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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-24417
AZTEC TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in charter)
Delaware 04-3408450
(State of Incorporation) (I.R.S. Employer Identification No.)
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
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
--------------
22,196,357 shares of the registrant's common stock, par value $0.001, were
outstanding as of August 10, 1999.
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AZTEC TECHNOLOGY PARTNERS, INC.
FORM 10-Q
Table of Contents
June 30, 1999
<TABLE>
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets...................................................... 3
Condensed Consolidated Statements of Operations............................................ 4
Condensed Consolidated Statements of Cash Flows ........................................... 5
Notes to Condensed Consolidated Financial Statements ...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................... 10
Year 2000 Readiness Disclosure Statements.................................................. 13
Factors That May Affect Future Results..................................................... 15
Item 3. Quantitative and Qualitative Disclosure About Market Risks........................ 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................. 21
Item 5. Other Information ................................................................. 21
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits ..................................................................... 21
B. Reports on Form 8-K .......................................................... 21
Signatures ................................................................................ 21
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 3,163 $ 8,763
Accounts receivable, net ........................................ 71,758 74,138
Inventories, net ................................................ 10,423 11,323
Unbilled percentage of completion revenues ...................... 2,616 5,922
Other receivable ................................................ -- 10,550
Prepaid expenses and other current assets ....................... 11,900 10,232
-------- --------
Total current assets ........................................ 99,860 120,928
Property and equipment, net ..................................... 9,475 7,603
Intangibles, net ................................................ 128,098 129,792
Other assets .................................................... 1,995 2,196
-------- --------
Total assets ................................................ $239,428 $260,519
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............................ $ 197 $ 216
Accounts payable ................................................ 35,176 43,937
Accrued compensation ............................................ 7,627 5,791
Deferred revenue ................................................ 7,146 4,732
Other accrued liabilities ....................................... 3,791 7,821
-------- --------
Total current liabilities ................................... 53,937 62,497
Long-term debt ...................................................... 75,535 90,218
Deferred income taxes ............................................... 473 141
Other long-term liabilities ......................................... 1,255 697
-------- --------
Total liabilities ........................................... 131,200 153,553
-------- --------
Stockholders' equity:
Common stock - $.001 par value, 150,000,000 shares authorized,
22,196,865 and 21,937,902 shares issued and outstanding,
respectively 22 22
Additional paid-in capital ...................................... 94,032 93,584
Retained earnings ............................................... 14,174 13,360
-------- --------
Total stockholders' equity .................................. 108,228 106,966
-------- --------
Total liabilities and stockholders' equity .................. $239,428 $260,519
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Products ................................................. $ 53,741 $ 34,215 $ 101,234 $ 61,981
Services ................................................. 41,646 37,358 80,128 74,883
--------- --------- --------- ---------
Total revenues ....................................... 95,387 71,573 181,362 136,864
--------- --------- --------- ---------
Gross profit:
Products ................................................. 6,097 4,228 10,402 6,959
Services ................................................. 16,057 12,728 30,326 25,216
--------- --------- --------- ---------
Total gross profit ................................... 22,154 16,956 40,728 32,175
Selling, general and administrative expenses ................. 18,366 12,575 33,887 23,513
Amortization of intangibles .................................. 1,260 410 2,520 831
Strategic restructuring costs ................................ (345) 4,946 (345) 4,946
--------- --------- --------- ---------
Operating income (loss) .............................. 2,873 (975) 4,666 2,885
Interest and other expense (income) .......................... 1,486 33 3,015 (18)
--------- --------- --------- ---------
Income (loss) before provision for (benefit from) income taxes 1,387 (1,008) 1,651 2,903
Provision for (benefit from) income taxes .................... 717 (454) 837 1,792
--------- --------- --------- ---------
Net income (loss) ............................................ $ 670 $ (554) $ 814 $ 1,111
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted-average shares outstanding:
Basic .................................................... 22,016 25,662 22,016 26,001
Diluted .................................................. 22,016 25,662 22,189 26,363
Per share amounts:
Basic .................................................... $ 0.03 $ (0.02) $ 0.04 $ 0.04
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted .................................................. $ 0.03 $ (0.02) $ 0.04 $ 0.04
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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AZTEC TECHNOLOGY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 814 $ 1,111
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense ............... 3,475 1,613
Deferred income taxes ............................... 332 890
Stock option tender offer ........................... -- 1,897
Changes in current assets and liabilities ........... 7,479 (16,444)
-------- --------
Net cash provided by (used in) operating activities . 12,100 (10,933)
-------- --------
Cash flows from investing activities:
Cash paid in acquisitions ........................... -- (363)
Additions to property and equipment, net of disposals (2,722) (1,853)
Other ............................................... (724) (410)
-------- --------
Net cash used in investing activities ............... (3,446) (2,626)
-------- --------
Cash flows from financing activities:
Payments of long-term debt .......................... (14,702) (134)
Proceeds from issuance of common stock .............. 448 --
Payments to U.S. Office Products .................... -- (1,034)
Capital contribution by U.S. Office Products ........ -- 14,344
-------- --------
Net cash (used in) provided by financing activities . (14,254) 13,176
-------- --------
Net decrease in cash and cash equivalents ........... (5,600) (383)
Cash and cash equivalents at beginning of period .... 8,763 1,818
-------- --------
Cash and cash equivalents at end of period .......... $ 3,163 $ 1,435
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
(unaudited)
1. NATURE OF BUSINESS
Aztec Technology Partners, Inc. ("Aztec" or the "Company") is a
single-source provider of comprehensive e-Solutions for business,
helping clients exploit internet, intranet and extranet technologies
for competitive advantage. The Company provides a broad range of
services principally in the Northeast region of the United States and,
to a lesser extent, in other regions of the United States.
The Company was a wholly-owned subsidiary of U.S. Office Products, Inc.
("USOP") prior to the Company's spin-off from USOP on June 9, 1998,
which was effected through the distribution of shares of the Company to
USOP shareholders. The spin-off of Aztec as an independent
publicly-owned company was part of USOP's comprehensive restructuring
plan.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission regarding interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with
the consolidated financial statements and notes thereto for the
thirty-five weeks ended December 31, 1998, included in the Company's
Transition Report on Form 10-K/A Amendment No.1. The accompanying
condensed consolidated financial statements reflect all adjustments
(consisting solely of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of results for
the interim periods presented. The results of operations for the three
months and the six months ended June 30, 1999 are not necessarily
indicative of results expected for the full fiscal period or any other
future periods.
The condensed statement of income for the six months ended June 30,
1998 reflects revenues and expenses incurred through June 9, 1998 that
were directly related to the Company as it was operated within USOP and
includes all of the related costs of doing business including an
allocation of certain general corporate expenses of USOP which were not
directly related to these businesses. Management believes these
allocations were made on a reasonable basis.
Weighted-average shares outstanding used in the basic and diluted
earnings per share calculations for the six months ended June 30, 1998
is calculated based upon the number of USOP common shares outstanding
through June 9, 1998 and the number of Aztec common shares
outstanding from June 10, 1998 to June 30, 1998.
6
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3. EARNINGS PER SHARE
The following is a summary of the shares used in computing basic and
diluted net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in computing
basic net income (loss) per share ................ 22,016 25,662 22,016 26,001
Dilutive stock options .............................. -- -- 173 362
------ ------ ------ ------
Weighted average shares outstanding used in computing
diluted net income (loss) per share .............. 22,016 25,662 22,189 26,363
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
4. SEGMENT DATA
The Company manages its business segments primarily on a geographic
basis. The Company's reportable segments are comprised of the New
England, Tri-State, Northeast Telephony, and West regions of the United
States. Other operating segments are located in other sections of the
country. Each operating segment provides comprehensive e-solutions as
described in Note 1.
The Company evaluates the performance of its segments based on
operating income. Operating income for each segment includes selling,
general and administrative expenses directly attributable to the
segment and excludes certain expenses which are managed outside of the
reportable segments. Costs excluded from segments' operating income
primarily consist of corporate expenses including administrative
expenses, amortization of intangibles, interest and income taxes, as
well as other non-recurring restructuring and acquisition related
costs. Segment assets exclude corporate assets which primarily consist
of cash and cash equivalents, certain deferred assets, intangibles and
investments in subsidiaries. Capital expenditures for long-lived assets
are not a significant activity of the reportable operating segments
and, as such, not a primary focus of management in reviewing operating
segment performance.
Summary information by segment for the three and six months ended June
30, 1999 and June 30, 1998 is as follows:
7
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<TABLE>
<CAPTION>
NORTHEAST
NEW ENGLAND TRI-STATE TELEPHONY WEST OTHER TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 1999
Revenue:
Products ................. $36,176 $ 7,435 $ 1,820 $ -- $ 8,310 $53,741
Services ................. 10,229 9,654 6,419 8,890 6,454 41,646
------- ------- ------- ------- ------- -------
Total ................... $46,405 $17,089 $ 8,239 $ 8,890 $14,764 $95,387
Gross profit ............... $ 7,374 $ 4,950 $ 3,247 $ 2,605 $ 3,977 $22,153
Operating income ........... $ 1,980 $ 773 $ 857 $ 1,105 $ 1,700 $ 6,415
Depreciation ............... $ 137 $ 133 $ 61 $ 98 $ 26 $ 455
Assets ..................... $41,405 $22,200 $10,288 $11,064 $14,348 $99,305
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST
NEW ENGLAND TRI-STATE TELEPHONY WEST OTHER TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 1998
Revenue:
Products ................. $23,255 $ 5,772 $ 2,099 $ -- $ 3,089 $34,215
Services ................. 8,828 8,036 7,838 10,862 1,794 37,358
------- ------- ------- ------- ------- -------
Total ................... $32,083 $13,808 $ 9,937 $10,862 $ 4,883 $71,573
Gross profit ............... $ 5,771 $ 3,967 $ 3,744 $ 2,279 $ 1,195 $16,956
Operating income ........... $ 1,969 $ 1,056 $ 857 $ 987 $ 922 $ 5,791
Depreciation ............... $ 124 $ 132 $ 62 $ 106 $ 80 $ 504
Assets ..................... $27,007 $17,240 $12,398 $13,112 $ 5,041 $74,798
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST
NEW ENGLAND TRI-STATE TELEPHONY WEST OTHER TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1999
Revenue:
Products ............... $ 61,017 $ 17,818 $ 3,611 $ -- $ 18,788 $101,234
Services ............... 18,168 18,684 14,139 16,119 13,018 80,128
-------- -------- -------- -------- -------- --------
Total ................. $ 79,185 $ 36,502 $ 17,750 $ 16,119 $ 31,806 $181,362
Gross profit ............. $ 12,306 $ 9,557 $ 7,026 $ 4,051 $ 7,788 $ 40,728
Operating income.......... $ 3,058 $ 1,700 $ 2,195 $ 1,205 $ 3,412 $ 11,570
Depreciation ............. $ 261 $ 261 $ 120 $ 196 $ 73 $ 911
Assets ................... $ 41,405 $ 22,200 $ 10,288 $ 11,064 $ 14,348 $ 99,305
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST
NEW ENGLAND TRI-STATE TELEPHONY WEST OTHER TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1998
Revenue:
Products ............... $ 40,283 $ 11,107 $ 4,017 $ -- $ 6,574 $ 61,981
Services ............... 17,221 14,713 15,483 23,837 3,629 74,883
-------- -------- -------- -------- -------- --------
Total ................. $ 57,504 $ 25,820 $ 19,500 $ 23,837 $ 10,203 $136,864
Gross profit ............. $ 10,528 $ 7,281 $ 7,818 $ 4,776 $ 1,772 $ 32,175
Operating income.......... $ 2,963 $ 1,901 $ 2,580 $ 2,160 $ 709 $ 10,313
Depreciation ............. $ 218 $ 221 $ 125 $ 202 $ 57 $ 823
Assets ................... $ 27,007 $ 17,240 $ 12,398 $ 13,112 $ 5,041 $ 74,798
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
8
<PAGE>
A reconciliation of the Company's reportable segment operating income
and segment assets to the corresponding consolidated amounts as of and
for the three and six months ended June 30, 1999 and June 30, 1998 is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Segment operating income .... $ 6,415 $ 5,791 $ 11,570 $ 10,313
Corporate expenses .......... 2,627 1,409 4,729 1,651
Amortization of intangibles . 1,260 410 2,520 831
Strategic restructuring costs (345) 4,946 (345) 4,946
--------- --------- --------- ---------
Total operating income ...... $ 2,873 $ (975) $ 4,666 $ 2,885
--------- --------- --------- ---------
--------- --------- --------- ---------
Segment assets .............. $ 99,305 $ 74,798 $ 99,305 $ 74,798
Corporate assets ........... 12,025 3,114 12,025 3,114
Intangible assets ........... 128,098 63,554 128,098 63,554
--------- --------- --------- ---------
Total assets ................ $ 239,428 $ 141,466 $ 239,428 $ 141,466
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Aztec is a single-source provider of comprehensive e-Solutions for business,
helping clients exploit internet, intranet and extranet technologies for
competitive advantage. The Company derives its revenues principally from (i)
fees for services rendered to customers for Web and network design and
implementation, web-based application development and customization, voice and
data infrastructure, design and integration, and IT consulting, support and
outsourcing; and (ii) sales of products to customers within these business
sectors (including telephony systems and network hardware and software). Aztec's
primary focus is the 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.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
-------------------- ------------------ ---------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues 76.8 76.3 77.5 76.5
---------------- ---------------- ------------ ---------------
Gross profit 23.2 23.7 22.5 23.5
Selling, general and administrative expenses 19.3 17.6 18.7 17.2
Amortization of intangibles 1.3 0.6 1.4 0.6
Strategic restructuring costs (0.4) 6.9 (0.2) 3.6
---------------- ---------------- ------------ ---------------
Operating income (loss) 3.0 (1.4) 2.6 2.1
Other expense, net 1.5 0.0 1.7 0.0
---------------- ---------------- ------------ ---------------
Income (loss) before income taxes 1.5 (1.4) 0.9 2.1
Provision for (benefit from) income taxes 0.8 (0.6) 0.5 1.3
---------------- ---------------- ------------ ---------------
Net income (loss) 0.7 % (0.8)% 0.4 % 0.8 %
---------------- ---------------- ------------ ---------------
---------------- ---------------- ------------ ---------------
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998.
Consolidated revenues increased 33.3% from $71.6 million for the three
months ended June 30, 1998 to $95.4 million for the three months ended June 30,
1999. This increase was due primarily to an increase in product sales in the
Company's New England and Tri-State regions from sales to existing customers
combined with product revenue from the Company's expanded customer base
resulting from an acquisition in July 1998. In addition, services revenue
increased modestly from staffing related services resulting from an acquisition
in September 1998 combined with an increase in network and application
development related services in the New England and Tri-State regions. This
increase was offset in part by a reduction in data communications revenue in the
Company's West region.
10
<PAGE>
Gross profit increased 30.7% from $17.0 million, or 23.7% of revenues,
for the three months ended June 30, 1998 to $22.2 million, or 23.2% of revenues,
for the three months ended June 30, 1999. The decrease in gross profit as a
percentage of revenues was due primarily to a higher concentration of product
revenue as a percent of total revenues for the three months ended June 30, 1999
compared to the prior year period, combined with competitive pressures on
product pricing. The decrease in gross profit as a percentage of revenue was
offset slightly by improved margins from services due primarily to improved
margins in web-based application development related services in the Company's
Tri-State region.
Selling, general and administrative expenses increased 46.1% from $12.6
million, or 17.6% of revenues, for the three months ended June 30, 1998 to $18.4
million, or 19.3% of revenues, for the three months ended June 30, 1999. The
increase in selling, general and administrative expenses as a percentage of
revenues was due primarily to higher corporate costs associated with being an
independent, publicly traded company, incentive related costs, primarily
commissions, due to increased revenue and legal and investment bank fees
associated with the Company's strategic initiatives. Legal and investment
bank fees approximated $.8 million.
Amortization of intangibles increased $.9 million from $.4 million for
the three months ended June 30, 1998 to $1.3 million for the three months ended
June 30, 1999 due to amortization expense related to companies acquired in the
second half of 1998.
Strategic restructuring costs of ($.3) million for the three months
ended June 30, 1999 represent the reversal of excess severance costs
associated with restructuring charges accrued in the fourth quarter of 1998.
Strategic restructuring costs of $4.9 million for the three months ended June
30, 1998 represent costs incurred related to the Company's spin-off from
USOP, compensation related non-cash charges resulting from USOP's buyback of
certain employee options during its tender offer on June 1, 1998, and the
Company's portion of the costs incurred by USOP as a result of USOP's
restructuring plan, including costs incurred related to the Company's
withdrawn initial public offering.
Interest and other expense of $.03 million for the three months ended
June 30, 1998 increased to $1.5 million of interest and other expense in the
three months ended June 30, 1999 primarily due to the Company's financing of its
acquisitions in the second half of 1998 through its credit facility.
Benefit from income taxes was ($.5) million in the three months ended
June 30, 1998 compared to a provision for income taxes of $.7 million in the
three months ended June 30, 1999, reflecting effective tax rates of (45.0%) and
51.7%, respectively.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998.
Consolidated revenues increased 32.5% from $136.9 million for the six
months ended June 30, 1998 to $181.4 million for the six months ended June 30,
1999. This increase was due primarily to an increase in product sales in the
Company's New England and Tri-State regions to existing customers combined with
revenue from the Company's expanded customer base resulting from an acquisition
in July 1998. In addition, services revenue increased modestly from staffing
related services resulting from an acquisition in September 1998 combined with
an increase in network and application development related services in the New
England and Tri-State regions. This increase was offset in part by a reduction
in data communications revenue in the Company's West region.
Gross profit increased 26.6% from $32.2 million, or 23.5% of revenues,
for the six months ended June 30, 1998 to $40.7 million, or 22.5% of revenues,
for the six months ended June 30, 1999. The decrease in gross profit as a
percentage of revenues was due primarily to a higher concentration of product
revenue as a percent of total revenues for the six months ended June 30, 1999
compared to the prior year period, combined with competitive pressures on
product pricing. The decrease in gross profit as a percentage of revenue was
offset slightly by improved margins from services due primarily to improved
margins in web-based application development related services in the Company's
Tri-State region.
11
<PAGE>
Selling, general and administrative expenses increased 44.1% from $23.5
million, or 17.2% of revenues, for the six months ended June 30, 1998 to $33.9
million, or 18.7% of revenues, for the six months ended June 30, 1999. The
increase in selling, general and administrative expenses as a percentage of
revenues was due primarily to higher corporate costs associated with being an
independent, publicly traded company, incentive related costs, primarily
commissions, due to increased revenue and legal and investment bank fees
associated with the Company's strategic initiatives. Legal and investment bank
fees approximated $.8 million.
Amortization of intangibles increased $1.7 million from $.8 million for
the six months ended June 30, 1998 to $2.5 million for the six months ended June
30, 1999 due to amortization expense related to companies acquired in the second
half of 1998.
Strategic restructuring costs of ($.3) million for the six months
ended June 30, 1999 represent the reversal of excess severance costs
associated with restructuring charges accrued in the fourth quarter of 1998.
Strategic restructuring costs of $4.9 million for the six months ended June
30, 1998 represent costs incurred related to the Company's spin-off from
USOP, compensation related non-cash charges resulting from USOP's buyback of
certain employee options during its tender offer on June 1, 1998, and the
Company's portion of the costs incurred by USOP as a result of USOP's
restructuring plan including costs incurred related to the Company's
withdrawn initial public offering.
Interest and other expense (income) of ($.02) million for the six
months ended June 30, 1998 increased to $3.0 million of interest and other
expense in the six months ended June 30, 1999 primarily due to the Company's
financing of its acquisitions in the second half of 1998 through its credit
facility.
Provision for income taxes decreased from $1.8 million in the six
months ended June 30, 1998 to $.8 million in the six months ended June 30, 1999,
reflecting effective tax rates of 61.7% and 50.7%, respectively. The higher
effective tax rate for the six months ended June 30, 1998 is the result of the
fiscal 1998 fourth quarter tax provision adjustment to state tax expense at the
effective rate for the full fiscal year when the Company was still a
wholly-owned subsidiary of USOP.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, Aztec had cash of $3.2 million and working capital of
$45.9 million. Aztec's capitalization, defined as the sum of long-term debt and
stockholders' equity, at June 30, 1999 was approximately $184.0 million.
During the six months ended June 30, 1999, net cash provided by
operating activities was $12.1 million. Net cash used in investing activities
was $3.4 million, which consisted primarily of $2.7 million of additions of
property and equipment. Net cash used in financing activities was $14.3 million,
reflecting the $10.6 million recovery from Solutions E.T.C. used to pay down
long-term debt on the credit facility, as well as payment of approximately $4.0
million to reduce the working capital portion of the credit facility.
During the six months ended June 30, 1998, net cash used in operating
activities was $10.9 million. Net cash used in investing activities was $2.6
million, which consisted primarily of additions to property and equipment. Net
cash provided by financing activities was $13.2 million which consisted
primarily of capital contributed by USOP in anticipation of a strategic
restructuring.
As of June 30, 1999, Aztec had made $2.7 million in capital
expenditures against the $4.0 million budgeted for 1999. The largest items
include $.8 million for Year 2000 remediation. In addition, the Company may be
required to pay $3.3 million related to certain option agreements, pending
certain events, during April 2001.
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<PAGE>
The Company is closely monitoring its compliance with the financial
covenants under its credit facility. The Company's working capital line of
credit is a significant factor in the Company's ability to meet its liquidity
requirements. At June 30, 1999, the Company could borrow an additional $6.0
million based on its financial covenants under its credit facility, however
there can be no assurance that the Company will continue to have such ability
to borrow and remain in compliance with its financial covenants; however 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 existing operations through the end of calendar 1999.
YEAR 2000 READINESS DISCLOSURE STATEMENTS
Historically, many computer programs have been written using two digits
rather than four to define the applicable year. This could lead, in many cases,
to a computer recognizing a date ending in "00" as 1900 rather than the year
2000. This phenomenon could result in major computer system failures or
miscalculations, and is generally referred to as the "Year 2000" problem.
The Company has conducted its assessment of its exposure to the Year
2000 problem and has established a detailed response to that exposure.
Generally, the Company has Year 2000 exposure in three areas: 1) Information
Technology ("IT") Related Systems--financial and management computerized
operating systems used to manage the Company's business; 2) Non-IT Related
Systems--equipment with "embedded chips" used by the Company, including
telephone and building security systems; and 3) Third Parties--computer
systems used by third parties, in particular customers and suppliers of the
Company.
IT RELATED SYSTEMS
The Company has initiated a Year 2000 readiness plan for its financial
and management computerized operating systems. This plan includes assessment,
solution evaluation, implementation, results monitoring, and contingency
planning. Assessment includes determining if the current systems are Year 2000
compliant and whether they meet the Company's business needs. The solution
evaluation phase involves the review of the remediation alternatives including
modification, upgrading or replacement of certain IT systems. The result of this
phase is the determination of the remediation effort involved. Implementation of
the solution includes extensive testing and verification. The results of the
remediation efforts must be monitored once the implementation phase is complete.
Contingency planning begins once a solution is determined and continues until
completion of the entire remediation effort. To date, the Company has conducted
the assessment phase for all IT Systems used by the business, has evaluated
solutions for all critical IT Systems used by the business, and the
implementation phase is in its final stages. The Company utilizes primarily
packaged software and expects that certain systems will be upgraded and others
will be replaced in order to meet Year 2000 requirements. The Company
anticipates that critical systems will be Year 2000 compliant during 1999.
NON-IT RELATED SYSTEMS
Major Non-IT systems utilized by the Company include telephone and
building security systems, as well as other equipment with "embedded chips". If
the Company determines that any Non-IT related systems are not Year 2000
compliant, it will be necessary to adjust the estimates of the cost of Year 2000
remediation and determine a Year 2000 plan including solution evaluation,
implementation, results monitoring, and contingency planning. Assurances
regarding Year 2000 compliance for Non-IT related system vendors are being
handled in the same manner as other third parties (see discussion below). The
Company conducted its assessment of Year 2000 compliance for Non-IT related
systems in the first half of 1999 and expects to complete remediation during the
third quarter 1999.
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<PAGE>
THIRD PARTIES
The Company is seeking assurances, as an ongoing process, from its
suppliers and customers that their systems and products are Year 2000 compliant.
The determination of compliance will include assessments by the Company of the
exposure of Year 2000 issues to suppliers and customers, anticipated risks,
their responses to those risks and their contingency plans. To date, the Company
is not aware of any Year 2000 problems at any of its customers or suppliers that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that these
suppliers and customers will be Year 2000 ready, and the Company believes that
customers and prospective customers may defer non-critical IT projects in order
to devote necessary resources to fixing their own Year 2000 problems. The
inability of those parties to become Year 2000 compliant on a timely basis could
materially impact the Company.
COST OF REMEDIATION
The Company estimates that the total cost of remediation for all three
categories of Year 2000 problems will be approximately $2.8 million, of which,
to date, approximately $1.5 million has been incurred. The majority of costs
represent implementation of new systems and thus, have been capitalized as of
June 30, 1999. The source of funds for the Company's Year 2000 plan is from
operating cash flows. No IT projects have been deferred by the Company due to
Year 2000 efforts.
RISKS
Although the Company, based on its analysis to date, does not
believe that it will incur any material costs or experience material
disruptions in its business related to the Year 2000 problem, there can be no
assurances that the Company or its third parties, customers or suppliers will
successfully become Year 2000 compliant on a timely basis and thus will not
experience serious unanticipated negative consequences or material costs.
Undetected errors or defects in the technology used for the Company's
systems, which include hardware and software, and defects in the systems of
the Company's third parties, could cause these consequences. The most likely
worst case scenario would include 1) hardware failure, 2) software failure
resulting in an inability to receive orders from customers or shipments from
suppliers or to bill customers and pay suppliers, and 3) failure of
infrastructure services provided by third parties (such as phone systems and
building security systems).
The Company believes that services provided customers are Year 2000
compliant. However, the Company integrates third party products into the
solutions created for customers. Aztec cannot evaluate whether all of these
third-party products are Year 2000 compliant. The Company may face claims
based on Year 2000 problems in other companies' products or based on issues
arising from the integration of such products into the Company's solutions.
Although no Year 2000 claims have been made against Aztec, in the future, the
Company may be required to defend its products in legal proceedings which
could have a material impact regardless of the merits of these claims.
CONTINGENCY PLANS
The Company has neared completion of a formalized contingency plan in
the event of a Year 2000 failure. However, the contingency plan will further
depend on results of evaluation and testing of remediation which will be
conducted during the third and fourth quarters of 1999. The Company expects its
contingency plans to include, among other things, manual and programmatic
solutions to correct issues not imbedded in third party hardware and software.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL
RESULTS TO DIFFER FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS MADE IN
THIS FORM 10-Q AND PRESENTED ELSEWHERE BY MANAGEMENT FROM TIME TO TIME. THE
FOLLOWING FACTORS CONTAIN SOME FORWARD LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS GIVE OUR CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. YOU CAN
IDENTIFY THESE STATEMENTS BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO
HISTORICAL OR CURRENT FACTS. THEY USE WORDS SUCH AS "ANTICIPATE," "ESTIMATE,"
"EXPECT," "PROJECT," "INTEND," "PLAN," BELIEVE," AND OTHER WORDS AND TERMS OF
SIMILAR MEANING IN CONNECTION WITH ANY DISCUSSION OF FUTURE OPERATING OR
FINANCIAL PERFORMANCE. IN PARTICULAR, THESE INCLUDE STATEMENTS RELATING TO OUR
ANTICIPATED OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1999, AND OUR
ANTICIPATED CASH FLOW AND TO FUTURE ACTIONS, FUTURE PERFORMANCE OR RESULTS OF
CURRENT AND ANTICIPATED SALES AND MARKETING EFFORTS, EXPENSES, THE OUTCOME OF
CONTINGENCIES SUCH AS LEGAL PROCEEDINGS, AND OTHER FINANCIAL RESULTS. FROM TIME
TO TIME, WE ALSO MAY PROVIDE ORAL OR WRITTEN FORWARD-LOOKING STATEMENTS IN OTHER
MATERIALS WE RELEASE TO THE PUBLIC.
ANY OR ALL OF OUR FORWARD-LOOKING STATEMENTS IN THIS REPORT, AND IN ANY
OTHER PUBLIC STATEMENTS WE MAKE MAY TURN OUT TO BE WRONG. THEY CAN BE AFFECTED
BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN RISKS AND
UNCERTAINTIES. MANY FACTORS MENTIONED IN THE DISCUSSION BELOW WILL BE IMPORTANT
IN DETERMINING FUTURE RESULTS. CONSEQUENTLY, NO FORWARD-LOOKING STATEMENT CAN BE
GUARANTEED. ACTUAL FUTURE RESULTS MAY VARY MATERIALLY.
WE UNDERTAKE NO OBLIGATIONS TO PUBLICLY UPDATE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
YOU ARE ADVISED, HOWEVER, TO CONSULT ANY FURTHER DISCLOSURES WE MAKE IN OUR
10-K, 10-Q, 8-K AND OTHER REPORTS TO THE SEC.
LISTING OF COMMON STOCK ON THE NASDAQ SMALLCAP MARKET
On June 24, 1999, the Company announced that Aztec's common stock
would be listed on the Nasdaq SmallCap Market effective June 25, 1999. The
decision to transfer the listing from the Nasdaq National Market was made
following a hearing in which the Nasdaq Listing Qualifications Panel's
conclusion that the Company no longer satisfied the National Market listing
requirements. There can be no assurance that investors will not have less
liquidity in their shares as a result of the transfer of listing from the
Nasdaq National Market.
Low trading prices of the Company's Common Stock may have an adverse
impact upon the efficient operation of the trading market in the securities. In
particular, brokerage firms often charge a greater percentage commission on
low-priced shares than that which would be charged on a transaction in the same
dollar amount of securities with a higher per share price. A number of brokerage
firms will not recommend purchases of low-priced stock to their clients or make
a market in such shares, which tendencies may adversely affect the Company.
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
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<PAGE>
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. At June 30, 1999
approximately 70% of Aztec's employees were 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. 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.
RELIANCE ON KEY PERSONNEL
Aztec's operations depend on the continued efforts of James E.
Claypoole, its Chairman and Chief Executive Officer, Benjamin Tandowski, its
Chief Technology Officer, Ira Cohen, its Chief Operating Officer, Ross
Weintraub, its Chief Financial Officer, its operating company presidents, and
the senior management of certain of its operating companies. 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, Aztec's business could
be adversely affected. Aztec does not currently maintain key man life insurance
policies for any of its officers or other personnel.
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.
POTENTIAL CONFLICTS IN THE DISTRIBUTION
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 a distribution agreement, tax allocation agreement, and employee
benefits agreement. The Spin-Off Companies also entered into the tax
indemnification agreement. These agreements provide for, among other things,
USOP and
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<PAGE>
Aztec to indemnify each other from tax and other liabilities relating to their
respective businesses prior to and following the Distribution.
Certain indemnification obligations of Aztec and the other Spin-Off
Companies to USOP are joint and several. Therefore, if one of the other Spin-Off
Companies fails to satisfy its indemnification obligations to USOP when such a
loss occurs, Aztec may be required to reimburse USOP 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 USOP not specifically related to the
specific businesses to be conducted by the Spin-Off Companies and
post-Distribution USOP among USOP and each of the Spin-Off Companies. Adverse
developments involving USOP or the other Spin-Off Companies, or material
disputes with USOP, could have a material adverse effect on Aztec.
The terms of the agreements that govern the relationships among Aztec,
USOP and the other Spin-Off Companies were established by USOP in consultation
with management of Aztec and the other Spin-Off Companies prior to the
Distribution and while Aztec and the other Spin-Off Companies were wholly-owned
subsidiaries of USOP. The terms of these agreements, including the allocation of
general corporate and securities liabilities among USOP, 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 USOP
Board of Directors, received options for 1,660,500 shares of the Company's
common stock and options for shares of each of the other Spin-Off Companies
exercisable for 7.5% of the common stock of each of the other Spin-Off
Companies. As a result of the receipt of the options, Mr. Ledecky had interests
in the Distribution that differed in certain respects from the interests of
other stockholders of USOP and Aztec.
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTION
In connection with the Distribution, Aztec entered into a tax
allocation agreement with USOP and the other Spin-Off Companies, which provides
that Aztec and the other Spin-Off Companies will jointly and severally indemnify
USOP for any losses associated with taxes related to the Distribution
("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 spin-offs in the Distribution are taxable. Aztec also entered into
a 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 USOP 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 USOP or any of the Spin-Off Companies, USOP 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
Distribution. As a result, Aztec could become liable for a pro rata portion for
Distribution Taxes with respect to not only its own spin-off, but to the
spin-offs of the other Spin-Off Companies.
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<PAGE>
POSSIBLE TAX LIABILITY IN EVENT OF A SALE OF THE COMPANY OR IN THE EVENT OF
ISSUANCES OF COMMON STOCK
As previously announced, the Company has retained Donaldson, Lufkin
& Jenrette Securities Corporation to explore strategic alternatives for
maximizing shareholder value. One of these options includes the possible sale
of the Company. Section 355(e) of the Internal Revenue Code of 1986, as
amended, 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 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, or a sale of the Company, will not create a tax
liability for the Company pursuant to a tax allocation agreement and a tax
indemnification agreement described above.
RISKS RELATED TO ALLOCATION OF CERTAIN LIABILITIES IN THE DISTRIBUTION
Under the Distribution Agreement, Aztec is liable to USOP 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, and (iii) certain liabilities
under the securities laws related to the Distribution. Each of the other
Spin-Off Companies is similarly obligated to USOP. Aztec and the other Spin-Off
Companies have also agreed to bear a pro rata portion of (i) USOP liabilities
under the securities laws (other than claims relating solely to a specific
Spin-Off Company or relating specifically to the continuing businesses of USOP)
and (ii) USOP's general corporate liabilities (other than debt, except for that
specifically allocated to the Spin-Off Companies) incurred prior to the
Distribution (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 USOP, 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 USOP 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.
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 USOP prior to the Distribution, Aztec
is precluded from completing business combinations accounted for under the
pooling-of-interests method for a period of two years and any business
combinations involving Aztec during such period will be accounted for under the
purchase method resulting in the recording of goodwill.
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<PAGE>
MATERIAL AMOUNT OF GOODWILL AND INTANGIBLES
As of June 30, 1999, approximately $128.1 million, or 53.5% of
Aztec's total assets and 118.4% of Aztec's stockholders' equity, constituted
goodwill and intangibles. Goodwill represents the excess of cost over the
fair market value of net tangible and identified intangible 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 15-40 years and identified intangible assets are
amortized on a straight line basis, generally over four years with the amount
amortized in a particular period constituting a non-cash expense that reduces
Aztec's operating results. 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.
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 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.
INTELLECTUAL PROPERTY RIGHTS
The success of certain of Aztec's 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
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company is exposed to interest rate change market risk principally
with respect to its credit facility, which is priced based on certain interest
rate alternatives. At June 30, 1999, $75.3 million was outstanding under the
credit facility. Changes in the prime interest rate during calendar year 1999
could have a positive or negative effect on the Company's interest expense. The
Company does not engage in financial transactions for trading or speculative
purposes.
The Company does not believe that it faces primary market risk exposure
that is material to its operations.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material changes since the Company's Transition
Report on Form 10-K/A Amendment No. 1, filed August 4, 1999.
ITEM 5. OTHER INFORMATION
On June 25, 1999, the Company's common stock began trading on
the Nasdaq SmallCap Market System under the ticker symbol
"AZTC". The stock had previously traded under the same symbol
on the Nasdaq National Market System.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.11 Employment Agreement between Aztec and Ross J.
Weintraub
10.12 Employment Agreement between Aztec and Ira Cohen
10.16 Employment Agreement between PCSI and Benjamin
Tandowski
27. Financial Data Schedule
B. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
AZTEC TECHNOLOGY PARTNERS, INC.
BY: /s/ Ross J. Weintraub
Date: August 13, 1999 ----------------------
Ross J. Weintraub
Chief Financial Officer
Duly Authorized Officer and
Principal Accounting Officer
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Exhibit 10.11
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
Ross J. Weintraub
June 1, 1999
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
ROSS J. WEINTRAUB
TABLE OF CONTENTS
PAGE
1. TERM OF EMPLOYMENT.............................................4
2. TITLE; CAPACITY................................................4
2.1 AUTHORITY.............................................4
2.2 ATTENTION.............................................4
2.3 PLACE OF PERFORMANCE..................................5
2.4 REPRESENTATION AND WARRANTY OF EMPLOYEE...............5
3. COMPENSATION AND BENEFITS......................................5
3.1 SALARY................................................5
3.2 BONUS.................................................5
3.3 REIMBURSEMENT OF EXPENSES.............................6
3.4 FRINGE BENEFITS; VACATION.............................6
4. EMPLOYMENT TERMINATION.........................................6
4.1 BY THE COMPANY FOR CAUSE..............................6
4.2 BY THE COMPANY WITHOUT CAUSE..........................6
4.3 BY DEATH..............................................6
4.4 BY DISABILITY.........................................7
4.5 BY THE EMPLOYEE.......................................7
5. EFFECT OF TERMINATION..........................................7
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE,
BY THE EMPLOYEE.......................................7
5.2 TERMINATION FOR DEATH.................................8
5.3 TERMINATION DUE TO DISABILITY.........................8
5.4 TERMINATION UPON CHANGE IN CONTROL OF THE COMPANY.....8
5.5 TAXES................................................10
5.6 TERMINATION BY THE COMPANY FOR CAUSE.................11
5.7 OFFSET...............................................11
5.8 SURVIVAL.............................................11
6. RESTRICTIONS ON COMPETITION...................................11
-ii-
<PAGE>
6.1 NON-COMPETE..........................................11
6.2 INVESTMENT...........................................12
6.3 SEVERABILITY.........................................12
6.4 DEFENSES.............................................12
6.5 FAIRNESS.............................................12
7. PROPRIETARY INFORMATION.......................................12
7.1 PROPRIETARY INFORMATION..............................12
7.2 EXCEPTIONS...........................................13
7.3 COMPANY PROPERTY.....................................13
7.4 OTHER AGREEMENTS.....................................13
8. NOTICES.......................................................13
9. PRONOUNS......................................................14
10. ENTIRE AGREEMENT..............................................14
11. AMENDMENT.....................................................14
12. GOVERNING LAW.................................................14
13. SUCCESSORS AND ASSIGNS........................................14
14. DEFINITIONS...................................................14
15. MISCELLANEOUS.................................................15
15.1 WAIVER...............................................15
15.2 SECTION HEADINGS.....................................15
15.3 SEVERABILITY.........................................15
15.4 COUNTERPARTS.........................................15
-iii-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 1st day of June,
1999, is entered into by and between Aztec Technology Partners, Inc., a Delaware
corporation with its principal place of business at 50 Braintree Hill Office
Park, Suite 220, Braintree, MA 02184 (the "Company"), and Ross J. Weintraub,
residing at 49 Summer Street, Norwell, Massachusetts 02061 (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. Unless earlier terminated in accordance with
this Agreement, the term of the Employee's employment under this Agreement (the
"Term") shall commence as of June 1, 1999 and expire on May 31, 2000 provided,
however, that upon expiration of the Term, this Agreement shall be extended from
year to year without further action on the part of the parties hereto, unless
either party hereto gives written notice of termination to the other party at
least 90 days prior to the expiration of the then current term.
2. TITLE; CAPACITY.
2.1 AUTHORITY. During the Term, the Employee shall serve as
Vice President of Finance and Corporate Controller of the Company. For an
interim period, as determined by the Chief Executive Officer, the Employee may
also serve as Interim Chief Financial Officer. In such capacity, the Employee
shall report to the Chief Executive Officer of the Company. During the
Employment Period, the Employee shall have such authority as is delegated to him
by the Chief Executive Officer, including, during said interim period, the
authority and responsibility for the Company's accounting functions and the
Company's overall financial plans and policies along with its accounting
practices and the conduct of its relationship with lending institutions,
shareholders and the financial community. 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 Chief Executive
Officer shall from time to time reasonably assign to him consistent with this
section 2.1.
2.2 ATTENTION. During the Term, and excluding any periods of
vacation and flex time 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
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Employee's reasonable best efforts and abilities to carry out such
responsibilities faithfully and efficiently.
2.3 PLACE OF PERFORMANCE. The Employee's base of operations
under this Agreement shall be Braintree, Massachusetts or a location within a
twenty-five (25) mile radius of Braintree, although the Employee may from time
to time render services from other locations on a temporary basis. The Employee
shall not be required to relocate or render services, on other than a temporary
basis, outside of such area.
2.4 REPRESENTATION AND WARRANTY OF EMPLOYEE. The Employee
hereby represents and warrants to the Company that he is not aware of any
presently existing fact, circumstance or event (including, but without
limitation, any health condition or legal constraint) which would preclude or
restrict him from providing to the Company the services contemplated by this
Agreement, or which would give rise to any breach of any term or provision
hereof, or which could otherwise result in the termination of his employment
agreement for cause or good reason, pursuant to Section 4 of this Agreement.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. For all services rendered by the Employee in any
capacity under this Agreement, the Company shall pay the Employee as
compensation, during the Term, an annual base salary of not less than
$160,000.00 (the "Annual Base Salary"). The Annual Base Salary shall be payable
in accordance with the Company's customary payroll practices (but not less
frequently than monthly). The Company agrees to review the Employee's Annual
Base Salary, to consider an increase (but not a decrease), on at least an annual
basis. The first of said reviews shall occur no later than 120 days after
December 31, 1999. The amount of any increase shall be pro-rated for the seven
months during 1999, when this Agreement shall have been effective and shall be
effective as of January 1, 2000. Thereafter, said review shall occur no later
than 120 days after the end of each fiscal year and shall be effective as of the
first day of 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 Chief
Executive Officer, subject to approval by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee"). Any increase in the
Annual Base Salary shall not limit or reduce any other obligation of the Company
under this Agreement.
3.2 BONUS. For each fiscal year of the Company commencing with
1999, the Employee shall be entitled to receive a cash bonus with an annual
target award opportunity of up to twenty-five percent (25%) of Annual Base
Salary awarded to the Employee by the Chief Executive Officer, subject to
approval by the Compensation Committee. Unless modified with respect to any
fiscal year by the Chief Executive Officer, subject to approval of the
Compensation Committee, fifty percent (50%) of the annual bonus shall be based
on a goal, to be established each year by the Company, related to the Company's
Operating Income; and fifty percent (50%) of the annual bonus shall be based on
specific management goals, to be established each year by
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the Company. 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. Bonuses are prorated for length of service.
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 Term employee benefit plans and fringe benefits
of the Company as are customarily provided to executives in comparable
management positions, including, without limitation, plans providing retirement
benefits, medical insurance, life insurance and disability insurance. The
Employee shall be entitled to paid vacation and holidays in accordance with
Company policy.
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 COMPANY FOR CAUSE. At the election of the Company,
for cause, effective upon written notice to the Employee. For the purposes of
this Section 4.1, "Cause" for termination shall be deemed to exist solely upon
(a) Employee's material breach of this Agreement; (b) Employee's gross
negligence in the performance of his duties hereunder, intentional
non-performance or intentional mis-performance of such duties, or refusal to
abide by or comply with the reasonable directives of the Board, his superior
officers, or the Company's reasonable policies and procedures; (c) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company, and that in the judgment of the Company materially and adversely
affects the operations or reputation of the Company; (d) Employee's conviction
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; or (e)
Employee's abuse of alcohol or drugs (legal or illegal) that, in the Company's
judgment, materially impairs Employee's ability to perform his duties hereunder.
4.2 BY THE COMPANY WITHOUT CAUSE. At the election of the
Company, without cause, effective upon written notice to the Employee.
4.3 BY DEATH. Effective upon the death of the Employee.
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4.4 BY DISABILITY. If, as a result of incapacity due to
physical or mental illness or injury, the Employee shall have been unable to
perform the material duties of his position on a full-time basis for a period of
three (3) consecutive months, or for a total of three (3) months in any
six-month period, then either party upon written notice to the other (which
notice may be given before or after the end of the aforementioned periods, but
which shall not be effective earlier than the last day of the applicable
period), may terminate this Agreement if the Employee is unable to resume his
full-time duties at the conclusion of such notice period.
4.5 BY THE EMPLOYEE. At the election of the Employee,
effective 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; (b) the
assignment to the Employee of any duties inconsistent with Section 2 of this
Agreement; (c) the Company's purported termination of the Employee's employment
for cause other than in accordance with the requirements of this Agreement; (d)
the relocation of Employee's base of operations beyond the limits of Section
2.3; or (e) any other material breach of this Agreement by the Company.
5. EFFECT OF TERMINATION.
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE (4.2) OR BY
THE EMPLOYEE (4.5).
(a) SEVERANCE. In the event the Employee's
employment is terminated by the Company without cause pursuant to Section 4.2 or
by the Employee pursuant to Section 4.5 (each, a "Qualifying Termination"), 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. 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 (ii) an
amount equal to the Annual Base Salary (iii) The Company shall reimburse the
premiums to maintain health insurance for the Employee and members of the
Employee's family in full force and effect for a period of one year (which
reimbursement shall count toward or reduce the minimum length of time that the
Company is obligated to offer health insurance to the Employee's immediate
family under Section 4980(B) of the Internal Revenue Code of 1986, as amended
(the "Code") (iv) The Company will arrange for services of outplacement support
for the employee and pay the cost of said services.
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(b) SEVERANCE PERIOD; TIMING OF PAYMENTS. The
Company shall make the severance bonus called for by Section 5.1(a)(i) within 30
days of the date the Employee's termination is effective. All severance payments
provided for in Section 5.1 (a)(ii) shall be made in accordance with the
Company's regular payroll cycle. Such installments shall be appropriately
adjusted in the event a severance payment is due for any partial fiscal month.
The employee will submit an expense report for reimbursement of health insurance
payments provided for in Section 5.1 (a) (iii).
5.2 TERMINATION FOR DEATH. In the event the Employee's
employment is terminated pursuant to Section 4.3 by death (a "Section 4.3
Termination"), the Company shall pay or provide to the estate of the Employee
the annual base salary (including, without limitation, in lieu of the bonuses
and payments provided for in Section 3, the Pro Rata Fraction of the Severance
Bonus Amount for the fiscal year in which such termination is effective, which
shall be paid in a one-time lump sum payment within 30 days of the last day of
the Employee's actual employment by the Company) and benefits payable or
provided to him under Section 3 through the last day of his actual employment by
the Company. The Company shall reimburse the premiums to maintain health
insurance for members of the Employee's family in full force and effect for a
period of one year after the death of the Employee (which reimbursement shall
count toward or reduce the minimum length of time that the Company is obligated
to offer health insurance to the Employee's immediate family under Section
4980(B) of the Internal Revenue Code of 1986, as amended (the "Code").
5.3 TERMINATION DUE TO DISABILITY. If the Agreement is so
terminated pursuant to Section 4.4 by either party, the Employee shall be
entitled to receive disability under any applicable disability policy or plan
they are eligible to participate in. However, the Company shall reimburse the
Employee for, the premiums to maintain health insurance for the Employee and
members of his immediate family in full force and effect for a period of one
year after the date of such termination (which shall count toward or reduce the
minimum length of time that the Company is obligated to offer health insurance
to the Employee and the Employee's immediate family under Section 4980(B) of the
Code).
5.4 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 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 his Annual Base Salary at the time of the
termination and Severance Bonus Amount as described in Section 5.1 (a) (i). In
such event, the Employee shall not be entitled to the payments to which he would
otherwise be entitled pursuant to this Agreement. The Company shall reimburse
the
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Employee for the premiums to maintain health insurance to the Employee and
members of the Employee's family in full force and effect for a period of one
year after the date of termination of the Employee (which shall count toward or
reduce the minimum length of time that the Company is obligated to offer health
insurance to the Employee's immediate family under Section 4980(B) of the Code.
The Company will arrange for services of outplacement support for the employee
and pay the cost of said services.
(b) PARACHUTE PAYMENTS. The Change in Control
Severance Payment payable under this Section 5.4 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 Code, to or for the Employee's
benefit) would be limited or precluded by Code Section 280G.
(c) CHANGE IN CONTROL. A "Change in Control" of
the Company shall occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the Company,
acquires "Beneficial Ownership" (as defined in Rule 13d-3 under the Exchange
Act) of securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company's then outstanding securities (other
than through an acquisition of securities directly from the Company);
(ii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as hereinabove defined) acquires
more than fifty percent (50%) of the combined voting power of the Company's then
outstanding securities; or
(iii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
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5.5 TAXES.
(a) GROSS-UP PAYMENT. In the event that the
Company undergoes a "Change in Ownership or Control" (as defined below), the
Company shall, within 30 days after the date of such Change in Ownership or
Control determine and notify the Employee (with reasonable detail regarding the
basis for its determinations) (i) which of the payments or benefits due to the
Employee following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Code Section 4999, by the
Employee with respect to such Contingent Compensation Payment, and (iii) the
amount of the Gross-Up Payment (as defined below) due to the Employee with
respect to such Contingent Compensation Payment. Within 30 days after delivery
of such notice to the Employee, the Employee shall deliver a response to the
Company (the "Employee Response") stating either (A) that he agrees with the
Company's determination pursuant to the preceding sentence, or (B) that he
disagrees with such determination, in which case he shall indicate which payment
and/or benefits should be characterized as a Contingent Compensation Payment,
the amount of the Excise Tax with respect to such Contingent Compensation
Payment and the amount of the Gross-Up Payment due to the Employee with respect
to such Contingent Compensation Payment. The amount and characterization of any
item in the Employee Response shall be final; PROVIDED, HOWEVER, that in the
event that the Employee fails to deliver an Employee Response on or before the
required date, the Company's initial determination shall be final. Within ninety
(90) days after the due date of each Contingent Compensation Payment to the
Employee, the Company shall pay to the Employee, in cash, the Gross-Up Payment
with respect to such Contingent Compensation Payment, in the amount determined
pursuant to this Section 5.4(a).
(b) DEFINITIONS. For purposes of this Section
5.4, the following terms shall have the following respective meanings:
(i) "Change in Ownership or Control"
shall mean a change in the ownership or effective control of the Company or in
the ownership of a substantial portion of the assets of the Company determined
in accordance with Code Section 280G(b)(2).
(ii) "Contingent Compensation Payment" shall
mean any payment (or benefit) in the nature of compensation that is made or
supplied to a "disqualified individual" (as defined in Code Section 280G(c)) and
that is contingent (within the meaning of Code Section 280G(b)(2)(A)(i)) on a
Change in Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an
amount equal to the sum of (i) the amount of the Excise Tax payable with respect
to a Contingent Compensation Payment and (ii) the amount necessary to pay all
additional taxes imposed on (or economically borne by) the Employee (including
the Excise Taxes, state and federal income taxes and all applicable withholding
taxes) attributable to the receipt of such Gross-Up Payment. For purposes
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of the preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
5.6 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 any Base Salary due the Employee up to and including the
date of termination.
5.7 OFFSET. Following any Qualifying Termination or
Termination Upon Change of Control of the Company, the Employee shall be under
no obligation to seek other employment and any amounts he earns in any other
employment shall not reduce or offset the severance payments or other amounts
due hereunder as provided in Section 5.1 (a) and 5.4 (a).
5.8 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 of one (1) year, the Employee, 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) shall not directly or indirectly, solicit or
attempt to hire or assist anyone else in hiring an employee employed by the
Company or any prior employee of the Company whose employment or retention by
the Company has ceased within six months prior to the date of such solicitation
or attempted hire;
(ii) shall not directly or indirectly, contact,
solicit, divert or take away, or attempt to solicit, contact, divert or take
away the business or patronage of any of the customers of the Company for the
purpose of soliciting or selling products or services which are competitive with
that of the Company; or
(iii) on the Employee's own behalf or on behalf of
any competitor, call upon any Person as a prospective acquisition candidate who
or that, during the Employee's employment by the Company was either called upon
by the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company.
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<PAGE>
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 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.
6.4 DEFENSES. All of the covenants in this Section 6 shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement or the Company of such covenants; PROVIDED, that
upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon thirty (30) days' prior written notice to the
Company, waive his right to receive any such compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of one (1) year stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.5 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
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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 of the Company or an authorized employee of
the Company, (iv) is communicated to the Employee by a third party under no duty
of confidentiality with respect to such information to the Company or another
party, or (v) is required to be disclosed by the Employee to comply with
applicable laws, governmental regulations, or court order, provided that the
Employee provides prior written notice of such disclosure to the Company and an
opportunity for the Company to object to such disclosure and further provided
that the Employee cooperates with the Company and takes reasonable and lawful
actions requested by the Company (the out-of-pocket costs of which shall be paid
by the Company) to avoid and/or minimize the extent of such disclosure.
7.3 COMPANY PROPERTY. Upon termination of this Agreement or at
any other time upon request by the Company, the Employee shall promptly deliver
to the Company all records, files, memoranda, notes, designs, data, reports,
price lists, customer lists, drawings, plans, computer programs, software,
software documentation, sketches, laboratory and research notebooks and other
documents (and all copies or reproductions of such materials in his possession
or control) belonging to the Company.
7.4 OTHER AGREEMENTS. The Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. If the Employee's duties under this Agreement
will require disclosures to be made to him subject to such obligations and
restrictions, the Employee agrees to be bound by them and to take all action
necessary to discharge the obligations of the Company under such agreements.
8. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
three days after deposit in the United States Post Office, by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
other party at the address shown above and, in the case of any notice to the
Employee, with a copy to Alexander A. Bernhard, Esq., Hale and Dorr LLP, 60
State Street,
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Boston, Massachusetts 02109, or at such other address or addresses of which
either party shall notify the other in accordance with this Section 8.
9. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and VICE VERSA.
10. ENTIRE AGREEMENT. This Agreement constitute the entire agreement
between the parties and supersede all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement and
the Employee Options.
11. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
12. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by the
Company except to a corporation or other person or entity reasonably acceptable
to the Employee and with which or into which the Company may be merged,
consolidated or otherwise combined or which may succeed to all or substantially
all of its assets or business and which assumes in a writing satisfactory in
form and substance to Employee all of the obligations of the Company under this
Agreement and under all Employer Stock Option Plans. The obligations of the
Employee are personal and shall not be assigned by him.
14. DEFINITIONS. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.4(c)(i)
Cause 4.1
Change in Control 5.4(c)
Change in Control Severance Payment 5.4(a)
Change in Ownership 5.5(a)
Code 5.2
Company Introduction
</TABLE>
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<TABLE>
<S> <C>
Contingent Compensation Payments 5.5(a)
Employee Introduction
Employee Response 5.5(a)
Exchange Act 5.4(c)(i)
Excise Tax 5.5(a)
Gross-up Payment 5.5(a)
Parachute Payments 5.4(b)
Person 6.1
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Term 1
</TABLE>
15. MISCELLANEOUS.
15.1 WAIVER. No delay or omission by either party in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by either party on any one occasion
shall be effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
15.2 SECTION HEADINGS. The captions of the sections of this
Agreement are for convenience of reference only and in no way define, limit or
affect the scope or substance of any section of this Agreement.
15.3 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
15.4 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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AZTEC TECHNOLOGY PARTNERS, INC.
By: Illegible
--------------------------
Title: CEO
------------------------
EMPLOYEE:
/s/ Ross J. Weintraub
------------------------------
Ross J. Weintraub
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Exhibit 10.l2
Employment Agreement
Between
Aztec Technology Partners, Inc.
and
Ira Cohen
June 1, 1999
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
AZTEC TECHNOLOGY PARTNERS, INC.
AND
IRA COHEN
TABLE OF CONTENTS
PAGE
----
1. TERM OF EMPLOYMENT............................................4
2. TITLE; CAPACITY...............................................4
2.1 AUTHORITY............................................4
2.2 ATTENTION............................................4
2.3 PLACE OF PERFORMANCE.................................5
2.4 REPRESENTATION AND WARRANTY OF EMPLOYEE..............5
3. COMPENSATION AND BENEFITS.....................................5
3.1 SALARY...............................................5
3.2 BONUS................................................5
3.3 REIMBURSEMENT OF EXPENSES............................6
3.4 FRINGE BENEFITS; VACATION............................6
4. EMPLOYMENT TERMINATION........................................6
4.1 BY THE COMPANY FOR CAUSE.............................6
4.2 BY THE COMPANY WITHOUT CAUSE.........................6
4.3 BY DEATH.............................................6
4.4 BY DISABILITY........................................7
4.5 BY THE EMPLOYEE......................................7
5. EFFECT OF TERMINATION.........................................7
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE,
BY THE EMPLOYEE......................................7
5.2 TERMINATION FOR DEATH................................8
5.3 TERMINATION DUE TO DISABILITY........................8
5.4 TERMINATION UPON CHANGE IN CONTROL OF THE COMPANY....8
5.5 TAXES...............................................10
5.6 TERMINATION BY THE COMPANY FOR CAUSE................11
5.7 OFFSET..............................................11
5.8 SURVIVAL............................................11
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6. RESTRICTIONS ON COMPETITION..................................11
6.1 NON-COMPETE.........................................11
6.2 INVESTMENT..........................................12
6.3 SEVERABILITY........................................12
6.4 DEFENSES............................................12
6.5 FAIRNESS............................................12
7. PROPRIETARY INFORMATION......................................12
7.1 PROPRIETARY INFORMATION.............................12
7.2 EXCEPTIONS..........................................13
7.3 COMPANY PROPERTY....................................13
7.4 OTHER AGREEMENTS....................................13
8. NOTICES......................................................13
9. PRONOUNS.....................................................14
10. ENTIRE AGREEMENT.............................................14
11. AMENDMENT....................................................14
12. GOVERNING LAW................................................14
13. SUCCESSORS AND ASSIGNS.......................................14
14. DEFINITIONS..................................................14
15. MISCELLANEOUS................................................15
15.1 WAIVER..............................................15
15.2 SECTION HEADINGS....................................15
15.3 SEVERABILITY........................................15
15.4 COUNTERPARTS........................................15
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 1st day of June,
1999, is entered into by and between Aztec Technology Partners, Inc., a Delaware
corporation with its principal place of business at 50 Braintree Hill Office
Park, Suite 220, Braintree, MA 02184 (the "Company"), and Ira Cohen, residing at
11 Aspen Road, Sharon, Massachusetts 02067-3208 (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. Unless earlier terminated in accordance with
this Agreement, the term of the Employee's employment under this Agreement (the
"Term") shall commence as of June 1, 1999 and expire on May 31, 2000 provided,
however, that upon expiration of the Term, this Agreement shall be extended from
year to year without further action on the part of the parties hereto, unless
either party hereto gives written notice of termination to the other party at
least 90 days prior to the expiration of the then current term.
2. TITLE; CAPACITY.
2.1 AUTHORITY. During the Term, the Employee shall serve as
Chief Operating Officer of the Company. In such capacity, the Employee shall
report to the Chief Executive Officer of the Company. During the Employment
Period, the Employee shall have such authority as is delegated to him by the
Chief Executive Officer, including without limitation, the authority and
responsibility for Operations. 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 Chief Executive Officer shall
from time to time reasonably assign to him consistent with this section 2.1.
2.2 ATTENTION. During the Term, and excluding any periods of
vacation and flex time 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.
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2.3 PLACE OF PERFORMANCE. The Employee's base of operations
under this Agreement shall be Braintree, Massachusetts or a location within a
twenty-five (25) mile radius of Braintree, although the Employee may from time
to time render services from other locations on a temporary basis. The Employee
shall not be required to relocate or render services, on other than a temporary
basis, outside of such area.
2.4 REPRESENTATION AND WARRANTY OF EMPLOYEE. The Employee
hereby represents and warrants to the Company that he is not aware of any
presently existing fact, circumstance or event (including, but without
limitation, any health condition or legal constraint) which would preclude or
restrict him from providing to the Company the services contemplated by this
Agreement, or which would give rise to any breach of any term or provision
hereof, or which could otherwise result in the termination of his employment
agreement for cause or good reason, pursuant to Section 4 of this Agreement.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. For all services rendered by the Employee in any
capacity under this Agreement, the Company shall pay the Employee as
compensation, during the Term, an annual base salary of not less than
$200,000.00 (the "Annual Base Salary"). The Annual Base Salary shall be payable
in accordance with the Company's customary payroll practices (but not less
frequently than monthly). The Company agrees to review the Employee's Annual
Base Salary, to consider an increase (but not a decrease), on at least an annual
basis. Said review shall occur no later than 120 days after the end of each
fiscal year and shall be effective as of the first day of 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 Chief Executive Officer, subject to
approval by the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee"). Any increase in the Annual Base Salary shall not
limit or reduce any other obligation of the Company under this Agreement.
3.2 BONUS. For each fiscal year of the Company commencing with
1999, the Employee shall be entitled to receive a cash bonus with an annual
target award opportunity of up to fifty percent (50%) of Annual Base Salary
awarded to the Employee by the Chief Executive Officer, subject to approval by
the Compensation Committee. Unless modified with respect to any fiscal year by
the Chief Executive Officer, subject to approval of the Compensation Committee,
one hundred percent (100%) of the annual bonus shall be based on a goal, to be
established each year by the Company, related to the Company's Operating Income.
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. Bonuses are prorated for length of service.
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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 Term employee benefit plans and fringe benefits
of the Company as are customarily provided to executives in comparable
management positions, including, without limitation, plans providing retirement
benefits, medical insurance, life insurance and disability insurance. The
Employee shall be entitled to paid vacation and holidays in accordance with
Company policy.
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 COMPANY FOR CAUSE. At the election of the Company,
for cause, effective upon written notice to the Employee. For the purposes of
this Section 4.1, "Cause" for termination shall be deemed to exist solely upon
(a) Employee's material breach of this Agreement; (b) Employee's gross
negligence in the performance of his duties hereunder, intentional
non-performance or intentional mis-performance of such duties, or refusal to
abide by or comply with the reasonable directives of the Board, his superior
officers, or the Company's reasonable policies and procedures; (c) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company, and that in the judgment of the Company materially and adversely
affects the operations or reputation of the Company; (d) Employee's conviction
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; or (e)
Employee's abuse of alcohol or drugs (legal or illegal) that, in the Company's
judgment, materially impairs Employee's ability to perform his duties hereunder.
4.2 BY THE COMPANY WITHOUT CAUSE. At the election of the
Company, without cause, effective upon written notice to the Employee.
4.3 BY DEATH. Effective upon the death of the Employee.
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4.4 BY DISABILITY. If, as a result of incapacity due to
physical or mental illness or injury, the Employee shall have been unable to
perform the material duties of his position on a full-time basis for a period of
three (3) consecutive months, or for a total of three (3) months in any
six-month period, then either party upon written notice to the other (which
notice may be given before or after the end of the aforementioned periods, but
which shall not be effective earlier than the last day of the applicable
period), may terminate this Agreement if the Employee is unable to resume his
full-time duties at the conclusion of such notice period.
4.5 BY THE EMPLOYEE. At the election of the Employee,
effective 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; (b) the
assignment to the Employee of any duties inconsistent with Section 2 of this
Agreement; (c) the Company's purported termination of the Employee's employment
for cause other than in accordance with the requirements of this Agreement; (d)
the relocation of Employee's base of operations beyond the limits of Section
2.3; or (e) any other material breach of this Agreement by the Company.
5. EFFECT OF TERMINATION.
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE (4.2) OR BY
THE EMPLOYEE (4.5).
(a) SEVERANCE. In the event the Employee's
employment is terminated by the Company without cause pursuant to Section 4.2 or
by the Employee pursuant to Section 4.5 (each, a "Qualifying Termination"), 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. 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 (ii) an
amount equal to the Annual Base Salary (iii) The Company shall reimburse the
premiums to maintain health insurance for the Employee and members of the
Employee's family in full force and effect for a period of one year (which
reimbursement shall count toward or reduce the minimum length of time that the
Company is obligated to offer health insurance to the Employee's immediate
family under Section 4980(B) of the Internal Revenue Code of 1986, as amended
(the "Code") (iv) The Company will arrange for services of outplacement support
for the employee and pay the cost of said services.
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<PAGE>
(b) SEVERANCE PERIOD; TIMING OF PAYMENTS. The
Company shall make the severance bonus called for by Section 5.1(a)(i) within 30
days of the date the Employee's termination is effective. All severance payments
provided for in Section 5.1 (a)(ii) shall be made in accordance with the
Company's regular payroll cycle. Such installments shall be appropriately
adjusted in the event a severance payment is due for any partial fiscal month.
The employee will submit an expense report for reimbursement of health insurance
payments provided for in Section 5.1 (a)(iii).
5.2 TERMINATION FOR DEATH. In the event the Employee's
employment is terminated pursuant to Section 4.3 by death (a "Section 4.3
Termination"), the Company shall pay or provide to the estate of the Employee
the annual base salary (including, without limitation, in lieu of the bonuses
and payments provided for in Section 3, the Pro Rata Fraction of the Severance
Bonus Amount for the fiscal year in which such termination is effective, which
shall be paid in a one-time lump sum payment within 30 days of the last day of
the Employee's actual employment by the Company) and benefits payable or
provided to him under Section 3 through the last day of his actual employment by
the Company. The Company shall reimburse the premiums to maintain health
insurance for members of the Employee's family in full force and effect for a
period of one year after the death of the Employee (which reimbursement shall
count toward or reduce the minimum length of time that the Company is obligated
to offer health insurance to the Employee's immediate family under Section
4980(B) of the Internal Revenue Code of 1986, as amended (the "Code").
5.3 TERMINATION DUE TO DISABILITY. If the Agreement is so
terminated pursuant to Section 4.4 by either party, the Employee shall be
entitled to receive disability under any applicable disability policy or plan
they are eligible to participate in. However, the Company shall reimburse the
Employee for, the premiums to maintain health insurance for the Employee and
members of his immediate family in full force and effect for a period of one
year after the date of such termination (which shall count toward or reduce the
minimum length of time that the Company is obligated to offer health insurance
to the Employee and the Employee's immediate family under Section 4980(B) of the
Code).
5.4 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 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 his Annual Base Salary at the time of the
termination and Severance Bonus Amount as described in Section 5.1 (a)(i). In
such event, the Employee shall not be entitled to the payments to which he would
otherwise be entitled pursuant to this Agreement. The Company shall reimburse
the
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Employee for the premiums to maintain health insurance to the Employee and
members of the Employee's family in full force and effect for a period of one
year after the date of termination of the Employee (which shall count toward or
reduce the minimum length of time that the Company is obligated to offer health
insurance to the Employee's immediate family under Section 4980(B) of the Code.
The Company will arrange for services of outplacement support for the employee
and pay the cost of said services.
(b) PARACHUTE PAYMENTS. The Change in Control
Severance Payment payable under this Section 5.4 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 Code, to or for the Employee's
benefit) would be limited or precluded by Code Section 280G.
(c) CHANGE IN CONTROL. A "Change in Control" of
the Company shall occur or be deemed to have occurred in the event that:
(i) any "person", as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the Company,
acquires "Beneficial Ownership" (as defined in Rule 13d-3 under the Exchange
Act) of securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company's then outstanding securities (other
than through an acquisition of securities directly from the Company);
(ii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities;
or
(iii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
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5.5 TAXES.
(a) GROSS-UP PAYMENT. In the event that the
Company undergoes a "Change in Ownership or Control" (as defined below), the
Company shall, within 30 days after the date of such Change in Ownership or
Control determine and notify the Employee (with reasonable detail regarding the
basis for its determinations) (i) which of the payments or benefits due to the
Employee following such Change in Ownership or Control constitute "Contingent
Compensation Payments" (as defined below), (ii) the amount, if any, of the
excise tax (the "Excise Tax") payable pursuant to Code Section 4999, by the
Employee with respect to such Contingent Compensation Payment, and (iii) the
amount of the Gross-Up Payment (as defined below) due to the Employee with
respect to such Contingent Compensation Payment. Within 30 days after delivery
of such notice to the Employee, the Employee shall deliver a response to the
Company (the "Employee Response") stating either (A) that he agrees with the
Company's determination pursuant to the preceding sentence, or (B) that he
disagrees with such determination, in which case he shall indicate which payment
and/or benefits should be characterized as a Contingent Compensation Payment,
the amount of the Excise Tax with respect to such Contingent Compensation
Payment and the amount of the Gross-Up Payment due to the Employee with respect
to such Contingent Compensation Payment. The amount and characterization of any
item in the Employee Response shall be final; PROVIDED, HOWEVER, that in the
event that the Employee fails to deliver an Employee Response on or before the
required date, the Company's initial determination shall be final. Within ninety
(90) days after the due date of each Contingent Compensation Payment to the
Employee, the Company shall pay to the Employee, in cash, the Gross-Up Payment
with respect to such Contingent Compensation Payment, in the amount determined
pursuant to this Section 5.4(a).
(b) DEFINITIONS. For purposes of this Section
5.4, the following terms shall have the following respective meanings:
(i) "Change in Ownership or Control"
shall mean a change in the ownership or effective control of the Company or in
the ownership of a substantial portion of the assets of the Company determined
in accordance with Code Section 280G(b)(2).
(ii) "Contingent Compensation Payment" shall
mean any payment (or benefit) in the nature of compensation that is made or
supplied to a "disqualified individual" (as defined in Code Section 280G(c)) and
that is contingent (within the meaning of Code Section 280G(b)(2)(A)(i)) on a
Change in Ownership or Control of the Company.
(iii) "Gross-Up Payment" shall mean an
amount equal to the sum of (i) the amount of the Excise Tax payable with respect
to a Contingent Compensation Payment and (ii) the amount necessary to pay all
additional taxes imposed on (or economically borne by) the Employee (including
the Excise Taxes, state and federal income taxes and all
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applicable withholding taxes) attributable to the receipt of such Gross-Up
Payment. For purposes of the preceding sentence, all taxes attributable to the
receipt of the Gross-Up Payment shall be computed assuming the application of
the maximum tax rates provided by law.
5.6 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 any Base Salary due the Employee up to and including the
date of termination.
5.7 OFFSET. Following any Qualifying Termination or
Termination Upon Change of Control of the Company, the Employee shall be under
no obligation to seek other employment and any amounts he earns in any other
employment shall not reduce or offset the severance payments or other amounts
due hereunder as provided in Section 5.1 (a) and 5.4 (a).
5.8 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 of one (1) year, the Employee, 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) shall not directly or indirectly, solicit or
attempt to hire or assist anyone else in hiring an employee employed by the
Company or any prior employee of the Company whose employment or retention by
the Company has ceased within six months prior to the date of such solicitation
or attempted hire;
(ii) shall not directly or indirectly, contact,
solicit, divert or take away, or attempt to solicit, contact, divert or take
away the business or patronage of any of the customers of the Company for the
purpose of soliciting or selling products or services which are competitive with
that of the Company; or
(iii) on the Employee's own behalf or on behalf of
any competitor, call upon any Person as a prospective acquisition candidate who
or that, during the Employee's employment by the Company was either called upon
by the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company.
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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 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.
6.4 DEFENSES. All of the covenants in this Section 6 shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement or the Company of such covenants; PROVIDED, that
upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon thirty (30) days' prior written notice to the
Company, waive his right to receive any such compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of one (1) year stated at the
beginning of this Section 6, during which the agreements and covenants of the
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
6.5 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
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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 of the Company or an authorized employee of
the Company, (iv) is communicated to the Employee by a third party under no duty
of confidentiality with respect to such information to the Company or another
party, or (v) is required to be disclosed by the Employee to comply with
applicable laws, governmental regulations, or court order, provided that the
Employee provides prior written notice of such disclosure to the Company and an
opportunity for the Company to object to such disclosure and further provided
that the Employee cooperates with the Company and takes reasonable and lawful
actions requested by the Company (the out-of-pocket costs of which shall be paid
by the Company) to avoid and/or minimize the extent of such disclosure.
7.3 COMPANY PROPERTY. Upon termination of this Agreement or at
any other time upon request by the Company, the Employee shall promptly deliver
to the Company all records, files, memoranda, notes, designs, data, reports,
price lists, customer lists, drawings, plans, computer programs, software,
software documentation, sketches, laboratory and research notebooks and other
documents (and all copies or reproductions of such materials in his possession
or control) belonging to the Company.
7.4 OTHER AGREEMENTS. The Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. If the Employee's duties under this Agreement
will require disclosures to be made to him subject to such obligations and
restrictions, the Employee agrees to be bound by them and to take all action
necessary to discharge the obligations of the Company under such agreements.
8. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
three days after deposit in the United States Post Office, by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
other party at the address shown above and, in the case of any notice to the
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Employee, with a copy to Alexander A. Bernhard, Esq., Hale and Dorr LLP, 60
State Street, Boston, Massachusetts 02109, or at such other address or addresses
of which either party shall notify the other in accordance with this Section 8.
9. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and VICE VERSA.
10. ENTIRE AGREEMENT. This Agreement constitute the entire agreement
between the parties and supersede all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement and
the Employee Options.
11. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
12. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of laws provisions.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by the
Company except to a corporation or other person or entity reasonably
acceptable to the Employee and with which or into which the Company may be
merged, consolidated or otherwise combined or which may succeed to all or
substantially all of its assets or business and which assumes in a writing
satisfactory in form and substance to Employee all of the obligations of the
Company under this Agreement and under all Employer Stock Option Plans. The
obligations of the Employee are personal and shall not be assigned by him.
14. DEFINITIONS. For purposes of this Agreement each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Agreement Introduction
Annual Base Salary 3.1
Beneficial Ownership 5.4(c)(i)
Cause 4.1
Change in Control 5.4(c)
Change in Control Severance Payment 5.4(a)
Change in Ownership 5.5(a)
</TABLE>
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<TABLE>
<S> <C>
Code 5.2
Company Introduction
Contingent Compensation Payments 5.5(a)
Employee Introduction
Employee Response 5.5(a)
Exchange Act 5.4(c)(i)
Excise Tax 5.5(a)
Gross-up Payment 5.5(a)
Parachute Payments 5.4(b)
Person 6.1
Proprietary Information 7.1
Pro Rata Fraction 5.1(a)
Qualifying Termination 5.1(a)
Term 1
</TABLE>
15. MISCELLANEOUS.
15.1 WAIVER. No delay or omission by either party in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by either party on any one occasion
shall be effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
15.2 SECTION HEADINGS. The captions of the sections of this
Agreement are for convenience of reference only and in no way define, limit or
affect the scope or substance of any section of this Agreement.
15.3 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
15.4 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-15-
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
By: Illegible
---------------------------
Title: CEO
------------------------
EMPLOYEE:
/s/ Ira Cohen
------------------------------
Ira Cohen
-16-
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 26th day of April, 1997, is by
and between Professional Computer Solutions, Inc., a New York corporation (the
"Company") and a wholly-owned subsidiary of U.S. Office Products Company
("USOP"), a Delaware corporation, and Benjamin Tandowski ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
three years (the "Term").
2. Position and Duties. The Company hereby employs Employee as President
of the Company. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of the president of the Company.
In addition, Employee shall have principal responsibility for the software
development group of USOP's Computer Network Services division. Employee will
report directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote all of his professional time, attention, and efforts to
promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $250,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On at
least an annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its sole discretion, any such increase is
warranted.
(b) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees of similar seniority,
subject to such changes, additions, or deletions as the Company may make
generally from time to time, as well as such other perquisites or benefits as
may be specified from time to time by the Board.
<PAGE>
4. Expense Reimbursement. The Company shall reimburse Employee for (or, at
the Company's option, pay) all business travel and other out-of-pocket expenses
reasonably incurred by Employee in the performance of his services hereunder
during the Term. All reimbursable expenses shall be appropriately documented in
reasonable detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense reporting
policy, as well as applicable federal and state tax record keeping requirements.
5. Place of Performance. Employee understands that he may be requested by
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to Employee (which notice may be given before or after the
end of the aforementioned periods, but which shall not be effective earlier than
the last day of the applicable period), the Company may terminate Employee's
employment hereunder if Employee is unable to resume his full-time duties at the
conclusion of such notice period. Subject to Section 6(g) below, if Employee's
employment is terminated as a result of Employee's disability, the Company shall
continue to pay Employee his base salary at the then-current rate for the lesser
of (i) three months from the effective date of termination, or (ii) whatever
time period is remaining under the then-current period of the Term (without
regard to renewals thereof). Such payments shall be made in accordance with the
Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, or the Company's
policies and procedures, which actions continue for a period of at least 10 days
after receipt by Employee of written notice of the need to cure or cease; (iii)
Employee's willful dishonesty, fraud, or misconduct with respect to the business
or affairs of the Company or USOP, and that in the judgment of the Company or
USOP materially and adversely affects the operations or reputation of the
Company or USOP; (iv) Employee's conviction of a felony or other crime involving
moral turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal)
that, in the Company's judgment, materially impairs Employee's ability to
perform his duties hereunder. In
-2-
<PAGE>
the event of a termination "for cause," as enumerated above, Employee shall have
no right to any severance compensation.
(d) Termination by Employee "For Cause." At any time after the
commencement of employment, Employee may terminate the Term 10 days after
written notice "for cause," which shall be: (i) the Company's material breach of
this Agreement, which breach is not cured within 10 days of receipt by the
Company (and the general counsel of USOP) of written notice from Employee
specifying the breach; (ii) the removal of Employee from, or the failure to
reappoint Employee to, the Board; (iii) the relocation of the principal place of
business or principal office of the Company more than 50 miles from its current
location, without the consent of Employee; (iv) a material reduction in
Employee's title; or (v) a material reduction in Employee's responsibilities
which reduction is commercially unreasonable. Should Employee terminate his
employment "for cause," subject to Section 6(g) below, Employee shall receive
from the Company the base salary at the rate then in effect for the longer of
(i) three months from the date of termination, or (ii) whatever time period is
remaining under the then-current period of the Term. Such payments shall be made
in accordance with the Company's regular payroll cycle.
(e) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to Employee. Should Employee
be terminated by the Company without cause, subject to Section 6(g) below,
Employee shall receive from the Company the base salary at the rate then in
effect for the longer of (i) three months from the date of termination, or (ii)
whatever time period is remaining under the then-current period of the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle. If Employee resigns or otherwise terminates his employment for any reason
other than those specified in Section 6(d) above, or for no reason, Employee
shall receive no severance compensation.
(f) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. All other rights and obligations of USOP, the Company,
and Employee under this Agreement shall cease as of the effective date of
termination, except that Employee's obligations under Sections 7, 8, 9 and 10
below shall survive such termination in accordance with their terms.
(g) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, Employee shall have no obligation to seek other
employment; provided, that in the event that Employee secures employment or any
consulting or other similar arrangement during the period that any payment is
continuing pursuant to the provisions of this Section 6, the Company shall have
the right to reduce the amounts to be paid hereunder by $0.50 for each $1.00 of
Employee's earnings from such other employment.
-3-
<PAGE>
7. Restriction on Competition.
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USOP on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) one year, or (y) the period during which
Employee is receiving any severance pay from the Company, 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,
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 or
USOP's Computer Network Services division, within 100 miles of any location
where the Company or USOP conducts business (the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company or USOP for the purpose or with the intent
of enticing such employee away from or out of the employ of the Company or USOP;
(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 or USOP
within the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company or USOP within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call
upon any Person who or that, during Employee's employment by the Company or USOP
was either called upon by the Company or USOP as a prospective acquisition
candidate or was the subject of an acquisition analysis conducted by the Company
or USOP.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as a passive investment not more than three percent (3%) 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.
(c) It is further agreed that, in the event that Employee shall cease to
be employed by the Company or USOP and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or USOP's
Computer Network Services division, Employee shall not be chargeable with a
violation of this Section 7 if the Company or USOP subsequently enters the same
(or a similar) competitive business or activity or commences competitive
operations within 100 miles of Employee's new business or activities. In
addition, if Employee has no actual knowledge that his actions violate the terms
of this Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company or
USOP of such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USOP" shall mean U.S.
Office Products Company, together with its subsidiaries and affiliates.
-4-
<PAGE>
(e) The covenants in this Section 7 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 7 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.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USOP, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by USOP or the Company of such covenants; provided,
that upon the failure of the Company to make any payments required under this
Agreement, Employee may, upon 30 days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of two years stated at the
beginning of this Section 7, during which the agreements and covenants of
Employee made in this Section 7 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above. If Employee is subject to a restriction on
competitive activity as a party to that certain Agreement and Plan of
Reorganization, dated as of April 26, 1997, by and among USOP, PCSI Acquisition
Corp., the Company and the stockholder of the Company (the "Merger Agreement"),
then Employee shall abide by, and in all cases be subject to, the restrictive
covenants (whether in this Section 7 or in the Merger Agreement) that, in the
aggregate, impose restrictions on Employee for the longest duration and the
broadest geographic scope (taking into account the effect of any applicable
court decisions limiting the scope or duration of such restrictions), it being
agreed that all such restrictive covenants are supported by separate and
distinct consideration. This Section 7(g) shall be construed and interpreted in
light of the duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USOP, and their respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Employee intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
and USOP throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the
-5-
<PAGE>
Company and/or USOP (including all trade secrets), in whatever form, whether
oral, written, or electronic (collectively, the "Confidential Information"), to
which Employee has, or is given (or has had or been given), access as a result
of his employment by the Company. It is agreed that the Confidential Information
is confidential and proprietary to the Company and/or USOP because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USOP's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a) becomes known generally to the public through no fault of
Employee; (b) is required by applicable law, legal process, or any order or
mandate of a court or other governmental authority to be disclosed; or (c) is
reasonably believed by Employee, based upon the advice of legal counsel, to be
required to be disclosed in defense of a lawsuit or other legal or
administrative action brought against Employee; provided, that in the case of
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. Inventions. Employee shall disclose promptly to the Company and USOP
any and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company, USOP's Computer Network Services division or any
other division, subsidiary or business of USOP in which Employee is materially
involved during the Term, and that Employee conceives as a result of his
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Employee hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USOP or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USOP, whether in paper, electronic, or other form; and (c) all keys,
credit cards, vehicles, and other property of the Company or USOP. Employee
shall not retain or cause to be retained any copies of the foregoing. Employee
hereby agrees that all of the foregoing shall be and remain the property of the
Company or USOP, as the case may be, and be subject at all times to their
discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys'
-6-
<PAGE>
fees and expenses of investigation, of any such third party that such third
party may now have or may hereafter come to have against the Company or such
other persons, based upon or arising out of any non-competition agreement,
invention, secrecy, or other agreement between Employee and such third party
that was in existence as of the date of this Agreement. To the extent that
Employee had any oral or written employment agreement or understanding with the
Company, this Agreement shall automatically supersede such agreement or
understanding, and upon execution of this Agreement by Employee and the Company,
such prior agreement or understanding automatically shall be deemed to have been
terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USOP other than the Company, unless
Employee and his new employer agree otherwise in writing, this Agreement shall
automatically be deemed to have been assigned to such new employer (which shall
thereafter be an additional or substitute beneficiary of the covenants contained
herein, as appropriate), with the consent of Employee, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer. If
the Company is merged with or into another subsidiary or affiliate of USOP, such
action shall not be considered to cause an assignment of this Agreement, and the
surviving or successor entity shall become the beneficiary of this Agreement and
all references to the "Company" shall be deemed to refer to such surviving or
successor entity. It is intended that USOP will be a third-party beneficiary of
the rights of the Company under this Agreement. No other Person shall be a
third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a promise
of future employment. Employee has no oral representations, understandings, or
agreements with the Company or any of its officers, directors, or
representatives covering the same subject matter as this Agreement. This
Agreement together with the Merger Agreement, is the final, complete, and
exclusive statement and expression of the agreement between the Company and
Employee with respect to the subject matter hereof and thereof, and cannot be
varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by a writing signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Professional Computer Solutions, Inc.
383 Nordhoff Place, Suite 100
Englewood, NJ 07631
Attention: Secretary
-7-
<PAGE>
with a copy to: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
Attn: Mark D. Director, Esq.
To Employee: Benjamin Tandowski
1094 Lambert Road
Teaneck, NJ 07666
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 14.
15. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
16. Equitable Remedy. Because of the difficulty of measuring economic
losses to the Company and/or USOP as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USOP for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USOP at
law or in equity, the Company and USOP shall be entitled to specific performance
and any injunctive or other equitable relief as a remedy for any breach or
threatened breach of the aforementioned restrictive covenants.
17. Arbitration. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or USOP shall be entitled to seek
injunctive or other equitable relief, as contemplated by Section 16 above, from
any court of competent jurisdiction, without the need to resort to arbitration.
18. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of New Jersey, without regard to its conflict
of laws principles.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the date first written above.
PROFESSIONAL COMPUTER
SOLUTIONS, INC.
By: /s/ Benjamin Tandowski
----------------------------------
Name:
Title:
EMPLOYEE:
/s/ Benjamin Tandowski
- ------------------------------
Benjamin Tandowski
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,163
<SECURITIES> 0
<RECEIVABLES> 74,902
<ALLOWANCES> 3,144
<INVENTORY> 10,423
<CURRENT-ASSETS> 99,860
<PP&E> 14,762
<DEPRECIATION> 5,287
<TOTAL-ASSETS> 239,428
<CURRENT-LIABILITIES> 53,937
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 108,206
<TOTAL-LIABILITY-AND-EQUITY> 239,428
<SALES> 101,234
<TOTAL-REVENUES> 181,362
<CGS> 90,832
<TOTAL-COSTS> 140,634
<OTHER-EXPENSES> 36,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,015
<INCOME-PRETAX> 1,651
<INCOME-TAX> 837
<INCOME-CONTINUING> 814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 814
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
