
New York, NY 10152
Attention: Donald J. Gogel
Telefacsimile: (212) 407-5200
SECTION 10
Indemnification
(a) Pre-Distribution & Distribution Taxes.
(i) USOP Indemnification. USOP shall be liable for and shall
indemnify, defend and hold the Spin-Off Companies harmless from and against any
Losses with respect to Taxes that result from, or arise in connection with, an
Adverse Tax Act of USOP or any of the Retained Subsidiaries.
(ii) Spin-Off Companies Indemnification. The Spin-Off
Companies shall be jointly and severally liable for and shall jointly and
severally indemnify, defend and hold USOP harmless from and against any
Losses with respect to Taxes that result from, or arise in connection with,
an Adverse Tax Act of any of the Spin-Off Companies or any of their
respective Subsidiaries.
(iii) Multiple Adverse Tax Acts. If any Losses with respect
to Taxes result from, or arise in connection with, (a) an Adverse Tax Act of
USOP or any of the Retained Subsidiaries and (b) an Adverse Tax Act of any or
all of the Spin-Off Companies or any of their respective Subsidiaries (each
Spin-Off Company that is responsible or whose Subsidiary is responsible for
an Adverse Tax Act a "Distributing Tax Payor"), then the Spin-Off Companies
shall be jointly and severally liable for and shall jointly and severally
indemnify, defend and hold USOP harmless from and against a percentage of
such Losses with respect to Taxes equal to the percentage determined by
dividing (x) the aggregate Market Capitalizations of the Distributing Tax
Payors by (y) the aggregate Market Capitalizations of the Distributing Tax
Payors and USOP.
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(iv) No Adverse Tax Acts. If USOP incurs any Losses with
respect to Taxes resulting from the Contributions or Distributions, as a
result of the failure of the Contributions or Distributions to qualify under
Section 355 or 368 of the Code or otherwise, including, without limitation,
by reason of any stock or securities of any of the Spin-Off Companies failing
to qualify as "qualified property" within the meaning of Section 355(c)(2) of
the Code, except to the extent such Losses result from an Adverse Tax Act by
any of the Companies or any of their respective Subsidiaries, then each of
the Spin-Off Companies shall be liable for and shall indemnify, defend and
hold USOP harmless from the portion of such Losses that bears the same ratio
to the aggregate amount of such Losses as the Market Capitalization of such
Spin-Off Company bears to the aggregate Market Capitalization of all of the
Companies.
(b) Treasury Regulations Sections 1.1502-6 and 1.1502-77. USOP shall
be liable for and shall indemnify, defend and hold each of the Spin-Off
Companies harmless from and against any federal or state income or franchise
Taxes for the Consolidated Return or any Prior Period Consolidated Return for
which any of the Spin-Off Company Groups may be liable solely as a result of
the operation of Treasury Regulation Sections 1.1502-6 and 1.1502-77 or any
state counterpart statute or regulation.
SECTION 11
Tax Deficiencies and Claims
(a) Except as otherwise provided in Section 11(b), the Tax
Administrator shall control all audits, examinations and proceedings with
respect to Taxes with respect to any Controlled Returns. The Tax
Administrator shall have overall responsibility for obtaining and
coordinating all responses in connection with any such proceedings with
respect to any Controlled Returns. To the extent that any such audit affects
one of the Groups, such Group shall prepare and submit such responses in a
manner consistent with prior practice; provided, however that the Tax
Administrator shall have the right to approve all such responses prior to
their submission. Adjustments affecting solely the taxable income, gain, loss
or deductions of, or Tax Credits generated by, any Group may be agreed upon
or settled only upon approval of that Group, which approval shall not be
unreasonably withheld or delayed.
(b) Spin-Off Company Claims. Any proposed or actual income Tax
deficiencies or refund claims with respect to Controlled Returns which arise
from the business activities of one of the Spin-Off Company Groups, and do
not otherwise affect any Controlled Return or the Tax treatment of the
Contributions or Distributions, may be defended or prosecuted by such Group
at its own cost and expense and with counsel and accountants of its own
selection; provided that in an action for an income Tax deficiency such Group
shall have theretofore acknowledged in writing its liability for such Taxes,
if any. The Tax Administrator may participate in any such prosecution or
defense at USOP's cost and expense (in either event such cost or expense is
not to include the amount of any payment of any Tax claim, interest or
penalties, or of any compromise settlement or other disposition thereof).
Notwithstanding the foregoing, none of the Spin-Off Company Groups shall have
a right to an extension of the statute of limitations beyond the time
reasonably necessary to complete review at the Appeals Division of the IRS
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or to any waiver of any other procedural safeguard without the prior written
consent of the Tax Administrator, which consent shall not be unreasonably
withheld. The limitation expressed in the preceding sentence applies, but is
not limited to, the filing of a petition with the United States Tax Court. If
one of the Spin-Off Groups defends or prosecutes an action, it shall keep the
Tax Administrator informed of matters relating to such defense or prosecution.
(c) Cost of Advisors. In connection with the defense of any audit of
any Controlled Return, except with regard to claims described in Section
11(b) of this Agreement, the Tax Administrator may retain advisors and charge
the reasonable cost of their services to the appropriate Group or Groups.
SECTION 12
Payment of Deficiencies and Refunds
(a) The Allocable Federal Income Tax Liability and any other Tax
liability of the Spin-Off Company Groups with respect to any Controlled
Returns shall be adjusted in computations to be prepared by the relevant
Spin-Off Company Group and approved by the Tax Administrator with respect to
changes in the taxable income, loss, deduction or Tax credits of the relevant
Spin-Off Company Group:
(i) in each instance when payments are to be made to,
or refunds are received from, the relevant Taxing Authority;
(ii) when no payment is to be made or refund is to be
received due to offsetting adjustments, upon filing of an amended return,
completion of an audit and an appellate review by the relevant Taxing Authority;
and
(iii) to reflect the results of any Final Determination.
Each of the Spin-Off Companies agree to pay to USOP additional
amounts (plus penalties and additions to Tax, if any) equal to any increases
in the Allocable Federal Income Tax Liability (or any other Tax liability
with respect to a Controlled Return) of such Spin-Off Company's Group
resulting from any such changes, and USOP agrees to pay to each of the
Spin-Off Companies amounts equal to any decreases in the Allocable Federal
Income Tax Liability (or any other Tax liability with respect to a Controlled
Return) of each such Spin-Off Company's Group resulting from any such
changes, in each case together with any interest relating thereto. For
purposes of this Agreement, unless specifically provided otherwise, interest
shall be computed at the federal statutory rate used, pursuant to Section
6621(a) of the Code, by the IRS in computing the interest payable to or by it
on the net balance due to or from the IRS. Any interest under Section 6621(c)
of the Code shall be charged to the Group whose separate deficiency gave rise
to such interest. If the separate deficiencies of more than one Group gave
rise to such interest, then such interest shall be allocated between or among
such Groups. Penalties levied in respect of any Controlled Return shall be
charged to the Group whose separate computations gave rise to such penalty.
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(b) Amounts payable to or from USOP from or to any of the Spin-Off
Companies under Section 12(a) of this Agreement shall be paid upon written
request therefor approved by the Tax Administrator, together with interest
thereon from the original due date or such other date as may be appropriate
under the circumstances. Any amounts due to or from USOP from or to any of
the Spin-Off Companies under Section 12(a) of this Agreement as a result of a
payment to a Taxing Authority or the receipt of a refund shall be paid within
five working days after such payment or receipt, together with appropriate
interest thereon. If no payment is to be made or refund is to be received due
to offsetting items among the various Groups, then Tax and interest (computed
at the IRS overpayment rates) shall be paid within 30 calendar days after the
completion of each of the audit and appellate review of the Tax period in
question and a Final Determination. After expiration of the five day period
(or, if applicable, 30 day period) any amounts unpaid shall bear interest
computed from the date of payment or receipt (or, if applicable, completion
or Final Determination) at the Prime Rate.
(c) No payment relating to a change in Allocable Federal Income Tax
Liability (or any other Tax liability with respect to a Controlled Return)
shall be made by or to any Group with respect to the IRS audit of any
Controlled Return until the audit has been completed with respect to all
Groups, unless such advance payment has been approved by the Tax
Administrator.
SECTION 13
Certain Post-Distribution Actions
(a) USOP.
(i) USOP shall comply with and otherwise not take any
action inconsistent with any representation or statement made, or to be made,
by or on behalf of any member of the USOP Group in connection with this
Agreement or to USOP's outside Tax counsel in connection with such firm's
rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
(ii) Until two years after the Distribution Date, USOP will
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Code.
(b) Workflow Management.
(i) Workflow Management shall comply with and otherwise not
take action inconsistent with each representation and statement made, or to
be made, by or on behalf of any member of the Workflow Group in connection
with this Agreement or to USOP's outside Tax counsel in connection with such
firm's rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
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(ii) Until two years after the Distribution Date, Workflow
Management will maintain its status as a company engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Code.
(c) School Specialty.
(i) School Specialty shall comply with and otherwise not
take action inconsistent with each representation and statement made, or to
be made, by or on behalf of any member of the School Specialty Group in
connection with this Agreement or to USOP's outside Tax counsel in connection
with such firm's rendering an opinion to the Companies as to certain Tax
aspects of the Contributions and Distributions.
(ii) Until two years after the Distribution Date, School
Specialty will maintain its status as a company engaged in the active conduct
of a trade or business, as defined in Section 355(b) of the Code.
(d) Aztec.
(i) Aztec shall comply with and otherwise not take action
inconsistent with each representation and statement made, or to be made, by
or on behalf of any member of the Technology Group in connection with this
Agreement or to USOP's outside Tax counsel in connection with such firm's
rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
(ii) Until two years after the Distribution Date, Aztec
will maintain its status as a company engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
(e) Navigant.
(i) Navigant shall comply with and otherwise not take
action inconsistent with each representation and statement made, or to be
made, by or on behalf of any member of the Travel Group in connection with
this Agreement or to USOP's outside Tax counsel in connection with such
firm's rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
(ii) Until two years after the Distribution Date, Navigant
will maintain its status as a company engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
(f) During the two-year period following the Distribution Date, none
of the Spin-Off Companies shall effect any Restricted Transaction unless and
until the following conditions have been satisfied or waived, in writing, by
USOP with respect to such Restricted Transaction:
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(i) Such Company shall have given USOP at least 10 business
days' written notice prior to effecting such Restricted Transaction, which
notice shall describe the Restricted Transaction in detail reasonably
sufficient to permit analysis of the potential effect of the Restricted
Transaction on the U.S. federal income tax treatment of the Contributions and
the Distributions; provided, that such Company will not be required to
disclose the name of any other party participating in the Restricted
Transaction unless such disclosure is necessary to permit such analysis; and
provided further, that USOP will keep confidential all information relating
to the Restricted Transaction;
(ii) Such Company shall have afforded USOP and its
representatives 10 business days (which may overlap with the notice period in
Section 13(f)(i) of this Agreement) to discuss with the Spin-Off Company and
its representatives the terms of such Restricted Transaction, subject to the
provisos in Section 13(f)(i); and
(iii) At USOP's request, such Company shall have provided
to USOP, an opinion of outside counsel, reasonably satisfactory to USOP, in
form and substance reasonably satisfactory to USOP, to the effect that such
transaction will not adversely affect the U.S. federal income tax treatment
of the Contributions and/or the Distributions as transactions described in
Sections 355 and 368 of the Code.
SECTION 14
Entire Agreement and Termination of Existing Tax Allocation Agreements
This Agreement contains the entire agreement among the Companies
with respect to the subject matter hereof. Any and all existing tax
allocation agreements, written or unwritten, exclusively between any member
of the USOP Group and any member of any of the Spin-Off Company Groups other
than this Agreement shall be terminated immediately prior to the Distribution
Date. Nothing in this Section 14 shall affect any provision of the
Distribution Agreement or of this Agreement relating to Taxes.
SECTION 15
Choice of Law; Successors and Assigns
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware applicable to contracts made and
to be performed entirely within such state, without regard to the conflicts
of law principles of such state.
The provisions of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Companies and their respective
successors and permitted assigns.
20
<PAGE>
SECTION 16
Modifications
This Agreement may not be amended, supplemented or discharged except
by performance or by an instrument in writing signed by all of the Companies.
SECTION 17
Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
21
<PAGE>
IN WITNESS WHEREOF, the Companies have duly executed this Agreement
as of the date first above written.
U.S. OFFICE PRODUCTS COMPANY
By /s/ Mark D. Director
-----------------------------------
Name: Mark D. Director
Title: Executive Vice President
WORKFLOW MANAGEMENT, INC.
By /s/ Thomas B. D'Agostino
-----------------------------------
Name: Thomas B. D'Agostino
Title: President
SCHOOL SPECIALTY, INC.
By
-----------------------------------
Name:
Title:
AZTEC TECHNOLOGY PARTNERS, INC.
By
-----------------------------------
Name:
Title:
IN WITNESS WHEREOF, the Companies have duly executed this Agreement
as of the date first above written.
U.S. OFFICE PRODUCTS COMPANY
By
-----------------------------------
Name:
Title:
WORKFLOW MANAGEMENT, INC.
By
-----------------------------------
Name:
Title:
SCHOOL SPECIALTY, INC.
By /s/ Daniel P. Spalding
-----------------------------------
Name: Daniel P. Spalding
Title: President
AZTEC TECHNOLOGY PARTNERS, INC.
By
-----------------------------------
Name:
Title:
IN WITNESS WHEREOF, the Companies have duly executed this Agreement
as of the date first above written.
U.S. OFFICE PRODUCTS COMPANY
By
-----------------------------------
Name:
Title:
WORKFLOW MANAGEMENT, INC.
By
-----------------------------------
Name:
Title:
SCHOOL SPECIALTY, INC.
By
-----------------------------------
Name:
Title:
AZTEC TECHNOLOGY PARTNERS, INC.
By /s/ James E. Claypoole
-----------------------------------
Name: James E. Claypoole
Title: Chief Executive Officer
22
<PAGE>
NAVIGANT INTERNATIONAL, INC.
By /s/ Edward S. Adams
-------------------------------------
Name: Edward S. Adams
Title: President
23
<PAGE>
EXECUTION COPY
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT, dated as of June 9, 1998, among
Workflow Management, Inc., a Delaware corporation ("Workflow Management"),
School Specialty, Inc., a Delaware corporation ("School Specialty"), Aztec
Technology Partners, Inc., a Delaware corporation ("Aztec") and Navigant
International, Inc., a Delaware corporation ("Navigant"). Workflow Graphics,
School Specialty, Aztec and Navigant are hereinafter jointly referred to as the
"Companies."
WITNESSETH
WHEREAS, U.S. Office Products Company, a Delaware Corporation ("USOP")
and the Companies entered into an agreement dated as of June ___,1998 (the "Tax
Allocation Agreement") to allocate the Tax burdens and benefits of transactions
which occurred on or prior to the Distribution Date, and to provide for certain
other tax matters, including the assignment of responsibility for the
preparation and filing of Tax returns and the prosecution and defense of any Tax
controversies; and
WHEREAS, pursuant to Section 10 of the Tax Allocation Agreement, the
Companies are jointly and severally liable for and will jointly and severally
indemnify, defend and hold USOP harmless from and against any Losses with
respect to Taxes that result from or arise in connection with an Adverse Tax Act
of any of the Companies or any of their respective Subsidiaries.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies (each on its own behalf and on behalf of each of its
Subsidiaries) hereby agree as follows:
SECTION 1
Definitions
-----------
As used in this Agreement, the following terms shall have the following meaning:
"Adverse Company" shall mean a Company that has or whose Subsidiary has
committed an Adverse Tax Act.
"Adverse Tax Act" shall have the meaning assigned to such term in the
Tax Allocation Agreement.
<PAGE>
"Agreement" shall mean this Tax Indemnification Agreement.
"Aztec" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Companies" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Losses" shall have the meaning assigned to such term in the Tax
Allocation Agreement.
"Market Capitalization" shall have the meaning assigned to such term in
the Tax Allocation Agreement.
"Navigant" shall have the meaning assigned to such term in the preamble
to this Agreement.
"Non-Adverse Company" shall mean a Company that has not and whose
Subsidiaries have not committed an Adverse Tax Act.
"School Specialty" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Subsidiary" shall have the meaning assigned to such term in the Tax
Allocation Agreement.
"Tax" or "Taxes" shall have the meaning assigned to such term in the
Tax Allocation Agreement.
"Tax Allocation Agreement" shall have the meaning assigned to such term
in the recitals to this Agreement.
"USOP" shall have the meaning assigned to such term in the recitals to
this Agreement.
"Workflow Management" shall have the meaning assigned to such term in
the preamble to this Agreement.
2
<PAGE>
SECTION 2
Indemnification
---------------
(a) Workflow Management Indemnification. Workflow Management
shall be liable for and shall indemnify, defend and hold the Non-Adverse
Companies harmless from and against an amount equal to that which each of the
Non-Adverse Companies pays to USOP pursuant to Section 10 of the Tax Allocation
Agreement as a result of an Adverse Tax Act of Workflow Management or its
Subsidiaries.
(b) School Specialty Indemnification. School Specialty shall be liable
for and shall indemnify, defend and hold the Non-Adverse Companies harmless from
and against an amount equal to that which each of the Non-Adverse Companies pays
to USOP pursuant to Section 10 of the Tax Allocation Agreement as a result of an
Adverse Tax Act of School Specialty or its Subsidiaries.
(c) Aztec Indemnification. Aztec shall be liable for and shall
indemnify, defend and hold the Non-Adverse Companies harmless from and against
an amount equal to that which each of the Non-Adverse Companies pays to USOP
pursuant to Section 10 of the Tax Allocation Agreement as a result of an Adverse
Tax Act of Aztec or its Subsidiaries.
(d) Navigant Indemnification. Navigant shall be liable for and shall
indemnify, defend and hold the Non-Adverse Companies harmless from and against
an amount equal to that which each of the Non-Adverse Companies pays to USOP
pursuant to Section 10 of the Tax Allocation Agreement as a result of an Adverse
Tax Act of Navigant or its Subsidiaries.
(e) Right of Contribution. With respect to any Adverse Tax Act, the
Non- Adverse Companies shall have rights and obligations of contribution among
themselves to the extent necessary to cause the payments by each Non-Adverse
Company to USOP pursuant to Section 10 of the Tax Allocation Agreement as of any
date, adjusted for payments received from the Adverse Company under Section 2(a)
through 2(d) hereof and for payments made to, or received from, any other
Non-Adverse Company under this Section 2(e), to be in proportion to the
Non-Adverse Companies' respective Market Capitalizations.
SECTION 3
Dispute Resolution
------------------
Any dispute, controversy or claim between the Companies or any of their
respective Subsidiaries arising out of or relating to this Agreement shall be
resolved (and costs shall be apportioned) pursuant to the procedures set forth
in Article IX of the Distribution Agreement.
3
<PAGE>
SECTION 4
Choice of Law; Successors and Assigns
-------------------------------------
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware applicable to contracts made and to
be performed entirely within such state, without regard to the conflicts of law
principles of such state.
The provisions of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Companies and their respective successors
and permitted assigns.
SECTION 5
Entire Agreement and Modifications
----------------------------------
This Agreement contains the entire agreement among the Companies with
respect to the subject matter hereof and supersedes all prior written Tax
Indemnification agreements, memoranda, negotiations and oral understandings, if
any, and may not be amended, supplemented or discharged except by performance or
by an instrument in writing signed by all of the Companies.
SECTION 6
Counterparts
------------
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the Companies have duly executed this Agreement as
of the date first above written.
WORKFLOW MANAGEMENT, INC.
By /s/ Thomas B. D'Agostino
--------------------------------
Name: Thomas B. D'Agostino
Title: President
SCHOOL SPECIALTY, INC.
By /s/ Daniel Spalding
--------------------------------
Name: Daniel Spalding
Title: President
AZTEC TECHNOLOGY PARTNERS, INC.
By /s/ James E. Claypoole
--------------------------------
Name: James E. Claypoole
Title: Chairman
Chief Executive Office
NAVIGANT INTERNATIONAL, INC.
By /s/ Edward S. Adams
--------------------------------
Name: Edward S. Adams
Title: President
5
<PAGE>
Exhibit 10.7
EMPLOYEE BENEFITS SERVICES AND LIABILITIES AGREEMENT
This EMPLOYEE BENEFITS SERVICES AND LIABILITIES AGREEMENT dated as of
June 9, 1998 (the "Benefits Agreement"), between U.S. OFFICE PRODUCTS COMPANY, a
Delaware corporation (the "Company"), WORKFLOW MANAGEMENT, INC., a Delaware
corporation and wholly owned subsidiary of the Company ("Printco"), SCHOOL
SPECIALTY, INC., a Delaware corporation and wholly owned subsidiary of the
Company ("Schoolco"), AZTEC TECHNOLOGY PARTNERS, INC., a Delaware corporation
and wholly owned subsidiary of the Company ("Techco"), and NAVIGANT
INTERNATIONAL, INC., a Delaware corporation and wholly owned subsidiary of the
Company ("Travelco") pursuant to the agreement and plan of distribution dated as
of June 9, 1998 (the "Distribution Agreement") among Company, Printco, Schoolco,
Techco, and Travelco.
WHEREAS, the Board of Directors of the Company has determined that it
is appropriate and desirable to enter into the Benefits Agreement as an
Ancillary Agreement under the Distribution Agreement; and
WHEREAS, each of the Company, Printco, Schoolco, Techco, and Travelco
has determined that it is necessary and desirable to allocate and assign
responsibility for certain employee benefit liabilities in respect of the
activities of the businesses of such entities on and following the Distribution
Date.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company, Printco, Schoolco, Techco, and Travelco agree as
follows:
1. PURPOSE AND DEFINITIONS
a. Purpose. The purpose of this Benefits Agreement is to set
forth the agreement of the Company, Printco, Schoolco, Techco, and Travelco
regarding the allocation and assignment of the respective rights and obligations
of each before and after the Distributions with respect to their current and
former employees and with respect to benefits and compensation matters.
b. Definitions. In addition to the terms defined elsewhere in
the text or in the Distribution Agreement, as used in this Benefits Agreement,
the following terms have the following meanings:
"Distributed Company Employees" shall mean the Printco
Employees, Schoolco Employees, Techco Employees, and Travelco Employees,
collectively.
<PAGE>
"Employee" shall mean, as to the Company and each
Distributed Company, an individual who is employed (including an individual
who is not actively employed because of an approved disability, lay-off with
right of recall or an authorized leave of absence (or who is receiving salary
continuation severance payments)) by the Company or the specified Distributed
Company or any of their respective Subsidiaries (other than, for the Company,
any Distributed Company or its Subsidiaries) immediately before the
Distribution.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Former Employee" shall mean a former employee of the
Company or the specified Distributed Company or any of their respective
Subsidiaries (other than, for the Company, any Distributed Company or its
Subsidiaries) whose employment terminated before the Distribution.
"Individual" shall mean each Employee and Former
Employee. Solely for purposes of Section 3(b), "Individual" shall also
include unsuccessful applicants for employment.
"Stand-Alone Plan" shall mean each benefit or
compensation plan, program, policy, or arrangement currently or formerly
maintained for the exclusive benefit of all or some Individuals with respect
to the Company or the applicable Distributed Company.
2. EMPLOYEES. Effective as of the Distribution Date and unless
otherwise provided by the Distribution Agreement, each Company Employee, Printco
Employee, Schoolco Employee, Travelco Employee, and Techco Employee will remain
an employee of his or her respective employer. Nothing contained in this Section
2 confers on any such person any right to continued employment, whether before
or after the Distribution Date, nor does it detract from or otherwise amend any
employment agreement currently in force, except as specifically noted.
3. GENERAL PRINCIPLES. Except as otherwise provided in this Benefits
Agreement, as of the Distribution Date:
a. Each party will remain or become responsible for its
respective Stand-Alone Plans.
b. The Company, Printco, Schoolco, Techco, and Travelco each will
be allocated Liability for employment-related claims regardless of when filed
(including, but not limited to, harassment and discrimination) based upon
whether the claimant was at the time the claim arose, respectively, a Company
Individual, Printco Individual, Schoolco Individual, Techco Individual, or
Travelco Individual.
c. Except as specifically provided herein, as of and after the
Distribution Date, all Liabilities with respect to employee benefit plans,
programs, or arrangements relating to (i) Company Former Employees that
presently are Company liabilities will be retained by the
2
<PAGE>
Company, (ii) Printco Former Employees that presently are Company or Printco
liabilities will be retained or assumed by Printco, as applicable, (iii)
Schoolco Former Employees that presently are Company or Schoolco liabilities
will be retained or assumed by Schoolco, as applicable, (iv) Techco Former
Employees that presently are Company or Techco liabilities will be retained or
assumed by Techco, as applicable, and (v) Travelco Former Employees that
presently are Company or Travelco liabilities will be retained or assumed by
Travelco, as applicable.
d. Except to the extent recognition of past service credit would
result in a duplication of benefits, the Company, Printco, Schoolco, Techco,
and Travelco each will give past service credit under its applicable benefit
plans, programs, policies and arrangements to participants therein to the
extent their past service credit was recognized under the comparable benefit
plan, program, policy, or arrangement of the Company or its Subsidiaries in
which the Employee participated immediately before the Distribution Date.
e. No provision of this Benefits Agreement requires any of the
parties to continue any plan, program, policy, or arrangement for any period
of time after the Distributions.
f. Each party will amend its respective plans, programs,
policies, and arrangements (whether newly established, assumed, or retained)
to the extent necessary to reflect the provisions of this Benefits Agreement.
g. Any Company Employee, Printco Employee, Schoolco Employee,
Techco Employee, or Travelco Employee who continues in employment with the
Company, Printco, Schoolco, Techco, or Travelco or any related Subsidiaries
following the Distribution Date will not be deemed to have terminated
employment solely as a result of the Distribution for purposes of any benefit
or compensation plan, program, policy, or arrangement maintained by the
Company, Printco, Schoolco, Techco, or Travelco.
h. The Company will release any third party beneficiary rights it
may have to enforce employment agreements assumed or retained by the
Distributed Companies (other than with respect to the Company's
"Information," as defined in those agreements).
4. 401(k) PLAN
a. The Company will retain sponsorship of the U.S. Office
Products 401(k) Retirement Plan (the "Company 401(k) Plan").
b. Effective as of or as soon as practicable after the
Distribution, the Distributed Companies will each establish new qualified
401(k) plans covering each Distributed Company and all or substantially all
of its Subsidiaries in the United States. Distributed Company Employees will
cease participation in the Company 401(k) Plan effective as close in time
before the Distribution Date as is reasonably practicable. Distributed
Company Employees who have outstanding participant loans under the Company
401(k) Plan will be permitted to continue
3
<PAGE>
making loan payments to the Company 401(k) Plan until such time as the loans are
transferred to the Distributed Company's 401(k) Plan.
c. Upon receipt by the Company and each of the Distributed
Companies of favorable determination letters from the Internal Revenue
Service to the effect that a newly established plan meets the requirements
for qualification under Section 401(a) of the Code (or as the parties
otherwise mutually agree), the Company will cause to be transferred to the
trusts established under the newly-established 401(k) plans, the respective
account balances (including any related loans and qualified domestic
relations orders) and related assets of that employer's Employees. Upon such
transfer, Printco, Schoolco, Techco, and Travelco will assume the related
liabilities.
5. MEDICAL PLANS
a. Effective as of the Distribution Date, each of the Distributed
Companies will assume or retain sponsorship of their respective Stand-Alone
Plans that are medical (including dental) plans and arrangements and will
assume or retain responsibility for continuation health coverage under ERISA
Section 601 et seq. with respect to their respective Individuals.
b. To the extent permitted under any applicable indemnity, health
maintenance organization or stop-loss contracts, any newly established health
plans will waive waiting periods, pre-existing conditions to the extent
waived or satisfied under the applicable Stand-Alone Plan, and credit
deductible/copayments satisfied by Employees, if any, who are transferring
among the respective employers in connection with the Distributions. The
Company will use its best efforts to assist the Distributed Companies in
their negotiations with any third parties to accomplish the waiver of such
waiting periods and pre-existing conditions and the crediting of such
deductibles and co-payments.
6. CAFETERIA PLAN
a. The Company will amend the U.S. Office Products Cafeteria
Compensation Plan (the "Company Cafeteria Plan") to provide for spinning off
to each Distributed Company the portions of the Cafeteria Plan's obligations
and credits that apply to that Distributed Company.
b. Effective as of the Distribution Date, each Distributed
Company will adopt a cafeteria plan substantially identical to the Cafeteria
Plan to receive and implement the obligations and credits spun off from the
Cafeteria Plan.
c. Each Distributed Company will treat as remaining in effect any
elections the Distributed Company Employees made before the Distribution with
respect to the Health Care Reimbursement Plan Benefit, the Dependent Care
Assistance Program Benefit, the Health Insurance Benefit, and, to the extent
offered by the Distributed Company after the Distribution,
4
<PAGE>
the Dental Insurance Benefit (each "Benefit" having the meaning provided in the
Company Cafeteria Plan).
d. After the spinoffs described in this Section, Distributed
Company Employees will submit any claims for the plan year ending December
31, 1998 to their respective Distributed Company's plan and not to the
Company Cafeteria Plan.
7. SEVERANCE
Effective as of the Distribution Date, the Company, Printco, Schoolco,
Techco, and Travelco each will be liable for any severance pay and benefits
(including salary continuation) owing, as of or after the Distribution Date, to
Company Individuals, Printco Individuals, Schoolco Individuals, Techco
Individuals, and Travelco Individuals, respectively.
8. STOCK OPTIONS
a. The Company will retain the 1994 Amended and Restated USOP
Long-Term Incentive Plan (the "Company Stock Plan") and the obligations under
that plan with respect to stock options granted thereunder that are held by
or in respect of Company Employees.
b. The Distributed Companies will establish stock option plans
under which they will provide options to their respective Employees to
replace any options those employees hold under the Company Stock Plan and
under which they may offer additional options.
c. Any option granted by a Distributed Company in replacement for
an option under the Company Stock Plan will expressly provide that it is
being granted in full satisfaction of, and in substitution for, any and all
Company stock options with respect to which it relates.
9. FOREIGN PLANS
Subject to applicable local law requirements and to the extent
practicable, the respective rights and obligations of the Company, Printco,
Schoolco, Techco, and Travelco (and their respective Subsidiaries) with respect
to plans maintained by the Company and its Subsidiaries immediately before the
Distribution Date outside of the United States will be treated in a manner
consistent with the general principles described in Section 2 of this Benefits
Agreement; provided, however, that nothing herein shall be construed so as to
(A) modify the terms and conditions of employment of any Company Employee,
Printco Employee, Schoolco Employee, Techco Employee, or Travelco Employee who
is employed outside of the United States (a "Foreign Employee") or (B)
constitute an actual or constructive termination of any Foreign Employee's
employment with the Company, Printco, Schoolco, Techco, Travelco, or any of
their respective Subsidiaries, as applicable.
5
<PAGE>
10. COOPERATION
a. The Company and the Distributed Companies will cooperate in
providing each other and other necessary parties with such data as may be
necessary to administer their respective benefit plans in accordance with the
terms of this Agreement. To that end, each will share, and will cause their
affiliates to share, with each other and their respective agents and vendors
(without obtaining releases) all participant, plan design, and other
information necessary for the efficient and accurate administration of,
compliance with laws and regulations applicable to, and response to
governmental authorities regarding, their respective benefit plans, programs,
and arrangements after the Distribution. Each party to this agreement and
their respective authorized agents will, subject to applicable laws on
confidentiality, be given reasonable and timely access to, and may make
copies of, all information relating to the subjects of this Agreement in the
custody of another party, to the extent necessary for such administration.
b. The Company and the Distributed Companies agree to cooperate
in completing all necessary filings with the Internal Revenue Service,
Department of Labor, and Pension Benefit Guaranty Corporation with respect to
the matters provided herein and will apprise the other parties hereto of any
written or oral communication to or from any such agency with respect thereto
that may bear on such other parties' interests hereunder. The Company will
make all necessary Internal Revenue Service filings for the 1997 plan year
and, if applicable, any "short year" filings for the 1998 plan year, with
respect to the plans (other than Stand-Alone Plans) in which Distributed
Company Employees participated before the Distribution Date.
11. NO THIRD PARTY BENEFICIARIES.
Notwithstanding anything to the contrary herein, this Benefits
Agreement is solely for the benefit of the Company and the Distributed
Companies. There shall be no third party beneficiaries under this Benefits
Agreement, including, without limitation, any Company Individual, Printco
Individual, Schoolco Individual, Techco Individual, or Travelco Individual.
12. INCORPORATION BY REFERENCE.
This Benefits Agreement is part of the Distribution Agreement, and
shall be incorporated by reference into the Distribution Agreement as if set
forth fully therein. Without limiting the generality of the foregoing, the
parties acknowledge and agree that all provisions of the Distribution Agreement
relating to Indemnification, Dispute Resolution, Notices, and the other
provisions labeled "Miscellaneous" in the Distribution Agreement shall apply
with respect to the matters described herein as if such terms were incorporated
herein and a part hereof.
13. TAX DEDUCTIONS
Except as otherwise provided in Section 5 of the Tax Allocation
Agreement dated June 9, 1998 between the Company, Printco, Schoolco, Techco and
Travelco, the parties intend that the party that actually bears the cost
(whether directly or indirectly) of making a payment with respect
6
<PAGE>
to, or (except as provided below) whose stock is used to satisfy, a liability
governed by this Agreement will be entitled to any and all tax benefits
associated therewith, including the benefit of taking an income tax deduction
with respect to such payment or satisfaction, and will be obligated to satisfy
all tax withholding obligations with respect there, and the parties agree to
take no action inconsistent with such intention. Notwithstanding that intent,
the parties recognize that it is possible that the Internal Revenue Service or
another taxing authority will take a different position. Therefore, the parties
agree that
if any of them is notified by the IRS or another taxing authority that it
is taking or proposes to take a different position, the party receiving
such notice will notify any others affected by the notice; and
if, when, and to the extent that one party or its Subsidiary receives a tax
benefit as a result of a payment made by another party to satisfy a
liability governed by this Agreement, the benefiting party will pay or
cause its Subsidiary to pay the other party an amount equal to the "net tax
benefit" (as defined below) realized by the benefiting party, as and when
realized.
For this purpose, the "net tax benefit" to either party resulting from payment
or satisfaction of a liability will be deemed to equal the excess of (a) the
taxes that would have been paid by such party if such party had not paid or
satisfied such liability over (b) the taxes that the party actually pays.
14. MISCELLANEOUS
a. Complete Agreement; Construction. This Benefits Agreement,
including all Exhibits attached hereto, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all previous negotiations, commitments, and writings with respect to such
subject matter.
b. Supersession. In the event of any conflict between any of the terms
of this Benefits Agreement and the terms of either Distribution Agreement, the
terms of this Benefits Agreement will govern.
15. OTHER ACTIONS. The parties hereto shall take such other and further
actions as may be necessary or appropriate to carry out this Benefits Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Benefits Agreement to
be executed by their duly authorized officers as of the day and year first
written above.
U.S. OFFICE PRODUCTS COMPANY
by
/s/ Mark D. Director
-------------------------
Name: Mark D. Director
Title: Executive Vice President -
Administration
WORKFLOW MANAGEMENT, INC.
by
/s/ Thomas B. D'Agostino
-------------------------
Name: Thomas B. D'Agostino
Title: President
SCHOOL SPECIALTY, INC.
by
/s/ Daniel P. Spalding
-------------------------
Name: Daniel P. Spalding
Title: President
AZTEC TECHNOLOGY PARTNERS, INC.
by
/s/ James E. Claypoole
-------------------------
Name: James E. Claypoole
Title: Chairman
NAVIGANT INTERNATIONAL, INC.
by
/s/ Edward S. Adams
-------------------------
Name: Edward S. Adams
Title: President
-8-
<PAGE>
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
<PAGE>
subject to Awards and the maximum number of shares for any one Participant to
be made by such executive officers.
(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 10,000,000 shares of Common Stock. Of
these 10,000,000 shares, the maximum number that may be granted as Incentive
Stock Options (as hereinafter defined) 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 calendar 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")
2
<PAGE>
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.
(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.
3
<PAGE>
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").
(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)
4
<PAGE>
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
(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,
5
<PAGE>
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
(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
6
<PAGE>
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
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
7
<PAGE>
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 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
8
<PAGE>
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 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 orany 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
<PAGE>
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
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
10
<PAGE>
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.
(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
11
<PAGE>
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.
Adopted by the Board of Directors on
June 7, 1998.
Approved by the stockholders as of
_____________ ___, 1998.
12
<PAGE>
Exhibit 10.10
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
5.4 Taxes ....................................................................9
-ii-
<PAGE>
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>
-iii-
<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
<PAGE>
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
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
-2-
<PAGE>
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
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
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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 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, to equal 4.5% of the total outstanding
shares of Company common stock (calculated on a fully diluted basis after
such grant), 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.
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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 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
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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 Pursuant to
Section 4.4 Hereof 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 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
that are payable monthly 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
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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.
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:
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(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 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
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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:
(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
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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");
(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
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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 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
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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.
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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
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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
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Employer Stock Option Plan 3.6
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
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: /s/ Clifford Mitman /s/ James E. Claypoole
--------------------------- ------------------------------
Chairperson James E. Claypoole
Compensation Committee
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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, or without
cause, 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;
-A1-
<PAGE>
(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
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.
-A2-
<PAGE>
(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.
(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>
AZTEC TECHNOLOGY PARTNERS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
June 7, 1998
The purpose of this Plan is to provide eligible employees of Aztec
Consulting 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
<PAGE>
employee has a contractual right to purchase shall be treated as stock owned
by the employee.
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).
2
<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).
3
<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.
4
<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
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
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 the
Directors as follows:
(i) each Director, effective upon the date that the Company
becomes subject to the Securities Exchange Act of 1934, 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.
2
<PAGE>
(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 the shares of Common Stock underlying the Special
Options may not be sold by the Director or his or her transferee 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 unexercised 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
3
<PAGE>
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 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
4
<PAGE>
(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 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 thirty
percent (30%) 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 thirty percent (30%) 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.
5
<PAGE>
9. Termination and Amendment of the Plan.
The Board of Directors may suspend or terminate the Plan or amend it in
any respect whatsoever.
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 June 7, 1998.
Adopted by the Board of Directors on
June 7, 1998.
Approved by the stockholders as of
_____________ ___, 1998.
6
<PAGE>
Exhibit 21
AZTEC TECHNOLOGY PARTNERS, INC.
Subsidiaries of Registrant
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Aztec International LLC Delaware
Bay State Computer Group LLC Delaware
Compel LLC Delaware
Entra Computer Corp. Ohio
Fortran Corp. Maryland
Mahon Communications Corporations Massachusetts
Office Equipment Service Co., Inc. Tennessee
Professional Computer Solutions, Inc. New York
Professional Network Services, Inc. Connecticut
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-58315, 333-58319, 333-58323) of Aztec
Technology Partners, Inc. of our report dated June 24, 1998 appearing on
page F-2 of this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 23, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-58315, 333-58319, 333-58323) of Aztec
Technology Partners, Inc. 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 Fotran Corp., appearing on page F-3 of this Form 10-K.
Rubin, Koehmstedt and Nadler, PLC
Springfield, Virginia
July 21, 1998
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