<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 June 30, 1999
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 August 6, 1999 there were 17,170,414 shares of registrant's common stock
outstanding.
<PAGE> 2
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
March 31, 1999...................................................... 3
Unaudited Interim Consolidated Statements of Income for the
Three Months Ended June 30, 1999 and 1998 .......................... 5
Unaudited Interim Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1999 and 1998........................... 6
Notes to Unaudited Interim Condensed Consolidated Financial
Statements.......................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................................ 17
SIGNATURES ......................................................................... 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
-------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,082 $ 1,551
Accounts receivable, net of allowance for doubtful accounts of.............
$3,445 and $2,857 at June 30, 1999 and March 31, 1999, respectively.... 142,831 139,864
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division.......... 85,284 77,557
Inventories, Priority Fulfillment Services Division.................... 26,851 30,361
Prepaid expenses and other current assets.................................. 3,643 4,982
Deferred tax asset......................................................... 438 137
---------- ----------
Total current assets......................................... 262,129 254,452
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment.......................................... 40,639 37,807
Leasehold improvements..................................................... 2,312 2,399
---------- ----------
42,951 40,206
Less - Accumulated depreciation and amortization........................... (21,840) (20,296)
---------- ----------
Net property and equipment................................... 21,111 19,910
OTHER ASSETS 12,233 12,070
EMPLOYEE RECEIVABLE............................................................ 493 485
EXCESS OF COST OVER NET ASSETS ACQUIRED, net................................... 30,499 28,962
---------- ----------
Total assets................................................. $ 326,465 $ 315,879
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
<PAGE> 4
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
-------- ---------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................................... $ 116 $ 146
Trade accounts payable.............................................. 93,826 103,179
Accrued expenses.................................................... 11,863 11,802
Income taxes payable................................................ 2,559 561
---------- ----------
Total current liabilities............................. 108,364 115,688
---------- ----------
LONG-TERM DEBT, less current portion.................................... 56,322 43,021
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized
at June 30, 1999 and March 31, 1999; none issued
and outstanding................................................. -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized at June 30, 1999 and March 31, 1999;
17,170,114 and 17,162,382 shares issued and
outstanding at June 30, 1999 and March 31, 1999,
respectively.................................................... 172 172
Additional paid-in capital.......................................... 87,500 87,394
Retained earnings................................................... 75,984 71,801
Other comprehensive income.......................................... (1,877) (2,197)
---------- ----------
Total shareholders' equity............................ 161,779 157,170
---------- ----------
Total liabilities and shareholders' equity............ $ 326,465 $ 315,879
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
4
<PAGE> 5
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales............................................................. $ 233,237 $ 222,589
Cost of sales......................................................... 205,971 196,062
------------ ------------
Gross profit.................................................. 27,266 26,527
Selling, general and administrative expenses.......................... 19,288 16,802
Acquisition related costs............................................. 370 405
------------ ------------
Income from operations........................................ 7,608 9,320
Interest expense...................................................... 750 852
------------ ------------
Income before income taxes.................................... 6,858 8,468
Provision for income taxes............................................ 2,675 3,030
------------ ------------
Income before cumulative effect of accounting change.......... 4,183 5,438
Cumulative effect of accounting change, net of tax.................... -- (405)
------------ ------------
Net income.................................................... $ 4,183 $ 5,033
============ ============
Net income per common share:
Basic:
Income before cumulative effect of accounting change.......... $ 0.24 $ 0.32
Cumulative effect of accounting change, net of tax............ $ -- $ (0.02)
------------ -------------
Net income.................................................... $ 0.24 $ 0.30
============ ============
Diluted:
Income before cumulative effect of accounting change.......... $ 0.24 $ 0.30
Cumulative effect of accounting change, net of tax............ $ -- $ (0.02)
------------ ------------
Net income.................................................... $ 0.24 $ 0.28
============ ============
Pro forma data (a):
Historical net income............................................. $ 4,183 $ 5,033
Pro forma adjustments:
Provision for income taxes.................................... -- (291)
Acquisition costs, net of tax................................. -- 246
------------ ------------
Pro forma net income.............................................. $ 4,183 $ 4,988
============ ============
Pro forma net income per common share:
Basic............................................................. $ 0.24 $ 0.29
Diluted........................................................... $ 0.24 $ 0.28
Weighted average common and common share equivalents outstanding:
Basic................................................... 17,166 17,005
Diluted................................................. 17,760 17,814
</TABLE>
- ---------
(a) 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 three months
ended June 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>
Three Months Ended
June 30,
--------------------------
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 4,183 $ 5,033
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization............................................. 1,804 1,584
Provision for doubtful accounts........................................... 879 525
Deferred income tax benefit............................................... (301) (399)
Changes in operating assets and liabilities --
Accounts receivable................................................... (3,034) 11,949
Inventories, net...................................................... (2,979) (26,690)
Trade accounts payable and accrued expenses........................... (10,007) (2,217)
Income taxes payable.................................................. 2,000 721
Prepaid expenses and other current assets............................. 1,456 (1,861)
---------- --------
Net cash used inoperating activities..................................... (5,999) (11,355)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................................... (2,612) (1,807)
Acquisitions of businesses, net of cash acquired............................. (2,320) (2,886)
Advances to employees, net................................................... (32) (29)
Increase in other assets..................................................... (163) (3,980)
---------- --------
Net cash used in investing activities............................ (5,127) (8,702)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net.................................. 12,901 22,863
Payments on capital leases and notes payable................................. (59) (4,971)
Net proceeds from exercise of stock options.................................. 106 1,443
Distributions to former shareholders of The Tape Company..................... -- (973)
---------- --------
Net cash provided by financing activities 12,948 18,362
---------- --------
EFFECT OF EXCHANGE RATES ON CASH................................................. (291) 333
---------- --------
NET INCREASE (DECREASE) IN CASH.................................................. 1,531 (1,362)
CASH, beginning of period........................................................ 1,551 2,087
---------- --------
CASH, end of period.............................................................. $ 3,082 $ 725
========== ========
</TABLE>
The accompanying notes are an integral part of these
interim consolidated statements.
6
<PAGE> 7
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND BASIS OF PRESENTATION:
Daisytek International Corporation (a Delaware corporation) and
subsidiaries ("the Company") is a leading wholesale distributor of non-paper
computer and office automation supplies and accessories ("computer supplies")
and professional-grade video and audio media products ("professional tape
products"). Through its Priority Fulfillment Services subsidiaries ("PFSweb"),
the Company is also a leading provider of end-to-end transaction management and
e-commerce logistics business solutions. The Company, through its wholly owned
subsidiaries in the U.S., Canada, Australia, Mexico and Singapore, sells
products and services primarily in North America, as well as in Latin America,
Australia, Singapore, the Pacific Rim, Europe and Africa.
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 June 30, 1999, its results of operations and
its results of cash flows for the three months ended June 30, 1999 and 1998.
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 June 29, 1999 (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.
2. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest............................... $ 591 $ 728
Income taxes........................... $ 402 $ 2,177
</TABLE>
3. COMPREHENSIVE INCOME (IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income............................................. $ 4,183 $ 5,033
Comprehensive income adjustments:
Cumulative translation adjustment................. 320 (127)
-------- --------
Comprehensive income................................... $ 4,503 $ 4,906
======== ========
</TABLE>
7
<PAGE> 8
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
during the quarter. Diluted EPS reflects the potential dilution that could
occur if dilutive securities were exercised into common stock. Stock options
are considered dilutive securities.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
NUMERATOR:
Income before cumulative effect of accounting change......... $ 4,183 $ 5,438
Cumulative effect of accounting change....................... -- (405)
-------- --------
Net income................................................... $ 4,183 $ 5,033
======== ========
DENOMINATOR:
Denominator for basic earnings per share -
Weighted average shares.................................... 17,166 17,005
Effect of dilutive securities:
Employee stock options..................................... 594 809
-------- --------
Denominator for diluted earnings per share -
Adjusted weighted average shares and assumed conversions...
17,760 17,814
======== ========
Net income per common share:
Basic:
Income before cumulative effect of accounting change..... $ 0.24 $ 0.32
Cumulative effect of accounting change................... -- (0.02)
-------- --------
Net income............................................... $ 0.24 $ 0.30
======== ========
Diluted:
Income before cumulative effect of accounting change..... $ 0.24 $ 0.30
Cumulative effect of accounting change................... -- (0.02)
-------- --------
Net income............................................... $ 0.24 $ 0.28
======== ========
</TABLE>
8
<PAGE> 9
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SEGMENT & GEOGRAPHIC INFORMATION:
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related information." The Company operates in
three reportable business segments: (1) Computer Supplies, (2) Professional
Tape Products, and (3) PFSweb. The Company's reportable segments are strategic
business units that offer different products and services and they are managed
separately based on the fundamental differences in their operations. Segment
information excludes intersegment net sales. No single customer accounted for
more than 10% of the Company's net sales for the three month periods ended June
30, 1999 and 1998. The following tables set forth information as to the
Company's reportable segments (in thousands):
<TABLE>
<CAPTION>
Professional
Computer Tape
Supplies Products PFSweb Total
-------- ------------ ------ -----
<S> <C> <C> <C> <C>
Quarter ended June 30, 1999
---------------------------
Net sales.................. $ 178,076 $ 22,561 $ 5,005 $ 205,642
Operating contribution..... 5,641 1,679 658 7,978
Assets at June 30, 1999.... 206,574 49,946 69,945 326,465
Quarter ended June 30, 1998
---------------------------
Net sales.................. $ 177,803 $ 26,475 $ 1,924 $ 206,202
Operating contribution..... 7,583 1,631 511 9,725
Assets at March 31, 1999... 200,110 48,295 67,474 315,879
</TABLE>
The Company's Computer Supplies segment includes certain expenses and
assets that relate to other or all of the segments but are not allocated by
management to the other segments. These expenses relate primarily to the
Company's (i) centralized management information, warehouse and telephone
systems, and (ii) executive, administrative and other corporate costs. These
assets primarily relate to the Company's centralized management information,
warehouse and telephone systems and leasehold improvements on shared
facilities.
In the table above, and for management purposes, PFSweb net sales is
presented on a fee-equivalent basis. Fee-equivalent revenue is comprised of
service fees earned for certain outsourcing services that PFSweb provides on a
fee basis, plus gross profits that are recognized on other PFSweb contracts
where accounting principles require PFSweb to recognize product revenue because
PFSweb takes title to the inventory. Adjustment for PFSweb represents the
adjustment to PFSweb net sales to recognize net sales under generally accepted
accounting principles. Reconciliation of segment net sales to consolidated net
sales is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Segment net sales................................. $ 205,642 $ 206,202
Adjustment for PFSweb............................. 27,595 16,387
--------- ---------
Consolidated net sales............................ $ 233,237 $ 222,589
========= =========
</TABLE>
9
<PAGE> 10
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of segment operating contribution to consolidated income before
taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1999 1998
--------- -------
<S> <C> <C>
Segment operating contribution................... $ 7,978 $ 9,725
Acquisition related costs (a).................... 370 405
Interest expense................................. 750 852
-------- --------
Consolidated income before income taxes.......... $ 6,858 $ 8,468
======== ========
</TABLE>
(a) These charges relate to the Professional Tape Products segment.
Geographic information (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Net sales:
United States............................ $ 173,059 $ 182,923
Canada................................... 26,375 21,003
Other.................................... 33,803 18,663
---------- ---------
$ 233,237 $ 222,589
========== =========
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
-------- ---------
<S> <C> <C>
Long-lived assets:
United States............................ $ 58,106 $ 55,937
Canada................................... 1,337 1,340
Other.................................... 4,893 4,150
-------- --------
$ 64,336 $ 61,427
======== ========
</TABLE>
6. NEW ACCOUNTING STANDARDS:
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 investments 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 is currently evaluating the provisions of
SFAS No. 133 and its effect on the accounting treatment of these financial
instruments. SFAS No. 133 is effective for fiscal years beginning after June
15, 2000, 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.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited
Interim Consolidated Financial Statements and related notes appearing elsewhere
in this Form 10-Q.
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 June 29, 1999, 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).
BUSINESS STRATEGY
Daisytek is a low cost distributor and outsourcing services provider. The
Company bases its continued growth on the following strategies:
1) Capitalize on e-commerce and outsourcing trends through expansion of
its PFSweb operations.
2) Focus on the growing computer supplies and professional tape
industries in the U.S. and international markets.
3) Seek acquisitions to supplement growth in the Company's computer
supplies business, professional tape business, and fulfillment service
business or to add selected product lines.
Through its PFSweb business, the Company utilizes its core strengths in
distribution and telemarketing to provide clients with end-to-end transaction
management and e-commerce logistics solutions on an international basis.
Services include sales and order processing, call center management, product
warehousing with real-time inventory management, customized packaging, product
fulfillment and transaction management accounting. The Company offers e-commerce
outsourcing solutions for companies to conduct sales over the Internet by
providing the infrastructure needed to support web-based activity. The PFSweb
segment of the Company's business strategy offers the Company the potential for
higher margins because it is primarily service fee-based.
The Company's Computer Supplies segment specializes in computer supplies
that have longer life cycles and lower risk of technological obsolescence than
hardware and software products. The Company believes that the demand for these
products remains strong due to the advancement and reduction in price points of
printer and computer technologies, which in turn grows the installed base of
equipment that consumes the products the Company distributes. Continuing
automation of the workplace and the growth in color printing technologies that
use consumable supplies at higher rates also fuel the demand for the computer
supplies product offering. The Company offers these products to its U.S.
customers using value-added services such as next-business-day delivery, the
latest order cutoff times in the industry, order confirmation, product
drop-shipping, and customized product catalogs. The Company plans to expand
sales to existing customers, including those in the contract stationer and
value-added reseller channels. The Company is also focusing on new distribution
channels such as mass merchants, grocery and convenience stores and direct mail
marketers.
The Company continues to research new markets to expand its international
computer supplies business. Many international markets are emerging markets
that have exponentially higher growth opportunities for consumable computer
supplies compared with the United States. Presently, the Company operates sales
and distribution centers in Canada, Mexico, Australia and Singapore and exports
products
11
<PAGE> 12
into Latin America and throughout much of the rest of the world. The Company's
computer supplies experience and broad product range place the Company in a
competitive position in emerging international markets.
The Company began its Professional Tape Products segment in 1998, and has
grown this division primarily through acquisitions. This segment operates as a
distributor of media products to the film, entertainment and multimedia
industries. The distribution sector of this industry in the U.S. is highly
fragmented and regionally focused. The Company's acquisition strategy has been
to acquire businesses which the Company believes can benefit from Daisytek's
core competencies in telemarketing and distribution management to create
efficiencies and provide value-added services to the customer base. The Company
believes it is nearing the end of its acquisition activity in the U.S., though
it will continue to evaluate acquisition opportunities in certain international
markets. Acquired businesses have been integrated to create economies of scale.
The Company believes this integration effort will allow it to maintain the
strong gross margins earned in this segment, while at the same time reducing the
SG&A costs as a percentage of sales, and, thus, increasing profit margins.
The Company plans to enhance growth by seeking acquisition opportunities
to supplement growth in the Company's computer consumables business,
professional tape business, and fulfillment service business or to add selected
product lines that can capitalize on Daisytek's expertise in distribution and
call-center management and offer the Company an opportunity to expand its
product line and increase profit margins.
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED JUNE 30, 1999 AND 1998.
Net Sales. Net sales for the three months ended June 30, 1999 were
$233.2 million as compared to $222.6 million for the three months ended June 30,
1998, an increase of $10.6 million, or 4.8%. Computer Supplies net sales
increased slightly in the quarter ended June 30, 1999, compared to the same
period in fiscal year 1999. Sales in the international computer supplies
operations increased 27.4% in the quarter ended June 30, 1999, compared to the
same prior year period primarily due to market share growth and higher industry
growth rates in the international markets, such as Canada, Latin America,
Australia and the Far East. This increase was offset by a decrease of 10.7% in
the net sales of the U.S. computer supplies operations for the quarter ended
June 30, 1999, compared to the same period in fiscal year 1999, due primarily to
a reduction in business with large office superstores, partially offset by
increased activity with the contract stationers and grocery, drug and mass
merchant channels. PFSweb net sales increased during the first quarter of fiscal
year 2000 compared to the same period in fiscal year 1999 as a result of higher
sales volumes of products under master distribution outsourcing contracts.
PFSweb also experienced increases in its service fee-based activity as a result
of new contracts and expansion of existing contracts. Professional Tape Products
sales decreased 14.8% in the first quarter of fiscal year 2000 compared to the
same period in fiscal year 1999 due primarily to price degradation in certain
product lines.
Gross Profit. The Company's gross profit as a percent of net sales was
11.7% for the three months ended June 30, 1999 as compared to 11.9% for the
three months ended June 30, 1998. The decrease in the Company's gross profit as
a percentage of net sales was primarily due to a lower overall gross profit
percentage in the international computer supplies business partially offset by
a reduction in lower gross margin U.S. superstore business and increased PFSweb
service fee business, which generates higher gross margins. The decline in the
international computer supplies business gross margin percentage was caused by
large revenue growth in Hewlett Packard commodity line products and new
international retail business, both of which typically carry lower margins. The
Company believes that these trends may continue and could potentially have a
negative impact on gross margins during the remainder of fiscal year 2000. In
addition, the Company expects that competitive pressures in the U.S. computer
supplies operations may negatively impact gross margins during the remainder of
fiscal year 2000.
SG&A Expenses. SG&A expenses for the three months ended June 30, 1999
were $19.3 million, or 8.3% of net sales, as compared to $16.8 million, or 7.5%
of net sales, for the three months ended June 30, 1998, excluding acquisition
related costs in each period. The increase in SG&A expenses as a percentage of
net sales for the first quarter of fiscal year 2000 was due primarily to (i) a
reduction in net sales with lower SG&A expense ratios to large office
superstores, and (ii) the investments in resources and technology to further
develop the PFSweb Division.
12
<PAGE> 13
Acquisition Related Costs. During the quarter ended June 30, 1999, the
Company recorded costs of approximately $0.4 million applicable to transition,
integration and merger activities within its Professional Tape Division. During
this same quarter in fiscal year 1999, Daisytek incurred various acquisition
costs of $0.4 million related to accounting, legal and other costs applicable
to the acquisition of The Tape Company.
Interest Expense. Interest expense for the three months ended June 30,
1999 was $0.8 million as compared to $0.9 million for the three months ended
June 30, 1998. Interest expense was lower during the three months ended June
30, 1999 primarily due to lower interest rates in the first quarter of fiscal
year 2000 compared to the same quarter in fiscal year 1999. The weighted
average interest rate was 6.0% and 6.7% during the three months ended June 30,
1999 and 1998, respectively.
Income Taxes. The Company's effective tax rate increased to 39.0% for
the three months ended June 30, 1999, as compared to 35.8% for the three months
ended June 30, 1998. The increase was primarily due to the first quarter of
fiscal year 1999 income taxes being impacted by pooling of interests with The
Tape Company. Prior to its acquisition by the Company, The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. On a pro forma basis,
excluding the impact of The Tape Company's subchapter S corporation status
prior to the June 1998 merger, the Company's effective tax rate during the
first quarter of fiscal year 1999 would have been approximately 39.2%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. During the three months ended June 30, 1999, net cash of $12.9
million was provided by financing activities, compared to net cash provided by
financing activities of $18.4 million for the three months ended June 30, 1998.
Cash provided by financing activities was generated primarily from proceeds
from revolving lines of credit during the three months ended June 30, 1999 and
1998. In conjunction with the Professional Tape Products segment's business
combination, certain acquired debt of The Tape Company was paid in full by the
Company during the three months ended June 30, 1998. Included in cash flows
from financing activities for the three months ended June 30, 1998 are
distributions made to former shareholders of The Tape Company relating to taxes
incurred by these shareholders for earnings of the business unit of The Tape
Company, which was organized as a subchapter S corporation. These distributions
were made prior to the business combination with the Company. Financing
activities should provide the Company's primary source of cash during the
remainder of fiscal year 2000, primarily to support the Company's growth.
Net cash used in operating activities for the three months ended June 30,
1999 and 1998, was $6.0 million and $11.4 million, respectively. Working capital
increased to $153.8 million at June 30, 1999 from $138.8 million at March 31,
1999. This increase of $15.0 million was primarily attributable to 1) product
sourcing in the Computers Supplies segment becoming increasingly impacted by
suppliers' programs, which provide increased incentives to purchase higher
levels of inventory with more prompt payment terms; 2) increased working capital
requirements applicable to certain PFSweb clients; and 3) increased days sales
outstanding in accounts receivable due to continued customer consolidation with
large national accounts, which has led to slower than previously experienced pay
characteristics.
Funds used for investing activities during the three months ended June 30,
1999 and 1998 included primarily costs to acquire professional tape products
businesses and capital expenditures. During June 1999, the Company purchased
assets of a regional professional tape business for approximately $2.2 million.
Capital expenditures were approximately $2.6 million and $1.8 million during
the three months ended June 30, 1999 and 1998, respectively. These capital
expenditures consisted primarily of additions to upgrade the Company's
management information systems and general expansion of its facilities, both
domestic and foreign. The Company anticipates that its total investment in
upgrades and additions to facilities for fiscal year 2000 will be approximately
$12 million to $15 million.
The Company's unsecured revolving lines of credit provide for borrowings
up to approximately $102 million. At June 30, 1999, there were outstanding
balances on the lines of credit totalling $56.0 million, leaving approximately
$46 million available for additional borrowings. In addition, the Company has a
promissory note agreement with a bank, which allows the Company to borrow up to
a maximum of $10.0 million. The Company has no borrowings outstanding under
this promissory note agreement at June 30, 1999.
13
<PAGE> 14
The Company believes that international markets represent further
opportunities for growth. The Company attempts to protect itself from foreign
currency fluctuations by denominating substantially all of its non-Canadian and
non-Australian international sales in U.S. dollars. In addition, the Company
has entered into various forward Canadian and Australian currency exchange
contracts in order to hedge the Company's net investment in, and its
intercompany payable applicable to, its Canadian and Australian subsidiaries.
The Company has the following forward currency exchange contracts outstanding
as of June 30, 1999:
<TABLE>
<CAPTION>
CURRENCY TYPE US$ CONTRACT AMOUNT CONTRACT TYPE EXPIRATION
------------- ------------------- ------------- ----------
<S> <C> <C> <C>
Canadian Dollars $12.3 million Sell Canadian Dollars November 1999
Australian Dollars $1.3 million Sell Australian Dollars August 1999
Australian Dollars $6.7 million Sell Australian Dollars October 1999
</TABLE>
As of June 30, 1999, the Company had incurred unrealized losses of
approximately $0.3 million on the outstanding Australian forward exchange
contracts and an unrealized gain of $0.1 million on the outstanding Canadian
forward exchange contract. 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.
In the future, the Company may attempt to acquire other businesses to
expand its existing computer supplies and professional tape businesses in the
U.S. or internationally, expand its product line similar to the Company's entry
into the Professional Tape products segment and expand its services or
capabilities in connection with its efforts to grow its PFSweb business. The
Company currently has no binding 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.
The Company believes it will be able to satisfy its working capital needs
for fiscal year 2000, as well as 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to market risk associated with changes in interest
rates and foreign currency exchange rates. Interest rate exposure is limited to
the Company's outstanding balances on its revolving lines of credit which
amounted to $56.0 million at June 30, 1999. The interest rates on the revolving
lines of credit float with the market. A 50 basis point movement in interest
rates would result in an increase or decrease in interest expense of
approximately $280,000 annualized, based on the outstanding balances of the
revolving lines of credit at June 30, 1999.
The Company's foreign currency exchange rate risk is primarily limited to
Mexican Pesos, Canadian Dollars, Australian Dollars, and Singapore Dollars. The
Company's international sales and purchases are generally U.S. Dollar based,
except in Canada and Australia. In order to mitigate foreign currency rate
risk, the Company periodically enters into foreign currency forward contracts
to hedge the net investments and long-term intercompany payable balances
applicable to its Canadian and Australian subsidiaries. The Company had three
outstanding foreign currency forward contracts at June 30, 1999. If the foreign
exchanges rates of the Canadian and Australian currencies fluctuate 10% from
the June 30, 1999 rates, gains or losses in fair value on the three outstanding
contracts would be $2.4 million.
14
<PAGE> 15
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 in August 1999 and is scheduled to
complete remediation of its non-mission critical applications software by
October 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 October 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 September 1999.
The Company continues to grow through business acquisitions. All
acquisitions of the Company have been converted to the Company's operating
system.
During the three months ended June 30, 1999, the Company incurred
approximately $0.1 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 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
15
<PAGE> 16
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 if the supplier
lowers prices on previously purchased inventory or the Company can return slow
moving inventory in exchange for other products.
Certain of PFS's product fulfillment and distribution service agreements
provide that PFSweb 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 PFSweb under these contracts are generally
higher than the Company would normally carry in its wholesale distribution
businesses.
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 or, if any, 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
computer supplies products due to a variety of factors, including sales
increases resulting from the introduction of new 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 seasonality of the Company's PFSweb business is dependent upon the
seasonality of the customers' products which PFSweb distributes or provides
services for. Accordingly, management must rely upon the projections of its
PFSweb customers in assessing quarterly variability.
The Company believes that results of operations for a quarterly period may
not be indicative of the results for any other quarter or for the full year.
INFLATION
Management believes that inflation has not had a material effect on the
Company's operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 investments 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 is currently evaluating the provisions of
SFAS No. 133 and its effect on the accounting treatment of these financial
instruments. SFAS No. 133 is effective for fiscal years beginning after June
15, 2000, 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
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
10 Asset Purchase Agreement between The Tape Company,
Inc. and Stage 4 Productions, Inc. (D/B/A Producers
Tape Service/All Media, Inc.) dated June 18, 1999
27.1 Financial Data Schedule for the three months ended
June 30, 1999
27.2 Financial Data Schedule for the three months
ended June 30, 1998
b) Reports on Form 8-K:
None.
17
<PAGE> 18
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: August 16, 1999
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Thomas J. Madden
-----------------------------------------------
Thomas J. Madden
Chief Financial Officer,
Chief Accounting Officer,
Vice President - Finance
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10 Asset Purchase Agreement between The Tape Company, Inc. and Stage 4 Productions,
Inc. (D/B/A Producers Tape Service/All Media, Inc.) dated June 18, 1999
27.1 Financial Data Schedule for the three months ended June 30, 1999
27.2 Financial Data Schedule for the three months ended June 30, 1998
</TABLE>
<PAGE> 1
EXHIBIT 10
ASSET PURCHASE AGREEMENT
BETWEEN
THE TAPE COMPANY, INC.
AND
STAGE 4 PRODUCTIONS, INC.
(D/B/A PRODUCERS TAPE SERVICE/ALL MEDIA, INC.)
DATED AS OF JUNE 18, 1999
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of June 18, 1999 (this
"AGREEMENT") and is by and among The Tape Company, Inc., an Illinois
corporation ("BUYER"), Stage 4 Productions, Inc. (d/b/a Producers Tape
Service/All Media, Inc.), a Michigan corporation ("SELLER"), and William T.
Gutherie (the "STOCKHOLDER").
A. WHEREAS, Seller is engaged in two lines of business - the Loading
Business and the Tape Business, each of which is defined in Article I hereof.
B. WHEREAS, Seller desires to sell to Buyer and Buyer desires to
purchase from Seller, certain assets used by Seller in connection with the Tape
Business on the terms and conditions set forth herein.
C. NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agrees as
follows:
ARTICLE I
DEFINITIONS
1. CERTAIN DEFINED TERMS. As used in this Agreement, (i) terms defined
in the Preamble or elsewhere in this Agreement shall have the meaning set forth
therein and (ii) the following terms shall have the following meanings:
"ACTION" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation, in each case, by or before any Governmental
Authority.
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"CLOSING" and "CLOSING DATE" have the meanings specified in Section
3.1 hereof.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor or by contract, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of
such Person.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge or
encumbrance.
<PAGE> 3
"ENVIRONMENT" means surface waters, groundwaters, soil, subsurface
strata and ambient air.
"ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory or
judicial actions, suits, demand letters, claims, liens, notices of
noncompliance or violation, investigations, proceedings, consent orders or
consent agreements relating in any way to any Environmental Law or any
Environmental Permit (hereinafter "CLAIMS"), including without limitation (a)
any and all Claims by Governmental Authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) any and all Claims by any Person seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" means any federal, state or local law, including
any statute, rule, regulation, ordinance, code or rule of common law, now or
hereafter in effect and in each case as amended, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and the rules and regulations promulgated thereunder; the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. Sections 6901 et seq.; the Clean Water
Act, 33 U.S.C. Sections 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. Sections 2601 et seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et
seq.; the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq.; the Atomic
Energy Act, 42 U.S.C. Sections 2011 et seq.; and the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq.
"ENVIRONMENTAL PERMITS" means all permits, written approvals, U.S.
Environmental Protection Agency or state generator numbers, licenses and other
authorizations from applicable Governmental Authorities required under any
applicable Environmental Law.
"GAAP" means United States generally accepted accounting principles
and practices as promulgated by the Financial Accounting Standards Board as in
effect from time to time applied consistently throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any United States federal, state or
local governmental, regulatory or administrative authority, agency or
commission, or any political subdivision thereof, or any court, tribunal or
arbitral body.
"GOVERNMENTAL ORDER" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum fuels,
lubricants and cleaning agents, radioactive materials, friable asbestos
material as defined under 40 C.F.R. 61.141, urea formaldehyde foam insulation,
transformers or other equipment that contain polychlorinated biphenyls in
concentrations of 50 ppm, and radon gas; (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
2
<PAGE> 4
"hazardous wastes", "hazardous materials" or "extremely hazardous wastes" under
any Environmental Law; and (c) any other chemical, material or substance
exposure to which is regulated pursuant to any applicable Environmental Law.
"INDEMNIFIED PARTY" means any Person having a right to
indemnification from an Indemnifying Party under the terms and provisions of
Article XI hereof.
"INDEMNIFYING PARTY" means any Person responsible or obligated to
provide indemnification to an Indemnified Party under the terms and provisions
of Article XI hereof.
"LIABILITIES" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any law (including, without limitation, any Environmental Law), rule,
regulation, Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking, including all
indemnification obligations under any charter document, any indemnity agreement
or as permitted under applicable law.
"LOADING BUSINESS" means the assembly business conducted by the Seller
and consisting of cutting bulk reels of blank video and audio recording tape to
custom lengths, loading such tapes into blank cassettes, duplicating and
replicating recordable media and providing custom packaging.
"MATERIAL ADVERSE EFFECT" means, for purposes of the representations
of Seller and the Stockholder hereunder, any circumstance, change in, or effect
on, the Tape Business, that is, or would be, materially adverse to the
operations, assets or liabilities (including, without limitation, contingent
liabilities), customer or supplier relationships, prospects, results of
operations or the financial condition of the Tape Business.
"OTHER AGREEMENTS" means the Restrictive Covenant Agreement, the
Kansas Lease Consent and the Detroit Lease Amendment.
"PERSON" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended.
"RESTRICTIVE COVENANT AGREEMENT" means the Stockholder Restrictive
Covenant Agreement and the Seller Restrictive Covenant Agreement in the form of
EXHIBITS A AND B attached hereto to be executed and delivered by Seller, Buyer
and the Stockholder concurrently with the Closing hereunder.
"TAPE BUSINESS" means the sale and distribution of blank professional
video and audio recording tape, blank data storage media products, blank film
and related products (excluding the Loading Business) as conducted by Seller.
3
<PAGE> 5
ARTICLE II
SALE AND PURCHASE OF TAPE ASSETS
2.1. SALE AND PURCHASE OF TAPE ASSETS. Subject to the terms and
conditions of this Agreement and on the basis of and in reliance upon the
representations, warranties, obligations and agreements set forth herein, at
the Closing, Seller shall validly sell, assign, transfer, convey and deliver to
Buyer, and Buyer shall purchase and acquire from Seller, all of the right,
title and interest of Seller in, to and under all of the following assets, to
the extent they relate to, or are used by Seller in connection with or are
necessary for the operation of, the Tape Business, but excluding the Excluded
Assets (as hereinafter defined) (collectively, the "TAPE ASSETS"):
(a) all customer lists, telephone lists, prospect lists,
customer information (including all information relating to customer credit
history, purchasing information, contact names, addresses and phone numbers and
all other customer information), all tradenames, trademarks and other business
identifiers, including the names "Producers Tape Service", "All Media" and
"Producers Tape Service/All Media" and all abbreviations and variations thereof
and all advertising materials, catalogs, price lists, mailing lists,
distribution lists, sales and promotional materials, customer and sales order
files and records, all rights under the Unfilled Tape Orders (as hereinafter
defined), customer commitments and obligations relating to future purchases and
under all agreements pursuant to which any Tape Inventory (as hereinafter
defined) of the Seller is held by third parties under a consignment or similar
arrangement, all trade secrets and confidential information, all rights to
enforce (for the benefit of Buyer) all confidentiality, non-disclosure and
restrictive covenant agreements with respect to the Tape Business (including
any employee confidentiality, nondisclosure and noncompete agreements of
employees of Seller who are, after the date hereof, employed by Buyer,
excluding any such agreements executed by the Stockholder), all transferable
licenses, franchises, rights and authorizations, those certain telephone and
fax numbers set forth on Schedule 2.1(a) hereto and all goodwill of every kind
and nature relating to or associated with the Tape Business (collectively, the
"TAPE GOODWILL ASSETS");
(b) all Tape Business finished goods inventory, consisting of
the products (and net prices therefor) set forth on the Seller's inventory
listing as of June 18, 1999, a copy of which is attached hereto as Schedule
2.1(b) (the "TAPE INVENTORY LIST"), including all transferable rights of return
to the supplier thereof, if any, and all other rights, benefits and privileges
associated therewith or related thereto; (collectively, the "TAPE INVENTORY"),
excluding, however, all inventory which is (i) visibly damaged or defective as
determined during the course of the physical inventory required under Section
2.4(c) hereof or (ii) in excess of the amount of such product contained in the
Tape Inventory List (collectively, the "EXCLUDED TAPE INVENTORY");
(c) that certain lease dated March 10, 1997 between Seller,
as tenant, and Edgewater Troy I Company, LLC, as landlord, for the Seller's
facility located at 395 E. Elmwood, Troy, Michigan (the "DETROIT OFFICE"), as
said lease shall be amended by the Detroit Lease Amendment (as hereinafter
defined), and that certain lease dated March 8, 1999 between
4
<PAGE> 6
Seller, as tenant, and Barney A. Karbank, as landlord, for the Seller's
facility located at 8904 Nieman, Overland Park, Kansas (the "KANSAS OFFICE",
and collectively with the Detroit Office, the "TAPE OFFICES") (the foregoing
leases being collectively referred to herein as the "TAPE OFFICE LEASES");
(d) those certain equipment and personal property leases
described on Schedule 2.1(d) attached hereto (collectively, the "TAPE EQUIPMENT
LEASES");
(e) those certain personal property assets and fixed assets
located in the Tape Offices and described on Schedule 2.1(e) hereto (the "TAPE
FIXED ASSETS").
2.2 EXCLUDED ASSETS. Notwithstanding the foregoing, the following
assets (collectively, the "EXCLUDED Assets") shall not be sold or transferred
to the Buyer and shall be retained by the Seller:
(a) all cash and cash equivalents (excluding deposits (i)
held by the lessors under the Tape Office Leases and the Tape Equipment Leases
and (ii) held by the Seller in respect of Unfilled Tape Orders which are filled
by the Buyer);
(b) all accounts receivable, notes and other amounts due and
payable to Seller from any customer or any other party;
(c) all minute books and stock ledgers;
(d) all Excluded Tape Inventory;
(e) all of Seller's rights under this Agreement;
(f) all assets which exclusively relate to, are used by and
are necessary for the operation by the Seller of, the Loading Business;
(g) all contractual rights and obligations, except for the
Tape Office Leases, the Tape Equipment Leases and as otherwise included in the
Tape Goodwill Assets described above;
(h) those certain assets specifically described in Schedule
2.2 (h) hereto; and
(i) Seller's rights in and to the name "Stage 4 Productions,
Inc."
2.3. ASSUMED TAPE LIABILITIES. Subject to the terms and conditions set
forth herein, at the Closing, Buyer shall assume and agree to discharge and
perform all of Seller's obligations due under or arising from (i) the Tape
Office Leases and the Tape Equipment Leases and (ii) those certain unfilled
customer orders described on Schedule 2.3 attached hereto (and such further
unfilled customer orders as shall arise between the date hereof and the Closing
as shall be accepted by the Buyer) (the "UNFILLED TAPE ORDERS"), in each case,
to the extent such
5
<PAGE> 7
obligations are due, or arise, on and after the Closing Date with respect to
the remaining terms thereof (collectively, the "ASSUMED TAPE LIABILITIES").
Except for the Assumed Tape Liabilities, Buyer does not assume or agree to
discharge or perform any debts, liabilities or obligations of Seller or any
predecessor or affiliate thereto, it being expressly agreed and understood
that, except for the Assumed Tape Liabilities, Buyer does not agree to assume,
nor shall have any responsibility, liability or obligation for any Liabilities
of Seller or the Stockholders, including the following (collectively, the
"RETAINED TAPE Liabilities"):
(i) any liability or obligation of Seller based upon, arising
out of or otherwise in respect of the negotiation and preparation of this
Agreement or any of the Schedules or Exhibits hereto, or the consummation of
the transactions contemplated hereby, including without limitation, any tax
liability so arising;
(ii) any liability or obligation based upon, arising out of
or otherwise in respect of, any accounts payable, trade payables, employee
wages, employee benefits, product liability, product warranty, or any agreement
or contract to which Seller is a party;
(iii) any liability or obligation of Seller, or any
consolidated group of which Seller is or has been a member, for any federal,
state, county or local taxes, or any interest, additions to and/or penalties
thereon, accrued for, applicable to or arising during any period whether prior
to or following the date hereof;
(iv) any liability or obligation of Seller for any cause of
action, claim, demand, breach or violation of any kind or description, whether
arising under any contract, agreement, law, rule or regulation, or otherwise,
including without limitation, any claim for personal injury, malpractice,
negligence, fraud, discrimination, sexual harassment, wrongful termination,
property damage or any environmental claim or remedial claim; and
(v) any liability or obligation arising under any collective
bargaining agreement, union contract, employment agreement or other agreement
or understanding of any kind relating to employment of any employee or group of
employees.
With respect to the Tape Office Leases, all rent and other
payments paid in advance by the Seller to the landlords thereof under the terms
thereof ("Prepaid Rent") shall be pro-rated as of the Closing Date, and Buyer
shall reimburse Seller for Buyer's pro-rata share of said payments. Buyer's
pro-rata share shall be determined as of the Closing Date by multiplying the
Prepaid Rent for each Tape Office Lease by a fraction, the numerator of which
shall be the number of days remaining in the month in which the Closing Date
occurs (including the Closing Date) and the denominator shall be the total
number of days in the month in which the Closing Date occurs.
2.4. TAPE PURCHASE PRICE. In consideration of the sale, assignment,
transfer, conveyance and delivery of the Tape Assets by Seller to Buyer and the
execution and delivery of the Restrictive Covenant Agreement, at the Closing,
Buyer shall pay to Seller the amounts set
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forth below (collectively, the "TAPE PURCHASE PRICE") subject to, and in
accordance with, the following:
(a) The sum of $500,000 which shall be allocated as the
purchase price for the Tape Goodwill Assets.
(b) The sum of $ ______ which shall be allocated as the
purchase price for the Tape Fixed Assets.
(c) The purchase price for the Tape Inventory (the "TAPE
INVENTORY PURCHASE PRICE") shall be determined as follows. On Saturday, June
19, 1999, Seller and Buyer shall jointly conduct a physical inventory count of
all Tape Inventory located at the locations set forth on Schedule 2.4(c). Upon
completion of such physical inventory count, the Tape Inventory List shall be
updated to reflect the actual quantity of each product listed on the Tape
Inventory List. Seller and Buyer shall jointly determine the purchase price for
the Tape Inventory by multiplying the total quantity of each product set forth
on the Tape Inventory List (as updated per the physical count) by the net
product prices set forth on the Tape Inventory List. During the physical
inventory, the Excluded Inventory shall be identified and segregated from the
from the Tape Inventory and shall be deleted from the Tape Inventory List.
Buyer shall be responsible for, and shall promptly thereafter arrange for, the
shipping and delivery of the Tape Inventory to the Buyer warehouse(s) (except
for the Tape Inventory located in the Tape Offices which shall remain in such
locations). All shipping and delivery costs (and all risk of loss in transit)
shall be borne by Buyer.
(d) The sum of $_______ for Seller's deposits on the Tape
Office Leases.
(e) The foregoing shall be reduced by the amount of deposits,
if any, under the Unfilled Tape Orders assumed by the Buyer.
ARTICLE III
CLOSING OF TRANSACTION
3.1. CLOSING. Subject to the conditions precedent set forth herein,
the closing ("CLOSING") of the sale and purchase of the Tape Assets as
described herein shall occur on Monday, June 21, 1999, or if the conditions
precedent set forth in Articles VII and VIII hereof have not been satisfied or
waived as of such date, then the Closing shall occur on the second business day
following the satisfaction or waiver of the conditions precedent, or on such
other date as the parties shall mutually agree (the "CLOSING DATE"). The
Closing shall be held at 9:00 A.M. at the offices of Seller's counsel, Kerr,
Russell and Weber, PLC, or at such other time and place as the parties shall
mutually agree. Subject to the terms set forth herein, the Closing shall be
deemed effective for all purposes as of the opening of business on the Closing
Date.
3.2. PAYMENT OF THE PURCHASE PRICE. At the Closing, Buyer shall pay to
Seller, in cash by wire transfer to the attorney trust account of Seller's
counsel (the "SELLER ACCOUNT"), the
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Tape Purchase Price. The Tape Purchase Price shall be held in escrow by
Seller's counsel and distributed as follows: (i) the amounts payable to John
Evans under the Redemption Agreement (as defined in Section 7.9 below) shall be
paid to him in accordance with the terms thereof, (ii) the amounts owing to the
holders of any Encumbrance upon the Tape Assets shall be paid to such holders
against release and termination of such Encumbrances and (iii) the balance
shall be paid to the Seller and the Stockholder as provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Stockholder hereby, jointly and severally, make the
following representations and warranties to Buyer:
4.1. ORGANIZATION AND QUALIFICATION. Seller is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Michigan with full corporate power and authority to own its properties and to
carry on the Tape Business as now conducted. Schedule 4.1 sets forth the states
or jurisdictions in which Seller is qualified or otherwise authorized to
transact business as a foreign corporation.
4.2. CAPITALIZATION. The Stockholder is the lawful record and
beneficial owner of 75% of the issued and outstanding shares of capital stock
of Seller. Except as disclosed on Schedule 4.2 hereof, Seller has no other
shares or other securities which are authorized, issued and/or outstanding
other than the shares of capital stock owned by the Stockholder. Seller does
not own any capital shares or other proprietary interests, including without
limitation, any shares of stock, partnership interests, joint venture
interests, limited liability company interests, membership interests or other
equity interests, directly or indirectly, in any Person. Seller has no
subsidiaries and does not conduct the Tape Business under any assumed name,
tradename, fictitious name or other identification other than the names set
forth in Schedule 4.2 hereto.
4.3. AUTHORITY; BINDING OBLIGATION. The Stockholder and Seller have
all requisite power and authority to execute, deliver and perform their
respective obligations under this Agreement and the Other Agreements and
consummate the transactions contemplated herein and therein. The execution and
delivery of this Agreement and the Other Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors and stockholders of Seller, and no other action on the part
of Seller or Stockholder is necessary to consummate the transactions
contemplated hereby or thereby. This Agreement and the Other Agreements have
been duly executed and delivered by the Stockholder and Seller and constitute
the legal, valid and binding obligation of the Stockholder and Seller
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditor's
rights' generally and to general equitable principles.
4.4. NO VIOLATIONS Except as disclosed on Schedule 4.4 attached
hereto, the execution, delivery and performance of this Agreement and the Other
Agreements and the consummation of the transactions contemplated herein and
therein by the Stockholder and Seller
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do not and will not, with or without the giving of notice or passage of time or
both (a) violate, conflict with or result in the breach of any term or
provision of, or require any notice, filing or consent under (i) the articles
of incorporation, by-laws or other charter documents of Seller, (ii) any
statutes, laws, rules, regulations, ordinances or permits of any Governmental
Authority applicable to the Stockholder or Seller or (iii) any Governmental
Order binding upon Seller or the Stockholder or any of their respective
properties or assets; (b) conflict with or result in the breach of any term or
provision of, require any notice or consent under, give rise to a right of
termination of, constitute a default under, result in the acceleration of, or
give rise to a right to accelerate any obligation under, any loan agreement,
mortgage, indenture, financing agreement, lease or any material contract,
agreement or instrument to which Seller or any Stockholder is a party or by
which any of their respective properties or assets are bound; or (c) result in
any Encumbrance on any of the Tape Assets.
4.5. FINANCIAL STATEMENTS Seller has furnished to Buyer certain
financial information regarding the Tape Business which is described on
Schedule 4.5 hereto (the "TAPE FINANCIAL STATEMENTS"). The Tape Financial
Statements (i) were prepared in all material respects in accordance with the
books of account and other financial records of Seller and (ii) fairly present
the financial condition and results of operations for the Tape Business and
Loading Business as of the dates and for the periods covered thereby.
4.6. BOOKS OF ACCOUNTS. The books of account and other financial
records of the Tape Business maintained by Seller and made available to Buyer
(i) reflect all items of income and expense and all assets and liabilities
required to be reflected therein, (ii) are in all material respects complete
and correct and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with sound
accounting practices.
4.7. INVENTORY. Except as disclosed on Schedule 4.7 attached hereto,
the Tape Inventory is in the physical possession and control of Seller and
stored at the locations set forth on Schedule 2.4(c). Subject to amounts
reserved therefor, the value at which the Tape Inventory is carried in the Tape
Financial Statements reflect the historical inventory valuation policy of
Seller of stating such inventory at the lower of their cost or market value in
accordance with GAAP consistently applied. Seller has, and is conveying to
Buyer at the Closing, good and marketable title to all of the Tape Inventory,
free and clear of all Encumbrances. The Tape Inventory does not include any
items (i) held by the Seller on consignment for others or (ii) held by third
parties on consignment from the Seller.
4.8. ASSETS. Except as disclosed on Schedule 4.8 attached hereto,
Seller has, and is conveying to Buyer at the Closing, good and marketable title
to all of the Tape Assets, free and clear of all Encumbrances.
4.9. CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CERTAIN CHANGES.
Except as set forth in Schedule 4.9, since the date of the most recent balance
sheet included in the Tape Financial Statements (the "BALANCE SHEET DATE"), (i)
there has not been any change in the assets, customer or supplier relations,
operations, results of operations, prospects or condition (financial or
otherwise) of the Tape Business, including, without limitation, any damage or
destruction of property by fire or other casualty, which change would have a
Material Adverse Effect and (ii)
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the Tape Business has been conducted in all material respects in the ordinary
course and consistent with past practice.
4.10. LITIGATION. Except as disclosed on Schedule 4.10, there are no
Actions pending or, to Seller's or the Stockholder's knowledge, threatened,
against the Seller and which relate to the Tape Business. Neither Seller, nor
any of its assets or properties, is subject to any Governmental Order (nor, to
the knowledge of Seller or the Stockholder, are there any such Governmental
Orders threatened to be imposed by any Governmental Authority) which has had or
would have a Material Adverse Effect.
4.11. COMPLIANCE WITH LAWS. To the best of Seller's and the
Stockholder's knowledge, Seller has conducted the Tape Business in accordance
with all applicable laws, ordinances, statutes, rules, regulations and
Governmental Orders applicable to it or any of its Tape Business properties or
assets, and Seller is not in violation of any such law, ordinance, statute,
rule, regulation or Governmental Order.
4.12. ENVIRONMENTAL AND OTHER PERMITS AND LICENSES; RELATED MATTERS.
(a) To the best of Seller's and the Stockholder's knowledge,
Seller currently holds all health and safety and other permits, licenses,
authorizations, certificates, exemptions and approvals of Governmental
Authorities (collectively, "PERMITS"), including, without limitation,
Environmental Permits, necessary or proper for the current operation or conduct
of the Tape Business, and all such Permits and Environmental Permits are in
full force and effect. Seller has not received any notice from any Governmental
Authority revoking, canceling, rescinding, materially modifying or refusing to
renew any such Permit or providing written notice of violations under any
Environmental Law. To the best of Seller's and the Stockholder's knowledge,
Seller is in all material respects in compliance with all applicable Permits,
all applicable Environmental Laws and the requirements of all applicable
Environmental Permits.
(b) To the best of Seller's and the Stockholder's knowledge,
in conducting the Tape Business (i) Hazardous Materials have not been
generated, used, treated, handled or stored on, or transported to or from, or
released (as "release" is defined under any applicable Environmental Law) on
any real property owned, leased or occupied by Seller; (ii) Seller has disposed
of all wastes, including those containing Hazardous Materials, in compliance
with all applicable Environmental Laws and Environmental Permits; and (iii)
there are no past, pending or threatened Environmental Claims, nor any basis
for asserting the same, against any Seller.
4.13. MATERIAL TAPE CONTRACTS.
(a) Schedule 4.13 lists each of the following material
contracts and agreements to which Seller is a party and which relate to the
Tape Business (such contracts and agreements being collectively referred to
herein as the "MATERIAL TAPE CONTRACTS"):
(i) all contracts, agreements and other arrangements,
whether oral or written, with any customer or supplier for the purchase or sale
of inventory, other than (1) open purchase or sale orders arising in the
ordinary course of the Tape Business consistent with past
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practice, and (2) vendor contracts which are terminable, without penalty, by
the vendor without cause;
(ii) all broker, distributor, dealer, agency, sales
and other contracts pursuant to which any Person (other than employees of the
Seller) are retained or compensated by the Seller for the purpose of or based
upon sales of products on behalf of the Seller or for the Seller's account;
(iii) all contracts and agreements with any
Governmental Authority to which Seller is a party;
(iv) all contracts and agreements with manufacturers
under which Seller is designated as an exclusive distributor;
(v) all contracts and agreements that limit the
ability of Seller to compete in any line of business or with any Person or
entity or in any geographic area or during any period of time;
(vi) all other contracts, agreements and other
arrangements (excluding ordinary vendor contracts), whether or not made in the
ordinary course of the Tape Business, which if terminated by the other party
thereto (with or without notice and with or without cause) would cause a
Material Adverse Effect .
(b) Seller has delivered to the Buyer true, correct and
complete copies of each of the Tape Office Leases, Tape Equipment Leases and
Unfilled Tape Orders and each (i) is in full force and effect and is valid and
binding on the Seller and, to the Seller and the Stockholder's knowledge, on
the other parties thereto and (ii) will, upon obtaining the requisite consent
thereto, be assignable to Buyer without penalty or other change in any of the
terms thereof.
4.14. CUSTOMERS. Schedule 4.14 hereto sets forth a true, correct and
complete list of the names of the top 25 customers of the Tape Business (by
revenue) during (i) each quarterly period for the 18 months ended February 28,
1999 and (ii) the period from March 1, 1999 to April 23, 1999. Except as set
forth on Schedule 4.14, Seller is not engaged in any disputes with any such
customers (except for minor bill adjustments and similar disputes in the
ordinary course of business) and neither the Seller nor the Stockholder has any
reason to believe that the Buyer will not be able to continue to do business
with such customers.
4.15. SUPPLIERS. Schedule 4.15 hereto sets forth a true, correct and
complete list of the names of the top ten suppliers of the Tape Business (by
purchase order dollar amount) during (i) the fiscal year ended August 31, 1998
and (ii) the period from September 1, 1998 to April 23, 1999.
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4.16. BROKERS. Except for fees required to be paid to P&M Corporate
Finance, L.L.C., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Seller or the Stockholder. The Seller shall pay all fees
required to be paid to P&M Corporate Finance. L.L.C.
4.17. TRADENAMES. To the Seller's and the Stockholder's knowledge,
Seller has the right to use and transfer the names "Producers Tape Service",
"All Media" and "Producers Tape Service/All Media" in the jurisdictions in
which it is qualified to do business, none of which is subject to any license
agreement or other arrangement or understanding pursuant to which any other
party has any right or interest therein. No claim is pending or, to the
Seller's and the Stockholder's knowledge, threatened, to the effect that such
tradenames, or the Seller's use thereof, infringes upon, conflicts with or
impairs any asserted rights of any other party.
4.18. FULL DISCLOSURE. Neither Seller nor the Stockholder have
knowledge of any facts pertaining to Seller or the Tape Business which could
have a Material Adverse Effect and which have not been disclosed in this
Agreement or any of the Schedules hereto (except for general economic
conditions or factors affecting the industry as a whole in which the Tape
Business operates). No representation or warranty of Seller or the Stockholder
in this Agreement, or any Schedules hereto, or any certificate furnished to
Buyer pursuant to this Agreement, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Stockholder as
follows:
5.1. ORGANIZATION AND QUALIFICATION. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Illinois with full corporate power and authority to own its properties and to
carry on its business as now conducted.
5.2. CAPITALIZATION. Buyer is a wholly owned subsidiary of Daisytek
Incorporated.
5.3. AUTHORITY; BINDING OBLIGATION. Buyer has all requisite power and
authority to execute, deliver and perform its respective obligations under this
Agreement and the Other Agreements and consummate the transactions contemplated
herein and therein. The execution and delivery of this Agreement and the Other
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors and stockholder of
Buyer, and no other action on the part of Buyer is necessary to consummate the
transactions contemplated hereby or thereby. This Agreement and the Other
Agreements have been duly executed and delivered by Buyer and constitute the
legal, valid and binding obligation of Buyer enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditor's rights' generally and to general
equitable principles.
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5.4. NO VIOLATIONS The execution, delivery and performance of this
Agreement and the Other Agreements and the consummation of the transactions
contemplated herein and therein by Buyer do not and will not, with or without
the giving of notice or passage of time or both (a) violate, conflict with or
result in the breach of any term or provision of, or require any notice, filing
or consent under (i) the certificate or articles of incorporation, by-laws or
other charter documents of Buyer, (ii) any statutes, laws, rules, regulations,
ordinances or permits of any Governmental Authority applicable to Buyer or
(iii) any Governmental Order binding upon Buyer or any of its properties or
assets; (b) conflict with or result in the breach of any term or provision of,
require any notice or consent under, give rise to a right of termination of,
constitute a default under, result in the acceleration of, or give rise to a
right to accelerate any obligation under, any loan agreement, mortgage,
indenture, financing agreement, lease or any other contract, agreement or
instrument to which Buyer is a party or by which any of its properties or
assets are bound; or (c) result in any Encumbrance on any of the properties or
assets of Buyer.
5.5. BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Buyer.
5.6. FULL DISCLOSURE. No representation or warranty of Buyer in this
Agreement, or any certificate furnished to Seller pursuant to this Agreement,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
5.7 LITIGATION. There are no Actions pending or, to Buyer's knowledge,
threatened, against Buyer which would or could adversely affect Buyer's ability
to consummate the transactions contemplated hereunder or relate to the Tape
Business. Buyer is not subject to any Governmental Order (nor, to the knowledge
of Buyer, are there any such Governmental Orders threatened to be imposed by
any Governmental Authority) which has had or would have an adverse effect on
Buyer's ability to consummate the transactions contemplated hereunder.
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
From and after the date of this Agreement and until the Closing, or
the earlier termination of this Agreement in accordance with the terms hereof,
the Seller covenants that it will comply (and the Stockholder covenants to
cause the Seller to comply) with the following:
6.1. BUSINESS IN THE ORDINARY COURSE. The Seller shall carry on the
Tape Business in the ordinary course consistent with past practice and shall
not, without the prior written consent of Buyer, make or institute any new,
unusual or novel methods of purchase, sale, lease, management, billing or
operation or engage in any material activity not heretofore conducted by the
Seller, including without limitation, the entering into of any material
contract or agreement or engaging in any material transaction not in the
ordinary course of the Tape Business, the pledging or encumbering of any of the
Tape Assets, the amendment or modification of any of the Tape Office Leases or
Tape Equipment Leases (except
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as contemplated herein), or any other transaction, action or step which may
have a Material Adverse Effect upon the Tape Business.
6.2. FULL ACCESS.
(a) Seller shall provide the Buyer and its officers, directors,
employees, attorneys, accountants, consultants, agents and other
representatives reasonable access to, and the right to review, inspect and
appraise during normal business hours, all of its premises, properties, assets,
records, material contracts and other documents, instruments and agreements
and, with the Seller's prior consent (which shall not be unreasonably withheld
or delayed), consult with the officers, directors, employees, customers,
suppliers, vendors, and other representatives of the Seller for the purpose of
conducting such investigation of the Tape Business and the operations, assets,
properties and condition (financial or otherwise) of Seller as Buyer shall
desire to conduct, provided that such investigation shall not unreasonably
interfere with the Seller's business operations and shall only be with respect
to the Tape Business.
(b) The Buyer agrees to comply with and be bound by the terms of
the Confidentiality Agreement executed by Buyer which shall remain in full
force and effect in accordance with its terms.
6.3. STANDSTILL. Seller and the Stockholder shall not enter into any
letter of intent or agreement with any Person (other than Buyer) with respect
to any, direct or indirect, sale or disposition of the Tape Assets (other than
sales of Tape Inventory in the ordinary course of the Tape Business) or any,
direct or indirect, sale or disposition of the Tape Business or any material
part thereof.
6.4. EMPLOYEES AND BUSINESS RELATIONS. The Seller shall use its best
efforts to keep available the services of the Tape Business employees listed on
Schedule 10.2 and maintain its relations and good will with all material
suppliers and customers.
6.5. NOTICE OF DEVELOPMENTS. Prior to the Closing, the Seller shall
give prompt notice to the Buyer of (i) the occurrence of a Material Adverse
Effect, (ii) any material development affecting the ability of the Seller or
the Stockholder to consummate the transactions contemplated by this Agreement,
and (iii) any development causing any breach of a representation or warranty or
covenant of the Seller in this Agreement or which would have the effect of
making any representation or warranty of the Seller in this Agreement false or
misleading in any material respect.
6.6. TAPE OFFICE LEASES. The Seller shall request (i) the consent of
the Landlord of the Kansas Office to the assignment of the Kansas Office Lease,
substantially in the form of the Assignment and Estoppel (the "KANSAS LEASE
CONSENT") attached hereto as EXHIBIT C and (ii) the consent of the Landlord of
the Detroit Office to the modification of the Detroit Office Lease so that
premises located at 395 E. Elmwood are leased by the Buyer and the premises
located at 405 E. Elmwood remain leased by the Seller, substantially in the
form of the Lease Modification and Assignment (the "DETROIT LEASE AMENDMENT")
attached hereto as EXHIBIT D.
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ARTICLE VII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, or waiver
by the Seller, prior to or at the Closing, of each of the following conditions
precedent:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Buyer contained in this Agreement shall be true, correct and
complete on and as of the Closing Date with the same effect as though such
representations and warranties were made or given on and as of such date (other
than such representations and warranties as are made as of another specified
date, which shall be true and correct as of such other specified date).
7.2. PERFORMANCE OF OBLIGATIONS. Buyer shall have performed and
complied with all of the covenants, agreements and conditions required by this
Agreement to be performed and complied with by it prior to or on the Closing
Date.
7.3. COMPLIANCE CERTIFICATE. Buyer shall have delivered to Seller on
the Closing Date a certificate signed by an authorized officer thereof and
dated as of the Closing Date to the effect that each of the representations and
warranties of Buyer contained in this Agreement is true, correct and complete
as of the Closing Date (other than such representations and warranties as are
made as of another specified date, which shall be true and correct as of such
other specified date), and Buyer has complied with, fulfilled and performed
each of the covenants, terms and conditions to be complied with, fulfilled or
performed by it under this Agreement on or prior to the Closing Date
7.4. ABSENCE OF LITIGATION. No Action shall be threatened or pending
on the Closing Date in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation
of the transactions contemplated hereby.
7.5. REQUIRED CONSENTS AND APPROVALS . Each Governmental Authority and
all other Persons whose approval, consent or waiver may be necessary or
required with respect to the transactions contemplated herein shall have given
or granted such approval, consent or waiver (including Seller's receipt of a
duly executed Kansas Lease Consent and Detroit Lease Amendment).
7.6. RESOLUTIONS. The Seller shall have received a true and complete
copy, certified by the Secretary or Assistant Secretary of Buyer, of the
resolutions duly adopted by the Board of Directors of Buyer evidencing its
authorization of the execution and delivery of this Agreement and the Other
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby.
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7.7. OTHER AGREEMENTS. The Buyer shall have executed and delivered the
Other Agreements to which it is a party.
7.8. CLOSING PAYMENT. The Buyer shall have delivered to the Seller
Account the applicable payment set forth in Section 3.2.
7.9 EVANS AGREEMENTS. The Seller and the Stockholder shall have
received a duly executed copy of (i) a Stock Purchase and Mutual Release
Agreement (the "REDEMPTION AGREEMENT"), substantially in the form of EXHIBIT E
attached hereto, pursuant to which, among other things, the Stockholder shall
purchase all of the shares of capital stock of the Seller owned by John Evans
("EVANS") and (ii) a Restrictive Covenant Agreement (the "EVANS RESTRICTIVE
COVENANT"), substantially in the form of EXHIBIT F attached hereto, pursuant to
which Evans shall agree to comply with a restrictive covenant for the benefit
of the Seller and the Buyer.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligation of the Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, or waiver
by the Buyer, prior to or at the Closing, of each of the following conditions
precedent:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Seller and the Stockholder contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same
effect as though such representations and warranties were made or given on and
as of such date (other than such representations and warranties as are made of
another specified date, which shall be true and correct as of such other
specified date).
8.2. PERFORMANCE OF OBLIGATIONS. Seller and the Stockholder shall have
performed and complied with all of the covenants, agreements and conditions
required by this Agreement to be performed and complied with by them prior to
or on the Closing Date.
8.3. COMPLIANCE CERTIFICATE. Seller shall have delivered to Buyer on
the Closing Date a certificate signed by or on behalf of Seller and the
Stockholder and dated as of the Closing Date to the effect that each of the
representations and warranties of Seller and the Stockholder contained in this
Agreement is true, correct and complete as of the Closing Date (other than such
representations and warranties as are made of another specified date, which
shall be true and correct as of such other specified date), and Seller and the
Stockholder have complied with, fulfilled and performed each of the covenants,
terms and conditions to be complied with, fulfilled or performed by them under
this Agreement on or prior to the Closing Date.
16
<PAGE> 18
8.4. ABSENCE OF LITIGATION. No Action shall be threatened or pending
on the Closing Date in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation
of the transactions contemplated hereby.
8.5. REQUIRED CONSENTS AND APPROVALS . Each Governmental Authority and
all other Persons whose approval, consent or waiver may be necessary or
required with respect to the transactions contemplated herein shall have given
or granted such approval, consent or waiver.
8.6. RESOLUTIONS. The Buyer shall have received a true and complete
copy, certified by the Secretary or Assistant Secretary of the Seller, of the
resolutions duly adopted by the Board of Directors of the Seller, and approved
by the requisite stockholders of the Seller, evidencing its authorization of
the execution and delivery of this Agreement and the Other Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby.
8.7. TAPE OFFICE LEASES. The Buyer shall have received the Kansas
Lease Consent and the Detroit Lease Amendment duly executed by the respective
landlords and other parties thereunder.
8.8. PAYOFF LETTERS. The Buyer shall have received payoff letters from
the holders of any Encumbrances upon the Tape Assets, including without
limitation, Standard Federal Bank, Sony Electronics, Inc. and Fuji Photo Film
U.S.A., Inc., setting forth (i) the amount necessary to repay such creditors in
full as of a date no later than the last day of the month immediately preceding
the Closing Date, (ii) the address to which such payment should be delivered
and (iii) the agreement of such creditors that upon its receipt (and
collection) of such amount and such further amount as may be determined to be
due and owing as of the Closing Date, all Encumbrances upon the Tape Assets
shall be released and such creditors shall execute and deliver such termination
statements and releases as the Buyer may reasonably request to evidence the
foregoing.
8.9. EVANS AGREEMENTS. The Buyer shall have received (i) a duly
executed copy of the Redemption Agreement and the Evans Restrictive Covenant
and (ii) evidence of payment to Evans of the amounts to be paid to him under
the aforesaid agreements.
8.10 OTHER AGREEMENTS. The Buyer shall have received duly executed
copies of each of the Other Agreements.
8.11. NO MATERIAL ADVERSE EFFECT. No Material Adverse Effect shall
have occurred between the date hereof and the Closing Date.
ARTICLE IX
TERMINATION AND OTHER MATTERS
9.1. TERMINATION OF AGREEMENT FOR FAILURE OF CONDITIONS PRECEDENT
17
<PAGE> 19
(a) In the event that (i) any one or more of the conditions
precedent set forth in Articles VII or VIII hereof are not fulfilled on or
before June 30, 1999 or (ii) the Closing shall not have occurred within the
time frame provided under Section 3.1 (in each case, or such extended date as
may be mutually agreed to by the Buyer and the Seller), then the party for
whose benefit such conditions run shall have the right, at its election and by
written notice to the other party, to terminate this Agreement. In the event
that this Agreement is so terminated, the parties hereto shall be released from
all further obligations and liabilities hereunder (except those expressly
stated to survive any termination of this Agreement) and this Agreement shall
otherwise be of no further force or effect.
(b) In the event this Agreement is terminated by any party hereto
(the "TERMINATING PARTY") by reason of an intentional material default of the
other (the "DEFAULTING PARTY"), then, in addition to any other right or remedy
available to the Terminating Party at law or in equity, the Defaulting Party
shall reimburse the Terminating Party for all of the Terminating Party's
out-of-pocket costs and expenses (including, but not limited to, attorneys',
accountants' and consultants' fees) in connection with this Agreement and the
transactions contemplated hereby.
9.2. FEES AND EXPENSES. Except as otherwise provided in 9.1(b) hereof,
all legal, accounting, investment banking and other costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses.
9.3. TAXES. Each party and their respective Affiliates shall be liable
for all federal, state and local taxes on capital gains, transfer, documentary,
stamp and other similar taxes which may be due or payable by it in connection
with the consummation of the transactions contemplated hereunder.
ARTICLE X
ACTIONS TO BE TAKEN POST-CLOSING
10.1. CHANGE OF NAME. As promptly as possible following the Closing,
the Seller will take all steps necessary to cease using the names "Producers
Tape Service", "All Media", "Producers Tape Service/All Media" and all other
names, tradenames, fictitious names and other business identifiers used by the
Seller in conducting the Tape Business.
10.2. OFFER OF EMPLOYMENT. Seller shall not interfere with the ability
of the Buyer to offer employment to the employees listed on Schedule 10.2
hereto (the "TAPE EMPLOYEES"); provided, however, that all accrued employee
wages, compensation and benefits for all periods prior to, and as of, the
Closing Date shall remain the responsibility of the Seller. This Section shall
not be construed as a promise of employment, nor shall any Tape Employee be
deemed a third-party beneficiary hereof.
10.3. ACCOUNTS RECEIVABLE. Following the Closing, in the event either
party shall receive any checks or other payments (i) which are designated (by
invoice number or otherwise) by the payor thereof as payment for accounts
receivable owing by the payor to the other party, the receiving party shall
hold the same in trust for, and promptly forward the same to, the proper
18
<PAGE> 20
party or (ii) which are not designated (by invoice number or otherwise) by the
payor thereof as payment for accounts receivable owing by the payor to the
other party, the receiving party and the other party shall jointly contact the
payor to determine the proper designation of such payment and, until and upon
such designation, the receiving party shall hold the same in trust for, and
promptly forward the same to, the proper party.
10.4. ACCESS TO BOOKS AND RECORDS. Buyer agrees that for a period of
three years following the Closing Date, Buyer shall retain all of the books,
records, sales orders and any other documents or data (collectively "Records")
delivered by Seller to Buyer in connection with this Agreement and that Seller
shall have the right to inspect or obtain copies of such Records upon
reasonable request. Following such three year period, Buyer may destroy all or
any portion of such Records, provided that Buyer shall so notify Seller and
shall provide Seller with the reasonable opportunity to remove such Records.
ARTICLE XI
INDEMNIFICATION
11.1. INDEMNIFICATION BY SELLER AND THE STOCKHOLDER. Subject to the
limitations set forth in Section 11.3, from and after the Closing, Seller and
the Stockholder shall, jointly and severally, but subject to the limitations
hereof, reimburse, indemnify and hold harmless Buyer and its officers,
directors, employees, agents, representatives and successors and assigns from
and against and in respect of each of the following:
(a) any and all damages, losses, deficiencies, liabilities,
claims, demands, charges, costs and expenses of every nature and character
whatsoever, including, without limitation, reasonable attorneys' fees and costs
(collectively, the "LOSSES") that result from, relate to or arise out of (i)
the Retained Tape Liabilities, or (ii) any misrepresentation or breach of
warranty or covenant of Seller or the Stockholder in this Agreement, or any of
the Schedules provided hereunder; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses incident to any of the foregoing or to the Buyer's successful
enforcement of this Section.
11.2. INDEMNIFICATION OF SELLER AND THE STOCKHOLDER. From and after
the Closing, Buyer shall, subject to the limitations hereof, reimburse,
indemnify and hold harmless Seller and the Stockholders and each of their
respective officers, directors, employees, agents, representatives and heirs,
estate, successors and assigns from and against and in respect of each of the
following:
(a) any and all Losses that result from, relate to or arise out
of (i) the Assumed Tape Liabilities, or (ii) any misrepresentation or breach of
warranty or covenant of Buyer in this Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses incident to any of the foregoing or to the Seller's successful
enforcement of this Section.
19
<PAGE> 21
11.3. LIMITATIONS ON LOSSES.
(a) In case any event shall occur that would otherwise entitle
any party to assert a claim for indemnification hereunder, no Losses shall be
deemed to have been sustained by such party to the extent of (i) any actual tax
savings realized by such party with respect thereto or (ii) any proceeds (net
of deductibles, taxes and collection costs) received by such party from any
insurance policies maintained by or on behalf of such party with respect to
such Losses. The parties agree to submit a claim under such insurance policies
prior to or promptly following making a request for indemnification hereunder.
(b) The aggregate liability of (i) Seller shall not exceed the
Tape Purchase Price (and the Buyer shall have the right to offset any Losses
against amounts owing by the Buyer to the Seller under any other business
transaction or relationship between the Buyer and the Seller) and (ii) the
Stockholder shall not exceed $500,000.
(c) The sum of all Losses incurred by an Indemnified Party must
exceed $50,000 before such party shall be entitled to indemnification
hereunder; provided, however, once such Losses exceed $50,000, such party shall
be entitled to indemnification for all Losses, including the first $50,000.
(d) No party shall have any liability hereunder in respect of
claims (excluding Third Party Claims, as defined below) asserted against any
Indemnified Party on or after one year from the Closing Date; provided,
however, the representations and warranties of each party relating to title to
the assets being sold by it hereunder shall survive indefinitely. The
limitation set forth in this paragraph shall not apply to any claim asserted in
writing on or before such one year anniversary.
(e) The limitations set forth herein shall not apply in the case
of a fraudulent or intentional misrepresentation by any party.
11.4. NOTICE.
(a) Section to the limitations set forth in Section 11.3 above,
promptly after receipt by an Indemnified Party of notice of the assertion of
any claim by a Person not a party to this Agreement (a "THIRD PARTY Claim")
with respect to which such Indemnified Party expects to make a request for
indemnification hereunder, such Indemnified Party shall give the Indemnifying
Party written notice describing such claim in reasonable detail. The
Indemnifying Party shall, upon receipt of such notice, be entitled to
participate in or, at the Indemnifying Party's option, assume the defense,
appeal or settlement of, such claim with respect to which such indemnity has
been invoked with counsel selected by it and approved by the Indemnified Party
(such approval not to be unreasonably withheld), and the Indemnified Party will
fully cooperate with the Indemnifying Party in connection therewith; provided,
that the Indemnified Party shall be entitled to employ separate counsel (at the
expense of the Indemnifying Party) to represent such Indemnified Party if
counsel selected by the Indemnifying Party cannot, by reason of any actual or
deemed conflict of interest, adequately represent the interests of the
Indemnified Party. In the event that the Indemnifying Party fails to assume the
defense, appeal or settlement of such claim within 20 days after receipt of
notice
20
<PAGE> 22
thereof from the Indemnified Party, the Indemnified Party shall have the right
to undertake the defense or appeal of, or settle or compromise, such claim on
behalf of and for the account and risk of the Indemnifying Party. The
Indemnifying Party shall not settle or compromise any such claim without the
Indemnified Party's prior written consent, unless the terms of such settlement
or compromise release the Indemnified Party from any and all liabilities with
respect to such Third Party Claim.
(b) Any indemnifiable claim that is not a Third Party Claim shall
be asserted by written notice to the Indemnifying Party. If the Indemnifying
Party does not respond to such notice within 30 days, it shall have no further
right to contest the validity of such claim.
11.5. SURVIVAL; EXCLUSIVE REMEDY. Notwithstanding any right of any
party to fully investigate the affairs of the other party and notwithstanding
any knowledge of facts determined or determinable by such party pursuant to
such investigation or right of investigation, each party has the right to rely
fully upon the representations, warranties, covenants and agreements of each
other party in this Agreement or in any certificate, financial statement or
other document delivered by any party pursuant hereto. All such
representations, warranties, covenants and agreements shall survive the
execution and delivery hereof and the Closing hereunder, subject to the
limitations set forth in this Article XI. No person shall have a right to
recovery against any party (or any officer, director, employee or agent of a
party) other than through the exercise of the indemnification rights set forth
herein, which shall constitute the sole and exclusive remedy after the Closing
for any breach by a party of any representation, warranty or covenant contained
herein or in any certificate or other instrument delivered pursuant hereto,
other than a fraudulent or intentional breach, as to which each party shall
have all rights and remedies available at law or in equity.
ARTICLE XII
MISCELLANEOUS
12.1. COVENANT OF FURTHER ASSURANCES. The parties hereto covenant and
agree to execute and deliver any and all additional writings, instruments and
other documents and take such further actions as shall be reasonably required
or requested to effectuate the terms and conditions of this Agreement.
12.2. ENTIRE AGREEMENT. This Agreement and the Other Agreements and
the other agreements and instruments described herein represent the entire
agreements between the parties hereto and thereto with respect to the subject
matter hereof and thereof, and supersede all prior agreements and
communications with respect thereto.
12.3. ASSIGNMENT AND BINDING EFFECT. Neither this Agreement nor any
rights or obligations hereunder may be assigned by any party hereto without the
express written consent of the others and any attempted assignment in violation
thereof shall be null and void; provided, however, that the rights and
obligations of Buyer hereunder may be assigned to any Affiliate of Daisytek
Incorporated; provided, however, Buyer shall remain the primary obligor and the
assignee shall be the secondary obligor with respect to all of its obligations
hereunder. In addition, title to any or all of the Tape Assets may be taken in
the name of any Affiliate of Daisytek Incorporated. This Agreement shall inure
to the benefit of and be binding upon the parties hereto
21
<PAGE> 23
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer on any Person other than
the parties hereto or their respective successors or permitted assigns or the
Indemnified Parties (who shall be deemed third party beneficiaries hereof) any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
12.4. AMENDMENT OR MODIFICATION. This Agreement may not be waived,
amended, modified or supplemented by the parties hereto in any manner, except
by an instrument in writing signed by Seller and Buyer.
12.5. SEVERABILITY. If any provision of this Agreement shall be
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the remaining provisions of this Agreement,
all of which shall remain in full force and effect, nor shall it affect their
validity or enforceability in any other jurisdiction. To the extent permitted
by law, each party hereto waives any provision of law which renders any
provision hereof unenforceable in any respect.
12.6. NOTICES. All notices, requests, demands or other communications
under or with respect to this Agreement shall be in writing and shall be given
by hand, by telecopy with request for acknowledgment or confirmation of
receipt, by Federal Express or other nationally recognized overnight delivery
service providing for receipt against delivery (delivery charges prepaid) or by
certified or registered U.S. Mail, postage prepaid, return receipt requested,
and shall be deemed to have been duly given and effective upon the earlier of
(i) its actual receipt (or acknowledgment or confirmation of receipt), (ii) the
next business day after having been sent by Federal Express or similar
nationally recognized overnight delivery service providing for receipt against
delivery, delivery charges prepaid, or (iii) three days after having been sent
by certified or registered U.S. mail, return receipt requested, postage
prepaid, addressed as follows:
If to Seller:
Stage 4 Productions, Inc.
405 E. Elmwood Avenue
Troy, Michigan 48084
Attn: William Gutherie
- with a copy to -
Kerr, Russell and Weber, PLC
500 Woodward Avenue, Suite 2500
Detroit, Michigan 48226
Attn: Richard C. Buslepp, Esquire
Telecopier: 313-961-0388
22
<PAGE> 24
If to Buyer:
The Tape Company, Inc.
c/o Daisytek Incorporated
500 North Central Expressway
Plano, TX 75074
Attention: Tom Madden
Telecopier: 972-423-1108
- with a copy to -
Wolff & Samson, P.A.
5 Becker Farm Road
Roseland, New Jersey 07068
Attention: Morris Bienenfeld, Esq.
Telecopier: 973-740-1407
Any such Person by written notice to each of the others listed in this Section
in accordance herewith may change the address to which notices may be directed,
but such notice shall be deemed duly given and effective only upon actual
receipt thereof.
12.7. WAIVERS AND EXTENSIONS. Any waiver by any party hereto of any
provision or condition of this Agreement or breach thereof or any extension of
time granted by any party under this Agreement shall not be construed or deemed
to be a waiver of any other provision or condition of this Agreement or breach
thereof or extension of time with respect thereto or a waiver of a subsequent
breach of or subsequent extension of time with respect to same provision or
condition.
12.8. GOVERNING LAW. This Agreement shall be governed by, and be
construed in accordance with, the laws of the State of Michigan without regard
to the conflicts of laws principles thereof.
12.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original of this Agreement but
all of which taken together shall constitute one and the same instrument.
12.10. CAPTIONS AND HEADINGS. The captions, section and other headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.11. EXHIBITS AND SCHEDULES. All Exhibits annexed hereto, and all
Schedules referred to herein, are hereby incorporated in and made a part of
this Agreement as if set forth herein.
12.12. CONSTRUCTION. The parties hereto hereby acknowledge and agree
that they and their respective counsel have independently reviewed and made
amendments to this Agreement and that
23
<PAGE> 25
the normal rule of construction, whereby ambiguities are to be resolved against
the drafting party, shall be inapplicable to this Agreement.
12.13. PUBLICITY. Except as otherwise required by applicable laws or
regulations, no party hereto nor any Affiliate thereof, shall issue any press
release or make any other public statement regarding the transactions described
in this Agreement without obtaining the prior approval of the other parties
hereto to the contents and the manner of presentation and publication thereof,
such consent not to be unreasonably delayed or withheld.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE TAPE COMPANY, INC.
By:
-----------------------------------
Name:
Title:
STAGE 4 PRODUCTIONS, INC. (D/B/A
PRODUCERS TAPE SERVICE/ALL MEDIA,
INC.)
By:
-----------------------------------
Name: William Gutherie
Title: President
STOCKHOLDER:
--------------------------------------
WILLIAM T. GUTHERIE
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR
THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 3,082
<SECURITIES> 0
<RECEIVABLES> 146,276
<ALLOWANCES> 3,445
<INVENTORY> 112,135
<CURRENT-ASSETS> 262,129
<PP&E> 42,951
<DEPRECIATION> 21,840
<TOTAL-ASSETS> 326,465
<CURRENT-LIABILITIES> 108,364
<BONDS> 56,322
0
0
<COMMON> 172
<OTHER-SE> 161,607
<TOTAL-LIABILITY-AND-EQUITY> 326,465
<SALES> 233,237
<TOTAL-REVENUES> 233,237
<CGS> 205,971
<TOTAL-COSTS> 205,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 879
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> 6,858
<INCOME-TAX> 2,675
<INCOME-CONTINUING> 4,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,183
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</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
THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RETROACTIVELY RESTATED FOR
THE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 725
<SECURITIES> 0
<RECEIVABLES> 116,726
<ALLOWANCES> 2,075
<INVENTORY> 119,722
<CURRENT-ASSETS> 240,577
<PP&E> 31,945
<DEPRECIATION> 16,307
<TOTAL-ASSETS> 278,124
<CURRENT-LIABILITIES> 97,931
<BONDS> 37,261
0
0
<COMMON> 170
<OTHER-SE> 142,762
<TOTAL-LIABILITY-AND-EQUITY> 278,124
<SALES> 222,589
<TOTAL-REVENUES> 222,589
<CGS> 196,062
<TOTAL-COSTS> 196,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 525
<INTEREST-EXPENSE> 852
<INCOME-PRETAX> 8,468
<INCOME-TAX> 3,030
<INCOME-CONTINUING> 5,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (405)
<NET-INCOME> 5,033
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.32
</TABLE>
