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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER: 0-24417
AZTEC TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3408450
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
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50 BRAINTREE HILL OFFICE PARK, SUITE 220
BRAINTREE, MASSACHUSETTS 02184
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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Registrant's telephone number, including area code: (781) 849-1702
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. / /
The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant as of March 24, 2000 was approximately
$142,976,131. As of March 24, 2000, 22,588,421 shares of the registrant's common
stock were outstanding.
This amended Annual Report on Form 10-K/A contains the information required
pursuant to Part III; clarifications to "Business--Voice and Data" and "Legal
Proceedings"; and typographical corrections to the per share amounts for the
first and second quarters of the year ended December 31, 1999 set forth in
note 14 of the notes to consolidated financial statements.
The information in the originally filed Form 10-K for the year ended
December 31, 1999 is presented as of the original filing date, and has not been
updated in this amended filing.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
THIS REPORT AND OUR 1999 ANNUAL REPORT TO SHAREHOLDERS CONTAINS
"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 CASH FLOW, AND TO FUTURE
ACTIONS SUCH AS SALE OF SECURITIES OR ASSETS, FUTURE PERFORMANCE, OR RESULTS OF
CURRENT AND ANTICIPATED SALES AND MARKETING EFFORTS, EXPENSES, THE OUTCOME OF
CONTINGENCIES SUCH AS LEGAL PROCEEDINGS, THE NEED FOR BANK APPROVALS OF CERTAIN
TRANSACTIONS, THE EXISTENCE OF A MARKET FOR SECURITIES OF THE COMPANY OR ITS
SUBSIDIARIES, AND OTHER FINANCIAL RESULTS.
ANY OF THESE FORWARD-LOOKING STATEMENTS MAY TURN OUT TO BE WRONG. THEY CAN
BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN RISKS
AND UNCERTAINTIES. THESE RISKS INCLUDE THE VARIABILITY OF OUR QUARTERLY
OPERATING RESULTS, THE INHERENT DIFFICULTIES IN PROJECTING FINANCIAL RESULTS IN
OUR INDUSTRY, AND OTHER RISKS IDENTIFIED BY US FROM TIME TO TIME IN OUR 10-Q,
8-K AND 10-K REPORTS, AND AMENDMENTS THERETO, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. ALSO NOTE THAT WE PROVIDE A CAUTIONARY DISCUSSION OF RISKS,
UNCERTAINTIES AND POSSIBLY INACCURATE ASSUMPTIONS RELEVANT TO OUR BUSINESS UNDER
THE SECTION TITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--FACTORS THAT MAY AFFECT FUTURE RESULTS." OTHER
FACTORS BESIDES THOSE LISTED COULD ALSO ADVERSELY AFFECT THE COMPANY. FINALLY,
WE CALL YOUR ATTENTION TO THE FACT THAT WE UNDERTAKE NO OBLIGATION TO PUBLICLY
UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.
PART I
ITEM 1. BUSINESS
THE COMPANY
Aztec is a total provider of e-Solutions for businesses, helping clients
exploit Internet, intranet and extranet technologies for a 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.
In the past, including our fiscal year ended December 31, 1999, we have
focused in the following areas of enterprise-wide computing and communications:
(1) e-Solutions; (2) e-Integration; (3) consulting, support and outsourcing; and
(4) voice and data infrastructure, design and integration. We are currently
pursuing the sale of certain of our subsidiaries involved with voice and data
activities. There can be no assurance, however, that such divestitures will
occur. Proceeds from completed sales will be used to reduce our outstanding
borrowings under our credit facility ("Credit Facility"). (See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity.")
MARKET AND INDUSTRY OVERVIEW
The rapid growth of web-enabled systems and client/server technology is
changing the nature of how businesses are structured, operate and conduct their
day-to-day business activities. These changes require new thinking and planning,
new system design and architecture, and the integration of new application
solutions, highly scaleable and redundant systems, and platforms to drive these
changes.
Businesses increasingly turn to outside organizations for the design,
development, and implementation of their information technology systems, or IT
systems. The worldwide market for IT consulting, products, and services is
expected to grow at a compounded annual growth rate of 10% to reach
$472 billion by 2003. Due in part to the rapid pace of technological change
coupled with a scarcity of skilled IT professionals, businesses are increasingly
looking to outsource work to IT solutions firms. Additionally, the growth in IT
solutions firms is being driven by competitive pressures requiring rapid
implementation of new systems and the adverse effects of selecting inappropriate
or outdated technology.
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Many companies have made strategic decisions to focus on their core
competencies, minimize their fixed costs and reduce their workforce.
We deliver to our clients business-to-business strategy and planning
consulting, IT solutions based on either packaged applications or custom
software development, and specifically designed e-infrastructure environments.
Each of these deliverable areas are equally important for clients to take
advantage of the new internet economy. Accordingly, we believe that Aztec has
been and will continue to be well positioned to capitalize on these market
developments by providing focused IT expertise in a cost-effective manner to
existing and new clients.
THE CHANGING NATURE OF AZTEC
In the past, our objective has been to offer our clients a single source for
IT business solutions and services on a national and regional basis. However,
with the explosive growth of the Internet, we intend to concentrate on our
e-Solutions and e-Integration operations, which we believe offer future
opportunities for growth. As a result, over the next 12 months, we intend to
de-emphasize our non-core business activities, which are not e-Solutions or
e-Integration businesses, through the divestiture of certain subsidiaries. (See
"Business--Strategic Initiatives" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity.") During 1999, our
principal sectors of our business and services were provided through
subsidiaries in the following four sectors:
END TO END E-SOLUTIONS PROVIDER
Professional Computer Solutions, Inc., or PCSI, a Tri-State region
subsidiary, designs, builds and delivers innovative and comprehensive
technology-based solutions. PCSI works with existing large and middle market
companies as well as emerging businesses who are seeking to leverage the
Internet, intranet and extranet as strategic platforms. PCSI's eBusiness
solutions are not limited to using the Internet as a new distribution channel
for business-to-consumer commerce, rather, with our advanced technical
expertise, they enable companies to:
- transact business among suppliers and business partners
(business-to-business commerce);
- integrate back-end, core business and legacy systems with new eBusiness
initiatives in a connected economy;
- capture and utilize customer data to market more effectively;
- facilitate knowledge management within an organization.
PCSI was founded in 1985 and has its headquarters in Hackensack, New Jersey.
In November 1999, we announced our plan to sell as much as 20% of PCSI through a
public offering of its capital stock. There can be no assurance that such public
offering will take place in the near future, or at all. (See "Business--
Strategic Initiatives.")
PCSI is an end to end e-Solutions provider that offers strategy, creative,
and technology implementation services to deliver solutions that are intranet-,
extranet-, and Internet-based in the areas of e-Commerce, customer relationship
management, knowledge management, and business intelligence. The company's
customers include the Global 2000 and middle market as well as emerging
companies from a cross section of industries. PCSI has made significant progress
in working with companies that are integrating existing business models and
distribution channels with new initiatives made possible by a connected economy.
E-COMMERCE SOLUTIONS
The growth of business-to-consumer and business-to-business commerce
conducted over the Internet has expanded the demand for solutions that are
personalized and fully integrated with existing core
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business systems. PCSI develops e-Commerce solutions that support initiatives in
e-tailing, hubs and infomediaries, and supply chain management that give clients
a competitive advantage.
CUSTOMER RELATIONSHIP MANAGEMENT
One-to-one marketing and sales solutions, as well as, holistic customer care
solutions are strategic initiatives for many companies. PCSI develops solutions
that help clients establish strong relationships with customers and increase the
value and share from each customer.
KNOWLEDGE MANAGEMENT
Knowledge management systems help individuals and groups of all sizes work
together to accomplish goals and complete tasks and projects. Using web-based
intranets as the portal to the system, PCSI creates solutions that enable people
to publish, search, retrieve, analyze and act on information that is often
inaccessible without a knowledge management system.
BUSINESS INTELLIGENCE
PCSI uses sophisticated web-based tools and technology processes to give
clients decision support information, sales and marketing intelligence systems,
and other strategic business intelligence tools. PCSI analyzes a client's
business environment, identifies the benefits of decision support and data
warehousing, and implements projects.
E-INTEGRATION
Through its subsidiaries in the New England, and Tri-State regions, Aztec
offers its clients practiced-based, e-Integration solution services. Our
practices are structured around vertical industry expertise and strategic
technologies, with an emphasis on delivering integrated internet-based solutions
for businesses. We provide our clients with strategic consulting and planning,
business-to-business package solution implementation, and highly scalable,
redundant, and secure e-Infrastructure.
INTERNET/INTRANET/EXTRANET
Aztec addresses web and information technology needs with a full suite of
solutions that link users with information, optimize and secure the network for
web traffic, and are built on architectures that support open standards and
universal connectivity. Aztec provides the expertise to design, develop,
implement, manage and support Internet, intranet or extranet systems including
application architecture, web server installation and configuration, integration
with MIS applications, security and network management, and system development.
LAN/WAN
Aztec designs, develops and installs full application-ready distributed
computing platforms and integrates such systems into existing IT infrastructure.
Aztec technology professionals create LAN/WAN solutions as well as provide
consulting and support services to create and maintain networks.
E-COMMERCE
The traffic volume on web-servers and networks generated by the explosive
growth of business-to-business commerce being conducted through corporate
extranets is driving the demand for enterprise systems solutions able to support
the increased volume. Aztec integrates commercial UNIX and NT computer systems
and provides engineering consulting services to design, install and maintain
enterprise class systems including planning and implementation for data storage
sizing and deployment, security, redundancy, back-up, and system management.
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DATA COMMUNICATIONS
Aztec integrates electronic mail systems with the Internet to provide
clients with a single, universal mailbox and enables customers to run Windows
applications on remote clients via the Internet or private data lines. In
addition, Aztec installs and maintains switches, hubs, routers, ISDN devices and
Internet access products.
CONNECTIVITY & SECURITY
As companies explore the power of the Internet and open passageways into
their systems with extranets, the security and preservation of vital data become
increasingly critical. Aztec designs and implements network security programs to
protect data from non-authorized access and tampering. In addition to firewall
implementation and support, Aztec provides security audits and policy design
services which identify potential breaches in security.
CONSULTING, SUPPORT AND OUTSOURCING
Successful solutions start with the identification of business goals and
objectives, and proper planning and design. Aztec's subsidiaries in the New
England, Tri-State and Other regions offer business-to-business consulting and
vertical market expertise. Our business-to-business consultants work with our
technology consultants to ensure a complete and successful e-Solutions
implementation.
BUSINESS-TO-BUSINESS CONSULTING
Aztec business-to-business consultants work with the client to identify the
goals and objectives of the e-Solution. Based on the identified goals and
objectives, they analyze the client's requirements and needs, identify potential
solutions, and develop a plan to meet the client's needs.
TECHNOLOGY CONSULTING
Aztec's technology consultants are organized in strategic technology
practices. These consultants are highly knowledgeable subject matter experts in
the areas of: "dot.com" infrastructure, security, enterprise systems, network
management and systems, and voice and data integration.
Aztec consultants work closely with clients to understand their operations
in great detail in order to provide policy planning and implementation, capacity
planning, and valuable documentation for clients' systems. Aztec's technology
consultants review clients' business plans, discuss existing problems, identify
obstacles to success, evaluate personnel and skill sets, and establish both
short- and long-term project objectives.
SUPPORT
Aztec offers an array of outsourced services to address, control and manage
network performance, availability, capacity and expansion.
REMOTE NETWORK MANAGEMENT--Aztec provides comprehensive management and
monitoring of routers, hubs, switches and servers on a 24x7 basis with full
management of alerts, dispatches and escalation for incidents from inception to
resolution.
APPLICATION & WEBSITE HOSTING--Aztec economically transfers the management
and operation of a wide selection of network applications from client sites to
our operations center, while providing extensive communications bandwidth, site
redundancy, high security, full monitoring and system management.
NETWORK AUDIT AND INFRASTRUCTURE ANALYSIS--Aztec delivers detailed
assessments about capacity, performance and availability/fault tolerance of
systems along with documentation and recommendations for
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improvement. Aztec provides detailed assessments for each area examined along
with strategic and tactical recommendations and implementation.
OUTSOURCING
Aztec recruits engineering and development talent domestically and
internationally for both short-and long-term placement on IT staffs in US
companies. Aztec provides temporary technical expertise to address a wide range
of operational, development and project needs ranging from systems
administration and documentation to policy planning, knowledge management and IT
needs analysis.
PACKAGE APPLICATION AND INTEGRATION SOLUTIONS
Based on the client's requirements Aztec has a Package Application and
Integration Practice. This practice represents industry leading
Business-to-Business Application solutions. Aztec is skilled in the area of
matching the user requirements to their offering. Aztec provides customization,
integration, training and support as required.
VOICE AND DATA
Aztec's subsidiaries in the Northeast Telephony, New England, and West
regions design, integrate, configure and maintain telecommunication and video
conferencing systems and solutions. In the last quarter of 1999, we initiated
discussions regarding the sale of the voice and data subsidiaries and may divest
these subsidiaries in the near future, although there can be no assurance that
such divestitures will occur on a timely basis, or at all. (See
"Business--Strategic Initiatives.")
TELECOMMUNICATIONS SYSTEMS
As a provider of turnkey telephony/voice processing solutions, Aztec's
services include design, installation, project management, Telco coordination,
user instruction and 24x7 customer support.
VIDEO & AUDIO CONFERENCING
Aztec provides conference room and desktop video conferencing solutions as
well as designs, installs and maintains video and audio solutions by working
closely with both clients and the Telco circuit provider to assure proper
configuration, on-time delivery, and optimum performance.
REPAIR/REWORK
Aztec repairs and reworks key telecommunications products including
Electronic PBX & Key Systems, Electronic Video Systems, Industrial Electronic
Controls, 900Mhz Cordless, PC-based Voice Mail and Turret Equipment. Aztec is
the largest factory-authorized telecommunications center in the country, and is
currently authorized by four major manufacturers as well as one of the largest
installation & maintenance companies in the industry. Aztec provides
reconditioned--returned to "new" performance standards--telecommunications
products to a dealer network throughout the US. This service allows dealers to
offer state-of-the-art communications equipment at significantly reduced cost.
INFRASTRUCTURE DESIGN & INTEGRATION
Aztec designs and installs communication cabling networks, offering an array
of systems to handle data, voice and video needs. Aztec has experience
integrating fiber into customer networks, and with Registered Communications
Distribution Designers ("RCDDs") on staff, Aztec designs and installs cost
effective solutions for the next generation of high speed applications.
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Aztec's RCDDs provide its clients with expertise in system design and
installation ranging from small LANs to large buildings or campuses. Aztec also
provides custom solutions for complete voice, data and video inter-building and
campus network infrastructures that scale with individual client requirements.
STRATEGIC INITIATIVES
In April 1999, we retained an investment banking firm to advise and assist
us in identifying and exploring strategic alternatives to enhance stockholder
value. As a result of this process, we have entered into discussions regarding
the possible sale of Compel L.L.C., Fortran Corp., Mahon Communications
Corporation and Aztec International. These voice and data subsidiaries are
engaged in non-core businesses activities and are not related to our strategy of
concentrating on e-Solutions and e-Integration businesses. We have currently
entered into negotiations with potential buyers of these subsidiaries. There can
be no assurance that we will be able to complete the transactions and such
transactions are subject to satisfactory negotiations with third parties, the
consent of our bank lenders and the ability of the purchasers to obtain
financing. Proceeds from any completed transactions, will be used to reduce
outstanding borrowings under our Credit Facility. (See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity.")
We announced in November 1999 our plan to sell as much as 20% of PCSI
through a public offering of its capital stock. We believe that PCSI represents
significant value to our stockholders that is not recognized by the marketplace.
The sale of PCSI stock is subject to many factors such as our financial
operations, the consent of our bank lenders, PCSI's financial operations and
favorable market conditions. There can be no assurance that we will be able to
complete a public offering on a timely basis, or at all. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity.")
OPERATIONS
SALES AND MARKETING
We focus our sales and marketing efforts on middle market and Fortune 1000
companies in the U.S. where we believe the demand for outsourced IT consulting
services is strong. To accommodate the needs of these clients and build
long-term, synergistic relationships, we employ an "Account Management" approach
which provides our clients with a single point of contact in order to reduce
problems for the client and increase client satisfaction.
To generate awareness of our solutions and expertise, we use a combination
of marketing events including trade shows to maintain industry visibility,
executive seminars and direct mail to educate clients on innovative solutions,
and media advertising to sustain our presence among our customers. We have also
developed our own Web-site (www.aztectech.com) and have established extranets to
make Aztec's resources available to our sales and IT consultants throughout the
corporation and to provide direct access to information for our clients. We also
market our services through the publication of white papers, attendance at
forums to address the IT industry, and participation in beta projects which
provide advanced hands-on experience with new technologies.
We have built relationships with many of the industry's leading technology
manufacturers and we have received numerous awards for achievement and
performance on many technology platforms. These vendors provide a source of
leads for the Company, augment our technical sales expertise, and offer
additional name recognition for marketing events and programs.
COMPETITION
The IT solutions market is very competitive, subject to rapid change, and
includes a large number of participants whose expertise covers an expansive
range. We face extensive competition from providers who specialize in one or
more of Aztec's solutions sets. Among those competitors are companies such as
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Condor Technology Solutions, Inc., Whittman-Hart, Inc., Lucent
Technologies Inc., Sapient Corporation, Viant Corp., Scient Corp. and Cambridge
Technology Partners (Massachusetts), Inc., most of which have significantly
greater financial, technical and marketing resources, generate substantially
higher revenues than Aztec, and have greater name recognition. We believe that
our ability to compete successfully against such companies depends in part on a
number of factors both within and outside our control, including our ability to
hire, retain and motivate senior consultants, the price at which we and others
offer comparable services, and the extent of Aztec's and our competitors'
responsiveness to customer needs. There can be no assurance that the Company
will be able to compete successfully with its competitors in the future.
CUSTOMERS
Our clients include middle market and Fortune 1000 companies in a wide range
of industries (including communications, health care, financial services,
government, manufacturing, pharmaceuticals, professional services, and
technology).
HUMAN RESOURCES
As a service provider, we view our employees as our most valuable asset and
have implemented a continuously evolving program to encourage and sustain
long-term employee retention. We offer competitive compensation, stock options,
an employee stock purchase program, a professional education policy, a
progressive human resources program, and other competitive benefits designed to
enhance long-term employee retention.
As of December 31, 1999, the Company had a total staff of 1,319 employees,
comprised of 915 technical professionals, 153 sales and marketing personnel, and
251 administrative personnel. Of our employees, 272 are represented by a labor
union or subject to a collective bargaining agreement. We believe that our
employee relations generally are good.
Our success will depend in large part upon our ability to attract, retain
and motivate highly-skilled employees. Qualified technical professionals are in
great demand and are likely to remain a scarce resource for the foreseeable
future. However, we believe that we have been successful in our efforts to
attract, develop and retain the high-quality professionals needed to support
present operations and future growth. Although we expect to continue to attract
sufficient numbers of highly-skilled employees and to retain our senior
personnel for the foreseeable future, there can be no assurance that the Company
will be able to continue to do so.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
Aztec and our operating companies rely on a combination of nondisclosure and
other contractual arrangements and patent, trade secret, copyright, and
trademark laws to protect our proprietary rights and the proprietary rights of
third parties. We enter into confidentiality agreements with our key employees,
and limit the distribution of proprietary information.
SPIN-OFF OF AZTEC FROM U.S. OFFICE PRODUCTS
We became an independent, publicly-traded company upon our spin-off from
USOP in June 1998. At such time, Aztec held substantially all of the business
and assets of, and was responsible for substantially all of the liabilities
associated with, the USOP Technology Solutions Division. Immediately prior to
the spin-off, USOP held all of the issued and outstanding shares of Aztec Common
Stock.
ITEM 2. PROPERTIES
Aztec's corporate headquarters are located at leased office space in
Braintree, Massachusetts. In addition to its headquarters, Aztec leases office
and warehouse space in a number of locations across the
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United States. Aztec does not believe that any of these locations are material
to its operations. The leases expire at various times between 2000 and 2004.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1999, a lawsuit was filed against the Company, along with USOP
and Jonathan Ledecky, a director of Aztec, by Philip Arturi, a former President
of PNS, and Bruce Torello, a former PNS employee. Arturi and Torello claim a
total of $2 million in damages in connection with the sale of their company to
USOP in September, 1997. (PNS was one of the business units that was spun off
from USOP as part of Aztec in June 1998 and was a wholly-owned subsidiary of
USOP prior to the spin-off.) The plaintiffs claim that USOP failed to disclose
certain material facts during USOP's acquisition of the business and that they
were given assurances that they would be compensated for damages from the drop
in the value of the USOP stock received in consideration for the sale of the
Company. Some or all of the claims may be subject to indemnification by the
Company and the other spin-off companies under the terms of the distribution
agreement that was executed in connection with USOP's strategic restructuring
plan. It is also possible that the Company could seek indemnity from USOP for
these claims.
In connection with the acquisition of Aztec International, a lawsuit was
filed in the United States District Court for the District of Delaware in
February 1999 against USOP, and James Claypoole and Jonathan Ledecky as
employees of USOP, by Jack Meehan, Fran Meehan, Christopher Meehan, Beth Meehan,
Gordon Tingets, Les Asher, Michael Dickens, and William Durniak. A number of the
plaintiffs are officers and directors of Aztec International. Messrs. Claypoole
and Ledecky are directors of Aztec. The lawsuit alleges that USOP (and Claypoole
and Ledecky as its employees) failed to disclose certain material facts during
USOP's acquisition of the business. The lawsuit further alleges that the
plaintiffs were given assurances that they would be compensated for damages
resulting from a drop in the value of the USOP stock that they received in
connection with the sale. The plaintiffs claim damages of $9.5 million. Some or
all of the claims may be subject to indemnification by the Company and the other
spin-off companies under the terms of the distribution agreement that was
executed in connection with USOP's strategic restructuring plan.
The Company has not accrued a liability in connection with the above
litigation as the Company accrues contingent liabilities when it is probable
that future expenditures will be made and such expenditures can be reasonably
estimated. If the Company is unable to settle or obtain indemnification from
U.S. Office Products in connection with the above litigation, there could be a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On June 25, 1999, the Company's Common Stock became listed on the Nasdaq
SmallCap Market under the trading symbol "AZTC". Prior to such time, the Common
Stock had been listed on the Nasdaq National Market under the same trading
symbol. The following table sets forth, on a per share basis for the periods
shown, the range of high and low sales prices of the Company's Common Stock:
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<CAPTION>
HIGH LOW
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YEAR ENDED DECEMBER 31, 1999:
January 1, 1999--March 31, 1999............................. $ 4.81 $1.66
April 1, 1999--June 30, 1999................................ $ 2.81 $1.16
July 1, 1999--September 30, 1999............................ $ 2.50 $1.50
October 1, 1999--December 31, 1999.......................... $ 4.94 $1.25
TRANSITION YEAR 1998:
June 10, 1998--June 30, 1998................................ $11.00 $7.50
July 1, 1998--September 30, 1998............................ $10.12 $4.75
October 1, 1998--December 31, 1998.......................... $ 7.00 $2.37
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STOCKHOLDERS
As of March 24, 2000, there were approximately 3,478 stockholders of record.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company intends to retain future earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. Aztec's ability to
pay dividends is restricted by its Credit Facility with its bank lenders.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for Aztec derived from
its consolidated financial statements for the years ended December 31, 1999 and
1998, for the thirty-five week periods ended December 31, 1998 and 1997, and for
the fiscal years ended April 25, 1998, April 26, 1997 and March 31, 1996 and
1995. The historical Selected Financial Data for the year ended December 31,
1999, the thirty-five week period ended December 31, 1998, and for the fiscal
years ended April 25, 1998 and April 26, 1997, have been derived from Aztec's
consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP and are included elsewhere in this Annual Report. The
historical Selected Financial Data for the fiscal years ended March 31, 1996 and
1995, have been derived from Aztec's consolidated financial statements that have
been audited by PricewaterhouseCoopers LLP. The historical Selected Financial
Data for year ended December 31, 1998, and for the thirty-five weeks ended
December 31, 1997, have been derived from unaudited consolidated financial
statements. The consolidated financial statements for fiscal years ended
March 31, 1996 and 1995 are not included in this Annual Report. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations for
the period presented.
The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto,
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that appear elsewhere in this Annual Report.
9
<PAGE>
SELECTED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-FIVE THIRTY-FIVE
--------------------------------------------- WEEKS ENDED WEEKS ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, APRIL 26, APRIL 25, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1997 1998 1998 1999
--------- --------- --------- --------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues.............. $88,999 $114,055 $136,278 $208,341 $122,186 $229,356 $315,511 $361,628
Cost of revenues...... 65,858 84,113 102,129 158,317 91,971 174,779 241,125 283,477
------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......... 23,141 29,942 34,149 50,024 30,215 54,577 74,386 78,151
Selling, general and
administrative
expense............. 14,942 20,510 21,525 35,185 20,159 37,885 52,912 71,725
Amortization of
intangibles......... 840 282 2,389 2,946 4,828
Strategic
restructuring
costs............... 1,750 4,330 6,080 3,643
Non-recurring
acquisition costs... 2,274
Write-off of
goodwill............ 69,123
------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).............. 8,199 9,432 10,350 12,249 9,774 9,973 12,448 (71,168)
Interest expense...... 331 420 324 807 358 2,662 3,177 6,930
Interest income....... (118) (416) (168) (785) (316) (172) (703) (183)
Other income.......... (111) (964) (53) (44) (8) (186) (225) (288)
------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for
(benefit from)
income taxes........ 8,097 10,392 10,247 12,271 9,740 7,669 10,199 (77,627)
Provision for (benefit
from) income
taxes(2)............ 401 750 3,524 5,797 4,169 3,512 5,140 (3,827)
------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 7,696 $ 9,642 $ 6,723 $ 6,474 $ 5,571 $ 4,157 $ 5,059 $(73,800)
======= ======== ======== ======== ======== ======== ======== ========
Per share amounts:
Basic................. $ 0.84 $ 0.71 $ 0.37 $ 0.27 $ 0.25 $ 0.18 $ 0.21 $ (3.34)
======= ======== ======== ======== ======== ======== ======== ========
Diluted............... $ 0.84 $ 0.71 $ 0.37 $ 0.27 $ 0.24 $ 0.18 $ 0.21 $ (3.34)
======= ======== ======== ======== ======== ======== ======== ========
Weighted average
shares outstanding:
Basic................. 9,112 13,509 18,005 23,911 22,637 22,839 24,006 22,107
Diluted............... 9,141 13,675 18,352 24,385 23,120 22,974 24,189 22,107
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, APRIL 26, APRIL 25, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................................. $10,669 $ 8,664 $13,268 $ 36,292 $ 58,431 $ 39,906
Total assets..................................... 28,106 33,945 37,311 141,445 260,519 172,697
Long-term debt, less current portion............. 1,524 799 167 309 90,218 74,544
Long-term payable to USOP........................ 4,786
Stockholders' equity............................. 11,062 10,497 11,626 105,319 106,966 33,936
</TABLE>
- ------------------------------
(1) The historical financial information of the five companies acquired by Aztec
during the period from October 1996 through April 1997 in acquisitions
accounted for under the pooling-of-interests method of accounting (the
"Pooled Companies") has been combined on an historical cost basis in
accordance with GAAP to present this financial data as if the Pooled
Companies had always been members of the same operating group. The financial
information of the eight companies acquired thereafter, in acquisitions
accounted for under the purchase method of accounting (the "Purchased
Companies") is included from the dates of their respective acquisitions. See
Note 4 of Notes to the Consolidated Financial Statements for a description
of the number and accounting treatment of the acquisitions by the Company.
10
<PAGE>
(2) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of acquisitions by the Company and as a result, the federal
tax on their income was the responsibility of the individual stockholders.
Accordingly, those specific Pooled Companies provided no federal income tax
expense prior to their acquisitions by the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Aztec is a total provider of e-Solutions for businesses, helping clients
exploit Internet, intranet and extranet technologies for a 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.
Aztec's consolidated financial statements give retroactive effect to the
five business combinations accounted for under the pooling-of-interests method
during the period from October 1996 through April 1997 (the "Pooled Companies")
and include the results of eight companies acquired thereafter, in business
combinations accounted for under the purchase method (the "Purchased Companies")
from their respective acquisition dates. Prior to their respective dates of
acquisition by USOP, the Pooled Companies reported results for years ending on
March 31 or December 31. Upon acquisition by USOP, and effective for the fiscal
year ended April 26, 1997, the Pooled Companies changed their year-ends from
March 31 and December 31 to conform to USOP's fiscal year, which ended on the
last Saturday in April. On June 30, 1998, the Company changed its fiscal year to
December 31. In the following discussion, "fiscal 1997", "fiscal 1998",
"thirty-five weeks ended December 31, 1997", "thirty-five weeks ended
December 31, 1998", "the year ended December 31, 1998" and "the year ended
December 31, 1999", refer to the Company's fiscal years ended April 26, 1997 and
April 25, 1998, the period from April 27, 1997 through December 31, 1997, the
transition period from April 26, 1998 through December 31, 1998, the year ended
December 31, 1998, and the year ended December 31, 1999, respectively.
The following discussion includes unaudited financial statements for the
thirty-five week period ended December 31, 1997, representing the previous
period most comparable to the thirty-five week period ended December 31, 1998,
and unaudited financial statements for the year ended December 31, 1998
representing the previous period most comparable to the year ended December 31,
1999. The discussion should be read in conjunction with Aztec's consolidated
financial statements and related notes thereto appearing elsewhere in this
Annual Report.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
fiscal 1997 and 1998, and the thirty-five week periods ended December 31, 1997
(unaudited) and December 31, 1998, and the years ended December 31, 1998
(unaudited) and December 31, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR THIRTY-FIVE THIRTY-FIVE
--------------------- WEEKS ENDED WEEKS ENDED YEAR ENDED YEAR ENDED
APRIL 26, APRIL 25, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998 1998 1999
--------- --------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 %
Cost of revenues................ 74.9 76.0 75.3 76.2 76.4 78.4
----- ----- ----- ----- ----- -----
Gross profit.................. 25.1 24.0 24.7 23.8 23.6 21.6
Selling, general and
administrative expense.......... 15.8 16.9 16.5 16.5 16.8 19.8
Amortization of intangibles....... 0.4 0.2 1.0 0.9 1.3
Strategic restructuring costs..... 0.8 1.9 1.9 1.0
Non-recurring acquisition costs... 1.7
Write-off of goodwill............. 19.1
----- ----- ----- ----- ----- -----
Operating income (loss)....... 7.6 5.9 8.0 4.4 4.0 (19.6)
Interest and other expense, net... 0.1 1.0 0.7 1.8
----- ----- ----- ----- ----- -----
Income (loss) before provision
for income taxes............ 7.5 5.9 8.0 3.4 3.3 (21.4)
Provision for (benefit from)
income taxes.................... 2.6 2.8 3.4 1.6 1.6 (1.0)
----- ----- ----- ----- ----- -----
Net income (loss)............. 4.9% 3.1% 4.6% 1.8% 1.7% (20.4)%
===== ===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
REVENUES. Consolidated revenues increased 14.6%, from $315.5 million in the
year ended December 31, 1998 to $361.6 million in the year ended 1999. This
increase was primarily due to increased product sales in our e-Integration
businesses in the Company's New England and Tri-State regions, combined with
revenue from the Company's expanded customer base resulting from an acquisition
in July 1998. Service revenue for the year ended December 31, 1999 increased
modestly from the comparable period of the prior year due to consulting, support
and outsourcing related services resulting from an acquisition in September 1998
combined with an increase in our e-Solutions and e-Integration services. This
increase was offset in part by a reduction in voice and data revenues in the
Company's Northeast Telephony and West regions.
GROSS PROFIT. Gross profit increased 5.1%, from $74.4 million, or 23.6% of
revenues, in the year ended December 31, 1998 to $78.2 million, or 21.6% of
revenues, in year ended 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 year ended December 31, 1999 compared to the
prior year period, combined with competitive pressures on product pricing and
the write-off of approximately $.8 million of inventory as part of the
restructuring charges incurred in the third quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 35.6%, from $52.9 million, or 16.8% of revenues for the year
ended 1998 to $71.7 million, or 19.8% of revenues for year ended 1999. This
increase was due primarily to higher corporate costs associated with being an
independent, publicly traded company, as well as supporting the Company's
e-Solutions strategic initiatives, higher incentive related costs, primarily
commissions in the New England Region, due to increased
12
<PAGE>
revenues, an increased level of general bad debt reserves and incremental
general and administrative costs of acquired companies.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles of $4.8 million in
the year ended December 31, 1999, has increased $1.9 million from $2.9 million
in the year ended December 31, 1998, due to amortization expense related to
companies acquired in July and September of 1998.
STRATEGIC RESTRUCTURING COSTS. Strategic restructuring costs of $3.6
million in the year ended December 31, 1999, represent the Company's costs
incurred in connection with closing its Canfield, Ohio facility and
significantly reducing staff in the Company's Tri-State and New England regions
including employee severance, contractual obligations and other costs associated
with personnel reductions and facility closures and ($.3) million for the
reversal of excess severance costs associated with restructuring charges
incurred in the fourth quarter of 1998. Strategic restructuring costs of
$6.0 million for the year ended December 31, 1998 represent $4.2 million in
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. In
addition, the Company incurred a cost of $1.8 million related to the
restructuring of its Northeast regions in the fourth quarter of 1998.
WRITE-OFF OF GOODWILL. Write-off of goodwill of $69.1 million for the year
ended December 31, 1999 represents the write-down of impaired intangibles to
their estimated fair value based on the Company's best estimate of the related
businesses' future discounted cash flows. During the third quarter of 1999,
goodwill in the amount of $35.0 million was written down due to significant
anticipated operating cash flow decreases in PCM, Inc. Also in the third quarter
of 1999, goodwill in the amount of $6.7 million was written down in connection
with a strategic restructuring plan that included the closing of one of the
Company's subsidiaries located in Ohio and the reduction of significant staff at
a Connecticut based subsidiary. These subsidiaries are included in the Other and
Tri-State business segments, respectively. During the fourth quarter of 1999,
goodwill in the amount of $27.4 million was written down in connection with the
Company's planned divestitures during 2000 of its voice and data subsidiaries.
These subsidiaries are included in the Northeast Telephony, West and New England
business regions.
INTEREST EXPENSE. Interest expense, net of interest income, increased
$4.2 million, from $2.5 million in the year ended December 31, 1998 to
$6.7 million in the year ended December 31, 1999. The net increase was due
primarily to the Company's higher level of debt outstanding arising from the
financing of its acquisitions in the second half of 1998 through its Credit
Facility and in part to higher interest rates primarily in the second half of
1999 on outstanding borrowings effective with the September 30, 1999 amendment
to the Credit Facility.
OTHER INCOME. Other income increased $63,000, from $225,000 in the year
ended December 31, 1998 to $288,000 in year ended 1999.
PROVISION FOR INCOME TAXES. Provision for income taxes was $5.1 million for
the year ended December 31, 1998 compared to a benefit from income taxes of
($3.8) million in the year ended December 31, 1999, reflecting effective tax
rates of 50.4% and (4.9%), respectively. The decrease to the effective tax
benefit for the year ended December 31, 1999, is the result of the write-off of
non-deductible goodwill due to impairment.
COMPARISON OF THE THIRTY-FIVE WEEK PERIODS ENDED DECEMBER 31, 1998 TO
DECEMBER 31, 1997
REVENUES. Consolidated revenues increased 87.7% from $122.2 million for the
thirty-five week period ended December 31, 1997, to $229.4 million for the
thirty-five week period ended December 31, 1998. This increase was due primarily
to revenue from Aztec's expanded customer base, resulting from revenues of
companies acquired during September and October 1997 and during the second-half
of calendar 1998. In addition, increased revenue from existing companies,
primarily in the Web and network
13
<PAGE>
integration sector and the software development and customization sector,
contributed to the Company's revenue growth.
GROSS PROFIT. Gross profit increased 80.6% from $30.2 million, or 24.7% of
revenues, for the thirty-five week period ended December 31, 1997, to
$54.6 million, or 23.8% of revenues, for the thirty-five week period ended
December 31, 1998. The decrease in gross profit as a percentage of revenues was
due primarily to the acquisition of companies in September and October 1997 with
lower gross margins than the Company average, offset, in part, by increased
percentage of revenues in the services area which have higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 87.9%, from $20.2 million, or 16.5% of revenues, for the
thirty-five week period ended December 31, 1997, to $37.9 million, or 16.5% of
revenues, for the thirty-five week period ended December 31, 1998. This increase
was due primarily to incremental general and administrative expenses of acquired
companies and corporate overhead costs associated with the spin-off from U.S.
Office Products, including the costs associated with being an independent,
publicly-traded company. As a percentage of revenues, selling, general and
administrative expenses for the thirty-five week period ended December 31, 1998
were flat as compared with the thirty-five week period ended December 31, 1997.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles of $2.4 million in
the thirty-five weeks ended December 31, 1998, has increased $2.1 million from
$282,000 in the thirty-five weeks ended December 31, 1997, due to including a
full thirty-five weeks of amortization of companies acquired in September and
October 1997 and the acquisition of companies in the second half of Calendar
1998.
STRATEGIC RESTRUCTURING COSTS. Strategic restructuring costs of
$3.2 million in the thirty-five week period ended December 31, 1998, represent
the Company's portion of the costs incurred related to the spin-off from U.S.
Office Products, including compensation related costs associated with U.S.
Office Products, buyback of certain employee options during its tender offer on
June 1, 1998. In addition, the Company incurred a cost of $1.1 million related
to the restructuring of its Northeast regions in the fourth quarter of 1998.
INTEREST EXPENSE. Interest expense, net of interest income, increased
$2.4 million from net interest expense of $42,000 in the thirty-five week period
ended December 31, 1997, to $2.5 million in the thirty-five week period ended
December 31, 1998. The increase was primarily due to the Company's financing of
its acquisitions in the second half of 1998 through its Credit Facility.
OTHER INCOME. Other income increased $178,000, from $8,000 in the
thirty-five weeks ended December 31, 1997, to $186,000 in the thirty-five weeks
ended December 31, 1998, primarily as a result of rental income from subleases.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased from
$4.2 million for the thirty-five week period ended December 31, 1997, to
$3.5 million for the thirty-five week period ended December 31, 1998, reflecting
effective tax rates of 42.8% and 45.8%, respectively. The higher effective tax
rate for the thirty-five week period ended December 31, 1998, is the result of
the increase in non-deductible goodwill amortization related to the Company's
acquisitions in September and October 1997.
COMPARISON OF FISCAL 1998 TO FISCAL 1997
REVENUES. Consolidated revenues increased 52.9% from $136.3 million for
fiscal 1997, to $208.3 million for fiscal 1998. This increase was primarily due
to sales to new accounts and increased sales to existing customers in the
consulting and engineering services sector, the systems and network integration
sector, and the telephony integration services sector of the business resulting
from the expansion of Aztec's customer base. Revenues in these sectors have a
higher concentration of service related revenue. In addition, revenues of
Purchased Companies acquired during fiscal 1998 contributed to the increase in
revenues. The majority of the Purchased Companies' revenues are service-related.
14
<PAGE>
GROSS PROFIT. Gross profit increased 46.5% from $34.1 million, or 25.1% of
revenues, for fiscal 1997 to $50.0 million, or 24.0% of revenues, for fiscal
1998. This decrease in gross profit as a percentage of revenues was due to a
higher concentration of business in the systems and network design and
implementation services sector, which has inherently lower gross margin
percentages than the other sectors.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 63.5% from $21.5 million, or 15.8% of revenues, for fiscal
1997 to $35.2 million, or 16.9% of revenues, for fiscal 1998. The increase in
selling, general and administrative expenses as a percentage of revenues was
primarily due to increases in corporate overhead at one of the operating
companies of Aztec, compensation related earnouts paid at three operating
companies acquired in September and October 1997, an increased level of general
bad debt reserves, and increased Aztec corporate overhead due to the strategic
restructuring.
STRATEGIC RESTRUCTURING COSTS. Strategic restructuring costs represent the
Company's portion of the costs incurred by USOP as a result of USOP's
restructuring plan including costs incurred related to the Company's withdrawn
initial public offering.
NON-RECURRING ACQUISITION COSTS. Aztec incurred non-recurring acquisition
costs of $2.3 million for fiscal 1997 in conjunction with five business
combinations accounted for under the pooling-of-interests method. These
non-recurring acquisition costs included accounting, legal and investment
banking fees, real estate and environmental assessments and appraisals, and
various regulatory fees. Generally accepted accounting principles require Aztec
to expense all acquisition costs (both those paid by Aztec and those paid by the
sellers of the acquired companies) related to business combinations accounted
for under the pooling-of-interests method.
INTEREST EXPENSE. Interest expense, net of interest income, decreased
$134,000 from net interest expense of $156,000 in fiscal 1997, to $22,000 in
fiscal 1998. The decrease was due primarily to the Company's pay down of debt
due to an increase in cash flows from operations during fiscal 1998.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from
$3.5 million for fiscal 1997 to $5.8 million for fiscal 1998, reflecting
effective tax rates of 34.4% and 47.2%, respectively. The higher effective tax
rate for fiscal 1998 is the result of goodwill amortization and certain
acquisition costs not being deductible for tax purposes. The lower effective
income tax rate for fiscal 1997, compared to the federal statutory rate of 35.0%
plus state taxes, is the result of certain companies included in the results,
which were acquired in business combinations accounted for under the
pooling-of-interests method, not being subject to federal income taxes on a
corporate level as they had elected subchapter S corporation treatment prior to
being acquired by Aztec.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, Aztec had cash of $4.6 million and working capital of
$39.9 million. Aztec's capitalization, defined as the sum of long-term debt and
stockholders' equity, at December 31, 1999, was $108.6 million.
During the year ended 1999, net cash provided by operating activities was
$15.9 million. Net cash used in investment activities was $5.0 million, which
consisted primarily of $5.0 million used for additions of property and
equipment. Net cash used in financing activities was $15.2 million.
During the thirty-five week period ended December 31, 1998, net cash
provided by operating activities was $4.1 million. Net cash used in investing
activities was $76.0 million, which consisted primarily of $73.4 million used
for three acquisitions during the period. Net cash provided by financing
activities was $78.7 million primarily related to borrowings from the Company's
Credit Facility partially offset by $8.7 million paid to USOP related to the
spin-off from USOP.
During fiscal 1998, net cash used in operating activities was $6.9 million.
Net cash used in investing activities was $2.9 million, which consisted
primarily of $2.6 million used for additions of property, plant
15
<PAGE>
and equipment. Net cash provided by financing activities was $10.6 million,
including $15.3 million of capital contributed by USOP in anticipation of a
strategic restructuring, $818,000 that was advanced by USOP as part of USOP's
centralized cash management process, $1.3 million in dividends paid by one of
the companies acquired by USOP under the pooling-of-interests method of
accounting (the "Pooled Companies"), and the repayment of $4.2 million in
short-term and long-term debt.
During fiscal 1997, net cash provided by operating activities was
$6.3 million. Net cash used in investing activities was $3.9 million, which
consisted primarily of $1.8 million in payments of non-recurring acquisition
costs in conjunction with the acquisitions of certain Pooled Companies and a tax
deposit at one of the Pooled Companies of $1.3 million. Net cash used in
financing activities of $6.8 million resulted from the repayment of
$5.5 million in short-term debt and $4.3 million in dividends paid by certain of
the Pooled Companies. These cash outflows were partially offset by $3.6 million
in advances from USOP.
Aztec's anticipated capital expenditures for the next twelve months is
approximately $4.0 million.
Aztec entered into a Credit Facility with its bank lenders in July 1998,
with amendments made to the underlying agreement on October 5, 1998 and
September 30, 1999. As of December 31, 1999, Aztec was in noncompliance with
certain financial covenants under the facility. On March 30, 2000, Aztec and its
bank lenders further amended the facility to provide Aztec with a waiver of
noncompliance for the fourth quarter of 1999. The amendment advances the
maturity date of the facility from July 27, 2003 to April 30, 2001 and replaces
the financial covenants with a minimum debt service coverage covenant and a
capital expenditures covenant of no more than $4.0 million for 2000. The
amendment requires the payment of overadvance fees in the event that after
June 30, 2000 the outstanding balance of the Credit Facility exceeds a
percentage of the Company's accounts receivable. The overadvance fees are
payable by the Company at April 30, 2001 or in connection with the sale of its
subsidiaries or securities. The fees are 3% of the overadvance amount, if any,
as of July 30, 2000, plus 1.5% of the overadvance amount, if any, that exists as
of the last day of each fiscal quarter thereafter. The amendment has provisions
that Aztec commit to use commercially reasonable efforts to pursue an initial
public offering of the stock of PCSI as well as to pursue additional financing
of $20 million through the sale of equity or debt securities.
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 2000. Our ability to
continue to meet our liquidity requirements, however, may be influenced by a
number of factors, including our ability to raise funds through the capital
markets and to sell certain subsidiaries. We have initiated preliminary
discussions with potential investors to raise capital through the private sale
of debt or equity securities and have entered into negotiations for the sale of
our voice and data subsidiaries. However, there can be no assurance that we will
be able to access the capital markets on favorable terms, or at all, or be able
to divest our non-core subsidiaries on favorable terms, or at all. The amendment
contemplates that we will reduce the maximum amount that the banks are required
to lend, or the loan commitment, through the payment of certain proceeds from
the sale of subsidiaries, or the sale of securities, or through other sources. A
failure to sufficiently reduce the amount of the the loan commitment on a timely
basis would result in the obligation to grant the bank lenders warrants to
purchase up to 4% of our common stock at a purchase price of $0.01 per share.
These warrants will be immediately exercisable and have a term of three years.
The issuance of the warrants and the number of shares purchasable under the
warrants will be based on the satisfaction of certain loan commitment reduction
milestones during 2000. In the event that the Company is unable to timely reduce
the loan commitment by approximately 25%, 40% and 65% by June 30, 2000,
September 30, 2000 and December 31, 2000, respectively, the Company will be
required to issue to the bank lenders warrants to purchase 2%, 3% and 4%,
respectively, of the Company's outstanding common stock on a fully diluted
basis. In no event will the Company to be required to issue warrants to purchase
in the aggregate over 4% of the outstanding stock. The shares issuable upon
exercise of the warrants will be registered securities.
16
<PAGE>
Aztec does not believe that inflation has had a material impact on its
results of operations during the year ended December 1999, the thirty-five weeks
ended December 31, 1998, fiscal 1998 or fiscal 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's second quarter of
2000. The effects of applying this guidance, if any, will be reported as a
cumulative effect adjustment resulting from a change in accounting principle.
The Company does not expect the adoption of SAB 101 to have a material effect on
its financial statements, however, the final evaluation of SAB 101 is not yet
complete.
YEAR 2000 READINESS DISCLOSURE STATEMENTS
Aztec has not experienced any problems with its computer systems relating to
the inability of such systems to recognize appropriate dates associated with
year 2000. Aztec is not aware of any material year 2000 problems with its
clients or vendors. Accordingly, Aztec does not anticipate incurring material
expenses or experiencing any material operational disruptions as a result of any
year 2000 problems.
FACTORS THAT MAY AFFECT FUTURE RESULTS
COMPLIANCE WITH BANK AMENDMENT
Aztec received a waiver of noncompliance from its bank lenders in the fourth
quarter of 1999 with certain financial covenants under its Credit Facility. The
amendment advances the maturity date of the Credit Facility from July 27, 2003
to April 30, 2001 and replaces the current financial covenants with a minimum
debt service coverage covenant and a capital expenditure covenant. The amendment
contemplates that Aztec will divest certain of its non-core subsidiaries and
raise additional capital or debt through the capital marketplace and
contemplates a loan reduction schedule through April 30, 2001. Aztec has
committed to proceed on a commercially reasonable basis with the initial public
offering of its Web-application subsidiary, PCSI. There can be no assurance that
Aztec will be able to successfully complete the divestiture of its non-core
subsidiaries, or that it will be able to access the capital markets to raise
additional funds, or that it will be able to complete the initial public
offering of PCSI. Failure to raise sufficient funds through such divestitures
and equity or debt financings to comply with the amended loan reduction schedule
will result in the incurrence of additional fees payable to the bank lenders, a
significant increase in interest rate charges due under the Credit Facility and
the issuance of common stock purchase warrants, with an exercise price of $0.01
per share. If we were unable to comply with the amended financial covenants,
there can be no assurance that the bank lenders would grant additional waivers
which, if not granted, could result in the amount of outstanding borrowings
under the Credit Facility becoming immediately due and payable and could impair
our ability to continue as a going concern.
RISK OF SUBSTANTIAL DILUTION IN THE EVENT OF NON-COMPLIANCE WITH THE BANK
AMENDMENT
In the event that we fail to reduce the loan commitment amount at set
milestones we will be required to issue to the bank lenders certain stock
purchase warrants to purchase up to 4% of our common stock on a fully diluted
basis at $.01 per share. In the event that the bank lenders receive and exercise
such warrants, our stockholders would recognize substantial dilution and the
market price of our common stock may be adversely affected.
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
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<PAGE>
December 31, 1999 approximately 69% 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 Ira Cohen, its
President and Chief Operating Officer, Ross Weintraub, its Chief Financial
Officer, its operating company presidents, including Benjamin Tandowski, the
president of PCSI, 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.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company has experienced, and may in the future continue to experience,
fluctuations in its quarterly operating results. Factors that may cause the
Company's quarterly operating results to vary include the number of active
client projects, the requirements of client projects, the termination of major
client projects, the loss of major clients, the timing of new client
engagements, and the timing of personnel cost increases. Certain of these
factors may also affect the Company's personnel utilization rates, which may
cause further variation in quarterly operating results. The timing of revenues
is difficult to forecast because the Company's sales cycle is relatively long
and the Company's services are impacted by both the financial condition and
management decisions of its clients and general economic conditions. Because a
high percentage of the Company's expenses are relatively fixed at the beginning
of any period and the Company's general policy is to not adjust its staffing
levels based upon what it views as short-term circumstances, a variation in the
timing of the initiation or the completion of client assignments, particularly
at or near the end of any quarter, can cause significant variations in operating
results from quarter to quarter and could result in losses for any particular
period. In addition, many of the Company's engagements are, and may be in the
future, terminable by its clients without penalty. A termination of a major
project could require the Company to maintain under-utilized employees,
resulting in a higher than expected percentage of unassigned professionals, or
to terminate the employment of excess personnel. Due to all of the foregoing
factors, there can be no assurance that the Company's results of operations will
not be below the expectations of investors for any given fiscal period.
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 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 Aztec to
18
<PAGE>
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.
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
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<PAGE>
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.
MATERIAL AMOUNT OF GOODWILL AND INTANGIBLES
As of December 31, 1999, approximately $55.8 million, or 32.3% of Aztec's
total assets, and 164.3% 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. The Company recorded a non-cash accounting charge
of $69.1 million in the third and fourth quarters of 1999 related to the
impairment of certain intangible assets. Of this amount, $64.8 million was
related to the Company's review of the carrying value of its intangible assets
against the estimated undiscounted future cash flows associated with them. Based
on this review, certain intangible assets were reduced to their estimated fair
value. In addition, the Company recorded an impairment charge of $4.3 million to
write-off goodwill based on the Company's announced closing of its Canfield,
Ohio location. If goodwill becomes further 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
20
<PAGE>
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 is dependent in part
on certain methodologies these companies use in designing, installing, and
integrating computer software and systems and other proprietary intellectual
property rights. These operating companies rely on a combination of
nondisclosure and other contractual arrangements and trade secret, copyright,
and trademark laws to protect their proprietary rights and the proprietary
rights of third parties, enter into confidentiality agreements with their key
employees, and limit distribution of proprietary information. There can be no
assurance that the steps taken by these operating companies in this regard will
be adequate to deter misappropriation of proprietary information or that these
operating companies will be able to detect unauthorized use and take appropriate
steps to enforce their intellectual property rights.
Although Aztec believes that its services do not infringe the intellectual
property rights of others and that it has all rights necessary to utilize the
intellectual property employed in its business, Aztec is subject to the risk of
claims alleging infringement of third-party intellectual property rights. Any
such claims could require Aztec to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property, or acquire licenses to
the intellectual property that is the subject of an asserted infringement claim.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 December 31, 1999, $74.3 million was outstanding under the
Credit Facility. Changes in the prime interest rate during calendar year 2000
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to the Company's Consolidated Financial Statements and
Financial Statement Schedule and the accompanying consolidated financial
statements, notes and schedules which are filed as part of this Annual Report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Clifford Mitman, Jr.................. 61 Chairman of the Board of Directors
Ira Cohen............................ 46 President and Chief Operating Officer
Ross J. Weintraub.................... 49 Chief Financial Officer, Vice President of Finance and
Corporate Controller
Benjamin Tandowski................... 52 President of PCSI and former Chief Technology Officer of
Aztec, Director
James E. Claypoole................... 66 Director, former Chairman, Chief Executive Officer and
President of Aztec
Lawrence M. Howell................... 54 Director
Leon Kopyt........................... 55 Director
Jonathan J. Ledecky.................. 42 Director
</TABLE>
CLIFFORD MITMAN, JR. has served as a director of Aztec since May 1998 and
currently serves as Chairman of the Board of Directors of Aztec. Mr. Mitman has
been President of Mitman Associates, a firm that provides executive compensation
and organization planning consulting services to a wide range of companies since
October 1991. Prior to October 1991, Mr. Mitman was a Vice President and Senior
Consultant with the firms of Towers, Perrin and The Wyatt Company, both
management consulting firms. Mr. Mitman graduated from Yale University and the
Wharton School of Business.
IRA COHEN has served as President of Aztec since September 1999 and as
Chief Operating Officer of Aztec since June 1998. From 1996 to April 1998,
Mr. Cohen worked as an independent consultant, and from September 1996 to
June 1997 as the Chief Operating Officer of DataTrend, Inc., a computer
remanufacturing company. In 1993, Mr. Cohen was employed by CIC Systems as Chief
Operating Officer of its Copley Division where he continued to work through
1996. Mr. Cohen founded Copley Management Associates, a technology management
consulting company, in 1979. In 1984, Mr. Cohen merged Copley Management
Associates with DataTrend to form Copley Systems, Inc., which he sold in 1993.
ROSS J. WEINTRAUB has served as Chief Financial Officer since July 1999 and
Vice President of Finance and Corporate Controller of Aztec since
February 1999. Prior to his employment with the Company, Mr. Weintraub held the
positions of Vice President, Treasurer and Controller for Domain Solutions
Corporation, a software corporation, where he began in 1994. From 1987 to 1994,
Mr. Weintraub worked for BBN Corporation where he served in various senior
financial positions for that company. Mr. Weintraub, a certified public
accountant, began his career with KPMG Peat Marwick.
BENJAMIN TANDOWSKI has served as a director of Aztec since May 1998. From
1985 to the present, Dr. Tandowski has served as President of PCSI, a provider
of comprehensive enterprise solutions and a wholly-owned subsidiary of Aztec,
which Dr. Tandowski founded in 1985. From January, 1999 to March, 2000,
Dr. Tandowski served as the Chief Technology Officer of Aztec prior to resigning
to focus his efforts on PCSI. Previously, Dr. Tandowski was employed by Exxon
Research and the Chemical and Plastics Division of Union Carbide, both
diversified chemical companies where he managed the implementation of large
databases and developed computing facilities for research. Dr. Tandowski holds a
Ph.D. in mechanical engineering from the City University of New York, where he
was a National Science Fellow.
JAMES E. CLAYPOOLE has served as a director of Aztec since May 1998.
Mr. Claypoole served as Chairman, Chief Executive Officer and President of Aztec
from May 1998 until his retirement in September 1999.Mr. Claypoole served as the
president of Bay State Computer Group, an enterprise design and implementation
company, from 1984 to 1998.
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<PAGE>
LAWRENCE M. HOWELL has served as a director of Aztec since May 1998.
Mr. Howell has served in the position of Managing Partner of Howell Capital, an
investment banking advisory firm, since January 1996. From January 1993 to
January 1996, Mr. Howell was employed by Morgan Stanley & Co. Incorporated, an
international investment banking firm, where he served most recently as Managing
Director and as Advisory Director. Prior to that, from 1970 to 1993, he worked
at the investment banking division of Goldman, Sachs & Co. Mr. Howell holds a
Bachelor of Business Administration from the University of Texas and a Master of
Business Administration from Southern Methodist University.
JONATHAN J. LEDECKY has served as a director of Aztec since May 1998.
Mr. Ledecky currently serves as Vice Chairman of Lincoln Holdings, which owns
the Washington Capitals of the National Hockey League and a minority interest in
the Washington Wizards of the National Basketball Association. Mr. Ledecky
served as Chairman of the Board and Chief Executive Officer of U.S. Office
Products from October 1994 to November 1997. He served as Chairman of the Board
and Chief Executive Officer of Building One Services Corp. (f/k/a Consolidation
Capital Corporation), an investment management company, from November 1997 to
June 1999, before joining Lincoln Holdings in July 1999. Mr. Ledecky also serves
as a director of School Specialty, Inc., UniCapital Corporation, a financial
leasing company, and of Microstrategy Corporation, a decision support software
company. He graduated from Harvard College and from Harvard Business School.
LEON KOPYT has served as a director of Aztec since March 2000. Mr. Kopyt
has held the positions of Chairman of the Board of Directors, President and
Chief Executive Officer of RCM Technologies, Inc., a provider of business,
technology and resource management solutions to information technology and
professional engineering customers since 1991. Prior to his association with RCM
Technologies, Inc. Mr. Kopyt was the United States President and CEO of a
European-based industrial corporation which designed and manufactured a broad
range of transportation and defense products.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Based solely upon a review of reports submitted, and representations made to the
Company, to the Company's knowledge, its directors and executive officers timely
filed all required forms under Section 16(a) of the Securities Exchange Act
except that Mr. Mitman, Mr. Claypoole and Dr. Tandowski each inadvertently filed
one form late covering the receipt of options to purchase the Company's stock.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid to the Named Executive Officers by Aztec for services rendered during the
fiscal year ending December 31, 1999.
23
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION (1) COMPENSATION AWARDS
---------------- -------------------
OTHER SECURITIES UNDERLYING
NAME AND PRINCIPAL ANNUAL STOCK
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#)
------------------ -------- ---------- --------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Ira Cohen.......................... 1999 $200,000 None None 220,00
President and Chief Operating 1998 $138,462 $ 10,000 None 78,150
Officer
Ross J. Weintraub(2)............... 1999 $139,700 None None 202,000
Chief Financial Officer
Benjamin Tandowski................. 1999 $300,385 None None 100,000
President of PCSI 1998 $259,615 $ 50,000 None 75,000
James E. Claypoole................. 1999 $375,120 $187,500(3) None 5,000
Former Chief Executive Officer 1998 $243,308 $ 60,000 $125,834 572,185
and President
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or ten percent of the total
annual salary and bonus for the Named Executive Officers for the year
reflected above.
(2) Mr. Weintraub began his employment with the Company on February 24, 1999.
(3) On September 30, 1999, the Company entered into an agreement with regard to
the terms of Mr. Claypoole's retirement. The dollar amount listed in bonus
was paid in connection with his retirement agreement.
STOCK OPTION GRANTS
The following table sets forth certain information regarding options granted
to the Named Executive Officers during the fiscal year ended December 31, 1999.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SHARES GRANTED TO OPTION PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(2) ($/SH) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ira Cohen............................... 120,000 5.15% $1.875 8/16/09 $141,501 $358,592
100,000 4.30% 4.50 12/13/09 283,003 717,184
Ross Weintraub.......................... 7,000 * 4.50 2/25/09 19,810 50,202
120,000 5.15% 1.875 8/16/09 124,049 305,538
75,000 3.22% 4.50 12/13/09 212,251 537,888
Benjamin Tandowski...................... 100,000 4.30% 4.50 12/13/09 283,003 717,184
James E. Claypoole...................... 5,000 * 4.00 12/09/09 12,578 31,875
</TABLE>
- ------------------------
* Less than 1%
(1) Represents options granted pursuant to the Company's 1998 Stock Incentive
Plan.
(2) Calculated based on the total number of options, 2,328,000, granted during
the year ended December 31, 1999.
(3) Potential realizable value is based on an assumption that the market price
of the stock will appreciate at the stated rate, compounded annually, from
the date of grant until the end of the term. These values are calculated
based on rules promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate or projection of future stock prices.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Company's Common Stock, the optionholder's continued
employment through the option period and the date on which the options are
exercised.
FISCAL YEAR- END OPTION VALUE TABLE
The following table summarizes certain information regarding the stock
options exercised during 1999 and unexercised stock options held as of
December 31, 1999 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF SECURITIES MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR
OPTIONS AT FISCAL YEAR END (#) END($)(1)
SHARES ACQUIRED VALUE ------------------------------- -----------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Ira Cohen............ None 0 19,536 278,614 $ 11,551 $362,856
Ross J. Weintraub.... None 0 None 202,000 N/A $327,626
Benjamin Tandoski.... None 0 18,750 156,250 $ 32,803 $104,659
James E. Claypoole... None 0 577,185 None $335,355 N/A
</TABLE>
- ------------------------
(1) Value based upon the last sales price per share ($4.56) on the Company's
Common Stock on December 31, 1999, as reported on the Nasdaq Small Cap
Market, less the exercise price.
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<PAGE>
EMPLOYMENT CONTRACTS
Aztec entered into an employment agreement with Mr. Cohen, effective as of
June 1, 1999, for a one-year term as the Company's Chief Operating Officer.
Pursuant to the agreement, Mr. Cohen is entitled to receive a base salary of
$200,000, with the potential for a cash bonus of up to 50% of Mr. Cohen's annual
base salary. Aztec may terminate Mr. Cohen with or without cause. Termination
without cause entitles Mr. Cohen to a pro rata portion of the "Severance Bonus
Amount" (based on (i) the number of days between the first day of the then
current fiscal year and the date termination is effective; and (ii) his annual
base salary) plus an amount equal to his annual base salary and the continuation
of his health benefits for a period of one year. The "Severance Bonus Amount"
for a fiscal year equals the average bonuses paid to Mr. Cohen for the fiscal
years proceeding such fiscal year. In the event that his employment is
terminated within 24 months following a change in control in the Company,
Mr. Cohen is entitled to a lump sum payment in an amount equal to his annual
base salary at the time of the termination plus the above-described Severance
Bonus Amount. In addition to these severance payments, the Compensation
Committee determined on November 9, 1999 that Mr. Cohen would receive a lump sum
payment of $100,000 in cash, within 30 days after the consummation of the
transaction(s), if certain of the Company's non-core subsidiaries are sold; and
the Committee determined on October 13, 1999 that Mr. Cohen would receive a lump
sum payment of $150,000 in cash, within 30 days after the consummation of the
transaction, in the event that the Company is sold as a whole. Mr. Cohen would
become entitled to these payments if he remains employed at the time the
respective transaction is consummated and otherwise is in compliance with his
employment agreement.
In June 1998, Aztec entered into an employment agreement with
Mr. Claypoole, as the Company's President and Chief Executive Officer. In
September 1999, Mr. Claypoole retired from these positions with the Company. In
connection with his retirement, Aztec entered into an agreement with
Mr. Claypoole, dated September 30, 1999, wherein the Company agreed to fulfill
its obligations under the June 1998 employment agreement. These obligations
included the payment of a severance bonus of $187,500, the payment of his base
salary through June 10, 2002, and the continuation of his benefits until the
earlier of his reemployment or June 10, 2002. In addition, Mr. Claypoole's
options in Aztec stock became fully exercisable on the date of his separation
from the Company.
Aztec entered into an employment agreement with Mr. Weintraub, effective
June 1, 1999, for a one year term as the Company's Vice President of Finance,
Corporate Controller and Interim Chief Financial Officer. Pursuant to the
agreement, Mr. Weintraub is entitled to receive a base salary of $160,000 per
year, with the potential for a cash bonus of up to 25% of his annual base
salary. Aztec may terminate Mr. Weintraub with or without cause. Termination
without cause entitles Mr. Weintraub to a pro rata portion of the "Severance
Bonus Amount" (based on (i) the number of days between the first day of the then
current fiscal year and the date termination is effective; and (ii) his annual
base salary) plus an amount equal to his annual base salary and the continuation
of his health benefits for a period of one year. The "Severance Bonus Amount"
for a fiscal year equals the average bonuses paid to Mr. Weintraub for the
fiscal years proceeding such fiscal year. In the event that his employment is
terminated within 24 months following a change in control in the Company,
Mr. Weintraub is entitled to a lump sum payment in an amount equal to his annual
base salary at the time of the termination plus the above-described Severance
Bonus Amount. In addition to these severance payments, the Compensation
Committee determined on November 9, 1999 that Mr. Weintraub would receive a lump
sum payment of $100,000 in cash, within 30 days after the consummation of the
transaction(s), if certain of the Company's non-core subsidiaries are sold; and
the Committee determined on October 13, 1999 that Mr. Weintraub would receive a
lump sum payment of $150,000 in cash, within 30 days after the consummation of
the transaction, in the event that the Company is sold as a whole. Mr. Weintraub
would become entitled to these payments if he remains employed at the time the
respective transaction is consummated and otherwise is in compliance with his
employment agreement.
26
<PAGE>
Aztec entered into an employment agreement with Mr. Ledecky, effective as of
June 10, 1998. Under the employment agreement, Mr. Ledecky reports to the Board
of Directors and senior management of Aztec. In such capacity, Mr. Ledecky
provides acquisition negotiation services and strategic business advice. Aztec
can require Mr. Ledecky's performance of such services, consistent with his
other contractual obligations to other companies. Under the employment agreement
Mr. Ledecky's base annual salary was set at $48,000 and he was granted a stock
option to purchase 1,660,500 shares of Aztec Common Stock at an exercise price
of $9.875. On December 14, 1998, Mr. Ledecky, as part of the Company's option
exchange program, exchanged the options granted to him under his employment
agreement. Mr. Ledecky exchanged his option to purchase 1,660,500 shares of
Aztec Common Stock for an option to purchase 865,121 shares of Aztec Common
Stock at an exercise price per share of $3.96875. Mr. Ledecky's options are
fully vested. Mr. Ledecky also entered into an agreement with U.S. Office
Products, effective June 10, 1998, which governs his continuing obligations to
U.S. Office Products and portions of which were incorporated in his employment
agreement with Aztec (the "Services Agreement"). Specifically, under his
employment agreement, Aztec may terminate Mr. Ledecky's employment only for
"cause" as "cause" is defined in the Services Agreement. In addition, under
Mr. Ledecky's employment agreement with Aztec, he is subject to the
noncompetition and nonsolicitation provisions of the Services Agreement.
PCSI, a wholly owned subsidiary of Aztec, entered into an employment
agreement with Benjamin Tandowski, effective April 26, 1997, and amended April
26, 2000. Pursuant to the agreement, Dr. Tandowski serves as president of PCSI
at a base annual salary of $300,385. PCSI may terminate Dr. Tandowski with or
without cause. Termination without cause entitles Dr. Tandowski to the base
salary in effect at the date of termination for the longer of (i) three months
from the date of termination, or (ii) whatever time period remains under the
term of his employment agreement. In addition, under Dr. Tandowski's employment
agreement with PCSI, he is subject to the noncompetition and confidentiality
provisions of that agreement. The April 2000 amendment extended the term of the
agreement for 30 days after April 26, 2000 to put a new Agreement in place.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Company's Board of Directors (the
"Committee") is responsible for establishing the compensation of, and the
compensation policies with respect to, the Company's executive officers, and
administering the Company's stock benefit plans. The Committee currently
consists of Messrs. Mitman and Claypoole.
The objectives of the Company's executive compensation program are to:
- Attract and retain key executives critical to the long-term success of the
Company;
- Align the interests of the executive officers with the interests of
stockholders and the success of the Company; and
- Recognize and reward individual performance and responsibility.
The Company's compensation polices are significantly influenced by the fact
that the Company operates in the area of information technology, one of the
fastest growing business sectors and one in which the competition for qualified
employees is the most intense. Compensation in the information technology
industry is heavily weighted in favor of stock options.
COMPENSATION PROGRAM
GENERAL. The Company's executive compensation program consists of base
salary, short-term incentive compensation in the form of cash bonuses, as
provided by the Company's Executive Bonus Program,
27
<PAGE>
and long-term incentive compensation in the form of stock options, as provided
by the Company's 1998 Stock Incentive Plan. Executive officers also participate
in benefit programs that are generally available to the Company's employees,
including medical benefits, the 401(k) Plan and the 1998 Employee Stock Purchase
Plan.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
For 1999, compensation for the executive officers was set within the range
of compensation for executives with comparable qualifications, experience and
responsibilities at other companies in the same or similar businesses, based on
the determination of management and approved by the Committee. In addition, base
compensation for each executive officer was determined on a case by case basis
in view of each individual's contribution to the Company as a whole, including
the ability to motivate others, develop the necessary skills to grow as the
Company matures, recognize and pursue new business opportunities and initiate
programs to enhance the Company's growth and success.
SHORT TERM EXECUTIVE COMPENSATION--EXECUTIVE BONUS PLAN.
An executive cash bonus plan (the "Plan") was established in February 1999.
Prior to that date, the Company had no formal bonus program. Under the terms of
the Plan, executive officers could receive payments in addition to their base
salaries. The amount of the bonuses depend on two factors: the degree to which
the Company achieves its fiscal budget for the year and the extent to which the
executive discharges assignments and achieves individual goals assigned to that
executive during the year. No bonuses are paid if the pre-tax income from the
current fiscal year is less than the level from the prior year. During 1999, the
Company did not award a bonus to any executive officer, except the bonus awarded
to Mr. Claypoole pursuant to his retirement agreement with the Company.
LONG TERM INCENTIVE COMPENSATION--1998 STOCK INCENTIVE PLAN
Long-term incentives for executive officers are provided through stock
options. The objectives of the program are to align executive and stockholder
long-term interests by creating a strong and direct link between executive
compensation and stockholder return, and to enable executives to develop and
maintain a significant, long-term stock ownership position in the Company's
Common Stock. Stock options are granted at an option price equal to the fair
market value of the Company's Common Stock on the date of grant and will only
have value if the Company's stock price increases. In selecting executives
eligible to receive option grants and determining the amount and frequency of
such grants, the Company evaluates a variety of factors, including (i) the job
level of the executive, (ii) option grants awarded by competitors to executives
at a comparable job level and (iii) past, current and prospective service to the
Company rendered, or to be rendered, by the executive. During 1999, the Company
granted options to purchase an aggregate of 522,000 shares of Common Stock to
executive officers of the Company: 220,000 options to Mr. Cohen, 100,000 options
to Dr. Tandowski, and 202,000 options to Mr. Weintraub.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a federal income tax deduction to public companies for certain
compensation in excess of $1 million paid to a corporation's chief executive
officer or any of its four other most highly compensated executive officers.
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. Currently, options granted under the 1998
Stock Incentive Plan with an exercise price equal to the fair market value of
the Common Stock as of the date of grant qualify as performance based
compensation. Such options are qualified as performance based because the 1998
Stock Incentive Plan is subject to a transition rule under Section 162(m) which
expires at the next annual meeting of the stockholders. The transition rule will
expire immediately upon the Annual Meeting. The Committee intends to review the
potential effects of Section 162(m) periodically and in the future may decide to
28
<PAGE>
amend the 1998 Stock Incentive Plan and structure additional portions of the
Company's compensation program in a manner designed to permit deductibility for
federal income tax purposes, except in those limited cases where the stockholder
value is maximized by an alternative approach.
Compensation Committee
James E. Claypoole, Chairman
Clifford Mitman, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are
Messrs. Claypoole and Mitman. No executive officer of the Company has served as
a director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, one of whose executive officers
served as a director of or member of the Compensation Committee of the Company.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company from June 11, 1998 through December 31, 1999, with
the cumulative total return on (i) the Russell 3000 Index and (ii) a Line-of
Business Index consisting of companies in Aztec's Standard Industrial
Classification (SIC) code number 7373-Computer Integrated System Design. The
comparison assumes the investment of $100 on June 11, 1998 in the Company's
Common Stock and in each of the indices and, in each case, assumes reinvestment
of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
6/11/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AZTEC TECHNOLOGY PARTNERS, INC. 100 77.27 54.48 36.76 16.81 19.04 17.42 46.18
SIC CODE INDEX 100 115.92 111.39 187.69 263.77 251.09 256.11 412.13
RUSSELL 3000 INDEX 100 103.38 91.82 111.21 114.6 123.06 114.58 132.74
</TABLE>
DOLLARS
29
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 31, 2000
with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) the directors and nominees for director
of the Company, (iii) the Company's President, the next two most highly
compensated executive officers of Aztec who earned in excess of $100,000, plus
one person who would have been included among the most highly compensated
executive officers if he were serving as such on December 31, 1999 (the "Named
Executive Officers"), and (iv) all executive officers, directors and nominees
for director of the Company as a group. Unless otherwise indicated, the business
address of each of the following is 50 Braintree Hill Office Park, Braintree,
Massachusetts 02184:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP (1)
-----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ ---------------- ----------------
<S> <C> <C>
5% STOCKHOLDERS:
Wanger Asset Management, L.P.(2).......................... 3,470,000 15.3%
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Jonathan J. Ledecky(3).................................... 1,277,906 5.5%
OTHER DIRECTORS:
Clifford Mitman, Jr.(4)................................... 180,000 *
James E. Claypoole(5)..................................... 778,602 3.4%
Lawrence M. Howell(6)..................................... 120,200 *
Leon Kopyt(7)............................................. 0 --
Benjamin Tandowski(8)..................................... 30,152 *
OTHER NAMED EXECUTIVE OFFICERS:
Ira Cohen(9).............................................. 26,876 *
Ross J. Weintraub(10)..................................... 1,750 *
All executive officers, directors and nominees for director 2,415,486 9.9%
as a group (eight persons)(11)............................
</TABLE>
- ------------------------
* Less than 1%.
(1) The number of shares beneficially owned by each stockholder, director and
executive officer is determined under rules promulgated by the Securities
and Exchange Commission, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after January 31, 2000 through the
exercise of any stock option, warrant or other right. The inclusion herein
of such shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity listed above has sole voting and
investment power (or shares such power with his or her spouse) with respect
to all shares of capital stock listed as owned by such person or entity.
(2) Information is based solely on a Schedule 13G/A filed with the Securities
and Exchange Commission on February 11, 2000, by Wanger Asset Management,
L.P. ("Wanger Asset"). Wanger Asset is a registered investment advisor. The
number of shares beneficially owned by this entity includes those purchased
on behalf of discretionary clients of Wanger Asset. Wanger Asset reported
that it has shared power to vote or direct the vote of its 3,470,000 shares.
30
<PAGE>
(3) Includes 865,121 shares subject to options exercisable within 60 days after
January 31, 2000.
(4) Consists of 180,000 shares subject to options exercisable within 60 days
after January 31, 2000.
(5) Mr. Claypoole retired as an officer of the Company in September 1999.
Includes 577,185 shares subject to options exercisable within 60 days after
January 31, 2000.
(6) Includes 80,000 shares subject to options exercisable within 60 days after
January 31, 2000.
(7) Mr. Kopyt was elected a director of the Company on March 2, 2000. The
Company granted Mr. Kopyt, pursuant to the 1998 Non-Employee Director Stock
Option Plan, an option to purchase 15,000 shares at an exercise price of
$8.75 per share, the fair market value on said date. Said option is not
included in the Beneficial Ownership table, above.
(8) Dr. Tandowski serves as the President of Professional Computer
Solutions, Inc. ("PCSI"), a wholly-owned subsidiary of the Company. Includes
18,750 shares subject to options exercisable within 60 days after
January 31, 2000.
(9) Includes 22,792 shares subject to options exercisable within 60 days after
January 31, 2000.
(10) Consists of 1,750 shares subject to options exercisable within 60 days of
January 31, 2000.
(11) Consists of 1,745,598 shares subject to options exercisable within 60 days
after January 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
PCSI, a wholly owned subsidiary of Aztec, entered into an agreement with
Howell Capital, in connection with consulting services to be provided by Howell
Capital in the planning and execution of the public sale of equity or debt
securities of PCSI through an initial public offering ("IPO"). The agreement
provides that Howell Capital is entitled to payment of a maximum of $133,000
dollars should PCSI terminate the agreement within 120 days of January 6, 2000,
and Howell Capital is entitled to receive a fee in the form of an option to
purchase a number of shares of PCSI's common stock which would be calculated to
the equivalent of 1/2 of 1% of PCSI's total enterprise value at the time of an
IPO. Mr. Howell is the Managing Partner of Howell Capital and is a member of the
Board of Directors of Aztec.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Annual Report
1. Consolidated Financial Statements. The Consolidated Financial
Statements listed in the Index to Consolidated Financial Statements and
Financial Statement Schedule are filed as part of this Annual Report.
2. Financial Statement Schedule. The Financial Statement Schedule listed
in the Index to Consolidated Financial Statements and Financial Statement
Schedule is filed as part of this Annual Report.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
(Incorporated herein by reference to the Company's
Form 10-K filed on July 24, 1998)
3.2 Amended and Restated By-laws (Incorporated herein by
reference to the Company's Form 10-K/A filed on October 8,
1998)
3.3 Amendment to the Amended and Restated By-laws
4.1 Form of certificate representing shares of Common Stock
(Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 333-46533)
filed on June 10, 1998)
4.2 Registration Rights Agreement dated April 21, 2000 by and
among the Company and the Banks named therein.
4.3 Form of Warrant (Incorporated herein by reference to the
Company's Form S-3 filed on May 1, 2000)
10.1 Agreement and Plan of Distribution dated June 9, 1998, among
U.S. Office Products, Workflow Management, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc., and
School Specialty, Inc. (Incorporated herein by reference to
the Company's Form 10-K filed on July 24, 1998)
10.2 Tax Allocation Agreement dated June 9, 1998, among U.S.
Office Products, Workflow Management, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School
Specialty, Inc. (Incorporated herein by reference to the
Company's Form 10-K filed on July 24, 1998)
10.3 Tax Indemnification Agreement dated June 9, 1998, among U.S.
Office Products, Workflow Management, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc., and School
Specialty, Inc. (Incorporated herein by reference to the
Company's Form 10-K filed on July 24, 1998)
10.4 Employee Benefits Services and Liabilities Agreement dated
June 9, 1998 among U.S. Office Products, Workflow
Management, Inc., Aztec Technology Partners, Inc., Navigant
International, Inc., and School Specialty, Inc.
(Incorporated herein by reference to the Company's Form 10-K
filed on June 24, 1998)
10.5* 1998 Stock Incentive Plan (Incorporated herein by reference
to the Company's Form 10-K filed on July 24, 1998)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
<S> <C>
10.6* Services Agreement between Jonathan Ledecky and Aztec
Technology Partners, Inc. (Incorporated herein by reference
to the Company's Registration Statement on Form S-1 (File
No. 333-46533) filed on June 10, 1998)
10.7* Employment Agreement between Aztec and Jonathan Ledecky
10.8* Employment Agreement between Aztec and Ross Weintraub
(Incorporated herein by reference to the Company's Form 10-K
filed on March 30, 2000)
10.9* Employment Agreement between Aztec and Ira Cohen
(Incorporated herein by reference to the Company's Form 10-K
filed on March 30, 2000)
10.10* Employment Agreement between PCSI and Benjamin Tandowski
(Incorporated herein by reference to the Company's
Form 10-Q filed on August 16, 1999)
10.11* 1998 Non-Employee Director Stock Option Plan (Incorporated
herein by reference to the Company's Form 10-K filed on July
24, 1998)
10.12 Revolving Credit Agreement By and Among the Company and
BankBoston, N.A. as agent, dated as of July 27, 1998
(Incorporated herein by reference to the Company's Form 10-Q
filed on November 16, 1998)
10.13 Amendment to the Revolving Credit Agreement By and Among the
Company and BankBoston, N.A. as agent, dated as of
September 30, 1999 (Incorporated herein by reference to the
Company's Form 10-Q filed on November 15, 1999)
10.14 Amendment to the Revolving Credit Agreement By and Among the
Company and Fleet National Bank, N.A. as agent, dated
March 30, 2000
10.15* Retirement Agreement with James Claypoole, dated
September 30, 1999 (Incorporated herein by reference to the
Company's Form 10-K filed on March 30, 2000)
10.16 Consulting Agreement between PCSI and Howell Capital, dated
January 6, 2000 (Incorporated herein by reference to the
Company's Form 10-K filed on March 30, 2000)
10.17* Amendment to Employment Agreement between PCSI and Benjamin
Tandowski
21 Subsidiaries of the Company (Incorporated herein by
reference to the Company's Form 10-K filed on March 30,
2000)
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule (Incorporated herein by reference to
the Company's Form 10-K filed on March 30, 2000)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement filed herewith in
response to Item 14(a)(3) of the Instructions to the Annual Report on
Form 10-K.
The exhibits listed above are not contained in the copy of the Annual Report
distributed to stockholders. Exhibits which are incorporated herein by reference
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C., and at the Securities and Exchange Commission's regional
offices at 219 South Dearborn Street, Room 1204, Chicago, Illinois; 26 Federal
Plaza, Room 1102, New York, New York and 5757 Wilshire Boulevard, Suite 1710,
Los Angeles, California. Copies of such material can also be obtained from the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 28, 2000.
<TABLE>
<S> <C> <C>
AZTEC TECHNOLOGY PARTNERS, INC.
BY: /S/ IRA COHEN
-----------------------------------------
Ira Cohen
PRESIDENT AND CHIEF OPERATING OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CLIFFORD MITMAN, JR. Chairman of the Board of
------------------------------------------- Directors April 26, 2000
Clifford Mitman, Jr.
Vice President Finance and
/s/ ROSS J. WEINTRAUB Chief Financial Officer
------------------------------------------- (Principal Financial Officer April 26, 2000
Ross J. Weintraub and Principal Accounting
Officer)
/s/ JAMES E. CLAYPOOLE Director
------------------------------------------- April 27, 2000
James E. Claypoole
/s/ LAWRENCE M. HOWELL Director
------------------------------------------- April 26, 2000
Lawrence M. Howell
/s/ LEON KOPYT Director
------------------------------------------- April 26, 2000
Leon Kopyt
/s/ JONATHAN J. LEDECKY Director
------------------------------------------- May 1, 2000
Jonathan J. Ledecky
/s/ BENJAMIN TANDOWSKI Director
------------------------------------------- April 25, 2000
Benjamin Tandowski
</TABLE>
34
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Consolidated Balance Sheet as of December 31, 1999 and
December 31, 1998......................................... F-3
Consolidated Statement of Operations for the year ended
December 31, 1999, thirty-five weeks from April 26, 1998
to December 31, 1998, and fiscal years ended April 25,
1998 and April 26, 1997................................... F-4
Consolidated Statement of Stockholders' Equity for the year
ended December 31, 1999, thirty-five weeks from April 26,
1998 to December 31, 1998, and fiscal years ended
April 25, 1998 and April 26, 1997......................... F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1999, thirty-five weeks from April 26, 1998
to December 31, 1998, and fiscal years ended April 25,
1998 and April 26, 1997................................... F-6
Notes to Consolidated Financial Statements.................. F-8
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and
Reserves................................................ F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Aztec Technology Partners, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1, present fairly, in all material respects, the
financial position of Aztec Technology Partners, Inc. ("Aztec") and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for the year ended December 31, 1999, the thirty-five weeks
ended December 31, 1998 and the fiscal years ended April 25, 1998 and April 26,
1997, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the accompanying index on page F-1, presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
F-2
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,550 $ 8,763
Accounts receivable, less allowance for doubtful accounts
of $5,679 and $2,610, respectively...................... 65,481 74,138
Inventories............................................... 10,685 11,323
Unbilled percentage of completion revenues................ 4,730 5,922
Other receivable.......................................... 10,550
Prepaid expenses and other current assets................. 11,289 7,768
Deferred income taxes..................................... 5,432 2,464
-------- --------
Total current assets.................................... 102,167 120,928
Property and equipment, net................................. 10,386 7,603
Intangibles, net............................................ 55,760 129,792
Deferred income taxes....................................... 2,476
Other assets................................................ 1,908 2,196
-------- --------
Total assets............................................ $172,697 $260,519
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 166 $ 216
Accounts payable.......................................... 34,538 43,937
Accrued compensation...................................... 6,570 5,791
Deferred revenue.......................................... 10,140 4,732
Other accrued liabilities................................. 10,847 7,821
-------- --------
Total current liabilities............................... 62,261 62,497
Long-term debt.............................................. 74,544 90,218
Deferred income taxes....................................... 141
Other long-term liabilities................................. 1,956 697
-------- --------
Total liabilities....................................... 138,761 153,553
-------- --------
Commitments and contingencies--Note 10
Stockholders' equity:
Preferred stock $.001 par value; 1,000,000 shares
authorized, no shares issued and outstanding............
Common stock $.001 par value; 150,000,000 shares
authorized, 22,428,837 and 22,017,759 shares issued and
outstanding, respectively............................... 22 22
Additional paid-in capital................................ 94,354 93,584
Retained earnings (deficit)............................... (60,440) 13,360
-------- --------
Total stockholders' equity.............................. 33,936 106,966
-------- --------
Total liabilities and stockholders' equity.............. $172,697 $260,519
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
35 WEEKS
FROM APRIL 26, FOR THE FISCAL YEAR ENDED
YEAR ENDED 1998 TO ---------------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Products................................... $196,790 $120,949 $116,998 $ 97,253
Services................................... 164,838 108,407 91,343 39,025
-------- -------- -------- --------
Total revenues........................... 361,628 229,356 208,341 136,278
-------- -------- -------- --------
Cost of revenues:
Products................................... 173,553 104,964 100,137 85,506
Services................................... 109,924 69,815 58,180 16,623
-------- -------- -------- --------
Total cost of revenues................... 283,477 174,779 158,317 102,129
-------- -------- -------- --------
Gross profit............................. 78,151 54,577 50,024 34,149
Selling, general and administrative
expenses................................... 71,725 37,885 35,185 21,525
Amortization of intangibles.................. 4,828 2,389 840
Strategic restructuring costs................ 3,643 4,330 1,750
Non-recurring acquisition costs.............. 2,274
Write-off of goodwill........................ 69,123
-------- -------- -------- --------
Operating income (loss).................. (71,168) 9,973 12,249 10,350
Other expense (income):
Interest expense........................... 6,930 2,662 807 324
Interest income............................ (183) (172) (785) (168)
Other...................................... (288) (186) (44) (53)
-------- -------- -------- --------
Income (loss) before provision for (benefit
from) income taxes......................... (77,627) 7,669 12,271 10,247
Income tax provision (benefit)............... (3,827) 3,512 5,797 3,524
-------- -------- -------- --------
Net income (loss)............................ $(73,800) $ 4,157 $ 6,474 $ 6,723
======== ======== ======== ========
Weighted-average shares outstanding:
Basic...................................... 22,107 22,839 23,911 18,005
Diluted.................................... 22,107 22,974 24,385 18,352
Per share amounts:
Basic...................................... $ (3.34) $ 0.18 $ 0.27 $ 0.37
======== ======== ======== ========
Diluted.................................... $ (3.34) $ 0.18 $ 0.27 $ 0.37
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN DIVISIONAL EARNINGS STOCKHOLDERS'
STOCK CAPITAL EQUITY (DEFICIT) EQUITY
-------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1996................. $ $ $ 148 $ 10,349 $ 10,497
Transactions of pooled companies:
Undistributed earnings of subchapter S
Corporations.......................... 8,749 (8,749)
Cash dividends declared and paid........ (5,594) (5,594)
Net income.............................. 6,723 6,723
--- ------- -------- -------- --------
Balance at April 26, 1997................. 8,897 2,729 11,626
Issuance of U.S. Office Products common
stock in conjunction with
acquisitions.......................... 71,921 71,921
Capital contribution by U.S. Office
Products.............................. 15,298 15,298
Net income.............................. 6,474 6,474
--- ------- -------- -------- --------
Balance at April 25, 1998................. 96,116 9,203 105,319
Reduction of capital contribution by
U.S. Office Products.................. (2,510) (2,510)
Spin-off from U.S. Office Products...... 22 93,584 (93,606)
Net income.............................. 4,157 4,157
--- ------- -------- -------- --------
Balance at December 31, 1998.............. 22 93,584 13,360 106,966
Shares issued under stock option and
purchase plans.......................... 770 770
Net (loss).............................. (73,800) (73,800)
--- ------- -------- -------- --------
Balance at December 31, 1999.............. $22 $94,354 $ $(60,440) $ 33,936
=== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
35 WEEKS FROM FOR THE FISCAL YEAR
APRIL 26, ENDED
YEAR ENDED 1998 TO ---------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ ------------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(73,800) $ 4,157 $ 6,474 $ 6,723
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense..................... 7,100 3,535 1,992 541
Amortization of debt issuance costs....................... 421 172
Non-recurring acquisition costs........................... 2,274
Deferred income taxes..................................... (5,585) (1,122) 123 645
Stock option tender offer................................. 1,774
Write-off of Solutions ETC purchase....................... 320
Write-off of goodwill..................................... 69,123
Changes in current assets and liabilities (net of assets
acquired and liabilities assumed in business
combinations accounted for under the purchase method):
Accounts receivable................................... 8,657 (18,815) (10,125) (2,376)
Inventories........................................... 638 (1,777) 964 547
Other recievable...................................... 10,550 (10,550)
Prepaid expenses and other............................ (2,252) (4,440) (7) (3,120)
Accounts payable...................................... (9,399) 26,996 (4,074) 997
Accrued liabilities................................... 10,472 3,864 (2,230) 20
-------- ------- ------- -------
Net cash provided by (used in) operating activities....... 15,925 4,114 (6,883) 6,251
-------- ------- ------- -------
Cash flows from investing activities:
Cash (paid) received in acquisitions...................... 81 (73,379) 182
Additions to property and equipment....................... (5,055) (2,644) (2,599) (949)
Payments of non-recurring acquisition costs............... (460) (1,814)
Deposits.................................................. (1,151)
-------- ------- ------- -------
Net cash used in investing activities................... (4,974) (76,023) (2,877) (3,914)
-------- ------- ------- -------
Cash flows from financing activities:
Proceeds from (payments of) short-term debt, net.......... (654) (2,332) (5,504)
Proceeds from issuance of long-term debt.................. 89,900 305
Payments of long-term debt................................ (15,724) (78) (1,834) (937)
Deferred debt issuance costs.............................. (210) (1,800)
Proceeds from issuance of common stock.................... 770
Payments of dividends at pooled companies................. (1,320) (4,274)
(Payments to) advances from U.S. Office Products.......... (4,388) 818 3,570
(Reduction) increase of capital contribution by U.S.
Office Products......................................... (4,284) 15,298
-------- ------- ------- -------
Net cash (used in) provided by financing activities..... (15,164) 78,696 10,630 (6,840)
-------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (4,213) 6,787 870 (4,503)
Cash and cash equivalents at beginning of period............ 8,763 1,976 1,106 5,609
-------- ------- ------- -------
Cash and cash equivalents at end of period.................. $ 4,550 $ 8,763 $ 1,976 $ 1,106
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
35 WEEKS
FROM FOR THE FISCAL YEAR
APRIL 26, 1998 ENDED
YEAR ENDED TO ---------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid.................................... $5,965 $2,133 $ 759 $ 282
Income taxes paid................................ $3,398 $5,136 $9,305 $2,460
</TABLE>
The Company utilized its Credit Facility and issued common stock in
connection with certain business combinations during the thirty-five weeks ended
December 31, 1998 and the fiscal year ended April 25, 1998. The fair values of
the assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
<TABLE>
<CAPTION>
35 WEEKS FROM FOR THE FISCAL
APRIL 26, 1998 TO YEAR ENDED
DECEMBER 31, APRIL 25,
1998 1998
----------------- --------------
<S> <C> <C>
Accounts receivable......................................... $ 6,399 $16,457
Inventories................................................. 103 6,503
Prepaid expenses and other current assets................... 100 2,608
Property and equipment...................................... 147 2,347
Intangibles................................................. 68,672 64,668
Other assets................................................ 627 174
Short-term debt............................................. (654) (2,332)
Accounts payable............................................ (561) (8,651)
Accrued liabilities......................................... (1,454) (7,832)
Long-term debt.............................................. (2,203)
------- -------
Net assets acquired....................................... $73,379 $71,739
======= =======
The acquisitions were funded as follows:
Long-term debt............................................ $73,816 $
Common stock.............................................. 71,921
Cash received............................................. (437) (182)
------- -------
Total................................................... $73,379 $71,739
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
Aztec Technology Partners, Inc. (the "Company") is a total provider of
e-Solutions for businesses, helping clients exploit Internet, intranet and
extranet technologies for a 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.
On March 30, 2000, the Company's credit facility was amended to waive
noncompliance with certain debt covenants, modify the maturity date and reflect
other changes described further in Note 7. Based on this amendment and other
operating assumptions, management concluded that the Company has sufficient cash
flow to operate at least through December 31, 2000. The Company is currently
considering the sale of certain subsidiaries (see Note 6) and other actions as
part of its strategy to enhance shareholder value. The amended credit facility
requires that certain proceeds from these activities must be used to pay down
debt. To the extent that cash flow derived by the Company from a subsidiary
which could be disposed of and, therefore, would no longer be controlled by the
Company, exceeds the decrease in interest payments resulting from reduced debt,
cash flow could be negatively impaired. However, proceeds derived by the Company
as a result of these actions in excess of required debt pay downs can provide
additional cash to fund operations. The Company will consider the impact of
these actions on cash flow, including the need to raise additional funding,
curtail expenditures or other activities, as the actions are finalized.
The Company is a Delaware Corporation which was a wholly-owned subsidiary of
U.S. Office Products Company ("U.S. Office Products") prior to the Company's
spin-off from U.S. Office Products on June 9, 1998. This transaction was
effected through the distribution of shares of the Company to U.S. Office
Products shareholders (the "Distribution"). Prior to the Distribution, U.S.
Office Products contributed its equity interests in certain wholly-owned
subsidiaries associated with U.S. Office Products' Technology Solutions division
to the Company. U.S. Office Products and the Company also entered into a number
of agreements to facilitate the Distribution and the transition of the Company
to an independent business enterprise (see Note 10). At the date of the
Distribution, U.S. Office Products allocated $5,000 in debt to the Company which
was paid upon the completion of the Distribution.
The Technology Solutions division was created by U.S. Office Products in
October 1996 and completed five business combinations accounted for under the
pooling-of-interests method during the period from October 1996 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities. The
Company made eight acquisitions accounted for under the purchase method during
the period from September 1997 to October 1998 (the "Purchase Companies"). The
results of these acquisitions have been included in the Company's results from
their respective dates of acquisition.
NOTE 2--BASIS OF PRESENTATION
For periods prior to the spin-off from U.S. Office Products on June 9, 1998,
the consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities transferred to the
Company prior to the Distribution were included in the Company's separate
consolidated balance sheet. The Company's statement of operations includes all
of the related costs of doing
F-8
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
business including an allocation of certain general corporate expenses of U.S.
Office Products which were not directly related to these businesses including
certain corporate executives' salaries, accounting and legal fees, departmental
costs for accounting, finance, legal, purchasing, marketing, human resources, as
well as other general overhead costs. These allocations were based on a variety
of factors, dependent upon the nature of the costs being allocated, including
revenues, number and size of acquisitions and number of employees. Management
believes these allocations were made on a reasonable basis.
U.S. Office Products used a centralized approach to cash management and the
financing of its operations. As a result, no cash and cash equivalents and
$5,000 of debt were allocated to the Company at the time of the Distribution.
The consolidated statement of operations includes an allocation of interest
expense on all debt allocated to the Company. See Note 7 for further discussion
of interest expense.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CHANGES IN FISCAL YEAR
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending March 31 and December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997, the Pooled Companies changed their year-ends from March 31 and
December 31 to conform to U.S. Office Products' fiscal year, which ended on the
last Saturday in April. On June 30, 1998, after the spin-off from U.S. Office
Products, the Board of Directors of the Company voted to change the Company's
fiscal year end from the last Saturday in April, to December 31.
F-9
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the results for the transition period for the
thirty-five weeks ended December 31, 1998 and the unaudited results for the
thirty-five weeks ended December 31, 1997, the prior period comparable to the
transition period.
<TABLE>
<CAPTION>
35 WEEKS FROM 35 WEEKS FROM
APRIL 26, 1998 TO APRIL 27, 1997 TO
DECEMBER 31, DECEMBER 31,
1998(1) 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Products..................................... $120,949 $ 80,270
Services..................................... 108,407 41,916
-------- --------
Total revenues........................... 229,356 122,186
-------- --------
Cost of revenues:
Products..................................... 104,964 67,952
Services..................................... 69,815 24,019
-------- --------
Total cost of revenues................... 174,779 91,971
-------- --------
Gross profit............................. $ 54,577 $ 30,215
======== ========
Operating income............................. $ 9,973 $ 9,774
======== ========
Net income................................... $ 4,157 $ 5,571
======== ========
Per share amounts:
Basic........................................ $ 0.18 $ 0.25
======== ========
Diluted...................................... $ 0.18 $ 0.24
======== ========
</TABLE>
- ------------------------
(1) Results for the thirty-five weeks from April 26, 1998 to December 31, 1998
include strategic restructuring costs of $4,330.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, the "thirty-five weeks ended December 31,
1998", "fiscal 1998" and "fiscal 1997", refer to the Company's transition period
from April 26, 1998 to December 31, 1998 and the fiscal years ended April 25,
1998 and April 26, 1997, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
F-10
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are generally not collateralized
and, as a result, management continually monitors the financial condition of its
customers to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the cost of acquired businesses over the
fair market value of their net tangible and identified intangible assets.
Goodwill is amortized on a straight line basis over estimated useful lives of
15-40 years and identified intangible assets are amortized on a straight line
basis generally over four years.
The carrying amounts of intangible assets and goodwill are reviewed if facts
and circumstances suggest that these amounts may be impaired. If this review
indicates that the carrying amounts of intangible assets and goodwill will not
be recoverable, as determined by comparing anticipated undiscounted cash flows
of the entity to the net book value, the carrying amounts of the intangible
assets and goodwill are reduced to fair value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets to Be Disposed Of".
For assets classified as assets to be held and used in the business under
SFAS 121, if impairment exists, the assets are written down to fair value and
continue to be amortized over the expected useful life. Subsequent increases in
fair value of the assets are not recognized in the financial statements. For
assets classified as assets to be disposed of under SFAS 121, if impairment
exists, the assets are written down to fair value and recognition of
amortization ceases. Subsequent decreases or increases in fair value (up to the
carrying value prior to the impairment) are recognized in the financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and long-term debt
approximate fair value.
F-11
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax liabilities and assets are determined based on the differences
between the financial statement basis and tax basis of assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is also required against net deferred
tax assets if based upon the available evidence it is more likely than not that
some or all of the deferred tax assets will not be realized.
As a division of U.S. Office Products, the Company did not file separate
federal income tax returns but rather was included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements for periods
prior to June 9, 1998, the Company's allocated share of U.S. Office Products'
income tax provision was based on the "separate return" method. Certain
companies acquired in pooling-of-interests transactions elected to be taxed as
Subchapter S corporations, and accordingly, no federal income taxes were
recorded by those companies for periods prior to their acquisition by U.S.
Office Products.
REVENUE RECOGNITION
Revenue from hardware and packaged software sales is recognized upon
shipment provided there are no uncertainties regarding customer acceptance and
collectibility of related receivables is considered probable.
Revenue from software development contracts is recognized as work is
performed on a "time and materials" basis.
Revenues related to fixed-price contracts are recognized using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to the estimated total cost at completion. This method is used because
management considers accumulated costs to be the best available measure of
progress on these contracts. The cumulative impact of any revision in estimates
of the percent complete is reflected in the period in which the changes become
known. Losses on projects in progress are recognized when known. Revenues
related to fixed-price contracts which include both product and service
components are recorded as service revenues.
Service revenues from consulting, installation and maintenance is recognized
ratably over the contract period or as the service is provided.
Payments received by the Company in advance of product delivery or
performance of services are deferred until earned.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Advertising costs are included in the consolidated statement of operations as a
component of selling, general and administrative expenses. Advertising expense
for the year ended December 31, 1999, thirty-five weeks ended December 31, 1998,
and fiscal years 1998 and 1997 was $2,103, $710, $1,666 and $661, respectively.
The Company also earns co-op funds from certain vendors which can be used for
advertising, trade shows and telemarketing campaigns. These funds are included
in the consolidated statement of operations as a credit
F-12
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to the corresponding selling, general and administrative expenses. Co-op funds
for the year ended December 31, 1999, thirty-five weeks ended December 31, 1998,
and fiscal years 1998 and 1997 were $2,484, $2,011, $1,812 and $1,453,
respectively.
NON-RECURRING ACQUISITION COSTS
For fiscal 1997, non-recurring acquisition costs represent acquisition costs
incurred by the Company in business combinations accounted for under the
pooling-of-interests method. These costs include accounting, legal, and
investment banking fees, real estate and environmental assessments and
appraisals, various regulatory fees and recognition of transaction related
obligations. Generally accepted accounting principles require the Company to
expense all acquisition costs (both those paid by the Company and those paid by
the sellers of the acquired companies) related to business combinations
accounted for under the pooling-of-interests method.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with the Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share".
DISTRIBUTION RATIO
On May 14, 1998, the U.S. Office Products Board of Directors approved the
distribution ratio for the Company in connection with the Distribution. At the
date of Distribution, the Company issued to U.S. Office Products shareholders
one share of its common stock for every five shares of U.S. Office Products
common stock held by each respective shareholder. The share data reflected in
the accompanying financial statements represent the historical share data for
U.S. Office Products for the period or as of the date indicated, and has been
retroactively adjusted to give effect to the one for five distribution ratio.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued 955,151 shares of common stock to acquire
the Pooled Companies.
The Pooled Companies and the number of shares issued are as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMPANY NAME SHARES ISSUED
- ------------ -------------
<S> <C>
Bay State Computer Group.................................... 181,315
Digital Network Associates, Inc............................. 152,389
Fortran Corp................................................ 330,000
Office Equipment Service, Inc............................... 132,331
Professional Computer Solutions, Inc........................ 159,116
-------
Total shares issued....................................... 955,151
=======
</TABLE>
F-13
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. All of the
Pooled Companies previously reported on fiscal years ending other than
April 26, 1997. Upon completion of the acquisitions of the Pooled Companies,
their year-ends were changed to U.S. Office Products' year-end of the last
Saturday in April.
The following presents the separate results, for fiscal 1997, of the Company
(excluding the results of Pooled Companies prior to the dates on which they were
acquired), and the Pooled Companies up to the dates on which they were acquired:
<TABLE>
<CAPTION>
AZTEC
TECHNOLOGY POOLED
PARTNERS, INC. COMPANIES COMBINED
-------------- --------- --------
<S> <C> <C> <C>
Revenues.................................. $ 57,656 $ 78,622 $136,278
Net Income................................ $ 2,109 $ 4,614 $ 6,723
</TABLE>
PURCHASE METHOD
During the thirty-five weeks ended December 31, 1998, the Company made three
acquisitions accounted for under the purchase method for an aggregate purchase
price of $73,379, net of cash acquired of $437, financed principally through its
Credit Facility (see Note 7). The total assets related to these acquisitions
were $76,048, including intangible assets of $68,672.
During fiscal 1998, the Company made five acquisitions accounted for under
the purchase method for an aggregate purchase price of $71,739, consisting of
651,021 shares of common stock with a market value of $71,921, net of $182 of
cash acquired. The total assets related to these acquisitions were $92,757,
including intangible assets of $64,668.
The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.
The following presents the unaudited pro forma financial data of the Company
for the thirty-five weeks ended December 31, 1998, and fiscal 1998 and 1997 and
includes the Company's consolidated financial statements and the results of the
Purchased Companies as if all such purchase acquisitions had been made at the
beginning of each period presented. The results presented below include certain
pro forma adjustments to reflect the amortization of intangible assets,
adjustments in executive compensation and interest expense:
<TABLE>
<CAPTION>
35 WEEKS ENDED
DECEMBER 31, 1998 FISCAL 1998 FISCAL 1997
----------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues.............................. $240,125 $301,509 $259,080
Net income............................ 4,173 10,041 6,916
Per Share amounts:
Basic............................... 0.18 0.46 0.31
Diluted............................. 0.18 0.45 0.31
</TABLE>
F-14
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The unaudited pro forma results of operation are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of each period presented
or the results which may occur in the future.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Land................................................ $ 143 $ 143
Buildings........................................... 374 374
Furniture, fixtures and equipment................... 15,778 10,837
Leasehold improvements.............................. 719 605
------- -------
Total property and equipment...................... 17,014 11,959
Less: Accumulated depreciation and amortization..... (6,628) (4,356)
------- -------
Net property and equipment........................ $10,386 $ 7,603
======= =======
</TABLE>
Depreciation expense for the year ended December 31, 1999, the thirty-five
weeks ended December 31, 1998 and fiscal years 1998 and 1997 was $2,272, $1,146,
$1,152 and $541, respectively.
F-15
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Goodwill............................................ $62,241 $131,445
Other intangible assets............................. 1,576 1,576
Less: Accumulated amortization...................... (8,057) (3,229)
------- --------
Intangibles, net.................................... $55,760 $129,792
======= ========
</TABLE>
During the fourth quarter of 1999, goodwill in the amount of $27.4 million
was expensed in connection with the Company's planned divestitures by the end of
2000 of its subsidiaries involved in voice and data, activities for which
goodwill was expensed are included in the Northeast Telephony and West business
segments. The carrying amount of the subsidiaries written down to fair value was
approximately $33.0 million as of December 31, 1999.
During the third quarter of 1999, goodwill in the amount of $35 million was
expensed due to significant anticipated operating cash flow decreases in one of
the Company's subsidiaries included in the Other business segment.
During the third quarter of 1999, goodwill in the amount of $6.7 million was
expensed in connection with a strategic restructuring plan that included the
decision to close one of the Company's subsidiaries, located in Ohio, as well as
significant staff reductions at a Connecticut based subsidiary. These
subsidiaries are included in the Other and Tri-State business segments,
respectively.
The charges have been reflected in the consolidated statement of operations
as "Write-off of goodwill". The charges represent the amount necessary to
decrease the carrying values of goodwill to the Company's best estimate of those
businesses' future discounted cash flows using the methodology described in
Note 3.
Amortization expense for the year ended December 31, 1999, thirty-five weeks
ended December 31, 1998 and fiscal 1998 was $4,828, $2,389 and $840,
respectively. There was no amortization expense for fiscal year 1997.
NOTE 7--CREDIT FACILITIES
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Credit Facility..................................... $74,300 $89,900
Other long-term debt, including capital lease
obligations and notes payable, secured by certain
assets of the Company............................. 410 534
------- -------
74,710 90,434
Less: Current maturities of long-term debt.......... (166) (216)
------- -------
Total long-term debt............................ $74,544 $90,218
======= =======
</TABLE>
F-16
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
2000........................................................ $ 166
2001........................................................ 74,442
2002........................................................ 58
2003........................................................ 38
2004........................................................ 6
-------
Total maturities of long-term debt...................... $74,710
=======
</TABLE>
The Company entered into a $140 million Credit Facility with its bank
lenders on July 27, 1998. The agreement provided that up to $15 million of the
Credit Facility may be used for working capital and other general corporate
purposes and up to $125 million may be used to fund permitted acquisitions. The
Credit Facility had an original maturity of July 27, 2003.
As of September 30, 1999, the Company was in noncompliance with a certain
financial covenant. Effective September 30, 1999, the Company entered into an
amendment to its Credit Facility whereby it received a waiver of noncompliance
for the third quarter of 1999. In addition, the amendment reduced the maximum
amount the Company may borrow to fund permitted acquisitions from $125 million
to $69.3 million and increased interest rates on outstanding borrowings.
As of December 31, 1999, Aztec was in noncompliance with certain financial
covenants under the facility. On March 30, 2000, Aztec and its bank lenders
further amended the facility to provide Aztec with a waiver of noncompliance for
the fourth quarter of 1999. The amendment modifies the maturity date on the
Credit Facility from July 27, 2003 to April 30, 2001. Further, the amendment has
provisions for certain levels of loan reductions during 2000, which failure to
achieve will result in additional interest charges and potential grants to its
bank lenders of warrants to purchase shares of common stock of the Company. The
Credit Facility and its obligations are secured by all of the Company's assets.
The Credit Facility provides for interest rate options to the Company at rates
which approximate prime or LIBOR, and in both cases, plus an applicable margin.
The weighted average interest rate for the year ended December 31, 1999
approximated 8.14% and the weighted average interest rate from inception of the
Credit Facility to December 31, 1998 approximated 6.96%. The Credit Facility,
calls for a commitment fee of 0.50%, payable quarterly, in arrears, based on the
average daily unused portion. In addition, the Company incurred $1,800 of costs
associated with the issuance of the Credit Facility an additional $210 with the
amendment of September 30, 1999 and an additional $843 with the amendment of
March 30, 2000, which are being amortized over the term of the agreement and
which are included in interest expense. The amount of amortization for the year
ended December 31, 1999, was $421. As of December 31, 1999, the total
outstanding amount under the Credit Facility was $74,300, comprised of $5,000
for working capital purposes and $69,300 for permitted acquisitions.
PAYABLE TO U.S. OFFICE PRODUCTS
The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses. An
analysis of the activity in this account is as follows:
F-17
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
<TABLE>
<S> <C>
Balance at April 30, 1996................................... $
Payments of long-term debt of Pooled Companies upon
acquisition........................................... 1,710
Payments of acquisition costs........................... 1,362
Allocated corporate expenses............................ 388
Operating costs paid by U.S. Office Products............ 1,326
--------
Balance at April 26, 1997................................... 4,786
Payments of long-term debt of Purchased Companies upon
acquisition........................................... 1,159
Payments of acquisition costs........................... 2,501
Allocated corporate expenses............................ 1,758
Operating costs paid by U.S. Office Products............ 2,009
Income taxes paid by U.S. Office Products............... 7,473
Capital contribution by U.S. Office Products............ (15,298)
--------
Balance at April 25, 1998................................... 4,388
USOP stock option tender offer.......................... 1,774
Operating costs paid by U.S. Office Products............ 662
U.S. Office Products Cash Management.................... (4,946)
Reduction of capital contribution by U.S. Office
Products.............................................. 2,510
Payment to U.S. Office Products for allocated debt...... (4,388)
--------
Balance at December 31, 1998................................ $
========
</TABLE>
F-18
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
Interest has been allocated to the Company based upon the Company's average
outstanding payable balance with U.S. Office Products at U.S. Office Products'
weighted average interest rate during such period.
The receivable from U.S. Office Products was generated by the Company
primarily as a result of U.S. Office Products sweeping the Company's excess cash
through the centralized cash management system, which involved daily advances or
sweeps of cash to keep the cash balance at or near zero on a daily basis. The
Company earned interest based upon the average outstanding receivable from U.S.
Office Products at the weighted average interest rate of U.S. Office Products in
effect during the periods.
The Company's financial statements include allocations of net interest
expense from U.S. Office Products totaling $7, $8 and $130 for the thirty-five
weeks ended December 31, 1998, fiscal year 1998 and fiscal year 1997,
respectively.
The Distribution Agreement allocated $5,000 of U.S. Office Products' debt
outstanding under its credit facilities to the Company and required the Company,
prior to the Distribution, to obtain credit facilities, to borrow funds under
such facilities and to use the proceeds of such borrowings to pay off the U.S.
Office Products' debt so allocated. Prior to the Distribution, the Company
entered into the Credit Facility and at the time of the Distribution borrowed
$5,000 under the facility to pay off debt of U.S. Office Products.
NOTE 8--INCOME TAXES
The provision for (benefit from) income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
35 ENDED
YEAR ENDED WEEKS ENDED ---------------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal...................... $ 480 $3,611 $4,484 $2,102
State........................ 1,278 1,023 1,190 777
------- ------ ------ ------
1,758 4,634 5,674 2,879
------- ------ ------ ------
Deferred income tax (benefit)
expense...................... (5,585) (1,122) 123 645
------- ------ ------ ------
Total provision for
(benefit from) income
taxes.................... $(3,827) $3,512 $5,797 $3,524
======= ====== ====== ======
</TABLE>
F-19
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Intangibles....................................... $ 13,354 $
Inventory......................................... 540 381
Allowance for doubtful accounts................... 2,271 729
Accrued liabilities............................... 1,981 1,354
Deferred compensation............................. 725
State NOL carryforward............................ 643
Other............................................. 812 35
-------- --------
Deferred tax assets before valuation
allowance..................................... 20,326 2,499
-------- --------
Valuation allowance............................... (2,441)
Deferred tax liabilities:
Intangibles....................................... (9,970) (176)
Other............................................. (7)
-------- --------
Deferred tax liabilities........................ (9,977) (176)
-------- --------
Net deferred tax asset.......................... $ 7,908 $ 2,323
======== ========
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
35 ENDED
YEAR ENDED WEEKS ENDED ---------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
U.S. federal statutory rate........ (34.0)% 34.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit............... (2.8) 6.5 6.4 5.9
Subchapter S corporation income not
subject to corporate level
taxation......................... (20.8)
Nondeductible goodwill............. 28.8 4.3 2.4
Nondeductible acquisition costs.... 2.8 7.8
Valuation allowance................ 3.1
Other.............................. 1.0 0.6 6.5
----- ----- ----- -----
Effective income tax rate.......... (4.9)% 45.8% 47.2% 34.4%
===== ===== ===== =====
</TABLE>
Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to their acquisitions by the Company.
The valuation allowance relates to uncertainties surrounding the
recoverability of deferred tax assets. In assessing the realizability of
deferred assets, management considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. Ultimately
realization of deferred tax assets
F-20
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES (CONTINUED)
is dependent upon the generation of future taxable income during periods in
which benefits from net operating loss carryforwards are available and temporary
differences become deductible. The Company considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and other matters in
making this assessment. As a result of its evaluation of these factors at
December 31, 1999, the Company recorded a valuation reserve of $2,441 related to
state net operating loss carryforwards and deferred state tax assets for certain
subsidiaries for which it is not more likely than not the asset will be
realized.
The state net operating loss carryforward of approximately $10,940 begins to
expire in 2005. The utilization of state tax loss carryforwards may be subject
to limitations under Section 382 of the U.S. Internal Revenue Code.
NOTE 9--LEASE COMMITMENTS
The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000........................................................ $163 $ 3,824
2001........................................................ 95 2,919
2002........................................................ 62 2,197
2003........................................................ 43 1,929
2004........................................................ 8 1,464
Thereafter.................................................. 7 813
---- =======
Total minimum lease payments................................ 378 $13,146
---- =======
Less: Amounts representing interest......................... 59
====
Present value of net minimum lease payments................. $319
====
</TABLE>
Rent expense for all operating leases for the year ended December 31, 1999,
thirty-five weeks ended December 31, 1998, and fiscal years 1998 and 1997 was
$3,793, $1,643, $999 and $871, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
On March 3, 1999, a lawsuit was filed against the Company, along with USOP
and Jonathan Ledecky, a director of Aztec, by Philip Arturi, former President of
Professional Network Services, Inc. ("PNS"), and Bruce Torello, a former PNS
employee. Arturi and Torello claim a total of $2 million in damages in
connection with the sale of their company to USOP in September, 1997. PNS was
one of the business units that was spun off from USOP as part of Aztec in
June 1998 and was a wholly-owned subsidiary of USOP prior to the spin-off. The
plaintiffs claim that USOP failed to disclose certain material facts during
USOP's acquisition of the business and that they were given assurances that they
would be compensated for damages from the drop in the value of the USOP stock
received in consideration for the sale of the Company. Some or all of the claims
may be subject to indemnification by the Company and the other spin-off
companies under the terms of the distribution agreement that was executed in
connection with
F-21
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
USOP's strategic restructuring plan. It is also possible that the Company could
seek indemnity from USOP for these claims.
In connection with the acquisition of Aztec International, a Company
subsidiary, a lawsuit was filed in the United States District Court for the
District of Delaware in February 1999 against USOP, and James Claypoole and
Jonathan Ledecky as employees of USOP, by Jack Meehan, Fran Meehan, Christopher
Meehan, Beth Meehan, Gordon Tingets, Les Asher, Michael Dickens, and William
Durniak. A number of the plaintiffs are officers and directors of Aztec
International. Messrs. Claypoole and Ledecky are directors of Aztec. The lawsuit
alleges that USOP, (and Claypoole and Ledecky as its employees) failed to
disclose certain material facts during USOP's acquisition of the business. The
lawsuit further alleges that the plaintiffs were given assurances that they
would be compensated for damages resulting from a decrease in the value of
USOP's stock they received in connection with the sale. The plaintiffs claim
damages of $9.5 million. Some or all of the claims may be subject to
indemnification by the Company and the other spin-off companies under the terms
of the distribution agreement that was executed in connection with USOP's
strategic restructuring plan.
The Company has not accrued a liability in connection with the above
litigation as the Company accrues contingent liabilities when it is probable
that future expenditures will be made and such expenditures can be reasonably
estimated. If the Company is unable to settle or obtain indemnification from
U.S. Office Products in connection with the above litigation, there could be a
material adverse effect on the Company.
POST-EMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at December 31, 1999 related
to these agreements, as no change of control has occurred or is probable.
DISTRIBUTION
At the date of the distribution, the Company, U.S. Office Products and the
other Spin-Off Companies entered into the Distribution Agreement, the Tax
Allocation Agreement and the Employee Benefits Agreement, and the Spin-Off
Companies entered into the Tax Indemnification Agreement. These agreements
provided, among other things, for U.S. Office Products and the Company to
indemnify each other from tax and other liabilities relating to their respective
businesses prior to and following the Distribution. Certain of the obligations
of the Company and the other spin-off companies to indemnify U.S. Office
Products are joint and several. Therefore, if one of the other spin-off
companies fails to indemnify U.S. Office Products when such a loss occurs, the
Company may be required to reimburse U.S. Office Products for all or a portion
of the losses that otherwise would have been allocated to other spin-off
companies. In addition, the agreements allocated liabilities, including general
corporate and securities liabilities of U.S. Office Products not specifically
related to the technology business, between U.S. Office Products and each
spin-off company.
NOTE 11--EMPLOYEE BENEFIT PLANS
Effective upon the Distribution, the Company implemented a 401(k) Retirement
Plan (the "401(k) Plan") which allows employee contributions in accordance with
Section 401(k) of the Internal Revenue
F-22
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11--EMPLOYEE BENEFIT PLANS (CONTINUED)
Code. The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For the year ended December 31, 1999,
thirty-five weeks ended December 31, 1998, and the fiscal years 1998 and 1997,
the subsidiaries incurred expenses totaling $115, $240, $429 and $390,
respectively, related to these plans.
NOTE 12--STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
The following information presents the Company's computations of basic and
diluted EPS from continuing operations for the periods presented in the
consolidated statement of operations (In thousands, except per share data):
<TABLE>
<CAPTION>
INCOME SHARES
(NUMERATOR) (DENOMINATOR) PER SHARE
----------- ------------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Basic EPS................................................. $(73,800) 22,106,534 $(3.34)
Effect of dilutive employee stock options.................
-------- ---------- ------
Diluted EPS............................................... $(73,800) 22,106,534 $(3.34)
======== ========== ======
THIRTY-FIVE WEEKS ENDED DECEMBER 31, 1998:
Basic EPS................................................. $ 4,157 22,838,806 $ 0.18
Effect of dilutive employee stock options................. 134,802
-------- ---------- ------
Diluted EPS............................................... $ 4,157 22,973,608 $ 0.18
======== ========== ======
FISCAL 1998:
Basic EPS................................................. $ 6,474 23,911,206 $ 0.27
Effect of dilutive employee stock options................. 474,229
-------- ---------- ------
Diluted EPS............................................... $ 6,474 24,385,435 $ 0.27
======== ========== ======
FISCAL 1997:
Basic EPS................................................. $ 6,723 18,005,142 $ 0.37
Effect of dilutive employee stock options................. 347,012
-------- ---------- ------
Diluted EPS............................................... $ 6,723 18,352,154 $ 0.37
======== ========== ======
</TABLE>
Options to purchase approximately 116,261 shares of common stock were
excluded from the computation of diluted EPS for the year ended December 31,
1999 as their effect would be anti-dilutive.
CAPITAL CONTRIBUTION BY U.S. OFFICE PRODUCTS
During the fiscal year ended April 25, 1998, U.S. Office Products
contributed $15,298 of capital to the Company. The contribution reflects the
forgiveness of intercompany debt by U.S. Office Products, as it was agreed that
the Company would be allocated only $5,000 of debt upon the Distribution. This
contribution to capital was reduced by $4.3 million to $11.0 million in the
thirty-five week period ended December 31,
F-23
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
1998, due to cash paid to U.S. Office Products after April 25, 1998, as part of
U.S. Office Products' centralized cash management process.
EMPLOYEE STOCK PLANS
STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan (the "Stock Incentive Plan"),
provides for the granting of incentive stock options, non-qualified stock
options and other stock-based awards to employees and other individuals
performing services on behalf of the Company. The Compensation Committee (the
"Committee") appointed by the Board of Directors, has the authority to
administer the Stock Incentive Plan. The Committee determines the term of each
option, option price, number of shares for which each option is granted, whether
restrictions will be imposed on the shares subject to options and the rate at
which each option is exercisable. The exercise price for incentive stock options
granted may not be less than 100% of the fair market value per share of the
underlying common stock on the date granted (110% for options granted to holders
of more than 10% of the voting stock of the Company). The term of options
granted under the Stock Incentive Plan cannot exceed ten years (five years for
options granted to holders of more than 10% of the voting stock of the Company).
A maximum of 10 million shares of common stock are reserved for issuance in
accordance with the terms of the Stock Incentive Plan. At December 31, 1999,
4,018,810 shares were available for future grant.
Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company adopted the Stock Incentive Plan at
approximately the time of the Distribution. Upon the Distribution, the Company
replaced the options to purchase shares of common stock of U.S. Office Products
held by employees with options to purchase shares of common stock of the
Company.
In order to keep the option holders in the same economic position
immediately before and after the Distribution, the number of U.S. Office
Products' options held by Company personnel was multiplied by 1.4177 and the
exercise price of these options was divided by 1.4177 for purposes of the
replacement options. The vesting provisions and option period of the original
grants were not changed. All option data reflected below has been retroactively
restated to reflect the effects of the Distribution.
On December 14, 1998, the Company exchanged 3,728,434 options with exercise
prices ranging from $5.00 to $17.61 per share for 1,918,140 options at a price
of $3.97 per share. Employees had the option not to exchange certain options
previously granted. The repriced options were subject to the same vesting
schedule as the previous options.
NON-EMPLOYEE DIRECTOR OPTION PLAN
During 1998, the Company's Board of Directors approved a stock option plan
for the non-employee directors of the Company (the "Non-Employee Director Option
Plan"). Under the Non-Employee Director Option Plan, in consideration of their
first election to the Board of Directors, an eligible director receives an
option to purchase 25,000 shares of common stock and receives options to
purchase an additional 10,000 shares of common stock on the date of each
subsequent Annual Meeting of Stockholders of the Company, provided that they are
serving as a Director immediately following such Annual Meeting. In addition, in
consideration of their first appointment as chairperson of a Committee of the
Board of Directors, an eligible director receives an option to purchase 5,000
shares of common stock and receives
F-24
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
options to purchase an additional 5,000 shares of common stock on the date of
each subsequent Annual Meeting of Stockholders of the Company, provided that
they are serving as chairperson of said Committee of the Board of Directors
immediately following such Annual Meeting. Options to purchase 155,000 shares of
common stock have been granted under this plan. A maximum of 300,000 shares of
common stock are reserved for issuance in accordance with the terms of the
Non-Employee Director Option Plan.
EMPLOYEE STOCK PURCHASE PLAN
On June 7, 1998 the Company approved the 1998 Employee Stock Purchase Plan
(the "ESPP"). Under the plan, employees may purchase shares of common stock at
85% of the lower of the fair market value on the first or last day of each
six-month offering period. Employees may authorize the Company to withhold up to
15% of their compensation during any offering period, subject to certain
limitations. A maximum of 1,000,000 shares of common stock are reserved for
issuance in accordance with the terms of the ESPP. For the year ended
December 31, 1999, 180,228 shares were issued at $1.59 per share on June 30,
1999 and 199,006 shares were issued at $1.62 per share on December 31, 1999. At
December 31, 1999, 568,886 shares were available for future grant.
The Company accounts for options issued in accordance with APB Opinion
No. 25. Accordingly, because exercise prices of the options equaled the market
price on the date of grant, no compensation expense was recognized for the
options granted. Had compensation expense been recognized based upon the fair
value of the stock options on the date of grant under the methodology prescribed
by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and net income per share would have been impacted as indicated in the
following table:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED
YEAR ENDED 35 WEEKS ENDED ------------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
Net Income (loss):
As reported................... $(73,800) $4,157 $6,474 $6,723
Pro forma..................... (82,865) (1,292) 5,364 6,615
Per share:
As reported:
Basic....................... $ (3.34) $ 0.18 $ 0.27 $ 0.37
Diluted..................... $ (3.34) $ 0.18 $ 0.27 $ 0.37
Pro Forma:
Basic....................... $ (3.75) $(0.06) $ 0.22 $ 0.37
Diluted..................... $ (3.75) $(0.06) $ 0.22 $ 0.36
</TABLE>
F-25
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of options granted (which is amortized, in the table above,
to expense over the option vesting period in determining the pro forma impact)
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE FISCAL
35 WEEKS YEAR ENDED
YEAR ENDED ENDED ---------------------
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Expected life of option.................. 6 years 6 years 7 years 7 years
Risk free interest rate.................. 6.18% 5.00% 6.36% 6.66%
Expected volatility...................... 80.0% 52.5% 44.1% 44.0%
</TABLE>
The weighted-average fair value of options granted was $2.74, $2.99, $6.59
and $4.55 for the year ended December 31, 1999, thirty-five weeks ended
December 31, 1998, and fiscal 1998 and 1997, respectively.
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at April 30, 1996
Granted................................ 928,032 $8.03
Canceled............................... (21,887) 11.30
---------- -----
Balance at April 26, 1997................ 906,145 7.96 197,967 0.29
Granted................................ 681,351 12.22
Exercised.............................. (116,734) 0.29
Canceled............................... (122,189) 10.19
---------- -----
Balance at April 25, 1998................ 1,348,573 10.57 127,995 4.31
Granted................................ 7,422,264 6.36
Canceled............................... (4,145,137) 10.54
---------- -----
Balance at December 31, 1998............. 4,625,700 $4.36 152,060 8.28
Granted................................ 2,208,000 3.75
Exercised.............................. (35,236) 2.96
Canceled............................... (697,510) 3.26
---------- -----
Balance at December 31, 1999............. 6,100,954 4.22 3,829,988 4.46
========== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING CONTRACTUAL ----------------------------
RANGE OF EXERCISE LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OPTIONS OPTIONS OUTSTANDING EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------------ --------- --------------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.38-$ 4.00.................. 3,749,596 7.8 3.25 2,512,511 3.55
$4.50-$ 5.50.................. 1,887,895 9.6 4.59 954,956 4.63
$9.88-$ 16.00................. 463,463 7.7 10.48 362,521 10.43
$1.38-$16.00.................. 6,100,954 8.3 4.22 3,829,988 4.46
</TABLE>
F-26
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Non-qualified options granted to employees are generally exercisable
beginning one year from the date of grant in cumulative yearly amounts of 25% of
the shares under option and generally expire ten years from the date of grant.
Under a services agreement entered into with Jonathan J. Ledecky ("the
Ledecky Services Agreement"), the Board of Directors of U.S. Office Products
agreed that Jonathan J. Ledecky receive a stock option for Company common stock
from the Company as of the date of the Distribution. The U.S. Office Products
Board intended the option to be compensation for Mr. Ledecky's services as a
director of the Company, and certain services as an employee of the Company. The
fair value option covered 7.5% of the outstanding Company common stock
determined as of the date of the Distribution, with no anti-dilution provisions
in the event of issuance of additional shares of Common Stock (other than with
respect to stock splits or reverse stock splits).
NOTE 13--STRATEGIC RESTRUCTURING COSTS
For the year ended December 31, 1999, strategic restructuring costs
represent the costs to improve operational efficiencies and close non-profitable
operations. Costs included the closing of the Company's Canfield, Ohio location,
as well as significant staff reductions at certain of the Company's operating
locations. The Company recorded a strategic restructuring charge of $4,819 in
the third quarter which included severance costs for approximately seventy-five
employees, asset impairments, contractual commitments and other costs associated
with personnel reductions and facility closures, as well as $831 of inventory
write-offs which are included in cost of revenues. As of December 31, 1999, all
employee terminations under the plan had occurred.
For the thirty-five weeks ended December 31, 1998, strategic restructuring
costs represent the costs incurred related to the Company's spin-off from U.S.
Office Products, including costs incurred related to the withdrawn initial
public offering, compensation related costs associated with U.S. Office Products
buy backs of certain employee options during its tender offer on June 1, 1998,
and the restructuring of its Northeast region resulting in the termination of
six employees.
For Fiscal 1997, strategic restructuring costs represent the Company's
portion of the costs incurred by U.S. Office Products as a result of U.S. Office
Products' comprehensive restructuring plan including costs incurred related to
the Company's withdrawn initial public offering.
The activity related to the Company's strategic restructuring liabilities is
below:
<TABLE>
<CAPTION>
THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------
BALANCE BALANCE
DECEMBER 31, DECEMBER 31,
1998 EXPENSE UTILIZATION REVERSAL 1999
------------ -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Work-force related............................ $ $ 2,695 $ 1,471 $ $ 1,224
Depreciable assets............................ 190 190
Facilities.................................... 763 82 681
Other......................................... 340 70 270
Work-force related--Northeast Region.......... 1,596 1,141 345 110
------- ------- ------- ------- --------
$ 1,596 $ 3,988 $ 2,954 $ 345 $ 2,285
======= ======= ======= ======= ========
</TABLE>
F-27
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 13--STRATEGIC RESTRUCTURING COSTS (CONTINUED)
<TABLE>
<CAPTION>
THIRTY-FIVE WEEKS ENDED DECEMBER 31, 1998
------------------------------------------------------------
BALANCE BALANCE
APRIL 25, DECEMBER 31,
1998 EXPENSE UTILIZATION REVERSAL 1998
--------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Work-force related--Northeast region.............. $ $ 1,806 $ 210 $ $ 1,596
U.S. Office Products tender offer................. 1,774 1,774
U.S. Office Products strategic restructuring
plan............................................ 1,000 1,000
Withdrawn IPO..................................... 750 750 1,500
------- ------- ------- ------- --------
$ 1,750 $ 4,330 $ 4,484 $ $ 1,596
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
-----------------------------------------------------------
BALANCE BALANCE
APRIL 26, APRIL 25,
1997 EXPENSE UTILIZATION REVERSAL 1998
--------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Office Products strategic restructuring
plan............................................ $ $ 1,000 $ $ $ 1,000
Withdrawn IPO..................................... 750 750
------- ------- ------- ------- --------
$ $ 1,750 $ $ $ 1,750
======= ======= ======= ======= ========
</TABLE>
NOTE 14--QUARTERLY FINANCIAL DATA (UNADUITED)
The following presents certain unaudited quarterly financial data for the
year ended December 31, 1999, thirty-five weeks ended December 31, 1998, and
fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- -------- --------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $85,919 $94,766 $95,231 $85,712 $361,628
Gross profit................................. 18,519 21,555 20,227 17,850 78,151
Operating income (loss)...................... 1,737 2,275 (46,500) (28,680) (71,168)
Net income (loss)............................ 111 317 (33,087) (41,141) (73,800)
Per share amounts:
Basic...................................... $ 0.01 $ 0.01 $ (1.49) $ (1.85) $ (3.34)
Diluted.................................... $ 0.01 $ 0.01 $ (1.49) $ (1.85) $ (3.34)
</TABLE>
<TABLE>
<CAPTION>
THIRTY-FIVE WEEKS ENDED DECEMBER 31, 1998
--------------------------------------------------------
9 WEEKS ENDED QUARTER ENDED QUARTER ENDED
JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Revenues................................... $50,708 $78,102 $100,546 $229,356
Gross profit............................... 12,367 19,405 22,805 54,577
Operating income........................... 411 5,860 3,702 9,973
Net income................................. 209 2,957 991 4,157
Per share amounts:
Basic.................................... $ 0.01 $ 0.13 $ 0.05 $ 0.18
Diluted.................................. $ 0.01 $ 0.13 $ 0.05 $ 0.18
</TABLE>
F-28
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14--QUARTERLY FINANCIAL DATA (UNADUITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 25, 1998
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $42,730 $36,875 $62,907 $65,829 $208,341
Gross profit.................................. 9,047 9,718 15,852 15,407 50,024
Operating income.............................. 2,749 3,687 4,816 997 12,249
Net income (loss)............................. 1,636 2,233 2,703 (98) 6,474
Per share amounts:
Basic....................................... $ 0.08 $ 0.10 $ 0.11 $ (0.01) $ 0.27
Diluted..................................... $ 0.08 $ 0.10 $ 0.10 $ (0.01) $ 0.27
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $34,263 $31,898 $35,134 $34,983 $136,278
Gross profit.................................. 7,982 7,608 9,656 8,903 34,149
Operating income.............................. 2,695 1,779 3,229 2,647 10,350
Net income.................................... 2,617 1,315 1,625 1,166 6,723
Per share amounts:
Basic....................................... $ 0.16 $ 0.08 $ 0.09 $ 0.06 $ 0.37
Diluted..................................... $ 0.16 $ 0.07 $ 0.09 $ 0.06 $ 0.37
</TABLE>
During the quarter ended December 31, 1999, the Company concluded that the
first three quarters of the year ended December 31, 1999 would be restated to
properly reflect revenue recognition related to an unsigned contract. The effect
of the restatement is to reduce revenues in the first, second and third quarters
of 1999 by $.1 million, $.6 million and $1.2 million, respectively.
The Company recorded strategic restructuring costs of ($345) in the second
quarter and $4,788 during the third quarter of year ended December 31, 1999,
$1,750 during the fourth quarter of fiscal 1998, $3,196 in the nine weeks ended
June 30, 1998 and $1,134 in the quarter ended December 31, 1998.
NOTE 15--RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, and fiscal 1998, product sales of
approximately $.6 million and $4.5 million, respectively, were made at cost to a
company owned by a director of the Company.
NOTE 16--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 Western regions of the United States. Other operating
segments are located in other sections of the country. Each operating segment
provides products and services as described in Note 1.
The accounting policies of the various segments are the same as those
described in the "Summary of Significant Accounting Policies" in Note 3. 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
F-29
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 16--SEGMENT DATA (CONTINUED)
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.
F-30
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 16--SEGMENT DATA (CONTINUED)
Summary information by segment for the year ended December 31, 1999,
thirty-five weeks ended December 31, 1998 and fiscal years 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
NORTHEAST
NEW ENGLAND TRI-STATE TELEPHONY WEST OTHER TOTAL
----------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenue:
Products............................... $128,474 $29,773 $ 8,349 $ $30,194 $196,790
Services............................... 35,843 33,986 29,674 41,441 23,894 164,838
-------- ------- ------- ------- ------- --------
Total.............................. $164,317 $63,759 $38,023 $41,441 $54,088 $361,628
Gross margin............................. $ 25,087 $15,182 $15,498 $ 9,649 $12,735 $ 78,151
Operating income (loss).................. $ 5,051 $ (609) $ 5,430 $ 3,245 $ 3,927 $ 17,044
Depreciation............................. $ 593 $ 594 $ 298 $ 420 $ 183 $ 2,088
Assets................................... $ 46,614 $18,643 $13,462 $16,617 $ 8,240 $103,576
======== ======= ======= ======= ======= ========
THIRTY-FIVE WEEKS ENDED
DECEMBER 31, 1998
Revenue:
Products............................... $ 79,882 $15,013 $ 5,944 $ $20,110 $120,949
Services............................... 23,008 21,730 24,274 28,490 10,905 108,407
-------- ------- ------- ------- ------- --------
Total.............................. $102,890 $36,743 $30,218 $28,490 $31,015 $229,356
Gross margin............................. $ 17,005 $10,396 $12,352 $ 6,812 $ 8,012 $ 54,577
Operating income......................... $ 6,759 $ 2,655 $ 5,880 $ 2,323 $ 3,706 $ 21,323
Depreciation............................. $ 282 $ 315 $ 166 $ 258 $ 116 $ 1,137
Assets................................... $ 48,105 $18,389 $14,443 $11,789 $14,669 $107,395
======== ======= ======= ======= ======= ========
FISCAL 1998
Revenue:
Products............................... $ 86,337 $15,882 $ 3,614 $ $11,165 $116,998
Services............................... 19,734 20,478 21,432 24,228 5,471 91,343
-------- ------- ------- ------- ------- --------
Total.............................. $106,071 $36,360 $25,046 $24,228 $16,636 $208,341
Gross margin............................. $ 19,244 $11,157 $11,154 $ 4,807 $ 3,662 $ 50,024
Operating income......................... $ 5,832 $ 2,738 $ 4,290 $ 2,232 $ 972 $ 16,064
Depreciation............................. $ 273 $ 259 $ 279 $ 278 $ 63 $ 1,152
Assets................................... $ 31,508 $16,773 $12,074 $12,502 $ 4,451 $ 77,308
======== ======= ======= ======= ======= ========
FISCAL 1997
Revenue:
Products............................... $ 78,811 $ 9,707 $ $ $ 8,735 $ 97,253
Services............................... 10,179 13,408 13,168 2,270 39,025
-------- ------- ------- ------- ------- --------
Total................................ $ 88,990 $23,115 $13,168 $11,005 $136,278
Gross margin............................. $ 16,243 $ 8,195 $ 7,101 $ 2,610 $ 34,149
Operating income......................... $ 5,964 $ 2,728 $ 3,420 $ 899 $ 13,011
Depreciation............................. $ 279 $ 151 $ 71 $ 40 $ 541
Assets................................... $ 17,995 $ 8,007 $ 6,407 $ 3,203 $ 35,612
======== ======= ======= ======= ======= ========
</TABLE>
F-31
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 16--SEGMENT DATA (CONTINUED)
A reconciliation of the Company's reportable segment operating income and
segment assets to the corresponding consolidated amounts as of and for the year
ended December 31, 1999, thirty-five weeks ended December 31, 1998 and as of and
for the fiscal years ended April 25, 1998, and April 26, 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, APRIL 25, APRIL 26,
1999 1998 1998 1997
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Segment operating income......................... $ 17,044 $ 21,323 $ 16,064 $13,011
Corporate expenses............................... 10,618 4,631 1,225 387
Amortization of intangibles...................... 4,828 2,389 840
Strategic restructuring costs.................... 3,643 4,330 1,750
Goodwill impairment.............................. 69,123
Non-recurring acquisition costs.................. 2,274
-------- -------- -------- -------
Total operating income........................... $(71,168) $ 9,973 $ 12,249 $10,350
======== ======== ======== =======
Segment assets................................... $103,576 $107,395 $ 77,308 $35,612
Corporate assets................................. 13,361 23,332 309 1,699
Intangible assets................................ 55,760 129,792 63,828
-------- -------- -------- -------
Total assets..................................... $172,697 $260,519 $141,445 $37,311
======== ======== ======== =======
</TABLE>
F-32
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
CHARGES TO CHARGED TO
BALANCE AT COSTS AND OTHER DEDUCTIONS/ BALANCE AT
DESCRIPTION MAY 1, 1996 EXPENSES ACCOUNTS WRITE-OFFS APRIL 26, 1997
- ----------- ----------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts...................... $ 123,000 $ 250,000 -- $ 22,000 $ 351,000
Accumulated amortization of
intangibles................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CHARGES TO CHARGED TO
BALANCE AT COSTS AND OTHER DEDUCTIONS/ BALANCE AT
DESCRIPTION APRIL 27, 1997 EXPENSES ACCOUNTS WRITE-OFFS APRIL 25, 1998
- ----------- -------------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts...................... $ 351,000 $1,142,000 $209,000 $ 76,000 $1,626,000
Accumulated amortization of
intangibles................... -- 840,000 -- -- 840,000
</TABLE>
<TABLE>
<CAPTION>
CHARGES TO CHARGED TO
BALANCE AT COSTS AND OTHER DEDUCTIONS/ BALANCE AT
DESCRIPTION APRIL 26, 1998 EXPENSES ACCOUNTS WRITE-OFFS DECEMBER 31, 1998
- ----------- -------------- ---------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts...................... $1,626,000 $ 944,000 -- $ (40,000) $2,610,000
Accumulated amortization of
intangibles................... 840,000 2,389,000 -- -- 3,229,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO CHARGED TO
JANUARY 1, COSTS AND OTHER DEDUCTIONS/ BALANCE AT
DESCRIPTION 1999 EXPENSES ACCOUNTS WRITE-OFFS DECEMBER 31, 1999
- ----------- ---------- ---------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts...................... $2,610,000 $3,593,000 -- $ 524,000 $5,679,000
Accumulated amortization of
intangibles................... 3,229,000 4,828,000 -- -- 8,057,000
</TABLE>
F-33
<PAGE>
EXHIBIT 3.3
AZTEC TECHNOLOGY PARTNERS, INC.
AMENDMENT TO THE AMENDED AND RESTATED BY-LAWS
By action of the Board of Directors at a special meeting held on April
24, 2000, Section 1.2 of the Amended and Restated By-laws of Aztec Technology
Partners, Inc. was amended by deleting the first sentence of such section in its
entirety and substituting in lieu thereof the following language:
"The annual meeting of stockholders for the election of directors and
for the transaction of such other business as may properly be brought
before the meeting shall be held on a date to be fixed by the Board of
Directors (which date shall not be a legal holiday in the place where
the meeting is to be held) and at a time and place to be fixed by the
Board of Directors and stated in the notice of the meeting."
Certified thereto,
By: /s/ Clifford Mitman
----------------------------
Clifford Mitman
Chairman of the Board of Directors
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
AZTEC TECHNOLOGY PARTNERS, INC.
AND
THE BANKS NAMED HEREIN
--------------------
APRIL 21, 2000
--------------------
1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of April
21, 2000 is by and among Aztec Technology Partners, Inc., a Delaware corporation
(the "Company"), Fleet National Bank ("Fleet"), as agent ("Agent") and the Banks
listed on EXHIBIT A hereto (together with their respective successors and
assigns, the "Banks").
WHEREAS, pursuant to a Third Amendment to Revolving Credit Agreement
dated as of March 30, 2000, Fleet and the other Banks may become entitled to
receive warrants to purchase Common Stock of the Company (the "Warrants");
WHEREAS, the parties desire to enter into this Registration Rights
Agreement to provide for the holders of the Warrants certain arrangements with
respect to the registration of shares of capital stock of the Company under the
Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(c) "FORM S-1" means such form under the Securities Act as in
effect on the date hereof, or any registration form under the Securities Act
subsequently adopted by the SEC which permits the registration of securities
under the Securities Act for which no other form is authorized or prescribed.
(d) "FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(e) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) "REGISTRABLE SECURITIES" means (i) the Common Stock issuable
or issued upon the exercise or conversion of the Warrants and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right, or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
2
<PAGE>
replacement of, the shares described in (i) above, excluding in all cases,
however, any securities that have been sold in a public sale or other
transaction in which the rights under this Section 1 are not properly assigned.
(g) "SEC" shall mean the Securities and Exchange Commission.
(h) "TERMINATION DATE" has the meaning set forth in Section 1.8.
(i) "WARRANT HOLDER" means each Bank and any persons or entities
to whom the rights granted under this Section 1 are transferred by a Bank or as
permitted under Section 2 below.
1.2 REGISTRATION. The Company will, on or before May 1, 2000, file
with the SEC a registration statement on Form S-3 (or, if Form S-3 is not then
available to the Company for registration of the Registrable Securities, on Form
S-1 or any other form that is available) with respect to the resale of all the
Registrable Securities, and shall file such additional registration statements
as may from time to time be necessary for the registration of any Registrable
Securities as may not properly be included in the initial registration
statement, and will use its commercially reasonable efforts to cause such
registration statements to become effective as soon as possible thereafter (but
not before Warrants are issued) and to remain effective until the Termination
Date. Subject to receipt of the Warrant Holder's agreement described in Section
2.1, the Company will amend or supplement such registration statements within a
reasonable time after request, as may be necessary, to include the names of any
permitted transferee of the Registrable Securities as selling stockholders. Each
holder of Registrable Securities being registered on such registration
statements shall, as a condition thereof, provide the Company with all such
information about such holder and his or its proposed method of distribution as
the Company shall reasonably request to comply with the provisions of the
Securities Act and the rules of the SEC thereunder.
1.3 REGISTRATION PROCEDURES. In connection with the registration of
Registrable Securities, the Company shall, as expeditiously as reasonably
possible (but subject to providing counsel to the Warrant Holders with a
reasonable opportunity to review and comment on all documents):
(a) Prepare and file with the SEC a registration statement which
complies with the provisions of the Securities Act and the rules and regulations
of the SEC thereunder with respect to such Registrable Securities within the
time period specified in Section 1.2 above; thereafter use its commercially
reasonable efforts to cause such registration statement to become effective; and
keep such registration statement effective until the Termination Date with
respect to all Warrant Holders; provided, however, that if all dates upon which
the Banks may be entitled to receive Warrants under the Revolving Credit
Agreement dated as of July 27, 1998 (as amended and in effect from time to time,
the "Credit Agreement") by and among the Company, the Banks and BankBoston, N.A.
(now known as Fleet National Bank) as agent for the Banks (the "Agent"), shall
have expired without the Banks being entitled to receive Warrants, the Company
need not continue to keep such registration statement effective. Notwithstanding
the foregoing, not more frequently than once during any period of twelve
consecutive months, the Company may by written notice require the holders of
Registrable Securities not to sell, and the
3
<PAGE>
holders agree in such case not to sell, such securities under such registration
for a period specified by the Company (not to exceed twenty Business Days) (a
"Blackout Period"). After receipt by all Banks and holders of Registrable
Securities of a written request from the Company requesting an additional
Blackout Period and stating with sufficient detail the rationale for the request
and not made more than once every fourteen days (an "Additional Blackout
Request"), the Agent with the prior written consent of the holders of at least
80% of the Registrable Securities (or Banks holding at least 80% of the then
outstanding principal amount of the "Notes" issued under and as defined in the
Credit Agreement if no Warrants have been issued) may agree to additional
Blackout Periods, provided, however, that, for purposes of such consent, the
failure of any Bank or holder of Registrable Securities to respond to the Agent
regarding an Additional Blackout Request within five Business Days after receipt
of such Additional Blackout Request shall be deemed to be a consent to the
Blackout Period requested by the Additional Blackout Request. A Bank or holder
of Registrable Securities that does not wish to consent to an Additional
Blackout Request may within such five Business Day period so indicate in writing
to the Agent with a copy to the Company made in accordance with the notice
provisions of the Credit Agreement. After receipt of an Additional Blackout
Request, each holder of Registrable Securities agrees that it will not sell any
Registrable Securities under such registration for a period (a "Mini Blackout
Period") equal to the sum of (i) the lesser of (x) five Business Days after
receipt of such Additional Blackout Request or (y) the period from the date of
receipt of such Additional Blackout Request to the date when holders of more
than 20% of the Registrable Securities (or Banks holding more than 20% of the
outstanding principal amount of the "Notes" issued under and as defined in the
Credit Agreement if no Warrants have been issued) have indicated in writing to
the Agent that they do not wish to consent to the Blackout Period proposed by
such Additional Blackout Request, plus (ii) in the event such consent is not
given or deemed given, one additional Business Day.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement in accordance with each Warrant Holder's intended method
of disposition.
(c) Furnish to the Warrant Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by the Warrant Holders.
(d) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Warrant Holders and any managing underwriter; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions, unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act.
(e) Use its commercially reasonable efforts to prevent the
issuance of any stop order or other order suspending the effectiveness of a
registration statement covering Registrable
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Securities and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify the Warrant Holder of the issuance of
such order and the resolution thereof;
(f) Promptly notify each Warrant Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and at the request of any such Warrant Holder, promptly prepare
and furnish to such Warrant Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in light of the
circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Warrant Holder that such
Warrant Holder shall furnish to the Company such information regarding itself,
the Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Warrant
Holder's Registrable Securities.
1.5 EXPENSES OF REGISTRATIONS. The Company shall pay all expenses
other than underwriting discounts and commissions, incurred in connection with
registrations, filings, or qualifications pursuant to this Section 1, including
without limitation (i) all registration, filing, and qualification fees
(including, but not limited to, filing fees with the SEC and state securities
administrators, fees due to the National Association of Securities Dealers and
fees due for listing on any stock exchange or for qualifying for quotation on
the Nasdaq system); (ii) printing and accounting fees; (iii) fees and
disbursements of counsel for the Company; and (iv) the reasonable fees and
disbursements of a single counsel for the selling Warrant Holders.
1.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) BY THE COMPANY. The Company will indemnify each selling
Warrant Holder, each of its officers and directors and partners and each person
or entity controlling any such persons or entities within the meaning
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<PAGE>
of Section 15 of the Securities Act, and each underwriter, if any, and each
person or entity who controls any underwriter within the meaning of Section 15
of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in the investigation or settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document executed in connection with the
foregoing, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act, the
1934 Act or any state securities laws applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such selling
Warrant Holder and each other person or entity indemnified hereunder for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, expense, or violation
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
selling Warrant Holder or underwriter and stated specifically to be for use
therein, or any action or inaction required of any selling Warrant Holder in
connection therewith.
(b) BY EACH WARRANT HOLDER. Each selling Warrant Holder will
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person or entity who controls the Company or such underwriter within the meaning
of Section 15 of the Securities Act, and each other such person or entity whose
securities are covered by such registration statement, each of its officers and
directors and each person or entity controlling such selling securityholder
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by such selling Warrant Holder of any
rule or regulation promulgated under the Securities Act or any state securities
laws applicable to such selling Warrant Holder and relating to action or
inaction required of such selling Warrant Holder in connection with any such
registration, qualification or compliance, and will reimburse the Company and
each other person or entity indemnified hereunder for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document executed in connection with the
foregoing in reliance upon and in conformity with written information furnished
to the Company by such selling Warrant Holder and stated specifically to be for
use therein or such violation arises out of any action or inaction required of
such selling Warrant Holder in connection therewith; provided, however, that the
obligation of such selling Warrant Holder hereunder and under Section 1.6(d)
below shall be limited to an amount equal to the net proceeds received by such
selling Warrant Holder
6
<PAGE>
upon the sale of the Shares sold by such selling Warrant Holder in the offering
covered by such registration.
(c) NOTICE. Each party entitled to indemnification under this
Section 1.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the Indemnifying Party shall
bear the expense of such defense of the Indemnified Party if representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest (as determined in good faith by the Indemnified
Party). The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Agreement
unless the failure to do so materially prejudices the Indemnifying Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 1.6 is unavailable, then each Indemnifying Party shall contribute to the
amount paid or payable to such Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in this Section 1.6 an amount in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party or parties on the one hand and the Indemnified Party on the other in
connection with the statements or omissions which resulted in such losses,
claims, demands or liabilities as well as any other relevant equitable
considerations. Each Warrant Holder's obligation shall be limited as set forth
in Section 1.6 (b) above. Each Warrant Holder's obligation shall be several and
not joint with respect to any other Warrant Holder. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Indemnifying Party or
parties on the one hand or the Indemnified Party on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid to an Indemnified
Party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 1.6(d) shall be deemed to include any legal
or other expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any action or claim that is the subject of this
Section 1.6. No person or entity guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) SURVIVAL. The obligations of the Company and Warrant Holders
under this Section 1.6 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1.
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<PAGE>
1.7 RULE 144 REPORTING. With a view to making available to the Warrant
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Warrant Holder
to sell securities of the Company to the public without registration or pursuant
to a registration on Form S-3, the Company agrees to use its commercially
reasonable efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 under the Securities Act;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(c) Furnish to any Warrant Holder, so long as the Warrant Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any Warrant Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
Form S-3.
1.8 TERMINATION OF REGISTRATION RIGHTS. Each Warrant Holder's rights
to require registration of Registrable Securities held by it as provided for in
this Section 1 shall terminate with respect to such Warrant Holder on the date
when the earliest of the following occurs (i) all such Registrable Securities
held by such Warrant Holder have been sold in a public offering pursuant to an
effective registration statement under the Securities Act or (ii) three years
and six months after the last date of issuance of the Warrants (the "Termination
Date").
2. TRANSFERS OF CERTAIN RIGHTS.
2.1. The rights granted to the Banks under Section 1 of this Agreement
may be transferred to (i) any holder of a Warrant exercisable for at least five
percent (5%) of the Registrable Securities, (ii) any other Bank or Affiliate,
subsidiary, partner, member or shareholder of any Bank, (iii) to any stockholder
or noteholder of any of the Banks who receives Registrable Securities in
connection with the liquidation of any Bank or (iv) any other person or entity
that acquires at least five percent (5%) of the Registrable Securities;
provided, however, that the transferee shall have executed an instrument
satisfactory to the Company agreeing to be bound by the obligations of his or
its transferor under this Agreement.
2.2. A transferee to whom rights are transferred pursuant to this
Section 2 may transfer such rights to any other person or entity, as provided in
Section 2.1 above.
2.3. Each Warrant shall bear a legend in substantially the following
form, in addition to any other legends that may be required under federal or
state securities laws:
"THE SHARES OF STOCK THAT WOULD BE ISSUED UPON EXERCISE OR CONVERSION
OF THIS WARRANT ARE SUBJECT TO A CERTAIN REGISTRATION RIGHTS AGREEMENT,
AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY, THE REGISTERED OWNER
OF THIS
8
<PAGE>
WARRANT (OR ITS PREDECESSOR IN INTEREST) AND OTHERS, AND SUCH AGREEMENT
IS AVAILABLE FOR INSPECTION WITHOUT CHARGE AT THE OFFICES OF THE
COMPANY."
3. GENERAL.
3.1. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be delivered by hand, by
telecopier, by overnight mail or mailed by first class certified or registered
mail, return receipt requested, postage prepaid:
if to the Company: Aztec Technology Partners, Inc.
Attn: General Counsel
Suite 220
50 Braintree Hill Office Park
Braintree, MA 02184
Facsimile: (781) 849-1802
with a copy to: Hale and Dorr LLP
Attn: Alexander Bernhard, Esq.
60 State Street
Boston, MA 02109
Facsimile: (617) 367-5071
if to the Agent or a Bank: at its address set forth on EXHIBIT A to this
Agreement (or at such other address as may
have been furnished in writing to the Company
by the Agent or such Bank.)
with copies to: Palmer & Dodge LLP
Attn: Richard Hiersteiner, Esq.
One Beacon Street
Boston, MA 02108
Facsimile: (617) 227-4420
Notices provided in accordance with this Section 3.1 shall be deemed
delivered upon personal delivery, receipt by telephonic facsimile or overnight
mail, or 48 hours after deposit in the mail, first class postage prepaid, in
accordance with the above.
3.2. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
3.3. AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at
9
<PAGE>
least 80% of the Registrable Securities (or Banks holding at least 80% of the
then outstanding principal amount of the "Notes" issued under and as defined
in the Credit Agreement if no Warrants have been issued). No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
3.4. 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.
3.5. CAPTIONS. The captions of the sections, subsections and paragraphs
of this Agreement have been added for convenience only and shall not be deemed
to be a part of this Agreement.
3.6. SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to validate and give effect thereto to the fullest
lawful extent, but if any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or unenforceable under applicable law,
such provision shall be ineffective only to the extent so determined and such
invalidity or unenforceability shall not affect the remainder of such provision
or the remaining provisions of this Agreement.
3.7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
[Remainder of this page intentionally left blank]
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AZTEC TECHNOLOGY PARTNERS, INC.
By: /s/ Ira Cohen
-----------------------------
Name: Ira Cohen
Title: President
FLEET NATIONAL BANK, INDIVIDUALLY AND AS AGENT
By: /s/ Richard E. Lynch
-----------------------------
Name: Richard E. Lynch
Title: Vice President
CITIZENS BANK OF MASSACHUSETTS
By: /s/ James M. Ray
-----------------------------
Name: James M. Ray
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Masahito Fukuda
-----------------------------
Name: Masahito Fukuda
Title: Sr. Vice President and
Group Head
NATIONAL CITY BANK OF KENTUCKY
<PAGE>
By: /s/ Glenn E. Nord
-----------------------------
Name: Glenn E. Nord
Title: Vice President
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ John J. McGuire
-----------------------------
Name: John J. McGuire
Title: 1st Vice President
PEOPLE'S BANK
By: /s/ Dante Pazzine
-----------------------------
Name: Dante Pazzine
Title: Vice President
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
/__/ Employee's Copy
/__/ Employer's Copy
AZTEC TECHNOLOGY PARTNERS, INC.
EMPLOYMENT AGREEMENT
To Jonathan J. Ledecky:
This Agreement establishes the terms of your employment with Aztec
Technology Partners, Inc., a Delaware corporation (the "Company"), as of June
10, 1998. This Agreement is contingent on and subject to the closing of the
distribution (the "Distribution") to the U.S. Office Products Company ("USOP")
stockholders of the Company's stock. If the Distribution does not close by
September 30, 1998, this Agreement will have no force or effect.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level acquisition
negotiations. In that capacity, you will report to the Company's
senior management and its Board of Directors (the "Board"). The
Board can require such reports of your activities on the Company's
behalf as it reasonably deems appropriate. It can require your
services to the extent consistent with your other contractual
employment obligations to Consolidation Capital Corporation
("CCC"), USOP, and the other subsidiaries ("Other Spincos") of
USOP whose common stock will be distributed to the USOP
stockholders concurrent with the Company's stock, with the
specific timing of your services to be mutually agreed. You agree
to comply with the Company's generally applicable personnel
policies to the extent applicable to a person working on your
schedule and consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distribution (the "Closing Date") through
June 30, 2000, unless earlier terminated as provided in this
Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll policies.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k) Plan)
to the extent you satisfy their terms for participation.
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial assistance,
and supplies for the direct performance of your services to the
Company. It will pay or reimburse you for reasonable business
expenses relating to the direct performance of such services, to
limits to be mutually agreed in advance, upon proper and timely
substantiation.
Options You are receiving options for the Common Stock of the Company
in consideration for services as an employee of the Company.
Option Your options will cover 7.5% of the Company's outstanding
common stock determined as of the Distribution Date (excluding the
stock under the Company's initial public offering), with no
anti-dilution provisions in the event of issuance of additional
shares of
- --------------------------------------------------------------------------------
Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 1
<PAGE>
common stock (other than with respect to stock splits or reverse
stock splits).
Term Your option will expire ten years from the Closing Date.
Price Your option will have a per share exercise price equal to the
offering price in the Company's initial public offering, or if no
initial public offering commences on the Closing Date, at the fair
market value of the Company's common stock, as determined under
the Company's option plan, for the date of grant.
Schedule Your option will be fully vested when granted, but may not be
exercised until the first anniversary of the Closing Date.
Your option will become exercisable before that first anniversary
if and to the extent that the Company accelerates the
exercisability of the options for substantially all management
optionholders.
All unexercised portions of your options will expire if, as
finally determined by a court, you violate the No Competition
provision.
Disgorging If a court finds that you violated the No Competition
Option provision, you agree that your unexercised options are
Gain retroactively forfeited as of the date of the violation and
that, if you have exercised the options since the violation began,
you will promptly pay the Company any Option Gain, net of any
taxes actually paid on the options. For purposes of this
Agreement, the "Option Gain" per share you received on exercise of
options on or after the violation is
Stock for stock you have sold, the greater of (i) the
Sold spread between closing price on the date of
exercise and the exercise price paid ("Exercise
Spread") and (ii) the spread between the price at
which you sold the stock and the exercise price
paid, and
Stock for stock you have retained, the greater of (i)
Retained Exercise Spread and (ii) the spread between the
closing price on the date of the court's final
determination and the exercise price paid.
All unexpired options will vest and be exercisable at your death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction of
or guilty or nolo contendere plea to a felony demonstrably and
materially injurious to the Company's business, and resulting in a
sentence of imprisonment, or (ii), as finally determined by a
court, violation of the No Competition provision as it applies to
the Company, provided that the Company will give you 10 days to
resolve the violation before attempting to invoke this termination
provision. For a termination under (ii), you agree to repay any
salary you received from the Company between the date of the
violation and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay and your salary will end. Except to the extent the
law or the terms of an applicable plan requires otherwise, neither
you nor your beneficiary or estate will have any rights or claims
under this Agreement or otherwise to receive severance or any
other compensation or to participate in any other plan,
arrangement, or benefit, after your termination of employment,
other than with respect to your options.
No Consistent with certain of your prior obligations to USOP,
Competition you will not, until after the end of the Restricted Period, for
any reason whatsoever, directly or indirectly, for yourself or on
behalf
- --------------------------------------------------------------------------------
Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 2
<PAGE>
of or in conjunction with any other person, persons, company,
partnership, corporation, or business of whatever nature:
Competition (i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant, or advisor, or as
a sales representative, in any business (other than an Excluded
Business, as defined below) selling any products or services in
direct competition with the Company within 100 miles of where the
Company or where any of the Company's subsidiaries or affiliates
regularly maintains any of its or their offices with employees
(the "Territory"), where "products or services" are determined for
this clause with respect to products or services offered on or
before January 13, 1998 by the Company and/or any of its
subsidiaries or the predecessor companies combined to form the
Company in connection with Distribution and where the geographic
limitation is determined with reference to the Company and its
subsidiaries and not to USOP or the other Spincos (e.g.,
competition with respect to the Company is determined by reference
to the location where the Company or its subsidiary has an office
with employees and not to the locations of offices of other
Spincos);
Employees (ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries and/or affiliates thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away
from or out of the Company's employ (including the respective
subsidiaries and/or affiliates thereof) other than a member of
your immediate family; or
Customers (iii) call upon any person or entity that is, at that time,
or that has been, within one year prior to that time, a customer
of the Company (including the respective subsidiaries and/or
affiliates thereof) within the Territory for the purpose of
soliciting or selling products or services in direct competition
with the Company (including the respective subsidiaries and/or
affiliates thereof) within the Territory other than on behalf of
an Excluded Business.
For purposes of this Agreement, the "Restricted Period" ends, on
the later of the second anniversary of the Closing Date and the
date one year after you leave employment with the Company and its
subsidiaries and affiliates.
For purposes of this Agreement, the "Excluded Businesses" are the
following:
(i) any electrical contracting business that, at the time of
its creation or acquisition and at all later times, derives
more than 50% of its revenues from electrical contracting and
maintenance services, without regard to whether it would
otherwise violate the No Competition clause because it is
engaged in a business directly competitive with the Company
or any of its subsidiaries (together, "Aztec"), provided that
this exclusion does not permit the business to engage in any
of the lines of business described under "Consulting and
Engineering Services," "Systems and Network Design and
Implementation Services," and "Software Development and
Implementation Services" in the Aztec Form S-1 filed on June
3, 1998 (the "Aztec Specified Businesses") other than as
provided under (ii) or (vi) in the Excluded Businesses;
(ii) any business whose revenue from activities that compete
with Aztec and its subsidiaries, at the time of the
business's creation or acquisition and at all later times, is
less than $15 million per year, provided that this exclusion
does not permit the business to engage in the Aztec Specified
Businesses other than (i) as provided under (vi) in the
Excluded Businesses or (ii) through the pending
- --------------------------------------------------------------------------------
Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 3
<PAGE>
CCC acquisitions of National Network Systems in Denver,
Colorado and of Chamber Electronics Communications in
Phoenix, Arizona;
(iv) any business engaged, and only to the extent that it is
so engaged, in the business of selling, supplying, or
distributing janitorial or sanitary products or services;
(v) any business engaged, and only to the extent it is so
engaged, in the managing or servicing of office equipment
(other than computers);
(vi) any business engaged, and only to the extent it is so
engaged, in providing internet access services and activities
supportive of such services;
(vii) UniCapital Corporation's business as described in its
prospectus as of the date of this Agreement; and
(viii) U.S. Marketing Services Inc's ("USM") shelf-stocking
and merchandising, and point of purchase display creation and
incentive marketing businesses, as described in its
registration statement filed on the date of this Agreement,
so long as you are solely an investor in USM and not an
officer, director, or employee of, or consultant to, USM;
provided, however, that your service as a director will not
violate the foregoing requirement as long as you cease to be
a director no later than the 90th day after the effective
date of the registration of USM's initial public offering;
provided, that in each case you are engaged in suchbusiness
only in a policy making role and not in the entity's business
in a manner that would involve you in direct personal
competition with the Company (and its subsidiaries), provided
further that this proviso does not prevent your activities in
furtherance of acquisitions of Excluded Businesses, and
provided further that you will comply with your fiduciary
duties as a director of the Company in connection with the
Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the Company
(or its subsidiaries), you will inform the relevant entity of any
opportunities for it associated with any of the Excluded
Businesses.
In addition to (and not in lieu of) the restriction contained in
the Employees clause above, you agree that, during the period that
the restrictions contained in this No Competition provision remain
in effect, and so long as you are employed by, or otherwise
affiliated with, CCC, you will not, directly or indirectly, offer
employment with CCC to, or otherwise allow CCC to employ, any
person who
is employed by the Company or a subsidiary of the Company at
the time; or
was so employed by the Company or a subsidiary of the Company
within one year prior to such time.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit you from acquiring capital stock in CCC or any
Excluded Business or serving as an officer, director or employee
or consultant to CCC, or acquiring as an investment not more than
one percent (1%) of the capital stock of a competing business,
whose stock is traded on a national securities exchange or
over-the-counter, provided that such actions do not otherwise
breach your obligations hereunder; and provided further that
actions of CCC after you have ceased to be a director, officer,
and employee of CCC will not constitute a breach of this covenant,
despite your continued stock ownership, so long as you are not
then directly assisting any competitive actions.
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Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 4
<PAGE>
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be
caused to the Company for which it would have no other adequate
remedy, you agree that the Company may enforce the No Competition
provisions by injunctions and restraining orders.
You and the Company agree that you will not be in violation of the
No Competition provisions by virtue of your investment in or other
relationship to USOP, any of the Spincos, or their respective
subsidiaries, even if one of those entities engages in direct
competition with another. You and the Company agree that CCC's
acquisition or retention of Wilson Electric Company, Inc.
("Wilson") and Wilson's engaging in any lines of business in place
as of the Closing Date do not violate the No Competition
provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the Company's
activities and business (including the Company's subsidiaries
and/or affiliates) on the date of the execution of this Agreement.
The Company agrees to consider reasonably and within two weeks of
receipt any requests you make for a waiver from the No Competition
provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with the
Company (including the Company's subsidiaries), or similar
activities or business in locations the operation of which, under
such circumstances, does not violate the Competition clause of
this No Competition provision, and in any event such new business,
activities, or location is not in violation of this No Competition
provision or of your obligations under this No Competition
provision, if any, you will not be chargeable with a violation of
this provision if the Company (including the Company's
subsidiaries) shall thereafter enter the same, similar, or a
competitive (i) business, (ii) course of activities, or (iii)
location, as applicable.
The covenants in this No Competition provision are severable and
separate, and the unenforceability of any specific covenant does
not affect the provisions of any other covenant. Moreover, if any
court of competent jurisdiction shall determine that the scope,
time, or territorial restrictions set forth are unreasonable, then
it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable,
and the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall be
construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action
by you against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by
the Company of such covenants. It is specifically agreed that the
Restricted Period, during which your agreements and covenants made
in this provision shall be effective, is computed by excluding
from such computation any time during which you are in violation
of any provision of the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this provision,
you agree that the period for prohibition shall be the maximum
time permitted by law.
You specifically agree that USOP and the Company have provided you
with sufficient consideration for the enforcement of the No
Competition obligations for the Restricted Period and for the
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Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 5
<PAGE>
assumption of such benefits by the Company. You specifically
consent to USOP's assignment to the Company of the right to
enforce the No Competition provisions of the Amended Ledecky
Services Agreement, as those provisions are incorporated in this
Agreement.
Other The Company acknowledges that you are also employed by CCC,
Employment USOP, and the Other Spincos, and agrees that such dual employment
does not breach this Agreement, unless and to the extent that you
thereby violate the No Competition provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the Company
(including the respective subsidiaries thereof) or their
representatives, vendors, or customers that pertain to the
business of the Company (including the respective subsidiaries
thereof) shall be and remain the property of the Company, and be
subject at all times to its discretion and control. Likewise, you
will make reasonably available at the Company's request during
business hours all correspondence, reports, records, acquisition
materials, charts, advertising materials and other similar data
pertaining to the business, activities, or future plans of the
Company that you have collected or obtained.
Trade Secrets You agree that you will not, during or after the term of this
Agreement with the Company, disclose the specific terms of the
Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the respective
subsidiaries thereof) whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason
or purpose whatsoever. For CCC or any other businesses with which
you are affiliated or in which you are a stockholder, you may
reach agreement on comparable terms with significant vendors to
the Company, so long as you do not provide copies of or otherwise
disclose the specific terms of the Company's relationships or
agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by the
Company against you), by reason of the fact that you are or were
performing services under this Agreement then the Company must
indemnify you against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by you in connection therewith to the fullest
extent provided by Delaware law and in accordance with the
Company's Bylaws.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company, and the
performance of your agreements hereunder will not violate or be a
breach of any agreement with a former or current employer, client,
or any other person or entity. Further, you agree to indemnify the
Company for any claim, including, but not limited to, attorneys'
fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have
against the Company based upon or arising out of any
non-competition agreement, invention, or secrecy agreement between
you and such third party that was in existence as of the date of
this Agreement.
Complete This Agreement is not a promise of future employment. You
Agreement have no oral representations, understandings, or agreements with
the Company or any of its officers, directors, or representatives
covering the same subject matter as this Agreement. This written
Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and you with
respect to all the terms of this Agreement, and it cannot be
varied, contradicted, or supplemented
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Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 6
<PAGE>
by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of
the Company and you, and no term of this Agreement may be waived
except by writing signed by the party waiving the benefit of such
term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Aztec Technology Partners, Inc.
Attention: Chief Executive Officer
52 Roland St
Boston, MA 02129
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after the
deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when
actually received. Either party may change the address for notice
by notifying the other party of such change in accordance with
this Notice provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible,
effect shall be given to the intent manifested by the portion held
invalid or inoperative. This severability provision shall be in
addition to, and not in place of, the comparable provisions in the
No Competition provision.
Governing Law This Agreement shall in all respects be construed
according to the laws of the State of Delaware, other than those
relating to conflicts of laws. Any decision as to breaches of this
Agreement or any provision herein shall be made pursuant to a
final, nonappealable decision of a court.
Binding This Agreement binds and benefits the Company, each of its
Effect and successors or assigns, and your heirs and the personal
Assignment representatives of your estate. Without the Company's prior
written consent, you may not assign or delegate this Agreement or
any or all rights, duties, obligations, or interests under it.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written employment or
severance agreements between you and the Company (specifically
excluding your options to purchase Company stock). Except as set
forth above, this Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements, and
writings with respect to the subject matter of this Agreement. All
such other negotiations, commitments, agreements, and writings
will have no further force or effect; and the parties to any such
other negotiation, commitment, agreement, or writing will have no
further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement with the
Company. You and the Company agree that this Agreement should not
be construed against either party as the "drafter."
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Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 7
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
Date: June 9, 1998 By: /s/ James Claypoole
------------------------------------
James Claypoole
President and Chief Executive Offier
I agree to and accept these terms, specifically including the assignment of the
No Competition provision.
Date: /s/ Jonathan J. Ledecky
------------------------------------
Jonathan J. Ledecky
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Employment Agreement between Aztec and Jonathan J. Ledecky PAGE 8
<PAGE>
Exhibit 10.14
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT AND LIMITED WAIVER
Third Amendment and Limited Waiver dated as of March 30, 1999 to
Revolving Credit Agreement (the "Third Amendment"), by and among AZTEC
TECHNOLOGY PARTNERS, INC., a Delaware corporation (the "Borrower"),
PROFESSIONAL COMPUTER SOLUTIONS, INC. ("PCSI"), as Co-Borrower with respect
to $15,000,000 in outstanding principal amount of Acquisition Loans, FLEET
NATIONAL BANK (F/K/A BANKBOSTON, N.A.) and the other lending institutions
listed on SCHEDULE 1 to the Credit Agreement (as hereinafter defined) (the
"Banks"), amending certain provisions of the Revolving Credit Agreement dated
as of July 27, 1998 (as amended and in effect from time to time, the "Credit
Agreement") by and among the Borrower, the Banks and BankBoston, N.A. (now
known as Fleet National Bank) as agent for the Banks (the "Agent"). Terms not
otherwise defined herein which are defined in the Credit Agreement shall have
the same respective meanings herein as therein.
WHEREAS, the Borrower has requested that the Banks amend certain
provisions contained in the Credit Agreement and waive certain covenants
contained therein; and
WHEREAS, the Banks have agreed with the Borrower, subject to the
terms and conditions contained herein, to modify certain terms and conditions
of the Credit Agreement and grant such waivers as specifically set forth in
this Third Amendment;
WHEREAS, to reflect the allocation of debt among the Borrower and
its Subsidiaries, one of such Subsidiaries, which is currently a Guarantor
under the Guaranty, has agreed to assume joint and several liability with
respect to $15,000,000 in outstanding principal amount of the Acquisition
Loans;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
Section 1. WAIVER. The Borrower has informed the Agent and the Banks
that the Leverage Ratio for the period of October 1, 1999 through December
31, 1999 (the "Fourth Quarter") exceeded 3.50:1.00 during such Fourth Quarter
and, as such, the Borrower has failed to comply with ss. 11.1 of the Credit
Agreement during the Fourth Quarter. In addition, the Borrower has informed
the Agent and the Banks that the ratio of EBITDA for the Reference Period
ended on December 31, 1999 to Consolidated Total Interest Expense for such
Reference Period was less than 2.75 to 1.00 and, as such, the Borrower has
failed to comply with ss. 11.3 of the Credit Agreement at the end of the
Fourth Quarter. The Borrower has requested that the Banks waive, to the
limited extent necessary to permit such noncompliance for the Fourth Quarter,
the provisions of ss.ss. 11.1 and 11.3 of the Credit Agreement. Subject to
the satisfaction of the conditions precedent set forth in Section 12 hereof,
from and after the Effective Date (as defined in ss. 12 hereof) the Banks
hereby waive the provisions of ss.ss. 11.1 and 11.3 of the Credit Agreement
solely to the extent necessary to permit the above-referenced noncompliance,
and only with respect to the determination of compliance for the Fourth
Quarter.
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SS. 2. CONSENT AND WAIVER. The Agent and the Bank hereby consent to
the following, notwithstanding that the same would otherwise violate various
terms and provisions of the Credit Agreement, and hereby waive any Default
and Events of Default (and only such Defaults and Events of Default) that
would otherwise be caused by such violations:
(a) an assignment for the benefit of creditors with
respect to the stock or assets of Entra Computer Corp. and the winding up
and termination of business of Entra Computer Corp.;
(b) the sale of the stock or assets of Compel LLC, Fortran Corp.
and Mahon Communications Corporation to Morganthaler Partners pursuant to an
existing letter of intent for a price of at least the "Purchase Price" set
forth on SCHEDULE A and resulting in Net Cash Sale Proceeds after payment of
all fees and expenses of the Agent and the Banks then outstanding, including
without limitation any unpaid Amendment Fee and any earned and unpaid
Overadvance Fees, of not less than the "Release Amount" set forth on SCHEDULE
A, provided that on or before June 30, 2000, the Borrower uses all of the Net
Cash Sale Proceeds, first to pay all fees and expenses of the Agent and the
Banks then outstanding, including without limitation, unpaid Amendment Fee
and any earned and unpaid Overadvance Fees, and second, to repay Acquisition
Loans (or, to the extent Acquisition Loans have been paid in full, to repay
Revolving Credit Loans and permanently reduce the Total Commitment) and
provided further that none of the documents with respect to such sale shall
contain any provision that would adversely affect in a material manner the
interests of the Banks under the Credit Agreement or the Security Documents
and, notwithstanding the foregoing, to the extent the Banks are required to
disgorge any Net Cash Sale Proceeds paid to them as a result of any
rescission right that a purchaser may have under applicable law with respect
to such sale, then the Obligations that had been deemed satisfied by the
application of such Net Cash Sale Proceeds shall be deemed reinstated and any
security interest in any Collateral that had been released in connection
therewith shall be deemed restored as if such payment had never occurred; and
(c) the sale of the stock or assets of any Subsidiary of the
Borrower (including any Subsidiary currently proposed to be sold to
Morganthaler as described in clause (b) above that is not sold pursuant to
the terms set forth in clause (b) above), to one or more unrelated third
parties in one or more arm's length transactions, for a price resulting in
Net Cash Sale Proceeds after payment of all fees and expenses of the Agent
and the Banks then outstanding, including without limitation any unpaid
Amendment Fee and any earned and unpaid Overadvance Fees, at least equal to
the Minimum Net Cash Sale Proceeds for such Subsidiary, provided that the
Borrower first pays all fees and expenses of the Agent and the Banks then
outstanding, including without limitation any unpaid Amendment Fee and any
earned and unpaid Overadvance Fees and then from the remaining Net Cash Sale
Proceeds of each such sale repays Acquisition Loans (or, to the extent
Acquisition Loans have been paid in full, repays Revolving Credit Loans and
permanently reduce the Total Commitment) in an amount equal to the sum of the
Minimum Net Cash Sale Proceeds for such Subsidiary and 80% of the Net Cash
Sale Proceeds of such sale in excess of the Minimum Net Cash Sale Proceeds
for such Subsidiary, on the date of receipt of such proceeds, and provided
further that none of the documents with respect to such sale shall contain
(i) any provision that would adversely affect in a material manner the
interests of the Banks under the Credit Agreement or the Security Documents
and, notwithstanding the foregoing, to the extent the Banks are required to
disgorge any Net Cash Sale Proceeds paid to them as a result of any
rescission right that a purchaser may have under applicable law with respect
to such sale, then the Obligations that had been deemed satisfied by the
application of such Net Cash Sale Proceeds shall be deemed reinstated and any
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security interest in any Collateral that had been released in connection
therewith shall be deemed restored as if such payment had never occurred.
SS. 3. TOTAL ACQUISITION COMMITMEnt. Pursuant to the Second
Amendment, the Total Acquisition Commitment was permanently reduced to the
outstanding balance of the Current Acquisition Loans (those outstanding on
November 8, 1999). The Total Acquisition Commitment and the Total Facility
Commitment shall be permanently reduced by the amount of any principal
payments or prepayments received with respect to the Acquisition Loans after
November 8, 1999, whether received heretofore or hereafter.
SS. 4. ASSUMPTION OF DEBT BY PCSI. PCSI hereby agrees to assume,
and hereby assumes, joint and several liability with Aztec as a Co-Borrower
with respect to all obligations under the Credit Agreement with respect to a
portion of the Acquisition Loans having an outstanding principal amount of
$15,000,000 on the Effective Date of the Third Amendment. Aztec and PCSI
shall exchange the existing Acquisition Note held by each Bank for (i) an
Acquisition Note signed by Aztec and PCSI as Co-Borrowers in a principal
amount equal to such Bank's respective Commitment Percentage of $15,000,000
and (ii) an Acquisition Note signed by Aztec as Borrower each in a principal
amount equal to such Bank's Acquisition Commitment minus the principal amount
of the Acquisition Note delivered to such Bank pursuant to clause (i) above.
The term "Borrower" shall be deemed to refer to both Aztec and PCSI as it
relates to such portion of the Acquisition Loans assumed by PCSI as
Co-Borrower to the extent appropriate in the context. Any Net Offering
Proceeds with respect to PCSI that are required to be used to repay
Acquisition Loans hereunder, subject to the limitations set forth in Section
4.8.2 of the Credit Agreement (as amended hereby), shall first be applied to
repay Acquisition Loans that have been assumed by PCSI as Co-Borrower until
repaid in full, then to repay other Acquisition Loans. Repayment of the
Acquisition Loans that have been assumed by PCSI as Co-Borrower shall not be
deemed to release PCSI from its obligations under the Guaranty. By signing
below, PCSI shall be deemed to have made all of the representations and
warranties of the Borrower set forth in Section 8 of the Credit Agreement as
of the Effective Date (except that with respect to Section 8.4 and 8.22, PCSI
shall be deemed to make only such portion of such representations and
warranties as relate to PCSI as a Subsidiary of the Borrower). Both Borrowers
and all of the Guarantors (by signing the attached Ratification of Guaranty)
hereby agree that the Guaranty and all of the Security Documents to which
each is a party shall be deemed to secure the Acquisition Notes assumed by
PCSI as Co-Borrower on a PARI PASSU basis with the other Notes. Both
Borrowers agree to make any filings and take any other actions necessary to
ensure that the Acquisition Notes assumed by PCSI as Co-Borrower, as well as
the Acquisition Notes and Revolving Credit Notes of Aztec, are secured on a
PARI PASSU basis by a first perfected security interest in favor of the
Agent, for its benefit and that of the Banks, in all assets of both Borrowers
and all Guarantors, subject only to Permitted Liens.
ss. 5. AMENDMENT TOSS. 1 OF THE CREDIT AGREEMENt. Section 1.1
of the Credit Agreement is hereby amended as follows:
(a) the definitions of "Borrowing Base" and
"Settlement" are hereby revised as follows:
BORROWING BASE. is revised by deleting the brackets
around "ten (10)" in such definition.
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SETTLEMENT. is revised by deleting the phrase
"to be each to such Bank's Commitment Percentage" and replacing it with the
phrase "to be equal to such Bank's Commitment Percentage."
(b) the definitions of "Acquisition Loan
Maturity Date," "Agent," "Agent's Special Counsel," "BKB," "Revolving
Credit Loan Maturity Date" and "Uniform Customs" are hereby amended by
deleting such definitions in their entirety and restating them as follows:
ACQUISITION LOAN MATURITY DATE. April 30, 2001.
AGENT. Fleet National Bank (f/k/a BankBoston, N.A.)
acting as agent for the Banks.
AGENT'S SPECIAL COUNSEL. Palmer & Dodge LLP or
such other counsel as may be approved by the Agent.
BKB. Fleet National Bank (f/k/a BankBoston, N.A.),
a national banking association in its individual capacity.
REVOLVING CREDIT LOAN MATURITY DATE. April 30, 2001.
UNIFORM CUSTOMS. With respect to any documentary
Letter of Credit, the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500 or any
successor version thereto adopted by the Agent in the ordinary course of its
business as a letter of credit issuer and in effect at the time of issuance
of such documentary Letter of Credit. With respect to any standby Letter of
Credit, the International Standby Practices ISP 98 (1998), International
Chamber of Commerce Publication No. 590 or any successor version thereto
adopted by the Agent in the ordinary course of its business as a letter of
credit issuer and in effect at the time of issuance of such standby Letter of
Credit.
(c) Section 1.1 of the Credit Agreement is hereby
amended by inserting the following definitions in the appropriate
alphabetical order:
AMENDMENT FEE. See Section 6.1
AZTEC. Aztec Technology Partners, Inc., a Delaware
corporation.
BORROWED COMMITMENT. The sum on the date of
determination of (i) the aggregate outstanding principal amount of the
Loans, (ii) the Maximum Drawing Amount, and (iii) all Unpaid Reimbursement
Obligations.
DEBT SERVICE. With respect to any period, the sum
of the following: (i) Consolidated Total Interest Expense (excluding
Overadvance Fees and Amendment Fee) for such period and (ii) all payments of
principal (other than payments of principal on the Loans) in respect of
Indebtedness of the Borrower and its Subsidiaries (including
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the principal component of any payments in respect of
Capital Lease Obligations) paid or payable during such period.
DEBT SERVICE COVERAGE RATIO. The ratio at any
time of (i) EBITDA (without regard to Overadvance Fees or Amendment Fee) for
the fiscal quarter ending on, or most recently ended prior to, such time to
(ii) Debt Service for such quarter.
MINIMUM NET CASH SALE PROCEEDS. With respect to
any Subsidiary, the amount set forth under the heading "Minimum Net Cash
Sale Proceeds" on SCHEDULE A attached hereto, which the parties have agreed
is the minimum amount of Net Cash Sale Proceeds that must be realized from
the sale of the stock or assets of such Subsidiary and available, after
payment of the Agent's and the Banks' fees and expenses, to repay principal
on the Loans in order for the consent of the Agent and the Banks to such sale
set forth in ss. 2(c) of the Third Amendment to be effective.
NET OFFERING PROCEEDS. The gross proceeds of any
Asset Sale consisting of the public offering of equity securities of any
Subsidiary, net of underwriting discount, printing and mailing expenses,
filing fees and reasonable accountant's and attorney's fees directly related
to such offering and all other reasonable out-of-pocket fees, commissions and
other expenses incurred in connection with such offering, including the
amount (estimated in good faith by such Person and approved by the Agent) of
income, franchise, sales and other applicable taxes required to be paid by
such Person in connection with such offering.
OVERADVANCE AMOUNT. The amount by which the
Borrowed Commitment exceeds 80% of Eligible Accounts Receivable for which
invoices have been issued and are payable, each as determined on June 30,
2000 or on the last day of each fiscal quarter thereafter, as applicable.
Neither accrued and unpaid interest nor earned and unpaid Overadvance Fees or
Amendment Fee shall be included in principal for purposes of calculating the
Overadvance Amount.
OVERADVANCE FEES. See ss. 2.2.2.
PCSI. See ss. 9.20.
SECOND AMENDMENT. The Second Amendment to
Revolving Credit Agreement and Limited Waiver dated as of September 30,
1999, by and among the Borrower, the Agent and the Banks.
THIRD AMENDMENT. The Third Amendment to
Revolving Credit Agreement and Limited Waiver dated as of March 30, 2000,
by and among the Borrower, PCSI, the Agent and the Banks.
TOTAL FACILITY COMMITMENT. The sum of the
Total Commitment and the Total Acquisition Commitment.
WARRANT. See ss. 9.22.
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ss. 6. AMENDMENT TO SS. 2 OF THE CREDIT AGREEMENt. Section 2 of
the Credit Agreement is hereby amended as follows:
(a) Section 2.2 of the Credit Agreement is hereby
amended by deleting the heading "COMMITMENT FEE" and replacing it with the
heading "COMMITMENT FEE AND OVERADVANCE FEE," by inserting a subheading
"2.2.1. COMMITMENT FEE." after such heading and by adding the following at
the end of such ss. 2.2:
2.2.2. OVERADVANCE FEE. On June 30, 2000, an
overadvance fee shall be deemed earned in an amount determined by
multiplying the Overadvance Amount, if any, as of such date by .03. An
additional overadvance fee shall be deemed earned on the last day of each
fiscal quarter thereafter in an amount determined by multiplying the
Overadvance Amount, if any, as of such last day of the applicable fiscal
quarter by .015. Such overadvance fees shall be called "OVERADVANCE FEES"
herein. The Borrower shall pay all earned Overadvance Fees in full on the
later of the Revolving Credit Loan Maturity Date or the Acquisition Loan
Maturity Date; provided, however, that in the event of an Asset Sale
(including without limitation a capitalization event) with respect to the
Borrower or any Subsidiary, all earned but unpaid Overadvance Fees shall be
paid from the Net Cash Sale Proceeds (to the extent such exceed the amount of
such unpaid fees) or, in the event of a capitalization event (including any
initial public offering of capital stock of PCSI), the Net Offering Proceeds
(to the extent such exceed the amount of such unpaid fees) of such Asset Sale.
SS. 7. AMENDMENT TO SS. 4 OF THE CREDIT AGREEMENT.
(a) Section 4.3 of the Credit Agreement is hereby amended
by deleting the first sentence thereof in its entirety and restating it as
follows:
The Borrower shall have the right at any time and from time to time
upon one (1) Business Day's prior written notice to the Agent to reduce or
terminate entirely the Total Acquisition Commitment, whereupon the
Acquisition Commitments of the Banks shall be reduced pro rata in accordance
with their respective Commitment Percentages of the amount specified in such
notice or, as the case may be, terminated.
(b) Section 4.8.2 of the Credit Agreement is hereby amended
by deleting the first two sentences thereof and restating them as follows:
In the event the Borrower or any of its Subsidiaries receives any
Net Cash Sale Proceeds or Net Offering Proceeds from any Asset Sale permitted
by ss. 10.5.2 or otherwise consented to in writing by the Majority Banks (or,
in the event such a sale constitutes a sale of all or substantially all of
the Collateral, then consented to in writing by all of the Banks), the
Borrower shall, immediately upon receipt thereof, pay all outstanding fees
and expenses of the Agent and the Banks, including without limitation any
Overadvance Fees and Amendment Fee required to be paid from such proceeds and
shall make a prepayment of principal on the Acquisition Loans (or to the
extent the Acquisition Loans have been repaid in full, then a prepayment of
principal on the Revolving Credit Loans) in the amount of all remaining Net
Cash Sale Proceeds or Net Offering Proceeds; provided, however, that (i) in
the case of Net Offering Proceeds resulting from an initial public offering
of the common stock of PCSI, such prepayment shall be in an
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amount equal to the greater of (x) $15,000,000 and (y) 25% of the Net
Offering Proceeds and (ii) in the case of Net Cash Sale Proceeds from the
sale of the stock or assets of a Subsidiary as permitted by ss. 2(c) of the
Third Amendment, such prepayment shall be in an amount equal to the sum of
(x) the Minimum Net Cash Sale Proceeds for such Subsidiary and (y) 80% of the
Net Cash Sale Proceeds in excess of the Minimum Net Cash Sale Proceeds for
such Subsidiary; with the Total Acquisition Commitment (and/or the Total
Commitment, as applicable) and the Total Facility Commitment also being
permanently reduced by the amount of such prepayment.
SS. 8. AMENDMENT TO SS. 6 OF THE CREDIT AGREEMENT.
Section 6.1 of the Credit Agreement is hereby amended by adding the
following at the end of such ss. 6.1:
The Borrower agrees to pay to the Agent for the PRO RATA benefit (in
accordance with their respective Commitment Percentages of the Total Facility
Commitment) of the Banks an amendment fee (the "Amendment Fee") equal to the
sum of (i) one percent (1%) of the Total Facility Commitment and (ii) all
unreimbursed expenses of the Agent and the Banks required to be reimbursed by
the Borrower pursuant to the Revolving Credit Agreement. Such Amendment Fee
shall be payable in six equal monthly installments, with the first
installment due on the Effective Date, the second installment due on May 1,
2000 and the remaining installments due on the first day of each month
thereafter to and including September 1, 2000; provided, however, that in the
event of an Asset Sale (including without limitation a capitalization event)
with respect to the Borrower or any Subsidiary, the remaining unpaid
Amendment Fee shall be paid from the Net Cash Sale Proceeds (to the extent
such exceed the amount of such unpaid fees) or, in the event of a
capitalization event, Net Offering Proceeds (to the extent such exceed the
amount of such unpaid fees), of such Asset Sale.
SS. 9. AMENDMENT TO SS. 9 OF THE CREDIT AGREEMENT. Section 9 of
the Credit Agreement is hereby amended as follows:
(a) Section 9.4(g) of the Credit Agreement is hereby
amended be deleting the word "and" which appears at the end of ss. 9.4(g).
(b) Section 9.4(h) of the Credit Agreement is hereby
amended by deleting the period which appears at the end of the text ofss.
9.4(h) and substituting in place thereof a semicolon, followed by the
word "and".
(c) Section 9.4 of the Credit Agreement is further
amended by inserting immediately after the end of the text of ss. 9.4(h) the
following:
"(i) at 2:00 p.m. Boston time on Friday, March 24,
2000 and at 2:00 p.m. Boston time on each two-week anniversary thereof, the
Borrower will make financial and other appropriate officers of the Borrower
and its Subsidiaries available to the Agent and the Banks for a dial-in
conference call, which will be arranged by the Borrower and of which
arrangements the Borrower shall notify the Agent and the Banks at least one
Business Day prior to each such call, to discuss the information in any of
the foregoing reports or other reports delivered to the Banks by the Borrower
or its Subsidiaries and answer any questions the Agent or the Banks may have
regarding the Borrower and its Subsidiaries. In addition, the Borrower will
7
<PAGE>
use commercially reasonable efforts to continue to provide reports to the
Banks of its cash flow on a bi-weekly basis beginning at a mutually agreeable
time hereafter."
(d) Section 9.19 of the Credit Agreement is hereby
amended by inserting immediately after the end of the first sentence the
following:
"The Borrower shall continue to maintain the engagement
with such consultant, subject to periodic review by the Agent and the Banks,
until the earlier of (i) the date on which the Obligations shall have been
satisfied in full and (ii) the Revolving Credit Maturity Date."
(e) Section 9 of the Credit Agreement is hereby
amended by inserting new ss.ss. 9.20, 9.21, 9.22 and 9.23 immediately after
ss. 9.19, as follows:
9.20. PCSI IPO. The Borrower will use commercially
reasonable efforts to pursue an initial public offering of the stock of its
Subsidiary Professional Computer Solutions, Inc. ("PCSI"). The Borrower will
obtain the prior written consent of the Agent and each of the Banks for any
initial public offering of the stock of PCSI, which consent shall not
unreasonably be withheld. In the event such consent is granted and such
initial public offering occurs, the Agent, for the benefit of itself and the
Banks, shall continue to have a first priority perfected security interest
with respect to all of the capital stock of PCSI, other than shares sold in
such initial public offering. The Borrower shall pay, or shall cause PCSI to
pay, any unpaid Amendment Fee and any earned and unpaid Overadvance Fees and
other unpaid fees and expenses of the Agent and the Banks from the Net
Offering Proceeds of such offering (including the offering of underwriters'
overallotment shares, if any) and shall use a portion of the remaining Net
Offering Proceeds of such offering (including the offering of underwriters'
overallotment shares, if any), in an amount equal to the greater of (a)
$15,000,000 and (b) 25% of such Net Offering Proceeds, to repay Obligations,
with such amount being applied first to repay Acquisition Notes with respect
to which PCSI and Aztec are jointly and severally liable until paid in full,
then Acquisition Notes of Aztec until paid in full, then Revolving Credit
Notes until paid in full.
9.21. ADDITIONAL FINANCING. The Borrower will use
commercially reasonable efforts to seek at least $20,000,000 in additional
financing or investment in the form of subordinated debt, preferred stock or
convertible securities. The prior written consent of the Agent and the Banks
shall be required for any such additional financing or investment, whether in
the form of subordinated debt or preferred stock or convertible securities
and the Agent and the Banks may condition such consent upon the use of all of
the first $20,000,000 in Net Cash Sale Proceeds of such additional financing
to repay Obligations. Restrictions on liens in ss. 10.2, restrictions on
indebtedness in ss. 10.1, provisions regarding Restricted Payments in ss.
10.4 and restrictions on amendments to Capitalization Documents in ss. 10.13
contained in this Revolving Credit Agreement shall apply unless specifically
waived in writing by the Agent and the Banks. The holders of any such
subordinated debt, preferred stock or convertible securities shall be
required to enter into a subordination agreement in form and substance
reasonably satisfactory to the Agent and the Banks.
8
<PAGE>
9.22. WARRANTS. As consideration for the Third Amendment,
the Borrower agrees that on each date set forth on the attached SCHEDULE B,
in the event that the Total Facility Commitment is not permanently reduced to
the amount set forth with respect to such date on such SCHEDULE B, the
Borrower shall automatically issue to each of the Banks a warrant to purchase
common stock of the Borrower in the form attached hereto as EXHIBIT I (each a
"WARRANT"), exercisable for the number of Warrant Shares (as defined in the
Warrant) equal to such Bank's PRO RATA share (in accordance with such Bank's
Commitment Percentage of the Total Facility Commitment) of the number of
Warrant Shares that, when combined with the cumulative number of Warrant
Shares for which all Warrants theretofore issued to the Banks would be
exercisable, would equal the percentage of the outstanding shares of the
Borrower's common stock on such date (assuming issuance of all shares of
common stock issuable upon exercise of all outstanding options, warrants and
other rights and upon conversion of all outstanding convertible securities)
set forth on such SCHEDULE B for the respective date, regardless of whether
the Borrower had failed or succeeded in reducing the Total Facility
Commitment to the level set forth on such SCHEDULE B with respect to any
prior date. For purposes of determining whether the Total Facility Commitment
has been permanently reduced to the amount set forth with respect to each
date set forth on SCHEDULE B, amounts in respect of Amendment Fee or
Overadvance Fees paid from proceeds of an Asset Sale (including without
limitation a capitalization event) in advance of the scheduled installment
payment date or Revolving Credit or Acquisition Loan Maturity Date, as
applicable, shall be deemed to have been applied to permanently reduce the
Total Facility Commitment. The Borrower shall enter into a Registration
Rights Agreement with the Banks in form and substance satisfactory to the
Agent and the Banks within fourteen (14) days after the Effective Date. The
Borrower shall be obligated to file on the terms set forth in such
Registration Rights Agreement, within thirty (30) days after the Effective
Date of the Third Amendment, a registration statement with the Securities and
Exchange Commission with respect to the resale of the Warrant Shares by the
Banks and shall use its commercially reasonable efforts to have the
Securities and Exchange Commission prepared to declare such registration
statement effective by June 30, 2000, including filing all amendments
necessary to reflect changes in the Borrower's Circumstances. The Borrower
needs not request acceleration of effectiveness until Warrants have been
issued, at which time the Borrower will use its commercially reasonable
efforts to have the registration statement declared effective. Assuming it
has used its commercially reasonable efforts and continues to do so, the
failure of such registration statement to become effective shall not
constitute a Default or Event of Default under the Credit Agreement or this
Third Amendment. The Borrower will at all times maintain sufficient
authorized but unissued shares of Common Stock reserved for issuance upon
exercise of the Warrants. On the date of issuance of each of the Warrants,
each such Warrant shall have been duly and validly issued to the respective
Bank. The Warrant Shares will be duly and validly issued, fully paid and
nonassessable upon issuance by the Borrower and payment of the exercise price
therefor in accordance with the provisions of the Warrants. Upon exercise of
the Warrants, and the delivery by the Borrower of stock certificates
representing Warrant Shares, all in accordance with the terms of the
Warrants, lawful and valid title to each of such Warrant Shares will be
conveyed to and vested in the Banks, free and clear of all restrictions and
other liens and encumbrances, except the agreements, restrictions and other
liens and encumbrances (if any) imposed by the Third Amendment, the Warrants
and applicable law.
9.23. POSTCLOSING ITEMS. The Borrower shall deliver to
the Agent, within 90 days after the Effective Date of the Third Amendment:
(a) satisfactory evidence that all liens against the assets of the Borrower
and its Subsidiaries other than Permitted Liens have been released and
removed of record, (b) fully executed Pledged Account Agreements in form and
substance satisfactory to the Agent with respect to each depository account
of the Borrower and each of its Subsidiaries, as required by the Second
Amendment and (c) all items required to
9
<PAGE>
be delivered under the Credit Agreement that were not delivered prior to the
Effective Date of the Third Amendment in form and substance satisfactory to
the Agent (provided that the Agent shall deliver to the Borrower a definitive
list of all such items within 30 days after the Effective Date of the Third
Amendment). The Borrower shall deliver to the Agent, within seven days after
the Effective Date of the Third Amendment a revised DISCLOSURE SCHEDULE that
is accurate and complete as of such Effective Date and which DISCLOSURE
SCHEDULE shall contain no information that had such information been known to
the Banks on such Effective Date would have caused any Bank acting reasonably
to have refused to agree to the Third Amendment. The Borrower shall deliver
to the Agent at the time of execution and delivery of the Registration Rights
Agreement, an opinion of counsel reasonably satisfactory in form and
substance to the Agent as to the corporate power and authority of the
Borrower, due authorization, execution and delivery, validity and
enforceability of the Registration Rights Agreement and other customary
provisions. The Borrower shall deliver to the Agent at the time of execution
and delivery of any Warrants, an opinion of counsel reasonably satisfactory
in form and substance to the Agent as to the corporate power and authority
and capitalization of the Borrower, due authorization, execution and
delivery, validity and enforceability of the Warrants and other customary
provisions. The Borrower hereby agrees to pay all reasonable expenses,
including legal fees and disbursements incurred by the Agent and the Banks in
connection with the Third Amendment and the transactions contemplated thereby
and any other expenses, legal fees and disbursements required to be paid
pursuant to ss. 17.1 of the Revolving Credit Agreement for which an invoice
is submitted after the date of the Third Amendment within 30 days after the
date of the respective invoice.
SS. 10. AMENDMENT TO SS. 11 OF THE CREDIT AGREEment. Section 11
of the Credit Agreement is hereby amended by deleting ss. 11 in its entirety
and restating it as follows:
11.1. CAPITAL EXPENDITURES. The Borrower will not
make, or permit any Subsidiary of the Borrower to make, Capital
Expenditures in any fiscal year that exceed, in the aggregate,
$4,000,000. This covenant shall be tested on the last day of each fiscal
year.
11.2. DEBT SERVICE COVERAGE RATIO. The Borrower will not
permit the Debt Service Coverage Ratio to be less than 1.00 to 1.00, tested
on the last day of each fiscal quarter with respect to the fiscal quarter
then ended.
SS. 11. AMENDMENT TO SS. 27 OF THE CREDIT AGREEment. Section 27
of the Credit Agreement is hereby amended by deleting the second sentence
thereof in its entirety and restating it as follows:
Notwithstanding the foregoing, the rate of interest on the
Notes (other than interest accruing pursuant to ss. 6.11.2 following the
effective date of any waiver by the Majority Banks of the Event of Default
relating thereto), the amount of the Commitments or Acquisition Commitments
of the Banks, the release of all or substantially all of the Collateral, and
the amount of commitment fee, Amendment Fee, Overadvance Fees or Letter of
Credit Fees hereunder may not be changed without the written consent of the
Borrower and the written consent of each Bank affected thereby; the Revolving
Credit Loan Maturity Date and the Acquisition Loan Maturity Date may not be
postponed without the written consent of each Bank affected thereby; the
Minimum Net Cash Sale Proceeds with respect to any Subsidiary, this ss. 27
10
<PAGE>
and the definition of Majority Banks may not be amended, without the written
consent of all of the Banks; and the amount of the Agent's Fee or any Letter
of Credit Fees payable for the Agent's account and ss. 16 may not be amended
without the written consent of the Agent.
SS. 12. CONDITIONS TO EFFECTIVENESS. This Third Amendment
shall become effective (the "Effective Date") only upon the satisfaction
of the following conditions on or prior to March 30, 2000:
(a) this Third Amendment shall have been executed by
the Borrower, PCSI, the Banks and the Agent and the Ratification of
Guaranty in the form attached hereto shall have been executed by each
Guarantor;
(b) the Agent shall have received from the
Borrower the initial installment of 1/6 of the Amendment Fee, which fee
shall be for the PRO RATA accounts of the Banks (in accordance with their
respective Commitment Percentages of the Total Facility Commitment);
(c) the Borrower shall have delivered to the Agent
and the Banks an opinion of counsel satisfactory in form and substance to
the Agent as to the corporate power and authority of the Borrower, due
authorization, execution and delivery, validity and enforceability of the
Third Amendment and other customary provisions; and
(d) the Borrower shall have paid all reasonable
expenses, including legal fees and disbursements incurred by the Agent and
the Banks in connection with this Third Amendment and the transactions
contemplated hereby and any other expenses, legal fees and disbursements
required to be paid pursuant to ss. 17.1 of the Credit Agreement and not
heretofore paid by the Borrower for which an invoice has been submitted.
SS. 13. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats,
on and as of the date hereof, each of the representations and warranties made
by it in ss. 8 of the Credit Agreement, and such representations and
warranties remain true as of the date hereof (except in such respects (none
of which shall be materially adverse) as may be set forth on the DISCLOSURE
SCHEDULE required to be delivered pursuant to ss. 9.23 of the Credit
Agreement, as amended hereby, and to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
PROVIDED, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that (a) the execution and delivery by the Borrower
and each Guarantor of this Third Amendment and the performance by the
Borrower and each Guarantor of all of its agreements and obligations under
the Credit Agreement as amended hereby and the other Loan Documents are
within the corporate authority of the Borrower and each Guarantor and have
been duly authorized by all necessary corporate action on the part of the
Borrower and each Guarantor party thereto, (b) the Borrower has, on or prior
to the date hereof, duly and properly authorized, subject to the satisfaction
of certain conditions precedent set forth in Section 9.22 of the Credit
Agreement (as amended hereby), the issuance of the Warrants in or
substantially in the form of EXHIBIT I attached hereto, evidencing right to
11
<PAGE>
subscribe for and purchase from the Borrower the number of Warrant Shares to
which each of the Banks may become entitled pursuant to the terms of the
Third Amendment, (c) the Borrower has duly and properly authorized the
issuance of Warrant Shares issuable upon due exercise or conversion of the
Warrants and (d) the Borrower has filed in a timely manner each report
required to be filed by it with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934
since December 31, 1998.
SS. 14. EXHIBITS. The Credit Agreement is hereby amended to
include EXHIBIT I attached hereto, as if the same were EXHIBIT I to such
Credit Agreement.
SS. 15. RATIFICATION, Etc. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this Third Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.
SS. 16. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation
of the Borrower or any rights of the Agent or the Banks consequent thereon.
SS. 17. RELEASE OF CLAIMS. The Borrower and, by executing the
attached Ratification of Guaranty, each of the Borrower's Subsidiaries hereby
releases the Agent and the Banks and all agents, officers, directors,
shareholders, or anyone acting at the direction or control of the Agent or
each or all Banks from any and all liabilities and claims under the Credit
Agreement, this Third Amendment, the Registration Rights Agreement or any
Security Documents or otherwise in connection with the transactions
contemplated thereby, except those arising after the time of execution and
delivery of this Third Amendment.
SS. 18. COUNTERPARTS. This Third Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but
which together shall constitute one and the same instrument.
SS. 19. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as a document under seal as of the date first above written.
AZTEC TECHNOLOGY PARTNERS, INC.
By: /s/ Ira Cohen
-----------------------------
Name: Ira Cohen
Title: President
PROFESSIONAL COMPUTER SOLUTIONS, INC.
(WITH RESPECT TO THE ASSUMPTION OF
JOINT AND SEVERAL LIABILITY FOR A
PORTION OF THE ACQUISITION LOANS HAVING
AN OUTSTANDING PRINCIPAL AMOUNT
OF $15,000,000)
By: /s/ Ross J. Weintraub
-----------------------------
Name: Ross J. Weintraub
Title: Treasurer
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Patrick C. Joyce
-----------------------------
Name: Patrick C. Joyce
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Jared H. Ward
-----------------------------
Name: Jared H. Ward
Title: Authorized Officer
THE FUJI BANK, LIMITED
By: /s/ Masahito Fukuda
-----------------------------
Name: Masahito Fukuda
Title: Senior Vice President
and Group Head
NATIONAL CITY BANK OF KENTUCKY
13
<PAGE>
By: /s/ Glenn E. Nord
-----------------------------
Name: Glenn E. Nord
Title: Vice President
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ John J. McGuire
-----------------------------
Name: John J. McGuire
Title: 1st Vice President
PEOPLE'S BANK
By: /s/ Dante Fazzina
-----------------------------
Name: Dante Fazzina
Title: Vice President
14
<PAGE>
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents
to the foregoing Third Amendment as of March 30, 2000, and agrees that the
Guaranty dated as of (a) July 27, 1998; (b) September 17, 1998; or (c)
October 2, 1998 from each of the undersigned Guarantors remain in full force
and effect, and each of the Guarantors confirms and ratifies all of its
obligations thereunder.
AZTEC INTERNATIONAL LLC
By: Aztec Technology Partners, Inc.,
as Sole Member
By: /s/ Ira Cohen
-----------------------------
Title: President
AZTEC TECHNOLOGY PARTNERS OF NEW
ENGLAND LLC (F/K/A BAY STATE COMPUTER
GROUP LLC)
By: Aztec Technology Partners, Inc.,
as Sole Member
By: /s/ Ira Cohen
-----------------------------
Title: President
COMPEL LLC
By: Aztec Technology Partners, Inc.,
as Sole Member
By: Ira Cohen
-----------------------------
Title: President
ENTRA COMPUTER CORP.
By: Ira Cohen
-----------------------------
Title: President
FORTRAN CORP.
By: /s/ Ross J. Weintraub
-----------------------------
Title: Treasurer
15
<PAGE>
MAHON COMMUNICATIONS CORPORATION
By: /s/ Ross J. Weintraub
-----------------------------
Title: Treasurer
OFFICE EQUIPMENT SERVICE, INC.
By: /s/ Ross J. Weintraub
-----------------------------
Title: Treasurer
PCM, INC.
By: /s/ Ross J. Weintraub
-----------------------------
Title: Treasurer
PROFESSIONAL COMPUTER SOLUTIONS,
INC.
By: /s/ Ross J. Weintraub
-----------------------------
Title: Treasurer
PROFESSIONAL NETWORK SERVICES,
INC.
By: Robert M. Johnson
-----------------------------
Title: Vice President
MCDOWELL, TUCKER & CO., INC.
By: /s/ Ira Cohen
-----------------------------
Title: President
SOFTECH COMMUNICATIONS, INC.
By: /s/ Ira Cohen
-----------------------------
Title: President
16
<PAGE>
SOLUTIONS E.T.C. INC.
By: Ross J. Weintraub
-----------------------------
Title: Treasurer
<PAGE>
Exhibit 10.17
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of this 26th day of April, 2000, amends an
existing Employment Agreement dated as of April 26, 1997 (the "Agreement"),
between Professional Computer Solutions, Inc., a New York corporation (the
"Company") and Benjamin Tandowski ("Employee").
The Company and Mr. Tandowski hereby ratify the Agreement in its
entirety, except for the following amendments thereto which are hereby agreed
to:
1. Any and all references to "U.S. Office Products Company" in the
Agreement are hereby replaced with "Aztec Technology Partners, Inc.";
2. Section 1 of the Agreement is hereby deleted in its entirety and
the following provision is inserted in lieu thereof:
"1. EMPLOYMENT; TERM. The Company hereby employs the Employee to
perform the duties described herein, and the Employee hereby accepts employment
with the Company for a term of 30 days after the date hereof (the "Term")."; and
3. The reference to U.S. Office Products Company and its address set
forth in Section 14 is hereby deleted in its entirety and the following is
substituted in lieu thereof:
"Aztec Technology Partners, Inc.
50 Braintree Hill Office Park, Suite 220
Braintree, MA 02184
Attn: T. Kenwood Mullare, Esq."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
PROFESSIONAL COMPUTER
SOLUTIONS, INC.
By: /s/ Ross J. Weintraub
-----------------------
Name: Ross J. Weintraub
Title: Treasurer
EMPLOYEE:
/s/ Benjamin Tandowski
- -----------------------
Benjamin Tandowski
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-58315, 333-58319, 333-58323) of Aztec
Technology Partners, Inc. of our report dated March 30, 2000, appearing on
Page F-2 of this Form 10-K/A.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 1, 2000
