<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number 0-25400
DAISYTEK INTERNATIONAL CORPORATION
----------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 75-2421746
- ------------------------------------------- ----------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS 75074
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 881-4700
-----------------
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
----- -----
At January 31, 1997 there were 6,510,046 shares of registrant's common stock
outstanding.
<PAGE> 2
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 (Unaudited) and March
31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Interim Consolidated Statements of Operations for the Three and
Nine Months Ended December 31, 1996 and 1995 . . . . . . . . . . . 5
Unaudited Interim Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . 6
Notes to Unaudited Interim Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 557 $ 204
Trade accounts receivable, net of allowance for doubtful
accounts of $1,380 and $1,283 at December 31, 1996 and
March 31, 1996, respectively 79,267 69,169
Receivables from employees and related parties, net of allowance
for doubtful accounts of $475 at December 31, 1996 and
March 31, 1996 684 571
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division 48,951 44,358
Inventories, Priority Fulfillment Services Division 8,501 --
Prepaid expenses and other current assets 1,144 2,120
Deferred income tax asset 524 762
------------- ------------
Total current assets 139,628 117,184
------------- ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 19,284 15,325
Leasehold improvements 362 306
------------- ------------
19,646 15,631
Less - Accumulated depreciation and amortization (8,671) (6,136)
-------------- ------------
Net property and equipment 10,975 9,495
EMPLOYEE RECEIVABLES 416 395
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $549 and $468 at
December 31, 1996 and March 31, 1996, respectively 5,101 1,527
------------- ------------
Total assets $ 156,120 $ 128,601
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 4
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 666 $ 650
Trade accounts payable 44,412 44,736
Accrued expenses 6,210 4,230
Income taxes payable 624 419
Other current liabilities 14,991 10,486
------------- ------------
Total current liabilities 66,903 60,521
------------- ------------
LONG-TERM DEBT, less current portion 26,098 16,419
------------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized
at December 31, 1996 and March 31, 1996, none issued
and outstanding -- --
Common stock, $0.01 par value; 20,000,000 and 10,000,000
shares authorized at December 31, 1996 and March 31, 1996,
respectively; 6,493,394 and 6,342,753 shares issued and
outstanding at December 31, 1996 and March 31, 1996,
respectively 65 63
Additional paid-in capital 33,155 30,874
Retained earnings 31,096 21,736
Cumulative foreign currency translation adjustment (1,197) (1,012)
-------------- ------------
Total shareholders' equity 63,119 51,661
------------- ------------
Total liabilities and shareholders' equity $ 156,120 $ 128,601
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE> 5
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------ ---------------------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 154,429 $ 116,545 $ 429,471 $ 326,932
COST OF SALES 139,225 104,312 387,008 292,730
---------- ---------- ----------- ----------
Gross Profit 15,204 12,233 42,463 34,202
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,375 7,312 26,078 20,592
---------- ---------- ----------- ----------
Income from operations 5,829 4,921 16,385 13,610
INTEREST EXPENSE 375 397 1,220 1,163
---------- ---------- ----------- ----------
Income before income taxes 5,454 4,524 15,165 12,447
PROVISION FOR INCOME TAXES 2,090 1,732 5,805 4,771
---------- ---------- ----------- ----------
NET INCOME $ 3,364 $ 2,792 $ 9,360 $ 7,676
========== ========== =========== ==========
NET INCOME PER COMMON SHARE $ 0.49 $ 0.41 (a) $ 1.35 $ 1.14 (a)
========== ========== =========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,917 6,778 6,916 6,748
========== ========== =========== ==========
</TABLE>
____________________
(a) Includes approximately $0.05 and $0.10 per share for the three and nine
months ended December 31, 1995, respectively, related to certain one-time
inventory purchase actions prior to manufacturer price increases.
The accompanying notes are an integral part of these interim consolidated
statements.
5
<PAGE> 6
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,360 $ 7,676
Adjustments to reconcile net income to net cash provided by (used in)
operating activities --
Depreciation and amortization 2,704 1,581
Provision for doubtful accounts 908 695
Deferred income tax provision 238 28
Changes in operating assets and liabilities --
Trade accounts receivable (11,146) (7,650)
Receivables from related parties (40) 71
Inventories, net (12,196) (6,527)
Trade accounts payable and accrued expenses (119) 8,312
Income taxes payable 198 (183)
Prepaid expenses and other current assets 960 (1,115)
------------- ------------
Net cash provided by (used in) operating activities (9,133) 2,888
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,932) (3,476)
Acquisition of subsidiary (2,105) --
Advances to employees, net (94) (86)
------------- ------------
Net cash used in investing activities (6,131) (3,562)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 10,130 4,195
Increase (decrease) in other current liabilities, net 4,505 (3,880)
Payments on capital leases and notes payable (478) (421)
Net proceeds from exercise of stock options 1,492 413
------------- ------------
Net cash provided by financing activities 15,649 307
------------- ------------
EFFECT OF EXCHANGE RATE ON CASH (32) 8
------------- ------------
NET INCREASE (DECREASE) IN CASH 353 (359)
CASH, beginning of period 204 448
------------- ------------
CASH, end of period $ 557 $ 89
============= ============
</TABLE>
The accompanying notes are an integral part of these interim consolidated
statements.
6
<PAGE> 7
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31,
1996 AND 1995 IS UNAUDITED.)
1. ORGANIZATION AND NATURE OF BUSINESS:
Daisytek International Corporation (a Delaware corporation) and
subsidiaries (the "Company") is a wholesale distributor of computer and office
automation supplies and accessories, whose primary products are laser toner,
copier toner, inkjet cartridges, optical storage products, printer ribbons,
diskettes, computer tape cartridges and accessories such as cleaning kits and
media storage files. The Company, through its wholly owned subsidiaries in the
U.S., Canada, and Mexico, sells products primarily in North America, as well as
in Latin America, Europe, the Far East, Africa and Australia. The Company's
customers include value added resellers, computer supplies dealers, office
product dealers, computer and office product superstores and other retailers
who resell the products to end-users.
2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
In the opinion of management, the Interim Unaudited Consolidated Financial
Statements of the Company include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position as of December 31, 1996, its results of operations for the
three and nine months ended December 31, 1996 and 1995, and its results of cash
flows for the nine months ended December 31, 1996 and 1995. Results of the
Company's operations for interim periods may not be indicative of results for
the full fiscal year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission (the "SEC").
The Interim Unaudited Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements and accompanying
notes of the Company for the fiscal years ended March 31, 1996 and 1995, and
the three years ended March 31, 1996, included in the Company's Form 10-K (File
Number 0-25400) as filed with the SEC on June 26, 1996 (the "Company's Form
10-K"). Accounting policies used in the preparation of the Interim Unaudited
Consolidated Financial Statements are consistent in all material respects with
the accounting policies described in the Notes to Consolidated Financial
Statements in the Company's Form 10-K.
3. INVENTORIES:
Inventories (merchandise held for resale, all of which is finished goods)
are stated at the lower of weighted average cost or market.
7
<PAGE> 8
4. DEBT:
Debt as of December 31, 1996 and March 31, 1996, is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
<S> <C> <C>
Revolving line of credit with commercial banks, interest
(weighted average rate of 6.4% at December 31, 1996) at
the Company's option at the prime rate of a bank (8.25% at
December 31, 1996) or the Eurodollar rate plus 0.625% to
1.125% (6.164% at December 31, 1996), due May 22, 1998 $ 25,570 $ 15,440
Notes payable and obligations under capital leases for
warehouse equipment, computer equipment, office furniture
and fixtures, interest at varying rates ranging from 8% to
17%, with lease terms varying from five to seven years 1,194 1,629
---------- ----------
26,764 17,069
Less: Current portion of long-term debt (666) (650)
---------- ----------
$ 26,098 $ 16,419
========== ==========
</TABLE>
In May 1995, the Company entered into an agreement with certain banks for a
three-year unsecured revolving line of credit facility (the "facility"). In
October 1996, the Company reached an agreement with its lenders to increase the
borrowing availability under the facility to $50.0 million. Availability under
the facility is based upon amounts of eligible accounts receivable, as defined.
The facility accrues interest, at the Company's option, at the prime rate
of a bank or the eurodollar rate plus an adjustment ranging from 0.625% to
1.125% depending on the Company's financial performance. A commitment fee of
0.20% to 0.25% is charged on the unused portion of the facility. The facility
contains various covenants including, among other things, the maintenance of
certain financial ratios (minimum fixed charge ratio and minimum level of
tangible net worth) and restrictions on certain activities of the Company,
including loans and payments to related parties, incurring additional debt,
acquisitions, investments and asset sales. As of December 31, 1996, $24.4
million was available under the facility for additional borrowings. This
facility is part of the Company's integrated cash management system in which
accounts receivable collections are used to pay down the facility and
disbursements are paid from the facility. This system allows the Company to
optimize its cash flow. At December 31, 1996 and March 31, 1996, the Company
had checks and other items outstanding in excess of its cash balance of
approximately $15.0 million and $10.5 million, respectively, which are included
in other current liabilities.
8
<PAGE> 9
5. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
December 31,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,274 $ 1,092
Income taxes $ 4,493 $ 4,961
Acquisition of subsidiary:
Fair value of net assets acquired $ 2,896 $ --
Stock issued (791) --
---------- ----------
Net cash paid for acquisition $ 2,105 $ --
========== ==========
</TABLE>
6. STOCK OPTIONS:
During the nine month period ended December 31, 1996, the Company granted
options to certain employees under its employee stock option plans (the
"Plans"). These options were granted at the fair market value at the date of
the grant. In addition to the options under the Plans, during fiscal year 1997
the Company granted options to certain key employees and executives to purchase
55,000 shares of common stock. These options were granted at the fair market
value at the date of the grant. Such options become exercisable over a three
year period starting with the date of grant, based on vesting percentages. The
following table summarizes stock option activity for the nine months ended
December 31, 1996.
<TABLE>
<CAPTION>
Shares Price per Share
-------- -----------------
<S> <C> <C>
Outstanding, March 31, 1996 718,994 $1.28 - $19.50
Granted 339,114 $32.50 - $40.00
Exercised (130,583) $1.28 - $19.50
Canceled (37,124) $7.59 - $32.50
------- $1.28 - $40.00
Outstanding, December 31, 1996 890,401
=======
</TABLE>
During the second quarter of fiscal year 1997, shareholders approved the
Company's Non-Employee Director Stock Option and Retainer Plan (the
"Non-Employee Director Plan"). The Non-Employee Director Plan authorizes the
Company to grant non-qualified common stock options to non-employee directors
at the fair market value of the Company's common stock on the date of grant.
The options vest over a three year period starting on the date of grant. The
maximum number of shares which may be granted under the Non-Employee Director
Plan is 50,000 shares, subject to adjustments for certain changes in the shares
issued and outstanding as described in the plan. As of December 31, 1996,
there were 3,000 options granted under the Non-Employee Director Plan.
As of December 31, 1996, 368,593 options outstanding were exercisable. The
remaining options will become exercisable over the next three years based on
vesting percentages. In addition, 301,389 options remain available to be
granted in the future under the Plans.
9
<PAGE> 10
7. RECENTLY ISSUED ACCOUNTING STANDARD:
The Company must adopt Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of " in fiscal year 1997. SFAS No. 121 requires
companies to periodically evaluate long-lived assets and to record an
impairment loss if the expected undiscounted future cash flows is less than the
carrying value of those assets. Impairment losses resulting from the initial
application of this statement shall be reported in the period in which the
recognition criteria are first applied. The Company is currently evaluating
the implementation of SFAS No. 121, the effects of which are unknown at this
time.
8. ACQUISITION OF SUBSIDIARY:
Effective October 1, 1996, the Company acquired, with cash and common
stock, substantially all of the assets and liabilities of Lasercharge Pty. Ltd.
(Lasercharge). Lasercharge is an Australian wholesale distributor of computer
and office automation supplies and accessories. The acquisition of Lasercharge
was accounted for using the purchase method of accounting, and, accordingly,
the purchase price has been allocated to the assets and liabilities assumed
based on the fair values at the date of acquisition. Cost in excess of fair
value will be amortized on a straight-line basis over 20 years. Pro forma
results of operations have not been presented because the effects of the
acquisition were not significant.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. Net sales for the three months ended December 31, 1996 were
$154.4 million as compared to $116.5 million for the three months ended
December 31, 1995, an increase of $37.9 million, or 32.5%, as the result of an
increase in U.S. net sales of $24.6 million, or 25.1%, and an increase in
international net sales of $13.3 million, or 70.7%. Net sales for the nine
months ended December 31, 1996 were $429.5 million as compared to $326.9
million for the nine months ended December 31, 1995, an increase of $102.6
million, or 31.4%, as the result of an increase in U.S. net sales of $79.8
million, or 29.2%, and an increase in international net sales of $22.8 million,
or 42.6%. The growth in U.S. and international net sales was primarily due to
increased sales volume to large national accounts, computer and office product
superstores, new customers and the Company's continued introduction of new
products, and the addition of net sales from its newly acquired subsidiary.
The growth rate in net sales to computer and office product superstore
customers for the three months and nine months ended December 31, 1996 was less
than the growth rates experienced for these customers during the corresponding
periods of the prior year. The Company expects that the future growth rate for
computer and office product superstore customers to be more in line with the
growth rates it experiences with its core customers. Net sales to new
customers for the nine months ended December 31, 1996 were approximately $30
million, while net sales to existing customers increased by approximately $73
million during this period.
Gross Profit. Gross profit for the three months ended December 31, 1996 was
$15.2 million as compared to $12.2 million in the same period in 1995, an
increase of $3.0 million, or 24.3%, primarily as the result of increased sales
volume in fiscal year 1997. Gross profit for the nine months ended December
31, 1996 was $42.5 million as compared to $34.2 million in the same period in
1995, an increase of $8.3 million, or 24.2%, primarily as the result of
increased sales volume in fiscal year 1997. The Company's gross profit margin
as a percent of net sales was 9.8% for the three months ended December 31, 1996
as compared to 10.5% for the corresponding period of the prior year. The
Company's gross profit margin percentage was 9.9% for the nine months ended
December 31, 1996 as compared to 10.5% for the corresponding period of the
prior year. Gross profit margin percentage declined during both the three and
nine months ended December 31, 1996 primarily because the prior year's results
include the benefit of incremental margins earned on the sale of certain
one-time inventory purchases by the Company prior to manufacturer price
increases. Gross profit as a percentage of net sales for the three and nine
months ended December 31, 1996 was slightly lower as compared to last year when
the benefits of the one-time inventory purchase actions are excluded from last
year's results. Increased sales at lower gross profit margins to large
national accounts and computer and office product superstores also contributed
to the decline in gross profit margin percentages during both the three and
nine months ended December 31, 1996. The Company believes that the trend in
sales to large national accounts and computer and office product superstores
and the corresponding decline in gross profit margin percentage will continue
during fiscal years 1997 and 1998.
SG&A Expenses. SG&A expenses for the three months ended December 31, 1996
were $9.4 million, or 6.1% of net sales, as compared to $7.3 million, or 6.3%
of net sales, for the three months ended December 31, 1995. SG&A expenses for
the nine months ended December 31, 1996 were $26.1 million, or 6.1% of net
sales, as compared to $20.6 million, or 6.3% of net sales, for the nine months
ended December 31, 1995. The increase in SG&A expenses was primarily a result
of the increase in costs associated with the Company's increased sales volume.
The decrease in SG&A expenses as a percentage of net sales was primarily due to
improved operating efficiencies and staff productivity as a result of increased
sales volume and continued technological enhancements implemented by the
Company.
Income from Operations. Income from operations for the three months ended
December 31, 1996 was $5.8 million as compared to $4.9 million for the same
period during 1995, an increase of $0.9 million, or 18.5%. Income from
operations for the nine months ended December 31, 1996 was $16.4 million as
compared to $13.6 million for the same period during 1995, an increase of $2.8
million, or 20.4%. This increase was primarily due to increased sales volume,
increased gross profit and improved operating efficiencies. Income from
operations as a percentage of net sales was 3.8% for the three months ended
December 31, 1996 as compared to 4.2% for the same period in fiscal year 1995,
primarily as the result of a decrease in gross profit margin as a percentage of
net sales which was somewhat offset by a decline in
11
<PAGE> 12
SG&A expenses as a percentage of net sales. Income from operations as a
percentage of net sales was 3.8% for the nine months ended December 31, 1996 as
compared to 4.2% for the same period in fiscal year 1995, primarily as the
result of a decrease in gross profit margin as a percentage of net sales which
was somewhat offset by a decline in SG&A expenses as a percentage of net sales.
Income from operations as a percentage of net sales for the three and nine
months ended December 31, 1996 was slightly higher as compared to last year
when the benefits of the one-time inventory purchase actions are excluded from
last year's results.
Interest Expense. Interest expense was $0.4 million during both the three
months ended December 31, 1996 and December 31, 1995, and was $1.2 million
during both the nine months ended December 31, 1996 and December 31, 1995.
Interest expense remained relatively unchanged during both periods as a result
of an increase in the average line of credit which was partially offset by a
reduction in interest rates during fiscal year 1997. The weighted average
interest rate was 6.7% during the nine months ended December 31, 1996 as
compared to 7.7% for the corresponding period of 1995.
Income Taxes. The Company's provision for income taxes was $2.1 million for
the three months ended December 31, 1996 as compared to $1.7 million for the
three months ended December 31, 1995. The Company's provision for income taxes
was $5.8 million for the nine months ended December 31, 1996 as compared to
$4.8 million for the nine months ended December 31, 1995. The increase was
primarily due to increased pretax profits. The effective tax rates for all
periods presented was approximately 38.3%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. During the nine months ended December 31, 1996, net cash of $15.6
million was provided by financing activities, compared to net cash provided by
financing activities of $0.3 million for the nine months ended December 31,
1995. Proceeds from bank borrowings, exercise of stock options and an increase
in other current liabilities, net, were used to finance increases in working
capital required to support the Company's operations and expansion, capital
expenditures and the acquisition of subsidiary. These increased working
capital requirements were partially funded by cash generated by the Company's
operations. Financing activities should provide the Company's primary source
of cash during the remainder of fiscal year 1997, primarily as a result of the
Company's growth. During the nine months ended December 31, 1995, proceeds
from bank borrowings and lease financings were used to partially finance the
Company's operations and expansion.
Net cash of $9.1 million was used in operating activities during the nine
months ended December 31, 1996, while net cash of $2.9 million was provided by
operating activities for the nine months ended December 31, 1995. Net cash was
used in operating activities during the nine months ended December 31, 1996
primarily as a result of increases in working capital needed to support the
Company's growth. The increased working capital requirements were partially
funded by cash generated by the Company's operations. Net cash was provided by
operations during the nine months ended December 31, 1995 as a result of income
growth in excess of incremental operating working capital needed to support the
Company's continued growth.
The Company's principal use of funds for investing activities during the
nine months ended December 31, 1996 was for capital expenditures of $3.9
million and for the acquisition of subsidiary for approximately $2.1 million.
The principal use of funds for investing activities were for capital
expenditures of $3.5 million for the nine months ended December 31, 1995. The
capital expenditures have consisted primarily of additions to upgrade the
Company's management information systems, the Company's CD-ROM based catalog
(SOLO) and other methods of electronic commerce, and its Memphis distribution
facility. The Company anticipates that its total investment in upgrades and
additions to facilities for fiscal 1997 will be approximately $5 to $6 million.
Working capital increased to $72.7 million at December 31, 1996 from
$56.7 million at March 31, 1996, an increase of $16.0 million which was
primarily attributable to increases in both trade accounts receivable and
inventory, and a slight decrease in accounts payable, which were only partially
offset by an increase in other current liabilities. During the nine month
periods ended December 31, 1996 and 1995,
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<PAGE> 13
the Company generally maintained an accounts receivable balance of
approximately 47 and 46 days of sales, respectively. This increase resulted
primarily from growth in sales to larger national accounts and computer and
office product superstores which typically take longer to settle their
outstanding balances. Inventory turnover, excluding Priority Fulfillment
Services Division, was approximately 12 and 11 turns for the nine month periods
ended December 31, 1996 and 1995, respectively. Inventory turnover increased
during the first nine months of fiscal year 1997 compared to fiscal year 1996
primarily due to the higher inventory levels carried in fiscal year 1996
resulting from the one-time inventory purchases in advance of manufacturer
price increases.
In May 1995, the Company entered into an agreement with certain banks for a
three-year unsecured revolving line of credit facility (the "facility"). In
October 1996, the Company reached an agreement with its lenders to increase the
borrowing availability under its facility to $50.0 million. Availability under
the facility is based upon amounts of eligible accounts receivable, as defined.
As of December 31, 1996, the Company had borrowed $25.6 million, leaving
$24.4 million available under the facility for additional borrowings. The
facility matures in May 1998 and accrues interest, at the Company's option, at
the prime rate of a bank or a eurodollar rate plus an adjustment ranging from
0.625% to 1.125% depending on the Company's financial performance. A commitment
fee of 0.20% to 0.25% is charged on the unused portion of the facility. The
facility contains various covenants including, among other things, the
maintenance of certain financial ratios including the achievement of a minimum
fixed charge ratio and minimum level of tangible net worth, and restrictions on
certain activities of the Company, including loans and payments to related
parties, incurring additional debt, acquisitions, investments and asset sales.
During the nine months ended December 31, 1996, approximately $76.1
million, or 17.7%, of the Company's net sales were sold through the Company's
Canadian, Mexican, Australian and U.S. export operations, including Latin
America. The Company believes that international markets represent further
opportunities for growth. The Company attempts to protect itself from foreign
currency fluctuations by denominating substantially all of its non-Canadian and
non-Australian international sales in U.S. dollars. In addition, in May 1995,
the Company entered into a $4.3 million (U.S.) one-year Canadian Dollar forward
exchange contract, which expired in May 1996. The Company incurred a loss of
approximately $30,000, net of income taxes, related to this contract upon its
expiration. In May 1996, the Company entered into a new $6.6 million (U.S.)
one-year Canadian Dollar forward exchange contract to replace the expired
contract. As of December 31, 1996, there was no significant gain or loss
related to this contract. The Company may consider entering into other forward
exchange contracts in order to hedge the Company's net investment in its
Mexican, Australian and Canadian subsidiaries, although no assurance can be
given that the Company will be able to do so on acceptable terms.
Effective October 1, 1996, the Company acquired, with cash and common
stock, substantially all of the assets and liabilities of Lasercharge Pty. Ltd.
(Lasercharge). Lasercharge is an Australian wholesale distributor of computer
and office automation supplies and accessories. The acquisition of Lasercharge
was accounted for using the purchase method of accounting, and, accordingly,
the purchase price has been allocated to the assets and liabilities assumed
based on the fair values at the date of acquisition. The Company believes that
the integration of Lasercharge into the Company's business operations will not
require significant working capital nor create significant other financing
needs.
In June 1996, the Company was appointed by a major manufacturer as the
master distributor for a certain product line of consumable supplies throughout
the United States, Canada, Mexico, the Caribbean and Latin America. The
Company expects that this arrangement will result in incremental revenue
growth, and similar to the Company's other business and revenue growth, will
impose additional working capital needs upon the Company. The Company believes
it will be able to satisfy its working capital needs for fiscal years 1997 and
1998, including such additional working capital required by this arrangement as
well as planned capital expenditures, through funds available under the
facility, trade credit, lease financing, internally generated funds and by
increasing the amount available under the facility. In addition, although the
Company has no plans to do so, and depending on market conditions and the terms
thereof, the Company may also consider obtaining additional funds through an
additional line of credit, other debt financing or the sale of capital stock;
however, no assurance can be given in such regard.
13
<PAGE> 14
INVENTORY MANAGEMENT
The Company manages its inventories by maintaining sufficient quantities of
product to achieve high order fill rates while at the same time maximizing
inventory turnover rates. Inventory balances will fluctuate as the Company
adds new product lines and makes large purchases from suppliers to take
advantage of attractive terms. To reduce the risk of loss to the Company due
to supplier price reductions and slow moving inventory, the Company's
purchasing agreements with many of its suppliers, including most of its major
suppliers, contain price protection and stock return privileges under which the
Company receives credits against future purchases if the supplier lowers prices
on previously purchased inventory or the Company can return slow moving
inventory in exchange for other products.
SEASONALITY
Although the Company historically has experienced its greatest sequential
quarter revenue growth in its fourth fiscal quarter, management has not been
able to determine the specific event, if any, of seasonal factors that may
cause quarterly variability in operating results. Management believes,
however, that factors that may influence quarterly variability include the
overall growth in the non-paper computer supplies industry and shifts in demand
for the Company's products due to a variety of factors, including sales
increases resulting from the introduction of new computer supplies products.
The Company generally experiences a relative slowness in sales during the
summer months, which may adversely affect the Company's first and second fiscal
quarter results in relation to sequential quarter performance. The Company
believes that results of operations for a quarterly period may not be
indicative of the results for any other quarter or for the full year.
INFLATION
Management believes that inflation has not had a material effect on the
Company's operations.
FORWARD-LOOKING INFORMATION
The matters discussed in this Form 10-Q, other than historical information,
and, in particular, information regarding future revenue, earnings and business
plans and goals, consist of forward-looking information under the Private
Securities Litigation Reform Act of 1995, and are subject to and involve risks
and uncertainties which could cause actual results to differ materially from
the forward-looking information. These risks and uncertainties include, but
are not limited to, the "Risk Factors" set forth in the Company's prospectus
dated January 25, 1996, which are incorporated by reference herein, as well as
general economic conditions, industry trends, the loss of key suppliers or
customers, the loss of strategic product shipping relationships, customer
demand, product availability, competition (including pricing and availability),
concentrations of credit risk, distribution efficiencies, capacity constraints,
technological difficulties, exchange rate fluctuations, and the regulatory and
trade environment (both domestic and foreign).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
The Company must adopt Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" in fiscal year 1997. SFAS No. 121 requires companies
to periodically evaluate long-lived assets and to record an impairment loss if
the expected undiscounted future cash flows is less than the carrying value of
those assets. Impairment losses resulting from the initial application of this
statement shall be reported in the period in which the recognition criteria are
first applied. The Company is currently evaluating the implementation of SFAS
No. 121, the effects of which are unknown at this time.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
c) On October 1, 1996, a wholly-owned subsidiary of the Company
purchased substantially all of the assets and liabilities of
Lasercharge Pty. Ltd., a leading Australian distributor of consumable
supplies ("Lasercharge"). As part of this acquisition, the Company
purchased certain inventory of Lasercharge valued at $1 million
(Australian) in consideration of the issuance by the Company of 19,281
shares of Common Stock, $0.01 par value, to Lasercharge. Such shares
were sold without registration in reliance upon the exemption set forth
in Section 4(2) of the Securities Act as a private offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- -----------------------
10.1 Second Amendment to Credit Agreement
dated November 14,1996 between
Daisytek, Incorporated, as
Borrower, Daisytek International
Corporation and Borrower's
Subsidiaries, as Guarantors, and
Texas Commerce Bank National
Association, NBD Bank, and State
Street Bank and Trust Company, as
Lenders
10.2 Option to Purchase Shares of
Common Stock between Daisytek
International Corporation and Steve
Graham
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
b) Reports on Form 8-K:
Form 8-K filed on October 23, 1996 reporting Item 5. the Company's
press release dated October 23, 1996.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 13, 1997
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Mark C. Layton
-----------------------------------
Mark C. Layton
President, Chief Operating Officer,
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBITS PAGE
------- ----------------------- ------------
<S> <C> <C>
10.1 Second Amendment to Credit Agreement dated November 14, 1996 18
between Daisytek, Incorporated, as Borrower, Daisytek
International Corporation and Borrower's Subsidiaries, as
Guarantors, and Texas Commerce Bank National Association, NBD
Bank, and State Street Bank and Trust Company, as Lenders
10.2 Option to Purchase Shares of Common Stock between Daisytek 37
International Corporation and Steve Graham
11 Statement re: Computation of Earnings Per Share 46
27 Financial Data Schedule 47
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of November 14, 1996, and effective as of November 18, 1996, is among
DAISYTEK, INCORPORATED, a Delaware corporation (hereinafter referred to as
"Borrower"), DAISYTEK INTERNATIONAL INCORPORATED, a Delaware corporation
("Guarantor"), each of Borrower's Subsidiaries identified under the caption
"SUBSIDIARY GUARANTORS" on the signature pages of this Amendment or that,
pursuant to Section 8.1(n) of the Credit Agreement (as hereinafter defined),
become a "Subsidiary Guarantor" (individually, a "Subsidiary Guarantor," and,
collectively, the "Subsidiary Guarantors"), STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust ("State Street"), NBD BANK, a Michigan banking
corporation ("NBD"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
banking association ("TCB"), as a lender and as administrative agent for
itself, State Street and NBD (State Street, NBD, TCB and any assignee lender
pursuant to Section 11.4A of the Credit Agreement being referred to,
collectively, as "Lenders"). All capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to such terms in the Credit
Agreement.
RECITALS
WHEREAS, Borrower, Guarantor, certain Subsidiary Guarantors, State
Street and TCB entered into that certain Credit Agreement dated as of May 22,
1995, as amended by that certain First Amendment to Credit Agreement dated as
of April 15, 1996 (as so amended, the "Credit Agreement"), establishing a
revolving credit facility in the aggregate maximum principal amount of
$30,000,000, with funding commitments thereunder shared equally by TCB and
State Street; and
WHEREAS, Borrower, Guarantor, Subsidiary Guarantors and Lenders
desire to amend the Credit Agreement to increase the aggregate maximum
principal amount under such revolving credit facility from $30,000,000 to
$50,000,000, with funding commitments thereunder to be shared forty percent
(40%) by TCB, forty percent (40%) by State Street and twenty percent (20%) by
NBD;
NOW, THEREFORE, in consideration of the recitals set forth above,
the agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower, Guarantor,
Subsidiary Guarantors and Lenders hereby agree as follows:
1. Amended Definitions. The following definitions in Section
1.1 of the Credit Agreement are amended to read in their entireties as follows:
<PAGE> 2
""Borrower's Account" means the account(s) maintained by Borrower
with TCB, as Agent, for the purposes of this Agreement."
""Committed Sum" means, with respect to the Loan Commitment, Twenty
Million Dollars ($20,000,000) with respect to TCB, Twenty Million Dollars
($20,000,000) with respect to State Street, and Ten Million Dollars
($10,000,000) with respect to NBD."
""Lender" or "Lenders" means, collectively, Texas Commerce Bank
National Association, a national banking association, State Street Bank and
Trust Company, a Massachusetts trust, NBD Bank, a Michigan banking corporation,
and any assignee lender pursuant to Section 11.4A of the Credit Agreement.
Notwithstanding such collective definition, the phrases "a Lender," "any of
Lenders," "each of Lenders" and similar phrases shall be singular references
and not collective references."
""Lender Funding Account" means the account maintained by Agent
with TCB for purposes of this Agreement."
""Loan Commitment" means Fifty Million Dollars ($50,000,000)."
""Notes" means, collectively, the promissory notes of Borrower,
dated as of the Closing Date and substantially in the form of Exhibit A, each
appropriately completed, duly executed and delivered to a Lender by Borrower
and payable to the order of such Lender in the principal amount of such
Lender's maximum Committed Sum, as such promissory notes may be modified or
extended from time to time, and any promissory note or notes issued in exchange
or replacement therefor."
""Pro Rata Part" or "Pro Rata," with respect to a Lender, means the
proportion that such Lender's Committed Sum bears to the aggregate Committed
Sums of all Lenders."
""Qualified Issuer" means any of Lenders and a commercial bank
having capital and retained earnings of at least $165,000,000."
""Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent (50%) or more by such
Person. Without limiting the foregoing, with respect to Guarantor, on the
Second Amendment Closing Date a Subsidiary
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
of Guarantor includes Borrower and the entities identified under
the caption "SUBSIDIARY GUARANTORS" on the signature pages of this
Amendment.
2. New Definition. The following definition is added to
Section 1.1 of the Credit Agreement, to read in its entirety as follows:
""Second Amendment Closing Date" means November 18, 1996,
being the effective date of the Second Amendment to Credit
Agreement among Borrower, Guarantor, Subsidiary Guarantors, Lenders
and Agent."
3. General Amendment. References in the Credit Agreement to
"either of Lenders" or "either Lender" are hereby amended to be references to
"any of Lenders" and "any Lender," respectively; references in the Credit
Agreement to "either or both of Lenders" or "either or both Lenders" are hereby
amended to be references to "any or all of Lenders" and "any or all Lenders,"
respectively. References in the Credit Agreement (and the exhibits thereto) to
TCB and State Street (whether or not using defined terms) are hereby amended to
be references to TCB, State Street, NBD and any assignee lender pursuant to
Section 11.4A of the Credit Agreement.
4. Amendment of Section 2.2. The first sentence of Section 2.2
of the Credit Agreement is amended to read in its entirety as follows:
"The Loan made by Lenders pursuant to this Article II shall be
evidenced by the Notes dated as of the Second Amendment Closing
Date and substantially in the form of Exhibit A."
5. Amendment of Section 2.4. The first paragraph of Section
2.4 of the Credit Agreement is amended to read in its entirety as follows:
"Section 2.4 Borrowing and Rate Option Procedure. By no
later than noon Dallas, Texas time on a proposed Advance Date for
any Advance that Borrower desires to accrue interest at the Base
Rate, and by no later than noon Dallas, Texas time three (3)
Eurodollar Business Days prior to a proposed Advance Date for any
Advance that Borrower desires to accrue interest at the Adjusted
Eurodollar Rate, Borrower shall submit to Agent an Advance Request
with respect to the Loan that specifies (a) the requested Advance
Date and (b) the amount of the requested Advance, (c) whether the
Advance shall accrue interest at the Base Rate or the Adjusted
Eurodollar Rate, and (d) if the Advance is to accrue interest at an
Adjusted Eurodollar Rate, the requested Eurodollar Interest Period,
whereupon Agent shall promptly notify Lenders thereof. Each
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 4
Advance accruing interest at the Base Rate shall be in the amount
of $100,000 or more; each Advance accruing interest at an Adjusted
Eurodollar Rate shall be an integral multiple of $100,000. As
early as possible on the Advance Date specified in such Advance
Request, each Lender shall cause to be deposited to the Lender
Funding Account in immediately available funds an amount equal to
its respective Pro Rata Part of such requested Advance. Each
Lender's obligation to make such a deposit in such amount shall
exist whether or not the other Lenders satisfy their obligation to
make such deposit. No Lender shall have a duty whatsoever to
satisfy another Lender's obligation to make such deposits. Upon
the fulfillment of the applicable conditions set forth herein,
including Article VI, Agent shall make the funds deposited in the
Lender Funding Account available to Borrower no later than Agent's
close of business on the Advance Date by debiting the Lender
Funding Account and crediting Borrower's Account in immediately
available funds.
Unless Agent shall have been notified by a Lender prior to
the time of an Advance that such Lender does not intend to make
available to Agent such Lender's Pro Rata Part of such Advance,
Agent may (but shall be under no obligation to) assume that such
Lender has made such Pro Rata Part available to Agent on or before
the time of such Advance and Agent may (but again shall be under no
obligation to), in reliance on such assumption, make available to
Borrower such Lender's Pro Rata Part. If such Pro Rata Part is not
in fact made available to Agent by such Lender, then Agent shall be
entitled to recover such Pro Rata Part on demand from such Lender.
If such Lender does not pay such Pro Rata Part forthwith upon
Agent's demand therefor, then Agent shall promptly notify Borrower
and Borrower shall immediately pay such Pro Rata Part to Agent.
Agent shall also be entitled to recover on demand from such Lender
or Borrower, as the case may be, interest on such Pro Rata Part in
respect of each day from the date such Pro Rata Part was made
available by Agent to Borrower until the date such Pro Rata Part is
recovered by Agent, at a rate per annum equal to (a) if recovered
from such Lender, the Federal Funds Effective Rate, and (b) if
recovered from Borrower, the rate of interest applicable to the
respective Advance. Nothing in this Section 2.4 shall be deemed to
relieve any Lender from its obligation to make Advances hereunder
or to prejudice any rights that Borrower may have against a Lender
as a result of any failure by such Lender to make its Pro Rata Part
of Advances hereunder."
6. Amendment of Article III. Article III of the Credit
Agreement is amended to read in its entirety as follows:
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 5
"ARTICLE III
Letters of Credit
Section 3.1 Commitment to Issue Letters of Credit. Subject to
the terms and conditions of this Agreement, including, without limitation,
Section 3.2, Lenders (acting through any Lender or Lenders designated by
Borrower from time to time, as issuer) agree to issue, at such times as
Borrower may request from the Closing Date to the Loan Maturity Date,
commercial and standby letters of credit for the account of any Daisytek
Corporation; provided, however, that (a) the aggregate amount of the Letters of
Credit issued by Lenders at any one time outstanding shall not exceed
$2,000,000, and (b) the aggregate amount of the Letters of Credit, plus the
principal amount of the Loan, at any one time outstanding, shall not exceed the
lesser of (x) the Borrowing Base and (y) the Loan Commitment.
If a Letter of Credit hereunder is issued other than by TCB, then
the issuing Lender shall promptly (and in any event within one Business Day)
notify Agent thereof and include with such notice Borrower's application for
such Letter of Credit, a photocopy of the issued Letter of Credit and a
statement signed by such issuing Lender acknowledging that such Letter of
Credit was issued hereunder. The obligation of Lenders (acting through any
Lender or Lenders designated by Borrower from time to time, as issuer) to issue
Letters of Credit hereunder shall expire at Agent's close of business in
Dallas, Texas on the Loan Maturity Date. Each Letter of Credit, as the same
may be amended or extended from time to time, shall expire no later than the
Loan Maturity Date. All Letters of Credit issued hereunder shall be in the
issuing Lender's standard form or in such other form as is mutually agreed upon
by Borrower and Lenders.
Section 3.2 Conditions to Issuance of a Letter of Credit. In
addition to the conditions stated elsewhere herein, Lenders (acting through any
Lender or Lenders designated by Borrower from time to time, as issuer) will not
be obligated to issue a Letter of Credit unless:
(a) Compliance with Terms of Agreement. Each Daisytek
Corporation has complied with all of the terms of this Agreement to
be complied with by it, including, without limitation, the
conditions to an Advance set forth in Section 6.2.
(b) Application for Letter of Credit. By no later than
two (2) Business Days prior to the proposed
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE> 6
issuance date of a Letter of Credit (or any shorter period to which
the proposed issuing Lender may agree) Borrower has delivered to
such issuing Lender an application for Letter of Credit pertaining
to such Letter of Credit, executed by a Responsible Officer of
Borrower.
(c) Issuance Fee. The issuance fee payable by Borrower
pursuant to Section 3.5 shall have been paid.
Section 3.3 Issuance of a Letter of Credit. Subject to the
terms and conditions set forth in Section 3.1 and 3.2, Lenders (acting through
any Lender or Lenders designated by Borrower from time to time, as issuer)
shall make the Letter of Credit available for the account of Borrower at the
issuing Lender's principal office not later than 3:00 p.m. Dallas, Texas time
on the issuance date.
Section 3.4 Presentment. An issuing Lender shall immediately
notify Borrower of the presentment for payment of a draft under a Letter of
Credit issued by Lenders (acting through such issuing Lender) and immediately
provide Borrower with a copy of any documents accompanying such presentment.
Except with respect to a variation between documents required by such Letter of
Credit and documents accepted by Lenders (acting through such issuing Lender),
the failure of such issuing Lender to provide such notice and copies shall not
effect Borrower's obligations hereunder. Borrower shall reimburse Lenders
(acting through such issuing Lender) on the same day that payment is made under
such Letter of Credit. If payment is made under a Letter of Credit and
Borrower does not reimburse such issuing Lender on the date such payment is
made, then such payment shall be deemed to be an Advance and accrue interest at
the Base Rate.
The obligation of Borrower to make payments to Lenders (acting
through an issuing Lender), as provided in this Article III, with respect to
Letters of Credit shall be irrevocable and shall not be subject to any
qualification or exception, including, without limitation, any of the following
circumstances:
(a) Any lack of validity or enforceability of this
Agreement or any of the Loan Documents; or
(b) The existence of any claim, set off, defense or
other right that a Daisytek Corporation may have at any time
against a beneficiary named in a Letter of Credit or any transferee
of any Letter of Credit (or any Person for whom any such transferee
may be acting), any
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE> 7
of Lenders or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying
transactions between a Daisytek Corporation and the beneficiary
named in any Letter of Credit); or
(c) Any draft, certificate or any other document
presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient (but conforming on its face to
the requirements of the applicable Letter of Credit) or any
statement therein being untrue or inaccurate in any respect; or
(d) The surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan
Documents; or
(e) The occurrence of any Event of Default.
Section 3.5 Letter of Credit Fees. For each Letter of Credit
issued hereunder, Borrower shall pay to Agent (a) for the account of Lenders
and for so long as such Letter of Credit is outstanding, a per annum fee equal
to (i) the undrawn amount of such Letter of Credit multiplied by (ii) the
Applicable Margin, and (b) for the issuing Lender's own account, a one-time fee
payable upon the issuance thereof of the greater of (i) 0.00125 multiplied by
the principal amount of such Letter of Credit and (ii) $250.00. The per annum
fee shall be payable on each Quarterly Payment Date, in arrears. If the
Applicable Margin shall change during a period for which the per annum fee is
calculated, then such calculation shall be made based on each such Applicable
Margin and the number of days in such period during which each such Applicable
Margin was in effect. In addition, Borrower agrees to pay to the issuing
Lender all other document handling, administrative and other similar charges
normally charged by such issuing Lender in connection with letters of credit.
Section 3.6 Release. Each Daisytek Corporation shall not hold
any Lender responsible for, and hereby releases each Lender from, liability in
connection with:
(a) Any delay in giving any notice to Borrower of the
presentment of a Letter of Credit for payment; or
(b) The truth or accuracy of any statements made in any
documents required by a Letter of Credit to be delivered to an
issuing Lender; or
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE> 8
(c) Any failure of the signature on any draft or other
documents required to be furnished to be that of an authorized
person or to be genuine.
Each Daisytek Corporation waives any right to object to and
ratifies the action of the issuing Lender of any Letter of Credit,
in the case of any variation between documents required by such
Letter of Credit or instructions of Borrower, and documents
accepted by Lenders (acting through such issuing Lender) as to
which Borrower has notice, unless promptly upon receipt of the
documents or of knowledge of the variation and prior to funding by
Lenders (acting through such issuing Lender), Borrower sends notice
of objection in writing to Lenders."
7. Amendment of Section 8.2(m). Section 8.2(m) of the Credit
Agreement is amended to read in its entirety as follows:
"(m) Limitations on Funded Debt. No Daisytek Corporation
shall permit, as of any date, the creation, incurrence, assumption
or sufferance to exist of Funded Debt of such corporation, other
than (a) the Obligations, (b) Funded Debt existing on the Closing
Date and fully described in the Initial Financial Statements (other
than the Funded Debt referred to in Footnote 2 to the Consolidated
financial statements of Guarantor included in the Prospectus as the
revolving line of credit agreement with commercial banks), (c)
Funded Debt secured as permitted by Section 8.2(a), (d) unsecured
Funded Debt of up to Ten Million Dollars ($10,000,000) to a Lender
incurred under a money market line of credit, and (e) unsecured
Funded Debt of such Daisytek Corporation which, together with the
Funded Debt pursuant to this clause (e) of all other Daisytek
Corporations, does not exceed Five Million Dollars ($5,000,000)."
8. Amendment of Section 8.2(n). Section 8.2(n) of the Credit
Agreement is amended to read in its entirety as follows:
"(n) Factoring. No Daisytek Corporation will permit
Working Capital of Canada, Inc., Working Capital of America, Inc.
and any other Daisytek Corporation to acquire accounts receivable
in excess of an aggregate face value of Three Million Dollars
($3,000,000), all of which shall arise from the retail sale of
merchandise sold at wholesale by a Daisytek Corporation."
9. Amendment of Section 9.1. Section 9.1 of the Credit
Agreement, and the title of Article IX of the Credit Agreement appearing
thereabove, are amended to read in their entirety as follows:
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 8
<PAGE> 9
"Agreements Between Agent and Lenders, and Between Lenders
Section 9.1 Appointment. Lenders hereby irrevocably
appoint Agent as agent hereunder, and irrevocably authorize Agent
to act as the agent of Lenders hereunder, and Agent agrees to act
as such, upon the conditions contained in this Article IX. Agent
shall not have or be deemed to have a fiduciary relationship with
any of Lenders by reason of this Agreement. This Agreement shall
not create, and shall not be deemed to create, a relationship of
partnership or joint venture between TCB, either for itself, as
Agent or both, and any other Lender or Lenders."
10. Amendment of Section 9.18. Section 9.18 of the Credit
Agreement is amended to read in its entirety as follows:
"Section 9.18 Required Consent. Notwithstanding Section
11.1, actions undertaken by Lenders with respect to this Agreement,
such as entering into an amendment or supplement to this Agreement
or granting a temporary waiver from a provision of this Agreement,
require the consent of Lenders holding at least fifty- one percent
(51%) of the total Committed Sum; provided, however, that (a) no
modification, supplement or waiver shall, unless by an instrument
signed by all Lenders or by Agent acting with the consent of all
Lenders: (i) increase, or extend the term of any of, the Loan
Commitment, or extend the time or waive any requirement for the
reduction or termination of any of the Loan Commitment, (ii) extend
the date fixed for the payment of principal of or interest on the
Loan (or any portion thereof) or any fee hereunder, (iii) reduce
the amount of any such payment of principal, (iv) reduce the rate
at which interest is payable thereon or any fee is payable
hereunder, (v) alter the rights or obligations of Borrower to
prepay the Loan (or any portion thereof), (vi) alter the terms of
this Section 9.18, (vii) otherwise modify in any other manner the
number or percentage of Lenders required to make any determinations
or waive any rights hereunder or to modify any provision hereof,
(viii) waive any of the conditions precedent set forth in Section
6.2, or (ix) release Guarantor or any Subsidiary Guarantor from its
Guaranty (except that Agent is authorized to release the Guaranty
of any Subsidiary Guarantor being sold in a transaction consented
to by Lenders holding at least fifty-one percent (51%) of the total
Committed Sum), (b) any modification or supplement of this Article
IX shall required Agent's prior written consent. The immediately
foregoing sentence is subject to (a) Agent's powers and rights
specifically delegated or granted to it in this Agreement (and
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 9
<PAGE> 10
such powers as are reasonably incidental thereto) and (b) Section
9.5 (in respect of a Potential Event of Default or an Event of
Default)."
11. Amendment of Section 11.3. Lenders' addresses as set forth
in Section 11.3 of the Credit Agreement are amended to read in their entirety
as follows:
"Texas Commerce Bank National Association
2200 Ross Avenue, Third Floor
Dallas, Texas 75201
Attention: Mark Denton, Senior Vice President
Telecopy: 214-965-2990
State Street Bank and Trust Company
225 Franklin Street - M8
Boston, Massachusetts 02110
Attention: Michael St. Jean
Telecopy: 617-338-4041
NBD Bank
611 Woodward
Detroit, Michigan 48226
Attention: William J. McCaffrey
Telecopy: 313-225-1212
As to any Lender who becomes such pursuant to Section 11.4A,
to such Lender at its address given to Agent."
12. Amendment of Exhibit A, etc. Exhibit A of the Credit
Agreement is amended in its entirety to be in the form of Exhibit A attached to
this Amendment. All references to Exhibit A-1 are deleted.
13. Conditions to Effectiveness. The effectiveness of this
Amendment is conditioned upon the prior receipt by Agent of the documentation
and fees set forth below:
(a) Certificates. A certificate of the Secretary of
each Daisytek Corporation, dated as of the Second Amended Closing
Date, to the effect that, except for an increase in the number of
authorized shares of common stock of Guarantor, no changes have
occurred to the certificates of incorporation (and other equivalent
charter documents) and by-laws of the Daisytek Corporations, and no
changes have occurred in the incumbency of officers of the Daisytek
Corporations authorized to execute or attest any of the Loan
Documents, in each case since the Closing Date, except as expressly
described in such certificate;
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 10
<PAGE> 11
(b) Resolutions. Copies of resolutions of the Board of
Directors of each Daisytek Corporation, satisfactory to Lenders,
approving the execution and delivery of this Amendment and such of
the other Loan Documents to which such corporation is a party and
authorizing the performance of the obligations of such corporation
contemplated in this Amendment and in such other Loan Documents,
accompanied by a certificate of the Secretary of such corporation,
dated as of the Second Amendment Closing Date, that such copies are
complete and correct copies of resolutions duly adopted at a
meeting of such Board of Directors, and that such resolutions have
not been amended, modified or revoked in any respect, and are in
full force and effect as of the Second Amendment Closing Date;
(c) Other Certificates. Certificates of each Daisytek
Corporation's existence, good standing and qualification to do
business, issued by appropriate officials in any state in which
such corporation is incorporated, owns property or otherwise
qualified, or required to qualify, to do business;
(d) Notes. The Notes, duly executed;
(e) Guaranties. A Guaranty or Guaranties of Guarantor
and the Subsidiary Guarantors in favor of Agent for the benefit of
Lenders, duly executed by Guarantor and the Subsidiary Guarantors
and substantially in the form of Exhibit B to the Credit Agreement
(but with such appropriate changes in date, recitals and identity
of the guarantor(s) and beneficiaries thereunder as Lenders may
reasonably require);
(f) Opinion of Counsel. An executed opinion of Wolff &
Samson, P.C., Roseland, New Jersey, counsel to the Daisytek
Corporations, dated as of the Second Amendment Closing Date and in
form and substance satisfactory to Lenders and their counsel;
(g) Other Documents. Any and all other documents or
certificates reasonably requested by a Lender in connection with
the execution of this Amendment; and
(h) Fee. The fee agreed to by Borrower or Guarantor
pursuant to Agent's letter of even date herewith, duly acknowledged
by Borrower or Guarantor."
14. Other Documents. Borrower shall provide such other
documents incidental and appropriate to this Amendment as Agent or Agent's
counsel may reasonably request, and all such documents being in form and
substance reasonably satisfactory to Agent.
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 11
<PAGE> 12
15. Terms of Agreement. Except as expressly amended by this
Amendment, the Credit Agreement is and shall be unchanged.
16. Amounts Outstanding. Lenders shall by appropriate payments
between or among them transfer funds on the Second Amendment Closing Date such
that the balance of the Loan immediately prior to the effectiveness of this
Amendment shall, after giving effect to this Amendment, be held by Lenders in
Pro Rata Part.
17. Effect of Amendment. The Credit Agreement and any and all
other documents heretofore, now or hereafter executed and delivered pursuant to
the terms of the Credit Agreement are hereby amended so that any reference to
the Credit Agreement in the Credit Agreement or the other documents shall mean
a reference to the Credit Agreement as amended hereby.
18. Reaffirmation; No Default. Each Daisytek Corporation hereby
represents and warrants to Lenders that (a) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed and
delivered in connection herewith have been authorized by all requisite
corporate action on the part of such Daisytek Corporation and will not violate
the certificate of incorporation (or other charter documents) or bylaws of any
Daisytek Corporation, (b) except for an increase in the number of authorized
shares of common stock of Guarantor, neither the certificate of incorporation
(or other charter documents) nor bylaws of any Daisytek Corporation have been
amended or revoked since May 22, 1995, (c) the representations and warranties
contained in the Credit Agreement, as amended by this Amendment, and any other
Loan Document are true and correct on and as of the date hereof as though made
on and as of the date hereof, (d) no Event of Default has occurred and is
continuing and no event or condition has occurred that with the giving of
notice or lapse of time or both would be an Event of Default, and (e) each
Daisytek Corporation is in full compliance with all covenants and agreements
contained in the Credit Agreement, as amended hereby.
19. Enforceability. Each Daisytek Corporation hereby represents
and warrants that, as of the date of this Amendment, the Credit Agreement and
all documents and instruments executed in connection therewith are in full
force and effect and that there are no claims, counterclaims, offsets or
defenses to any of such documents or instruments.
20. GOVERNING LAW. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF
TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA.
CHAPTER 15 OF TEXAS
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 12
<PAGE> 13
REVISED CIVIL STATUTES ARTICLE 5069 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THE CREDIT
AGREEMENT, AS AMENDED BY THIS AMENDMENT, OR THE NOTES.
21. Maximum Interest Rate. Regardless of any provisions contained
in this Amendment or in any other Loan Documents, Lenders shall never be deemed
to have contracted for or be entitled to receive, collect or apply as interest
on the Notes or otherwise any amount in excess of the maximum rate of interest
permitted to be charged by applicable law, and if Lenders ever receive, collect
or apply as interest any such excess, or if acceleration of the maturity of the
Notes or if any prepayment by Borrower results in Borrower having paid any
interest in excess of the maximum rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance of
the Notes for which such excess was received, collected or applied, and, if the
principal balances of Notes are paid in full, any remaining excess shall
forthwith be paid to Borrower. All sums paid or agreed to be paid to Lenders
for the use, forbearance or detention of the indebtedness evidenced by the
Notes and/or the Credit Agreement, as amended by this Amendment, shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in full so
that the rate or amount of interest on account of such indebtedness does not
exceed the maximum lawful rate permitted under applicable law. In determining
whether or not the interest paid or payable under any specific contingency
exceeds the maximum rate of interest permitted by law, Borrower and Lenders
shall, to the maximum extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium, rather than as
interest; and (ii) exclude voluntary prepayments and the effect thereof; and
(iii) compare the total amount of interest contracted for, charged or received
with the total amount of interest which could be contracted for, charged or
received throughout the entire contemplated term of the Notes at the maximum
lawful rate under applicable law.
22. Counterparts. This Amendment may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Amendment.
23. WAIVER OF TRIAL BY JURY. EACH DAISYTEK CORPORATION WAIVES ANY
AND ALL RIGHTS THAT IT MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM
OR OTHER ACTION, OF ANY NATURE WHATSOEVER, RELATING TO OR ARISING OUT OF THIS
AMENDMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS. EACH DAISYTEK
CORPORATION ACKNOWLEDGES THAT THE FOREGOING JURY TRIAL WAIVER IS A MATERIAL
INDUCEMENT TO EACH LENDER'S ENTERING INTO THIS AMENDMENT AND THE
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 13
<PAGE> 14
OTHER LOAN DOCUMENTS AND THAT EACH LENDER IS RELYING ON SUCH WAIVER IN ITS
FUTURE DEALINGS WITH SUCH CORPORATION. EACH SUCH CORPORATION WARRANTS AND
REPRESENTS TO EACH LENDER THAT SUCH CORPORATION HAS REVIEWED THE FOREGOING JURY
TRIAL WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, THE FOREGOING JURY TRIAL WAIVER MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
24. DTPA WAIVER. EACH DAISYTEK CORPORATION HEREBY WAIVES ALL
PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT (TEX.
BUS. & COM. CODE Section 17.01 ET SEQ.), OTHER THAN Section 17.555 THEREOF,
AND REPRESENTS AND WARRANTS TO EACH LENDER THAT SUCH CORPORATION (A) HAS ASSETS
OF $5,000,000 OR MORE (EXCEPT THAT ONLY BORROWER, GUARANTOR AND DAISYTEK
(CANADA) INC. MAKE THE REPRESENTATION IN THIS CLAUSE (A)), (B) HAS KNOWLEDGE
AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE SUCH CORPORATION
TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY THIS
AMENDMENT, (C) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE
TO LENDERS, AND (D) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH
SUCH TRANSACTIONS.
25. OTHER AGREEMENTS. THE CREDIT AGREEMENT, AS AMENDED BY THIS
AMENDMENT, AND THE OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT BETWEEN THE
PARTIES AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING
TO THE SUBJECT MATTER HEREOF AND THEREOF. THE WRITTEN CREDIT AGREEMENT, AS
AMENDED BY THIS AMENDMENT, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES.
[The balance of this page is intentionally left blank.]
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 14
<PAGE> 15
THIS AMENDMENT is executed and effective as of the date first written
above.
BORROWER:
DAISYTEK, INCORPORATED
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
GUARANTOR:
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
SUBSIDIARY GUARANTORS:
WORKING CAPITAL OF AMERICA, INC.,
a Delaware corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
HOME TECH DEPOT, INC.,
a Delaware corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
DAISYTEK (CANADA) INC.,
a Canadian corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 15
<PAGE> 16
WORKING CAPITAL CANADA INC.,
a Canadian corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
DAISYTEK DE MEXICO, S.A. DE C.V.,
a Mexican corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
SUPPLIES EXPRESS, INC.,
a Delaware corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
DAISYTEK LATIN AMERICA, INC.,
a Florida corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
PRIORITY FULFILLMENT SERVICES DE
MEXICO, S.A. DE C.V.,
a Mexican corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
DAISYTEK DE MEXICO SERVICES, S.A. DE C.V.,
a Mexican corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 16
<PAGE> 17
PRIORITY FULFILLMENT SERVICES, INC.,
a Delaware corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 17
<PAGE> 18
DAISYTEK AUSTRALIA PTY. LIMITED,
an Australian corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
PRIORITY FULFILLMENT SERVICES OF CANADA, INC.,
a Canadian corporation
By: /s/ Thomas J. Madden
Name: Thomas J. Madden
Title: Vice President - Finance
AGENT:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association
By: /s/ Mark Denton
Mark Denton,
Senior Vice President
LENDERS:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association
By: /s/ Mark Denton
Mark Denton,
Senior Vice President
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust
By: /s/ Michael St. Jean
Michael St. Jean,
Vice President
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 18
<PAGE> 19
NBD BANK, a Michigan banking corporation
By: /s/ William J. McCaffrey
William J. McCaffrey,
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 19
<PAGE> 1
EXHIBIT 10.2
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of December 2, 1996, and is made by
and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation
(hereinafter referred to as "COMPANY") and STEVE GRAHAM (hereinafter referred
to as "EMPLOYEE"):
BACKGROUND
1. In consideration of services rendered, and to be rendered,
by the Employee to the Company and its Subsidiaries, the Board has determined
that it is in the best interests of the Company to issue this special one-time
option to purchase shares of the Company's Common Stock.
2. This Option is granted as a separate, independent,
one-time grant and has not been issued, and shall not be deemed to have been
issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the
Exchange Act) of the Company (including the Employee Stock Option Plan of
Daisytek International Corporation or the 1994 Stock Option Plan for Key
Employees of Daisytek International Corporation); provided, however, that the
shares to be issued upon the exercise of this Option may be registered under
the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and
solely for such purpose, this Option shall be deemed an "employee benefit plan"
as defined therein.
I. DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
"BOARD" shall mean the Board of Directors of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPANY" shall mean Daisytek International Corporation, a
Delaware corporation. In addition, "Company" shall mean any corporation
assuming, or issuing a new option in substitution for, the Option in a
transaction to which Section 424(a) of the Code applies.
"EMPLOYMENT AGREEMENT" shall mean a written employment
agreement, if any, between the Employee and the Company, any Parent Corporation
or any Subsidiary, duly executed and delivered by the parties thereto;
provided, however, that this Agreement shall not be deemed an Employment
Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"OPTION" shall mean the stock option to purchase Common Stock
of the Company granted under this Agreement.
<PAGE> 2
"PARENT CORPORATION" shall mean any corporation in an unbroken
chain of corporations ending with the Company if each of the corporations other
than the Company then owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
"SECRETARY" shall mean the Secretary of the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SUBSIDIARY" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one (1) of the other corporations in such chain.
"TERMINATION OF EMPLOYMENT" shall mean the time when the
employee-employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding any termination where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Board, in its absolute discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment.
II. GRANT OF OPTION
2.1 GRANT OF OPTION. In consideration of services rendered by
the Employee and the Employee's agreement to remain in the employ of the
Company, its Parent Corporations or its Subsidiaries and for other good and
valuable consideration, on the date hereof the Company irrevocably grants to
the Employee the option to purchase any part or all of TWENTY FIVE THOUSAND
(25,000) shares of the Company's Common Stock, $.01 par value (the "COMMON
STOCK"), subject to and upon the terms and conditions set forth in this
Agreement.
2.2 PURCHASE PRICE. The purchase price of the shares of Common
Stock covered by the Option shall be THIRTY FIVE DOLLARS AND NO CENTS ($35.00)
per share without commission or other charge.
2.3 CONSIDERATION TO COMPANY. In consideration of the granting
of this Option by the Company, the Employee agrees to render faithful and
efficient services to the Company, a Parent Corporation or a Subsidiary, with
such duties and responsibilities as the Company shall from time to time
prescribe, for a period of at least one (1) year from the date this Option is
granted. Nothing in this Agreement shall confer upon the Employee any right to
continue in the employ of the Company, any
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<PAGE> 3
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporation and its Subsidiaries,
which are hereby expressly reserved, to discharge the Employee at any time for
any reason whatsoever, with or without cause; provided, however, that the
foregoing is subject in all respects to the terms and provisions of any
Employment Agreement.
2.4 ADJUSTMENTS IN OPTION. In the event that the outstanding
shares of Common Stock subject to the Option are changed into or exchanged for
a different number or kind of shares of the Company or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split up, stock dividend or combination of shares, the Board shall make
an appropriate and equitable adjustment in the number and kind of shares as to
which the Option, or portions thereof then unexercised, shall be exercisable.
Such adjustment in the Option shall be made without change in the total price
applicable to the unexercised portion of the Option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the Option price per share.
Any such adjustment made by the Board shall be final and binding upon the
Employee, the Company and all other interested persons.
III. PERIOD OF EXERCISABILITY
3.1 COMMENCEMENT OF EXERCISABILITY.
(a) The Option shall become exercisable in three (3)
cumulative installments as follows:
(i) The first installment shall consist of fifteen
percent (15%) of the shares covered by the Option and shall become
exercisable on the first anniversary of the date the Option is
granted.
(ii) The second installment shall consist of fifty
percent (50%) of the shares covered by the Option and shall become
exercisable on the second anniversary of the date the Option is
granted.
(iii) The third installment shall consist of one
hundred percent (100%) of the shares covered by the Option and shall
become exercisable on the third anniversary of the date the Option is
granted.
(b) Except as may otherwise be permitted by the Board, no
portion of the Option which is unexercisable at Termination of Employment shall
thereafter become exercisable.
3.2 DURATION OF EXERCISABILITY. The installments provided for
in Section 3.1 are cumulative. Each such installment which becomes exercisable
pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable
under Section 3.3.
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<PAGE> 4
3.3 EXPIRATION OF OPTION. The Option may not be exercised to
any extent by anyone after the first to occur of the following events:
(i) The expiration of ten (10) years from the date the
Option was granted; or
(ii) Except if (a) the Employee is totally disabled (within
the meaning of Section 22(e)(3) of the Code), (b) the Employee retires within
the meaning of clause (iv) below, or (c) the Employee dies, the expiration of
three months from the date of the Employee's Termination of Employment for any
reason unless the Employee dies within said three-month period; provided,
however, that the Board reserves the right to cancel and terminate this Option
immediately upon Termination of Employment for cause; or
(iii)If the Employee is totally disabled (within the meaning
of Section 22(e)(3) of the Code), the expiration of one year from the date of
the Employee's Termination of Employment by reason of his disability unless the
Employee dies within said one-year period; or
(iv) If the Employee retires after reaching the Company's
normal retirement age or takes early retirement with the consent of the Board,
the expiration of two years from the date of the Employee's Termination of
Employment by reason of such retirement; or
(v) The expiration of one year from the date of the Employee's
death unless clause (iv) above provides a longer period of exercise; or
(vi) The effective date of either the merger or consolidation
of the Company with or into another corporation, or the acquisition by another
corporation or person of all or substantially all of the Company's assets or
eighty percent (80%) or more of the Company's then outstanding voting stock, or
the liquidation or dissolution of the Company, unless the Board waives this
provision in connection with such transaction. At least ten (10) days prior to
the effective date of such merger, consolidation, acquisition, liquidation or
dissolution, the Board shall give the Employee notice of such event if the
Option has then neither been fully exercised nor become unexercisable under
this Section 3.3.
3.4 ACCELERATION OF EXERCISABILITY. In the event of the merger
or consolidation of the Company with or into another corporation, or the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company, the
Board may, in its absolute discretion and upon such terms and conditions as it
deems appropriate, provide by resolution, adopted prior to such event and
incorporated in the notice referred to in Section 3.3(vi), that at some time
prior to the effective date of such event this Option shall be exercisable as
to all the shares covered hereby, notwithstanding that this Option may not yet
have become fully exercisable under Section 3.1(a); provided, however, that
this acceleration of exercisability shall not take place if:
(i) This Option becomes unexercisable under Section 3.3 prior
to said effective date; or
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<PAGE> 5
(ii) In connection with such an event, provision is made for
an assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Board may make such determinations and adopt such rules
and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and determinations regarding whether provisions for
assumption or substitution have been made as defined in clause (ii) above.
IV. EXERCISE OF OPTION
4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the
Employee, only he may exercise the Option or any portion thereof. After the
death of the Employee, any exercisable portion of the Option may, prior to the
time when the Option becomes unexercisable under Section 3.3, be exercised by
his personal representative or by any person empowered to do so under the
Employee's will or under the then applicable laws of descent and distribution.
4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or
the entire Option, if then wholly exercisable, may be exercised in whole or in
part at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.3; provided, however, that each partial exercise
shall be for not less than one- hundred (100) shares (or the minimum
installment set forth in Section 3.1, if a smaller number of shares) and shall
be for whole shares only.
4.3 MANNER OF EXERCISE. The Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Secretary or his office of
all of the following (except as otherwise waived by such officer) prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Employee or the other
person then entitled to exercise the Option or portion, stating that the Option
or portion is thereby exercised, such notice complying with all applicable
rules established by the Board; and
(b) (i) Full payment (in cash or by check) for the shares
with respect to which such Option or portion is exercised; or
(ii) With the consent of the Board, shares of the
Company's Common Stock owned by the Employee duly endorsed for
transfer to the Company with a fair market value (as determined by the
Board) on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is
exercised; or
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<PAGE> 6
(iii) With the consent of the Board, any combination of the
consideration provided in the foregoing subparagraphs (i) and (ii);
and
(c) A bona fide written representation and agreement, in a
form satisfactory to the Board, signed by the Employee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise
such Option or portion will indemnify the Company against, and hold it free and
harmless from, any loss, damage, expense or liability resulting to the Company
if any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Board may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Board may require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired upon exercise of an Option does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement
referred to in the first sentence of this subsection (c) shall, however, not be
required if the shares to be issued pursuant to such exercise have been
registered under the Securities Act, and such registration is then effective in
respect of such shares; and
(d) Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; provided, however, with the
consent of the Board, shares of the Company's Common Stock owned by the
Employee duly endorsed for transfer may be used to make all or part of such
payment (which shares be valued at their fair market value on the date of
Option exercise as shall be determined by the Board); and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Employee,
appropriate proof of the right of such person or persons to exercise the
Option.
4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's
Common Stock issuable to the Employee upon exercise of the Option may be used
to satisfy the Option price or the tax withholding consequences only (i) with
the consent of the Board and (ii) during such periods of time as employees of
the Company are permitted to buy or sell shares of Common Stock.
4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares
of stock deliverable upon the exercise of the Option, or any portion thereof,
may be either previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate
-6-
<PAGE> 7
or certificates for shares of stock purchased upon the exercise of the Option
or portion thereof prior to fulfillment of all of the following conditions
(except as otherwise waived by the Board):
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification
of such shares under any state or federal law or under rulings or regulations
of the Securities and Exchange Commission or of any other governmental
regulatory body, which the Board shall, in its absolute discretion, deem
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Board may from time to time establish for reasons
of administrative convenience.
4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall
not be, nor have any of the rights or privileges of, a shareholder of the
Company in respect of any shares purchasable upon the exercise of any part of
the Option unless and until certificates representing such shares shall have
been issued by the Company to such holder.
V. OTHER PROVISIONS
5.1 ADMINISTRATION. The Board shall have the power to
interpret this Agreement and to adopt such rules for the administration,
interpretation and application hereof as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Board in good faith shall be final and binding
upon the Employee, the Company and all other interested persons. No member of
the Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Option.
5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any
interest or right therein or part thereof shall be liable for the debts,
contracts or engagements of the Employee or his successors in interest or shall
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment of any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided,
-7-
<PAGE> 8
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
5.3 SHARES TO BE RESERVED. The Company shall at all times
during the term of the Option reserve and keep available such number of shares
of stock as will be sufficient to satisfy the requirements of this Agreement.
5.4 NOTICES. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Employee shall be addressed to him
or her at the address given beneath his or her signature hereto. By a notice
given pursuant to this Section 5.4, either party may hereafter designate a
different address for notices to be given to such party. Any notice which is
required to be given to the Employee shall, if the Employee is then deceased,
be given to the Employee's personal representative if such representative has
previously informed the Company of his status and address by written notice
under this Section 5.4. Any notice shall be deemed duly given upon receipt and
shall be delivered by hand, reputable overnight courier or deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
5.5 TITLES. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construction of this
Agreement.
-8-
<PAGE> 9
In Witness Whereof, the Company and the undersigned Employee
have executed and delivered this Option as of the day and year above written.
/s/ Steve Graham
Steve Graham
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Harvey H. Achatz
Name: Harvey H. Achatz
Title: Vice President - Finance
-9-
<PAGE> 1
EXHIBIT 11
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- ---------------------------
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net income $ 3,364 $ 2,792 $ 9,360 $ 7,676
======== ========= ========= ========
Weighted average common shares outstanding
6,917 6,778 6,916 6,748
======== ========= ======== ========
Net income per common share $ 0.49 $ 0.41 $ 1.35 $ 1.14
======== ========= ========= ========
Calculation of weighted average common
shares outstanding:
Weighted average of common stock
outstanding 6,485 6,307 6,452 6,310
Weighted average common stock options,
utilizing the treasury stock method (1) 432 471 464 438
-------- --------- -------- --------
6,917 6,778 6,916 6,748
======== ========= ======== ========
</TABLE>
(1) Utilizing the weighted average stock price of $38.18 and $39.40 per
share for the three and nine months ended December 31, 1996,
respectively, and the weighted average stock price of $30.00 and
$25.43 per share for the three and nine months ended December 31,
1995, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND
SUBSIDIARIES FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 557
<SECURITIES> 0
<RECEIVABLES> 80,647
<ALLOWANCES> 1,380
<INVENTORY> 57,452
<CURRENT-ASSETS> 139,628
<PP&E> 19,646
<DEPRECIATION> 8,671
<TOTAL-ASSETS> 156,120
<CURRENT-LIABILITIES> 66,903
<BONDS> 26,764
0
0
<COMMON> 65
<OTHER-SE> 63,054
<TOTAL-LIABILITY-AND-EQUITY> 156,120
<SALES> 429,471
<TOTAL-REVENUES> 429,471
<CGS> 387,008
<TOTAL-COSTS> 387,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 908
<INTEREST-EXPENSE> 1,220
<INCOME-PRETAX> 15,165
<INCOME-TAX> 5,805
<INCOME-CONTINUING> 9,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,360
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 0
</TABLE>
