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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Commission File Number 0-25400
DAISYTEK INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2421746
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
500 North Central Expressway, Plano, Texas 75074
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: 972-881-4700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
----
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 18, 1997 (based on the closing price as reported by
the National Association of Securities Dealers Automated Quotation System) was
$195,351,246.
As of June 18, 1997, there were 6,763,744 shares outstanding of the
registrant's Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Part II - Prospectus dated January 25, 1996
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Unless the context otherwise requires, references to Daisytek
International Corporation include its direct and indirect subsidiaries,
including Daisytek, Incorporated, the Company's primary operating subsidiary.
References in this Report to the Company's fiscal year means the 12 month
period ending on March 31 of such year.
INDEX
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Page
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 21
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 43
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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PART I
ITEM 1. BUSINESS
GENERAL
Daisytek International Corporation (the "Company") is a leading
wholesale distributor of non-paper computer and office automation supplies and
accessories. The Company distributes over 8,000 products to approximately
24,000 customer locations, including value-added resellers ("VARs"), computer
supplies dealers, office product dealers, contract stationers, buying groups,
computer and office product superstores, warehouse clubs and other retailers
who resell the products to end-users. The Company believes it is the largest
wholesale distributor of non-paper computer and office automation supplies and
accessories in the world.
The Company sells primarily nationally known, name-brand products
manufactured by over 150 original equipment manufacturers, including Hewlett-
Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation, Apple,
Panasonic, Kodak, Imation, Epson, Sony, Xerox and Maxell. The Company's
products include consumable supplies such as laser toner, copier toner, inkjet
cartridges, printer ribbons, diskettes, optical storage products, computer tape
cartridges and accessories. The Company's products are used in a broad range
of computer and office automation products, such as mainframe, mini, personal,
laptop and notebook computers, laser and inkjet printers, photocopiers, fax
machines and data storage products. The Company sells its products throughout
the United States, Canada, Mexico, Australia and Latin America, as well as in
other international markets, by utilizing sophisticated telemarketing
technology, including a suite of electronic commerce tools, and innovative
marketing programs. The Company presently operates one centralized "superhub"
distribution center in Memphis, Tennessee, to service the U.S. and certain
international markets and smaller regional sales and distribution centers in
Miami, Florida, Mexico, Australia and Canada to service the Latin American,
Mexican, Australian and Canadian markets, respectively. Most of the Company's
U.S. shipments are shipped via Federal Express under a contractual arrangement
(the "Federal Express Agreement") which, together with the Company's
centralized distribution center, enables the Company to offer to its customers
next business day delivery.
During fiscal year 1996, the Company formed Priority Fulfillment
Services ("PFS"), a wholly owned subsidiary, to provide outsourcing solutions
to its business partners. Through PFS, the Company sells its core competencies
in call center, product fulfillment, logistics and support services to client
companies worldwide, primarily on a fee-based relationship. PFS customizes
these services to meet specific requirements of these companies. PFS's call-
center services include: order entry, order tracking and customer service
(inbound), outbound telemarketing services and customized reporting of customer
and call information. PFS utilizes primarily the Company's centralized
distribution facility in Memphis, Tennessee to provide product fulfillment and
logistics services, with additional distribution facilities available in
Florida, Canada, Mexico and Australia. PFS maintains relationships with a
number of shipping companies to provide next business day delivery on domestic
package orders, truck shipments on larger domestic orders and a variety of air
and surface delivery options for international orders. PFS also provides other
support services such as invoicing, credit management and collection services,
and accounting and systems support.
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PRODUCTS
The Company distributes over 8,000 different non-paper computer and
office automation supplies and related products and regularly updates its
product line to reflect advances in technology and avoid product obsolescence.
The Company's major product categories can generally be classified as follows:
Non-Impact Printer Supplies. Non-impact printer supplies include toner
cartridges, inkjet cartridges, optical photo conductor kits, copier supplies
and fax supplies. Non-impact printers, such as laser printers, personal
copiers and fax machines, are rapidly growing in popularity and have a wide
range of applications. Sales of non-impact printer supplies accounted for
approximately 53.5% of the Company's total net sales in fiscal year 1997. The
Company also sells specialized all-in-one toner cartridges for laser printers
produced by manufacturers such as Canon, Hewlett-Packard, Digital, Brother and
Apple. Sales of these supplies accounted for approximately 23.6% of the
Company's total net sales in fiscal year 1997.
Impact Printer Supplies. Impact printer supplies include printwheels,
ribbons, elements, fonts and other consumable supplies used in impact printers
ranging from electronic typewriters to high speed dot matrix printers. While
new technology is moving toward non-impact printing, the Company believes that
a substantial installed base of impact printers, such as dot matrix printers,
are still in use and require a continuing amount of consumable computer
supplies. Sales of impact printer supplies accounted for approximately 8.1% of
the Company's total net sales in fiscal year 1997.
Magnetic Media Products. Magnetic media products include computer
tapes, data cartridges, diskettes, optical disks and other products which store
or record computer information and are used in a variety of computers ranging
from notebook and personal computers to large mainframe computer systems.
Sales of magnetic media products accounted for approximately 9.7% of the
Company's total net sales in fiscal year 1997.
Accessories and Other Products. Accessories sold by the Company include
cleaning supplies, disk storage boxes, data cartridge storage, racks, surge
protection devices, workstation accessories and anti-glare screens. The
Company also sells a number of other products such as transparencies, banking
supplies and selected business machines. Sales of accessories and other
products accounted for approximately 5.1% of the Company's total net sales in
fiscal year 1997.
SUPPLIERS
The Company's products are manufactured by over 150 original equipment
manufacturers, including Hewlett-Packard, Canon, Lexmark, IBM, Okidata, Digital
Equipment Corporation, Panasonic, Epson, Imation, Sony, Xerox, Apple, Kodak and
Maxell. During fiscal year 1997, approximately 74% of the Company's total net
sales were derived from products supplied by the Company's ten largest
suppliers, with the sale of Hewlett-Packard and Canon products accounting for
approximately 35% and 11% of total net sales, respectively, and the sale of
Lexmark, Digital Equipment Corporation, Epson, Okidata, Panasonic and Xerox
products each accounting for between approximately 3% to 5% of total net sales.
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Many of the Company's suppliers offer rebate programs under which,
subject to the Company purchasing certain predetermined amounts of inventory,
the Company receives rebates based on a percentage of the dollar volume of
total rebate program purchases. The Company also takes advantage of several
other programs offered by substantially all of its suppliers. These include
price protection plans under which the Company receives credits against future
purchases if the supplier lowers prices on previously purchased inventory and
stock rotation or stock balancing privileges under which the Company can return
slow moving inventory in exchange for other products. In addition, in order to
introduce new products, many suppliers will permit the Company to return all
unsold inventory after an introductory trial period. Material changes by one
or more of the Company's key suppliers of their pricing arrangements or other
marketing programs may adversely effect the Company's business.
The Company's purchases of inventory are closely tied to sales and are
generally based upon the sales volume of the most recent six to ten week
periods. Many of the Company's suppliers require minimum annual purchases
which, for fiscal year 1998, will aggregate approximately $47 million.
The Company has entered into written distribution agreements with
Hewlett-Packard, Canon, Lexmark, Digital Equipment Corporation, Epson, Okidata,
Panasonic and Xerox and many of the other major suppliers of the products it
distributes. As is customary in the industry, these agreements generally
provide non-exclusive distribution rights, have one year renewable terms and
are terminable by either party at any time, with or without cause. The Company
considers its relationships with its major suppliers, including Hewlett-
Packard, Canon, Lexmark, Digital Equipment Corporation, Epson, Okidata,
Panasonic and Xerox to be good; nevertheless, there can be no assurance that a
material change in the Company's relationship with one or more of its major
suppliers will not have a material adverse effect on the Company's business.
Although the Company purchases most of its products directly from
authorized U.S. manufacturers, the Company also imports products from foreign
sources, particularly when fluctuations in foreign exchange rates or product
prices make it attractive to do so. Similarly, depending upon product pricing
and availability, the Company also purchases products from secondary sources,
such as other wholesalers and selected dealers, rather than from the direct
manufacturer. The Company utilizes its ability to purchase imported and
secondary source products in order to provide its customers with competitive
prices and a wide range of product lines. In order to ensure that such
imported and secondary source products are not produced by unauthorized
manufacturers, the Company has established various procedures which it believes
enable it to identify unauthorized products and, to the extent possible, return
such unauthorized products to the foreign or secondary source. Nevertheless,
there can be no assurance that the Company will be completely successful in
such efforts or that such imported and secondary source products will continue
to be available or that any unavailability will not have a material adverse
effect on the Company's business.
SALES AND MARKETING
The Company's customer and prospect list includes U.S., Canadian,
Australian, Mexican, Latin American and foreign computer supplies dealers,
office product dealers, VARs, buying groups, computer stores, contract
stationers, computer and office product superstores, warehouse clubs, catalog
merchandisers, college bookstores and other resellers. The Company currently
ships its products to approximately 24,000 customer locations. The Company's
typical customer is a small to
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medium sized reseller who does not have the resources to establish direct
purchasing relationships with multiple manufacturers and, instead, must rely on
wholesale distributors like the Company. The Company also sells its products
to computer and office product superstores, which the Company believes will
become an increasingly important group of customers as the Company demonstrates
its ability to serve the superstores' need for timely delivery of fast-moving
products and efficient distribution of a variety of product lines to multiple
store locations in a more cost-effective manner than presently provided by many
product manufacturers. No single customer accounts for more than 10% of the
Company's sales for each of the fiscal years ended March 31, 1997, 1996 and
1995. At March 31, 1997, five computer and office product superstores and
warehouse clubs represent approximately 26% of the Company's trade accounts
receivable, with the largest being approximately 12% of trade accounts
receivable, and reflects the increasing significance of this market segment.
The Company's international sales accounted for approximately 18.6% of
the Company's total net sales in fiscal year 1997, and the Company believes
that international markets represent further opportunities for growth. To take
advantage of the growing Far East and Australia marketplace, during fiscal year
1997, the Company acquired Lasercharge Pty Ltd, a large computer and office
automation supplies wholesaler in Australia. To service the growing Latin
American market, the Company opened a sales office and distribution center in
Mexico City, Mexico during fiscal year 1995 and opened a similar facility in
Miami, Florida, during fiscal year 1996. The Company also has sales and
distribution operations in Canada. There can be no assurance, however, that
the Company will be successful in these or other international efforts or that
the risks inherent in international operations, such as currency fluctuations
or the political or economic instability of certain foreign countries, such as
Mexico, will not have a material adverse effect on the Company's results of
operations. See Note 8 of the Notes to Consolidated Financial Statements for
certain financial information regarding the Company's domestic and
international sales during the last three fiscal years.
The Company's sales force, as of March 31, 1997, consisted of
approximately 221 telemarketing sales representatives located in the Company's
headquarters in Plano, Texas, 32 telemarketing sales representatives located in
the Company's office in Canada, 9 telemarketing sales representatives located
in the Company's office in Mexico, 14 telemarketing sales representatives
located in the Company's office in Australia, and 3 telemarketing sales
representatives located in the Company's office in Miami, Florida. The Company
relies on sophisticated telemarketing, direct mail programs and frequent
innovative sales promotions and other marketing efforts. The Company's senior
sales staff also often visits certain of the Company's customers in connection
with the negotiation of large orders or customized programs.
The Company's sales and telemarketing department is divided into several
groups or teams, each having its own particular sales objective. For example,
the Retail Department focuses specifically on large computer retailers, office
product superstores and warehouse clubs and highlights the Company's ability to
more efficiently distribute a wide variety of small shipments to a larger
number of store locations than presently provided by product manufacturers.
Similarly, a separate group of sales representatives are responsible for a
select group of national accounts, such as contract stationers, office products
dealers and buying groups, while others focus on new accounts, existing
business or international and export sales. By utilizing sophisticated
telemarketing software and call management systems, including caller
identification, sales representatives are able to verify customer account
numbers and contact persons and quickly identify a customer's buying patterns,
recent purchases, credit availability and other sales and marketing
information. The telecommunications software also enables
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sales and marketing management to better identify, control and monitor sales
representatives' prospecting activity with the Company's new and existing
customers.
The Company provides extensive training for new sales personnel with
special emphasis on the need for regular customer contact, response to
customers' demands for product information and the need to inform customers of
technological advancements by the Company's suppliers. The Company, together
with its major suppliers, provide the Company's sales personnel with ongoing
product-specific training and education emphasizing computer supplies as well
as new technologies, new products and new product applications.
In order to maintain its position as a low cost wholesale distributor,
the Company regularly monitors the efficiency of its sales staff. By utilizing
sophisticated telecommunications equipment, the Company is able to measure the
number of calls being fielded by a sales representative, their success rate in
terms of orders obtained compared to calls taken and customer service
statistics, such as abandoned call rates and average response times. The
Company's sales force receives a base salary as well as varying sales
incentives based on gross profit margin achievements. In addition, a number of
suppliers periodically offer sales bonus programs in connection with specific
product sales campaigns which can further augment a sales representative's
compensation.
One of the Company's primary marketing tools is its quarterly catalog,
known as the "Book of Deals." In order to promote its image as a low cost
wholesaler and provider of value-added services, the Book of Deals will usually
highlight a theme related to specific products, customer services or a
combination of the two. The Company presently distributes a total of
approximately 39,250 catalogs and contract price books to its active U.S.
customers each quarter. The Company also distributes a separate Book of Deals
designed specifically for each of its Canadian, Mexican and Australian
subsidiaries. Other catalog-type marketing tools used by the Company include
customized catalogs produced by the Company for the reseller to distribute to
its end-user customers. The Company also distributes "flyers" which announce
new product line additions or special promotions and are usually inserted in
the Book of Deals or mailed directly to customers.
Although the Book of Deals remains one of the Company's primary
marketing tools, the Company also uses electronic commerce marketing tools as
well. The Company believes it has established itself as a leader in the
deployment of electronic commerce in the computer and office automation
supplies and accessories industry. These tools are designed to win further
market share and to reduce cost in the customer relationship by automating
information flow. By accepting both externally developed commercially
available technologies as well as internally developed proprietary
technologies, the Company can offer a suite of electronic commerce solutions
including: traditional X.12 and proprietary EDI; third party software systems
such as DDMS, OPUS, Britannia, and Moore O.P. Services; and internet, intranet,
and extranet systems.
During fiscal year 1997, the Company introduced an electronic catalog
and on-line ordering tool, known as "SOLO", the System for Online Ordering.
SOLO provides customers with on-line ordering capabilities; fingertip access to
up-to-date pricing, product and order information; search and retrieval
capabilities based on part numbers, manufacturers, product description, retail
price, machine compatibility and other factors; and convenient access to
manufacturers' product literature and training videos. The Company provides
CD-ROM, diskette and World Wide Web versions of SOLO.
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Certain of the Company's suppliers provide the Company with cooperative
advertising programs, marketing development funds and other types of incentives
and discounts which offset the production costs of the Company's quarterly Book
of Deals, other published marketing tools and other related costs.
The Company permits its customers to return defective products (most of
which are then returned by the Company to the manufacturer) and incorrect
shipments for credit against other purchases. During the last three fiscal
years, the Company's net expense for returns of the Company's consumable supply
products has not been material.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains advanced management information systems and has
automated virtually all key business functions using on-line, real time
systems. These on-line systems provide management with information concerning
sales, inventory levels, customer payments and other operations which is
essential for the Company to operate as a low cost, high efficiency wholesale
distributor.
The implementation of these systems has allowed the Company to offer an
advanced suite of electronic commerce tools to its customers so that the
Company can communicate with their computer systems and automatically process,
send and receive purchase orders, invoices and acknowledgments. The Company
offers "customer links" to provide customers with direct access to a
proprietary Company database to examine pricing, credit information, product
description and availability and promotional information. This link also
allows customers to place orders directly into the Company's order processing
system. These systems also allow the Company to offer similar features to its
customers through SOLO.
The Company has also invested in advanced telecommunications, voice
response equipment, electronic mail and messaging, automated fax technology,
scanning, radio frequency technology, bar-coding, fiber optic network
communications and automated inventory management. The Company also utilizes
telecommunications technology which provide for automatic customer call
recognition and customer profile recall for inbound telemarketing
representatives and computer generated outbound call objectives for outbound
telemarketing representatives.
DISTRIBUTION
During fiscal year 1993, the Company consolidated its five U.S. regional
distribution centers into a new "superhub" distribution center located in
Memphis, Tennessee. During fiscal year 1997, the Company more than doubled the
size of this facility to its current size of 371,233 square feet. The facility
is located approximately four miles from the Federal Express hub facility and
contains automated conveyors, in-line scales for automatic accuracy checking,
computerized sorting equipment, powered material handling equipment and
scanning and bar-coding systems.
Since the consolidation of its regional distribution centers and the
opening of the Memphis distribution center, the Company has (i) reduced the
amount of "safety stock" inventory previously carried in different distribution
centers, which, in turn, has reduced the Company's working capital borrowings,
(ii) increased its inventory turnover rate from approximately nine turns to
approximately
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11 turns in fiscal year 1997, (iii) improved its order fill rate to a level of
approximately 95%, (iv) improved personnel productivity and reduced shipping
errors and their associated costs, (v) improved delivery time to most
geographic areas through later order acceptance times (currently 9:00 p.m.
eastern standard time) and, with the implementation of the Federal Express
Agreement, next business day delivery and (vi) reduced real estate expenses.
The Company believes that consumable supplies and other products sold by
the Company are particularly suited to cost effective overnight delivery
because of their unique value to weight characteristics. Accordingly, all of
the Company's U.S. package orders are shipped via Federal Express, except for
certain "heavyweight" packages or as otherwise requested by the customer. The
Company's centralized distribution center, together with the implementation of
the Federal Express Agreement, enables the Company to offer to its customers
next business day delivery to most U.S. geographic areas. The Company ships
virtually 100% of U.S. orders for product in stock on the same day.
The material handling system at its Memphis distribution center includes
several high technology enhancements, including an automated package routing
system and a paperless order picking system. These systems have allowed the
Company to substantially increase the package movement capacity within the
existing facility, further improve package shipment accuracy and enhance the
Company's ability to perform value-added services for its customers, including
custom labeling and price stickering.
EMPLOYEES
As of March 31, 1997, the Company had 558 full-time employees and 109
part-time employees, of which 175 were in executive and administrative
positions, including accounting, purchasing, credit and management information
systems, 280 were in sales and marketing and 212 were in warehousing and
related functions. None of the Company's employees are represented by a labor
union, and the Company has never suffered an interruption of business as a
result of a labor dispute. The Company considers its relations with its
employees to be favorable, and the Company believes it will be able to continue
this relationship by various employee incentive and participation programs,
including employee stock options.
The Company actively recruits college graduates through on-campus
recruiting programs. Each newly-hired employee from this program is placed into
the Company's training program for approximately three months which introduces
them to most aspects of the Company's business. Management believes that this
program is an important tool in recruiting and developing high quality
individuals with management potential to support the Company's future growth.
COMPETITION
The Company believes that most, if not all, of its customers maintain
several sources of supply for their product requirements. Accordingly, the
Company competes with product manufacturers, general office supply wholesalers,
other national and regional wholesale computer supplies distributors, computer
hardware and software distributors and, to a lesser extent, non-specialized
wholesaler distributors. Many of these competitors such as product
manufacturers and general office supply wholesalers are larger and have
substantially greater financial and other resources than the Company.
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Competition in the Company's industry is generally based on price, breadth of
product lines, product and credit availability, delivery time and the level and
quality of customer services. The Company competes primarily on the basis of
its ability to offer low prices and quality service while maintaining a high
level of operating efficiency. The Company believes its competitive advantages
over product manufacturers and other wholesale distributors include its ability
to efficiently maintain a wide selection of name brand products in stock ready
to be shipped on a same day basis and delivered overnight, to efficiently
distribute its products, to provide innovative and high quality value-added
customer service programs and to respond to changing customer demands and
product development.
BACKLOG
The Company does not have a significant backlog of orders and does not
consider backlog to be material to an understanding of its business.
ITEM 2. PROPERTIES
The Company's U.S. sales and executive and administrative offices are
located in a 52,363 square foot central office facility located in Plano,
Texas, a Dallas suburb. The Company also operates regional sales and
distribution centers in Toronto, Ontario; Mexico City, Mexico; Vancouver,
British Columbia; Sydney, Australia and Miami, Florida. The Company's central
distribution center is located in Memphis, Tennessee. See "Item 1. Business -
Distribution."
All of the Company's facilities are leased under leases which contain
one or more multiple year renewal options.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes that such litigation will be resolved
without material effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed and trades on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol "DZTK." The following
table sets forth for the period indicated the high and low sale price for the
Common Stock as reported by the Nasdaq National Market:
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PRICE
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HIGH LOW
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Fiscal year 1996
First Quarter $25 $19-1/8
Second Quarter $32-7/8 $21
Third Quarter $33 $26-1/4
Fourth Quarter $35-3/4 $27-3/4
Fiscal year 1997
First Quarter $47 $32-1/2
Second Quarter $44-1/8 $34-1/2
Third Quarter $43-1/2 $34-1/2
Fourth Quarter $42 $31
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As of June 18, 1997, there were approximately 1,800 shareholders of
which 107 were record holders of the Common Stock.
The Company has never paid cash dividends on its Common Stock and does
not anticipate the payment of cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain all earnings to
finance the further development of its business. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated statement of operations data
presented below for each of the fiscal years ended March 31, 1997, 1996 and
1995, and the selected consolidated balance sheet data as of March 31, 1997 and
1996 have been derived from the consolidated financial statements of Daisytek
International Corporation and subsidiaries, which statements have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere in this Form 10-K. The selected consolidated
statement of operations data for the fiscal years ended March 31, 1994 and
1993, and the selected balance sheet data as of March 31, 1995, 1994 and 1993
have been derived from the Company's consolidated financial
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statements, which statements have been audited by Arthur Andersen LLP as
indicated in their reports not included herein. The selected consolidated
financial data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data."
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FISCAL YEAR ENDED MARCH 31,
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1997 1996 1995 1994 1993
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(in thousands, except per share data)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 603,814 $ 464,169 $ 352,953 $ 276,699 $ 233,458
Cost of sales 543,848 416,199 316,982 247,480 208,972
Provision for losses from disposal of
software and hardware inventory -- -- -- 402 1,223
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Gross profit 59,966 47,970 35,971 28,817 23,263
Selling, general and administrative expenses 36,630 29,024 23,260 20,338 21,822
Other operating expenses -- -- -- -- 3,701
--------- --------- --------- --------- ---------
Income (loss) from operations 23,366 18,946 12,711 8,479 (2,260)(1)
Interest expense 1,677 1,482 2,050 1,726 1,723
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Income (loss) before income taxes 21,659 17,464 10,661 6,753 (3,983)
Provision (benefit) for income taxes 8,292 6,697 4,165 2,496 (1,062)
--------- --------- --------- --------- ---------
Net income (loss) $ 13,367 $ 10,767 $ 6,496 $ 4,257 $ (2,921)
========= ========= ========= ========= =========
PER SHARE DATA (2):
Net income (loss) per common share $ 1.93 $ 1.59 $ 1.17 $ 0.81 $ (0.68)
Weighted average common shares
outstanding 6,913 6,757 5,542 5,288 4,310
Supplemental net income per common
share (3) $ -- $ -- $ 1.09 $ 0.75 $ --
Supplemental weighted average common
shares outstanding (3) -- -- 6,683 6,668 --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 80,248 $ 56,663 $ 43,427 $ 28,167 $ 22,290
Total assets 175,288 128,601 94,421 67,385 57,213
Long-term debt, net of current maturities 30,454 16,419 11,334 19,640 16,815
Shareholders' equity 67,193 51,661 40,817 15,937 11,844
</TABLE>
- --------------------------
(1) The Company's income from operations for fiscal year 1993 would have
been approximately $6.4 million without giving effect to the following
events: (i) a $4.3 million loss from operations related to the
Company's PC software and hardware division which was eliminated in
fiscal year 1993, including a $1.2 million provision for losses from
disposal of software and hardware inventory, (ii) a $3.7 million loss
from operations related to the following other operating expenses: (1)
the Company's write-off of trade receivables and advances owing from a
related party in the aggregate amount of $1.2 million and establishment
of a reserve of $0.5 million for trade receivables owing from another
related party, (2) costs aggregating $1.6 million incurred by the
Company in connection with the consolidation of its five U.S. regional
distribution centers into one "superhub" distribution center in Memphis,
Tennessee, and (3) costs aggregating $0.5 million incurred by the
Company in connection with a withdrawn initial public offering and (iii)
a $0.7 million loss from operations related to the Company's temporary
reduction of outbound shipping rates as part of a promotional marketing
program in connection with the opening of the Memphis distribution
center.
(2) Share data is based on the weighted average common shares and share
equivalents outstanding for each period.
(3) Adjusted for the events described in Note 11 of the Notes to
Consolidated Financial Statements.
-12-
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial information from the
audited Consolidated Statements of Operations of Daisytek International
Corporation and subsidiaries expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-=------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 90.1 89.7 89.8
------ ------ ------
Gross profit 9.9 10.3 10.2
Selling, general and administrative expenses 6.0 6.2 6.6
------ ------ ------
Income from operations 3.9 4.1 3.6
Interest expense 0.3 0.3 0.6
------ ------ ------
Income before income taxes 3.6 3.8 3.0
Provision for income taxes 1.4 1.5 1.2
------ ------ ------
Net income 2.2% 2.3% 1.8%
====== ====== ======
</TABLE>
The following table sets forth certain unaudited quarterly financial
data and certain data expressed as a percentage of net sales for fiscal years
1997 and 1996. The unaudited quarterly information includes all adjustments,
consisting of only normal recurring adjustments, which management considers
necessary for a fair presentation of the information shown. The financial data
and ratios for any quarter are not necessarily indicative of results of any
future period.
<TABLE>
<CAPTION>
Fiscal Year 1997 Fiscal Year 1996
------------------------------------------------ ------------------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
------------------------------------------------ ------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 174,343 $ 154,429 $ 138,148 $ 136,894 $ 137,237 $ 116,545 $ 105,421 $ 104,966
Gross profit $ 17,503 $ 15,204 $ 13,589 $ 13,670 $ 13,768 $ 12,233 $ 11,335 $ 10,634
Gross profit margin 10.0% 9.8% 9.8% 10.0% 10.0% 10.5% 10.8% 10.1%
SG&A expenses $ 10,552 $ 9,375 $ 8,397 $ 8,306 $ 8,432 $ 7,312 $ 6,685 $ 6,595
Percent of net sales 6.1% 6.1% 6.1% 6.1% 6.1% 6.3% 6.3% 6.3%
Income from operations $ 6,951 $ 5,829 $ 5,192 $ 5,364 $ 5,336 $ 4,921 $ 4,650 $ 4,039
Operating margin 4.0% 3.8% 3.8% 3.9% 3.9% 4.2% 4.4% 3.8%
Net income $ 4,007 $ 3,364 $ 2,955 $ 3,041 $ 3,091 $ 2,792 $ 2,616 $ 2,268
Net margin 2.3% 2.2% 2.1% 2.2% 2.3% 2.4% 2.5% 2.2%
</TABLE>
-13-
<PAGE> 14
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Net Sales. Net sales for the year ended March 31, 1997 were $603.8
million as compared to $464.2 million for the year ended March 31, 1996, an
increase of $139.6 million, or 30.1%, as the result of an increase in U.S. net
sales of $103.0 million, or 26.5%, and an increase in international net sales
of $36.6 million, or 48.2%. 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 Australian
subsidiary which was acquired by the Company during the third quarter of fiscal
year 1997. The growth rate in net sales to computer and office product
superstore customers for the year ended March 31, 1997 was less than the growth
rate experienced for such customers during the prior year. Net sales to new
customers for the year ended March 31, 1997 were approximately $49 million,
including the net sales from its new Australian subsidiary, while net sales to
existing customers increased by approximately $91 million during the year.
Gross Profit. Gross profit for the year ended March 31, 1997 was $60.0
million as compared to $48.0 million in fiscal year 1996, an increase of $12.0
million, or 25.0%, 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
9.9% for the year ended March 31, 1997 as compared to 10.3% for the prior year.
Gross profit margin percentage declined during the year ended March 31, 1997
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. If the benefits of the one-time
inventory purchase actions are excluded from last year's results, gross profit
as a percentage of net sales for fiscal year 1997 is slightly lower as compared
to last year. 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 the year ended March 31,
1997. 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 year 1998.
SG&A Expenses. SG&A expenses for the year ended March 31, 1997 were
$36.6 million, or 6.0% of net sales, as compared to $29.0 million, or 6.2% of
net sales, for the year ended March 31, 1996. The increase in SG&A expenses
was primarily a result of the increase in variable 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. During fiscal 1997, the
Company incurred incremental SG&A expenses associated with its subsidiary,
Priority Fulfillment Services ("PFS"), and also associated with an expansion of
its leased facilities in Memphis and Plano. The Company expects to incur
additional incremental SG&A expenses associated with PFS as the Company plans
for future growth in this subsidiary.
Income from Operations. Income from operations for the year ended March
31, 1997 was $23.3 million as compared to $18.9 million for fiscal year 1996,
an increase of $4.4 million, or 23.2%. 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 3.9%
-14-
<PAGE> 15
for the year ended March 31, 1997 as compared to 4.1% for last year, 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 year ended
March 31, 1997 declined primarily because the prior year's results include the
effects of the one-time inventory purchase actions. When the benefits of the
one-time inventory purchase actions are excluded from last year's results,
income from operations as a percentage of net sales for fiscal year 1997 was
slightly higher than fiscal year 1996.
Interest Expense. Interest expense was $1.7 million during the year
ended March 31, 1997 and was $1.5 million during the year ended March 31, 1996.
Interest expense increased as a result of an increase in the average line of
credit to support a larger revenue base, which was partially offset by a
reduction in interest rates during fiscal year 1997. The weighted average
interest rate was 6.7% during the year ended March 31, 1997 as compared to 7.5%
for the previous year.
Income Taxes. The Company's provision for income taxes was $8.3 million
for the year ended March 31, 1997 as compared to $6.7 million for the year
ended March 31, 1996. The increase was primarily due to increased pretax
profits. The effective tax rate for both years was approximately 38.3%. For
an analysis of the Company's provision for income taxes, see Note 6 of the
Notes to Consolidated Financial Statements.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995
Net Sales. Net sales for fiscal year 1996 were $464.2 million as
compared to $353.0 million for fiscal year 1995, an increase of $111.2 million,
or 31.5%, as the result of an increase in U.S. net sales of $94.8 million, or
32.3%, and an increase in international net sales of $16.4 million, or 27.6%.
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. Net sales to new customers for fiscal year 1996 were approximately
$35 million, while net sales to existing customers increased by approximately
$77 million during this period.
Gross Profit. Gross profit for fiscal year 1996 was $48.0 million as
compared to $36.0 million in fiscal year 1995, an increase of $12.0 million, or
33.4%, primarily as the result of increased sales volume in fiscal year 1996,
as well as incremental gross profit earned on the sale of certain inventory
purchased by the Company prior to manufacturer price increases. The Company's
gross profit margin was 10.3% for fiscal year 1996 as compared to 10.2% for the
prior year. The increase in gross profit margin percentage was primarily the
result of incremental margins earned on the sale of certain inventory purchased
by the Company prior to manufacturer price increases. Without the benefit
gained from such incremental gross profit, gross profit margin percentage for
fiscal year 1996 decreased slightly compared to the previous year. This gross
profit margin percentage decline occurred primarily as the result of increased
sales at lower gross profit margins to large national accounts and computer and
office product superstores.
SG&A Expenses. SG&A expenses for fiscal year 1996 were $29.0 million,
or 6.2% of net sales, as compared to $23.3 million, or 6.6% of net sales, for
fiscal year 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
-15-
<PAGE> 16
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 fiscal year 1996 was
$18.9 million as compared to $12.7 million for fiscal year 1995, an increase of
$6.2 million, or 49.1%. 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 4.1% for fiscal year 1996 as
compared to 3.6% for fiscal year 1995, primarily as the result of an increase
in gross profit margin, related to the one-time inventory purchase actions, and
a decline in SG&A expenses as a percentage of net sales. When the benefits of
the one-time inventory purchase actions are excluded from fiscal year 1996
results, the Company's income from operations as a percentage of net sales
increased slightly from the prior year.
Interest Expense. Interest expense for fiscal year 1996 was $1.5
million as compared to $2.1 million in fiscal year 1995. The decrease was
primarily the result of a reduction in the outstanding balance in the Company's
line of credit attributable to the proceeds received from the Company's initial
public offering (the "IPO") in January 1995. The weighted average interest rate
was 7.5% during fiscal year 1996 as compared to 7.9% for fiscal year 1995.
Interest expense for fiscal year 1996 was also impacted by the incremental
borrowings required to finance the Company's additional inventory purchases
discussed above.
Income Taxes. The Company's provision for income taxes was $6.7 million
for fiscal year 1996 as compared to $4.2 million in fiscal year 1995. The
increase was primarily due to increased pretax profits. The effective tax rate
for fiscal year 1996 was 38.3% as compared to the effective tax rate of 39.1%
for fiscal year 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. Net cash provided by financing activities was $11.9 million, $6.2
million and $9.1 million for fiscal years 1997, 1996 and 1995, respectively.
Proceeds from bank borrowings, the issuance of common stock, and lease
financings have been used to finance the Company's operations and expansion.
In January 1995, the Company sold 1,380,000 shares of common stock in the IPO
and received net proceeds of approximately $18.6 million. The Company used
such net proceeds, along with an aggregate of $2.3 million received by the
Company concurrent with the IPO from an officer of the Company and a selling
stockholder in repayment of indebtedness owing by such officer and selling
stockholder to the Company, to reduce its outstanding indebtedness under the
line of credit.
Net cash used in operating activities was $3.3 million, $1.3 million and
$6.4 million for fiscal years 1997, 1996 and 1995, respectively. The Company's
net cash used in operations primarily related to increases in working capital
requirements to support growth in the Company's business during these periods.
These increased working capital requirements were partially funded by cash
generated by the Company's operations.
The Company's principal use of funds for investing activities was capital
expenditures of $5.9 million, $5.0 million and $3.7 million for fiscal years
1997, 1996 and 1995, respectively. These
-16-
<PAGE> 17
expenditures have consisted primarily of additions to upgrade the Company's
management information systems and its Memphis distribution facility. The
Company anticipates that its total investment in upgrades and additions to
facilities for fiscal 1998 will be approximately $5 million to $6 million.
Working capital increased to $80.2 million at March 31, 1997 from $56.7
million at March 31, 1996, an increase of $23.5 million which was primarily
attributable to increases in inventory and accounts receivable which were
partially offset by increases in accounts payable. During fiscal years 1997
and 1996, the Company generally maintained an accounts receivable balance of
approximately 46 and 45 days of sales, respectively. This increase is
primarily related to an increased concentration of receivables from large
retail computer and office product superstores, who generally take longer to
pay. During fiscal years 1997 and 1996, the Company maintained an inventory
turnover rate of approximately 11 turns, excluding inventory owned by the
Company related to PFS, its subsidiary which provides product fulfillment and
distribution services to third parties. The levels of such inventory is
generally managed by the third party and thus is not indicative of the
inventory turnover maintained by the Company's core wholesale business.
As of March 31, 1995, the Company had a secured line of credit with an
institutional lender which, subject to the satisfaction of certain conditions,
allowed the Company to borrow up to $35.0 million. The line of credit was to
mature in April 1996. In fiscal year 1995, the Company applied the net
proceeds of the IPO, together with certain other amounts received concurrently
therewith, to reduce outstanding debt under the line of credit. As a result of
this reduction in the indebtedness and the Company's reduced borrowing needs,
in May 1995, the Company entered into a new agreement with certain banks for a
new three-year unsecured revolving line of credit facility (the "new
facility"). Under the new facility, the Company could borrow initially up to
$25.0 million until April 1996, and up to $30.0 million thereafter until
maturity. This facility was amended during fiscal year 1997 to increase the
borrowing limit to $50.0 million. Availability under the new facility is based
upon amounts of eligible accounts receivable, as defined. As of March 31, 1997,
the Company had borrowed $30.1 million under the new facility. Also, as of
March 31, 1997, $19.9 million was available for additional borrowings. The new
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 new facility.
The new 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 fiscal year 1997, approximately $112.5 million, or 18.6%, 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, on an annual basis, the
Company has entered into various one-year forward Canadian currency exchange
contracts in order to hedge the Company's net investment in, and its
intercompany payable applicable to, its Canadian subsidiary. There have
-17-
<PAGE> 18
been no material gains or losses incurred by the Company relating to these
contracts. In May 1997, the Company entered into a new $9.6 million (U.S.)
one-year forward Canadian currency exchange contract to replace the previous
contract which matured during that same month. 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. See Note 1 of the Notes to Consolidated Financial Statements.
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
other significant financing needs.
The Company believes it will be able to satisfy its working capital
needs for fiscal year 1998, including such additional working capital as may be
required by existing or additional PFS logistics contracts, as well as business
growth and planned capital expenditures, through funds available under the new
facility, trade credit, lease financing, internally generated funds and by
increasing the amount available under the new facility (although the Company
has presently neither requested nor received any commitment to do so). 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.
The Company may attempt to acquire other businesses to expand its
product line and/or in the call-center or public warehousing industries in
connection with its efforts to grow its PFS subsidiary. The Company currently
has no agreements to acquire any such businesses. Should the Company be
successful in identifying an acquisition candidate, however, the Company may
require additional financing to consummate such a transaction. Acquisitions
involve certain risks and uncertainties, therefore, the Company can give no
assurances with respect to whether it will be successful in identifying such a
business to acquire, whether it will be able to obtain financing to complete
such an acquisition, or whether the Company will be successful in operating the
acquired business.
INVENTORY MANAGEMENT
The Company manages its computer consumables supplies inventories held
for sale in its wholesale distribution business 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
-18-
<PAGE> 19
lowers prices on previously purchased inventory or the Company can return slow
moving inventory in exchange for other products.
During fiscal year 1997, the Company, through its PFS subsidiary, began
providing product fulfillment and distribution services for third parties.
Certain of these distribution agreements provide that the Company own the
related inventory, some of which also allow for the third party to manage the
levels of inventory held by the Company. As a result, the levels of inventory
held by the Company under these contracts is higher than the Company would
normally carry in its core wholesale business.
SEASONALITY
Although the Company historically has experienced its greatest growth in
revenues in its fourth fiscal quarter, management has not been able to
determine the specific effect, 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 the
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 Report on Form 10-K, 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 STANDARDS
The Company adopted 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
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<PAGE> 20
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 effect of
the application of SFAS No. 121 was not material.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in fiscal year 1997. The Company has chosen to continue to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations in accounting for its plans, and has
opted to comply with the disclosure requirements of SFAS No. 123.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This statement establishes new standards for
computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods, and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The adoption of this statement will have no significant
impact on previously reported EPS.
-20-
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets as of March 31, 1997 and 1996 . . . . . . 23
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . 25
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended March 31, 1997, 1996 and 1995 . . . . . . . . . . . 26
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 28
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-21-
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Daisytek International Corporation:
We have audited the accompanying consolidated balance sheets of Daisytek
International Corporation (a Delaware corporation) and subsidiaries as of March
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Daisytek
International Corporation and subsidiaries as of March 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 25, 1997
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<PAGE> 23
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 552 $ 204
Trade accounts receivable, net of allowance for doubtful
accounts of $1,885 and $1,283 at March 31, 1997 and
1996, respectively 90,446 69,169
Receivables from employees and related parties, net of
allowance for doubtful accounts of $475 at March 31, 1997
and 1996 332 571
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division 54,426 44,358
Inventories, Priority Fulfillment Services Division 10,354 --
Prepaid expenses and other current assets 1,214 2,120
Deferred income tax asset 565 762
---------- ----------
Total current assets 157,889 117,184
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 20,949 15,325
Leasehold improvements 673 306
---------- ----------
21,622 15,631
Less - Accumulated depreciation and amortization (9,648) (6,136)
---------- ----------
Net property and equipment 11,974 9,495
EMPLOYEE RECEIVABLES 423 395
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $608 and $468 at
March 31, 1997 and 1996, respectively 5,002 1,527
---------- ----------
Total assets $ 175,288 $ 128,601
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
-23-
<PAGE> 24
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 662 $ 650
Trade accounts payable 62,552 44,736
Accrued expenses 6,260 4,230
Income taxes payable 1,398 419
Other current liabilities 6,769 10,486
---------- ----------
Total current liabilities 77,641 60,521
---------- ----------
LONG-TERM DEBT, less current portion 30,454 16,419
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized
at March 31, 1997 and 1996, none issued and outstanding -- --
Common stock, $0.01 par value; 20,000,000 and 10,000,000
shares authorized at March 31, 1997 and 1996,
respectively; 6,520,709 and 6,342,753 shares issued and
outstanding at March 31, 1997 and 1996, respectively 65 63
Additional paid-in capital 33,331 30,874
Retained earnings 35,103 21,736
Cumulative foreign currency translation adjustment (1,306) (1,012)
---------- ----------
Total shareholders' equity 67,193 51,661
---------- ----------
Total liabilities and shareholders' equity $ 175,288 $ 128,601
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
-24-
<PAGE> 25
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 603,814 $ 464,169 $ 352,953
COST OF SALES 543,848 416,199 316,982
--------- --------- ---------
Gross profit 59,966 47,970 35,971
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 36,630 29,024 23,260
--------- --------- ---------
Income from operations 23,336 18,946 12,711
INTEREST EXPENSE 1,677 1,482 2,050
--------- --------- ---------
Income before income taxes 21,659 17,464 10,661
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 8,095 6,460 4,470
Deferred 197 237 (305)
--------- --------- ---------
8,292 6,697 4,165
--------- --------- ---------
NET INCOME $ 13,367 $ 10,767 $ 6,496
========= ========= =========
NET INCOME PER COMMON SHARE $ 1.93 $ 1.59 $ 1.17
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,913 6,757 5,542
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-25-
<PAGE> 26
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
Common Stock Warrants
------------------------ -----------------------
Shares Amount Warrants Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE,
March 31, 1994 4,466,004 $ 45 869,349 $ 1,600
Net income -- -- -- --
Exercise and termination of
common stock warrants 398,678 4 (869,349) (1,600)
Issuance and net proceeds
from sale of common
stock 1,380,000 13 -- --
Foreign currency translation
adjustment -- -- -- --
---------- ---------- ---------- ----------
BALANCE,
March 31, 1995 6,244,682 62 -- --
Net income -- -- -- --
Net proceeds from exercise
of common stock options 98,071 1 -- --
Costs associated with
secondary offering
of stock -- -- -- --
Foreign currency translation
adjustment -- -- -- --
---------- ---------- ---------- ----------
BALANCE,
March 31, 1996 6,342,753 63 -- --
Net income -- -- -- --
Net proceeds from exercise
of common stock options 157,898 2 -- --
Issuance of common stock
for acquisition of
subsidiary 19,281 -- -- --
Issuance of common stock 777 -- -- --
Foreign currency translation
adjustment -- -- -- --
---------- ---------- ---------- ----------
BALANCE,
March 31, 1997 6,520,709 $ 65 -- $ --
========= ========== ========== ==========
<CAPTION>
Additional Cumulative
Paid-In Retained Translation
Capital Earnings Adjustment Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE,
March 31, 1994 $ 10,652 $ 4,473 $ (833) $ 15,937
Net income -- 6,496 -- 6,496
Exercise and termination of
common stock warrants 1,600 -- -- 4
Issuance and net proceeds
from sale of common
stock 18,544 -- -- 18,557
Foreign currency translation
adjustment -- -- (177) (177)
---------- ---------- ---------- ----------
BALANCE,
March 31, 1995 30,796 10,969 (1,010) 40,817
Net income -- 10,767 -- 10,767
Net proceeds from exercise
of common stock options 562 -- -- 563
Costs associated with
secondary offering
of stock (484) -- -- (484)
Foreign currency translation
adjustment -- -- (2) (2)
---------- ---------- ---------- ----------
BALANCE,
March 31, 1996 30,874 21,736 (1,012) 51,661
Net income -- 13,367 -- 13,367
Net proceeds from exercise
of common stock options 1,636 -- -- 1,638
Issuance of common stock
for acquisition of
subsidiary 791 -- -- 791
Issuance of common stock 30 -- -- 30
Foreign currency translation
adjustment -- -- (294) (294)
---------- ---------- ---------- ----------
BALANCE,
March 31, 1997 $ 33,331 $ 35,103 $ (1,306) $ 67,193
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
-26-
<PAGE> 27
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,367 $ 10,767 $ 6,496
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 3,786 2,296 1,393
Provision for doubtful accounts 1,594 999 750
Deferred income tax provision (benefit) 197 237 (305)
Changes in operating assets and liabilities -
Trade accounts receivable (23,041) (18,929) (16,364)
Receivables from related parties 240 41 (4)
Inventories, net (19,580) (12,017) (9,863)
Trade accounts payable and accrued expenses 18,276 17,561 10,884
Income taxes payable 969 (478) 575
Prepaid expenses and other current assets 873 (1,776) 32
-------- -------- --------
Net cash used in operating activities (3,319) (1,299) (6,406)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,931) (4,959) (3,740)
Acquisition of subsidiary (2,105) -- --
Collections (advances) of employee receivables, net (30) (80) 1,575
-------- -------- --------
Net cash used in investing activities (8,066) (5,039) (2,165)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) revolving line of credit, net 14,660 5,735 (7,918)
Increase (decrease) in other current liabilities (3,717) 934 (1,045)
Payments on notes payable and capital leases (656) (571) (541)
Net proceeds from sale of stock and exercise
of stock options and warrants 1,638 79 18,561
-------- -------- --------
Net cash provided by financing activities 11,925 6,177 9,057
-------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH (192) (83) (82)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 348 (244) 404
CASH, beginning of period 204 448 44
-------- -------- --------
CASH, end of period $ 552 $ 204 $ 448
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
-27-
<PAGE> 28
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Business
Daisytek International Corporation (a Delaware corporation) and
subsidiaries (the "Company") is a wholesale distributor of non-paper computer
and office automation supplies and accessories, whose primary products are
laser toner, copier toner, inkjet cartridges, printer ribbons, diskettes,
optical storage products, 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, Australia 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, contract stationers, buying
groups, computer and office product superstores, warehouse clubs and other
retailers who resell the products to end-users. No single customer accounted
for more than 10% of the Company's annual net sales for the fiscal years ended
March 31, 1997, 1996 and 1995. At March 31, 1997, five computer and office
product superstores and warehouse clubs represent approximately 26% of trade
accounts receivable, with the largest being approximately 12% of trade accounts
receivable, and reflects the increasing significance of this market segment.
The Company recognizes revenue upon shipment of product to customers and
provides for estimated returns and allowances. The Company permits its
customers to return defective products (many of which are then returned by the
Company to the manufacturer) and incorrect shipments for credit against other
purchases. The Company offers terms to its customers that it believes are
standard for its industry.
During fiscal year 1996, the Company formed Priority Fulfillment
Services, Inc. ("PFS"), a wholly owned subsidiary, to provide outsourcing
solutions to its business partners. Through PFS, the Company sells its core
competencies in call-center, product fulfillment, logistics and support
services to client companies worldwide, primarily on a fee-based relationship.
PFS customizes these services to meet specific requirements of these companies.
PFS's call-center services include: order entry, order tracking and customer
service (inbound), outbound telemarketing services and customized reporting of
customer and call information. PFS utilizes primarily the Company's centralized
distribution facility in Memphis, Tennessee to provide product fulfillment and
logistics services, with additional distribution facilities available in
Florida, Canada, Mexico and Australia. PFS maintains relationships with a
number of shipping companies to provide next business day delivery on domestic
package orders, truck shipments on larger domestic orders and a variety of air
and surface delivery options for international orders. PFS also provides other
support services such as invoicing, credit management and collection services,
and accounting and systems support.
Basis of Presentation
The consolidated financial statements include the accounts of Daisytek
International Corporation and its subsidiaries. All significant intercompany
transactions are eliminated. The preparation of consolidated financial
statements in conformity with generally accepted accounting
-28-
<PAGE> 29
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
Reclassifications
Certain prior year data has been reclassified to conform to the
current year presentation. These reclassifications had no effect on previously
reported net income, shareholders' equity or cash flows.
Inventories
Inventories (merchandise held for resale, all of which is finished
goods) are stated at the lower of weighted average cost or market.
Inventories held and owned by the Company's PFS subsidiary, relate to
product fulfillment and logistics services provided for third parties, and are
presented separately in the consolidated balance sheet as these distribution
agreements generally allow for the third party to manage the levels of
inventory held by the Company. As a result, the levels of inventory held by the
Company under these contracts is higher than the Company would normally carry
in its core wholesale business.
Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the respective
assets which range from one to seven years.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a
straight-line basis over 20 to 40 years. The related amortization expense for
fiscal year 1997 was $140,000 and for each of the fiscal years 1996 and 1995
was approximately $50,000.
Foreign Currency Translation and Transactions
For the Company's Canadian and Australian subsidiaries, the local
currency is the functional currency. Assets and liabilities are translated at
exchange rates in effect at the end of the period, and income and expense items
are translated at the average exchange rates for the period. Translation
adjustments are reported as a separate component of shareholders' equity. In
addition, the Company periodically enters into foreign exchange contracts in
order to hedge the Company's net investment in, and its intercompany payable
balance (of a long-term investment nature) applicable to its Canadian
subsidiary. In May 1996, the Company entered into a one-year, $6.6 million
(U.S.) forward exchange contract. As of March 31, 1997, the Company had
incurred a gain of approximately $44,000, net of applicable income taxes, on
this contract. For the fiscal
-29-
<PAGE> 30
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
years ended March 31, 1996 and 1995, the Company incurred losses of
approximately $59,000 and $31,000, net of income taxes, respectively, related
to a one-year, $4.3 million (U.S.) forward exchange contract that expired in
May 1996, and a one-year, $3.0 million (U.S.) forward exchange contract that
expired in April 1995, respectively. These gains and losses are included as a
component of shareholders' equity.
For the Company's Mexican subsidiary, the U.S. dollar is the functional
currency. Monetary assets and liabilities are translated at the rates of
exchange on the balance sheet date and certain assets (notably accounts
receivable, inventory, and property and equipment) are translated at historical
rates. Income and expense items are translated at average rates of exchange for
the period except for those items of expense which relate to assets which are
translated at historical rates. The gains and losses from foreign currency
transactions and translation related to the Mexican subsidiary are included in
net income and have not been material.
Net Income Per Common Share
Net income per common share is calculated by dividing net income by
the weighted average common shares and share equivalents outstanding for each
period. The stock split discussed in Note 3 has been reflected in the net
income per common share calculation.
Adoption of New Accounting Standards
The Company adopted 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 effect of the application of SFAS
No. 121 was not material.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in fiscal year 1997. The Company has chosen to continue to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations in accounting for its plans, and has
opted to comply with the disclosure requirements of SFAS No. 123.
In March 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." This statement establishes new standards for
computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods, and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The adoption of this statement will have no significant
impact on previously reported EPS.
-30-
<PAGE> 31
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 fair values at the date of acquisition. Cost in excess of fair value
of approximately $3,600,000 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.
2. DEBT:
Debt at March 31, 1997 and 1996, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Revolving line of credit facility with commercial
banks, interest (weighted average rate of 6.64% at
March 31, 1997) at the Company's option at a prime
rate of a bank (8.5% at March 31, 1997) or a Eurodollar
rate plus 0.625% to 1.125% (6.26% at March 31, 1997),
due May 22, 1998 $ 30,100 $ 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 21%, with lease terms
varying from three to seven years 1,016 1,629
--------------- ---------------
Long-term debt 31,116 17,069
Less - current portion of long-term debt (662) (650)
--------------- ---------------
Long-term debt, less current portion $ 30,454 $ 16,419
=============== ===============
</TABLE>
On May 22, 1995, the Company entered into an agreement with certain
banks for a new three-year unsecured revolving line of credit facility (the
"facility"). Initially under the facility, the Company could borrow up to $25.0
million through April 1996 and up to $30.0 million thereafter until maturity.
During fiscal year 1997, the Company entered into an agreement with its banks
to increase the borrowing availability 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 a 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 (minimum fixed charge ratio and minimum level of tangible net worth),
and restrictions on certain activities
-31-
<PAGE> 32
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of the Company, including loans and payments to related parties, incurring
additional debt, acquisitions, investments and asset sales. As of March 31,
1997, $19.9 million was available 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 March 31, 1997 and 1996, the Company had checks and other items
outstanding in excess of its cash balance of approximately $6.8 million and
$10.5 million, respectively, which are included in other current liabilities.
The Company is a party to a number of non-cancelable capital lease
agreements involving warehouse equipment, computer equipment, and office
furniture and fixtures. The Company's property held under capital leases,
included in furniture, fixtures and equipment in the balance sheet, amounted to
approximately $684,000, net of accumulated amortization of approximately
$2,054,000 at March 31, 1997, and approximately $1,112,000, net of accumulated
amortization of approximately $1,560,000 at March 31, 1996.
Annual maturities of long-term debt and capital leases are as follows
(in thousands):
<TABLE>
<S> <C>
Fiscal year ending March 31,
1998 ............................................... $ 662
1999 ............................................... 30,364
2000 ............................................... 90
-------
Total ........................................ $31,116
=======
</TABLE>
3. STOCK OPTIONS AND SHAREHOLDERS' EQUITY:
Public Offerings
In January 1995, the Company completed an initial public offering (the
"IPO") of 1,380,000 shares of common stock (see Note 11). In January 1996, the
Company completed a secondary offering of 1,207,500 shares of common stock,
sold by certain principal and selling shareholders. The Company did not receive
any of the proceeds from the sale of shares by these principal and selling
shareholders. The Company incurred approximately $484,000 in costs related to
the secondary offering, which is reflected as a reduction in Shareholders'
Equity.
Preferred Stock
In connection with the IPO, the Company authorized the issuance of up
to 1,000,000 shares of preferred stock, par value $1.00 per share, none of
which is issued or outstanding at March 31, 1997 and 1996.
Stock Splits
In conjunction with the IPO (see Note 11), the Company's Board of
Directors approved the conversion of each share of common stock into 1.45
shares upon consummation of the IPO.
-32-
<PAGE> 33
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The consolidated financial statements and the notes thereto have been adjusted
to reflect the stock split on a retroactive basis.
Stock Purchase Agreement
Pursuant to a stock purchase agreement dated December 13, 1991, as
amended on December 23, 1991 (the "Stock Purchase Agreement"), the Company
issued to a private investor 1,666,830 shares of common stock, warrants to
purchase 398,678 shares of common stock (the "A Warrants"), and warrants to
purchase 470,671 shares of common stock (the "B Warrants") for an aggregate
consideration of $10,000,000. The A Warrants contained an exercise price of
$0.01 per share, were only exercisable upon the occurrence of certain specified
events, and, subject to certain conditions, granted the Company the right to
repurchase all or a portion of the A Warrants at prices ranging from $4.63 per
share to $4.81 per share. Such warrants were exercised simultaneous with the
IPO. The B Warrants contained an exercise price of $0.01 per share and,
pursuant to their terms, terminated in January 1995 in conjunction with the
IPO.
Stock Options
At March 31, 1997, the Company had three employee stock option
compensation plans, which are described below. The Company may also, from time
to time, issue non-qualified options outside these plans to employees. The
Company applies APB Opinion No. 25 and related Interpretations in accounting
for these stock options. Accordingly, no compensation cost has been recognized
for these stock-based compensation awards. Pro forma net income and earnings
per share assuming compensation cost for the Company had been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," would
have been as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net income: As reported $ 13,367 $ 10,767
Pro forma $ 12,489 $ 10,039
Earnings per share: As reported $ 1.93 $ 1.59
Pro forma $ 1.81 $ 1.49
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in fiscal year 1997: no dividends, expected volatility ranging
between 39.25% and 39.50%; risk-free interest rate ranging between 5.9% and
6.6%; and expected life of 6 years. The following assumptions were used for
grants during fiscal year 1996: no dividends; expected volatility of 38.51%;
risk-free interest rate of 6.9%; and expected life of 6 years.
-33-
<PAGE> 34
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In January 1989, the Company established an employee stock option plan
(the "Plan") in which shares of common stock are reserved for the granting of
options at an amount not less than market price, as determined by the Board of
Directors, at the date of grant. As of March 31, 1997 and 1996, 8,554 and 6,379
options, respectively, remain available to be granted under the Plan.
In 1994, the Company adopted the 1994 Stock Option Plan for Key
Employees of Daisytek International Corporation (the "1994 Plan"). The 1994
Plan authorizes the Company to grant options to selected officers and other key
employees of the Company and to non-employee directors. The 1994 Plan provides
for the granting to employees of both incentive stock options and nonqualified
stock options. The maximum number of shares of common stock for which options
may be granted is 725,000, subject to adjustments for certain changes in the
shares issued and outstanding as described in the 1994 Plan.
The exercise price of incentive stock options granted under the 1994
Plan may not be less than the fair market value at the date of the grant. The
exercise price of nonqualified stock options granted under the 1994 Plan is
determined by the option committee of the Board of Directors. As of March 31,
1997 and 1996, 255,452 and 492,000 options, respectively, remain to be granted
in the future under the 1994 Plan.
In 1997, the Company adopted the Non-Employee Director Stock Option
and Retainer Plan (the "Non-Employee Director Plan"). The Non-Employee Director
Plan authorizes the Company to grant nonqualified 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
March 31, 1997, there were 3,000 options granted under the Non-Employee
Director Plan.
During fiscal years 1997, 1996 and 1995, the Company granted options
to certain employees pursuant to its employee stock option plans. In addition
to the options under such plans, during fiscal years 1997 and 1996,
respectively, the Company granted options to certain key employees and
executives to purchase 55,000 and 22,500 shares of common stock. These options
were granted at the fair market value at the date of the grant and become
exercisable over a three-year period starting on the date of the grant.
-34-
<PAGE> 35
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes stock option activity for the three
years in the period ended March 31, 1997.
<TABLE>
<CAPTION>
Price Per Weighted Average
Shares Share Exercise Price
------ ----- --------------
<S> <C> <C> <C>
Outstanding, March 31, 1994 563,594 $1.28 - $5.30 $4.62
Granted 4,350 $7.59 $7.59
Exercised -- -- --
Canceled (6,379) $5.30 $5.30
--------
Outstanding, March 31, 1995 561,565 $1.28 - $7.59 $4.67
Granted 260,000 $19.50 $19.50
Exercised (98,071) $1.28 - $7.59 $4.71
Canceled (4,500) $19.50 $19.50
--------
Outstanding, March 31, 1996 718,994 $1.28 - $19.50 $15.89
Granted 339,114 $32.50 - $40.00 $33.17
Exercised (157,898) $1.28 - $19.50 $9.65
Canceled (46,741) $7.59 - $32.50 $28.64
--------
Outstanding, March 31, 1997 853,469 $1.28 - $40.00 $27.54
========
</TABLE>
The weighted average fair values of options granted during each of the
years ended March 31, 1997 and 1996 were $16.15 and $9.70, respectively. As of
March 31, 1997 and 1996, 341,262 and 403,403, respectively, of options
outstanding were exercisable. The remaining options will become exercisable
over the next three years based on vesting percentages.
The following table summarizes information about the Company's stock
options outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- ----------------------------------
Weighted Average Weighted Weighted
Range of Outstanding as Remaining Average Exercisable as Average
Exercise Prices of 3/31/97 Contractual Life Exercise Price of 3/31/97 Exercise Price
--------------- ---------- ---------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - $10.00 313,009 4.60 $ 4.45 313,009 $ 4.45
$10.01 - $20.00 228,630 8.11 $19.50 28,253 $19.50
$20.01 - $40.00 311,830 9.11 $33.23 -- --
</TABLE>
-35-
<PAGE> 36
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Fiscal year ended March 31,
----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest ................................. $ 1,830 $ 1,445 $ 2,119
Income taxes ............................. $ 6,411 $ 6,953 $ 3,896
Fixed assets acquired under capital leases .... $ -- $ -- $ 212
Acquisition of subsidiary:
Fair value of net assets acquired ........ $ 2,896 $ -- $ --
Stock issued ............................. (791) -- --
--------- --------- ---------
Net cash paid for acquisition ........ $ 2,105 $ -- $ --
========= ========= =========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
The Company has made various loans to its President, a Senior Vice
President, and a Vice President. These loans accrue interest at the Company's
effective borrowing rate (6.8% at March 31, 1997). The Company had notes
receivable (including accrued interest) from its President of approximately
$423,000 and $395,000 as of March 31, 1997 and 1996, respectively, which are
classified as non-current assets in the consolidated balance sheet. The
Company's notes receivable from its Senior Vice President and Vice President as
of March 31, 1997 were approximately $122,000 and $61,000, respectively.
The Company also had trade accounts receivable due from companies in
which either the Company or its largest shareholder owns a minority interest.
Such sales were made in accordance with the Company's usual terms, except that
such companies were provided with extended payment terms. In fiscal year 1993,
the principal shareholder transferred his minority interest in all but one of
these companies to a subsidiary of the Company for a nominal amount, which
approximated the fair market value of these minority interests. In fiscal year
1997, the Company sold its remaining interest in one of these companies, and as
such, the fiscal year 1997 information presented below excludes such
information for this former related party. Trade accounts receivable and
advances from these related party companies totaled approximately $42,000 and
$282,000 at March 31, 1997 and 1996, respectively, net of a reserve of $475,000
as of each date. Sales to these related parties totaled approximately
$1,844,000, $2,707,000, and $2,285,000 for the fiscal years ended March 31,
1997, 1996 and 1995, respectively.
6. INCOME TAXES:
Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. These differences relate
primarily to provisions for doubtful accounts, capitalization of inventory
costs, reserves for inventory, book versus tax depreciation differences, and
certain accrued expenses deducted for book purposes but not yet deductible for
tax purposes.
-36-
<PAGE> 37
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A reconciliation of the difference between the expected income tax
provision at the U.S. Federal statutory corporate tax rate (35.0%, 34.85% and
34.0% in fiscal years 1997, 1996 and 1995, respectively) and the Company's
effective tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Provision computed at statutory rate $ 7,581 $ 6,086 $ 3,625
Foreign income (loss):
Impact of taxation at different rates 270 141 137
Impact of foreign losses 81 88 (181)
State income taxes, net of federal benefit 335 297 174
Expenses not deductible for tax purposes 104 56 49
Change in valuation reserve (123) 8 378
Other 44 21 (17)
-------- -------- --------
Provision for income taxes $ 8,292 $ 6,697 $ 4,165
======== ======== ========
</TABLE>
The consolidated income before income taxes, by domestic and foreign
entities, is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 18,703 $ 16,355 $ 9,991
Foreign 2,956 1,109 670
-------- -------- --------
Total $ 21,659 $ 17,464 $ 10,661
======== ======== ========
</TABLE>
The provision (benefit) for income taxes is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current
Domestic $ 6,317 $ 5,349 $ 3,576
State 515 456 263
Foreign 1,263 655 631
-------- -------- --------
Total current 8,095 6,460 4,470
-------- -------- --------
Deferred
Domestic 197 265 (237)
State -- -- --
Foreign -- (28) (68)
-------- -------- --------
Total deferred 197 237 (305)
-------- -------- --------
Total $ 8,292 $ 6,697 $ 4,165
======== ======== ========
</TABLE>
-37-
<PAGE> 38
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the deferred tax asset as of March 31, 1997 and
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax asset:
Allowance for doubtful accounts $ 295 $ 504
Capitalized inventory costs
170 84
Inventory obsolescence reserve
273 288
Accrued straight-line rent
70 81
Accrued vacation
58 58
Foreign net operating loss carryforwards
631 687
Other
370 432
------- -------
1,867 2,134
Less - Valuation reserve (263) (386)
------- -------
Total deferred tax asset 1,604 1,748
------- -------
Deferred tax liability:
Property and equipment (426) (487)
Foreign inventory purchases (463) (404)
Other (150) (95)
------- -------
Total deferred tax liability (1,039) (986)
------- -------
Deferred tax asset, net $ 565 $ 762
======= =======
</TABLE>
For financial reporting purposes, the tax benefit of cumulative
temporary differences is recorded as an asset to the extent that management
assesses the utilization of such temporary differences to be "more likely than
not." As of March 31, 1997 and 1996, a valuation allowance was recorded due to
uncertainties regarding the Company's utilization of its Mexico subsidiary's
net tax asset.
-38-
<PAGE> 39
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries lease equipment and facilities under
operating leases expiring in various years through fiscal year 2002. In most
cases, management expects that, in the normal course of business, leases will
be renewed or replaced by other leases. Minimum future annual rental payments
under non-cancelable operating leases having original terms in excess of one
year are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year ending March 31,
1998 $ 3,085
1999 2,635
2000 2,382
2001 1,724
2002 943
Thereafter --
----------
Total $ 10,769
==========
</TABLE>
Total rental expense under operating leases approximated $3,107,000,
$2,255,000 and $1,900,000 for the fiscal years ended March 31, 1997, 1996 and
1995, respectively.
Although the Company carries products and accessories supplied by
numerous vendors, the Company's net sales from products manufactured by its ten
largest suppliers were approximately 74%, 72% and 66% of total net sales during
fiscal years 1997, 1996 and 1995, respectively. The Company has entered into
written distribution agreements with nearly all of its major suppliers. As is
customary in the industry, these agreements generally provide non-exclusive
distribution rights, have one-year renewable terms and are terminable by either
party at any time, with or without cause. Certain of these agreements require
minimum annual purchases. Total minimum purchase requirements for fiscal year
1998 approximate $47 million. Additionally, many of the Company's suppliers
offer rebate programs under which, subject to the Company purchasing certain
predetermined amounts of inventory, the Company receives rebates based on a
percentage of the dollar volume of total rebate program purchases. The Company
also takes advantage of several other programs offered by substantially all of
its suppliers. These include price protection plans under which the Company
receives credits against future purchases if the supplier lowers prices on
previously purchased inventory and stock rotation or stock balancing privileges
under which the Company can return slow-moving inventory in exchange for other
products. Certain of the Company's suppliers also provide the Company with
cooperative advertising programs, marketing development funds and other types
of incentives and discounts which offset the production costs of the Company's
published marketing tools and other related costs.
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes that such litigation will be resolved
without material effect on the Company's financial position or results of
operations.
-39-
<PAGE> 40
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. FOREIGN OPERATIONS AND EXPORTS:
The Company, through its wholly owned subsidiaries, Daisytek (Canada) Inc.,
Daisytek Australia Pty Ltd and Daisytek de Mexico, S.A. de C.V., sells
products in Canada, Australia and in Mexico. All intercompany activity is
eliminated in computing net sales and net income. Information related to the
Company's Australia and Mexico subsidiaries are included in Other in the
following table. Financial information, summarized by geographical area, is as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Sales:
Domestic $ 541,710 $ 424,667 $ 323,462
Canada 57,295 44,459 38,487
Other 26,425 8,932 1,368
Intercompany eliminations (21,616) (13,889) (10,364)
--------- --------- ---------
Consolidated $ 603,814 $ 464,169 $ 352,953
========= ========= =========
Net Income:
Domestic $ 11,675 $ 10,284 $ 6,437
Canada 1,346 759 640
Other 346 (276) (581)
--------- --------- ---------
Consolidated $ 13,367 $ 10,767 $ 6,496
========= ========= =========
Identifiable Assets:
Domestic $ 144,836 $ 115,219 $ 83,194
Canada 16,924 10,360 9,055
Other 13,528 3,022 2,172
--------- --------- ---------
Consolidated $ 175,288 $ 128,601 $ 94,421
========= ========= =========
</TABLE>
The Company also exports its products for sale throughout Latin America
(through its wholly owned subsidiary, Daisytek Latin America, Inc., beginning
in January 1996), Europe, the Far East, Africa and Australia. Total export
sales to these geographic regions for fiscal years 1997, 1996 and 1995,
included in Domestic sales in the preceding table, were approximately $33.5
million, $31.8 million and $28.0 million, respectively.
9. EMPLOYEE SAVINGS PLAN:
In fiscal year 1994, the Company implemented a defined contribution
employee savings plan under Section 401(k) of the Internal Revenue Code.
Substantially all full-time and part-time U.S. employees are eligible to
participate in the plan. The Company, at its discretion, may match employee
contributions to the plan and also make an additional matching contribution in
the form of profit sharing in recognition of Company performance. For fiscal
year 1997, the Company matched 20% of the employee contributions resulting in a
charge against income of approximately $78,000. For fiscal years 1996 and 1995,
the Company matched 25% of the employee contributions resulting in charges
against income of approximately $95,000 and $81,000, respectively.
-40-
<PAGE> 41
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Company estimates fair value based on market information and
appropriate valuation methodologies. Fair value is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. The fair values of all
non-derivative financial instruments approximate their carrying amounts in the
accompanying consolidated balance sheets.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company's
derivative financial instruments outstanding as of March 31, 1997 and 1996
consisted of forward foreign currency exchange contracts used to hedge the
Company's net investment in, and its intercompany payable balance applicable to
its Canadian subsidiary (See Note 1). The fair value of these contracts based
on fiscal year-end exchange rates, excluding related income taxes, was a net
gain of approximately $67,000 at March 31, 1997, and a net loss of
approximately $90,000 at March 31, 1996.
11. SUPPLEMENTAL INCOME PER SHARE DATA (UNAUDITED):
In December 1994, the Company filed a Form S-1 registration statement
with the Securities and Exchange Commission which became effective in January
1995. The Company reduced outstanding indebtedness under the Company's line of
credit through the application of the net proceeds from the sale of 1,380,000
shares of common stock plus that portion of the net proceeds received by
certain shareholders which were applied towards the full repayment of certain
indebtedness owed by such shareholders to the Company. In addition, 398,678
common stock warrants were exercised concurrently with the consummation of the
IPO at an exercise price of $0.01 per warrant. The supplemental income per
share data has been calculated assuming the IPO occurred as of the beginning of
the respective period.
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31, 1995
--------------
(Unaudited)
<S> <C>
Supplemental net income per common share $ 1.09
Supplemental weighted average common shares
outstanding (in thousands) 6,683
</TABLE>
-41-
<PAGE> 42
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. QUARTERLY DATA (UNAUDITED):
Summarized quarterly financial data for fiscal years 1997 and 1996 are
as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Fiscal Year 1997
--------------------------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 174,343 $ 154,429 $ 138,148 $ 136,894
Gross profit $ 17,503 $ 15,204 $ 13,589 $ 13,670
Gross profit margin 10.0% 9.8% 9.8% 10.0%
SG&A expenses $ 10,552 $ 9,375 $ 8,397 $ 8,306
Percent of net sales 6.1% 6.1% 6.1% 6.1%
Income from operations $ 6,951 $ 5,829 $ 5,192 $ 5,364
Operating margin 4.0% 3.8% 3.8% 3.9%
Net income $ 4,007 $ 3,364 $ 2,955 $ 3,041
Net margin 2.3% 2.2% 2.1% 2.2%
Net income per common share $ 0.58 $ 0.49 $ 0.43 $ 0.44
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1996
--------------------------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 137,237 $ 116,545 $ 105,421 $ 104,966
Gross profit $ 13,768 $ 12,233 $ 11,335 $ 10,634
Gross profit margin 10.0% 10.5% 10.8% 10.1%
SG&A expenses $ 8,432 $ 7,312 $ 6,685 $ 6,595
Percent of net sales 6.1% 6.3% 6.3% 6.3%
Income from operations $ 5,336 $ 4,921 $ 4,650 $ 4,039
Operating margin 3.9% 4.2% 4.4% 3.8%
Net income $ 3,091 $ 2,792 $ 2,616 $ 2,268
Net margin 2.3% 2.4% 2.5% 2.2%
Net income per common share $ 0.46 $ 0.41 $ 0.39 $ 0.34
</TABLE>
-42-
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions of the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David A. Heap 53 Chairman of the Board
Mark C. Layton 37 President, Chief Executive Officer, Chief Operating
Officer and Director
Christopher Yates 42 Senior Vice President - Business Development and
Director
James R. Powell 36 Senior Vice President - Sales and Marketing and
Director
Steve Graham 45 Senior Vice President - Information Technologies,
Chief Information Officer
Harvey H. Achatz 56 Vice President - Administration and Secretary
Thomas J. Madden 35 Vice President - Finance, Chief Financial Officer,
Chief Accounting Officer and Treasurer
Peter D. Wharf 38 Vice President - International Operations
John Snowden 30 Vice President - Operations
Suzanne Garrett 32 Vice President - Product Management and
Marketing
Peter P. J. Vikanis 46 Director
Timothy M. Murray 44 Director
Edgar D. Jannotta, Jr. 36 Director
</TABLE>
DAVID A. HEAP has served as Chairman of the Board and Chief Executive
Officer since 1982 and as President from 1982 to 1990. In April 1997, Mr. Heap
retired as Chief Executive Officer. From 1970 to 1985, Mr. Heap served as
Chairman of ISA International plc (and its predecessors) ("ISA"), a now
publicly traded company he founded in England in 1970. ISA is a distributor of
computer supplies in Western Europe. Mr. Heap is primarily responsible for the
Company's general business strategy and long-term planning.
MARK C. LAYTON has served as President, Chief Operating Officer and Chief
Financial Officer since 1993, as a Director since 1988, as Executive Vice
President from 1990 to 1993 and as Vice President - Operations from 1988 to
1990. Since April 1997, Mr. Layton serves as President, Chief Executive
Officer and Chief Operating Officer. Mr. Layton is also a director of GNWC
Wire and Cable Network Products, a
-43-
<PAGE> 44
distributor of wire, cable and other communications related products ("GNWC").
Prior to joining the Company, Mr. Layton served as a management consultant with
Arthur Andersen & Co., S.C. for six years through 1988 specializing in
wholesale and retail distribution and technology. Mr. Layton is primarily
responsible for the Company's overall operations, growth and development.
CHRISTOPHER YATES was appointed Senior Vice President - Business
Development in February 1996 and has served as Vice President - Business
Development from November 1995 to February 1996, as a Director of the Company
since February 1995, as Vice President-Marketing from January 1994 to November
1995, as Vice President-Sales from 1988 to 1994 and in various other sales
capacities for the Company since 1982. Prior to joining the Company, Mr. Yates
served in various sales capacities for ISA. Mr. Yates is primarily responsible
for business development, special projects and other sales related functions.
JAMES R. POWELL has served as a Director and Senior Vice President - Sales
and Marketing since 1996. Mr. Powell has served as Vice President - Sales from
1992 to 1996, and in various other sales capacities from 1988 to 1992. Prior
to joining the Company, Mr. Powell was engaged in various sales and marketing
activities. Mr. Powell is responsible for U.S. sales and marketing activities
including Daisytek's Customer Care Center and the Annual Computer Supplies
Expo.
STEVE GRAHAM has served as Senior Vice President of Information
Technologies and Chief Information Officer since 1996. Prior to joining the
Company, Mr. Graham was employed by Ingram Micro, a major microcomputer
distributor. Mr. Graham has over 23 years of experience in the information-
technology field. Mr. Graham is responsible for all information technology and
electronic commerce activities.
HARVEY H. ACHATZ serves as Vice President - Administration and Secretary,
positions he has held since 1993 and 1984, respectively. Mr. Achatz has served
as Vice President - Finance from 1985 to 1993, as Controller from 1981 to 1985
and as a Director from 1984 to 1990. Mr. Achatz is responsible for various
administrative functions, including human resources.
THOMAS J. MADDEN was recently appointed Chief Financial Officer and serves
as Vice President - Finance, Treasurer and as Chief Accounting Officer,
positions he has held since November 1994, March 1994 and 1992, respectively.
From 1992 to 1994 he also served as Controller. From 1983 to 1992, Mr. Madden
served in various capacities with Arthur Andersen & Co., S.C., including
financial consulting and audit manager. Mr. Madden is a certified public
accountant. Mr. Madden is responsible for the Company's treasury and
accounting functions.
PETER D. WHARF serves as Vice President - International Operations, a
position he has held since February 1996. Mr. Wharf joined the Company in 1992
and has served in various export and international sales capacities since such
time. Prior to joining the Company, Mr. Wharf served in various sales
capacities for ISA. Mr. Wharf is responsible for all international sales and
customer service for the Company's Canada, Mexico, Australia and Latin America
locations in addition to the Company's export sales.
SUZANNE GARRETT was recently promoted to Vice President of Product
Management and Marketing and has served as new-products manager, marketing
manager, and director of product management and marketing. Prior to joining the
Company in 1991, Ms. Garrett served as an account executive for United Media.
Ms. Garrett is responsible for all manufacturer relationships and global
marketing activities.
-44-
<PAGE> 45
JOHN SNOWDEN was recently promoted to Vice President of Operations. Since
joining the Company in 1992, Mr. Snowden has served as distribution-operations
manager and has served the Company in many capacities, including purchasing
manager, director of purchasing, director of fulfillment services, director of
distribution and director of procurement. Mr. Snowden is responsible for
inventory management and distribution within the United States and overseeing
credit and collection activities.
TIMOTHY M. MURRAY has served as a Director of the Company since 1991. Mr.
Murray is a Principal of William Blair & Company, L.L.C., an investment banking
firm he joined in 1979. Mr. Murray is also a director of GNWC and several
other privately held corporations.
EDGAR D. JANNOTTA, JR. has served as a Director of the Company since 1991.
Mr. Jannotta is a Principal of William Blair & Company, L.L.C., an investment
banking firm he joined in 1988. Mr. Jannotta is also a director of GNWC and
Gibraltar Packaging Group, Inc., a diversified packaging company.
PETER P. J. VIKANIS was appointed a Director of the Company during fiscal
year 1996. Mr. Vikanis served as Chief Operating Officer of ISA from 1991 to
1995, as a director of ISA from 1979 to 1995, and also served in various
management capacities at ISA from 1971 to 1991.
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is divided into three classes. Each class serves three years, with
the terms of office of the respective classes expiring in successive years.
Class I consists of Messrs. Powell and Yates whose term will expire at the
annual meeting of stockholders in 1998; Class II consists of Messrs. Murray and
Layton whose terms will expire at the annual meeting of stockholders in 1999;
and Class III consists of Messrs. Heap, Jannotta and Vikanis whose terms will
expire at the annual meeting of stockholders in 1997. Messrs. Heap, Jannotta
and Vikanis have been nominated by the Board for election at the 1997 annual
meeting.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and controlling stockholders to file
initial reports of ownership and reports of changes of ownership of the
Company's Common Stock with the Securities and Exchange Commission and the
Company. To the Company's knowledge, all reports required to be so filed were
filed in accordance with the provisions of said Section 16(a).
-45-
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to its Chief Executive Officer and to each of the four most highly
compensated executive officers for services rendered during the fiscal years
ended March 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES
------------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ---- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
David A. Heap 1997 $385,000 $222,900 42,864 $5,970
Chairman and Chief 1996 385,000 280,676 37,833 8,636
Executive Officer (2).............. 1995 350,000 171,000 -- 24,701
Mark C. Layton 1997 $299,013 $222,900 34,916 $8,458
President, Chief Operating 1996 276,386 280,676 28,020 6,008
and Financial Officer (2).......... 1995 250,971 171,000 -- 3,967
Christopher Yates 1997 $232,200 $73,557 20,560 $5,004
Senior Vice President - 1996 215,000 92,623 20,138 2,430
Business Development............... 1995 195,000 -- -- 3,321
James R. Powell 1997 $163,652 $73,557 21,330 $3,715
Senior Vice President -- Sales 1996 150,359 70,169 14,004 3,707
and Marketing...................... 1995 123,551 -- -- 3,414
Thomas J. Madden
Vice President - Finance, 1997 $120,276 $22,900 16,587 $4,618
Chief Accounting Officer 1996 112,649 -- 14,703 4,005
and Treasurer (2).................. 1995 94,294 -- -- --
</TABLE>
- --------------------
(1) Represents compensation in respect of one or more of the following:
personal use of Company automobiles; life insurance premiums paid by the
Company for the benefit of the named executive officer; tax return
preparation services paid by the Company; and personal travel expenses.
(2) Mr. Heap presently serves as Chairman; Mr. Layton presently serves as
President, Chief Executive Officer and Chief Operating Officer; and Mr.
Madden presently serves as Vice President - Finance, Chief Financial
Officer, Chief Accounting Officer and Treasurer.
-46-
<PAGE> 47
The following table sets forth information with respect to grants of stock
options during the year ended March 31, 1997 to the named executive officers
reflected in the Summary Compensation Table:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERMS (2)(3)
------------------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR SHARE (3) DATE (1) (3) 5% 10%
---- -------- ----------- ---------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
David A. Heap ... 42,864 12.6% $ 32.50 4-11-06 $ 876,140 $2,220,355
Mark C. Layton .. 34,916 10.3% 32.50 4-11-06 713,683 1,808,649
Christopher Yates 20,560 6.1% 32.50 4-11-06 420,246 1,065,008
James R. Powell . 21,330 6.3% 32.50 4-11-06 435,985 1,104,894
Thomas J. Madden 16,587 4.9% 32.50 4-11-06 339,038 859,207
</TABLE>
(1) All of such options are subject to a three year cumulative vesting
schedule.
(2) These are hypothetical values using assumed annual rates of stock
price appreciation as prescribed by the rules of the Securities and
Exchange Commission.
(3) The fiscal year 1997 option grants were canceled in April 1997 and
reissued at an exercise price per share of $25.00 (the fair market
value on the date of reissue) and have a ten year term. All such
options are subject to a three year cumulative vesting schedule.
The following table sets forth information concerning the aggregate stock
option exercises during the fiscal year ended March 31, 1997 and stock option
values as of the end of fiscal year 1997 for unexercised stock options held by
each of the named executive officers:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END (1) (3)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE RECEIVED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David A. Heap ........ -- $ -- 5,675 75,022 $ 66,681 $ 377,868
Mark C. Layton ....... 4,203 69,350 45,766 58,733 1,187,628 279,850
Christopher Yates..... -- -- 63,821 37,677 1,773,651 201,137
James R. Powell ...... 20,500 665,725 6,027 33,233 126,566 139,872
Thomas J. Madden...... 3,300 101,673 17,568 29,085 424,579 146,852
</TABLE>
(1) Calculated by determining the difference between $ 31 1/4 (the last
sale price of the Common Stock on March 31, 1997 as reported by the
Nasdaq National Market) and the exercise price of the shares of Common
Stock underlying the options.
-47-
<PAGE> 48
(2) Calculated by determining the difference between the last sale price
of the Common Stock on the date of exercise as reported by the Nasdaq
National Market and the exercise price.
(3) See footnote 3 above.
COMPENSATION OF DIRECTORS
Each non-employee director receives an annual director's fee of $20,000
for each year in which he or she serves as a director. Non-employee directors
do not receive additional Board or Committee meeting fees. The Company has also
adopted a Non-Employee Director Stock Option and Retainer Plan (the "Non-
Employee Director Plan") pursuant to which each non-employee director (i) may
elect to receive payment of the director's fees in shares of Common Stock in
lieu of cash, and (ii) is entitled to receive certain grants of options in
accordance with the formula, and subject to the conditions precedent, set forth
therein.
The Non-Employee Director Plan is a formula grant plan pursuant to which
each non-employee director receives options to purchase shares of Common Stock
as of the date of each annual meeting of stockholders. Under the terms of the
Non-Employee Director Plan, during fiscal year 1997, each of the Company's
non-employee directors received options to purchase 1,000 shares of Common
Stock at an exercise price of $39.75 (the fair market value on the date of
grant). In April 1997, such options were canceled and the Board authorized the
issuance to each non-employee director of new options to purchase 1,000 shares
of Common Stock at an exercise price of $25.00 (the fair market value on the
date of grant). Such new options were not issued under the Non-Employee
Director Plan. In addition, under the terms of the Non-Employee Director Plan,
each non-employee director will receive options to purchase 1,240 shares of
Common Stock as of the date of the 1997 Annual Meeting. The number of options
to be issued under the Non-Employee Director Plan will increase each year based
on the percentage increase, if any, in the Company's earnings before taxes
("EBT") for such fiscal year over the Company's EBT for the immediately
preceding fiscal year. No options will be issued, however, under the
Non-Employee Director Plan with respect to any fiscal year in which the
Company's EBT does not equal or exceed the Company's projected EBT for such
year, nor will any options be issued to any non-employee director who does not
attend at least 75% of all Board (and committee) meetings held during such
fiscal year.
All options issued under the Non-Employee Director Plan are non-qualified
options for federal income tax purposes and have an exercise price equal to the
fair market value of a share of common stock as of the date of the annual
meeting upon which such option is granted. All options are subject to a three
year cumulative vesting schedule.
Directors who are employees of the Company or any of its subsidiaries do
not receive additional compensation for service on the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Company's Board of
Directors are Timothy M. Murray and Edgar D. Jannotta, Jr. who are non-employee
directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 18, 1997, certain information
regarding the beneficial ownership of the Common Stock by (i) each person who
is known to the Company to beneficially own
-48-
<PAGE> 49
more than 5% of the Common Stock, (ii) each of the Directors and executive
officers of the Company individually and (iii) the Directors and executive
officers of the Company as a group. The information contained in this table
reflects "beneficial ownership" as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Unless otherwise
indicated, the stockholders identified in this table have sole voting and
investment power with respect to the shares owned of record by them.
<TABLE>
<CAPTION>
Number
Name and Address of Beneficial Owner of shares Percent (1)
------------------------------------ --------- -----------
<S> <C> <C>
David A. Heap (2) ..................................... 1,088,645 16.1%
500 North Central Expressway
Plano, Texas 75074
Royal Bank of Canada Trust Company
(Jersey) Limited, Brian Gerald Balleine,
Kenneth Edward Rayner, Trustees,
of the David Anthony Heap 1996
Interest in Possession Settlement (3) ................. 312,173 4.6%
19-21 Broad Street
St. Helier, Jersey, Channel Islands
Royal Bank of Canada Trust Company
(Jersey) Limited, Brian Gerald Balleine
and Kenneth Edward Rayner, Trustees,
of the David Heap Life Interest
Settlement (No. 10) (4) ............................... 584,673 8.6%
19-21 Broad Street
St. Helier, Jersey, Channel Islands
A I M Management Group Inc. (5) ....................... 567,000 8.4%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Mark C. Layton (6) .................................... 118,631 1.8%
Christopher Yates (7) ................................. 13,153 *
Harvey H. Achatz (8) .................................. 37,812 *
James R. Powell (9) ................................... 36,991 *
Thomas J. Madden (10) ................................. 22,928 *
Peter D. Wharf (11) ................................... 14,059 *
Edgar D. Jannotta, Jr. (12) ........................... 18,911 *
Timothy M. Murray (13) ................................ 34,216 *
Peter P. J. Vikanis (14) .............................. 439 *
Suzanne Garrett (15) .................................. 8,376 *
John Snowden (16) ..................................... 2,368 *
Steve Graham (17) ..................................... -- --
All directors and executive officers
as a group (13 persons) (18) .......................... 1,396,529 20.6%
</TABLE>
- -------------------
*Represents less than 1%
(1) This table is based on 6,763,744 shares of Common Stock outstanding as of
June 18, 1997.
-49-
<PAGE> 50
(2) Includes outstanding options to purchase 25,346 shares of Common Stock
which are fully vested and exercisable. Does not include (i) 900 shares
held by Mr. Heap's spouse as custodian for minor children as to which
beneficial ownership is disclaimed, (ii) options to purchase 88,264 shares
of Common Stock which are not vested or exercisable and (iii) an aggregate
of 896,846 shares of Common Stock held of record by the trusts set forth
above (the "Heap Trusts"). Although Mr. Heap and members of his family are
the primary beneficiaries of the Heap Trusts, neither Mr. Heap nor such
beneficiaries have voting or investment power with respect to such shares.
Of the shares owned of record by Mr. Heap, 227,532 are pledged to financial
institutions to secure indebtedness owing by Mr. Heap to such institutions.
(3) Shares are held of record by a Trust established by Mr. Heap for which he
and members of his family are the primary beneficiaries, although neither
Mr. Heap nor such beneficiaries may exercise voting or investment power
with respect to such shares.
(4) Shares are held of record by a Trust established by Mr. Heap for which he
and members of his family are the primary beneficiaries, although neither
Mr. Heap nor such beneficiaries may exercise voting or investment power
with respect to such shares. All of such shares are pledged to a financial
institution to secure indebtedness owing by such Trust and Mr. Heap to
such institution.
(5) Based upon a Schedule 13G filing dated February 12, 1997, filed by AIM
Management Group Inc. ("AIM"). AIM, as parent holding company to AIM
Advisors, Inc. and AIM Capital Management, Inc., investment advisors, has
beneficial ownership and shared dispositive power of 567,000 shares.
(6) Includes outstanding options to purchase 15,044 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 70,191 shares of Common Stock which are not vested or
exercisable.
(7) Includes outstanding options to purchase 13,153 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 49,356 shares of Common Stock which are not vested or
exercisable.
(8) Includes outstanding options to purchase 28,561 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 4,368 shares of Common Stock which are not vested or
exercisable.
(9) Includes outstanding options to purchase 12,027 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 41,860 shares of Common Stock which are not vested or
exercisable.
(10) Includes outstanding options to purchase 20,203 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 35,038 shares of Common Stock which are not vested or
exercisable.
(11) Includes outstanding options to purchase 14,059 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 29,209 shares of Common Stock which are not vested or
exercisable.
(12) Does not include outstanding options to purchase 1,000 shares of Common
Stock which are not vested or exercisable.
(13) Does not include outstanding options to purchase 1,000 shares of Common
Stock which are not vested or exercisable.
(14) Does not include outstanding options to purchase 1,000 shares of Common
Stock which are not vested or exercisable.
-50-
<PAGE> 51
(15) Includes outstanding options to purchase 4,876 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 19,338 shares of Common Stock which are not vested or
exercisable.
(16) Includes outstanding options to purchase 2,368 shares of Common Stock
which are fully vested and exercisable. Does not include outstanding
options to purchase 15,234 shares of Common Stock which are not vested or
exercisable.
(17) Does not include outstanding options to purchase 30,000 shares of Common
Stock which are not vested or exercisable.
(18) Includes outstanding options to purchase 135,637 shares of Common Stock
which are fully vested and exercisable. Does not include (i) outstanding
options to purchase 385,858 shares of Common Stock which are not vested or
exercisable or (ii) shares of Common Stock held by the Heap Trusts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
During fiscal year 1997, the Company made loans in varying amounts to
Messrs. Layton, Powell and Wharf in order to provide such persons with the
funds necessary to satisfy various personal obligations and for other purposes.
The largest amount owing by such persons during fiscal year 1997 was $423,552,
$122,274 and $60,550, respectively, and as of May 31, 1997, such persons were
indebted to the Company in the amount of $428,497, $174,285 and $61,257,
respectively. The indebtedness owing by such persons accrues interest at the
rate charged to the Company for working capital borrowings. Mr. Layton's
indebtedness is due and payable in one installment on April 1, 1999, while
Messrs. Powell's and Wharf 's indebtedness is due and payable in one
installment on March 31, 1998.
David Heap, the Company's Chairman of the Board, owns approximately a one-
third equity interest in a small computer supplies dealer, Business Software
Centers, Inc. ("BSC"). In December 1991, Mr. Heap agreed to remit to the
Company any dividends, distributions or other amounts which he may receive in
respect of such interest. Mr. Heap has not received any dividends,
distributions or other amounts in respect of his equity interest and it is
unlikely that he will receive any in the future.
During fiscal year 1997, the Company's sales to BSC aggregated
approximately $1,844,000 and constituted less than 1% of the Company's total
sales in such fiscal year. Such sales were made in accordance with the
Company's usual terms, except that BSC received extended payment terms in
return for which BSC agreed, among other things, to provide the Company with
quarterly financial information. In December 1993, the Company and BSC agreed
that (i) $500,000 of the past due trade receivable then owing by BSC would be
evidenced by a promissory note, payable in 48 monthly installments and accruing
interest at the rate of 7% per annum, (ii) the Company would provide BSC with
60 day credit terms up to a maximum amount of $350,000 (subject to BSC
continuing to meet its obligations under the note), (iii) BSC would provide the
Company with quarterly financial information and (iv) at such time as the note
is paid in full, Mr. Heap will transfer to BSC, for a nominal consideration,
the one-third equity interest held in BSC. As of May 31, 1997, there was
approximately $20,000 outstanding under the note and there were past due trade
amounts payable of approximately $27,000 by BSC to the Company.
-51-
<PAGE> 52
In April 1997, the Company entered into a one-year aircraft lease with a
company owned by Mr. Heap under which the Company, on a non-exclusive basis,
leases an aircraft from such company. Under the terms of the lease, the Company
pays monthly lease payments of $14,400 and is responsible for certain operating
expenses. The lease is terminable by either party at any time.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the Fiscal Years Ended March 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
3. Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1(7) - Amended and Restated Certificate of Incorporation of Daisytek
International Corporation.
3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Daisytek International Corporation.
3.2(1) - Amended and Restated By-laws of Daisytek International Corporation.
10.1(2) - Employee Stock Option Plan of Daisytek International Corporation.
10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation.
10.3(7) - Non-Employee Director Stock Option and Retainer Plan.
-52-
<PAGE> 53
10.4(*) - 1997 Employee Stock Option Plan of Daisytek International
Corporation
10.5(3) - Credit Agreement dated May 22, 1995 between Daisytek,
Incorporated, as Borrower, Daisytek International Corporation
and Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank
National Association, as Agent, and Texas Commerce Bank National
Association and State Street Bank and Trust Company, as Lenders.
10.5.1(8) - First Amendment to Credit Agreement dated April 15, 1996
between Daisytek, Incorporated, as Borrower, Daisytek
International Corporation and Borrower's Subsidiaries, as
Guarantors, and Texas Commerce Bank National Association and
State Street Bank and Trust Company, as Lenders.
10.5.2(9) - 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.
10.6(2) - Industrial Lease Agreement between Industrial Developments
International, Inc. and Daisytek, Incorporated, as amended.
10.7(2) - Lease Agreement dated September 30, 1991 between AmWest
Savings Association and Daisytek, Incorporated, as amended.
10.8(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd.,
Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc.
10.9(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and
Endow (6) Inc. and Daisytek (Canada) Inc.
10.10(2) - Lease Agreement dated December 30, 1988 between Daisytek,
Incorporated and State Street Bank and Trust Company.
10.11(2) - Term Lease Master Agreement dated November 29, 1990 between IBM
Credit Corporation and Daisytek, Incorporated.
10.12(*) - U.S. Reseller Agreement dated March 10, 1997 between Hewlett-
Packard Company and Daisytek, Incorporated, with Addendum.
10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del
Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V.
10.14(2) - Marketing Advantage Program Enrollment Agreement dated November
11, 1994 between Federal Express Corporation and Daisytek,
Incorporated.
10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners
Joint Number Three and Daisytek Latin America, Inc.
10.16(*) - Forward Exchange Contract dated May 22, 1997 between Daisytek
and Texas Commerce Bank National Association.
10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995
between Daisytek International Corporation and David A. Heap.
10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995
between Daisytek International Corporation and Mark C. Layton.
10.19(6) - Second Amendment to Industrial Lease Agreement between New York
Life Insurance Company and Daisytek, Incorporated.
10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company
and Daisytek, Incorporated.
10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995
between Atrium Associates, L.P. and Daisytek, Incorporated.
10.22(*) - Option to Purchase Shares of Common Stock dated April 17, 1997
between Daisytek International Corporation and David A. Heap.
-53-
<PAGE> 54
10.23(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Steve
Graham.
10.24(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Peter
Vikanis.
10.25(*) - Dry Lease Agreement dated April 1, 1997 between Virtual Village
Aircraft, Inc. and Daisytek International Corporation.
10.26(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Timothy
Murray.
10.27(*) - Option to Purchase Shares of Common Stock dated April 17, 1997
between Daisytek International Corporation and Edgar D.
Jannotta, Jr.
11(*) - Statement re computation of per share earnings.
21(*) - Subsidiaries of the Registrant.
23(*) - Consents.
27(*) - Financial Data Schedule.
- -------------------
(*) Filed herewith.
(1) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended December 31, 1994 dated March 10, 1995.
(2) Incorporated by reference from Registration Statement on Form S-1 No.
33-86926.
(3) Incorporated by reference from Current Report on Form 8-K dated May
22, 1995.
(4) Incorporated by reference from Annual Report on Form 10-K for the
Fiscal Year ended March 31, 1995 dated June 23, 1995.
(5) Incorporated by reference from Current Report on Form 8-K dated
August 22, 1995.
(6) Incorporated by reference from Registration Statement on Form S-1 No.
33-99796.
(7) Incorporated by reference from Annual Report on Form 10-K for the
Fiscal Year ended March 31, 1996 dated June 26, 1996.
(8) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended June 30, 1996 dated August 13, 1996
(9) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended December 31, 1996 dated February 13, 1997
(b) Reports on Form 8-K
1. On January 30, 1997, the Company filed a Current Report on Form
8- K to report under Item 5 the Company's press release dated January 30, 1997
announcing third quarter results.
-54-
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Daisytek International Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Daisytek International
Corporation (a Delaware corporation) and subsidiaries included in this Form 10-
K and have issued our report thereon dated April 25, 1997. Our audits were made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. Schedule II of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 25, 1997
-55-
<PAGE> 56
SCHEDULE II
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended March 31, 1995:
Allowance for doubtful accounts $ 661 750 -- (351) $ 1,060
Allowance for related party
receivables $ 475 -- -- -- $ 475
Income tax valuation allowance $ -- 378 -- -- $ 378
Fiscal Year Ended March 31, 1996:
Allowance for doubtful accounts $ 1,060 999 -- (776) $ 1,283
Allowance for related party
receivables $ 475 -- -- -- $ 475
Income tax valuation allowance $ 378 8 -- -- $ 386
Fiscal Year Ended March 31, 1997:
Allowance for doubtful accounts $ 1,283 1,594 -- (992) $ 1,885
Allowance for related party
receivables $ 475 -- -- -- $ 475
Income tax valuation allowance $ 386 -- -- (123) $ 263
</TABLE>
-56-
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Mark C. Layton
-------------------------------
Mark C. Layton, Chief Executive
Officer and President
June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David A. Heap Chairman of the Board June 27, 1997
- -------------------------------------
David A. Heap
/s/ Mark C. Layton Chief Executive Officer, June 27, 1997
- ------------------------------------- President and Director
Mark C. Layton (principal executive officer)
/s/ Thomas J. Madden Chief Financial Officer June 27, 1997
- ------------------------------------- Vice President - Finance
Thomas J. Madden (principal financial and
accounting officer)
/s/ Christopher Yates Director June 27, 1997
- -------------------------------------
Christopher Yates
/s/ James R. Powell Director June 27, 1997
- -------------------------------------
James R. Powell
/s/ Timothy M. Murray Director June 27, 1997
- -------------------------------------
Timothy M. Murray
/s/ Edgar D. Jannotta, Jr. Director June 27, 1997
- -------------------------------------
Edgar D. Jannotta, Jr.
/s/ Peter P. J. Vikanis Director June 27, 1997
- -------------------------------------
Peter P. J. Vikanis
</TABLE>
-57-
<PAGE> 58
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1(7) - Amended and Restated Certificate of Incorporation of Daisytek
International Corporation.
3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Daisytek International Corporation.
3.2(1) - Amended and Restated By-laws of Daisytek International Corporation.
10.1(2) - Employee Stock Option Plan of Daisytek International Corporation.
10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation.
10.3(7) - Non-Employee Director Stock Option and Retainer Plan.
10.4(*) - 1997 Employee Stock Option Plan of Daisytek International
Corporation
10.5(3) - Credit Agreement dated May 22, 1995 between Daisytek,
Incorporated, as Borrower, Daisytek International Corporation and
Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank
National Association, as Agent, and Texas Commerce Bank National
Association and State Street Bank and Trust Company, as Lenders.
10.5.1(8) - First Amendment to Credit Agreement dated April 15, 1996
between Daisytek, Incorporated, as Borrower, Daisytek
International Corporation and Borrower's Subsidiaries, as
Guarantors, and Texas Commerce Bank National Association and
State Street Bank and Trust Company, as Lenders.
10.5.2(9) - 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.
10.6(2) - Industrial Lease Agreement between Industrial Developments
International, Inc. and Daisytek, Incorporated, as amended.
10.7(2) - Lease Agreement dated September 30, 1991 between AmWest
Savings Association and Daisytek, Incorporated, as amended.
10.8(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd.,
Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc.
10.9(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and
Endow (6) Inc. and Daisytek (Canada) Inc.
10.10(2) - Lease Agreement dated December 30, 1988 between Daisytek,
Incorporated and State Street Bank and Trust Company.
10.11(2) - Term Lease Master Agreement dated November 29, 1990 between IBM
Credit Corporation and Daisytek, Incorporated.
10.12(*) - U.S. Reseller Agreement dated March 10, 1997 between Hewlett-
Packard Company and Daisytek, Incorporated, with Addendum.
10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del
Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V.
10.14(2) - Marketing Advantage Program Enrollment Agreement dated November
11, 1994 between Federal Express Corporation and Daisytek,
Incorporated.
10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners
Joint Number Three and Daisytek Latin America, Inc.
10.16(*) - Forward Exchange Contract dated May 22, 1997 between Daisytek
and Texas Commerce Bank National Association.
10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995
between Daisytek International Corporation and David A. Heap.
10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995
between Daisytek International Corporation and Mark C. Layton.
<PAGE> 59
10.19(6) - Second Amendment to Industrial Lease Agreement between New York
Life Insurance Company and Daisytek, Incorporated.
10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company
and Daisytek, Incorporated.
10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995
between Atrium Associates, L.P. and Daisytek Incorporated.
10.22(*) - Option to Purchase Shares of Common Stock dated April 17, 1997
between Daisytek International Corporation and David A. Heap.
10.23(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Steve
Graham.
10.24(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Peter
Vikanis.
10.25(*) - Dry Lease Agreement dated April 1, 1997 between Virtual Village
Aircraft, Inc. and Daisytek International Corporation.
10.26(*) - Option to Purchase Shares of Common Stock dated April 17,
1997 between Daisytek International Corporation and Timothy
Murray.
10.27(*) - Option to Purchase Shares of Common Stock dated April 17, 1997
between Daisytek International Corporation and Edgar D.
Jannotta, Jr.
11(*) - Statement re computation of per share earnings.
21(*) - Subsidiaries of the Registrant.
23(*) - Consents.
27(*) - Financial Data Schedule.
- -------------------
(*) Filed herewith.
(1) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended December 31, 1994 dated March 10, 1995.
(2) Incorporated by reference from Registration Statement on Form S-1 No.
33-86926.
(3) Incorporated by reference from Current Report on Form 8-K dated May
22, 1995.
(4) Incorporated by reference from Annual Report on Form 10-K for the
Fiscal Year ended March 31, 1995 dated June 23, 1995.
(5) Incorporated by reference from Current Report on Form 8-K dated
August 22, 1995.
(6) Incorporated by reference from Registration Statement on Form S-1 No.
33-99796.
(7) Incorporated by reference from Annual Report on Form 10-K for the
Fiscal Year ended March 31, 1996 dated June 26, 1996.
(8) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended June 30, 1996 dated August 13, 1996
(9) Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarterly Period Ended December 31, 1996 dated February 13, 1997
<PAGE> 1
EXHIBIT 10.4
1997 STOCK OPTION PLAN
OF
DAISYTEK INTERNATIONAL CORPORATION
Daisytek International Corporation, a corporation organized
under the laws of the State of Delaware, hereby adopts this 1997 Stock Option
Plan. The purpose of this Plan is to further the growth, development and
financial success of the Company by providing additional incentives to certain
of its key Employees by assisting them to become owners of the Company's Common
Stock and thus to benefit directly from its growth, development and financial
success.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, 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 shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Stock Option Committee of the Board,
appointed as provided in Section 6.1.
Section 1.4 - Company
"Company" shall mean Daisytek International Corporation, a
Delaware corporation. In addition, "Company" shall mean any corporation
assuming, or issuing new employee stock options in substitution for, Incentive
Stock Options, outstanding under the Plan, in a transaction to which Section
424(a) of the Code applies.
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Section 1.5 - Director
"Director" shall mean a member of the Board.
Section 1.6 - Employee
"Employee" shall mean any employee (as defined in accordance
with the regulations and revenue rulings then applicable under Section 3401(c)
of the Code) of the Company, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the time
this Plan is adopted or becomes so employed subsequent to the adoption of this
Plan. To the extent not included in the foregoing, "Employee" shall also mean
any officer, director, employee or consultant of the Company, or any entity
which, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company, as the Committee
shall from time to time select in its sole discretion.
Section 1.7 - Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Section 1.8 - Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies
under Section 422 of the Code and which is designated as an Incentive Stock
Option by the Committee.
Section 1.9 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an
Incentive Stock Option and which is designated as a Non-Qualified Option by the
Committee.
Section 1.10 - Officer
"Officer" shall mean an officer of the Company, as defined in
Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the
future.
Section 1.11 - Option
"Option" shall mean an option to purchase Common Stock of the
Company, granted under the Plan. "Options" includes both Incentive Stock
Options and Non-Qualified Options.
Section 1.12 - Optionee
"Optionee" shall mean an Employee to whom an Option is granted
under the Plan.
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Section 1.13 - Parent Corporation
"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 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.14 - Plan
"Plan" shall mean this 1997 Stock Option Plan of Daisytek
International Corporation.
Section 1.15 - Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
Section 1.16 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.17 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.18 - Subsidiary
"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 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.19 - Termination of Employment
"Termination of Employment" shall mean the time when an Optionee
ceases to be an Employee for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement, but
excluding terminations where there is a simultaneous reemployment by the
Company, a Parent Corporation, a Subsidiary or any entity which, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the Company. The Committee, in its absolute
discretion, and with respect to all Options hereunder, shall determine all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment is
for "cause" and what actions constitute "cause", and all questions of whether
particular leaves of absence constitute Terminations of Employment; provided,
however, that, with respect to Incentive Stock Options, a leave of absence
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shall constitute a Termination of Employment if, and to the extent that, such
leave of absence interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The shares of stock subject to Options shall be shares of the
Company's Common Stock, $.01 par value. The aggregate number of such shares
which may be issued upon exercise of Options shall be 1,000,000 shares. The
shares to be issued upon exercise of Options may be newly-issued shares or
Treasury shares.
Section 2.2 - Unexercised Options
If any Option expires or is canceled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder.
Section 2.3 - Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares,
appropriate adjustments shall be made by the Committee in the number and kind
of shares for the purchase of which Options may be granted, including
adjustments of the limitations in Section 2.1 on the maximum number and kind of
shares which may be issued on exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any key Employee shall be eligible to be granted Options,
subject to such rules and conditions as the Committee may establish from time
to time in its sole discretion.
Section 3.2 - Qualification of Incentive Stock Options
Subject to the provisions of Section 7.7 hereof, no Incentive
Stock Option shall be
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granted unless such Option, when granted, qualifies as an "incentive stock
option" under Section 422 of the Code.
Section 3.3 - Granting of Options
(a) Subject to the provisions hereof, the Committee shall from
time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees (including those to whom Options have been
previously granted under the Plan or any other plan of the Company) such
of them as in its opinion should be granted Options; and
(ii) Determine the number of shares to be subject to such
Options granted to such selected key Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified Options;
and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) In selecting the key Employees to whom Options shall be
granted hereunder, the number of shares to be subject to such Options and the
terms and conditions of such Options, the Committee shall have sole and
absolute discretion and shall be free to make non-uniform and selective
determinations based upon such factors as it deems relevant.
(c) Upon the selection of a key Employee to be granted an
Option, the Committee shall instruct the Secretary to issue such Option and may
impose such conditions on the grant of such Option as it deems appropriate.
Without limiting the generality of the preceding sentence, the Committee may,
in its discretion and on such terms as it deems appropriate, require as a
condition on the grant of an Option to an Employee that the Employee surrender
for cancellation some or all of the unexercised Options which have been
previously granted to him. An Option the grant of which is conditioned upon
such surrender may have an option price lower (or higher) than the option price
of the surrendered Option, may cover the same (or a lessor or greater) number
of shares as the surrendered Option, may contain such other terms as the
Committee deems appropriate and shall be exercisable in accordance with its
terms, without regard to the number of shares, price, option period or any
other term or condition of the surrendered Option.
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ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option
Agreement, which shall be executed by the Optionee and an authorized Officer of
the Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such Options as "incentive stock options" under Section
422 of the Code.
Section 4.2 - Option Price
(a) The price of the shares subject to each Option shall be not
less than 100% of the fair market value of such shares on the date such Option
is granted; provided, however, that, in the case of an Incentive Stock Option,
the price per share shall not be less than 110% of the fair market value of
such shares on the date such Option is granted in the case of an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation.
(b) For purposes of the Plan, the fair market value of a share
of the Company's Common Stock as of a given date shall be: (i) the closing
price of a share of the Company's Common Stock on the principal exchange on
which shares of the Company's Common Stock are then trading, if any, on the day
previous to such date, or, if shares were not traded on the day previous to
such date, then on the next preceding trading day during which a sale occurred;
or (ii) if such Common Stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (1) the last sales price (if the
Company's Common Stock is then listed as a National Market Issue under the NASD
National Market System) or (2) the mean between the closing representative bid
and asked prices (in all other cases) for the Company's Common Stock, in each
case, as of the day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if such Common Stock is not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation system,
the mean between the closing bid and asked prices for the Company's Common
Stock, on the day previous to such date, as determined in good faith by the
Committee; or (iv) if the Company's Common Stock is not publicly traded, the
fair market value established by the Committee acting in good faith.
Section 4.3 - Commencement of Exercisability
(a) No Option may be exercised in whole or in part during the
six months after such Option is granted.
(b) Subject to the provisions of paragraph (c) below, each
Option granted hereunder shall be subject to the following cumulative vesting
schedule:
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(i) Until the date which is one year from the date of
grant, the Option shall not be vested and shall not be exercisable as to
any of the shares subject thereto;
(ii) From and after the date which is one year from the
date of grant, the Option shall vest and be exercisable as to 15% of the
number of shares subject thereto;
(iii) From and after the date which is two years from the
date of grant, the Option shall vest and be exercisable as to 50% of the
number of shares subject thereto; and
(iv) From and after the date which is three years from
the date of grant, the Option shall be fully vested and exercisable as to
100% of the number of shares subject thereto.
(c) Subject to the provisions hereof governing Incentive Stock
Options, the Committee shall have the right to accelerate the vesting of any
outstanding Option, or any portion thereof, at any time and from time to time,
and upon such terms and conditions as it shall determine in its sole
discretion.
(d) Notwithstanding any other provision of this Plan, to the
extent that the aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the shares of the Company's stock with
respect to which "incentive stock options" (within the meaning of Section 422
of the Code) are exercisable by any Optionee for the first time by such
Optionee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such Options shall be treated as Non-Qualified Options. For purposes
of this Section, Options shall be taken into account in the order in which they
were granted.
Section 4.4 - Expiration of Options
No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years from the date the Option
was granted;
(ii) With respect to an Incentive Stock Option, in the
case of an Optionee owning (within the meaning of Section 424(d) of the
Code), at the time the Incentive Stock Option was granted, more than 10%
of the total combined voting power of all classes of stock of the
Company, any Subsidiary or any Parent Corporation, the expiration of five
years from the date the Incentive Stock Option was granted;
(iii) The date of the Optionee's Termination of Employment
for any reason, other than such Optionee's death or disability (within
the meaning of Section 22(e)(3) of the Code), unless the Committee
otherwise elects to permit the exercise of such Option for a period of
time thereafter; provided, however (a) such period of time shall end no
later than ten
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years from the date the Option was granted, (b) with respect to
Incentive Stock Options, such period of time shall not exceed three
months from such Termination of Employment and (c) the Committee may make
such elections in such manner as it deems appropriate, which may be
non-uniform and selective, and based upon such factors as it deems
relevant;
(iv) With respect to an Incentive Stock Option held by an
Optionee who is disabled (within the meaning of Section 22(e)(3) of the
Code), the expiration of one year from the date of the Optionee's
Termination of Employment for any reason other than such Optionee's death
unless the Optionee dies within said one-year period;
(v) The expiration of one year from the date of the
Optionee's death with respect to all Incentive Stock Options held by such
Optionee; and
(vi) With respect to all Options, and notwithstanding any
other provision contained herein, the date of the Optionee's Termination
of Employment in the event such Termination is for "cause" (as provided
in Section 1.19 above).
Section 4.5 - Consideration
In consideration of the granting of an Option, the Committee may
require that the Optionee shall agree to remain in the employ of the Company,
a Parent Corporation or a Subsidiary for a period of at least one year after
the Option is granted. Nothing in this Plan or in any Stock Option Agreement
hereunder shall confer upon any Optionee any right to continue in the employ of
the Company, any Parent Corporation or any Subsidiary or shall interfere with
or restrict in any way the rights of the Company, its Parent Corporations and
its Subsidiaries, which are hereby expressly reserved, to discharged any
Optionee at any time for any reason whatsoever, with or without cause.
Section 4.6 - Adjustments in Outstanding Options
In the event that the outstanding shares of the stock subject to
Options 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 Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which all
outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to the Option or 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 Option
price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to constitute
a "modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
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Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
By its acceptance of each Option, each Optionee agrees that the
Board shall have the power and right to declare and determine, by a duly
adopted resolution of the Board, that each Option may not be exercised after
(i) the merger or consolidation of the Company with or into another corporation
(if the Company is not the surviving corporation of such merger or
consolidation), (ii) the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or (iii) the liquidation or dissolution of the
Company; provided, that such resolution shall be adopted prior to the
occurrence of such merger, consolidation, acquisition, liquidation or
dissolution.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an
Option (or any portion thereof) granted to him. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when such
portion becomes unexercisable under the Plan or the applicable Stock Option
Agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution. Notwithstanding the foregoing, the
Committee may, in its sole discretion, permit the transfer of any Non-Qualified
Option, in whole or in part, and the exercise thereof by any transferee
thereof.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
the Plan or the applicable Stock Option Agreement, such Option or portion
thereof may be exercised in whole or in part; provided, however, that the
Company shall not be required to issue fractional shares and the Committee may
require any partial exercise to be with respect to a specified minimum number
of shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may
be exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee; and
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(b)(i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) except with respect to Incentive Stock Options and subject to
the requirements of Section 5.4, shares of the Company's Common Stock issuable
to the Optionee upon exercise of the Option, in each case, with a fair market
value (as determined under Section 4.2(b)) on the date of Option exercise equal
to the aggregate Option price of the shares with respect to which such Option
or portion is thereby exercised; or
(iii) With the consent of the Committee, any combination of the
consideration provided in the foregoing subsections (i) and (ii); and
(c) The payment to the Company (or other employer corporation)
of all amounts which it is required to withhold under federal, state or local
law in connection with the exercise of the Option; provided, that, with the
consent of the Committee, any combination of the following may be used to make
all or part of such payment: (i) shares of the Company's Common Stock owned by
the Optionee duly endorsed for transfer or (ii) except with respect to
Incentive Stock Options and subject to the requirements of Section 5.4, shares
of the Company's Common Stock issuable to the Optionee upon exercise of the
Option, in each case, valued in accordance with Section 4.2(b) at the date of
Option exercise; and
(d) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
Section 5.4 - Certain Requirements
The Committee may, in its sole discretion, limit or restrict the
use of Shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option to satisfy the Option price or the tax withholding
consequences of such exercise (i) to the period beginning on the third business
day following the date of release of the quarterly or annual summary statement
of sales and earnings of the Company and ending on the twentieth business day
following such date or (ii) to its receipt of an irrevocable written election
by the Optionee to use shares of the Company's Common Stock issuable to the
Optionee upon exercise of the Option to pay all or part of the Option price or
the
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withholding taxes (subject to the approval of the Committee) made at least six
months prior to the payment of such Option price or withholding taxes or (iii)
in accordance with such other rules and regulations as the Committee may
determine to be necessary or appropriate from time to time.
Section 5.5 - Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise
of an Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option
or portion thereof prior to the fulfillment of all of the following conditions:
(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 the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee 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 Committee 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 it is required to withhold under federal, state or local
law in connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience.
Section 5.6 - Rights as Shareholders
The holders of Options shall not be, nor have any of the rights
or privileges of, shareholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
holders.
Section 5.7 - Transfer Restrictions
If required at any time by the Committee, no shares acquired
upon exercise of any Option by any Officer may be sold, assigned, pledged,
encumbered or otherwise transferred until at least six months have elapsed from
(but excluding) the date that such Option was granted. The
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Committee, in its absolute discretion, may impose such other restrictions on
the transferability of the shares purchasable upon the exercise of an Option as
it deems appropriate. Any such other restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of stock, acquired by
exercise of an Incentive Stock Option, within two years from the date of
granting such Option or one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Incentive Stock Option refer to such requirement to
give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
Section 6.1 - Stock Option Committee
The Stock Option Committee shall consist of two or more
Directors, appointed by and holding office at the pleasure of the Board. The
Board may limit the members of the Committee to directors who are both
"non-employee directors", as defined in Rule 16b-3, and "outside directors", as
defined in Section 162(m) of the Code. Subject to the limitations set forth in
the preceding sentence, the powers of the Stock Option Committee may be
exercised by the Compensation Committee of the Board. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members
may be removed by the Board at any time and may resign at any time. Vacancies
in the Committee shall be filled by the Board. The Board reserves the right to
serve as the Stock option Committee if it so elects, and, in which event, the
term "Committee" shall mean the Board.
Section 6.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any
such interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code.
Section 6.3 - Majority Rule
The Committee shall act by a majority of its members in office.
The Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for
their services as
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members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and its Officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Optionees, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options, and all members of the Committee
shall be fully protected by the Company in respect to any such action,
determination or interpretation. The Committee shall have the unrestricted
right to make non-uniform decisions and determinations in all matters regarding
the Plan and all Options issued hereunder.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Options Not Transferable
No Option or interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Optionee 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 or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution. Notwithstanding the foregoing, the Committee may, in
its discretion, permit the holder of any Non-Qualified Option to transfer such
Option, or any portion thereof, to such holder's spouse, lineal descendent or
trust established for the benefit thereof or any other person or entity.
Section 7.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Committee, including without limitation, any amendment to increase or decrease
the number of shares as to which Options may be granted hereunder, subject to
any requirements of shareholder approval set forth in Section 16b-3 or the
applicable provisions of the Code. Neither the amendment, suspension nor
termination of the Plan shall, without the consent of the holder of the Option,
impair any rights or obligations under any Option theretofore granted. Subject
to any applicable provisions of Section 16b-3 and the Code, the Committee and
the holder of any Option may at any time, by mutual consent, amend, modify or
otherwise waive any of the terms and provisions, including the exercise price,
of such holder's Option and Stock Option Agreement. No Option may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Option be granted under this Plan after the first to
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occur of (a) March 31, 2007 or (b) the expiration of ten years from the date
the Plan is approved by the Company's shareholders under Section 7.3.
Section 7.3 - Effective Date; Approval of Plan by Shareholders
This Plan will be effective upon its approval by the Board or
such other date as the Board shall determine; provided, however, that,
notwithstanding any other provision contained herein, no Option shall be
exercisable unless this Plan shall be approved within 12 months of its
effective date by stockholders holding at least a majority of the Company's
voting stock voting in person or by proxy at a duly held stockholders' meeting.
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other
compensation or incentive plans in effect for the Company, any Parent
Corporation or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company, any Parent Corporation or any Subsidiary to (a)
establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary or (b) grant or assume
options otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
Section 7.5 - Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
Section 7.6 - Conformity to Securities Laws
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan and
Options granted hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
Section 7.7 - Incentive Stock Options
With respect to Incentive Stock Options, if the Plan does not
contain any provision now or hereafter required to be included herein under
section 422 of the Code, such provision shall be deemed to be incorporated
herein with the same force and effect as if such provision had been set out
-14-
<PAGE> 15
at length herein. Notwithstanding anything contained herein, to the extent any
Option which is intended to qualify as an Incentive Stock Option cannot so
qualify, such Option, to that extent, shall be deemed to be a Non-Qualified
Option under the Code for all purposes of the Plan.
Section 7.8 - Exclusion from Pension and Profit-Sharing Computation
By acceptance of an Option, each Optionee shall be deemed to
have agreed that such grant is special incentive compensation that will not be
taken into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment under any pension, retirement or other
employee benefit plan of the Company or any of its Subsidiaries, whether now
existing or hereafter arising. In addition, such Option will not affect the
amount of any life insurance coverage, if any, provided by the Company on the
life of the Optionee which is payable to such beneficiary under any life
insurance plan covering employees of the Company or any of its Subsidiaries.
-15-
<PAGE> 1
EXHIBIT 10.12
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
SIGNATURE PAGE
ICN # 1988
LEGAL BUSINESS NAME DAISYTEK
ADDRESS 500 NORTH CENTRAL EXPRESSWAY FIFTH FLOOR
CITY, STATE, ZIP PLANO TX 75074
PHONE, FAX # (800) 527-4212
E-MAIL/INTERNET ADDRESS _____________________________________________________
DBA(s) _____________________________________________________
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
<TABLE>
<CAPTION>
AGREEMENT: AMENDMENTS:
<S> <C>
X U.S. Reseller U.S. International Direct VAR
------ ------
<CAPTION>
ADDENDA: EXHIBITS:
<S> <C> <C>
U.S. Dealer EXHIBIT L Approved Locations
------ ------
U.S. GSA Schedule Holder EXHIBIT U11 Calculator and Palmtop Computing Products
------ ------
X U.S. Office Machine Distributor EXHIBIT UD Calculator Distributor Products
------ ------
U.S. Cad/Specialty VAR Distributor *EXHIBIT U201 SEE EXHIBIT ELECTION BELOW
------ ------
U.S. Calculator Dealer EXHIBIT U40A Accessory Products
------ ------
U.S. Calculator Distributor EXHIBIT U40C Consumable Products
------ ------
U.S. Direct Value Added Reseller X EXHIBIT U41A Suppliers Reseller Accessory Products
------ ------
X U.S. Supplies Reseller X EXHIBIT U41C Suppliers Reseller Consumable Products
------ ------
U.S. Consumer Products Distributor X EXHIBIT U60 Office Machine Distributor Products
------ ------
EXHIBIT U80D Cad/Specialty VAR Distributor Products
------
EXHIBIT U82D DesignJet Specialty Distributor Products
------
</TABLE>
================================================================================
EXHIBIT ELECTION
Reseller and HP agree that Reseller volume level at Net Reseller Price, for
HP Products on these Exhibits, noted with a (*) above, for the term of this
Agreement is:
EXHIBIT U201
COMPUTER RELATED PRODUCTS
<TABLE>
<S> <C> <C>
LEVEL I $50,000,000 - 134,999,999
-----
LEVEL II $135,000,000 - and up
-----
</TABLE>
SHIPMENT ELECTION
Please check one. Shipment elections made on March 1, 1997 regarding shipping
options to all products on Exhibits designated with an (*) above.
<TABLE>
<S> <C> <C>
OUTLET HP will ship to all Reseller's approved shipment locations as listed on Exhibit L.
- -----
CENTRALIZED HP will ship to no more than six approved shipment locations as listed on Exhibit L.
- -----
</TABLE>
================================================================================
<PAGE> 2
STATEMENT OF OWNERSHIP:
Form of Corporation: (i.e., Corporation, General Partnership, Limited
Partnership, Sole Proprietor): _______________________________________
For a Corporation, specify whether: Publicly Held: ____________
Privately Held: ___________ State of Incorporation/Organization ___________
Identify Company ownership and management structure as follows (attach
additional if necessary):
<TABLE>
<S> <C> <C>
o Sole Proprietor: Identify all owners, officers and ownership percentages held
o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust
o Partnership: Identify all General Partners, Limited Partners, Officers and ownership percentages held
Specify dollar investment of limited partners
o Privately Held Corporation: Identify all shareholders with class and percentage ownership, Officers and Board of
Director Members
o Publicly Held Corporation Identify owners of 20% or more of each class of shares with class and percentage
ownership, Officers and Board of Director Members
</TABLE>
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership Type of Ownership Interest
(Dollar Investment in (Assets, Common or
Limited Partners) Preferred Shares)
<S> <C> <C> <C>
- ---------------------- --------------------------- ----------------------- --------------------------
- ---------------------- --------------------------- ----------------------- --------------------------
- ---------------------- --------------------------- ----------------------- --------------------------
- ---------------------- --------------------------- ----------------------- --------------------------
- ---------------------- --------------------------- ----------------------- --------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity
of the parent corporation below:
- --------------------------------------------------------------------------------
Parent/Owner, including DBA(s)
- --------------------------------------------------------------------------------
Address
( )
- --------------------------------------------------------------------------------
City State ZIP Telephone
( )
- --------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
- ------------------------------ ---------------------------------------
/S/ MARK C. LAYTON /S/ SUSAN WEATHERMAN
- ------------------------------ ---------------------------------------
Authorized Signature Susan Weatherman
Reseller Contracts Manager
MARK C. LAYTON
- ------------------------------
Typed Name
PRESIDENT 3/10/97 February 28, 1998
- ------------------------------ -------------------- -----------------
Title Effective Date Expiration Date
<PAGE> 3
U.S. SUPPLIES RESELLER
TABLE OF CONTENTS
U.S. RESELLER AGREEMENT
1. APPOINTMENT
2. STATUS CHANGE
3. INTENTIONALLY OMITTED
4. MULTIPLE AGREEMENT DISCOUNTS
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. PRICES
8. PAYMENT AND SECURITY TERMS
9. ORDERS; SHIPMENTS;
CANCELLATIONS AND CHANGES
10. SOFTWARE
11. TRADEMARKS
12. WARRANTY
13. LIMITATION OF REMEDIES AND
LIABILITY
14. INTELLECTUAL PROPERTY
INDEMNITY
15. RESELLER RECORD-KEEPING
16. AMENDMENTS
17. TERMINATION OF AGREEMENT
18. RELATIONSHIP
19. POLICIES AND PROGRAMS
20. GENERAL CONDITIONS
21. NOTICES
U.S. SUPPLIERS RESELLER ADDENDUM
1. APPOINTMENT
2. INTENTIONALLY OMITTED
3. RESELLER RESPONSIBILITIES
4. INTENTIONALLY OMITTED
5. VOLUME COMMITMENT LEVELS
6. RESELLER ORDER MILESTONES
<PAGE> 4
U.S RESELLER AGREEMENT
1. APPOINTMENT
Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing the HP Products listed on the Product
Exhibits. Reseller's appointment is subject to the terms and conditions
set forth in this U.S. Reseller Agreement and the associated Addenda,
Product Exhibits, HP Product Categories ("Product Categories") and
Operations Policy Manual (collectively, "Agreement") for the period from
the effective date through the expiration date of this Agreement. Reseller
accepts appointment on these terms.
2. STATUS CHANGE
A. If Reseller wishes to:
1. Change its name or that of any approved location;
2. Add, close or change an approved location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls 50% or
more of Reseller's capital stock or assets after such transfer;
or
4. Undergo a significant change in control or management of Reseller
operations;
then Reseller shall notify HP in writing prior to the intended date of
change.
B. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
information and documents reasonably requested by HP.
C. HP must approve proposed Reseller changes prior to any obligation of
HP to perform under this Agreement with Reseller as changed.
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products under
this Agreement and purchases under any other HP Agreement are exclusive of
each other for the purpose of calculating volume commitment and discount
levels.
7. PRICES
A. HP's corporate price lists are internal data bases indicating current
List Prices for HP Products ("List Prices"). HP reserves the right to
change List Prices and discounts upon reasonable notice to Reseller.
If Reseller is unsure of the List Price to use in calculating Net
Reseller price for any HP Product, Reseller should contact its HP
sales representative.
B. Net Reseller price for HP Products purchased under this Agreement will
be the List Price at the time of Reseller's orders, less the discounts
based on Reseller's volume or other commitments or elections specified
in the Product Exhibits.
C. Net Reseller price includes shipment arranged by HP. HP reserves the
right to charge Reseller for any special routing, handling or
insurance requested by Reseller and agreed to by HP. Orders shipped
special routing will be F.O.B. Origin.
D. Net Reseller price excludes state and local taxes. HP will invoice
Reseller for these taxes, based on point of delivery, unless the
appropriate resale exemption certificates are on file at HP's
order-entry point or HP agrees the sale is otherwise exempt.
E. Upon request from Reseller, at its discretion HP may grant special
pricing for particular end-user customer transactions. In good faith,
HP may retract the special pricing at any time before acceptance by
the end-user
<PAGE> 5
customer. HP may extend the pricing on an exclusive or non-exclusive
basis and may condition the pricing on a pass-through of all or part
of the non-standard offering extended by HP.
8. PAYMENT AND SECURITY TERMS
A. Reseller will pay invoices within 30 days from the date of the
invoice. HP reserves the right to change credit terms at any time
when in HP's opinion Reseller's financial condition or previous
payment record so warrants.
B. Any Reseller claim for adjustment of an invoice is agreed to be waived
if Reseller fails to present it within 90 days from date of HP
invoice. No claims, credits, or offsets may be deducted from any
invoice.
C. If Reseller fails to pay any sum due within 15 days of HP's written
notice of delinquency, HP may discontinue performance under this
Agreement and may revise credit terms for unshipped orders.
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Reseller's orders must comply with the minimum order, release, ship-to
and other requirements specified in this Agreement.
B. HP will honor written, electronic, fax and telephone orders from
Reseller's approved locations. Reseller is responsible for ensuring
that only authorized employees place, change or delete orders and that
the orders conform to all requirements of this Agreement.
C. Reseller's requested date for shipment must be within 90 days after
order date. HP reserves the right to schedule and reschedule any
order, at HP's discretion, and to decline any order for credit reasons
or because the order specifies an unreasonably large quantity or makes
an unreasonable shipment request.
D. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date.
E. Reseller must own more than 50% of its business at each approved
location. HP will ship HP Products to Reseller under HP's standard
shipment terms and conditions but only to approved shipment locations
authorized by HP on Exhibit L. Shipment locations may be the same as
company-owned selling locations. All Reseller's sales, advertising
and promotional activities for HP Products must be conducted from
selling locations approved by HP. No sales, advertisement or
promotion of HP Products may be conducted from shipment locations
which are not also approved company-owned selling locations.
However, HP will ship to a maximum of six approved shipment locations
and will accept orders only from a single order point. An exception
will be made where a Product Exhibit indicates drop shipment is
available for a specific HP Product under a special program; drop
shipment for those HP Products will be subject to limitations
indicated in the Product Exhibits.
F. Shipments are subject to availability. If HP Product are in short
supply, HP will allocate them equitably, at HP's discretion.
G. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.
10. SOFTWARE
Reseller is granted the right to distribute software materials supplied by
HP only in accordance with the license terms supplied with these materials.
Reseller may alternatively acquire the software materials from HP for its
own demonstration purposes in accordance with the terms for use in those
license terms.
11. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks. Reseller may display the trademarks solely
to promote HP Products. Any display of the trademarks must be in good
taste, in a manner that preserves their value as HP trademarks, and in
accordance with standards provided by HP for their display. Reseller
will not use any name or symbol in way which may imply that Reseller
is an agency or branch of
<PAGE> 6
HP; Reseller will discontinue any such use of a name or mark as
requested by HP. Any rights or purported rights in any HP trademarks
acquired through Reseller's use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty-free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Reseller's
selling locations. Any display of the trademarks must be in good
taste, in a manner that preserves their value as Reseller's
trademarks, and in accordance with standards provided by Reseller for
their display. Any rights or purported rights in any Reseller
trademarks acquired through HP's use belong solely to Reseller.
12. WARRANTY
A. HP Product User Warranties are described on the Product Exhibits and
apply only to end-user purchasers of HP Products. HP revisions to the
User Warranties will be effective on the date specified by HP. Copies
of User Warranties will be supplied with HP Products. Reseller must
provide a copy of the associated User Warranty for an HP Product to
each end-user prior to sale.
B. HP Product Warranty begins upon purchase by the end-user customer and
shall be verified by proof of acquisition by the end-user or via HP's
electronic warranty verification system.
C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING HP
PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR ORAL,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
D. Some HP Products may contain selected remanufactured parts equivalent
to new in performance.
13. LIMITATION OF REMEDIES AND LIABILITY
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP.
B. HP will be liable for damage to tangible property, bodily injury or
death to the extent a court of competent jurisdiction determines that
an HP Product sold under this Agreement is defective and has directly
caused such damage, injury or death, provided that HP's liability for
damage to tangible property will be limited to $300,000 per incident.
C. HP will be liable to Reseller for any net credits due from HP pursuant
to the express provisions of this Agreement. IN NO EVENT WILL HP BE
LIABLE FOR LOSS OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OR FOR ANY OTHER
DAMAGES WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
14. INTELLECTUAL PROPERTY INDEMNITY
A. HP will defend any claim against Reseller that any HP Product
infringes a patent, utility model, industrial design, copyright, mask
work or trademark in the country where Reseller acquires or sells the
Product from HP, provided that Reseller:
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants HP sole authority to control
the defense and any related settlement.
HP will pay the cost of such defense or settlement and any costs and
damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's customers and end-users
under this Agreement provided they comply with the obligations above.
C. HP may procure for Reseller, its customers and end-users the right to
continued sale or use,as appropriate, of the Product or HP may modify
or replace the Product. If a court enjoins the sale or use of the
Product and HP determines that none of the above alternatives is
reasonably available, HP will accept return of the Product and refund
its depreciated value.
<PAGE> 7
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or
instructions of Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This section states HP's entire liability to Reseller and its
customers and end-users for infringement.
15. RESELLER RECORD-KEEPING
A. For contract compliance verification, product safety information,
operational problem correction and the like, Reseller must maintain
records of customer purchases of hardware products for one year.
Records must include customer name, address, phone number, ship-to
address, serial number and date of sale.
B. HP may require Reseller to provide HP or HP's designate with HP
Product inventory and sales data including, but not limited to,
information such as total units of selected HP Products sold and held
in inventory by month for each approved location, in a format
specified by HP. HP may require monthly reporting incorporating the
previous month's data for each approved location.
C. In addition, Reseller must comply with any reporting requirements for
HP programs.
D. At HP's discretion and upon notice to Reseller, HP or HP's designate
will be given prompt access during normal business hours, either on
site or through other means specified by HP, to Reseller's customer
records, inventory records and other books and records of account of
HP Products as HP believes are reasonably necessary to verify and
audit Reseller's compliance with this Agreement.
E. Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on 30 days notice without further cause.
F. HP may cover all reasonable actual costs associated with compliance
verification procedures from any promotional funds, rebate funds or
any other HP accrued funds due Reseller.
G. HP may debit Reseller for all wrongfully claimed discounts, rebates,
promotional allowances or other amounts determined as a result of HP's
audit.
16. AMENDMENTS
A. From time to time, HP may add products to or delete them from the
Product Exhibits, or implement or change HP policies or programs at
HP's discretion, after reasonable notice to Reseller.
Additionally, HP may give Reseller 30 days' advance written notice of
any other amendment to this Agreement.
B. Any amendment will automatically become a part of this Agreement on
the effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding the
duration or renewal of the Agreement beyond those expressly stated in
this Agreement.
17. TERMINATION OF AGREEMENT
A. Either party may terminate this Agreement without cause at any time
upon 30 days' written notice or with cause at any time upon 15 days'
written notice to the other party.
B. If either party gives the other notice of termination or advises the
other of its intent not to renew this Agreement, HP may require that
Reseller pay cash in advance for additional shipments during the
remaining term, regardless of Reseller's previous credit status, and
may withhold all such shipments until Reseller pays its outstanding
balance.
<PAGE> 8
C. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller and
will refrain from representing itself as such and from using any HP
trademark or trade name.
D. Upon any termination or expiration, either party may require that HP
purchase from Reseller any HP Products purchased under this Agreement
that are on HP's then current Product Exhibits, which are in their
unopened, original packaging and marketable as new merchandise. The
repurchase price shall be the lower of either the Net Reseller price
on the date of termination or expiration or Reseller's original
purchase price, in each case less any promotional or other discounts
or price protection or other credit extended by HP to Reseller for the
HP Product. Reseller should contact its HP sales representative for
information about the items eligible for repurchase and instructions
for their return at HP's expense.
E. Upon termination of this Agreement, or expiration without renewal of
this Agreement, all rights to any accrued HP Advantage program or
other promotional funds will automatically lapse.
F. The indemnities provided in this Agreement will survive termination or
expiration of this Agreement.
18. RELATIONSHIP
A. Reseller's relationship with HP will be that of an independent
contractor. Nothing stated in this Agreement shall be construed as
making Reseller and HP a franchise, joint venture or partnership.
B. Unless expressly authorized by HP in writing in advance, any
commitment made by Reseller to its customers with respect to price,
quantities, delivery, specifications, warranties, modifications,
interfacing capability or suitability will be Reseller's sole
responsibility, and Reseller will indemnify HP from liability for any
such commitment by Reseller.
C. List Prices are suggested prices for resale to end-user customers and
a basis for calculating Net Reseller price. Reseller has the right to
determine its own resale price, and no HP representative will require
that any particular resale price be charged by Reseller or grant or
withhold any treatment to Reseller based on Reseller's resale pricing
policies. Reseller agrees that it will promptly report any effort by
HP personnel to interface with its pricing policies directly to an HP
officer or manager.
D. This Agreement applies only to the HP Products listed on the Product
Exhibits (U.S. versions only). Reseller acknowledges that HP may
market other products, including products in competition with those
listed on the Product Exhibits without making them available to
Reseller. HP reserves the right to advertise, promote and sell any
product, including HP Products on the Product Exhibits, in competition
with Reseller.
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and programs, such as
but not limited to the HP Advantage program, Premier Support program and
other programs and policies in HP's Operations Policy Manual, participation
in which will be on the current terms and conditions of the policies and
programs.
20. GENERAL CONDITIONS
A. Neither party may assign any rights or obligations in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.
C. This Agreement, including the attached Addenda, associated Product
Exhibits and Product Categories, contains and constitutes the entire
understanding between the parties relating to its subject matter. HP
hereby gives notice of objection to any additional or inconsistent
terms set forth in any purchase order or other document issued by
Reseller. Except as provided in paragraphs 16A and 16B of this
Agreement, no modification of this Agreement will be binding on either
party unless made in writing and signed by both parties.
<PAGE> 9
D. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of
California.
F. If any clause of this Agreement is held invalid, the remainder of this
Agreement will continue unaffected.
21. NOTICES
All notices and demands issued under the terms of this Agreement shall be
in writing, delivered by fax, personal service, first class mail postage
prepaid, or by registered mail to a location set forth in this Agreement or
to HP at 5301 Stevens Creek Boulevard, P.O. Box 58059, Santa Clara,
California, 95052-8059 or to the assigned local HP sales representative.
22. U.S. GOVERNMENT
Without HP's prior written consent, Reseller is prohibited from issuing any
Letter of Supply or guaranteeing to supply any Second Tier Reseller or VAR
with HP Product in connection with any U.S. Government Department, Agency
or Contractor agreement.
<PAGE> 10
U.S. SUPPLIES RESELLER ADDENDUM
1. APPOINTMENT
A. HP appoints Reseller as a Supplies Reseller ("Reseller")
3. RESELLER RESPONSIBILITIES
A. Reseller will advertise, promote, and sell HP Products only through
the company names and approved selling locations listed in Exhibit L
and only as permitted in the Product Categories.
B. Reseller shall ensure that resellers to whom it sells HP Products
comply with all applicable terms and conditions for resale in this
Agreement and current HP policies and programs. HP may audit the
resellers' compliance.
C. HP may prohibit Reseller from selling to terminated Resellers or other
identified Customers whom HP does not wish to receive HP Products.
D. Reseller agrees to:
1. Forward promptly to resellers the technical, sales and
promotional materials, suggested price lists and other
information provided by HP for the purpose of reshipment to
resellers.
2. Provide pre-sales support and post-sales technical support of HP
Products to all resellers.
3. Maintain a stock of HP Products sufficient to meet anticipated
demand from its customers on an off-the-shelf basis.
4. Ensure that no sale, advertising, promotion, display or
disclosure of any features, availability or price of any new HP
Product takes place before HP's public announcement of that
Product.
5. Identify and keep current a primary and secondary support contact
for both marketing communications and post-sales technical
support at each approved selling location.
6. Report promptly to HP all suspected defects in HP Products.
7. Ensure that its employees complete any required training courses
and certification programs designated by HP. Additionally,
Reseller will assist HP in providing training for Reseller's
customers.
E. Without HP's prior written consent, Reseller will not export HP
Products to any customer outside the U.S. nor sale HP Products for
export outside the U.S.
F. Reseller may advertise and promote HP Products nationwide.
G. Except for sales to resellers permitted in the Product Categories,
Reseller may not sell HP Products to or buy them from other resellers
for stock balancing or any other reason.
5. VOLUME COMMITMENT LEVELS
A. Reseller commitment levels are described on the attached Product
Exhibits and are based upon 12-month volume levels.
B. If the term of this Agreement or any new Addendum or Product Exhibit
is less than 12 months, an applicable 12-month volume commitment level
will be calculated for Reseller by projection over a 12-month term.
6. RESELLER ORDER MILESTONE
A. Unless otherwise specified in the Product Exhibits, as of five months
after the effective date of this Agreement, HP will review Reseller's
progress towards its volume commitment level. If Reseller's orders in
those first five months represent less than 35% of its 12-month volume
commitment level, then HP may terminate this Agreement.
<PAGE> 11
U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM
TABLE OF CONTENTS
U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM
1. APPOINTMENT
2. INTENTIONALLY OMITTED
3. DISTRIBUTOR RESPONSIBILITIES
4. INTENTIONALLY OMITTED
5. VOLUME COMMITMENT LEVELS
6. DISTRIBUTOR ORDER MILESTONES
<PAGE> 12
U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM
1. APPOINTMENT
A. HP APPOINTS RESELLER AS AN OFFICE MACHINE DISTRIBUTOR (DISTRIBUTOR).
3. DISTRIBUTOR RESPONSIBILITIES
A. DISTRIBUTOR WILL SELL HP PRODUCTS ONLY TO INDEPENDENTLY OWNED AND
OPERATED ENTITIES FOR THEIR RESALE TO END-USER CUSTOMERS.
B. DISTRIBUTOR WILL ADVERTISE, PROMOTE AND SELL HP PRODUCTS ONLY THROUGH
THE COMPANY NAMES AND APPROVED SELLING LOCATIONS LISTED IN EXHIBIT L
AND ONLY AS PERMITTED IN THE PRODUCT CATEGORIES.
C. DISTRIBUTOR SHALL ENSURE THAT RESELLERS TO WHOM IT SELLS HP PRODUCTS
COMPLY WITH ALL APPLICABLE TERMS AND CONDITIONS FOR RESALE IN THIS
AGREEMENT AND CURRENT HP POLICIES AND PROGRAMS. HP MAY AUDIT THE
RESELLERS' COMPLIANCE.
D. HP MAY PROHIBIT DISTRIBUTOR FROM SELLING TO TERMINATED RESELLERS OR
OTHER IDENTIFIED CUSTOMERS WHOM HP DOES NOT WISH TO RESALE HP
PRODUCTS.
E. DISTRIBUTOR AGREES TO:
1. FORWARD PROMPTLY TO RESELLERS THE TECHNICAL, SALES AND
PROMOTIONAL MATERIALS, SUGGESTED PRICE LISTS AND OTHER
INFORMATION PROVIDED BY HP FOR THE PURPOSE OF RESHIPMENT TO
RESELLERS.
2. PROVIDE PRE-SALES SUPPORT AND POST-SALES TECHNICAL SUPPORT OF HP
PRODUCTS TO ALL RESELLERS.
3. MAINTAIN A STOCK OF HP PRODUCTS SUFFICIENT TO MEET ANTICIPATED
DEMAND FROM ITS CUSTOMERS ON AN OFF-THE-SHELF BASIS.
4. ENSURE THAT NO SALE, ADVERTISING, PROMOTION, DISPLAY, OR
DISCLOSURE OF ANY FEATURES, AVAILABILITY OR PRICE OF ANY NEW HP
PRODUCT TAKES PLACE BEFORE HP'S PUBLIC ANNOUNCEMENT OF THAT
PRODUCT.
5. IDENTIFY AND KEEP CURRENT A PRIMARY AND SECONDARY SUPPORT CONTACT
FOR BOTH MARKETING COMMUNICATION AND POST-SALES TECHNICAL SUPPORT
AT EACH APPROVED SELLING LOCATION.
6. REPORT PROMPTLY TO HP ALL SUSPECTED DEFECTS IN HP PRODUCTS.
7. APPLY ANY HP ADVANTAGE PROGRAM FUNDS OR OTHER PROMOTIONAL FUNDS,
FACILITIES OR SERVICES IN CONFORMITY WITH HP GUIDELINES AND A
MUTUALLY AGREED PLAN BETWEEN DISTRIBUTOR AND ITS RESELLERS.
8. ENSURE THAT ITS EMPLOYEES COMPLETE ANY REQUIRED TRAINING COURSES
AND CERTIFICATION PROGRAMS DESIGNATED BY HP. ADDITIONALLY,
DISTRIBUTOR WILL ASSIST HP IN PROVIDING TRAINING FOR
DISTRIBUTOR'S RESELLERS.
F. WITHOUT HP'S PRIOR WRITTEN CONSENT, DISTRIBUTOR WILL NOT EXPORT HP
PRODUCTS TO ANY CUSTOMER OUTSIDE THE U.S. NOR SELL HP PRODUCTS FOR
EXPORT OUTSIDE THE U.S.
G. DISTRIBUTOR MAY ADVERTISE AND PROMOTE HP PRODUCTS NATIONWIDE.
H. EXCEPT FOR SALES TO RESELLERS PERMITTED IN THE PRODUCT CATEGORIES,
DISTRIBUTOR MAY NOT SELL HP PRODUCTS IN OR BUY THEM FROM OTHER
RESELLERS FOR STOCK BALANCING OR ANY OTHER REASON.
5. VOLUME COMMITMENT LEVELS
A. DISTRIBUTOR COMMITMENT LEVELS ARE DESCRIBED ON THE ATTACHED PRODUCT
EXHIBITS AND ARE BASED UPON 12 MONTH PURCHASE VOLUME LEVELS.
B. IF THE TERM OF THIS AGREEMENT OR ANY NEW ADDENDUM OR PRODUCT EXHIBIT
IS LESS THAN 12 MONTHS, AN APPLICABLE 12 MONTH VOLUME COMMITMENT LEVEL
WILL BE CALCULATED FOR DISTRIBUTOR BY PROJECTION OVER A FULL 12 MONTH
TERM.
6. DISTRIBUTOR ORDER MILESTONES
UNLESS OTHERWISE SPECIFIED IN THE PRODUCT EXHIBITS, AS OF FIVE MONTHS AFTER
THE EFFECTIVE DATE OF THIS AGREEMENT HP WILL REVIEW DISTRIBUTOR'S PROGRESS
TOWARDS ITS VOLUME COMMITMENT. IF ITS ORDERS IN THE FIRST FIVE MONTHS
REPRESENT LESS THAT 35% OF ITS 12 MONTH VOLUME LEVEL, THEN HP MAY TERMINATE
THIS AGREEMENT.
<PAGE> 13
U.S. DISTRIBUTOR SUMMARY MATIX
JANUARY 1, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CALCULATOR OFFICE MACHINE
AGGREGATORS DISTRIBUTORS DISTRIBUTORS DISTRIBUTORS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inacom Gates/Arrow Arrowhead Business Arrowhead Business
Machine Machine
- ----------------------------------------------------------------------------------------
Intelligent Electronics Merisel Common-Wealth Azerty
Distributors
- ----------------------------------------------------------------------------------------
MicroAge GBC Technologies Douglas Stewart Daisytek
- ----------------------------------------------------------------------------------------
Merisel/FAB Avnet/Hall-Mark El Dorado Trading Group New Age Electronics
- ----------------------------------------------------------------------------------------
Ingram Alliance Inacom Pro Distributors
- ----------------------------------------------------------------------------------------
Tech Data Elect Intelligent Electronics United Stationers
- ----------------------------------------------------------------------------------------
MicroAge
- ----------------------------------------------------------------------------------------
Neamco
- ----------------------------------------------------------------------------------------
Pro Distributors
- ----------------------------------------------------------------------------------------
S.P. Richards Company
- ----------------------------------------------------------------------------------------
United Stationers
- ----------------------------------------------------------------------------------------
Merisel/FAB
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
HP PRODUCT CATEGORIES
HP manufactures and distributes a large number of personal computer and
peripheral products to multiple market segments through a varied set of first
and second tier resellers and retailers.
This diversity leads to a set of sourcing and distribution rules designed to
best allow HP resellers of all types to reach targeted customers of each HP
Product in the most efficient and profitable manner.
The Product Categories below describe restrictions HP places on resellers
selling to customers in the United States. In particular, the Product
Categories describe the restrictions HP places on HP Product acquisition and
resale for both First Tier Resellers and Distributors as well as Single Tier
Resellers, Second Tier Resellers, Second Tier Retailers, and VARS.
FIRST TIER RESELLER AND DISTRIBUTOR PRODUCT CATEGORIES
HP Products on the Products Exhibits may ONLY be sourced and distributed as
indicated below:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE CUSTOMERS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Q HP Only Any HP Authorized QD Reseller.
W HP Only Any HP Authorized Second Tier Retailer
who has elected you as its Sole
Distributor.
X HP Only Any HP Authorized Second Tier Reseller
who has elected you as one of its Dual
Source Suppliers; any HP Authorized VAR.
Y HP Only Any U.S. reseller, whether or not
authorized by HP, which resells the
product directly to U.S. end-user
customers, except for
Membership/Warehouse Clubs.
Z HP Only Any U.S. reseller, whether or not
authorized by HP, which resells the
product directly to U.S. end-user
customers.
O HP or any reseller Any U.S. end-user customer or any U.S.
reseller, whether or not authorized by
HP.
</TABLE>
<PAGE> 15
RESELLER/RETAILER, SECOND TIER RESELLER/RETAILER, AND VAR PRODUCT CATEGORIES
As used below, Reseller/Retailer is defined as a reseller operating under a
current U.S. Reseller Agreement purchasing directly from HP and authorized
under the Agreement to sell to U.S. end-user customers.
HP Products on the Product Exhibits may ONLY be sourced and distributed a
indicated below:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE CUSTOMERS
- ---------------- ------------------ ---------------------
<S> <C> <C>
C CONTROLLED PRODUCTS Any U.S. end-user customers,
HP if you are a subject to Home State Selling
Reseller/Retailer, one of Restrictions.
your authorized Dual
Source Suppliers if you
are a Second Tier
Reseller, any HP
Authorized First Tier
Reseller or Distributor
if you are
a VAR.
B HP if you are a Any U.S. end-user customer.
Reseller/Retailer; one of
your Authorized Dual
Source
Suppliers if you are a
Second Tier Reseller, and
HP Authorized First Tier
Reseller or Distributor
if you are a VAR.
A HP or any HP Authorized Any U.S. end-user customer.
First Tier Reseller or
Distributor
Q HP or any HP Authorized Any U.S. end-user customer.
Distributor or First Tier
Reseller
O HP or any reseller Any U.S. end-user customer or
any U.S. reseller, whether or
not authorized by HP.
</TABLE>
<PAGE> 16
EXPLANATION OF TERMS USED
HOME STATE SELLING RESTRICTIONS
Resellers may sell Controlled Products, as defined in the Product Categories, to
any U.S. end-user customer. However, the following advertising and sale
restrictions apply to Controlled Products:
A Reseller's Home State(s) is/are the State(s) in which its approved Selling
Location(s), as provided on Exhibit L or on a HP U.S. Authorized VAR
Application, is situated. If an approved Selling Location is situated within
50 miles of the boundary of an adjoining State, then the Reseller's Home
State(s) will also encompass the adjoining State.
1. Controlled Products may NOT be included or offered for sale on any
Internet site;
2. Advertising a well as catalog and other direct response sales of
Controlled Products is limited exclusively to a Reseller's Home
State(s); and
3. Except as provided in point (1), if a Reseller has an approved
Selling Location in 40 or more States, then advertising as well as
catalog and other direct response sales of Controlled Products is
permitted nationwide.
MEMBERSHIP/WAREHOUSE CLUBS
Membership/Warehouse Clubs (Such as Price/Costco, Sams/Pace, and Smart and
Final) are generally characterized by the following profile:
o Sometimes require customers to acquire a membership in order to buy
products from any of their locations;
o Sell primarily to small businesses and home office end-users, rather than
other resellers;
o Maintain selling locations of approximately 100,000 square feet or greater;
o Offer 3,500 products or more;
o Inventory product on the sales floor, usually stacked or stored near their
respective categories;
o Provide a diversified product offering including food, general merchandise,
and consumer products such as tires, clothing, and sporting goods; and
o Change merchandise mix often.
<PAGE> 1
EXHIBIT 10.16
Texas Commerce Bank National Association
Capital Markets Department
PO Box 2558
Houston, Texas 77252-8095
CONFIRMATION OF PURCHASE
REF-B 440870 DATE- 22 MAY 97 ARRANGED BY- PHONE
BR-
WE CONFIRM OUR PURCHASE FROM YOU VALUE- 22 MAY 98
CURRENCY/AMOUNT EXCHANGE RATE EQUIVALENT
CAD 13,000,000.00 1.3510 USD 9,622,501.80
- -------------------------------------------------------------------------------
CURRENCY PAYABLE TO EQUIVALENT PAYABLE TO
ROYAL BANK OF CANADA YOURSELVES THROUGH
TORONTO HEAD OFFICE xxxxxxxxxxxxx
CURRENCY PAYABLE BY EQUIVALENT PAYABLE BY
ORDER OF YOURSELVES OUR CREDIT OF YOUR ACCOUNT
xxxxxxxxxxxxx
PLEASE SEND US YOUR CONFIRMATION MISC INFO:
MAIL TO- DAISYTEK
500 N. CENTRAL EXPRESSWAY
PLANO, TX 75074-6763
<PAGE> 1
EXHIBIT 10.22
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of April 17, 1997, and is made by
and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation
(hereinafter referred to as "COMPANY") and DAVID A. HEAP (hereinafter referred
to as "EMPLOYEE"):
BACKGROUND
1. The Company has issued to the Employee that certain Option
to Purchase Shares of Common Stock (the "Old Option") dated April 11, 1996. The
Company and the Employee have agreed to cancel the Old Option and issue this
Option in its stead. By acceptance of this Option, the Employee and the Company
agree that the Old Option is hereby canceled and terminated as of the date
hereof.
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 any employee stock option plan);
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.
"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.
"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
<PAGE> 2
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 FIFTEEN THOUSAND
(15,000) 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 TWENTY FIVE DOLLARS AND NO CENTS
($25.00) 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 or in the Plan shall confer upon the
Employee any right to continue in the employ of the Company, any 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.
-2-
<PAGE> 3
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.
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
-3-
<PAGE> 4
(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(vii), 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
(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.
-4-
<PAGE> 5
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
(iii) With the consent of the Board, any combination
of the consideration provided in the foregoing subparagraphs (i)
and (ii); and
-5-
<PAGE> 6
(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 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):
-6-
<PAGE> 7
(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, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
-7-
<PAGE> 8
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.
In Witness Whereof, the Company and the undersigned Employee
have executed and delivered this Option as of the day and year above written.
---------------------------------------
David A. Heap
Daisytek International Corporation
---------------------------------------
Name:
Title:
-8-
<PAGE> 1
EXHIBIT 10.23
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of April 17, 1997, 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. The Company has issued to the Employee that certain Option
to Purchase Shares of Common Stock (the "Old Option") dated December 2, 1996.
The Company and the Employee have agreed to cancel the Old Option and issue
this Option in its stead. By acceptance of this Option, the Employee and the
Company agree that the Old Option is hereby canceled and terminated as of the
date hereof.
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 any employee stock option plan);
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.
<PAGE> 2
"OPTION" shall mean the stock option to purchase Common Stock
of the Company granted under this Agreement.
"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 TWENTY FIVE DOLLARS AND NO CENTS ($25.00)
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.
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Nothing in this Agreement shall confer upon the Employee any right to continue
in the employ of the Company, any 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:
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<PAGE> 5
(i) This Option becomes unexercisable under Section 3.3 prior
to said effective date; or
(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
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<PAGE> 6
(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
(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.
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<PAGE> 7
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 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
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<PAGE> 8
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, 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.
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<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.
---------------------------------------
Steve Graham
Address:
-------------------------------
-------------------------------
-------------------------------
DAISYTEK INTERNATIONAL CORPORATION
By:
-------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.24
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of April 17, 1997, and is made by and between
DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter
referred to as "COMPANY") and PETER VIKANIS (hereinafter referred to as
"DIRECTOR"):
BACKGROUND
1. The Company has issued to the Director that certain Option to Purchase
Shares of Common Stock (the "Old Option") dated August 2, 1996 under the terms
of the Company's Non-Employee Director Stock Option and Retainer Plan (the
"Plan").
2. The Board has determined that it is in the best interest of the Company
to issue this special one-time option to purchase shares of the Company's
Common Stock and, in connection therewith, the Company and the Director have
agreed to cancel the Old Option.
3. By acceptance of this Option, the Company and the Director agree that
the Old Option is hereby canceled and terminated as of the date hereof.
4. 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 Plan or any other stock option plan); 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.
"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.
"SECRETARY" shall mean the Secretary of the Company.
<PAGE> 2
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TERMINATION" shall mean the time when the Director no longer serves as a
member of the Board, including without limitation, a termination by
resignation, discharge, death or retirement.
II. GRANT OF OPTION
2.1 GRANT OF OPTION. For good and valuable consideration, on the date
hereof the Company irrevocably grants to the Director the option to purchase
any part or all of ONE THOUSAND (1,000) 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 Twenty Five Dollars and No Cents ($25.00) per
share without commission or other charge.
2.3 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
Director, 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.
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(b) Upon the Termination of the Director, such portion of this Option
which was not then vested and become exercisable shall automatically become
fully vested and exercisable, provided, however, that such Termination shall be
not less than one year from the date hereof.
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.
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 the Director is disabled (within the meaning of Section
22(e)(3) of the Code), the expiration of three months from the date of the
Director's Termination for any reason unless the Director dies within said
three-month period; or
(iii) If the Director is disabled (within the meaning of Section 22(e)(3)
of the Code), the expiration of one year from the date of the Director's
Termination by reason of his disability unless the Director dies within said
one-year period; or
(iv) The expiration of one year from the date of the Director's death.
IV. EXERCISE OF OPTION
4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Director, only
he may exercise the Option, or any portion thereof; provided, however, that
unless otherwise prohibited by applicable law, the Director may transfer all,
or any portion of, this Option to his spouse or immediate family member or any
trust for the benefit thereof. After the death of the Director, 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 Director'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 Director 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
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<PAGE> 4
(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 Director 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
(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 Director 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 Director 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 Director 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 Director, 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 Director 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
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<PAGE> 5
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 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 (with the Director abstaining) 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 Director, 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 Director 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, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution, or as otherwise expressly
permitted herein.
-5-
<PAGE> 6
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 Director 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 Director shall, if the Director is then deceased, be given to the
Director'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.
In Witness Whereof, the Company and the undersigned Director have executed
and delivered this Option as of the day and year above written.
---------------------------------------
Peter Vikanis
Daisytek International Corporation
---------------------------------------
Name:
Title:
-6-
<PAGE> 1
EXHIBIT 10.25
DRY LEASE AGREEMENT
This Agreement, made and entered into this First day of April, 1997, by
and between Virtual Village Aircraft, Inc., a corporation incorporated under
the laws of the State of Delaware, with principal offices at 500 North Central
Expressway, Suite 202, Plano, Texas, 75074, (hereinafter referred to as
"LESSOR"), and Daisytek International Corporation, a corporation incorporated
under the laws of the State of Delaware, with principal offices at 500 North
Central Expressway, Suite 500, Plano, Texas, 75074, (hereinafter referred to as
"LESSEE");
W I T N E S S E T H , that
WHEREAS, LESSOR is the registered OWNER of that certain civil AIRCRAFT
bearing the United States Registration Number N129DH ("the AIRCRAFT" or
"AIRCRAFT") ; and of the type Pilatus PC-12 ;
WHEREAS, LESSOR and LESSEE desire to lease said AIRCRAFT on a "DRY LEASE"
basis defined in Section 91.54 of the Federal Aviation Regulations [FAR].
1
<PAGE> 2
NOW THEREFORE, LESSOR AND LESSEE, declaring their intention to enter into
and be bound by this DRY LEASE AGREEMENT, and for the good and valuable
consideration set forth below, hereby covenant and agree as follows:
1. For the sum of One hundred seventy two thousand eight hundred
dollars ($172,800.00) LESSOR agrees to lease the AIRCRAFT to LESSEE
for the period of Twelve (12) calendar months. LESSEE shall pay
LESSOR the above stated amount in twelve equal monthly installments,
Fourteen thousand four hundred dollars ($14,400.00) payable on the
First day of each month.
The AIRCRAFT shall be delivered to LESSEE at McKinney
Municipal Airport in McKinney, Texas on April 01, 1997, at which
time LESSEE shall inspect the AIRCRAFT to the extent deemed
necessary. LESSEE shall have five (5) flight hours following
delivery of the AIRCRAFT in which to notify LESSOR in writing of
any defects in the AIRCRAFT or its equipment or accessories. If,
at the end of such period, LESSOR has not received such
notification, it shall be conclusively presumed between the
parties that LESSEE has fully inspected the AIRCRAFT having
knowledge that it is in good condition and repair and that LESSEE
is satisfied with and has accepted the AIRCRAFT in such condition and
repair.
2
<PAGE> 3
2. This Lease shall commence on April 01, 1997 and continue for
one year after said date. Thereafter, this Lease shall be
automatically renewed on a month to month basis, unless sooner
terminated by either party as hereinafter provided. Either party
may at any time terminate this Lease upon thirty (30) days written
notice to the other party, delivered personally or by certified
mail, return receipt requested, at the address for said party as set
forth above. Upon any termination of this Lease, the parties shall
equitably adjust any prepaid items or amounts owing as of such date
of termination.
3. This Lease shall entitle LESSEE to an aggregate of Three
Hundred (300) flight hours during the initial Twelve (12) month
term. LESSEE shall have the right to use of the AIRCRAFT in excess
of said Three Hundred (300) flight hours, provided, however, that
LESSEE and LESSOR shall mutually agree upon an equitable pro rata
allocation of all AIRCRAFT costs relating to such excess usage.
3
<PAGE> 4
4. Neither LESSEE nor LESSOR will make the AIRCRAFT available
for hire within the meaning of the Federal Aviation Regulations.
The AIRCRAFT is to be operated strictly in accordance with 14 C.F.R.
Part 91.
5. At all times during the term of this Lease, LESSEE and LESSOR
shall cause to be carried and maintained, at their own respective
cost and expense, the policies and types of insurance described on
Schedule I attached hereto.
6. LESSEE may operate the AIRCRAFT only for the purposes and
within the geographical limits set forth in the insurance policy or
policies obtained in compliance with Paragraph Five of this Lease.
The AIRCRAFT shall be operated at all times in accordance with the
flight manual and all manufacturer's suggested operating procedures.
Furthermore, LESSEE shall not use the AIRCRAFT in violation of any
foreign, federal, state, territorial, or municipal law or regulation
and shall be solely responsible for any fines, penalties, or
forfeitures occasioned by any violation by LESSEE. If such fines or
penalties are imposed on LESSOR and paid by LESSOR, LESSEE shall
reimburse LESSOR for the amount thereof within thirty (30) days of
receipt by LESSEE of written demand from LESSOR. LESSEE will not
base the AIRCRAFT, or permit it to be based, outside the limits of
the United States of America, without the written consent of LESSOR.
4
<PAGE> 5
The AIRCRAFT shall be flown only by certified and qualified
pilots who meet all qualifications established by the policies of
insurance described in Paragraph Five of this Lease. The AIRCRAFT
shall be maintained only by certified and qualified mechanics. In
the event the insurance on the AIRCRAFT would be invalidated
because LESSEE is unable to obtain certified and qualified pilots
and mechanics, LESSEE shall not operate the AIRCRAFT until such
time as certified and qualified pilots and mechanics are obtained
and insurance on the AIRCRAFT is made valid. LESSEE will not
directly or indirectly create, incur, assume or suffer to exist
any lien on or with respect to the AIRCRAFT, except any lien
created, incurred, assured or permitted by LESSOR. LESSEE will
promptly, at its own expense, take such action as may be necessary
to discharge any lien not excepted above if the same shall arise
at any time.
7. LESSEE agrees to permit LESSOR or any authorized agent to
inspect the AIRCRAFT at any reasonable time and to furnish any
information in respect to the AIRCRAFT and its use that LESSOR may
reasonably request.
5
<PAGE> 6
8. Except in accordance with other written agreements entered
into subsequent to the date of this Lease between LESSEE and LESSOR
regarding maintenance of the AIRCRAFT, LESSEE shall not have the
right to alter, modify, or make additions or improvements to the
AIRCRAFT without the written permission of the LESSOR. All such
alterations, modifications, additions, and improvements as are so
made shall become the property of LESSOR and shall be subject to all
of the terms of this Lease.
9. The registration of and title to the AIRCRAFT shall be in the
name of the LESSOR, and the AIRCRAFT, at all times during the term
of this Lease or any extension, shall bear United States of America
registration markings. All responsibility and obligations in regard
to the operation of the Aircraft as above owned, registered, and
marked shall be borne by LESSEE during the term of this Lease.
10. LESSOR shall pay or cause to be paid all taxes incurred by
reason of ownership of the AIRCRAFT during the term of this Lease,
including personal property taxes. LESSEE shall pay all taxes
associated with LESSEE'S use of the AIRCRAFT on LESSEE'S own
business, including landing fees, fuel taxes, and any other taxes or
fees which may be assessed against a specific flight by LESSEE.
6
<PAGE> 7
11. LESSEE shall not assign this Lease or any interest in the
AIRCRAFT, or sublet the AIRCRAFT, without prior written consent of
LESSOR. Subject to the foregoing, this Lease inures to the benefit
of, and is binding on, the heirs, legal representatives, successors,
and assigns of the parties.
12. LESSEE shall immediately notify LESSOR of each accident
involving the AIRCRAFT, which notification shall specify the time,
place, and nature of the accident or damage, the names and addresses
of parties involved, persons injured, witnesses, and owners of
properties damaged, and such other information as may be known.
LESSEE shall advise LESSOR of all correspondence, papers, notices,
and documents whatsoever received by LESSEE in connection with any
claim or demand involving or relating to the AIRCRAFT or its
operation, and shall aid in any investigation instituted by LESSOR
and in the recovery of damages from third persons liable therefor.
13. On the termination of this Lease by expiration or otherwise,
LESSEE shall return the AIRCRAFT to LESSOR at McKinney Municipal
Airport, in McKinney, Texas, in as good operating
7
<PAGE> 8
condition and appearance as when received, ordinary wear, tear
and deterioration excepted, and shall indemnify LESSOR against any
claim for loss or damage occurring prior to the actual physical
delivery of the AIRCRAFT to LESSOR.
14. This Lease constitutes the entire understanding between the
parties, and any change or modification must be in writing and
signed by both parties.
15. This Lease is entered into under, and is to be construed in
accordance with, the laws of the State of Texas.
16. The headings in this Agreement are intended solely for the
convenience of reference and shall be given no effect in the
construction or interpretation of the Agreement.
17. If any provision of this Agreement is deemed or held to be
illegal, invalid, or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the
extent it is deemed to be illegal, invalid or unenforceable, and all
other respects this Agreement shall remain in full force and effect;
provided, however, that if any provision of this Agreement is deemed
or held to be illegal, invalid or unenforceable there shall
8
<PAGE> 9
be added hereto automatically a provision as similar as possible to
such illegal, invalid or unenforceable provision which would be
legal, valid and enforceable. Further, should any provision
contained in this Agreement ever be reformed or rewritten by an
judicial body of competent jurisdiction, such provision as so
reformed or rewritten shall be binding upon all parties hereto.
TRUTH IN LEASING STATEMENT
The AIRCRAFT, a Pilatus PC-12, manufacture's serial number 140, currently
registered with the Federal Aviation Administration as N129DH, has been
maintained and inspected under FAR Part 91 during the 12 month period preceding
the date of this Lease.
The AIRCRAFT will be maintained and inspected under FAR Part 91 for
operations to be conducted under this Lease. During the duration of this
Lease, Daisytek International Corporation, with principal offices at 500 North
Central Expressway, Suite 500, Plano, Texas, 75074, is considered responsible
for Operational Control of the AIRCRAFT under this Lease.
An explanation of factors bearing on Operational Control and pertinent
Federal Aviation Regulations can be obtained from the nearest FAA Flight
Standards District Office.
9
<PAGE> 10
The "instructions" for compliance with Truth In Leasing Requirements"
attached hereto are incorporated herein by reference.
I, The Undersigned Mark C. Layton, as President of Daisytek International
Corporation, with principal offices at 500 North Central Expressway, Suite 500,
Plano, Texas, 75074, certify that I am responsible for operational control of
the AIRCRAFT and that I understand my responsibilities for compliance with
applicable Federal Aviation Regulations.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the
day and year above written.
Virtual Village Aircraft, Inc.
By: /s/ JOHN W. WARD
John W. Ward
Vice President
Daisytek International Corporation
By: /s/ MARK C. LAYTON
Mark C. Layton
President
10
<PAGE> 11
INSTRUCTIONS FOR COMPLIANCE WITH
TRUTH IN LEASING REQUIREMENTS
1. Mail a copy of the Lease agreement to the following address via certified
mail, return receipt requested, immediately upon execution of the
agreement (14 C.F.R. requires that the copy be sent within twenty-four
hours after it is signed):
Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125
2. Telephone the nearest Flight Standards District Office at least
forty-eight hours prior to the first flight under this Lease agreement.
3. Carry a copy of the Lease agreement in the AIRCRAFT at all times.
11
<PAGE> 1
EXHIBIT 10.26
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of April 17, 1997, and is made by
and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation
(hereinafter referred to as "COMPANY") and TIMOTHY MURRAY (hereinafter referred
to as "DIRECTOR"):
BACKGROUND
1. The Company has issued to the Director that certain Option
to Purchase Shares of Common Stock (the "Old Option") dated August 2, 1996
under the terms of the Company's Non-Employee Director Stock Option and
Retainer Plan (the "Plan").
2. The Board has determined that it is in the best interest
of the Company to issue this special one-time option to purchase shares of the
Company's Common Stock and, in connection therewith, the Company and the
Director have agreed to cancel the Old Option.
3. By acceptance of this Option, the Company and the Director
agree that the Old Option is hereby canceled and terminated as of the date
hereof.
4. 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 Plan or any other stock option
plan); 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.
"EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE> 2
"OPTION" shall mean the stock option to purchase Common Stock
of the Company granted under this Agreement.
"SECRETARY" shall mean the Secretary of the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"TERMINATION" shall mean the time when the Director no longer
serves as a member of the Board, including without limitation, a termination by
resignation, discharge, death or retirement.
II. GRANT OF OPTION
2.1 GRANT OF OPTION. For good and valuable consideration, on
the date hereof the Company irrevocably grants to the Director the option to
purchase any part or all of ONE THOUSAND (1,000) 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 Twenty Five Dollars and No Cents
($25.00) per share without commission or other charge.
2.3 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
Director, 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
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<PAGE> 3
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) Upon the Termination of the Director, such portion of
this Option which was not then vested and become exercisable shall
automatically become fully vested and exercisable, provided, however, that such
Termination shall be not less than one year from the date hereof.
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.
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 the Director is disabled (within the meaning
of Section 22(e)(3) of the Code), the expiration of three months from the date
of the Director's Termination for any reason unless the Director dies within
said three-month period; or
(iii) If the Director is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of one year from the date of the
Director's Termination by reason of his disability unless the Director dies
within said one-year period; or
(iv) The expiration of one year from the date of the
Director's death.
IV. EXERCISE OF OPTION
4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the
Director, only he may exercise the Option, or any portion thereof; provided,
however, that unless otherwise prohibited by applicable law, the Director may
transfer all, or any portion of, this Option to his spouse or immediate family
member or any trust for the benefit thereof. After the death of the Director,
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 Director's will or
under the then applicable laws of descent and distribution.
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<PAGE> 4
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 Director 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 Director 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
(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 Director 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 Director 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
-4-
<PAGE> 5
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
Director 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 Director,
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 Director 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 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
-5-
<PAGE> 6
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 (with the Director abstaining)
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 Director, 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 Director 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, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution, or as otherwise expressly
permitted herein.
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 Director 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 Director shall, if the Director is then deceased,
be given to the Director'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
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<PAGE> 7
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.
In Witness Whereof, the Company and the undersigned Director
have executed and delivered this Option as of the day and year above written.
---------------------------------------
(director)
Daisytek International Corporation
---------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.27
OPTION TO PURCHASE SHARES OF COMMON STOCK
THIS AGREEMENT is dated as of April 17, 1997, and is made by
and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation
(hereinafter referred to as "COMPANY") and EDGAR D. JANNOTTA, JR.
(hereinafter referred to as "DIRECTOR"):
BACKGROUND
1. The Company has issued to the Director that certain Option
to Purchase Shares of Common Stock (the "Old Option") dated August 2, 1996
under the terms of the Company's Non-Employee Director Stock Option and
Retainer Plan (the "Plan").
2. The Board has determined that it is in the best interest
of the Company to issue this special one-time option to purchase shares of the
Company's Common Stock and, in connection therewith, the Company and the
Director have agreed to cancel the Old Option.
3. By acceptance of this Option, the Company and the Director
agree that the Old Option is hereby canceled and terminated as of the date
hereof.
4. 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 Plan or any other stock option
plan); 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.
<PAGE> 2
"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.
"SECRETARY" shall mean the Secretary of the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"TERMINATION" shall mean the time when the Director no longer
serves as a member of the Board, including without limitation, a termination by
resignation, discharge, death or retirement.
II. GRANT OF OPTION
2.1 GRANT OF OPTION. For good and valuable consideration, on
the date hereof the Company irrevocably grants to the Director the option to
purchase any part or all of ONE THOUSAND (1,000) 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 Twenty Five Dollars and No Cents
($25.00) per share without commission or other charge.
2.3 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
Director, 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:
-2-
<PAGE> 3
(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) Upon the Termination of the Director, such portion of
this Option which was not then vested and become exercisable shall
automatically become fully vested and exercisable, provided, however, that such
Termination shall be not less than one year from the date hereof.
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.
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 the Director is disabled (within the meaning
of Section 22(e)(3) of the Code), the expiration of three months from the date
of the Director's Termination for any reason unless the Director dies within
said three-month period; or
(iii) If the Director is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of one year from the date of the
Director's Termination by reason of his disability unless the Director dies
within said one-year period; or
(iv) The expiration of one year from the date of the
Director's death.
IV. EXERCISE OF OPTION
4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the
Director, only he may exercise the Option, or any portion thereof; provided,
however, that unless otherwise prohibited by applicable law, the Director may
transfer all, or any portion of, this Option to his spouse or immediate family
member or any trust for the benefit thereof. After the death of the Director,
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 Director's will or
under the then applicable laws of descent and distribution.
-3-
<PAGE> 4
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 Director 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 Director 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
(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 Director 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 Director 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-
-4-
<PAGE> 5
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
Director 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 Director,
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 Director 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 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
-5-
<PAGE> 6
(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 (with the Director abstaining)
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 Director, 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 Director 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, however, that this Section 5.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution, or as otherwise expressly
permitted herein.
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 Director 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 Director shall, if the Director is then deceased,
be given to the Director'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
-6-
<PAGE> 7
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.
In Witness Whereof, the Company and the undersigned Director
have executed and delivered this Option as of the day and year above written.
---------------------------------------
Edgar D. Jannotta, Jr.
Daisytek International Corporation
---------------------------------------
Name:
Title:
-7-
<PAGE> 1
EXHIBIT 11
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Supplemental
Fiscal Year Ended -----------------
March 31, Fiscal Year Ended
--------------------------- March 31,
1997 1996 1995 1995
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net income $13,367 $10,767 $ 6,496 $ 7,254
======= ======= ======= =======
Weighted average common shares
outstanding 6,913 6,757 5,542 6,683
======= ======= ======= =======
Net income per common share $ 1.93 $ 1.59 $ 1.17 $ 1.09
======= ======= ======= =======
Calculation of weighted average
common shares:
Weighted average common shares
outstanding 6,467 6,301 4,775 6,245
Weighted average common stock
warrants, utilizing the
treasury stock method (1) -- -- 329 --
Weighted average common stock
options, utilizing the treasury
stock method (1) 446 456 438 438
------- ------- ------- -------
6,913 6,757 5,542 6,683
======= ======= ======= =======
</TABLE>
- -----------------------
(1) Utilizing the weighted average stock price of $15.67 per share for fiscal
year 1995.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
<S> <C>
Daisytek, Incorporated Delaware
Subsidiaries of Daisytek, Incorporated:
Daisytek (Canada) Inc. Canada
Working Capital of America, Inc. Delaware
Working Capital Canada Inc. Canada
Home Tech Depot, Inc. Delaware
Daisytek De Mexico S.A. De C.V. Mexico
Daisytek Latin America, Inc. Florida
Supplies Express, Inc. Delaware
Priority Fulfillment Services, Inc. Delaware
Priority Fulfillment Services of Canada, Inc. Canada
Daisytek De Mexico Services, S.A. de C.V Mexico
Priority Fulfillment Services de Mexico, S.A. de C.V. Mexico
Daisytek Australia Pty. Ltd. Australia
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K into the Company's previously filed
Registration Statement (File No. 33-96728).
Dallas, Texas,
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR
THE YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 552
<SECURITIES> 0
<RECEIVABLES> 92,331
<ALLOWANCES> 1,885
<INVENTORY> 64,780
<CURRENT-ASSETS> 157,889
<PP&E> 21,622
<DEPRECIATION> 9,648
<TOTAL-ASSETS> 175,288
<CURRENT-LIABILITIES> 77,641
<BONDS> 31,116
0
0
<COMMON> 65
<OTHER-SE> 67,128
<TOTAL-LIABILITY-AND-EQUITY> 175,288
<SALES> 603,814
<TOTAL-REVENUES> 603,814
<CGS> 543,848
<TOTAL-COSTS> 543,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,594
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> 21,659
<INCOME-TAX> 8,292
<INCOME-CONTINUING> 13,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,367
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 0
</TABLE>
