<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
Daisytek International Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
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<PAGE> 2
DAISYTEK INTERNATIONAL CORPORATION
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Daisytek International Corporation (the "Company"), which will be held at the
Adam's Mark Hotel, 400 N. Olive Street, Dallas, Texas, on Wednesday, September
13, 2000 at 10:00 a.m.(local time).
At the Annual Meeting, stockholders will be asked to elect directors and to
ratify the appointment of Arthur Andersen LLP as the Company's independent
auditors. Information about these matters is contained in the attached Proxy
Statement.
The Company's management would greatly appreciate your attendance at the
Annual Meeting. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
IT IS MOST IMPORTANT THAT YOUR SHARES BE REPRESENTED. Accordingly, please sign,
date and return the enclosed proxy card which will indicate your vote upon the
matters to be considered. If you do attend the meeting and desire to vote in
person, you may do so by withdrawing your proxy at that time.
I sincerely hope you will be able to attend the Annual Meeting, and I look
forward to seeing you on September 13, 2000.
Sincerely,
/s/ JAMES R. POWELL
James R. Powell
President, Chief Executive Officer
July 28, 2000
<PAGE> 3
DAISYTEK INTERNATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 13, 2000
The Annual Meeting of Stockholders of Daisytek International Corporation
(the "Company") will be held on Wednesday, September 13, 2000 at 10:00 a.m. at
the Adam's Mark Hotel, 400 N. Olive Street, Dallas, Texas, for the following
purposes:
1. To elect three Class III directors;
2. To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending March 31, 2001; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 17, 2000 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting. Each stockholder, even though he or she may
presently intend to attend the Annual Meeting, is requested to execute and date
the enclosed proxy card and return it without delay in the enclosed postage-paid
envelope. Any stockholder present at the Annual Meeting may withdraw his or her
proxy card and vote in person on each matter properly brought before the Annual
Meeting.
Please sign, date and mail the enclosed proxy in the enclosed envelope
promptly, so that your shares of stock may be represented at the meeting.
By Order of the Board of Directors
/s/ R.W. DOHERTY, JR.
R.W. Doherty, Jr.
Secretary
Plano, Texas
July 28, 2000
<PAGE> 4
DAISYTEK INTERNATIONAL CORPORATION
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
(972) 881-4700
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of Daisytek
International Corporation, a Delaware corporation ("Daisytek" or the "Company"),
in connection with the solicitation of proxies for use at the Company's Annual
Meeting of Stockholders (the "Annual Meeting"), to be held at the Adam's Mark
Hotel, 400 N. Olive Street, Dallas, Texas, on Wednesday, September 13, 2000, at
10:00 a.m., and at any and all adjournments thereof.
This solicitation is being made on behalf of the Board of Directors of the
Company. This Proxy Statement, Notice of Annual Meeting of Stockholders, the
enclosed proxy card and the Company's 2000 Annual Report on Form 10-K were first
mailed to stockholders on or about July 28, 2000.
The shares represented by a proxy in the enclosed form, if such proxy is
properly executed and is received by the Company prior to or at the Annual
Meeting, will be voted in accordance with the specifications made thereon.
Proxies on which no specification has been made by the stockholder will be
voted:
(i) in favor of the election of the three nominees to the Board of
Directors listed in this Proxy Statement; and
(ii) to ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending March 31, 2001.
Any proxy given by a stockholder may be revoked at any time before its
exercise by sending a subsequently dated proxy or by giving written notice of
revocation, in each case, to the Company's Secretary, at the Company's principal
executive offices at the address set forth above. Stockholders who attend the
Annual Meeting in person may withdraw their proxies at any time before their
shares are voted by voting their shares in person.
Stockholders of record at the close of business on July 17, 2000 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, the issued and outstanding voting securities of the Company
consisted of 17,643,711 shares of common stock, par value $.01 per share (the
"Common Stock"), each of which is entitled to one vote on all matters which may
properly come before the Annual Meeting or any adjournment thereof.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum. Each item presented herein to be voted on at the Annual
Meeting must be approved by the affirmative vote of a majority of the holders of
the number of shares present either in person or represented by proxy. The
inspector of elections appointed by the Company will count all votes cast, in
person or by submission of a properly executed proxy, before the closing of the
polls at the meeting. Abstentions and "broker non-votes" (nominees holding
shares for beneficial owners who have not voted on a specific matter) will be
treated as present for purposes of determining whether a quorum is present at
the Annual Meeting. However, abstentions and broker non-votes will have no
effect on the vote, because the vote required is a majority of the votes
actually cast (assuming the presence of a quorum).
EXPLANATORY NOTE
All references in this Proxy Statement to the Company's fiscal year mean
the 12 month period ending on March 31 of such year.
During the Company's 2000 fiscal year, the Company completed an initial
public offering of approximately 19.9% of the outstanding common stock of the
Company's e-commerce logistics subsidiary,
<PAGE> 5
PFSweb, Inc. ("PFSweb") as the first step in the spin-off and separation of
PFSweb from the Company. In order to effect this spin-off, on June 8, 2000, the
Company declared a dividend on Daisytek common stock consisting of a total of
14,305,000 shares of PFSweb common stock owned by the Company (the
"Distribution" or "spin-off"), representing about 80.1% of the outstanding
PFSweb common stock. The dividend was paid at the close of business on July 6,
2000, in the amount of 0.81 of a share of PFSweb common stock for each share of
outstanding Daisytek common stock.
ITEM I. ELECTION OF DIRECTORS
The Board of Directors consists of nine members which are divided into
three classes. Each class serves three years, with the terms of office of the
respective classes expiring in successive years.
The term of Class III directors expires at the Annual Meeting. Each
director elected as a Class III director at the Annual Meeting will have a term
of three years. The nominees for the Class III directors are Peter P. J.
Vikanis, James F. Reilly and Dale A. Booth who have been nominated and
recommended by the Board of Directors. If elected, Messrs. Vikanis, Reilly and
Booth are expected to serve until the Company's 2003 annual meeting of
stockholders and until their successors are elected and qualified. The shares
represented by proxies in the accompanying form will be voted for the election
of these nominees unless authority to so vote is withheld. The Board of
Directors has no reason to believe that such nominees will not serve if elected,
but if they should become unavailable to serve as directors, and if the Board
designates substitute nominees, the persons named as proxies will vote for the
substitute nominees designated by the Board. Directors will be elected by a
majority of the votes cast at the Annual Meeting.
The following information, which has been provided by the individuals
named, sets forth the nominees for election to the Board of Directors and the
continuing Class I and II directors, such person's name, age, principal
occupation or employment during at least the past five years, the name of the
corporation or other organization, if any, in which such occupation or
employment is carried on and the period during which such person has served as a
director of the Company.
DIRECTORS STANDING FOR ELECTION
CLASS III
TERM EXPIRES AT THE 2003 ANNUAL MEETING
Peter P. J. Vikanis, age 49, has served as a non-employee Director of the
Company since 1996. Mr. Vikanis served as Chief Operating Officer of ISA
International plc ("ISA"), a distributor of computer supplies and related
products in Western Europe, from 1991 to 1995, as a director of ISA from 1979 to
1995, and also served in various management capacities at ISA from 1971 to 1991.
Mr. Vikanis also serves as a non-employee Director of PFSweb.
James F. Reilly, age 41, has served as a non-employee Director of the
Company since October 1998. Mr. Reilly is a Managing Director of Chase H & Q, a
division of Chase Securities Inc., an investment banking firm. Mr. Reilly was
previously a Managing Director in the Technology Group of Warburg Dillon Read,
the global investment banking division of UBS AG. Mr. Reilly was associated with
Warburg Dillon Read or one of its predecessor companies from 1983 to 1999 and
specialized in corporate finance advisory work for a broad range of technology
companies, including distribution companies. Mr. Reilly also serves as a
non-employee Director of PFSweb.
Dale A. Booth, age 41, was recently appointed as a non-employee Director of
the Company. Mr. Booth is founder and Chairman of Ngine Inc., a professional
services firm serving the telecommunications industry. Mr. Booth is also a
principal in Strategic Computing Inc., a consulting firm that specializes in
senior executive strategic planning and due-diligence research for merger and
acquisition transactions in the telecommunications sector. Mr. Booth joined
Fujitsu Network Communications, Inc. ("FNC") in 1986 and served in several
senior executive positions, including Senior Vice President and Chief
Information Officer, and Vice President of Knowledge Management, Work-force
Development and Quality Management. Mr. Booth was President and Chief Operations
Officer for Fujitsu Network Services, a subsidiary of FNC, until mid 2000. Mr.
Booth
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<PAGE> 6
serves on numerous boards and councils including Texas Quality Foundation,
International Engineering Consortium, Telecom Corridor 20, Trinity Ventures and
Telecentric.com. and is a member of the American Productivity and Quality Center
and the Society of Manufacturing Engineers.
DIRECTORS CONTINUING IN OFFICE
CLASS II
TERM EXPIRES AT THE 2002 ANNUAL MEETING
Mark C. Layton, age 40, has served as Chairman of the Board since September
1999. Mr. Layton served as President, Chief Executive Officer and Chief
Operating Officer of the Company from April 1997 to February 2000 and as a
Director since 1988. Mr. Layton served as President, Chief Operating Officer and
Chief Financial Officer of the Company from 1993 to April 1997, as Executive
Vice President from 1990 to 1993 and as Vice President -- Operations from 1988
to 1990. Prior to joining the Company, Mr. Layton served as a management
consultant with Arthur Andersen & Co., S.C. for six years through 1988
specializing in wholesale and retail distribution and technology. Mr. Layton
serves as Chairman of the Board, President and Chief Executive Officer of
PFSweb, a position he has held since June 1999.
Timothy M. Murray, age 48, has served as a non-employee Director of the
Company since 1991. Mr. Murray is a Principal of William Blair & Company,
L.L.C., an investment banking firm he joined in 1979. Mr. Murray is a director
of several privately held corporations. Mr. Murray also serves as a non-employee
Director of PFSweb.
John D. (Jack) Kearney, age 46, was recently appointed as a Director and
presently serves as Executive Vice President -- Corporate Development of the
Company, a position he has held since February 2000. From March 1999 to February
2000, Mr. Kearney served as Vice President -- Corporate Development of the
Company. From January 1998 to March 1999, Mr. Kearney served as Vice President
of Corporate Development of F.Y.I., Incorporated, a single-source provider of
document and information outsourcing solutions. Mr. Kearney has significant
experience in investment banking, having served as Managing Director of
Corporate Finance at Rauscher Pierce Refsnes, Inc. from July 1995 to December
1997, and Senior Vice President of Corporate Finance at Raymond James &
Associates from September 1991 to July 1995.
DIRECTORS CONTINUING IN OFFICE
CLASS I
TERM EXPIRES AT THE 2001 ANNUAL MEETING
James R. Powell, age 39, has served as a Director since 1996 and presently
serves as President and Chief Executive Officer of the Company, a position he
has held since February 2000. Mr. Powell previously served as Senior Vice
President -- Sales and Marketing from 1996 to February 2000, as Vice
President -- Sales from 1992 to 1996 and in various other sales capacities from
1988 to 1992. Mr. Powell also serves as a non-employee Director of PFSweb.
Christopher Yates, age 45, has served as a Director of the Company since
February 1995. Mr. Yates is Executive Vice President, Chief Sales And Marketing
Officer and a Director of PFSweb, positions he has held since June 1999. Prior
to joining PFSweb, Mr. Yates served in various sales capacities for the Company,
including Senior Vice President -- Business Development since February 1996,
Vice President -- Business Development from November 1995 to February 1996, Vice
President -- Marketing from January 1994 to November 1995, and Vice
President -- Sales from 1988 to 1994.
Daniel L. Owen, age 52, was recently appointed a non-employee Director of
the Company. Mr. Owen is an interactive television pioneer who transitioned to
Internet investing in 1996. In 1997, Mr. Owen co-founded HO2 Partners, a venture
capital firm focusing on early-stage Internet companies. Mr. Owen also founded
Focus Networks, Inc., in 1989, a provider of satellite-delivered video sales
training programs, and sold the company in 1995. Mr. Owen was a founding
executive of Spectradyne Inc., developing one of the world's largest pay movie
systems, Spectravision, and served as Chief Operating Officer from 1987 to 1989.
Mr. Owen
3
<PAGE> 7
is on the Executive Committee of the Board of Directors of North Texas Public
Broadcasting, Inc. (Channel 13, Channel 2 and 90.1 FM) and a senior advisor to
the "Learning Village" Internet initiative at the University of Dayton, Ohio.
EXECUTIVE OFFICERS
In addition to the individuals named above, the following are the names,
ages and positions of the other executive officers of the Company:
William F. Bergeron, Jr., age 39, has served as Executive Vice
President -- Information Technologies and Chief Information Officer since March
2000. Mr. Bergeron previously served as Senior Vice President and Chief
Technology Officer for Aegis Communications Group, Inc., an outsource provider
of call center operations, from 1992 to 1999.
John Cullen, age 39, has served as Executive Vice President -- U.S. Sales
and Marketing since 1998. Prior to joining the Company, Mr. Cullen served as
Vice President of the Sony Recording Media and Energy Group (RMEG) from 1987 to
1998.
Ralph W. Doherty, Jr., age 60, has served as Executive Vice
President -- Worldwide Development since March 2000 and was recently appointed
as Secretary. Mr. Doherty previously served as President of Pebblebrook
Consulting, Inc., a management consulting firm founded by Mr. Doherty in 1993.
Mr. Doherty has also served with IBM where he held a wide variety of
professional, managerial and senior staff positions.
Suzanne Garrett, age 35, has served as Executive Vice President
-- Merchandising since February 2000. Ms. Garrett has served as Vice President
of Product Management and Marketing, Director of Product Management, Marketing
Manager, and New-Products Manager. Prior to joining the Company in 1991, Ms.
Garrett served as an account executive for United Media.
Ralph Mitchell, age 40, has served as Executive Vice President -- Finance
and Chief Financial Officer since March, 2000. Prior to joining the Company, Mr.
Mitchell served as Controller of McKesson HBOC's drug distribution financial
operations for three years and as Chief Financial Officer of a private,
international group of trading and distribution companies. Mr. Mitchell also
worked as an investment banker in London and as an accountant with KPMG in New
York City and Sydney, Australia.
Peter D. Wharf, age 41, has served as Executive Vice
President -- International Operations since February 2000. Mr. Wharf previously
served as Vice President -- International Operations since 1997 and as
Director -- International Operations from 1992 to 1997. Prior to joining the
Company in 1992, Mr. Wharf served in various sales capacities for ISA.
MEETINGS OF THE BOARD
The Board of Directors met eight times during the Company's 2000 fiscal
year. No Director attended fewer than 75% of the aggregate number of meetings of
the Board and Committees on which such director served.
COMMITTEES OF THE BOARD
The Board of Directors currently has standing Audit, Compensation and Stock
Option Committees.
During fiscal year 2000, the general function of the Audit Committee was to
make recommendations to the Board of Directors as to the engagement or discharge
of the independent auditors, review the plan and results of the auditing
engagement with the independent auditors, review the adequacy of the Company's
system of internal accounting controls, monitor compliance with the Company's
business conduct policy and direct and supervise investigations into matters
within the scope of its duties. The Audit Committee met once in respect of
fiscal year 2000. During fiscal year 2000, the members of the Audit Committee
were Messrs. Vikanis and Murray who are non-employee directors.
4
<PAGE> 8
The Compensation Committee approves, or in some cases recommends, to the
Board, remuneration and compensation arrangements involving the Company's
executive officers and other key employees. During fiscal year 2000, the members
of the Compensation Committee were Messrs. Murray and Reilly, who are non-
employee directors. The Compensation Committee also serves as the Stock Option
Committee to administer the Company's employee stock option and purchase plans.
The Compensation Committee and Stock Option Committee met once in fiscal year
2000.
COMPENSATION OF DIRECTORS
Each non-employee Director receives an annual director's fee of $20,000 for
each year in which he or she serves as a director. Non-employee directors do not
receive additional Board or Committee meeting fees. The Company has also adopted
a Non-Employee Director Stock Option and Retainer Plan (the "Non-Employee
Director Plan") pursuant to which each non-employee director (i) may elect to
receive payment of the director's fees in shares of Common Stock in lieu of
cash, and (ii) is entitled to receive certain grants of options in accordance
with a defined formula, and subject to the conditions precedent, set forth
therein.
The Non-Employee Director Plan is a formula grant plan pursuant to which
each non-employee director receives options to purchase shares of Common Stock
as of the date of each annual meeting of stockholders. The number of options to
be issued under the Non-Employee Director Plan will increase each year based on
the percentage increase, if any, in the Company's earnings before taxes ("EBT")
for such fiscal year over the Company's previously reported EBT for the
immediately preceding fiscal year. No options will be issued, however, with
respect to any fiscal year in which the Company's EBT does not equal or exceed
the Company's projected EBT for such year, nor will any options be issued to any
non-employee director who does not attend at least 75% of all Board (and
committee) meetings held during such fiscal year. During fiscal 2000 and related
to fiscal year 1999 performance, no stock options were issued under the terms of
the Non-Employee Director Plan.
All options issued under the Non-Employee Director Plan are non-qualified
options for federal income tax purposes and have an exercise price equal to the
fair market value of a share of common stock as of the date of the annual
meeting upon which such option is granted. All options are subject to a three
year cumulative vesting schedule.
Directors who are employees of the Company or any of its subsidiaries do
not receive additional compensation for service on the Board of Directors of the
Company.
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<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company and PFSweb to the Company's Chief Executive Officer and to each of the
four most highly compensated executive officers of the Company for services
rendered to the Company and PFSweb during the fiscal years ended March 31, 2000,
1999 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPLE POSITION YEAR SALARY BONUS OPTIONS(5)(8) COMPENSATION(2)(3)
--------------------------- ---- -------- -------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Mark C. Layton........................ 2000 $337,857 $ -- 90,000(6) $ 3,360
Chairman, Chief Executive 1999 337,818 175,160 412,080 18,063
Officer and Chief Operating 1998 319,599 269,196 122,836 9,731
Officer(1)
James R. Powell....................... 2000 184,690 -- 185,000(7) 240
President, Chief Executive 1999 184,690 57,803 76,116 4,320
Officer(1) 1998 175,037 88,835 42,660 3,015
Christopher Yates..................... 2000 263,361 -- 85,000(6) 338
Senior Vice President -- 1999 263,361 57,803 222,026 9,534
Business Development(4) 1998 248,454 88,835 84,742 6,088
Steven S. Graham...................... 2000 200,950 -- 75,000(6) 383
Senior Vice President -- 1999 200,950 57,803 186,302 9,489
Information Technologies 1998 189,491 88,835 60,000 37,829
and Chief Information Officer(4)
John Cullen........................... 2000 187,705 -- 25,000 240
Senior Vice President -- 1999 86,673 -- 10,000 49,238
Sales and Marketing 1998 -- -- -- --
John D. (Jack) Kearney................ 2000 175,000 100,000 -- 383
Senior Vice President -- 1999 3,538 -- 40,000 --
Corporate Development 1998 -- -- -- --
</TABLE>
---------------
(1) In connection with the spin-off of PFSweb, Mr. Layton resigned as President,
Chief Executive Officer and Chief Operating Officer of the Company and was
replaced by Mr. Powell in February 2000.
(2) All Other Compensation for fiscal 1999 and 1998 represents compensation with
respect to one or more of the following: personal use of Company
automobiles; life insurance premiums paid by the Company for the benefit of
the named executive officer; tax return preparation services paid by the
Company; personal travel expenses and relocation costs.
(3) For fiscal year 2000, the aggregate amount of All Other Compensation was
less than $50,000 or 10% of the total annual salary for the named executive
officers. All Other Compensation for fiscal 2000 represents compensation
with respect to life insurance premiums paid by the Company for the benefit
of the named executive officer.
(4) Subsequent to the end of fiscal year 2000 and in connection with the
spin-off of PFSweb, Messrs. Yates and Graham resigned as officers of the
Company and currently serve as officers of PFSweb.
(5) Except as otherwise noted, information in this column represents options
issued by the Company to purchase shares of the Company's common stock.
(6) Options issued in fiscal year 2000 were issued by PFSweb to purchase shares
of PFSweb common stock.
6
<PAGE> 10
(7) Represents options to purchase 35,000 shares of PFSweb common stock issued
by PFSweb for services rendered as a director of PFSweb and options to
purchase 150,000 shares of Company common stock issued by the Company for
services rendered as an officer of the Company.
(8) Information in this column reflects options granted during the stated fiscal
years and does not reflect the adjustment and conversion of such options
upon the effective date of the spin-off. See "Certain Relationships and
Related Transactions -- Substitute Stock Options."
The following table sets forth information with respect to grants of stock
options by the Company to purchase shares of the Company's common stock during
the year ended March 31, 2000 to the named executive officers reflected in the
Summary Compensation Table. Information in this table does not reflect the
adjustment and conversion of such options upon the effective date of the
spin-off. See "Certain Relationships and Related Transactions -- Substitute
Stock Options."
DAISYTEK OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
% OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE
NUMBER OF GRANTED AT ASSUMED ANNUAL RATES
SECURITIES TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTS(1) YEAR SHARE DATE(1) 5% 10%
---- ---------- --------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Layton............... -- -- -- -- -- --
James R. Powell.............. 150,000 31.7% $9.13 09-08-09 $860,800 $2,181,435
Christopher Yates............ -- -- -- -- -- --
Steven S. Graham............. -- -- -- -- -- --
John Cullen.................. 25,000 5.3% 9.13 09-08-09 143,467 363,572
John D. (Jack) Kearney....... -- -- -- -- -- --
</TABLE>
---------------
(1) Subject to three year cumulative vesting schedule.
(2) The dollar amounts disclosed in these columns, which reflect appreciation of
the Company's Common Stock price at the 5% and 10% rates of stock
appreciation prescribed by the rules of the Securities and Exchange
Commission, are not intended to be a forecast of the Company's Common Stock
price and are not necessarily indicative of the actual values which may be
realized by the named executive officers or the stockholders.
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<PAGE> 11
The following table sets forth information with respect to grants of stock
options by PFSweb to purchase shares of PFSweb's common stock during the year
ended March 31, 2000 to the named executive officers reflected in the Summary
Compensation Table:
PFSWEB OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
% OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE
NUMBER OF GRANTED AT ASSUMED ANNUAL RATES
SECURITIES TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTS(1) YEAR SHARE DATE(1) 5% 10%
---- ---------- --------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Layton............... 90,000 6.3% $10.45 07-01-09 $591,475 $1,498,915
James R. Powell(3)........... 35,000 2.5% 10.45 07-01-09 230,018 582,911
Christopher Yates............ 85,000 6.0% 10.45 07-01-09 558,616 1,415,642
Steven S. Graham............. 75,000 5.3% 10.45 07-01-09 492,896 1,249,096
John Cullen.................. -- -- -- -- -- --
John D. (Jack) Kearney....... -- -- -- -- -- --
</TABLE>
---------------
(1) Subject to three year cumulative vesting schedule, except as otherwise
noted.
(2) The dollar amounts disclosed in these columns, which reflect appreciation of
PFSweb's common stock price at the 5% and 10% rates of stock appreciation
prescribed by the rules of the Securities and Exchange Commission, are not
intended to be a forecast of PFSweb's common stock price and are not
necessarily indicative of the actual values which may be realized by the
named executive officers or the stockholders.
(3) Subject to one year vesting schedule.
The following table sets forth information concerning the aggregate Company
stock option exercises during the fiscal year ended March 31, 2000 and Company
stock option values as of the end of fiscal year 2000 for unexercised Company
stock options held by each of the named executive officers. Information in this
table regarding the number of options held and option values as of the end of
fiscal year 2000 does not reflect the adjustment and conversion of such options
upon the effective date of the spin-off. See "Certain Relationships and Related
Transactions -- Substitute Stock Options."
AGGREGATED DAISYTEK OPTION EXERCISES IN FISCAL YEAR 2000
AND DAISYTEK OPTION VALUES ON MARCH 31, 2000
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE RECEIVED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Layton......... -- $ -- 178,282 404,268 $695,761 $1,057,680
James R. Powell........ 17,000 114,764 52,969 329,864 158,027 1,443,900
Christopher Yates...... -- -- 131,322 215,722 524,944 528,840
Steven S. Graham....... -- -- 65,445 180,857 198,780 440,700
John Cullen............ -- -- 1,500 33,500 -- 167,200
John D. (Jack)
Kearney.............. -- -- 6,000 34,000 1,878 10,642
</TABLE>
---------------
(1) Calculated by determining the difference between the last sale price of the
Common Stock on the date of exercise as reported by The Nasdaq National
Market and the exercise price.
8
<PAGE> 12
(2) In accordance with the rules of the Securities and Exchange Commission,
values are calculated by subtracting the exercise price from the fair market
value of the underlying common stock. For purposes of this table, fair
market value is deemed to be $15.813, the closing market price reported by
The Nasdaq National Market on March 31, 2000.
The following table sets forth information concerning the aggregate PFSweb
stock option exercises during the fiscal year ended March 31, 2000 and PFSweb
stock option values as of the end of fiscal year 2000 for unexercised PFSweb
stock options held by each of the named executive officers:
AGGREGATED PFSWEB OPTION EXERCISES IN FISCAL YEAR 2000
AND FISCAL YEAR END PFSWEB OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Layton......... -- $ -- -- 90,000 $ -- $499,500
James R. Powell........ -- -- -- 35,000 -- 194,250
Christopher Yates...... -- -- -- 85,000 -- 471,750
Steven S. Graham....... -- -- -- 75,000 -- 416,250
John Cullen............ -- -- -- -- -- --
John D. (Jack)
Kearney.............. -- -- -- -- -- --
</TABLE>
---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
values are calculated by subtracting the exercise price from the fair market
value of the underlying common stock. For purposes of this table, fair
market value is deemed to be $16, the closing market price reported by The
Nasdaq National Market on March 31, 2000.
CHANGE IN CONTROL AND SEVERANCE AGREEMENTS
The Company and each of Messrs. Layton, Powell, Cullen and Kearney have
entered into Change in Control and Severance Agreements. Under these agreements,
and in consideration of certain commitments of the officer to continue
employment, upon the occurrence of a change in control, all unvested options
held by the officer immediately vest and become exercisable. In addition, during
the two year period following a change in control, if the employment of the
officer is terminated (other than for cause, death, disability or retirement),
or if there is a material adverse change in the officer's responsibilities,
compensation or benefits to which the officer does not consent, then in each
case, the officer is entitled to receive from the company all salary and bonus
amounts accrued through the date of termination plus a severance payment equal
to twice the officer's salary and bonus. If applicable, the officer is also
entitled to receive an additional payment to compensate the officer for any
additional excise tax liability arising by reason of the receipt of such
severance payment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2000, the members of the Compensation Committee of the
Company's Board of Directors were Timothy M. Murray and James F. Reilly who are
non-employee directors. Messrs. Murray and Reilly also serve as the members of
the Compensation Committee of PFSweb. See "Certain Relationships and Related
Transactions" below for a summary of the relationship between the Company and
PFSweb.
9
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION FOR FISCAL YEAR
2000
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for approval or recommendation to the Board of Directors of the
compensation arrangements for the Company's senior executive officers. During
fiscal year 2000, the members of the Committee were Timothy M. Murray and James
F. Reilly who are non-employee directors.
The Committee believes that the total compensation of the Company's senior
executive officers should be primarily based on the subjective determination of
the Committee as to the Company's overall financial performance and the
individual contribution to such performance. The Committee further believes that
a portion of total compensation should consist of variable, performance-based
components such as stock option awards and bonuses, which it can increase or
decrease to reflect its assessment of changes in corporate and individual
performance. These incentive compensation programs are intended to reinforce
management's commitment to enhance profitability and stockholder value.
In formulating compensation levels and policies for the 2000 fiscal year,
the Committee did not retain an independent compensation consultant, nor did the
Committee rely upon any formal study or review of comparable companies in the
Company's industry.
The Committee annually establishes the salaries to be paid to the Chief
Executive Officer and other senior executive officers during each fiscal year.
Base salaries for senior executive officers are set to reflect the duties and
level of responsibility in each position. In setting salaries, the Committee
takes into account several factors including individual job performance, the
level of responsibility and, to the extent information is available, competitive
pay practices in the Company's industry. The Committee does not assign specific
relative weights to the various factors it considers, however, but rather
exercises its discretion and makes a judgment after considering all factors it
deems relevant.
For fiscal year 2000 the base salary of Mr. Mark Layton, who served as
Chief Executive Officer for most of the fiscal year, was $337,857, which
approximated his base salary of $337,818 for the prior fiscal year. The
Committee believes that this amount appropriately reflected Mr. Layton's
services to the Company and its subsidiaries including PFSweb, although such
determination was not based upon any specific qualitative or quantitative
formula.
In considering bonus compensation awards, and in order to more closely link
executive compensation to the Company's performance, the Committee continued a
bonus program pursuant to which bonus compensation is subject to the Company's
earnings before taxes ("EBT") for each fiscal year (as set forth in the
Company's audited Consolidated Financial Statements) being equal to or greater
than the EBT projected in the Company's approved budget for such fiscal year.
Under this program, selected officers are entitled to receive a cash bonus equal
to (i) up to 1% of EBT, to the extent EBT is 100% to 105% of the projected EBT
and (ii) up to 5% of that portion of EBT which exceeds 105% of the projected
EBT. No bonuses were awarded under this program for the 2000 fiscal year. The
Committee also awards or approves discretionary bonuses from time to time to
recognize efforts of individual officers. During fiscal year 2000, Mr. Kearney
was awarded a bonus of $100,000 in recognition of his efforts during the fiscal
year.
The Committee also administers the Company's stock option plans and
recommends other option grants which are used to further link executive
compensation to the Company's performance. All options are subject to a
multi-year cumulative vesting schedule and have an exercise price not less than
the fair market value on the date of grant. During fiscal year 2000, Mr. Layton
did not receive any Company stock options and Mr. Powell received options to
purchase 150,000 shares of the Company common stock.
As part of its overall consideration of executive compensation, the
Committee considers the anticipated tax treatment of various payments and
benefits, including the applicability of Section 162(m) of the Internal Revenue
Code which provides a limit on the deductibility of compensation for certain
executive officers in excess of $1,000,000 per year. The Committee believes that
no named officer in the Summary Compensation Table had taxable compensation for
fiscal year 2000 in excess of the deduction limit. The Committee intends to
continue to evaluate the impact of this Code provision.
10
<PAGE> 14
The Committee believes that the policies and programs described above have
supported the Company's business objectives and have contributed to the
Company's performance.
COMPENSATION COMMITTEE
Timothy M. Murray
James F. Reilly
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 17, 2000, certain information
regarding the beneficial ownership of the Company's Common Stock by (i) each
person who is known to the Company to beneficially own more than 5% of the
Common Stock, (ii) each of the Directors and executive officers of the Company
individually and (iii) the Directors and executive officers of the Company as a
group. The information contained in this table reflects "beneficial ownership"
as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and, as such, also includes shares acquirable within 60 days.
Unless otherwise indicated, the stockholders identified in this table have sole
voting and investment power with respect to the shares owned of record by them.
Information in this table regarding options to purchase shares of the Company's
common stock reflects the adjustment and conversion of such options upon the
effective date of the spin-off. See "Certain Relationships and Related
Transactions -- Substitute Stock Options."
<TABLE>
<CAPTION>
NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT(1)
------------------------------------ --------- -----------
<S> <C> <C>
Robert Fleming Inc.(2)...................................... 1,320,980 6.8%
320 Park Avenue, 11th & 12th Floors
New York, New York 10022
Elliot Associates, L.P.(3).................................. 1,157,200 6.6%
712 Fifth Avenue
New York, New York 10019
David A. Heap(4)............................................ 1,178,557 6.1%
66/70 Vicar Lane
Bradford, West Yorkshire BD15AG, England
Eminence Capital, LLC(5).................................... 1,003,600 5.8%
200 Park Avenue, Suite 3300
New York, New York 10166
Mark C. Layton(6)........................................... 505,130 2.6%
Christopher Yates(7)........................................ 218,759 1.1%
Peter D. Wharf(8)........................................... 182,392 *
James R. Powell(9).......................................... 146,289 *
Suzanne Garrett(10)......................................... 120,440 *
Timothy M. Murray........................................... 81,514 *
Peter P.J. Vikanis(11)...................................... 14,029 *
John D. Kearney(12)......................................... 10,603 *
John Cullen(13)............................................. 9,836 *
James F. Reilly............................................. 7,901 *
William F. Bergeron, Jr. ................................... -- *
Ralph Mitchell.............................................. 2,000 *
Ralph W. Doherty, Jr. ...................................... 1,000 *
Dale A. Booth............................................... -- *
Daniel L. Owen.............................................. -- *
--------- ---
All directors and executive officers as a group (15
persons)(14).............................................. 1,299,893 6.7%
========= ===
</TABLE>
---------------
* Represents less than 1%
(1) This table is based on 17,643,711 shares of Common Stock outstanding on
July 17, 2000.
(2) Based upon information provided on May 19, 2000 by Fleming Asset Management
and a Schedule 13-G/A dated February 9, 2000 filed by Robert Fleming Inc.
reporting beneficial ownership and shared voting and dispositive power as
of February 7, 2000.
(3) Based upon a Schedule 13D dated June 9, 2000, as amended on June 12, 2000
and June 16, 2000, filed by Elliot Associates, L.P., a Delaware limited
partnership and its wholly owned subsidiaries ("Elliot"),
12
<PAGE> 16
Westgate International, L.P., a Cayman Islands limited partnership
("Westgate"), and Elliot International Capital Advisors, Inc., a Delaware
corporation ("International Advisors"), (a) Elliott beneficially owns
578,600 shares of Common Stock, and Westgate and International Advisors
beneficially own an aggregate of 578,600 shares of Common Stock and (b)
Elliott has the power to vote or direct the vote of, and to dispose or
direct the disposition of, the shares of Common Stock beneficially owned by
it, and Westgate has the shared power with International Advisors to vote
or direct the vote of, and to dispose or direct the disposition of, the
shares of Common Stock owned by Westgate. International Advisors has
disclaimed equitable ownership of and pecuniary interest in any Common
Stock.
(4) Includes outstanding options to purchase 57,928 shares of Common Stock,
which are fully vested and exercisable. Does not include 900 shares held by
Mr. Heap's spouse as custodian for minor children as to which beneficial
ownership is disclaimed.
(5) Based upon a Schedule 13-D dated April 17, 2000, these shares are owned as
of April 4, 2000, by various domestic and off-shore investors for which
Eminence Capital LLC ("Eminence"), and Mr. Ricky C. Sandler as sole member
of Eminence, serves as investment advisor with power to direct investments
and/or sole power to vote the securities. As the holder of sole voting and
investment authority over the shares owned by its advisory clients,
Eminence may be deemed, for purposes of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, to be the beneficial owner of the
securities. Eminence, and Mr. Sandler, disclaim any economic or beneficial
ownership of the shares.
(6) Includes outstanding options to purchase 288,956 shares of Common Stock,
which are fully vested and exercisable.
(7) Includes outstanding options to purchase 217,759 shares of Common Stock,
which are fully vested and exercisable.
(8) Includes outstanding options to purchase 182,192 shares of Common Stock,
which are fully vested and exercisable.
(9) Includes outstanding options to purchase 146,289 shares of Common Stock,
which are fully vested and exercisable.
(10) Includes outstanding options to purchase 120,440 shares of Common Stock,
which are fully vested and exercisable.
(11) Includes outstanding options to purchase 3,979 shares of Common Stock,
which are fully vested and exercisable.
(12) Includes outstanding options to purchase 9,588 shares of Common Stock,
which are fully vested and exercisable. Does not include 200 shares held by
Mr. Kearney's spouse as custodian for minor children as to which beneficial
ownership is disclaimed.
(13) Includes outstanding options to purchase 9,327 shares of Common Stock,
which are fully vested and exercisable.
(14) Includes outstanding options to purchase 978,530 shares of Common Stock
which are fully vested and exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PFSweb's Ongoing Relationship with The Company
The Company completed the spin-off of PFSweb in July 2000. Messrs. Layton,
Powell, Yates, Murray, Vikanis and Reilly, directors of the Company, also
presently serve as directors of PFSweb, and Messrs. Layton and Yates also serve
as executive officers of PFSweb.
PFSweb and the Company presently have, and expect to continue to have,
significant ongoing relationships. PFSweb and the Company are parties to various
agreements providing for the separation of their respective business operations.
These agreements govern various interim and ongoing relationships between the
companies, including the transaction management services that PFSweb provides
for the Company and the transitional services that the Company provides to
PFSweb.
13
<PAGE> 17
All of the agreements between Daisytek and PFSweb were made in the context
of a parent-subsidiary relationship and were negotiated in the overall context
of the spin-off. Although the Company generally believes that the terms of these
agreements are consistent with fair market values, there can be no assurance
that the prices charged to or by each company under these agreements are not
higher or lower than the prices that may be charged to, or by, unaffiliated
third parties for similar services.
Master Separation Agreement
The Master Separation Agreement sets forth the agreements between PFSweb
and the Company with respect to the principal corporate transactions required to
effect the transfers of assets and assumptions of liabilities necessary to
separate the PFSweb business unit from Daisytek and certain other agreements
governing this relationship thereafter.
Transfer of Assets and Liabilities. Following completion of the PFSweb
initial public offering, the Company transferred to PFSweb all of the fixed
assets in the Company's Memphis distribution facility as well as certain assets
associated with providing information technology services and the stock of
several subsidiaries of the Company representing the business operations of
PFSweb, and PFSweb transferred to the Company approximately $5.0 million in cash
and assumed approximately $0.3 million of capital lease obligations, as well as
the operating lease obligations related to these assets. PFSweb also repaid to
the Company, from the net proceeds of the initial public offering, the aggregate
sum of approximately $27 million, representing the outstanding balance of
PFSweb's intercompany payable to the Company.
Indemnification. PFSweb agreed to indemnify the Company against any losses,
claims, damages or liabilities arising from the liabilities transferred to
PFSweb and the conduct of the PFSweb business after the completion of the
initial public offering. Daisytek agreed to retain, and indemnify PFSweb
against, any losses, claims, damages or liabilities arising from the conduct of
the PFSweb business prior to the completion of the initial public offering.
Initial Public Offering and Distribution Agreement
General. PFSweb and the Company entered into an Initial Public Offering and
Distribution Agreement which governs their respective rights and duties with
respect to PFSweb's initial public offering and the spin-off, and sets forth
certain covenants to which they will be bound for various periods following the
initial public offering and the spin-off.
Preservation of the Tax-free Status of the Spin-off. The Company has
received a private letter ruling from the Internal Revenue Service to the effect
that the spin-off will qualify as a tax-free distribution under Section 355 of
the Internal Revenue Code (the "Code") to the Company and its shareholders. In
connection with obtaining such ruling, certain representations and warranties
were made regarding Daisytek, PFSweb and their respective businesses. PFSweb has
also agreed to certain covenants, discussed below, that are intended to preserve
the tax-free status of the spin-off.
Certain Acquisition Transactions. Until two years after the completion of
the spin-off, PFS has agreed not to enter into or permit any transaction or
series of transactions that would result in a person or persons acquiring or
having the right to acquire shares of its capital stock that would comprise 50%
or more of either the value of all outstanding shares of its capital stock or
the total combined voting power of its outstanding voting stock.
Continuation of Active Trade or Business. Until two years after the
completion of the spin-off, PFSweb has agreed to continue to conduct its active
trade or business (within the meaning of Section 355 of the Code) as it was
conducted immediately prior to the completion of the spin-off. During such time,
PFSweb has agreed not to:
- liquidate, dispose of or otherwise discontinue the conduct of any
substantial portion of its active trade or business; or
14
<PAGE> 18
- dispose of any business or assets that would cause it to be operated in a
manner inconsistent in any material respect with the business purposes
for the spin-off as described in the representations made in connection
with Daisytek's request for the IRS Ruling.
Continuity of Business. Until two years after the completion of the
spin-off, PFSweb has agreed that it will not voluntarily dissolve or liquidate;
and, except in the ordinary course of business, neither it nor any of its direct
or indirect subsidiaries will sell, transfer, or otherwise dispose of or agree
to dispose of assets (including any shares of capital stock of its subsidiaries)
that, in the aggregate, constitute more than 60% of its assets.
Intracompany Debt. Until two years after the completion of the spin-off,
PFSweb will not be able to have any indebtedness to the Company, other than
payables arising in the ordinary course of business.
These covenants will not prohibit PFSweb from implementing or complying
with any transaction permitted by the IRS ruling or a tax opinion.
Other Covenants Regarding Tax Treatment of the Transactions. The Company
intends the transfer of assets and liabilities from the Company to PFSweb as
provided by the master separation agreement (the "Contribution") to qualify as a
reorganization under Section 368(a)(1)(D) of the Code (a "D Reorganization").
Until two years after the completion of the spin-off, PFSweb has agreed not to
take, or permit any of its subsidiaries to take, any actions or enter into any
transaction or series of transactions that would be reasonably likely to
jeopardize the tax-free status of the spin-off or the qualification of the
Contribution as a D Reorganization, including any action or transaction that
would be reasonably likely to be inconsistent with any representation made in
connection with the Company's request for the IRS Ruling. PFSweb has also agreed
to take any reasonable actions necessary for the Contribution and the spin-off
to qualify as a D Reorganization.
Cooperation on Tax Matters. PFSweb and the Company have agreed to various
procedures with respect to the tax-related covenants described above, and PFSweb
is required to notify the Company if it desires to take any action prohibited by
these covenants. Upon such notification, if the Company determines that such
action might jeopardize the tax-free status of the spin-off or the qualification
of the Contribution as a D Reorganization, the Company will either use all
commercially reasonable efforts to obtain a private letter ruling from the IRS
or a tax opinion that would permit PFSweb to take the desired action or provide
all reasonable cooperation to PFSweb in connection with PFSweb obtaining such an
IRS ruling or tax opinion. In either case, the Company has agreed to bear the
reasonable costs and expenses of obtaining the IRS ruling or tax opinion, unless
it is determined that PFSweb's proposed action will jeopardize the tax-free
status of the spin-off or the qualification of the Contribution as a D
Reorganization, in which event PFSweb will be responsible for such costs and
expenses.
Indemnification for Tax Liabilities. PFSweb has generally agreed to
indemnify the Company and its affiliates against any and all tax-related losses
incurred by the Company in connection with any proposed tax assessment or tax
controversy with respect to the spin-off or the Contribution to the extent it is
caused by any breach by it of any of its representations, warranties or
covenants. If PFSweb causes the spin-off to not qualify as a tax-free
distribution, the Company would incur federal income tax (which currently would
be imposed at a 35% rate), and possibly state income taxes on the gain inherent
in the shares distributed, which would be based upon the market value of the
shares of PFSweb at the time of the spin-off. This indemnification does not
apply to actions that the Company permits PFSweb to take as a result of a
determination under the tax-related covenants as described above. Similarly, the
Company has agreed to indemnify PFSweb and its affiliates against any and all
tax-related losses incurred by it in connection with any proposed tax assessment
or tax controversy with respect to the spin-off or the Contribution to the
extent caused by any breach by the Company of any of its representations,
warranties or covenants.
Other Indemnification. PFSweb has generally agreed to indemnify the Company
and its affiliates against all liabilities arising out of any material untrue
statements and omissions in PFSweb's prospectus and the registration statement
of which it is a part and in any and all registration statements, information
statements and/or other documents filed with the SEC in connection with the
spin-off or otherwise. However, PFSweb's indemnification of the Company does not
apply to information relating to Daisytek. Daisytek has agreed to indemnify
PFSweb for this information.
15
<PAGE> 19
Expenses. In general, PFSweb agreed to pay substantially all costs and
expenses relating to its initial public offering, including the underwriting
discounts and commissions, and the Company has agreed to pay substantially all
costs and expenses relating to the spin-off.
Tax Matters
Daisytek and PFSweb have entered into a tax indemnification and allocation
agreement to govern the allocation of tax liabilities and to set forth
agreements with respect to certain other tax matters.
Generally, under the Code, PFSweb ceased to be a member of the Company's
consolidated group upon the completion of the spin-off.
The Company generally will pay all taxes attributable to PFSweb and its
subsidiaries for tax periods or portions thereof ending on or before the
effective date of PFSweb's initial public offering, except to the extent of any
accruals on the books and records of PFSweb or its subsidiaries for such taxes
under generally accepted accounting principles. Thereafter, for tax periods or
portions thereof during which PFSweb is a member of the consolidated, combined
or unitary group, PFSweb will be apportioned its share of the group's income tax
liability based on its taxable income determined separately from the Company's
taxable income, and PFSweb will pay its calculated taxes to Daisytek, which will
then file a consolidated, combined or unitary return with the appropriate tax
authorities. There may be certain U.S. state or local jurisdictions in which
PFSweb will file separate income tax returns, not combined or consolidated with
the Company, for such tax periods. In that circumstance, PFSweb would file a tax
return with the appropriate tax authorities, and pay all taxes directly to the
tax authority. PFSweb will be compensated for tax benefits generated by it
before tax deconsolidation and used by the Company's consolidated group. PFSweb
will prepare and file all tax returns, and pay all income taxes due with respect
to all tax returns required to be filed by it for all tax periods after it
ceased to be a member of the Company's consolidated, combined or unitary group.
The Company is responsible for most U.S. tax adjustments related to PFSweb
for all periods or portions thereof ending on or before the effective date of
PFSweb's initial public offering. In addition, PFSweb and the Company have
agreed to cooperate in any tax audits, litigation or appeals that involve,
directly or indirectly, periods prior to the time that PFSweb ceased to be a
member of the Company's consolidated group. PFSweb and the Company have agreed
to indemnify each other for tax liabilities resulting from the failure to
cooperate in such audits, litigation or appeals, and for any tax liability
resulting from the failure to maintain adequate records.
Notwithstanding the tax allocation agreement, for all periods in which the
Company owned 80% or more of PFSweb's capital stock, PFSweb will be included in
the Company's consolidated group for federal income tax purposes. If the Company
or other members of the consolidated group fail to make any federal income tax
payments, PFSweb will be liable for the shortfall since each member of a
consolidated group is liable for the group's entire tax obligation.
Under the tax indemnification and allocation agreement, the Company has
agreed to indemnify PFSweb against any taxes resulting from the failure of the
spin-off to qualify for tax-free treatment, except that PFSweb will be liable
for, and will indemnify Daisytek against, any taxes resulting from the failure
of the spin-off to qualify for tax-free treatment if it is the result of PFSweb
engaging in a "Prohibited Action" or the occurrence of a "Disqualifying Event."
Neither PFSweb nor the Company have the option to rescind the spin-off if tax
liability results.
A "Prohibited Action" is defined as:
- if PFSweb takes any action which is inconsistent with the tax treatment
of the spin-off as contemplated in the IRS Ruling; or
- if, prior to the spin-off, PFSweb issued shares of stock or took any
other action that would result in it not being controlled by Daisytek
within the meaning of Section 368(c) of the Code.
16
<PAGE> 20
A "Disqualifying Event" includes any event involving the direct or indirect
acquisition of the shares of PFSweb's capital stock after the spin-off which has
the effect of disqualifying the spin-off from tax-free treatment, whether or not
the event is the result of our direct action or within PFSweb's control.
Transaction Management Services Agreement
PFSweb and the Company have entered into a transaction management services
agreement which sets forth the transaction management services that PFSweb
provides for the Company. Under this agreement, PFSweb provides a wide range of
transaction management services, including information management, order
fulfillment and distribution, product warehousing, inbound call center services,
product return administration and other services.
The agreement has an initial term of five years from the completion of
PFSweb's initial public offering, although either party has the right to
terminate the agreement at any time, without cause. If the Company terminates
the agreement without cause, the Company must provide at least 180 days' prior
notice and pay PFSweb a termination fee. If PFSweb terminates the agreement
without cause, PFSweb must provide at least 365 days' prior notice and the
Company does not have to pay any termination fee. In addition, if there is a
change in control of the Company, PFSweb may terminate the agreement upon 90
days' prior notice and the Company does not have to pay the termination fee.
During the term of the agreement, the Company pays PFSweb service fees based
upon a percent of the Company's shipped revenue. PFSweb and the Company have
agreed that these fees are based upon certain assumptions regarding the nature,
cost and scope of the services PFSweb will be providing under the agreement. If
these assumptions should materially change, PFSweb and the Company have agreed
to negotiate in good faith an adjustment to the fees payable to PFSweb under the
agreement.
During the term of the agreement, PFSweb has agreed not to engage, on its
own behalf, in the business of selling or distributing, on a wholesale basis,
any of the Company products. This will not restrict it, however, from providing
transaction management services to third parties who may be engaged in the
business of selling or distributing, on a wholesale basis, the same or competing
products.
As part of the restructuring of PFSweb's arrangements with IBM, PFSweb
transferred to the Company certain related product inventory, accounts
receivable and accounts payable that it held under its prior agreements. In
consideration of this transfer, PFSweb received the net book value of these
assets and liabilities of approximately $20 million and reduced its payable to
the Company by a corresponding amount. PFSweb has also entered into transaction
management agreements with the Company to provide transaction management
services, on a worldwide basis, in connection with the Company's distribution of
various IBM products. Under these agreements, PFSweb receives service fees based
upon a variable percent of the Company's gross profit arising from its IBM
product sales. These agreements are coterminous with PFSweb's IBM agreements
which, generally, have terms of one to two years, although IBM may terminate
these agreements at any time.
PFSweb's product revenue from sales to the Company under PFSweb's prior
agreements with IBM was $10.7 million in fiscal 2000 and service fee revenues
charged by PFSweb to the Company were $12.1 million for fiscal 2000.
Transition Services Agreement
Upon completion of PFSweb's initial public offering, Daisytek and PFSweb
entered into a transition services agreement. Under this agreement, Daisytek
provides PFSweb with various services relating to employee payroll and benefits,
use of facilities, and other administrative services. Daisytek provided PFSweb
with these services until the completion of the spin-off (the "Transition
Period"), except that, with respect to any particular service, PFSweb may, upon
notice to Daisytek, extend the Transition Period for up to one year from the
completion of PFSweb's initial public offering.
The agreement requires PFSweb to use all commercially reasonable efforts to
obtain these transition services from a source other than Daisytek prior to the
conclusion of the Transition Period. If, however,
17
<PAGE> 21
PFSweb cannot obtain any transition service from a source other than Daisytek
and the transition service is necessary for PFSweb to continue to operate its
business, then, PFSweb may require Daisytek to continue to provide the
transition service for an additional period not to exceed six months.
Generally, PFSweb will pay the Company for these transition services an
amount equal to the cost historically allocated by the Company to PFSweb's
business, adjusted to reflect any changes in the nature, cost or level of the
services so provided. If PFSweb requires the Company to provide it with any
transition service after the expiration of the Transition Period, PFSweb will
pay the Company the fair market value of these services.
In addition, as part of the transfer of assets and separation of PFSweb
from Daisytek, Daisytek has agreed to guaranty and/or join or remain as an
obligor with respect to various PFSweb leases.
Substitute Stock Options
In connection with the completion of the spin-off, all outstanding Company
stock options have been adjusted and replaced with substitute stock options to
purchase shares of Daisytek common stock and/or PFSweb common stock (the
"Converted Options").
In, general, the adjustments to the outstanding Company options has been
established pursuant to a formula designed to ensure that: (1) the aggregate
"intrinsic value" (i.e. the difference between the exercise price of the option
and the market price of the common stock underlying the option) of the
substitute options will not exceed the aggregate intrinsic value of the
outstanding Daisytek stock options which are replaced by such substitute option
immediately prior to the spin-off, and (2) the ratio of the exercise price of
the options to the market value of the underlying stock immediately before and
after the spin-off is preserved.
Substantially all of the other terms and conditions of each adjusted
substitute stock option, including the time or times when, and the manner in
which, each option will be exercisable, the duration of the exercise period, the
permitted method of exercise, settlement and payment, the rules that will apply
in the event of the termination of employment of the employee, the events, if
any, that may give rise to an employee's right to accelerate the vesting or the
time or exercise thereof and the vesting provisions, will be the same as those
of the replaced Company stock options, except that option holders who are
employed by one company will be permitted to exercise, and will be subject to
all of the terms and provisions of options to acquire shares in the other
company as if such holder was an employee of such other company.
OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 2000, the Company had loans outstanding in varying
amounts to Messrs. Layton and Powell in order to provide such persons with the
funds necessary to satisfy various personal obligations and for other purposes.
The largest amount owing by such persons during fiscal year 2000 was $517,881
and $212,156, respectively. As of March 31, 2000, Messrs. Layton and Powell were
indebted to the Company in the amounts of $517,884 and $212,156, respectively.
The indebtedness owing by Messrs. Layton and Powell accrues interest at the
Company's effective borrowing rate (8.0% at March 31, 2000.) Messrs. Layton's
and Powell's indebtedness is due and payable in one installment on April 1, 2001
and March 31, 2001, respectively.
During fiscal year 2000, Chase H & Q and its predecessors, an investment
banking firm of which Mr. Reilly is a Managing Director, performed financial
advisory and investment banking services for the Company and was the lead
managing underwriter for the PFSweb initial public offering. The Company
presently expects that such firm may continue to provide such services in the
current fiscal year.
18
<PAGE> 22
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock with that
of the cumulative total return of The Nasdaq Stock Market (U.S.) and The Nasdaq
Non-Financial Stocks Index for the five year period ended March 31, 2000. The
following information is based on an annual investment of $100, on March 31,
1995, in the Company's Common Stock, The Nasdaq Stock Market (U.S.) and The
Nasdaq Non-Financial Stocks Index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/00
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daisytek 100.00 152.60 144.51 225.43 153.76 146.24
Nasdaq U.S. (a) 100.00 135.79 150.58 218.33 309.19 574.68
Nasdaq
Non-Financial (a) 100.00 134.92 145.51 225.43 305.06 596.63
</TABLE>
(a) Prepared by the Center for Research in Security Prices.
ITEM 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ending March 31, 2001. Arthur Andersen LLP has
audited the Company's financial statements since 1988. Ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors will
require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting. In
the event shareholders do not ratify the appointment of Arthur Andersen LLP as
the Company's independent auditors, such appointment will be reconsidered by the
Audit Committee and the Board of Directors. Representatives of Arthur Andersen
LLP will be present at the Annual Meeting to respond to appropriate questions
and to make such statements as they may desire.
The Board of Directors of the Company recommends a vote FOR ratification of
Arthur Andersen LLP as the Company's independent auditors for the fiscal year
ending March 31, 2001.
19
<PAGE> 23
GENERAL INFORMATION
VOTING PROCEDURES
All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be by written ballot. One or more inspectors of election
will be appointed, among other things, to determine the number of shares
outstanding and the voting power of each, the shares represented at the Annual
Meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, to receive votes or ballots, to hear and determine all challenges and
questions in any way arising in connection with the right to vote, to count and
tabulate all votes and to determine the result.
SOLICITATION COSTS
The Company will pay the cost of preparing and mailing this Proxy Statement
and other costs of the proxy solicitation made by the Board of Directors.
Certain of the Company's officers and employees may solicit the submission of
proxies authorizing the voting of shares in accordance with the Board of
Directors' recommendations, but no additional remuneration will be paid by the
Company for the solicitation of those proxies. Such solicitations may be made by
personal interview or telephone. Arrangements have also been made with brokerage
firms and others for the forwarding of proxy solicitation materials to the
beneficial owners of Common Stock, and the Company will reimburse such persons
for reasonable out-of-pocket expenses incurred in connection therewith.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
A stockholder desiring to submit an otherwise eligible proposal for
inclusion in the Company's proxy statement for the 2001 annual meeting of
stockholders of the Company must deliver the proposal so that it is received by
the Company no later than March 31, 2001. The Company requests that all such
proposals be addressed to the Company's Secretary at the Company's principal
executive offices, 500 North Central Expressway, Plano, Texas 75074, and mailed
by certified mail, return-receipt requested.
COMPLIANCE WITH CERTAIN REPORTING OBLIGATIONS
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and controlling stockholders to file initial reports of
ownership and reports of changes of ownership of the Company's Common Stock with
the Securities and Exchange Commission and the Company. To the Company's
knowledge, all reports required to be so filed were filed in accordance with the
provisions of said Section 16(a).
FINANCIAL AND OTHER INFORMATION
The Company's Annual Report on Form 10-K for the year ended March 31, 2000
is being sent to stockholders of record as of the Record Date together with this
Proxy Statement. The Annual Report is not a part of the proxy solicitation
materials.
20
<PAGE> 24
OTHER MATTERS
The Board of Directors knows of no matters other than those described in
this Proxy Statement which are likely to come before the Annual Meeting. If any
other matters properly come before the Annual Meeting, or any adjournment
thereof, the persons named in the accompanying form of proxy intend to vote the
proxies in accordance with their best judgment.
By Order of the Board of Directors,
,/s/ R.W. DOHERTY, JR.
R.W. Doherty, Jr.
Secretary
Plano, Texas
July 28, 2000
21
<PAGE> 25
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DAISYTEK INTERNATIONAL CORPORATION
The undersigned hereby appoints James R. Powell, Mark C. Layton, and Ralph
W. Doherty, Jr. as proxies, with power to act without the other and with power
of substitution, and hereby authorizes them to represent and vote, as designated
on the side, all the shares of stock of Daisytek International Corporation
standing in the name of the undersigned with all powers which the undersigned
would possess if present at the Annual Meeting of Stockholders of the Company
to be held September 13, 2000 or any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE> 26
<TABLE>
<S> <C>
Please mark
your votes as
indicated in [X]
this example
THE BOARD OF DIRECTORS RECOMMENDS WITHHELD ITEM 2-APPOINTMENT OF
A VOTE FOR ITEMS 1 AND 2. FOR FOR ALL INDEPENDENT ACCOUNTANTS. FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS [ ] [ ] [ ] [ ] [ ]
Nominees:
Peter P.J. Vikanis
James F. Reilly
Dale A. Booth
WITHHELD FOR: (Write that nominee's
name in the space provided below).
-----------------------------------
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Signature Signature Date
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NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
</TABLE>
