<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number 0-25400
DAISYTEK INTERNATIONAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2421746
- - ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS 75074
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 881-4700
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At November 6, 1998 there were 17,138,660 shares of registrant's common stock
outstanding.
<PAGE> 2
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C> <C>
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets as of September 30, 1998
and March 31, 1998...................................................... 3
Unaudited Interim Consolidated Statements of Income for the
Three and Six Months Ended September 30, 1998 and 1997 ................. 5
Unaudited Interim Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1998 and 1997........................... 6
Notes to Unaudited Interim Condensed Consolidated Financial
Statements............................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.............................. 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ 24
SIGNATURES ............................................................................. 25
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998 (a)
------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,161 $ 2,087
Accounts receivable, net of allowance for doubtful accounts of
$2,385 and $2,765 at September 30, 1998 and March 31, 1998, 123,347 127,563
respectively
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division 84,139 81,956
Inventories, Priority Fulfillment Services Division 23,056 11,634
Prepaid expenses and other current assets 5,295 3,944
--------- ---------
Total current assets 236,998 227,184
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 31,837 28,391
Leasehold improvements 2,062 1,907
--------- ---------
33,899 30,298
Less - Accumulated depreciation and amortization (17,706) (15,025)
--------- ---------
Net property and equipment 16,193 15,273
EMPLOYEE RECEIVABLE 471 459
OTHER ASSETS 3,302 --
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $1,262 and $931 at September 30,
1998 and March 31, 1998, respectively 17,178 14,929
--------- ---------
Total assets $ 274,142 $ 257,845
========= =========
</TABLE>
- - -----------
(a) Retroactively restated to combine the financial positions of Daisytek
International Corporation ("Daisytek") with The Tape Company, Inc. ("The
Tape Company"), which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 4
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998 (a)
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 180 $ 3,010
Trade accounts payable 71,647 87,390
Accrued expenses 9,693 9,768
Income taxes payable 444 1,484
Deferred income tax liability 1,473 1,546
--------- ---------
Total current liabilities 83,437 103,198
--------- ---------
LONG-TERM DEBT, less current portion 41,909 16,916
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized at September
30, 1998 and March 31, 1998; none issued
and outstanding -- --
Common stock, $0.01 par value; 30,000,000 and 20,000,000 shares
authorized at September 30, 1998 and March 31, 1998, respectively;
17,137,472 and 16,935,896 shares issued and outstanding at September 30,
1998 and March 31, 1998, respectively 171 169
Additional paid-in capital 91,721 89,879
Retained earnings 59,270 49,614
Cumulative foreign currency translation adjustment (2,366) (1,931)
--------- ---------
Total shareholders' equity 148,796 137,731
--------- ---------
Total liabilities and shareholders' equity $ 274,142 $ 257,845
========= =========
</TABLE>
- - ----------------------
(a) Retroactively restated to combine the financial positions of Daisytek with
The Tape Company, which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
The accompanying notes are an integral part of these
consolidated balance sheets.
4
<PAGE> 5
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- ------------------------
1998 1997 (a) 1998 1997 (a)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 220,151 $ 190,060 $ 442,740 $ 372,837
Cost of sales 193,428 169,734 389,490 332,888
--------- --------- --------- ---------
Gross profit 26,723 20,326 53,250 39,949
Selling, general and administrative expenses 17,218 13,094 34,093 25,616
Acquisition and integration costs 130 -- 535 --
--------- --------- --------- ---------
Income from operations 9,375 7,232 18,622 14,333
Interest expense 789 660 1,641 1,246
--------- --------- --------- ---------
Income before income taxes 8,586 6,572 16,981 13,087
Provision for income taxes 3,350 2,425 6,352 4,840
--------- --------- --------- ---------
Net income $ 5,236 $ 4,147 $ 10,629 $ 8,247
========= ========= ========= =========
Net income per common share:
Basic $ 0.31 $ 0.28 $ 0.62 $ 0.57
Diluted $ 0.30 $ 0.27 $ 0.60 $ 0.54
Pro forma data (b):
Net income $ 5,236 $ 4,147 $ 10,629 $ 8,247
Pro forma adjustments:
Provision for income taxes -- (92) (291) (174)
Acquisition related costs, net of tax -- -- 246 --
--------- --------- --------- ---------
Pro forma net income $ 5,236 $ 4,055 $ 10,584 $ 8,073
========= ========= ========= =========
Pro forma net income per common share:
Basic $ 0.31 $ 0.28 $ 0.62 $ 0.56
Diluted $ 0.30 $ 0.26 $ 0.60 $ 0.53
Weighted average common and common share
equivalents outstanding:
Basic 17,105 14,567 17,055 14,453
Diluted 17,723 15,395 17,769 15,209
</TABLE>
(a) Retroactively restated to combine the results of operations of Daisytek
with The Tape Company, which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
(b) Pro forma data includes the following adjustments: (1) The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. The pro forma provision
for income tax adjustment is provided to reflect income tax under a
corporate tax structure; (2) Daisytek incurred various acquisition related
accounting, legal and other costs applicable to the acquisition of The Tape
Company. The pro forma adjustment for acquisition related costs, net of
tax, excludes such costs from pro forma net income for the six months ended
September 30, 1998.
The accompanying notes are an integral part of these interim
consolidated statements.
5
<PAGE> 6
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------
1998 1997(a)
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,629 $ 8,247
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization 3,176 2,321
Provision for doubtful accounts 1,073 846
Deferred income tax (benefit) provision (82) 307
Changes in operating assets and liabilities --
Accounts receivable 1,810 (4,721)
Inventories, net (14,624) 268
Trade accounts payable and accrued expenses (15,248) (4,032)
Income taxes payable (841) 170
Prepaid expenses and other current assets (1,694) (864)
-------- --------
Net cash (used in) provided by operating activities (15,801) 2,542
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,607) (2,643)
Additional cost of acquired business (2,886) --
Advances to employees, net (54) (145)
Increase in other assets (3,302) --
-------- --------
Net cash used in investing activities (9,849) (2,788)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 28,311 445
Payments on capital leases and notes payable (5,022) (507)
Net proceeds from exercise of stock options 1,829 3,542
Distributions to shareholders of pooled company (973) (1,374)
Payment to former shareholder of pooled company -- (809)
-------- --------
Net cash provided by financing activities 24,145 1,297
-------- --------
EFFECT OF EXCHANGE RATES ON CASH 579 (109)
-------- --------
NET INCREASE (DECREASE) IN CASH (926) 942
CASH, beginning of period 2,087 557
-------- --------
CASH, end of period $ 1,161 $ 1,499
======== ========
</TABLE>
- - ------------------------
(a) Retroactively restated to combine the cash flows of Daisytek with The Tape
Company, which was acquired by Daisytek during June 1998 and accounted for
as a pooling of interests. (see Footnotes 1 and 3 of these Interim
Unaudited Consolidated Financial Statements).
The accompanying notes are an integral part of these interim
consolidated statements.
6
<PAGE> 7
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
1. BASIS OF PRESENTATION:
The Interim Unaudited Consolidated Financial Statements include the
accounts of Daisytek International Corporation and the accounts of companies
acquired in business combinations accounted for under 1) the purchase method
from their respective acquisition dates, and 2) the pooling of interests method,
giving retroactive effect for all periods presented. See Footnote 3 of these
Interim Unaudited Consolidated Financial Statements for a reconciliation of the
Company's retroactively restated and previously reported revenue, net income,
pro forma net income and weighted average common share and common share
equivalents outstanding, resulting from the business combination with The Tape
Company, Inc. and its affiliates ("The Tape Company"), which was acquired by the
Company during June 1998 and accounted for as a pooling of interests.
In the opinion of management, the Interim Unaudited Condensed Consolidated
Financial Statements of the Company include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the Company's
financial position as of September 30, 1998, its results of operations and its
results of cash flows for the three months ended September 30, 1998 and 1997.
Results of the Company's operations for interim periods may not be indicative of
results for the full fiscal year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange Commission (the
"SEC").
The Interim Unaudited Condensed Consolidated Financial Statements should be
read in conjunction with the audited Consolidated Financial Statements and
accompanying notes of the Company included in the Company's Form 10-K (File
Number 0-25400) as filed with the SEC on May 29, 1998 (the "Company's Form
10-K"). Accounting policies used in the preparation of the Interim Unaudited
Condensed Consolidated Financial Statements are consistent in all material
respects with the accounting policies described in the Notes to Consolidated
Financial Statements in the Company's Form 10-K.
Certain prior period data has been reclassified to conform to the current
period presentation. These reclassifications had no effect on previously
reported net income, shareholders' equity or cash flows.
Presented as follows, for informational purposes only, are the Company's
unaudited interim consolidated statements of income for the three and six month
periods ended September 30, 1998 and 1997:
7
<PAGE> 8
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------
1997 % 1997
1998 Reported (a) Change Restated (b)
------------ ------------- ------ ------------
<S> <C> <C> <C> <C>
Net sales $ 220,151 $ 179,568 22.6% $ 190,060
Cost of sales 193,428 161,697 169,734
------------ ------------ ------------
Gross profit 26,723 17,871 49.5% 20,326
Selling, general and administrative expenses 17,218 11,052 55.8% 13,094
Acquisition integration costs 130 -- --
------------ ------------ ------------
Income from operations 9,375 6,819 37.5% 7,232
Interest expense 789 552 660
------------ ------------ ------------
Income before income taxes 8,586 6,267 6,572
Provision for income taxes 3,350 2,398 2,425
------------ ------------ ------------
Net income $ 5,236 $ 3,869 35.3% $ 4,147
============ ============ ============
Net income per common share:
Basic $ 0.31 $ 0.28 10.7% $ 0.28
Diluted $ 0.30 $ 0.27 11.1% $ 0.27
Pro forma data (c):
Net income $ 5,236 $ 3,869 $ 4,147
Pro forma adjustments:
Provision for income taxes -- -- (92)
------------ ------------ -------------
Pro forma net income $ 5,236 $ 3,869 35.3% $ 4,055
============ ============ ============
Pro forma net income per common share:
Basic $ 0.31 $ 0.28 10.7% $ 0.28
Diluted $ 0.30 $ 0.27 11.1% $ 0.26
Weighted average common and common share
equivalents outstanding:
Basic 17,105 13,592 25.8% 14,567
Diluted 17,723 14,420 22.9% 15,395
</TABLE>
- - -----------
(a) Results previously reported for Daisytek prior to the acquisition of The
Tape Company.
(b) Retroactively restated to combine the results of operations of
Daisytek with The Tape Company, which was acquired by Daisytek during
June 1998 and accounted for as a pooling of interests.
(c) The Tape Company included a business unit organized as a subchapter S
corporation, whereby income taxes were paid individually by the owners.
The pro forma provision for income tax adjustment is provided to reflect
income tax under a corporate tax structure.
8
<PAGE> 9
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
<TABLE>
<CAPTION>
Six Months Ended September 30,
---------------------------------------------------------
1997 % 1997
1998 Reported (a) Change Restated (b)
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Net sales $ 442,740 $ 352,380 25.6% $ 372,837
Cost of sales 389,490 317,203 332,888
---------- ---------- ----------
Gross profit 53,250 35,177 51.4% 39,949
Selling, general and administrative expenses 34,093 21,635 57.6% 25,616
Acquisition integration costs 535 -- --
---------- ---------- ----------
Income from operations 18,622 13,542 37.5% 14,333
Interest expense 1,641 1,071 1,246
---------- ---------- ----------
Income before income taxes 16,981 12,471 13,087
Provision for income taxes 6,352 4,773 4,840
---------- ---------- ----------
Net income $ 10,629 $ 7,698 38.1% $ 8,247
========== ========== ==========
Net income per common share:
Basic $ 0.62 $ 0.57 8.8% $ 0.57
Diluted $ 0.60 $ 0.54 11.1% $ 0.54
Pro forma data (c):
Net income $ 10,629 $ 7,698 $ 8,247
Pro forma adjustments:
Provision for income taxes (291) -- (174)
Acquisition related costs, net of tax 246 -- --
---------- ---------- ----------
Pro forma net income $ 10,584 $ 7,698 37.5% $ 8,073
========== ========== ==========
Pro forma net income per common share:
Basic $ 0.62 $ 0.57 8.8% $ 0.56
Diluted $ 0.60 $ 0.54 11.1% $ 0.53
Weighted average common and common share
equivalents outstanding:
Basic 17,055 13,478 26.5% 14,453
Diluted 17,769 14,234 24.8% 15,209
</TABLE>
- - -----------
(a) Results previously reported for Daisytek prior to the acquisition of The
Tape Company.
(b) Retroactively restated to combine the results of operations of
Daisytek with The Tape Company, which was acquired by Daisytek during
June 1998 and accounted for as a pooling of interests.
(c) Pro forma data includes the following adjustments:(a) The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. The pro forma provision
for income tax adjustment is provided to reflect income tax under a
corporate tax structure. (b) Daisytek incurred various acquisition related
accounting, legal and other costs applicable to the acquisition of The Tape
Company. The pro forma adjustment for acquisition related costs, net of tax,
excludes such costs from pro forma net income for the six months ended
September 30, 1998.
9
<PAGE> 10
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
2. ORGANIZATION AND NATURE OF BUSINESS:
The Company is a wholesale distributor of non-paper computer and office
automation supplies and accessories, whose primary products are laser toner,
inkjet cartridges, copier and fax supplies, printer ribbons, diskettes, optical
storage products, computer tape cartridges and accessories such as cleaning kits
and media storage files. The Company's products are used in a broad range of
computers and office automation products including laser and inkjet printers,
photocopiers, fax machines and data storage products. The Company, through its
wholly owned subsidiaries in the U.S., Canada, Australia, Mexico and Singapore,
sells products primarily in North America, as well as in Latin America,
Australia, Singapore, the Pacific Rim, Europe and Africa. 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.
During fiscal year 1996, the Company formed Priority Fulfillment Services,
Inc. ("PFS"), a wholly owned subsidiary, to provide outsourcing solutions to its
business partners and other customers. Through PFS, the Company sells its core
competencies in call-center, product fulfillment, logistic and support services
to client companies worldwide. PFS customizes these services to meet specific
requirements of these companies. PFS's call-center service includes: order
entry, order tracking and customer service (inbound), outbound telemarketing
services and customized reporting of customer and call information. PFS also
provides other support services such as invoicing, credit management and
collection services, and accounting and systems support. PFS utilizes primarily
the Company's centralized distribution facility in Memphis, Tennessee and also
the Company's foreign distribution facilities, and 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 presently provides
its services under both fee-based contracts (where revenue is based on either
the sales value of the products or service activity volume) and transaction
based contracts (where PFS takes title and resells the product).
In January 1998, the Company expanded its product line by acquiring
Steadi-Systems, Ltd., ("Steadi-Systems") an independent wholesale distributor of
professional-grade audio and video media products (pro-tape products) to the
filmed entertainment and multimedia industries. The Company further expanded its
operations in the distribution of pro-tape products through the acquisition of
The Tape Company in June 1998. Through Steadi-Systems and The Tape Company, the
Company distributes a wide array of professional-grade audio and video media
products and video hardware and is an authorized distributor for leading
manufacturers such as Sony, Fuji, JVC, Avid and others to customers including
production companies, post-production operations, and television stations.
10
<PAGE> 11
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
3. BUSINESS COMBINATIONS:
During June 1998, the Company completed the acquisition of The Tape Company
through a stock-for-stock merger. Under the terms of the acquisition, accounted
for as a pooling of interest, the Company exchanged 974,864 shares of Company
common stock for all of The Tape Company's common stock. The Tape Company is a
Chicago, Illinois-based independent distributor of professional grade audio and
video media products. Retroactively restated and previously reported revenue,
net income, pro forma net income and weighted average common share and common
share equivalents outstanding are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
--------------------------------------
Daisytek-
Previously The Tape Daisytek-
Reported Company Restated
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 179,568 $ 10,492 $ 190,060
Net income $ 3,869 $ 278 $ 4,147
Net income per common share:
Basic $ 0.28 $ 0.28
Diluted $ 0.27 $ 0.27
Pro forma data (a):
Net income $ 3,869 $ 278 $ 4,147
Pro forma adjustment for income taxes -- (92) (92)
--------- --------- ---------
Pro forma net income $ 3,869 $ 186 $ 4,055
========= ========= =========
Pro forma net income per common share:
Basic $ 0.28 $ 0.28
Diluted $ 0.27 $ 0.26
Weighted average common and common share
equivalents outstanding:
Basic 13,592 14,567
Diluted 14,420 15,395
</TABLE>
11
<PAGE> 12
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
<TABLE>
<CAPTION>
Six Months Ended September 30, 1997
------------------------------------------------
Daisytek-
Previously The Tape Daisytek-
Reported Company Restated
------------ ------------- ------------
<S> <C> <C> <C>
Net sales $ 352,380 $ 20,457 $ 372,837
Net income $ 7,698 $ 549 $ 8,247
Net income per common share:
Basic $ 0.57 $ 0.57
Diluted $ 0.54 $ 0.54
Pro forma data (a):
Net income $ 7,698 $ 549 $ 8,247
Pro forma adjustment for income taxes -- (174) (174)
------------ ------------- ------------
Pro forma net income $ 7,698 $ 375 $ 8,073
============ ============ ============
Pro forma net income per common share:
Basic $ 0.57 $ 0.56
Diluted $ 0.54 $ 0.53
Weighted average common and common share
equivalents outstanding:
Basic 13,478 14,453
Diluted 14,234 15,209
</TABLE>
(a) The Tape Company included a business unit organized as a subchapter S
corporation, whereby income taxes were paid individually by the owners. The
pro forma provision for income tax adjustment is provided to reflect income
tax under a corporate tax structure.
4. INVENTORIES:
Inventories (merchandise held for resale, all of which is finished goods)
are stated at the lower of weighted average cost or market.
12
<PAGE> 13
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
5. DEBT:
Debt as of September 30, 1998 and March 31, 1998, is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---------- ----------
<S> <C> <C>
Revolving line of credit with commercial banks, interest (weighted average rate
of 6.7% at September 30, 1998) at the Company's option at the prime rate of
a bank (8.25% at September 30, 1998) or the Eurodollar
rate plus 0.625% to 1.125% (6.5% at September 30, 1998), due December $ 28,500 $ --
31, 2000
Revolving line of credit with commercial bank, interest at the Australian Bank
Bill Rate plus 0.75% or the Australian bank's overnight rate
plus 0.75% (5.8% at September 30, 1998), due December 31, 2000 4,206 4,410
Revolving line of credit with commercial bank, interest (weighted average rate
of 6.6% at September 30, 1998) at the Canadian bank's cost of funds plus
0.65% (6.5% at September 30, 1998) or the Canadian bank's
prime rate (7.25% at September 30, 1998), due December 31, 2000 9,159 8,101
Revolving line of credit with commercial bank, interest payable monthly at the
Federal Funds rate plus 2%, due October 31, 1998, and secured by
a blanket lien on all assets of The Tape Company and affiliates -- 2,161
Term loan with commercial bank, payable monthly at a rate of $25 plus interest
at 7.65%, due October 31, 2002 and secured by a blanket lien
on all assets of The Tape Company and affiliates -- 1,400
Note payable to individual, payable monthly at a rate of $41 including
interest at a rate of 6.66%, due July 25, 2007 -- 3,413
Notes payable and obligations under capital leases for warehouse equipment,
computer equipment, office furniture, fixtures and transportation equipment
interest at varying rates ranging from 7.5%
to 10.2%, with lease terms varying from three to seven years 224 441
---------- ----------
Long-term debt 42,089 19,926
Less: Current portion of long-term debt (180) (3,010)
---------- ----------
Long-term debt, less current portion $ 41,909 $ 16,916
========== ==========
</TABLE>
In May 1995, the Company entered into an agreement with certain banks for
an unsecured revolving line of credit facility (the "Facility") that, as amended
on February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. Availability under the Facility is based upon
amounts of eligible accounts receivable, as defined. The Facility accrues
interest, at the Company's option, at the prime rate of a bank or the Eurodollar
rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's
financial performance. A commitment fee of 0.20% to 0.25% is charged on the
unused portion of the Facility. The Facility contains various covenants
including, among other things, the maintenance of certain financial ratios
including the achievement of a minimum fixed
13
<PAGE> 14
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
charge ratio and minimum level of tangible net worth, and restrictions on
certain activities of the Company, including loans and payments to related
parties, incurring additional debt, acquisitions, investments and asset sales.
As of September 30, 1998, the Company had borrowed $28.5 million under the
Facility, leaving $36.5 million 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.
During October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.4 million (U.S.) at September 30, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75% or the Australian
bank's overnight rate plus 0.75%. A commitment fee of 0.25% is charged on the
total amount of the Australian Facility. As of September 30, 1998, the Company
had borrowed approximately $4.2 million (U.S.), leaving approximately $0.2
million (U.S.) available under the Australian Facility for additional
borrowings.
During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, as amended in July
1998, expires on December 31, 2000 and allows the Company to borrow Canadian or
U.S. dollars up to a maximum of $15.0 million (Canadian), or approximately $9.8
million (U.S.) at September 30, 1998. The Company had borrowed approximately
$9.2 million (U.S.) under the Canadian Facility at September 30, 1998, leaving
approximately $0.6 million (U.S.) available under the Canadian Facility for
additional borrowings. The Canadian Facility accrues interest at the Company's
option at the bank's prime rate, the bank's cost of funds plus 0.65%, the bank's
U.S. dollar commercial loan rate or LIBOR plus 0.65%. A commitment fee of 0.25%
is charged on the unused portion of the Canadian Facility.
During January 1998, the Company entered into a promissory note agreement
with a bank which allows the Company to borrow up to a maximum of $10.0 million.
Amounts borrowed under this note agreement bear interest at the bank's
discretion, primarily based on a money market borrowing rate plus an adjustment.
The maturity date of any amounts borrowed will occur prior to January 1999, the
expiration date of the note. The Company had no borrowings outstanding under
this promissory note agreement at September 30, 1998.
In conjunction with the business combination with The Tape Company, certain
debt of The Tape Company, including the revolving line of credit due October 31,
1998, the term loan with commercial bank due October 31, 2002, and the note
payable to individual due July 25, 2007, were paid in full by the Company and
were retired.
6. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------------
1998 1997
--------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,460 $ 1,296
Income taxes $ 7,413 $ 2,255
</TABLE>
14
<PAGE> 15
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
7. STOCK OPTIONS:
During the six months ended September 30, 1998, the Company granted options
to certain employees under its employee stock option plans (the "Plans"). These
options were granted at the fair market value of the Company's common stock at
the date of the grant. Such options become exercisable over a three year period
starting with the date of grant, based on vesting percentages.
<TABLE>
<CAPTION>
Shares Price per Share
---------- ----------------
<S> <C> <C>
Outstanding, March 31, 1998 1,725,974 $0.64 - $22.44
Granted 769,892 $17.75 - $22.88
Exercised (200,501) $2.65 - $16.25
Canceled (111,657) $9.75 - $22.88
----------
Outstanding, September 30, 1998 2,183,708 $2.65 - $22.88
==========
</TABLE>
8. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires companies to report comprehensive
income, which is defined as all changes in equity during a period, except those
resulting from investment by owners and distribution to owners. The Company
adopted SFAS No. 130 during the six months ended September 30, 1998.
Comprehensive income for the Company includes net income and foreign currency
translation adjustments for the Company's foreign subsidiaries where the local
currency is the functional currency. The Company's comprehensive income is as
follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 5,236 $ 4,147 $10,629 $ 8,247
Comprehensive income adjustments:
Cumulative translation adjustment (308) (168) (435) (392)
------- ------- ------- -------
Comprehensive income $ 4,928 $ 3,979 $10,194 $ 7,855
======= ======= ======= =======
</TABLE>
9. NEW ACCOUNTING STANDARDS:
The Company adopted SFAS No. 128, "Earnings per Share," during the quarter
ended December 31, 1997. The statement establishes new standards for computing
and presenting earnings per share ("EPS"). The Company restated its earnings per
share data for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is permitted.
SFAS No. 131 requires the disclosure of financial and descriptive information
about reportable operating segments. SFAS No. 131 modifies existing disclosure
requirements, which will have no effect on the results of operations or
financial condition of the Company. The Company is currently evaluating the
standard and its potential impact on disclosures and will adopt the
pronouncement in its fiscal year 1999 annual financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either
15
<PAGE> 16
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997 AND
RELATED TO MARCH 31, 1998 IS UNAUDITED.)
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
used to hedge certain types of transactions, including foreign currency
exposures of a net investment in a foreign operation. The Company presently
utilizes derivative financial instruments only to hedge its net investment in
certain of its foreign operations. SFAS No. 133 requires gains or losses on
these financial instruments to be included in other comprehensive income as a
part of the cumulative translation adjustment. The Company currently complies
with the provisions of SFAS No. 133 in its accounting treatment of these
financial instruments. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, with initial application as of the beginning of an entity's
fiscal quarter. Early adoption of the standard is allowed, however, the
statement cannot be applied retroactively to financial statements of prior
periods.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Interim Unaudited Consolidated Financial Statements include the accounts
of Daisytek International Corporation and the accounts of companies acquired in
business combinations accounted for under 1) the purchase method from their
respective acquisition dates, and 2) the pooling of interests method, giving
retroactive effect for all periods presented.
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 1998 AND 1997.
Net Sales. Net sales for the three months ended September 30, 1998, were
$220.2 million as compared to $190.1 million for the three months ended
September 30, 1997, an increase of $30.1 million, or 15.8%. For this same
comparative period, U.S. net sales increased $17.0 million, or 11.6%, while
international net sales increased $13.1 million, or 29.7%. Net sales for the six
months ended September 30, 1998, were $442.7 million as compared to $372.8
million for the same period in 1997, an increase of $69.9 million, or 18.7%.
U.S. net sales for the six-month period ended September 30, 1998, compared to
the prior year period increased $45.3 million, or 15.9%, and international net
sales increased $24.6 million, or 28.0%. Net sales of professional-grade audio
and video media products and video hardware (pro-tape products) resulting from
the acquisition of Steadi-Systems, Ltd. ("Steadi-Systems") in January 1998
continue to contribute to the overall consolidated revenue growth. The business
combination of Steadi-Systems was accounted for under the purchase method, thus
its results of operations are included in the Company's consolidated results
after the acquisition date. The growth in international net sales was primarily
due to increased sales volume to large accounts, computer and office product
superstores, new customers, and the Company's continued introduction of new
products. The growth in U.S. sales has slowed from previously realized levels.
The Company believes this reduction is due to a slower industry growth as well
as continuing customer consolidation. As a result of the slow-down in the
expected U.S. growth rate, the Company is targeting future organic revenue
growth on a consolidated basis in the next fiscal year to mid-teens for both
revenue and earnings. The Company is even more cautious about the next two
quarters, as some of its major customers and suppliers are reporting a slower
outlook as well.
Gross Profit. Gross profit for the three months ended September 30, 1998,
was $26.7 million as compared to $20.3 million in the same period in 1997, an
increase of $6.4 million, or 31.5%. Gross profit for the six months ended
September 30, 1998, was $53.3 million as compared to $39.9 million in the same
period in 1997, an increase of $13.3 million, or 33.3%. This increase is
primarily attributable to increased sales volume in the first half of fiscal
year 1999. The Company's gross profit margin as a percent of net sales was 12.1%
for the three month period ended September 30, 1998, as compared to 10.7% for
the same period of 1997. For the six month periods ended September 30, 1998 and
September 30, 1997, the Company's gross profit margin as a percent of net sales
was 12.0% and 10.7%, respectively. The increase in the Company's gross profit
margin as a percentage of net sales was a result of an increase in pro-tape
sales, which have higher margins than the Company's traditional computer
supplies products, as a percent of total net sales. Also, increased higher
margin fee revenue business for Priority Fulfillment Services, Inc. ("PFS") and
enhanced product sourcing in fiscal year 1999 contributed to increased gross
profit margins during fiscal year 1999. The Company believes that the
competitive environment, consolidation of its computer supplies products
customers and potentially reduced future product sourcing opportunities may
negatively impact the Company's gross profit margin percentage during fiscal
year 1999. The Company continues to look for opportunities to offset such
impact, however, there can be no assurance that the Company will be successful
in doing so.
SG&A Expenses. SG&A expenses for the three months ended September 30, 1998,
were $17.2 million (excluding acquisition integration costs), or 7.8% of net
sales, as compared to $13.1 million, or 6.9% of net sales, for the three months
ended September 30, 1997. SG&A expenses for the six months ended September 30,
1998, were $34.1 million (excluding acquisition and integration costs), or 7.7%
of net sales, as compared to $25.6 million, or 6.9% of net sales, for the six
months ended September 30, 1997. The increase in SG&A expenses was primarily a
result of the increase in costs associated with the Company's increased sales
volume. The increase in SG&A expenses as a percentage of net sales for fiscal
year 1999 was primarily due to increased SG&A costs from the addition of
Steadi-Systems and The Tape Company, Inc. and its affiliates ("The Tape
Company"), whose SG&A expenses are higher than the Company's core computer
supplies business, and due to incremental SG&A expenses associated with its
17
<PAGE> 18
PFS subsidiary. The Company continues to incur incremental SG&A expenses to
invest in growth areas of the business, PFS and international operations in
particular.
Acquisition and Integration Costs. During June 1998, the Company completed
the acquisition of The Tape Company through a stock-for-stock merger, which is
accounted for as a pooling of interest in the accompanying Unaudited Interim
Consolidated Financial Statements and notes thereto. Daisytek incurred various
acquisition related accounting, legal and other costs applicable to the
acquisition of The Tape Company of approximately $0.4 million, or approximately
$0.01 per share net of income taxes in June 1998. During the three months ended
September 30, 1998 the Company incurred acquisition integration costs of $0.1
million. The Company expects to incur a total $0.7 million of expenses in each
of the next two fiscal quarters relating to The Tape Company merger activities.
Income from Operations. Income from operations for the three months ended
September 30, 1998 was $9.4 million. Income from operations excluding
acquisition integration costs for this same period was $9.5 million as compared
to $7.2 million for the same period during 1997, an increase of $2.3 million, or
31.4%. Income from operations for the six months ended September 30, 1998 was
$18.6 million. Income from operations excluding acquisition and integration
costs for this same period was $19.2 million as compared to $14.3 million for
the same period during 1997, an increase of $4.8 million, or 33.7%. This
increase was due to increased sales volume and increased gross profit partially
offset by increased SG&A expenses. Income from operations as a percentage of net
sales was 4.3% for the three months ended September 30, 1998, as compared to
3.8% for the same period during 1997. Income from operations as a percentage of
net sales was 4.2% for the six months ended September 30, 1998. Income from
operations excluding acquisition and integration costs as a percentage of net
sales were 4.3% and 3.8% for the six-month periods ended September 30, 1998 and
September 30, 1997, respectively.
Interest Expense. Interest expense for the three months ended September 30,
1998 was $0.8 million as compared to $0.7 million for the three months ended
September 30, 1997. Interest expense for the six months ended September 30, 1998
was $1.6 million as compared to $1.2 million for the six months ended September
30, 1997. Interest expense was higher during the first half of fiscal year 1999
primarily due to an increase in the average line of credit, partially offset by
a slight decrease in interest rates during fiscal year 1999. The weighted
average interest rate was 6.8% and 7.0% during the six months ended September
30, 1998 and 1997, respectively.
Income Taxes. The Company's provision for income taxes was $3.4 million for
the three months ended September 30, 1998 as compared to $2.4 million for the
three months ended September 30, 1997. The Company's provision for income taxes
was $6.4 million for the six months ended September 30, 1998 as compared to $4.8
million for the six months ended September 30, 1997. The increase was primarily
due to increased pretax profits. The effective tax rate was 39.0% and 36.9% for
the three months ended September 30, 1998 and 1997, respectively. The effective
tax rate for the three months ended September 30, 1998, was higher than the
corresponding period during 1997 due to The Tape Company, prior to its
acquisition by the Company, including a business unit organized as a subchapter
S corporation, whereby income taxes were paid individually by the owners. The
effective tax rate for the six month periods ended September 30, 1998, and
September 30, 1997, was 37.4% and 37.0%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. During the six months ended September 30, 1998, net cash of $24.1
million was provided by financing activities, compared to net cash provided by
financing activities of $1.3 million for the six months ended September 30,
1997. Cash provided by financing activities was generated primarily from
proceeds from revolving lines of credit during the six months ended September
30, 1998. In conjunction with the business combination with The Tape Company,
certain debt of The Tape Company, including the revolving line of credit due
October 31, 1998, the term loan with commercial bank due October 31, 2002, and
the note payable to an individual due July 25, 2007, were paid in full by the
Company during the six months ended September 30, 1998, and were retired.
Included in cash flows from financing activities for the six months ended
September 30, 1998 and 1997 are distributions made to shareholders of The Tape
Company relating to taxes incurred by these shareholders for earnings of the
business unit of The Tape Company
18
<PAGE> 19
which was organized as a subchapter S corporation. These distributions were made
prior to the business combination with the Company. During the six months ended
September 30, 1997, cash provided by financing activities was generated
primarily from proceeds received from the exercise of common stock options.
Financing activities should provide the Company's primary source of cash during
the remainder of fiscal year 1999, primarily to support the Company's growth.
During the six months ended September 30, 1998, $15.8 million was used in
operating activities, while net cash of $2.5 million was provided by operating
activities during the six months ended September 30, 1997. Increased working
capital requirements during the six months ended September 30, 1998, were
partially funded by cash generated by the Company's operations, with the
remainder provided by financing activities. During the six months ended
September 30, 1997, increased working capital required to support the Company's
growth was funded by cash generated from operating activities.
Funds used for investing activities during the six months ended September
30, 1998 included incremental costs of an acquired business and for capital
expenditures. During May 1998, certain events occurred which were defined in the
acquisition agreement for Steadi-Systems, which caused the Company to incur
approximately $2.9 million in contingent cash payments for that acquisition.
Capital expenditures of approximately $3.6 during the six months ended September
30, 1998 consisted primarily of additions to upgrade the Company's management
information systems, including the Company's Internet based customer tools, its
on-line catalog and ordering tool (SOLOnet), other methods of electronic
commerce, and general expansion of its facilities, both domestic and foreign.
The principal use of funds for investing activities were for capital
expenditures of $2.6 million for the six months ended September 30, 1997. The
Company anticipates that its total investment in upgrades and additions to
facilities for fiscal year 1999 will be approximately $6 million to $7 million.
Working capital increased to $154.0 million at September 30, 1998 from
$124.0 million at March 31, 1998. This increase of $30.0 million was primarily
attributable to an increase in inventory including inventory associated with
Company's Priority Fulfillment Services Division, and a decrease in accounts
payable, which were partially offset by a decrease in accounts receivable.
During the six month periods ended September 30, 1998 and 1997, the Company
generally maintained an accounts receivable balance of approximately 47 days of
sales. Inventory turnover, excluding Priority Fulfillment Services Division,
was approximately 9 and 10 turns for the six month periods ended September 30,
1998 and 1997, respectively. The Company generally maintains an inventory
turnover of approximately 10 to 11 turns, however, inventory turnover was lower
during the six months ended September 30, 1998, primarily due to increased
inventory levels held by the Company's pro-tape business and due to inventory
buy-in activity to take advantage of enhanced product sourcing opportunities.
In May 1995, the Company entered into an agreement with certain banks for
an unsecured revolving line of credit facility (the "Facility") that, as amended
on February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. Availability under the Facility is based upon
amounts of eligible accounts receivable, as defined. As of September 30, 1998,
the Company had borrowed $28.5 million, leaving $36.5 million available under
the Facility for additional borrowings. The Facility accrues interest, at the
Company's option, at the prime rate of a bank or a eurodollar rate plus an
adjustment ranging from 0.625% to 1.125% depending on the Company's financial
performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion
of the Facility. The Facility contains various covenants including, among other
things, the maintenance of certain financial ratios including the achievement of
a minimum fixed charge ratio and minimum level of tangible net worth, and
restrictions on certain activities of the Company, including loans and payments
to related parties, incurring additional debt, acquisitions, investments and
asset sales.
During October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.4 million (U.S.) at September 30, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75%. A commitment fee
of 0.25% is charged on the total amount of the Australian Facility. As of
September 30, 1998, the Company had borrowed approximately $4.2 million (U.S.),
leaving approximately $0.2 million (U.S.) available under the Australian
Facility for additional borrowings.
19
<PAGE> 20
During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, which expires on
December 31, 2000, allows the Company to borrow Canadian or U.S. dollars up to a
maximum of $15.0 million (Canadian), or approximately $9.8 million (U.S.) at
September 30, 1998. The Company had borrowed approximately $9.2 million (U.S.)
under the Canadian Facility, leaving approximately $0.6 million (U.S.) available
under the Canadian Facility for additional borrowings at September 30, 1998. The
Canadian Facility accrues interest at the Company's option at the bank's prime
rate, the bank's cost of funds plus 0.65%, the bank's U.S. dollar commercial
loan rate or LIBOR plus 0.65%. A commitment fee of 0.25% is charged on the
unused portion of the Canadian Facility.
During January 1998, the Company entered into a promissory note agreement
with a bank which allows the Company to borrow up to a maximum of $10.0 million.
Amounts borrowed under this note agreement bear interest at the bank's
discretion, primarily based on a money market borrowing rate plus an adjustment.
The maturity date of any amounts borrowed will occur prior to January 1999, the
expiration date of the note. The Company had no borrowings outstanding under
this promissory note agreement at September 30, 1998.
During the six months ended September 30, 1998, approximately 25% of the
Company's net sales were sold through the Company's Canadian, Mexican,
Australian, Singaporean and U.S. export operations, including Latin America. The
Company believes that international markets represent further opportunities for
growth. The Company attempts to protect itself from foreign currency
fluctuations by denominating substantially all of its non-Canadian and
non-Australian international sales in U.S. dollars. In addition, the Company has
entered into various forward Canadian and Australian currency exchange contracts
in order to hedge the Company's net investment in, and its intercompany payable
applicable to, its Canadian and Australian subsidiaries. The Company has the
following forward currency exchange contracts outstanding at September 30, 1998:
<TABLE>
<CAPTION>
CURRENCY TYPE US$ CONTRACT AMOUNT CONTRACT TYPE EXPIRATION
------------- ------------------- ------------- ----------
<S> <C> <C> <C>
Canadian Dollars $11.7 million Sell Canadian Dollars November 1998
Australian Dollars $1.8 million Sell Australian Dollars October 1998
Australian Dollars $0.5 million Sell Australian Dollars October 1998
Australian Dollars $3.7 million Sell Australian Dollars October 1998
Australian Dollars $1.2 million Sell Australian Dollars February 1999
</TABLE>
As of September 30, 1998, the Company had incurred unrealized gains of
approximately $0.7 million, net of income taxes, on these outstanding Canadian
and Australian forward exchange contracts. The Company may consider entering
into other forward exchange contracts in order to hedge the Company's net
investment in its Canadian, Australian, Mexican, and Singaporean subsidiaries,
although no assurance can be given that the Company will be able to do so on
acceptable terms.
The Company believes it will be able to satisfy its working capital needs
for fiscal year 1999, as well as organic business growth and planned capital
expenditures, through funds available under the Company's various line of credit
facilities, trade credit, lease financing, internally generated funds and by
increasing the amount available under the Company's credit facilities. In
addition, 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 in its core wholesale distribution business 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 acquiring other businesses, the
Company may require additional financing to consummate such a transaction.
Acquisitions involve certain risks and uncertainties, therefore, the Company
can give no assurance 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.
20
<PAGE> 21
YEAR 2000 ISSUE
The Company utilizes a significant number of computer software programs and
information systems in its operations ("IT systems"). The mission-critical IT
systems include the Company's operating, accounting and telecommunications
systems, such as IT software applications that allow the Company to maintain
inventory and customer information and to communicate with its suppliers and
customers. The Company also makes use of a variety of machinery and equipment in
its business which are operated by or reliant upon non-information technology
systems ("non-IT systems"), for example, equipment or mechanical systems which
contain embedded technology such as microcontrollers. To the extent that the
source code of the software applications of these IT systems or the embedded
technologies of these non-IT systems are unable to appropriately interpret and
process the upcoming calendar year 2000, some level of modification or possible
replacement of such applications would be necessary for proper continuous
performance. Without such modification or replacement, the normal course of the
Company's business could be disrupted or otherwise adversely impacted. This
potential problem is commonly referred to as the year 2000 compliance issue
("Y2K").
In fiscal 1997, the Company began to address Y2K. The Company has formed a Y2K
task force under its Chief Information Officer to coordinate and implement
measures designed to prevent disruption in its business operations related to
Y2K. The Company is scheduled to complete the remediation of its
mission-critical IT applications software by March 1999 and its non-mission
critical applications software by September 1999. The Company is assessing the
effect of Y2K on its non-IT systems and intends to modify or replace non-IT
systems as necessary to insure Y2K readiness by September 1999.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate Y2K. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. The Company is developing
contingency plans to address the risks created by third parties' failure to
remediate Y2K. These plans include procuring alternative suppliers, when
available, when the Company is able to conclude that an existing supplier will
not be Y2K ready. The Company is scheduled to complete these contingency plans
by July 1999.
The Company has acquired, and is expected to continue to acquire, businesses.
All prior acquisitions of the Company, with the exception of The Tape Company
acquired in June 1998, have been converted to the Company's operating system. It
is anticipated that the IT conversion for The Tape Company will be completed by
June 1999. In the unlikely event the conversion is not completed by July 1999,
the Company would be forced to move to its contingency plan to meet a deadline
of December 31, 1999. This scenario would require the Company make the necessary
modifications to the current operating system used by The Tape Company.
Management believes the cost of The Tape Company system upgrade would not be
material and could be completed by the required deadline.
During the six months ended September 30, 1998, the Company incurred
approximately $0.2 million of expenses related to Y2K. In total, the Company's
assessment and remediation of Y2K has a budget of approximately $0.8 million,
which includes both external costs, such as outside consultants, software and
hardware applications, as well as internal costs, primarily payroll related,
which are not separately tracked. Funding for Y2K expenses will be generated
from on-going operations and available borrowings under the Company's revolving
line of credit facilities.
There can be no assurance that Y2K remediation by the Company or third parties
will be properly and timely completed and failure to do so could have a material
adverse effect on the Company's financial condition. The Company cannot predict
the actual effects of Y2K, which depends on numerous uncertainties such as: (1)
whether major third parties address this issue properly and timely and (2)
whether broad-based or systemic economic failures may occur. The Company is
currently unaware of any events, trends, or conditions regarding this issue that
may have a material effect on the Company's results of operations, liquidity,
and financial position. If Y2K is not resolved by January 1, 2000, the Company's
results of operations or financial condition could be materially adversely
affected.
INVENTORY MANAGEMENT
The Company manages its computer consumable 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 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 sequential
quarter revenue growth in its fourth fiscal quarter, management has not been
able to determine the specific event, if any, of seasonal factors that may cause
quarterly variability in operating results. Management believes, however, that
factors that may influence quarterly variability include the overall growth in
the non-paper computer supplies industry and shifts in demand for the Company's
products due to a variety of factors, including sales increases resulting from
the introduction of new computer supplies products. The Company generally
experiences a relative slowness in sales during the summer months, which may
adversely affect the Company's first and second fiscal quarter results in
relation to sequential quarter performance. The Company believes that results of
operations for a quarterly period may not be indicative of the results for any
other quarter or for the full year.
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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-Q, other than historical
information, and, in particular, information regarding future revenue, earnings
and business plans and goals, consist of forward-looking information under the
Private Securities Litigation Reform Act of 1995, and are subject to and involve
risks and uncertainties which could cause actual results to differ materially
from the forward-looking information. These risks and uncertainties include, but
are not limited to, the "Risk Factors" set forth in the Company's prospectus
dated March 26, 1998, and the matters set forth in the Company's Report on Form
10-K filed on May 29, 1998, 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),
risks inherent in acquiring, integrating and operating new businesses,
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 SFAS No. 128, "Earnings per Share," during the quarter
ended December 31, 1997. The statement establishes new standards for computing
and presenting earnings per share ("EPS"). The Company restated its earnings per
share data for all periods presented. The Company also adopted SFAS No. 130,
"Reporting Comprehensive Income," during the quarter ended September 30, 1998.
SFAS No. 130 requires companies to report comprehensive income, which is defined
as all changes in equity during a period, except those resulting from investment
by owners and distribution to owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is permitted.
SFAS No. 131 requires the disclosure of financial and descriptive information
about reportable operating segments. SFAS No. 131 modifies existing disclosure
requirements, which will have no effect on the results of operations or
financial condition of the Company. The Company is currently evaluating the
standard and its potential impact on disclosures and will adopt these
pronouncement in its fiscal year 1999 annual financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be used to hedge certain
types of transactions, including foreign currency exposures of a net investment
in a foreign operation. The Company presently utilizes derivative financial
instruments only to hedge its net investment in certain of its foreign
operations. SFAS No. 133 requires gains or losses on these financial instruments
in other comprehensive income as a part of the cumulative translation
adjustment. The Company currently complies with the provisions of SFAS No. 133
in its accounting treatment of these financial instruments. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999, with initial
application as of the beginning of an entity's fiscal quarter. Early adoption of
the standard is allowed, however, the statement cannot be applied retroactively
to financial statements of prior periods.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 14, 1998, the Company held its Annual Meeting of Stockholders. The
following matters were acted upon and votes cast or withheld:
1. Election of two Class I directors:
Chris Yates:
For: 14,289,685 Withheld: 215,300
James Powell:
For: 14,289,385 Withheld: 215,600
2. Approval of Company's 1998 Amended and Restated Employee Stock Option
Plan:
For: 6,782,747 Against: 6,364,735 Abstained: 23,225
No-Vote: 1,334,278
3. Approval of Company's 1998 Employee Stock Purchase Plan:
For: 13,014,898 Against: 136,084 Abstained: 19,725
No-Vote: 1,334,278
4. Approval of amendment to Company's Amended and Restated Certificate of
Incorporation increasing the number of authorized shares:
For: 14,414,393 Against: 85,547 Abstained: 5,045
5. Appointment of Arthur Andersen LLP as auditors for 1999 fiscal year:
For: 14,498,860 Against: 2,850 Abstained: 3,275
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- --------------------------------------------------------
3.1 Certificate of Amendment of Amended and Restated
Certificate of Incorporation Of Daisytek International
Corporation
10.1 1998 Amended and Restated Stock Option Plan of Daisytek
International Corporation
10.2 Daisytek International Corporation 1998 Employee Stock
Purchase Plan.
11 Statement re: Computation of Earnings Per Share
27.1 Financial Data Schedule for the six months ended
September 30, 1998.
27.2 Financial Data Schedule for the six months ended
September 30, 1997.
b) Reports on Form 8-K:
Form 8-K filed on November 4, 1998 reporting Item 5. the Company's press
release dated October 28, 1998 announcing three and six months ended
September 30, 1998 results.
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<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1998
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Thomas J. Madden
------------------------------------
Thomas J. Madden
Chief Financial Officer,
Chief Accounting Officer,
Vice President - Finance
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<PAGE> 26
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
-------- -----------------------
3.1 Certificate of Amendment of Amended and Restated Certificate
of Incorporation Of Daisytek International Corporation
10.1 1998 Amended and Restated Stock Option Plan of Daisytek
International Corporation
10.2 Daisytek International Corporation 1998 Employee Stock
Purchase Plan
11 Statement re: Computation of Earnings Per Share
27.1 Financial Data Schedule for the six months ended September
30, 1998.
27.2 Financial Data Schedule for the six months ended September
30, 1997.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DAISYTEK INTERNATIONAL CORPORATION
(A DELAWARE CORPORATION)
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Daisytek International Corporation.
2. The Amended and Restated Certificate of Incorporation of
the Corporation is hereby amended by striking out Article FOURTH of Section 4
thereof and by substituting in lieu of said Article the following new Article
FOURTH:
"The total number of shares which the Corporation
shall have authority to issue is Thirty One Million
(31,000,000) shares, consisting of One Million (1,000,000)
shares of Preferred Stock, of a par value of One Dollar
($1.00) per share (hereinafter called "Preferred Stock"), and
Thirty Million (30,000,000) shares of Common Stock, of the par
value of One Cent ($.01) per share (hereinafter called "Common
Stock")."
3. The amendment of the Amended and Restated Certificate of
Incorporation herein certified has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
Signed on August __, 1998.
DAISYTEK INTERNATIONAL CORPORATION
By:
----------------------------------
Mark C. Layton, President
ATTEST:
By:
-------------------------------
Harvey Achatz, Secretary
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<PAGE> 1
EXHIBIT 10.1
1998 AMENDED AND RESTATED STOCK OPTION PLAN
OF
DAISYTEK INTERNATIONAL CORPORATION
------------------------------------------------------
Daisytek International Corporation, a corporation organized
under the laws of the State of Delaware, hereby adopts this 1998 Amended and
Restated 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. This Plan shall amend and restate in its
entirety the 1997 Stock Option Plan of the Company (the "1997 Plan").
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, Options
outstanding under the Plan, in a transaction to which Section 424(a) of the Code
applies.
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<PAGE> 2
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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<PAGE> 3
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 1998 Amended and Restated 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 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.
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<PAGE> 4
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 4,000,000 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 granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code.
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<PAGE> 5
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.
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.
5
<PAGE> 6
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, except as otherwise set forth herein.
(b) Each Option granted hereunder shall be subject to such
vesting schedule (which may be cumulative or non-cumulative), conditions,
restrictions and other provisions as the Committee shall, in its sole and
absolute discretion, deem necessary or appropriate, which determinations may be
non-uniform and selective and based upon such factors as it deems relevant in
its sole and absolute discretion.
(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
6
<PAGE> 7
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.
(e) Notwithstanding the provisions of paragraph (a) above, the
Committee shall have the right to issue Options hereunder which are immediately
exercisable on the date of grant; provided, however, that in such event, the
shares of Common Stock to be issued thereunder shall be subject to such
restrictions on transfer and forfeiture as the Committee shall, in its sole
discretion, deem appropriate, which determinations may be non-uniform and
selective and based upon such factors as it deems appropriate in its sole
discretion.
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 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 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 Options held by such Optionee; and
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<PAGE> 8
(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 one or more years
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.
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.
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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
(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) 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, a promissory note
duly executed and delivered by the Optionee in the principal amount of the
exercise price thereof, or any portion thereof, in each case upon such terms and
conditions (including without limitation, terms regarding rates of interest,
payment schedule, collateral or other security) as the Committee may establish
in its sole and absolute discretion; or
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<PAGE> 10
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subsections (i), (ii) and (iii);
(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 consideration provided in the
foregoing subsections (i), (ii) and (iii) of the preceding paragraph (b) and may
be used to make all or part of such payment;
(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 such periods following the date of release
of the quarterly or annual summary statement of sales and earnings of the
Company and/or to such other periods as the Committee shall, in its sole
discretion, deem appropriate, (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 withholding taxes (subject to the approval of the Committee) made at
least six months (or such other period as the Committee may determine) 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
10
<PAGE> 11
(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 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.
11
<PAGE> 12
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 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.
12
<PAGE> 13
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, except as otherwise set
forth herein 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, except as otherwise set forth herein. 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 occur of (a)
March 31, 2008 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 stockholders
holding at least a majority of the Company's voting stock voting in person or by
proxy at the Company's 1998 Annual Meeting of Stockholders. In the event the
Plan is not so approved, this Plan shall not become effective, and shall be null
and void, and any Options issued hereunder shall be terminated.
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
Except as otherwise set forth herein, 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
13
<PAGE> 14
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 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.
Section 7.9 - Amendment and Restatement of 1997 Stock Option Plan.
Upon the effective date of this Plan as herein provided, this
Plan shall amend, restate and replace in its entirety the 1997 Plan of the
Company, and all Options issued under the 1997 Plan and outstanding as of the
effective date of this Plan shall, automatically and without any action on the
part of the holder thereof or the Company, be deemed as issued and outstanding
under this Plan. In the event this Plan shall not become effective, the 1997
Plan, and all Options issued thereunder, shall remain in full force and effect
in accordance with their terms.
14
<PAGE> 1
EXHIBIT 10.2
DAISYTEK INTERNATIONAL CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------------------------
SECTION 1. PURPOSE OF THE PLAN
The purpose of the Daisytek International Corporation 1998 Employee
Stock Purchase Plan (the "Plan") is to provide employees of Daisytek
International Corporation (the "Company") and designated Subsidiaries an
opportunity to acquire a proprietary interest in the Company through the
purchase of shares of common stock, $.01 par value, of the Company ("Common
Stock"). It is intended that the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended
("Code"), and the provisions of the Plan shall be construed accordingly.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Business Day" means each day that the New York Stock
Exchange, Inc. is open for the transaction of business.
(b) "Fair Market Value" means, with respect to the Common
Stock as of any date (i) the closing price of a share of the Common Stock on the
principal exchange on which shares of the Common Stock are then trading, if any,
on such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred; or (ii) if the 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, on such date as reported by
NASDAQ or such successor quotation system; or (iii) if the 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 Common Stock,
on such date, as determined in good faith by the Committee; or (iv) if the
Common Stock is not publicly traded, the fair market value established by the
Committee acting in good faith.
(c) "Participating Company" shall mean the Company and each
Subsidiary which the Committee has designated to participate in the Plan.
(d) "Offering Period" means each period which begins on a
Commencement Date and ends on a Purchase Date during which Eligible Employees
may purchase Common Stock pursuant to an Offering under the Plan.
1
<PAGE> 2
(e) "Commencement Date" shall mean the first Business Day of
each Offering Period.
(f) "Eligible Employee" means any person who, on a
Commencement Date, (i) is customarily scheduled to be employed by any
Participating Company as an employee for at least twenty (20) hours per week and
for more than five (5) months in any calendar year, and (ii) has completed
fifteen (15) days of employment with the Company or any Subsidiary.
(g) "Purchase Date" shall mean the last Business Day of each
Offering Period.
(h) "Offering" means any proposal made in accordance with the
terms and conditions of the Plan permitting Eligible Employees to purchase
Common Stock under the Plan during an Offering Period.
(i) "Subsidiary" shall mean any corporation which is a
"subsidiary" of the Company, as that term is defined in Section 424(f) of the
Code.
SECTION 3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee of the Board of Directors
of the Company (the "Committee"). The 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 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), 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 Committee may be exercised by the
Compensation Committee or the Stock Option 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 Committee if it so elects, and, in which
event, the term "Committee" shall mean the Board. Any action of the Committee in
administering the Plan shall be final, conclusive and binding on all persons,
including the Company, its Subsidiaries, employees, persons claiming rights from
or through employees and the stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have full
and final authority in its discretion (a) to designate the Subsidiaries whose
employees will participate in the Plan, (b) to determine the maximum number of
shares of Common Stock to be acquired by each Eligible Employee during each
Offering Period, (c) to determine the terms and conditions of each Offering, (d)
to determine the length of each Offering Period and the Commencement Date
thereof, (e) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan, (f) to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan and the conduct of each Offering, and (g) to make all other determinations
as it may deem necessary or advisable for the administration of the Plan.
2
<PAGE> 3
SECTION 4. PARTICIPATION IN THE PLAN
(a) Only individuals who are employees of a Participating
Company shall be eligible to acquire Common Stock pursuant to any Offering under
the Plan. Except as provided in paragraph (b) hereof, every Eligible Employee on
the Commencement Date of an Offering shall be eligible to participate in such
Offering, provided such individual remains an Eligible Employee until the
Purchase Date.
(b) Notwithstanding any provisions of the Plan to the
contrary, no Eligible Employee shall be eligible to participate in any Offering
if:
(i) on the Commencement Date, such Eligible Employee would own
stock (together with stock owned by any other person or entity that would be
attributed to such Eligible Employee pursuant to Section 424(d) of the Code) of
the Company (including, for this purpose, all shares of stock subject to any
outstanding options to purchase such stock, whether or not currently exercisable
and irrespective of whether such options are subject to the favorable tax
treatment of Section 421(a) of the Code) possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or a Subsidiary; or
(ii) the Eligible Employee belongs to a class or group of
Eligible Employees which the Committee deems ineligible for participation in any
Offering (as the Committee may determine from time to time), so long as the
exclusion of such class or group of Eligible Employees from participation in an
Offering does not jeopardize the qualification of the Plan under Section 423 of
the Code or other applicable law.
SECTION 5. OFFERINGS
(a) The Plan shall be implemented by a series of Offerings to
all Eligible Employees, the duration and frequency of which will be specified
from time to time by the Committee.
(b) Each Offering shall permit each Eligible Employee to
purchase on the Purchase Date shares of Common Stock at a purchase price per
share determined by the Committee which shall not be less than the lower of (i)
85% of the Fair Market Value of the Common Stock on the Commencement Date, or
(ii) 85% of the Fair Market Value of the Common Stock on the Purchase Date.
(c) No Offering Period pursuant to the Plan shall be for a
period greater than 12 months from the Commencement Date.
(d) All Eligible Employees participating in an Offering under
the Plan shall have the same rights and privileges, except that the Committee
may from time to time provide for differences in the rights and privileges of
Eligible Employees so long as such differences do not jeopardize the
qualification of the Plan under Section 423 of the Code or violate other
applicable law.
3
<PAGE> 4
SECTION 6. SHARES AVAILABLE UNDER THE PLAN
(a) Subject to the provisions of Section 7 hereof, the
aggregate number of shares of Common Stock available for purchase pursuant to
all Offerings under the Plan shall be 250,000 shares, which may be authorized
but unissued shares, treasury shares or shares purchased in the open market.
(b) If the total number of shares of Common Stock to be
purchased on any Purchase Date when added to the number of shares of Common
Stock previously purchased pursuant to Offerings under the Plan exceeds the
number of shares then available under the Plan, the Committee shall make a pro
rata allocation of the shares available for purchase in such Offering in as
nearly a uniform manner as shall be practicable and as it shall determine to be
equitable, and the amounts received from each Eligible Employee in excess of the
amounts applied to purchase Common Stock shall be refunded to each Eligible
Employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the Committee determines that any stock dividend,
recapitalization, forward split or reverse split, reorganization, merger,
consolidation, spin-off, combination, share exchange or other similar
transaction or event affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Eligible Employees under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares of
Common Stock which may thereafter be available under the Plan, (ii) the number
and kind of shares of Common Stock issuable or to be purchased in respect of any
current Offering, and (iii) the purchase price relating to any purchase of
Common Stock to be acquired in any Offering; provided, however, that no
adjustment shall be made if, or to the extent that, such adjustment would cause
the Plan to violate Section 423 of the Code.
SECTION 8. ACCRUAL LIMITATIONS
(a) No Eligible Employee shall be entitled to accrue rights to
acquire Common Stock in any Offering under this Plan (which right shall accrue
on the Purchase Date for an Offering Period) if, and to the extent, such
accrual, when aggregated with (i) rights to purchase Common Stock accrued under
any other Offering under this Plan during the same calendar year and (ii) rights
accrued under any other employee stock purchase plan (within the meaning of
Section 423 of the Code) of the Company or any Subsidiary during the same
calendar year, would cause such Eligible Employee to be able to purchase more
than Twenty-Five Thousand Dollars ($25,000) worth of Common Stock or stock of
any Subsidiary (determined on the basis of the Fair Market Value of such stock
on the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
4
<PAGE> 5
SECTION 9. MERGER, CONSOLIDATION, LIQUIDATION, ETC.
Upon the effective date of any Corporate Transaction (as herein
defined), any outstanding Offering under the Plan will terminate and such date
shall be treated as the Purchase Date, and in lieu of the issuance of Common
Stock to participating Eligible Employees, there shall be paid to such Eligible
Employees, for each such share of Common Stock, as nearly as reasonably may be
determined, the cash, securities and/or property which a holder of one share of
the Common Stock was entitled to receive upon and as of the effective date of
such Corporate Transaction. As used herein, the term "Corporate Transaction"
shall mean (i) the dissolution or liquidation of the Company, (ii) the sale of
all or substantially all of the assets of the Company, (iii) the merger or
consolidation of the Company with or into another corporation or entity (if the
Company is not the surviving corporation of such merger or consolidation) or
(iv) the acquisition by another person or entity of 80% or more of the Company's
than outstanding voting stock.
SECTION 10. GENERAL PROVISIONS
(a) Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or Eligible Employee any right to be retained
in the employ of the Company or any Subsidiary, and no employee of any
Subsidiary which is not a Participating Company shall have any claim or right to
participate in any Offerings under the Plan.
(b) No right of an Eligible Employee to purchase Common Stock
pursuant to an Offering under the Plan shall be assigned or transferred by such
Eligible Employee and such rights to purchase Common Stock pursuant to an
Offering shall be exercisable during the lifetime of the Eligible Employee only
by the Eligible Employee.
(c) No Offering shall confer on any Eligible Employee any of
the rights of a stockholder of the Company unless and until Common Stock is duly
issued or transferred to the Eligible Employee in accordance with the terms of
the Offering.
(d) This Plan is intended to conform to the extent necessary
with all provisions of the Securities Act of 1933, as amended, 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 the rights to purchase in any Offering 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, this Plan and rights
granted hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
(e) The provisions of the Plan shall be governed by the laws
of the State of Delaware without giving effect to applicable conflict-of-laws
rules.
SECTION 11. EFFECTIVE DATE; AMENDMENT; TERMINATION
(a) The Plan shall become effective if and when approved by
the stockholders of the Company at the 1998 Annual Meeting of Stockholders.
5
<PAGE> 6
(b) The Board of Directors of the Company may terminate the
Plan or amend the Plan from time to time; provided, however, that the Board of
Directors of the Company shall not, without the approval of the stockholders of
the Company (i) increase the number of shares available for purchase pursuant to
all Offerings, (ii) change the class of persons eligible to participate in
Offering under the Plan, or (iii) reduce the purchase price of Common Stock
below that set forth in Section 5(b) herein.
(c) Unless sooner terminated by the Board of Directors of the
Company, the Plan shall terminate when all shares available for issuance or
purchase under the Plan have been purchased pursuant to an Offering under the
Plan, or the date of any Corporate Transaction, if earlier.
6
<PAGE> 1
EXHIBIT 11
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 5,236 $ 4,147 $ 10,629 $ 8,247
======== ======== ======== ========
Net income per common share - diluted $ 0.30 $ 0.27 $ 0.60 $ 0.54
======== ======== ======== ========
Pro forma data (2):
Historical net income $ 5,236 $ 4,147 $ 10,629 $ 8,247
Pro forma adjustments:
Provision for income taxes -- (92) (291) (174)
Acquisition related costs, net of tax -- -- 246 --
-------- -------- -------- --------
Pro forma net income 5,236 4,055 10,584 8,073
======== ======== ======== ========
Pro forma net income per common
share - diluted $ 0.30 $ 0.26 $ 0.60 $ 0.53
======== ======== ======== ========
Weighted average common and common share
equivalents outstanding 17,723 15,395 17,769 15,209
======== ======== ======== ========
Calculation of weighted average common and
common share equivalents outstanding:
Weighted average of common stock outstanding
17,105 14,567 17,055 14,453
Weighted average common stock options,
utilizing the treasury stock method (1) 618 828 714 756
-------- -------- -------- --------
17,723 15,395 17,769 15,209
======== ======== ======== ========
</TABLE>
(1) Utilizing the weighted average stock price of $21.76 and $23.06 per
share for the three and six months ended September 30, 1998,
respectively, and the weighted average stock price (split adjusted) of
$21.74 and $18.83 per share for the three and six months ended
September 30, 1997, respectively.
(2) Pro forma data is presented for informational purposes only and
includes the following adjustments: (1) A business unit of a business
combination with The Tape Company, Inc., which was accounted for as a
pooling of interests, was organized as a subchapter S corporation,
whereby income taxes were paid individually by the owners. The pro
forma provision for income tax adjustment is provided to reflect income
tax under a corporate tax structure. (2) Daisytek incurred various
acquisition related accounting, legal and other costs applicable to the
acquisition of The Tape Company. The pro forma adjustment for
acquisition related costs, net of tax, excludes such costs from pro
forma net income for the six months ended September 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,161
<SECURITIES> 0
<RECEIVABLES> 125,732
<ALLOWANCES> 2,385
<INVENTORY> 107,195
<CURRENT-ASSETS> 236,998
<PP&E> 33,899
<DEPRECIATION> 17,706
<TOTAL-ASSETS> 274,142
<CURRENT-LIABILITIES> 83,437
<BONDS> 42,089
0
0
<COMMON> 171
<OTHER-SE> 148,625
<TOTAL-LIABILITY-AND-EQUITY> 274,142
<SALES> 442,740
<TOTAL-REVENUES> 442,740
<CGS> 389,490
<TOTAL-COSTS> 389,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,073
<INTEREST-EXPENSE> 1,641
<INCOME-PRETAX> 16,981
<INCOME-TAX> 6,352
<INCOME-CONTINUING> 10,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,629
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS BELOW HAVE BEEN
RETROACTIVELY RESTATED TO COMBINE THE ACCOUNTS OF DAISYTEK INTERNATIONAL
CORPORATION WITH THE TAPE COMPANY, INC., WHICH WAS ACQUIRED BY DAISYTEK DURING
JUNE 1998 AND ACCOUNTED FOR AS A POOLING OF INTEREST
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,499
<SECURITIES> 0
<RECEIVABLES> 101,346
<ALLOWANCES> 2,329
<INVENTORY> 68,448
<CURRENT-ASSETS> 171,511
<PP&E> 25,536
<DEPRECIATION> 12,498
<TOTAL-ASSETS> 190,106
<CURRENT-LIABILITIES> 79,732
<BONDS> 38,097
0
0
<COMMON> 146
<OTHER-SE> 76,114
<TOTAL-LIABILITY-AND-EQUITY> 190,106
<SALES> 372,837
<TOTAL-REVENUES> 372,837
<CGS> 332,888
<TOTAL-COSTS> 332,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 846
<INTEREST-EXPENSE> 1,246
<INCOME-PRETAX> 13,087
<INCOME-TAX> 4,840
<INCOME-CONTINUING> 8,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,247
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.54
</TABLE>
