-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OVB5xIo9sB7xkhAe9I9eSx6FYj4lH7J1PnmJnIMPwkNdWbvRxjoO7qh7Qdkg/vZa n2P6+xnqm5BzfATrBOUAfg== 0000950134-96-003141.txt : 19960627 0000950134-96-003141.hdr.sgml : 19960627 ACCESSION NUMBER: 0000950134-96-003141 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAISYTEK INTERNATIONAL CORPORATION /DE/ CENTRAL INDEX KEY: 0000887403 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 752421746 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25400 FILM NUMBER: 96585978 BUSINESS ADDRESS: STREET 1: 500 N CENTRAL EXPRWY CITY: PLANO STATE: TX ZIP: 75074 BUSINESS PHONE: 2148814700 MAIL ADDRESS: STREET 1: 500 N CENTRAL EXPWY CITY: PLANO STATE: TX ZIP: 75074 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996 Commission File Number 0-25400 DAISYTEK INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2421746 (State or other jurisdiction of (I.R.S. Employer Number) incorporation or organization) 500 North Central Expressway, Plano, Texas 75074 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 214-881-4700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ------ The aggregate market value of the voting stock held by non-affiliates of the registrant as of May 31, 1996 (based on the closing price as reported by the National Association of Securities Dealers Automated Quotation System) was $197,835,619. As of May 31, 1996, there were 6,437,774 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE None 2 Unless the context otherwise requires, references to Daisytek International Corporation include its direct and indirect subsidiaries, including Daisytek, Incorporated, the Company's primary operating subsidiary. References in this Report to the Company's fiscal year means the 12 month period ending on March 31 of such year. INDEX
Page ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . 39 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-2- 3 PART I ITEM 1. BUSINESS GENERAL Daisytek International Corporation (the "Company") is a leading wholesale distributor of non-paper computer and office automation supplies and accessories. The Company distributes over 6,000 products to approximately 20,000 customer locations, including value added resellers ("VARs"), computer supplies dealers, office product dealers, computer and office product superstores and other retailers who resell the products to end-users. The Company believes that it is the largest wholesale distributor of non-paper computer and office automation supplies and accessories in the world. The Company sells primarily nationally known, name-brand products manufactured by over 145 original equipment manufacturers, including Hewlett-Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation, Apple, Panasonic, Kodak, 3M, Epson, Sony and Xerox. The Company's products include consumable supplies such as laser toner, copier toner, inkjet cartridges, printer ribbons, diskettes, optical storage products, computer tape cartridges and accessories. The Company's products are used in a broad range of computer and office automation products, such as mainframe, mini, personal, laptop and notebook computers, laser and inkjet printers, photocopiers, fax machines and data storage products. The Company sells its products throughout the United States, Canada and Latin America, as well as overseas, by utilizing sophisticated telemarketing technology and innovative marketing programs. The Company presently operates one centralized "superhub" distribution center in Memphis, Tennessee, to service the U.S. and overseas markets and smaller regional sales and distribution centers in Miami, Florida, Mexico and Canada to service the Latin American and Canadian markets. Most of the Company's U.S. shipments are shipped via Federal Express under a contractual arrangement (the "Federal Express Agreement") which, together with the Company's centralized distribution center, enables the Company to offer to its customers next business day delivery. The Company charges its customers local ground delivery rates for this service. PRODUCTS The Company distributes over 6,000 different non-paper computer and office automation supplies and related products and regularly updates its product line to reflect advances in technology and avoid product obsolescence. The Company's major product categories can generally be classified as follows: Non-Impact Printer Supplies. Non-impact printer supplies include toner cartridges, inkjet cartridges, optical photo conductor kits, copier supplies and fax supplies. Non-impact printers, such as laser printers, personal copiers and fax machines, are rapidly growing in popularity and have a wide range of applications. Sales of non-impact printer supplies accounted for approximately 51.8% of the Company's total net sales in fiscal year 1996. The Company also sells specialized all-in-one toner cartridges for laser printers produced by manufacturers such as Canon, Hewlett-Packard, Digital, Brother and Apple. Sales of these supplies accounted for approximately 20.2% of the Company's total net sales in fiscal year 1996. -3- 4 Impact Printer Supplies. Impact printer supplies include printwheels, ribbons, elements, fonts and other consumable supplies used in impact printers ranging from electronic typewriters to high speed dot matrix printers. While new technology is moving toward non-impact printing, the Company believes that a substantial installed base of impact printers, such as dot matrix printers, are still in use and require a continuing amount of consumable computer supplies. Sales of impact printer supplies accounted for approximately 11.4% of the Company's total net sales in fiscal year 1996. Magnetic Media Products. Magnetic media products include computer tapes, data cartridges, diskettes, optical disks and other products which store or record computer information and are used in a variety of computers ranging from notebook and personal computers to large mainframe computer systems. Sales of magnetic media products accounted for approximately 9.7% of the Company's total net sales in fiscal year 1996. Accessories and Other Products. Accessories sold by the Company include cleaning supplies, disk storage boxes, data cartridge storage, racks, surge protection devices, workstation accessories and anti-glare screens. The Company also sells a number of other products such as transparencies, banking supplies and selected business machines. Sales of accessories and other products accounted for approximately 6.9% of the Company's total net sales in fiscal year 1996. SUPPLIERS The Company's products are manufactured by over 145 original equipment manufacturers, including Hewlett- Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation, Panasonic, Epson, 3M, Sony, Xerox, Apple, Kodak and Maxell. During fiscal year 1996, approximately 72% of the Company's total net sales were derived from products supplied by the Company's ten largest suppliers, with the sale of products supplied by Hewlett-Packard and Canon accounting for approximately 30% and 11% of total net sales, respectively, and the sale of products supplied by Lexmark, Okidata and Digital Equipment Corporation each accounting for approximately 5% of total net sales. Many of the Company's suppliers offer rebate programs under which, subject to the Company purchasing certain predetermined amounts of inventory, the Company receives rebates based on a percentage of the dollar volume of total rebate program purchases. The Company also takes advantage of several other programs offered by substantially all of its suppliers. These include price protection plans under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory and stock rotation or stock balancing privileges under which the Company can return slow moving inventory in exchange for other products. In addition, in order to introduce new products, many suppliers will permit the Company to return all unsold inventory after an introductory trial period. Material changes by one or more of the Company's key suppliers of their pricing arrangements or other marketing programs may adversely effect the Company's business. The Company's purchases of inventory are closely tied to sales and are generally based upon the sales volume of the most recent six to ten week periods. Many of the Company's suppliers require minimum annual purchases which, for fiscal year 1997, will aggregate approximately $40.0 million. -4- 5 The Company has entered into written distribution agreements with Hewlett-Packard, Canon, Lexmark, IBM, Okidata and Digital Equipment Corporation and many of the other major suppliers of the products it distributes. As is customary in the industry, these agreements generally provide non-exclusive distribution rights, have one year renewable terms and are terminable by either party at any time, with or without cause. The Company considers its relationships with its major suppliers, including Hewlett-Packard, Canon, Lexmark, IBM, Okidata and Digital Equipment Corporation to be good; nevertheless, there can be no assurance that a material change in the Company's relationship with one or more of its major suppliers will not have a material adverse effect on the Company's business. Although the Company purchases most of its products directly from authorized U.S. manufacturers, the Company also imports products from foreign sources, particularly when fluctuations in foreign exchange rates or product prices make it attractive to do so. Similarly, depending upon product pricing and availability, the Company also purchases products from secondary sources, such as other wholesalers and selected dealers, rather than from the direct manufacturer. The Company utilizes its ability to purchase imported and secondary source products in order to provide its customers with competitive prices and a wide range of product lines. In order to ensure that such imported and secondary source products are not produced by unauthorized manufacturers, the Company has established various procedures which it believes enable it to identify unauthorized products and, to the extent possible, return such unauthorized products to the foreign or secondary source. Nevertheless, there can be no assurance that the Company will be completely successful in such efforts or that such imported and secondary source products will continue to be available or that any unavailability will not have a material adverse effect on the Company's business. SALES AND MARKETING The Company's customer and prospect list includes U.S., Canadian, Mexican and foreign computer supplies dealers, office product dealers, VARs, buying groups, computer stores, stationers, computer and office product superstores, warehouse clubs, catalog merchandisers, college bookstores and other resellers. The Company currently ships its products to approximately 20,000 customer locations. The Company's typical customer is a small to medium sized reseller who does not have the resources to establish direct purchasing relationships with multiple manufacturers and, instead, must rely on wholesale distributors like the Company. The Company also sells its products to computer and office product superstores, which the Company believes will become an increasingly important group of customers as the Company demonstrates its ability to serve the superstores' need for timely delivery of fast-moving products and efficient distribution of a variety of product lines to multiple store locations in a more cost-effective manner than presently provided by many product manufacturers. No single customer accounts for more than 10% of the Company's sales for each of the fiscal years ended March 31, 1996, 1995 and 1994. At March 31, 1996, five computer and office product superstores represent approximately 29.0% of the Company's trade accounts receivable, with the largest being approximately 16.0% of trade accounts receivable, and reflects the increasing significance of this market segment. The Company's international sales accounted for approximately 16% of the Company's total net sales in fiscal year 1996, and the Company believes that international markets represent further opportunities for growth. In particular, to service the growing Latin American market, the Company opened a sales office and distribution center in Mexico City, Mexico during fiscal year 1995 and opened a similar facility in Miami, Florida, during fiscal year 1996. There can be no assurance, -5- 6 however, that the Company will be successful in these or other international efforts or that the risks inherent in international operations, such as currency fluctuations or the political or economic instability of certain foreign countries, such as Mexico, will not have a material adverse effect on the Company's results of operations. See Note 8 of the Notes to Consolidated Financial Statements for certain financial information regarding the Company's domestic and international sales during the last three fiscal years. The Company's sales force, as of March 31, 1996, consisted of approximately 91 full-time and 72 part-time telemarketing sales representatives located in the Company's headquarters in Plano, Texas, 13 full-time and 13 part-time telemarketing sales representatives located in the Company's office in Canada, 8 full-time telemarketing sales representatives located in the Company's office in Mexico and 3 full-time telemarketing sales representatives located in the Company's office in Miami, Florida. The Company relies on sophisticated telemarketing, direct mail programs and frequent innovative sales promotions and other marketing efforts. The Company's senior sales staff also often visits certain of the Company's customers in connection with the negotiation of large orders or customized programs. The Company's sales and telemarketing department is divided into several groups or teams, each having its own particular sales objective. For example, the Retail Department focuses specifically on large computer retailers and office product superstores and highlights the Company's ability to more efficiently distribute a wide variety of small shipments to a larger number of store locations than presently provided by product manufacturers. Similarly, a separate group of sales representatives are responsible for a select group of national accounts, such as contract stationers and buying groups, while others focus on new accounts, existing business or international and export sales. By utilizing sophisticated telemarketing software, including caller identification, sales representatives are able to verify customer account numbers and contact persons and quickly identify a customer's buying patterns, recent purchases, credit availability and other sales and marketing information. The telecommunications software also enables sales and marketing management to better identify, control and monitor sales representatives' prospecting activity with the Company's new and existing customers. The Company provides extensive training for new sales personnel with special emphasis on the need for regular customer contact, response to customers' demands for product information and the need to inform customers of technological advancements by the Company's suppliers. The Company, together with its major suppliers, provide the Company's sales personnel with ongoing product-specific training and education emphasizing computer supplies as well as new technologies, new products and new product applications. In order to maintain its position as a low cost wholesale distributor, the Company regularly monitors the efficiency of its sales staff. By utilizing sophisticated AT&T telecommunications equipment, the Company is able to measure the number of calls being fielded by a sales representative, their success rate in terms of orders obtained compared to calls taken and customer service statistics, such as abandoned call rates and average response times. The Company's sales force receives a base salary as well as varying sales incentives based on gross profit margin achievements. In addition, a number of suppliers periodically offer sales bonus programs in connection with specific product sales campaigns which can further augment a sales representative's compensation. One of the Company's primary marketing tools is its quarterly catalog, known as the "Book of Deals." In order to promote its image as a low cost wholesaler and provider of value-added services, -6- 7 the Book of Deals will usually highlight a theme related to specific products, customer services or a combination of the two. The Company presently distributes a total of approximately 35,000 catalogs and contract price books to its active U.S. customers each quarter. The Company also distributes a Canadian Book of Deals and a Mexican Book of Deals. Other catalog-type marketing tools used by the Company include the "Disk of Deals", a disk-based version of the Book of Deals, special target catalogs such as an accessory catalog, and customized catalogs produced by the Company for the reseller to distribute to its end user customers. The Company also distributes "flyers" which announce new product line additions or special promotions and are usually inserted in the Book of Deals or mailed directly to customers. The Company recently introduced its newest marketing tool, an electronic catalog and on-line ordering tool, known as "SOLO", the System for Online Ordering. SOLO is a CD-ROM based marketing tool which provides customers with on-line ordering capabilities; fingertip access to up-to-date pricing, product and order information; search and retrieval capabilities based on part numbers, manufacturers, product description, retail price, machine compatibility and other factors; and convenient access to manufacturers' product literature and training videos. Certain of the Company's suppliers provide the Company with cooperative advertising programs, marketing development funds and other types of incentives and discounts which offset the production costs of the Company's quarterly Book of Deals, other published marketing tools and other related costs. The Company permits its customers to return defective products (most of which are then returned by the Company to the manufacturer) and incorrect shipments for credit against other purchases. During the last three fiscal years, the Company's net expense for returns of the Company's consumable supply products has not been material. MANAGEMENT INFORMATION SYSTEMS The Company maintains advanced management information systems and has automated virtually all key business functions using on-line, real time systems. These on-line systems provide management with information concerning sales, inventory levels, customer payments and other operations which is essential for the Company to operate as a low cost, high efficiency wholesale distributor. The implementation of these systems has allowed the Company to offer an advanced EDI program to its customers so that the Company can communicate with their computer systems and automatically process, send and receive purchase orders, invoices and acknowledgments. The Company offers "customer links" to provide customers with direct access to a proprietary Company database to examine pricing, credit information, product description and availability and promotional information. This link also allows customers to place orders directly into the Company's order processing system. The Company has also invested in advanced telecommunications, voice response equipment, electronic mail and messaging, automated fax technology, scanning, radio frequency technology, bar-coding, fiber optic network communications and automated inventory management. The Company also utilizes telecommunications technology which provide for automatic customer call recognition and -7- 8 customer profile recall for inbound telemarketing representatives and computer generated outbound call objectives for outbound telemarketing representatives. DISTRIBUTION During fiscal year 1993, the Company consolidated its five U.S. regional distribution centers into a new "superhub" distribution center located in Memphis, Tennessee. This 176,000 square foot facility is located approximately four miles from the Federal Express hub facility and contains automated conveyors, in-line scales for automatic accuracy checking, computerized sorting equipment, powered material handling equipment and scanning and bar- coding systems. Since the consolidation of its regional distribution centers and the opening of the Memphis distribution center, the Company has (i) reduced the amount of "safety stock" inventory previously carried in different distribution centers, which, in turn, has reduced the Company's working capital borrowings, (ii) increased its inventory turnover rate from approximately nine turns to approximately 11 turns in fiscal year 1996, (iii) improved its order fill rate to a level of approximately 95%, (iv) improved personnel productivity and reduced shipping errors and their associated costs, (v) improved delivery time to most geographic areas through later order acceptance times (currently 9:00 p.m. eastern standard time) and, with the implementation of the Federal Express Agreement, next business day delivery and (vi) reduced real estate expenses. The Company believes that consumable supplies and other products sold by the Company are particularly suited to cost effective overnight delivery because of their unique value to weight characteristics. Accordingly, all of the Company's U.S. package orders are shipped via Federal Express, except for certain "heavyweight" packages or as otherwise requested by the customer. The Company's centralized distribution center, together with the implementation of the Federal Express Agreement, enables the Company to offer to its customers next business day delivery to most U.S. geographic areas. The Company charges its customers local ground delivery rates for this service. The Company ships virtually 100% of orders for product in stock on the same day. In September 1995, the Company successfully completed an approximately $2.5 million upgrade of the material handling system at its Memphis distribution center. The upgrade includes several high technology enhancements, including an automated package routing system and a paperless order picking system. The upgrade is designed to substantially increase the package movement capacity within the existing facility, further improve package shipment accuracy and enhance the Company's ability to perform value-added services for its customers, including custom labeling and price stickering. The upgrade should also improve personnel productivity and reduce shipping costs at the Memphis distribution center. The Company recently signed an agreement which will expand the Memphis distribution center by an additional 193,617 square feet. EMPLOYEES As of March 31, 1996, the Company had 348 full-time employees and 172 part-time employees, of which 142 were in executive and administrative positions, including accounting, purchasing, credit and management information systems, 200 were in sales and marketing and 178 were in warehousing and related functions. None of the Company's employees are represented by a labor union, and the Company has never suffered an interruption of business as a result of a labor -8- 9 dispute. The Company considers its relations with its employees to be excellent, and the Company believes it will be able to continue this relationship by various employee incentive and participation programs, including employee stock options. The Company actively recruits college graduates through on-campus recruiting programs. Each newly-hired employee from this program is placed into the Company's training program for approximately four months which introduces them to most aspects of the Company's business. Management believes that this program is an important tool in recruiting and developing high quality management individuals to support the Company's future growth. COMPETITION The Company believes that most, if not all, of its customers maintain several sources of supply for their product requirements. Accordingly, the Company competes with product manufacturers, general office supply wholesalers, other national and regional wholesale computer supplies distributors, computer hardware and software distributors and, to a lesser extent, non-specialized wholesaler distributors. Many of these competitors such as product manufacturers and general office supply wholesalers are larger and have substantially greater financial and other resources than the Company. Competition in the Company's industry is generally based on price, breadth of product lines, product and credit availability, delivery time and the level and quality of customer services. The Company competes primarily on the basis of its ability to offer low prices and quality service while maintaining a high level of operating efficiency. The Company believes its competitive advantages over product manufacturers and other wholesale distributors include its ability to efficiently maintain a wide selection of name brand products in stock ready to be shipped on a same day basis and delivered overnight, to efficiently distribute its products, to provide innovative and high quality value-added customer service programs and to respond to changing customer demands and product development. BACKLOG The Company does not have a significant backlog of orders and does not consider backlog to be material to an understanding of its business. ITEM 2. PROPERTIES The Company's U.S. sales and executive and administrative offices are located in a 43,020 square foot central office facility located in Plano, Texas, a Dallas suburb. The Company also operates sales offices in Toronto, Ontario, and in Mexico City, Mexico, and regional sales and distribution centers in Toronto, Mexico City, Vancouver, British Columbia and Miami, Florida. The Company's central distribution center is located in Memphis, Tennessee. See "Item 1. Business - Distribution." All of the Company's facilities are leased under leases which contain one or more multiple year renewal options. -9- 10 ITEM 3. LEGAL PROCEEDINGS The Company is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed and trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "DZTK." Prior to January 27, 1995, there was no public trading market for the Common Stock. The following table sets forth for the period indicated the high and low sale price for the Common Stock as reported by the Nasdaq National Market:
PRICE ----- HIGH LOW ---- --- Fiscal year 1995 Fourth Quarter (from January 27)................................... $22 $15 Fiscal year 1996 First Quarter...................................................... $25 $19-1/8 Second Quarter..................................................... $32-7/8 $21 Third Quarter...................................................... $33 $26-1/4 Fourth Quarter..................................................... $35-3/4 $27-3/4
As of May 31, 1996, there were approximately 1,000 shareholders of which 65 were record holders of the Common Stock. The Company has never paid cash dividends on its Common Stock and does not anticipate the payment of cash dividends on its Common Stock in the foreseeable future. The Company currently intends to retain all earnings to finance the further development of its business. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA The selected historical consolidated statement of operations data presented below for each of the fiscal years ended March 31, 1996, 1995 and 1994, and the selected consolidated balance -10- 11 sheet data as of March 31, 1996 and 1995 have been derived from the consolidated financial statements of Daisytek International Corporation and subsidiaries (the "Company"), which statements have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere in this Form 10-K. The selected consolidated statement of operations data for the fiscal years ended March 31, 1993 and 1992, and the selected balance sheet data as of March 31, 1994, 1993 and 1992 have been derived from the Company's (or its predecessor's) consolidated financial statements, which statements have been audited by Arthur Andersen LLP as indicated in their reports not included herein. The selected consolidated financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data."
FISCAL YEAR ENDED MARCH 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ----------- ---------- (in thousands, except per share data) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $ 464,169 $ 352,953 $ 276,699 $ 233,458 $ 182,751 Cost of sales 416,199 316,982 247,480 208,972 160,448 Provision for losses from disposal of software and hardware inventory -- -- 402 1,223 -- ---------- ---------- ---------- ----------- ---------- Gross profit 47,970 35,971 28,817 23,263 22,303 Selling, general and administrative expenses 29,024 23,260 20,338 21,822 17,098 Other operating expenses -- -- -- 3,701 -- ---------- ---------- ---------- ----------- ---------- Income (loss) from operations 18,946 12,711 8,479 (2,260) (1) 5,205 Interest expense 1,482 2,050 1,726 1,723 1,943 ---------- ---------- ---------- ----------- ---------- Income (loss) before income taxes 17,464 10,661 6,753 (3,983) 3,262 Provision (benefit) for income taxes 6,697 4,165 2,496 (1,062) 1,199 ---------- ---------- ---------- ----------- ---------- Net income (loss) $ 10,767 $ 6,496 $ 4,257 $ (2,921) $ 2,063 ========== ========== ========== =========== ========== PER SHARE DATA (2): Net income (loss) per common share $ 1.59 $ 1.17 $ 0.81 $ (0.68) $ 0.56 Weighted average common shares outstanding 6,757 5,542 5,288 4,310 3,701 Supplemental net income per common share (3) $ -- $ 1.09 $ 0.75 $ -- $ -- Supplemental weighted average common shares outstanding (3) -- 6,683 6,668 -- --
AS OF MARCH 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ----------- ---------- (in thousands) CONSOLIDATED BALANCE SHEET DATA: Working capital $ 56,663 $ 43,427 $ 28,167 $ 22,290 $ 24,367 Total assets 128,601 94,421 67,385 57,213 49,794 Long-term debt, net of current maturities 16,419 11,334 19,640 16,815 13,101 Shareholders' equity 51,661 40,817 15,937 11,844 15,080
(1) The Company's income from operations for fiscal year 1993 would have been approximately $6.4 million without giving effect to the following events: (i) a $4.3 million loss from operations related to the Company's PC software and hardware division which was eliminated in fiscal year 1993, including a $1.2 million provision for losses from disposal of software and hardware inventory, (ii) a $3.7 million loss from operations related to the following other operating expenses: (1) the Company's write-off of trade receivables and advances owing from a related party in the aggregate amount of $1.2 million and establishment of a reserve of $0.5 million for trade receivables owing from another related party, (2) costs aggregating $1.6 million incurred by the Company in connection with the consolidation of its five U.S. regional distribution centers into one "superhub" distribution center in Memphis, Tennessee, and (3) costs aggregating $0.5 million incurred by the Company in connection with a withdrawn initial public offering and (iii) a $0.7 million loss from operations related to the Company's temporary reduction of outbound shipping rates as part of a promotional marketing program in connection with the opening of the Memphis distribution center. (2) Share data is based on the weighted average common shares and share equivalents outstanding for each period. (3) Adjusted for the events described in Note 11 of the Notes to Consolidated Financial Statements. -11- 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain financial information from the audited Consolidated Statements of Operations of Daisytek International Corporation and subsidiaries expressed as a percentage of net sales.
FISCAL YEAR ENDED MARCH 31, 1996 1995 1994 ------- ------- ------- Net sales 100.0% 100.0% 100.0% Cost of sales 89.7 89.8 89.5 Provision for losses from disposal of software and hardware inventory -- -- 0.1 ---- ---- ---- Gross profit 10.3 10.2 10.4 Selling, general and administrative expenses 6.2 6.6 7.3 ---- ---- ---- Income from operations 4.1 3.6 3.1 Interest expense 0.3 0.6 0.7 ---- ---- ---- Income before income taxes 3.8 3.0 2.4 Provision for income taxes 1.5 1.2 0.9 ---- ---- ---- Net income 2.3% 1.8% 1.5% ==== ==== ====
The following table sets forth certain unaudited quarterly financial data and certain data expressed as a percentage of net sales for fiscal years 1996 and 1995. The unaudited quarterly information includes all adjustments, consisting of only normal recurring adjustments, which management considers necessary for a fair presentation of the information shown. The financial data and ratios for any quarter are not necessarily indicative of results of any future period. -12- 13
Fiscal Year 1996 ---------------------------------------------------------------------------------------- 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. ---------------------------------------------------------------------------------------- (dollars in thousands) Net sales $ 137,237 $ 116,545 $ 105,421 $ 104,966 Gross profit $ 13,768 $ 12,233 $ 11,335 $ 10,634 Gross profit margin 10.0% 10.5% 10.8% 10.1% SG&A expenses $ 8,432 $ 7,312 $ 6,685 $ 6,595 Percent of net sales 6.1% 6.3% 6.3% 6.3% Income from operations $ 5,336 $ 4,921 $ 4,650 $ 4,039 Operating margin 3.9% 4.2% 4.4% 3.8% Net income $ 3,091 $ 2,792 $ 2,616 $ 2,268 Net margin 2.3% 2.4% 2.5% 2.2%
Fiscal Year 1995 ---------------------------------------------------------------------------------------- 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. ---------------------------------------------------------------------------------------- (dollars in thousands) Net sales $ 104,179 $ 88,069 $ 80,851 $ 79,854 Gross profit $ 10,583 $ 9,136 $ 8,396 $ 7,856 Gross profit margin 10.2% 10.4% 10.4% 9.9% SG&A expenses $ 6,575 $ 5,858 $ 5,544 $ 5,283 Percent of net sales 6.3% 6.7% 6.9% 6.7% Income from operations $ 4,008 $ 3,278 $ 2,852 $ 2,573 Operating margin 3.8% 3.7% 3.5% 3.2% Net income $ 2,181 $ 1,611 $ 1,436 $ 1,268 Net margin 2.1% 1.8% 1.8% 1.6%
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995 Net Sales. Net sales for fiscal year 1996 were $464.2 million as compared to $353.0 million for fiscal year 1995, an increase of $111.2 million, or 31.5%, as the result of an increase in U.S. net sales of $94.8 million, or 32.3%, and an increase in international net sales of $16.4 million, or 27.6%. The growth in U.S. and international net sales was primarily due to increased sales volume to large national accounts, computer and office product superstores, new customers and the Company's continued introduction of new products. Net sales to new customers for fiscal year 1996 were $34.7 million, while net sales to existing customers increased by $76.5 million during this period. Gross Profit. Gross profit for fiscal year 1996 was $48.0 million as compared to $36.0 million in fiscal year 1995, an increase of $12.0 million, or 33.4%, primarily as the result of increased sales volume in fiscal year 1996, as well as incremental gross profit earned on the sale of certain inventory purchased by the Company prior to manufacturer price increases. The Company's gross profit margin was 10.3% for fiscal year 1996 as compared to 10.2% for the prior year. The increase in gross profit margin percentage was primarily the result of incremental margins earned on the sale of certain inventory purchased by the Company prior to manufacturer price increases. Without the benefit gained from such incremental gross profit, gross profit margin percentage for fiscal year 1996 decreased slightly compared to the previous year. This gross profit margin percentage decline occurred primarily as the result of increased sales at lower gross profit margins to large national accounts and computer and office product superstores. The Company believes that the trend in sales to large national accounts and computer and office product superstores and the corresponding decline in gross profit margin percentage will continue during fiscal year 1997. SG&A Expenses. SG&A expenses for fiscal year 1996 were $29.0 million, or 6.2% of net sales, as compared to $23.3 million, or 6.6% of net sales, for fiscal year 1995. The increase in SG&A expenses was primarily a result of the increase in costs associated with the Company's -13- 14 increased sales volume. The decrease in SG&A expenses as a percentage of net sales was primarily due to improved operating efficiencies and staff productivity as a result of increased sales volume and continued technological enhancements implemented by the Company. Income from Operations. Income from operations for fiscal year 1996 was $18.9 million as compared to $12.7 million for fiscal year 1995, an increase of $6.2 million, or 49.1%. This increase was primarily due to increased sales volume, increased gross profit and improved operating efficiencies. Income from operations as a percentage of net sales was 4.1% for fiscal year 1996 as compared to 3.6% for fiscal year 1995, primarily as the result of an increase in gross profit margin and a decline in SG&A expenses as a percentage of net sales. Interest Expense. Interest expense for fiscal year 1996 was $1.5 million as compared to $2.1 million in fiscal year 1995. The decrease was primarily the result of a reduction in the outstanding balance in the Company's line of credit attributable to the proceeds received from the Company's initial public offering (the "IPO") in January 1995. The weighted average interest rate was 7.5% during fiscal year 1996 as compared to 7.9% for fiscal year 1995. Interest expense for fiscal year 1996 was also impacted by the incremental borrowings required to finance the Company's additional inventory purchases discussed above. Income Taxes. The Company's provision for income taxes was $6.7 million for fiscal year 1996 as compared to $4.2 million in fiscal year 1995. The increase was primarily due to increased pretax profits. The effective tax rate for fiscal year 1996 was 38.3% as compared to the effective tax rate of 39.1% for fiscal year 1995. For an analysis of the Company's provision for income taxes, see Note 6 of the Notes to Consolidated Financial Statements. Fiscal Year Ended March 31, 1995 Compared to Fiscal Year Ended March 31, 1994 Net Sales. Net sales for fiscal year 1995 were $353.0 million as compared to $276.7 million for fiscal year 1994, an increase of $76.3 million, or 27.6%, as the result of an increase in U.S. net sales of $61.0 million, or 26.3%, and an increase in international net sales of $15.3 million, or 33.9%. The increase in U.S. and international net sales was primarily due to increased sales volume to large national accounts, computer and office products superstores, new customers and the Company's continued introduction of new products. Net sales to new customers for fiscal year 1995 were $14.7 million, while net sales to existing customers increased by $61.6 million during this period. Gross Profit. Gross profit for fiscal year 1995 was $36.0 million as compared to $28.8 million in fiscal year 1994, an increase of $7.2 million, or 24.8%, primarily as the result of increased sales volume in fiscal year 1995 as well as the provision for losses from disposal of software and hardware inventory of $0.4 million in fiscal year 1994. The Company's gross profit margin for fiscal year 1995 was 10.2% as compared to 10.4% for fiscal year 1994. The decrease in gross profit margin was primarily the result of increased sales at lower gross profit margins to large national accounts and computer and office product superstores. Gross profit margin for the prior period was negatively impacted by the provision for losses from disposal of software and hardware inventory which accounted for 0.1% of net sales. -14- 15 SG&A Expenses. SG&A expenses for fiscal year 1995 were $23.3 million, or 6.6% of net sales, as compared to $20.3 million, or 7.3% of net sales, for fiscal year 1994. The increase in SG&A expenses was primarily a result of the increase in costs associated with the Company's increased sales volume. SG&A expenses for fiscal year 1994 include $0.2 million of costs related to the Company's disposal of its software and hardware inventory. The decrease in SG&A as a percentage of net sales was primarily due to improved operating efficiencies and staff productivity as a result of increased sales volume and continued technological enhancements implemented by the Company. Income From Operations. Income from operations for fiscal year 1995 was $12.7 million as compared to $8.5 million for fiscal year 1994, an increase of $4.2 million or 49.9%. This increase was primarily due to increased sales volume and improved operating efficiencies. Income from operations as a percentage of net sales was 3.6% as compared to 3.1% for fiscal year 1994, primarily as the result of the decline in SG&A expenses as a percentage of net sales, which more than offset a slight decline in gross margin. Interest Expense. Interest expense for fiscal year 1995 was $2.1 million as compared to $1.7 million in fiscal year 1994. This increase was primarily the result of increased borrowings associated with higher sales levels as well as an increase in the average interest rate under the Company's line of credit due to increases in the prime rate. The increase was partially offset by a reduction in the outstanding balance in the Company's line of credit in February 1995 attributable to the proceeds received by the Company from the IPO. The weighted average interest rate of the Company's line of credit for fiscal year 1995 was 7.9% as compared to 6.7% for fiscal year 1994. Income Taxes. The Company's provision for income taxes was $4.2 million in fiscal year 1995 as compared to $2.5 million in fiscal year 1994. The Company's effective tax rate was 39.1% for fiscal year 1995 as compared to 37.0% in fiscal year 1994. For an analysis of the Company's provision for income taxes, see Note 6 of the Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary source of cash has been from financing activities. Net cash provided by financing activities was $6.2 million, $9.1 million and $7.7 million for fiscal years 1996, 1995 and 1994, respectively. Proceeds from the issuance of common stock, bank borrowings and lease financings have been used to finance the Company's operations and expansion. In January 1995, the Company sold 1,380,000 shares of common stock in the IPO and received net proceeds of approximately $18.6 million. The Company used such net proceeds (and an aggregate of $2.3 million received by the Company concurrent with the IPO from an officer of the Company and a selling stockholder in repayment of indebtedness owing by such officer and selling stockholder to the Company) to reduce its outstanding indebtedness under the line of credit. Net cash used in operating activities was $1.3 million, $6.4 million and $7.0 million for fiscal years 1996, 1995 and 1994, respectively. The Company's net cash used in operations primarily related to increases in working capital requirements to support growth in the Company's business -15- 16 during these periods. These increased working capital requirements were partially funded by cash generated by the Company's operations. The Company's principal use of funds for investing activities was capital expenditures of $5.0 million, $3.7 million and $0.7 million for fiscal years 1996, 1995 and 1994, respectively. These expenditures have consisted primarily of additions to upgrade the Company's management information systems and its Memphis distribution facility. The Company anticipates that its total investment in upgrades and additions to facilities for fiscal 1997 will be approximately $4 to $5 million. Working capital increased to $56.7 million at March 31, 1996 from $43.4 million at March 31, 1995, an increase of $13.3 million which was primarily attributable to increases in accounts receivable and inventory which were partially offset by an increase in accounts payable. During fiscal years 1996 and 1995, the Company generally maintained an accounts receivable balance of approximately 45 days of sales and an inventory turnover rate of approximately 11 turns. As of March 31, 1995, the Company had a secured line of credit with an institutional lender which, subject to the satisfaction of certain conditions, allowed the Company to borrow up to $35 million. As of March 31, 1995, there was $9.7 million outstanding under the line of credit and $25.3 million was available for additional borrowings. The line of credit was to mature in April 1996. In fiscal year 1995, the Company applied the net proceeds of the IPO (together with certain other amounts received concurrently therewith) to reduce outstanding debt under the line of credit. As a result of this reduction in the indebtedness and the Company's reduced borrowing needs, in May 1995, the Company entered into a new agreement with certain banks for a new three-year unsecured revolving line of credit facility (the "new facility"). Under the new facility, the Company may borrow initially up to $25.0 million until April 1996, and up to $30.0 million thereafter until maturity. Availability under the new facility is based upon amounts of eligible accounts receivable, as defined. As of March 31, 1996, the Company had borrowed $15.4 million under the new facility. Also, as of March 31, 1996, $0.2 million of the available new facility was allocated to outstanding letters of credit, and $9.4 million was available for additional borrowings. The new facility matures in May 1998 and accrues interest, at the Company's option, at the prime rate of a bank or a eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the new facility. The new facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum fixed charge ratio and minimum level of tangible net worth, and restrictions on certain activities of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. During fiscal year 1996, approximately $75.9 million, or 16.4%, of the Company's net sales were sold through the Company's Canadian, Mexican and U.S. export operations, including Latin America. The Company believes that international markets represent further opportunities for growth. The Company attempts to protect itself from foreign currency fluctuations by denominating substantially all of its non-Canadian international sales in U.S. dollars. In addition, in April 1994 the Company entered into a one-year forward exchange contract, which expired in April 1995, in order to hedge the Company's net investment in, and its intercompany payable applicable to, its Canadian subsidiary. For fiscal year 1995, the Company incurred a loss of -16- 17 approximately $31,000 net of income taxes, related to this contract. In May 1995, the Company entered into a $4.3 million (U.S.) one-year forward exchange contract, which expired in May 1996, to replace the contract which expired in May 1995. As of March 31, 1996, the Company incurred a loss of approximately $59,000, net of income taxes, related to this contract. In May 1996, the Company entered into a new $6.6 million (U.S.) one-year forward exchange contract to replace the contract which expired in May 1996. The Company may consider entering into other forward exchange contracts in order to hedge the Company's net investment in its Mexican and Canadian subsidiaries, although no assurance can be given that the Company will be able to do so on acceptable terms. See Note 1 of the Notes to Consolidated Financial Statements. The Company was recently appointed by a major manufacturer as the master distributor for a certain product line of consumable supplies throughout the United States, Canada, Mexico, the Caribbean and Latin America. The Company expects that this arrangement will result in incremental revenue growth, and similar to the Company's other business and revenue growth, will impose additional working capital needs upon the Company. The Company believes it will be able to satisfy its working capital needs for fiscal year 1997, including such additional working capital required by this arrangement as well as planned capital expenditures, through funds available under the new facility, trade credit, lease financing, internally generated funds and by increasing the amount available under the new facility (although the Company has presently neither requested nor received any commitment to do so). In addition, although the Company has no plans to do so, and depending on market conditions and the terms thereof, the Company may also consider obtaining additional funds through an additional line of credit, other debt financing or the sale of capital stock; however, no assurance can be given in such regard. INVENTORY MANAGEMENT The Company manages its inventories by maintaining sufficient quantities of product to achieve high order fill rates while at the same time maximizing inventory turnover rates. Inventory balances will fluctuate as the Company adds new product lines and makes large purchases from suppliers to take advantage of attractive terms. To reduce the risk of loss to the Company due to supplier price reductions and slow moving inventory, the Company's purchasing agreements with many of its suppliers, including most of its major suppliers, contain price protection and stock return privileges under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory or the Company can return slow moving inventory in exchange for other products. SEASONALITY Although the Company historically has experienced its greatest growth in revenues in its fourth fiscal quarter, management has not been able to determine the specific effect, if any, of seasonal factors that may cause quarterly variability in operating results. Management believes, however, that factors that may influence quarterly variability include the overall growth in the non-paper computer supplies industry and shifts in demand for the Company's products due to a variety of factors, including sales increases resulting from the introduction of new computer supplies products. The Company generally experiences a relative slowness in sales during the summer months, which may adversely affect the Company's first and second fiscal quarter results in relation to sequential quarter performance. The Company believes that the results of -17- 18 operations for a quarterly period may not be indicative of the results for any other quarter or for the full year. INFLATION Management believes that inflation has not had a material effect on the Company's operations. FORWARD-LOOKING INFORMATION The matters discussed in this Report on Form 10-K, other than historical information, and, in particular, information regarding future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995, and are subject to and involve risks and uncertainties which could cause actual results to differ materially from the forward-looking information. These risks and uncertainties include, but are not limited to, the "Risk Factors" set forth in the Company's prospectus dated January 25, 1996 which are incorporated by reference herein, as well as general economic conditions, industry trends, the loss of key suppliers or customers, the loss of strategic product shipping relationships, customer demand, product availability, competition (including pricing and availability), concentrations of credit risk, distribution efficiencies, capacity constraints, technological difficulties, exchange rate fluctuations, and the regulatory and trade environment (both domestic and foreign). IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The Company must adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The Company is currently evaluating the implementation of SFAS No. 121, the effects of which are unknown at this time. -18- 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Balance Sheets as of March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 21 Consolidated Statements of Operations for the Fiscal Years Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -19- 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Daisytek International Corporation: We have audited the accompanying consolidated balance sheets of Daisytek International Corporation (a Delaware corporation) and subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Daisytek International Corporation and subsidiaries as of March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas, April 23, 1996 -20- 21 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS ------
March 31, ---------------------- 1996 1995 --------- --------- CURRENT ASSETS: Cash $ 204 $ 448 Trade accounts receivable, net of allowance for doubtful accounts of $1,283 in 1996 and $1,060 in 1995 69,169 51,099 Receivables from employees and related parties, net of allowance for doubtful accounts of $475 in 1996 and 1995 571 559 Inventories, net 44,358 32,249 Prepaid expenses and other current assets 2,120 343 Deferred income tax asset 762 999 --------- --------- Total current assets 117,184 85,697 --------- --------- PROPERTY AND EQUIPMENT, at cost: Furniture, fixtures and equipment 15,325 10,562 Leasehold improvements 306 124 --------- --------- 15,631 10,686 Less - Accumulated depreciation and amortization (6,136) (3,906) --------- --------- Net property and equipment 9,495 6,780 --------- --------- EMPLOYEE RECEIVABLES 395 367 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $468 in 1996 and $418 in 1995 1,527 1,577 --------- --------- Total assets $ 128,601 $ 94,421 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. -21- 22 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------
March 31, ---------------------- 1996 1995 --------- --------- CURRENT LIABILITIES: Current portion of long-term debt $ 650 $ 571 Trade accounts payable 44,736 28,187 Accrued expenses 4,230 3,052 Income taxes payable 419 908 Other current liabilities 10,486 9,552 --------- --------- Total current liabilities 60,521 42,270 --------- --------- LONG-TERM DEBT, less current portion 16,419 11,334 COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized at March 31, 1996 and 1995; none issued and outstanding -- -- Common stock, $.01 par value; 10,000,000 shares authorized at March 31, 1996 and 1995; 6,342,753 and 6,244,682 shares issued and outstanding at March 31, 1996 and 1995, respectively 63 62 Additional paid-in capital 30,874 30,796 Retained earnings 21,736 10,969 Cumulative foreign currency translation adjustment (1,012) (1,010) --------- --------- Total shareholders' equity 51,661 40,817 --------- --------- Total liabilities and shareholders' equity $ 128,601 $ 94,421 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. -22- 23 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Fiscal Year Ended March 31, ---------------------------------- 1996 1995 1994 --------- --------- --------- NET SALES $ 464,169 $ 352,953 $ 276,699 COST OF SALES 416,199 316,982 247,480 PROVISION FOR LOSSES FROM DISPOSAL OF SOFTWARE AND HARDWARE INVENTORY (Note 1) -- -- 402 --------- --------- --------- Gross profit 47,970 35,971 28,817 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,024 23,260 20,338 --------- --------- --------- Income from operations 18,946 12,711 8,479 INTEREST EXPENSE 1,482 2,050 1,726 --------- --------- --------- Income before income taxes 17,464 10,661 6,753 PROVISION (BENEFIT) FOR INCOME TAXES: Current 6,460 4,470 2,357 Deferred 237 (305) 139 --------- --------- --------- 6,697 4,165 2,496 --------- --------- --------- NET INCOME $ 10,767 $ 6,496 $ 4,257 ========= ========= ========= NET INCOME PER COMMON SHARE $ 1.59 $ 1.17 $ 0.81 ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,757 5,542 5,288 ========= ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. -23- 24 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In Thousands, Except Share and Warrant Amounts)
COMMON STOCK COMMON STOCK WARRANTS ADDITIONAL CUMULATIVE -------------------- ------------------- PAID-IN RETAINED TRANSLATION SHARES AMOUNT WARRANTS AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL --------- ------- ------- ------- ------- -------- --------- --------- BALANCE, March 31, 1993 4,310,071 $ 43 869,349 $ 1,600 $10,456 $ 216 $ (471) $ 11,844 Net income -- -- -- -- -- 4,257 -- 4,257 Issuance and net proceeds from sale of common stock 155,933 2 -- -- 196 -- -- 198 Foreign currency translation adjustment -- -- -- -- -- -- (362) (362) --------- ------ ------- ------- ------- -------- --------- --------- BALANCE, March 31, 1994 4,466,004 45 869,349 1,600 10,652 4,473 (833) 15,937 Net income -- -- -- -- -- 6,496 -- 6,496 Exercise and termination of common stock warrants 398,678 4 (869,349) (1,600) 1,600 -- -- 4 Issuance and net proceeds from sale of common stock 1,380,000 13 -- -- 18,544 -- -- 18,557 Foreign currency translation adjustment -- -- -- -- -- -- (177) (177) --------- ------ ------- ------- ------- -------- --------- --------- BALANCE, March 31, 1995 6,244,682 62 -- -- 30,796 10,969 (1,010) 40,817 Net income -- -- -- -- -- 10,767 -- 10,767 Net proceeds from exercise of common stock options 98,071 1 -- -- 562 -- -- 563 Costs associated with secondary offering of stock -- -- -- -- (484) -- -- (484) Foreign currency translation adjustment -- -- -- -- -- -- (2) (2) --------- ------ ------- ------- ------- -------- --------- --------- BALANCE, March 31, 1996 6,342,753 $ 63 -- $ -- $30,874 $ 21,736 $ (1,012) $ 51,661 ========= ====== ======= ======= ======= ======== ========= =========
The accompanying notes are an integral part of these consolidated statements. -24- 25 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Fiscal Year Ended March 31, --------------------------------------------------- 1996 1995 1994 ----------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,767 $ 6,496 $ 4,257 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,296 1,393 1,223 Provision for doubtful accounts 999 750 899 Deferred income tax provision (benefit) 237 (305) 139 Provision for losses on disposal of software and hardware inventory -- -- 402 Loss on retirement of property and equipment -- -- 15 Changes in operating assets and liabilities - Trade accounts receivable (18,929) (16,364) (7,884) Receivables from related parties 41 (4) 237 Income taxes receivable 8 24 1,180 Inventories, net (12,017) (9,863) (4,849) Trade accounts payable and accrued expenses 17,561 10,884 (2,999) Income taxes payable (478) 575 367 Prepaid expenses and other current assets (1,784) 8 29 ----------- ------------ ------------ Net cash used in operating activities (1,299) (6,406) (6,984) ----------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,959) (3,740) (691) Proceeds from sale of property and equipment -- -- 523 Collections (advances) of employee receivables, net (80) 1,575 (902) ----------- ------------ ------------ Net cash used in investing activities (5,039) (2,165) (1,070) ----------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payments of) revolving line of credit, net 5,735 (7,918) 2,124 Increase (decrease) in other current liabilities 934 (1,045) 5,911 Payments on capital leases and notes payable (571) (541) (565) Net proceeds from sale of stock and exercise of stock options and warrants 79 18,561 198 ----------- ------------ ------------ Net cash provided by financing activities 6,177 9,057 7,668 ----------- ------------ ------------ EFFECT OF EXCHANGE RATES ON CASH (83) (82) (23) ----------- ------------ ------------ NET INCREASE (DECREASE) IN CASH (244) 404 (409) CASH, beginning of period 448 44 453 ----------- ------------ ------------ CASH, end of period $ 204 $ 448 $ 44 =========== ============ ============
The accompanying notes are an integral part of these consolidated statements. -25- 26 1. SIGNIFICANT ACCOUNTING POLICIES: Organization and Nature of Business Daisytek International Corporation (a Delaware corporation) and subsidiaries (the "Company") is a wholesale distributor of non-paper computer and office automation supplies and accessories, whose primary products are laser toner, copier toner, inkjet cartridges, printer ribbons, diskettes, computer tape cartridges and accessories such as cleaning kits and media storage files. The Company, through its wholly owned subsidiaries in the U.S., Canada, and Mexico, sells products primarily in North America, as well as in Latin America, Europe, the Far East, Africa and Australia. The Company's customers include value added resellers, computer supplies dealers, office product dealers, computer and office product superstores and other retailers who resell the products to end-users. No single customer accounted for more than 10% of the Company's annual net sales for the fiscal years ended March 31, 1996, 1995 and 1994. At March 31, 1996, five computer and office product superstores represent approximately 29% of trade accounts receivable, with the largest being approximately 16% of trade accounts receivable, and reflects the increasing significance of this market segment. The Company recognizes revenue upon shipment of product to customers and provides for estimated returns and allowances. The Company permits its customers to return defective products (many of which are then returned by the Company to the manufacturer) and incorrect shipments for credit against other purchases. The Company offers terms to its customers that it believes are standard for its industry. Basis of Presentation The consolidated financial statements include the accounts of Daisytek International Corporation and its subsidiaries. All significant intercompany transactions are eliminated. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Reclassifications Certain prior year data has been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported net income, shareholders' equity or cash flows. Inventories Inventories (merchandise held for resale, all of which is finished goods) are stated at the lower of weighted average cost or market. In fiscal years 1994 and 1993, the Company elected to discontinue the distribution of software and hardware products, including, among others, business, educational and entertainment software programs, monitors, modems and memory -26- 27 boards. The Company recorded a provision related to the disposal of these software and hardware products of approximately $402,000 for fiscal year 1994. Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets which range from three to seven years. Excess of Cost Over Net Assets Acquired Excess of cost over net assets acquired is amortized on a straight-line basis over 40 years. The related amortization expense for each of the fiscal years 1996, 1995 and 1994, was approximately $50,000. Foreign Currency Translation and Transactions For the Company's Canadian subsidiary, the local currency is the functional currency. Assets and liabilities are translated at exchange rates in effect at the end of the period, and income and expense items are translated at the average exchange rates for the period. Translation adjustments are reported in a separate component of shareholders' equity. In addition, the Company periodically enters into foreign exchange contracts in order to hedge the Company's net investment in, and its intercompany payable balance (of a long-term investment nature) applicable to its Canadian subsidiary. In May 1995, the Company entered into a one-year, $4.3 million (U.S.) forward exchange contract. As of March 31, 1996, the Company had incurred a loss of approximately $59,000, net of applicable income taxes, on this contract. For fiscal year ended March 31, 1995, the Company incurred a loss of approximately $31,000, net of income taxes, related to a one-year $3.0 million (U.S.) forward exchange contract that expired on April 7, 1995. These losses are included as a component of shareholders' equity. For the Company's Mexican subsidiary, the U.S. dollar is the functional currency. Monetary assets and liabilities are translated at the rates of exchange on the balance sheet date and certain assets (notably accounts receivable, inventory, and property and equipment) are translated at historical rates. Income and expense items are translated at average rates of exchange for the period except for those items of expense which relate to assets which are translated at historical rates. The gains and losses from foreign currency transactions and translation related to the Mexican subsidiary are included in net income. Income Per Common Share Income per common share is calculated by dividing net income by the weighted average common shares and share equivalents outstanding for each period. The stock split discussed in Note 3 has been reflected in the income per common share calculation. -27- 28 Recently Issued Accounting Standards The Company must adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The Company is currently evaluating the implementation of SFAS No. 121, the effects of which are unknown at this time. 2. DEBT: Debt at March 31, 1996 and 1995, is as follows (dollars in thousands):
March 31, ---------------------------------------- 1996 1995 ---------------- ------------------ Revolving line of credit facility with commercial banks, interest (weighted average rate of 6.79% at March 31, 1996) at the Company's option at a prime rate of a bank (8.25% at March 31, 1996) or a Eurodollar rate plus 0.625% to 1.125% (6.38% at March 31, 1996), due May 22, 1998 $ 15,440 $ - Revolving line of credit facility with commercial banks, interest at the prime rate of a bank (9.0% at March 31, 1995) plus 0.50%, due April 15, 1996; secured by all assets of the Company 9,705 - Notes payable and obligations under capital leases for warehouse equipment, computer equipment, office furniture and fixtures, interest at varying rates ranging from 8% to 17%, with lease terms varying from five to seven years 1,629 2,200 ---------------- ------------------ Long-term debt 17,069 11,905 Less - current portion of long-term debt (650) (571) ---------------- ------------------ Long-term debt, less current portion $ 16,419 $ 11,334 ================ ==================
On May 22, 1995, the Company entered into an agreement with certain banks for a new three-year unsecured revolving line of credit facility (the "facility") to replace the Company's previous revolving line of credit facility. Under the facility, the Company may borrow up to $25.0 million through April 1996 and up to $30.0 million thereafter until maturity. Availability under the facility is based upon amounts of eligible accounts receivable, as defined. The facility accrues interest at the Company's option, at a prime rate of a bank or a Eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the facility. The facility contains various covenants including, among other things, the maintenance of certain financial ratios (minimum fixed charge ratio and minimum level of tangible net worth), and restrictions on -28- 29 certain activities of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. As of March 31, 1996, $0.2 million of the available new facility was allocated to outstanding letters of credit, and $9.4 million was available for additional borrowings. This facility is part of the Company's integrated cash management system in which accounts receivable collections are used to pay down the facility and disbursements are paid from the facility. This system allows the Company to optimize its cash flow. At March 31, 1996 and 1995, the Company had checks and other items outstanding in excess of its cash balance of approximately $10.5 million and $9.6 million, respectively, which are included in other current liabilities. The Company is a party to a number of noncancelable capital lease agreements involving warehouse equipment, computer equipment, and office furniture and fixtures. The Company's property held under capital leases, included in furniture, fixtures and equipment in the balance sheet, amounted to approximately $1,112,000, net of accumulated amortization of approximately $1,560,000 at March 31, 1996, and approximately $1,609,000, net of accumulated amortization of approximately $1,063,000 at March 31, 1995. Annual maturities of long-term debt and capital leases are as follows (in thousands):
Fiscal year ending March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 650 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,667 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,069 ===========
3. STOCK OPTIONS AND SHAREHOLDERS' EQUITY: Public Offerings In January 1995, the Company completed an initial public offering (the "IPO") of 1,380,000 shares of common stock (see Note 11). In January 1996, the Company completed a secondary offering of 1,207,500 shares of common stock, sold by certain principal and selling shareholders. The Company did not receive any of the proceeds from the sale of shares by these principal and selling shareholders. The Company incurred approximately $484,000 in costs related to the offering, which is reflected as a reduction in Shareholders' Equity. Preferred Stock In connection with the IPO, the Company authorized the issuance of up to 1,000,000 shares of preferred stock, par value $1.00 per share, none of which is issued or outstanding at March 31, 1996 and 1995. -29- 30 Stock Splits In conjunction with the IPO (see Note 11), the Company's Board of Directors approved the conversion of each share of common stock into 1.45 shares upon consummation of the IPO. The consolidated financial statements and the notes thereto have been adjusted to reflect the stock split on a retroactive basis. Stock Purchase Agreement Pursuant to a stock purchase agreement dated December 13, 1991, as amended on December 23, 1991 (the "Stock Purchase Agreement"), the Company issued to a private investor 1,666,830 shares of common stock, warrants to purchase 398,678 shares of common stock (the "A Warrants"), and warrants to purchase 470,671 shares of common stock (the "B Warrants") for an aggregate consideration of $10,000,000. The A Warrants contained an exercise price of $0.01 per share, were only exercisable upon the occurrence of certain specified events, and, subject to certain conditions, granted the Company the right to repurchase all or a portion of the A Warrants at prices ranging from $4.63 per share to $4.81 per share. Such warrants were exercised simultaneous with the IPO. The B Warrants contained an exercise price of $0.01 per share and, pursuant to their terms, terminated in January 1995 in conjunction with the IPO. Stock Options In January 1989, the Company established an employee stock option plan (the "Plan") in which shares of common stock are reserved for the granting of options at an amount not less than market price, as determined by the Board of Directors, at the date of grant. In fiscal year 1991, the Company granted options to purchase 16,426 shares of common stock to one individual who was then a nonemployee consultant of the Company. These options were granted at $1.28 per share which management believes was the fair market value at the date of the grant. These options were exercised in fiscal year 1994. As of March 31, 1996 and 1995, 6,379 options remain available to be granted under the Plan. In 1994, the Company adopted the 1994 Stock Option Plan for Key Employees of Daisytek International Corporation (the "1994 Plan"). The 1994 Plan authorizes the Company to grant options to selected officers and other key employees of the Company and to nonemployee directors. The 1994 Plan provides for the granting to employees of both incentive stock options and nonqualified stock options. The maximum number of shares of common stock for which options may be granted is 725,000, subject to adjustments for certain changes in the shares issued and outstanding as described in the 1994 Plan. The exercise price of incentive stock options granted under the 1994 Plan may not be less than the fair market value at the date of the grant. The exercise price of nonqualified stock options granted under the 1994 Plan is determined by the option committee of the Board of Directors. As of March 31, 1996 and 1995, 492,000 and 725,000 options, respectively, remain to be granted in the future under the 1994 plan. -30- 31 During fiscal years 1996, 1995 and 1994, the Company granted options to certain employees pursuant to its employee stock option plans. In addition to the options under such plans, in May 1995, at its discretion, the Company granted options to certain key executives to purchase 22,500 shares of common stock. These options were granted at the fair market value at the date of the grant and become exercisable over the next three years based on vesting percentages. The following table summarizes stock option activity for the three years in the period ended March 31, 1996.
Price Per Shares Share -------- ------------ Outstanding, March 31, 1993 654,772 $1.28 - $5.30 Granted 114,256 5.30 Exercised (156,043) 1.28 Canceled (49,391) 5.30 -------- Outstanding, March 31, 1994 563,594 1.28 - 5.30 Granted 4,350 7.59 Exercised -- -- Canceled (6,379) 5.30 -------- Outstanding, March 31, 1995 561,565 1.28 - 7.59 Granted 260,000 19.50 Exercised (98,071) 1.28 - 7.59 Canceled (4,500) 19.50 -------- Outstanding, March 31, 1996 718,994 $1.28 - $19.50 ========
As of March 31, 1996 and 1995, 403,403 and 450,388, respectively, of options outstanding were exercisable. The remaining options will become exercisable over the next three years based on vesting percentages. 4. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
Fiscal Year Ended March 31, --------------------------------------------- 1996 1995 1994 ------------- ------------- -------------- Cash paid during the period for: Interest $ 1,445 $ 2,119 $ 1,704 Income taxes $ 6,953 $ 3,896 $ 1,763 Fixed assets acquired under capital leases $ -- $ 212 $ 1,429
5. RELATED PARTY TRANSACTIONS: The Company has various transactions with shareholders and employees. As of March 31, 1994, the Company had a note receivable for $1,468,170, excluding accrued interest of $144,229, from its principal shareholder, bearing interest at 1.0% over the Company's effective borrowing rate. This note was repaid to the Company in fiscal year 1995. The Company has also made various loans to its President and to its past President. These loans accrue interest at the Company's effective borrowing rate (7.06% at March 31, 1996). The Company had notes receivable (including accrued interest) from its current President of $395,052 and $367,257 as of -31- 32 March 31, 1996 and 1995, respectively. The Company had a note receivable (including accrued interest) from its past President of $178,760 as of March 31, 1994. This note was repaid to the Company in fiscal year 1995. The Company does not intend to provide any further loans to any of its executive officers or to enter into any further transactions, including loans, with officers, directors, five percent shareholders or their affiliates unless the terms of such transactions are no less favorable to the Company than those that could be obtained from unaffiliated third parties and the transactions are approved by a majority of the Company's nonemployee directors having no interest in such transaction. The Company also had trade accounts receivable due from companies in which either the Company or its principal shareholder owns a minority interest. Such sales were made in accordance with the Company's usual terms, except that such companies were provided with extended payment terms. In fiscal year 1993, the principal shareholder transferred his minority interest in all but one of these companies to a subsidiary of the Company for a nominal amount, which approximated the fair market value of these minority interests. Trade accounts receivable and advances from all these related party companies totaled approximately $282,000 and $322,000 at March 31, 1996 and 1995, respectively, net of a reserve of $475,000 as of each date. Sales to all these related parties totaled approximately $2,707,000, $2,285,000 and $1,539,000 for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. 6. INCOME TAXES: Deferred taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. These differences relate primarily to provisions for doubtful accounts, capitalization of inventory costs, reserves for inventory, book versus tax depreciation differences, and certain accrued expenses deducted for book purposes but not yet deductible for tax purposes. A reconciliation of the difference between the expected income tax provision at the U.S. Federal statutory corporate tax rate (34.85% in fiscal year 1996 and 34.0% in fiscal years 1995 and 1994) and the Company's effective tax rate is as follows (in thousands): -32- 33
Fiscal Year Ended March 31, ---------------------------------------------------- 1996 1995 1994 ----------- ----------- ---------- Provision computed at statutory rate $ 6,086 $ 3,625 $ 2,296 Foreign income (loss): Impact of taxation at different rates 141 137 236 Impact of foreign losses 88 (181) -- State income taxes, net of federal benefit 297 174 106 Expenses not deductible for tax purposes 56 49 49 Change in valuation reserve 8 378 (218) Other 21 (17) 27 ----------- ----------- ---------- Provision for income taxes $ 6,697 $ 4,165 $ 2,496 =========== =========== ==========
The consolidated income before income tax, by domestic and foreign entities is as follows (in thousands):
Fiscal Year Ended March 31, ---------------------------------------------------- 1996 1995 1994 ----------- ----------- ---------- Domestic $ 16,355 $ 9,991 $ 6,241 Foreign 1,109 670 512 ----------- ----------- ---------- Total $ 17,464 $ 10,661 $ 6,753 =========== =========== ==========
The provision (benefit) for income taxes is summarized as follows (in thousands):
Fiscal Year Ended March 31, ---------------------------------------------------- 1996 1995 1994 ----------- ----------- ---------- Current Domestic $ 5,349 $ 3,576 $ 2,041 State 456 263 160 Foreign 655 631 156 ----------- ----------- ---------- Total current 6,460 4,470 2,357 ----------- ----------- ---------- Deferred Domestic 265 (237) 102 State -- -- -- Foreign (28) (68) 37 ----------- ----------- ---------- Total deferred 237 (305) 139 ----------- ----------- ---------- Total $ 6,697 $ 4,165 $ 2,496 =========== =========== ==========
-33- 34 The components of the deferred tax asset as of March 31, 1996 and 1995, are as follows (in thousands):
March 31, --------------------------------- 1996 1995 ------------ ------------ Deferred Tax Asset: Allowance for doubtful accounts $ 504 $ 462 Capitalized inventory costs 84 66 Inventory obsolescence reserve 288 332 Accrued straight-line rent 81 84 Accrued vacation 58 58 Foreign net operating loss carryforwards 687 605 Other 432 378 ------------ ------------ 2,134 1,985 Less - Valuation reserve (386) (378) ------------ ------------ Total deferred tax asset 1,748 1,607 ------------ ------------ Deferred Tax Liability: Tax versus book depreciation (487) (270) Foreign inventory purchases (404) (249) Other (95) (89) ------------ ------------ Total deferred tax liability (986) (608) ------------ ------------ Deferred tax asset, net $ 762 $ 999 ============ ============
For financial reporting purposes, the tax benefit of cumulative temporary differences is recorded as an asset to the extent that management assesses the utilization of such temporary differences to be "more likely than not." As of March 31, 1996 and 1995, a valuation allowance was recorded due to uncertainties regarding the Company's utilization of its Mexico subsidiary's net tax asset. As of March 31, 1993, a valuation allowance of $218,000 was recorded due to uncertainties regarding the Company's utilization of its Canadian subsidiaries' net operating loss carryforwards ("NOL"). Due to increased earnings by its Canadian subsidiaries during fiscal year 1994, and the Company's future earnings projections for its Canadian subsidiaries, at March 31, 1994, management determined that it was more likely than not that the Canadian NOLs would be utilized. As a result, the valuation allowance related to the Company's Canadian subsidiaries was reversed during fiscal year 1994. The Canadian NOL was fully utilized during the fiscal year ended March 31, 1995. 7. COMMITMENTS AND CONTINGENCIES: The Company and its subsidiaries lease equipment and facilities under operating leases expiring in various years through fiscal year 2002. In most cases, management expects that, in the normal course of business, leases will be renewed or replaced by other leases. Minimum future annual rental payments under noncancelable operating leases having original terms in excess of one year are as follows (in thousands): -34- 35 Fiscal year ending March 31, 1997 $ 2,713 1998 2,831 1999 2,381 2000 2,332 2001 1,720 Thereafter 943 -------- Total $ 12,920 ========
Total rental expense under operating leases approximated $2,255,000, $1,900,000 and $1,618,000 for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. Although the Company carries products and accessories supplied by numerous vendors, the Company's net sales from products manufactured by its ten largest suppliers were approximately 72%, 66% and 64% of total net sales during fiscal years 1996, 1995 and 1994, respectively. The Company has entered into written distribution agreements with nearly all of its major suppliers. As is customary in the industry, these agreements generally provide non-exclusive distribution rights, have one-year renewable terms and are terminable by either party at any time, with or without cause. Certain of these agreements require minimum annual purchases. Total minimum purchase requirements for fiscal year 1997 approximate $40 million. Additionally, many of the Company's suppliers offer rebate programs under which, subject to the Company purchasing certain predetermined amounts of inventory, the Company receives rebates based on a percentage of the dollar volume of total rebate program purchases. The Company also takes advantage of several other programs offered by substantially all of its suppliers. These include price protection plans under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory and stock rotation or stock balancing privileges under which the Company can return slow moving inventory in exchange for other products. Certain of the Company's suppliers also provide the Company with cooperative advertising programs, marketing development funds and other types of incentives and discounts which offset the production costs of the Company's published marketing tools and other related costs. The Company is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material effect on the Company's financial position or results of operations. 8. FOREIGN OPERATIONS AND EXPORTS: The Company, through its wholly owned subsidiaries, Daisytek (Canada) Inc. and Daisytek de Mexico, S.A. de C.V., sells products in Canada and, beginning in November 1994, in Mexico. All intercompany activity is eliminated in computing net sales and net income. Net sales of the Company's Mexico subsidiary are included in Domestic sales in the following table. Financial information, summarized by geographical area, is as follows (in thousands): -35- 36
Fiscal Year Ended March 31, ------------------------------------------------------------- 1996 1995 1994 ------------ ---------------- ---------------- Net Sales: Domestic $ 433,599 $ 324,830 $ 254,392 Canada 44,459 38,487 28,047 Intercompany eliminations (13,889) (10,364) (5,740) ------------ ---------------- ---------------- Consolidated $ 464,169 $ 352,953 $ 276,699 ============ ================ ================ Net Income: Domestic $ 10,008 $ 5,856 $ 3,937 Canada 759 640 320 ------------ ---------------- ---------------- Consolidated $ 10,767 $ 6,496 $ 4,257 ============ ================ ================ Identifiable Assets: Domestic $ 118,241 $ 85,366 $ 61,046 Canada 10,360 9,055 6,339 ------------ ---------------- ---------------- Consolidated $ 128,601 $ 94,421 $ 67,385 ============ ================ ================
The Company also exports its products for sale throughout Latin America (through its wholly owned subsidiary, Daisytek Latin America, Inc., beginning in January 1996), Europe, the Far East, Africa and Australia. Total export sales to these geographic regions for fiscal years 1996, 1995 and 1994, included in Domestic sales in the preceding table, were approximately $31.8 million, $28.0 million and $20.3 million, respectively. 9. EMPLOYEE SAVINGS PLAN: In fiscal year 1994, the Company implemented a defined contribution employee savings plan under Section 401(k) of the Internal Revenue Code. Substantially all full-time and part-time U.S. employees are eligible to participate in the plan. The Company, at its discretion, may match employee contributions to the plan and also make an additional matching contribution in the form of profit sharing in recognition of Company performance. For fiscal years 1996 and 1995 the Company matched 25% of the employee contributions resulting in charges against income of approximately $95,000 and $81,000, respectively. For fiscal year 1994, the Company matched 20% of the employee contributions resulting in a charge against income of approximately $62,000. 10. FAIR VALUES OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value of certain financial instruments for which it is practicable to estimate that value. Fair value is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The Company estimates fair value based on market information and appropriate valuation methodologies. The fair values of all non-derivative financial instruments approximate their carrying amounts in the accompanying consolidated balance sheets. The Company has only limited involvement with derivative financial instruments, and does not use them for trading purposes. The Company's derivative financial instruments outstanding as of March 31, 1996 and 1995 consisted of forward foreign currency exchange contracts used to hedge the Company's net investment in, and its intercompany payable balance applicable to its Canadian subsidiary (See Note 1). The fair value of these contracts at March 31, 1996 and 1995, -36- 37 based on fiscal year-end exchange rates, were net loss amounts, excluding related income tax benefits, of approximately $90,000 and $50,000, respectively. 11. SUPPLEMENTAL INCOME PER SHARE DATA (UNAUDITED): In December 1994, the Company filed a Form S-1 registration statement with the Securities and Exchange Commission which became effective in January 1995. The Company reduced outstanding indebtedness under the Company's line of credit through the application of the net proceeds from the sale of 1,380,000 shares of common stock plus that portion of the net proceeds received by certain shareholders which were applied towards the full repayment of certain indebtedness owed by such shareholders to the Company. In addition, 398,678 common stock warrants were exercised concurrently with the consummation of the IPO at an exercise price of $0.01 per warrant. The supplemental income per share data has been calculated assuming the IPO occurred as of the beginning of the respective period.
Fiscal Year Ended ---------------------------------- March 31, 1995 March 31, 1994 -------------- -------------- (Unaudited) (Unaudited) Supplemental net income per common share $1.09 $0.75 ===== ===== Supplemental weighted average common shares outstanding (in thousands) 6,683 6,668 ===== =====
-37- 38 12. QUARTERLY DATA (UNAUDITED): Summarized quarterly financial data for fiscal years 1996 and 1995 are as follows (dollars in thousands, except per share data):
Fiscal Year 1996 ---------------------------------------------------------------------------- 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. -------------- -------------- ------------- --------------- Net sales $ 137,237 $ 116,545 $ 105,421 $ 104,966 Gross profit $ 13,768 $ 12,233 $ 11,335 $ 10,634 Gross profit margin 10.0% 10.5% 10.8% 10.1% SG&A expenses $ 8,432 $ 7,312 $ 6,685 $ 6,595 Percent of net sales 6.1% 6.3% 6.3% 6.3% Income from operations $ 5,336 $ 4,921 $ 4,650 $ 4,039 Operating margin 3.9% 4.2% 4.4% 3.8% Net income $ 3,091 $ 2,792 $ 2,616 $ 2,268 Net margin 2.3% 2.4% 2.5% 2.2% Net income per common share $ 0.46 $ 0.41 $ 0.39 $ 0.34
Fiscal Year 1995 ---------------------------------------------------------------------------- 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. -------------- -------------- ------------- --------------- Net sales $ 104,179 $ 88,069 $ 80,851 $ 79,854 Gross profit $ 10,583 $ 9,136 $ 8,396 $ 7,856 Gross profit margin 10.2% 10.4% 10.4% 9.9% SG&A expenses $ 6,575 $ 5,858 $ 5,544 $ 5,283 Percent of net sales 6.3% 6.7% 6.9% 6.7% Income from operations $ 4,008 $ 3,278 $ 2,852 $ 2,573 Operating margin 3.8% 3.7% 3.5% 3.2% Net income $ 2,181 $ 1,611 $ 1,436 $ 1,268 Net margin 2.1% 1.8% 1.8% 1.6% Net income per common share $ 0.35 $ 0.30 $ 0.27 $ 0.24
-38- 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages and positions of the directors and executive officers of the Company.
NAME AGE POSITION - ---- --- -------- David A. Heap 52 Chairman of the Board and Chief Executive Officer Mark C. Layton 36 President, Chief Operating Officer, Chief Financial Officer and Director Christopher Yates 41 Senior Vice President - Business Development and Director James R. Powell 35 Senior Vice President - Sales and Marketing Harvey H. Achatz 55 Vice President - Administration and Secretary Randy L. Stancill 36 Vice President - Logistics Thomas J. Madden 34 Vice President - Finance, Chief Accounting Officer and Treasurer Peter D. Wharf 37 Vice President - International Markets Michael P. Krasny 42 Director Peter P. J. Vikanis 45 Director Timothy M. Murray 43 Director Edgar D. Jannotta, Jr. 35 Director
DAVID A. HEAP has served as Chairman of the Board and Chief Executive Officer since 1982 and as President from 1982 to 1990. From 1970 to 1985, Mr. Heap served as Chairman of ISA International plc (and its predecessors) ("ISA"), a now publicly traded company he founded in England in 1970. ISA is a distributor of computer supplies in Western Europe. Mr. Heap is primarily responsible for the Company's general business strategy and long-term planning. MARK C. LAYTON has served as President, Chief Operating Officer and Chief Financial Officer since 1993, as a Director since 1988, as Executive Vice President from 1990 to 1993 and as Vice President - Operations from 1988 to 1990. Mr. Layton served as a management consultant with Arthur Andersen & Co., S.C. for six years through 1988 specializing in wholesale and retail distribution and technology. Mr. Layton is primarily responsible for the Company's day-to-day operations and general business and financial activity. -39- 40 CHRISTOPHER YATES was appointed Senior Vice President - Business Development in February 1996 and has served as Vice President - Business Development from November 1995 to February 1996, as a Director of the Company since February 1995, as Vice President-Marketing from January 1994 to November 1995, as Vice President-Sales from 1988 to 1994 and in various other sales capacities for the Company since 1982. Prior to joining the Company, Mr. Yates served in various sales capacities for ISA. Mr. Yates is primarily responsible for business development, special projects and other sales related functions. JAMES R. POWELL serves as Senior Vice President - Sales and Marketing, a position he has held since February 1996. Mr. Powell has served as Vice President - Sales from 1992 to 1996, and in various other sales capacities from 1988 to 1992. Prior to joining the Company, Mr. Powell was engaged in various sales and marketing activities. Mr. Powell is responsible for U.S. sales and marketing activities including Daisytek's Customer Care Center and the Annual Computer Supplies Expo. HARVEY H. ACHATZ serves as Vice President - Administration and Secretary, positions he has held since 1993 and 1984, respectively. Mr. Achatz has served as Vice President - Finance from 1985 to 1993, as Controller from 1981 to 1985 and as a Director from 1984 to 1990. Mr. Achatz is responsible for various administrative functions, including human resources. RANDY L. STANCILL serves as Vice President - Logistics, a position he has held since February 1996. Mr. Stancill has served as Vice President - Management Information Systems from 1992 to 1996 and in various other information systems capacities from 1988 to 1992. Prior to joining the Company, Mr. Stancill was employed by J.D. Edwards & Company, a computer software and systems firm. Mr. Stancill is responsible for all operations of the Company's Memphis distribution center including inventory control, warehousing and distribution. THOMAS J. MADDEN has served as Vice President - Finance since November 1994, as Treasurer since March 1994 and as Chief Accounting Officer since 1992. From 1992 to 1994 he also served as Controller. From 1983 to 1992, Mr. Madden served in various capacities with Arthur Andersen & Co., S.C., including financial consulting and audit manager. Mr. Madden is a certified public accountant. Mr. Madden is responsible for the Company's treasury and accounting functions. PETER D. WHARF serves as Vice President - International Markets, a position he has held since February 1996. Mr. Wharf joined the Company in 1992 and has served in various export and international sales capacities since such time. Prior to joining the Company, Mr. Wharf served in various sales capacities for ISA. Mr. Wharf is responsible for all international sales and customer service for the Company's Canada, Mexico and Latin America locations in addition to the Company's export sales. TIMOTHY M. MURRAY has served as a Director of the Company since 1991. Mr. Murray is a Principal of William Blair & Company, L.L.C., an investment banking firm he joined in 1979. Mr. Murray is also a director of several privately held corporations. -40- 41 EDGAR D. JANNOTTA, JR. has served as a Director of the Company since 1991. Mr. Jannotta is a Principal of William Blair & Company, L.L.C., an investment banking firm he joined in 1988. Mr. Jannotta is also a director of Gibraltar Packaging Group, Inc., a diversified packaging company. MICHAEL P. KRASNY was recently appointed a Director of the Company. Mr. Krasny is the founder of CDW Computer Centers, Inc. ("CDW"), a direct discount marketer of microcomputer hardware and peripherals, software, networking products and accessories. Mr. Krasny currently serves as Chairman of the Board, Chief Executive Officer, Secretary and Treasurer of CDW and has had similar positions and responsibilities with CDW since its inception in 1984. PETER P. J. VIKANIS was recently appointed a Director of the Company. Mr. Vikanis served as Chief Operating Officer of ISA from 1991 to 1995, as a director of ISA from 1979 to 1995, and also served in various management capacities at ISA from 1971 to 1991. Pursuant to the Company's Certificate of Incorporation, the Board of Directors is divided into three classes. Each class serves three years, with the terms of office of the respective classes expiring in successive years. Class I consists of Messrs. Krasny and Yates whose term will expire at the annual meeting of stockholders in 1998; Class II consists of Messrs. Murray and Layton whose terms will expire at the annual meeting of stockholders in 1996; and Class III consists of Messrs. Heap, Jannotta and Vikanis whose terms will expire at the annual meeting of stockholders in 1997. Messrs. Murray and Layton have been nominated by the Board for election at the 1996 annual meeting. Under the terms of a Stockholders Agreement (the "Stockholders Agreement") between the Company, Mr. Heap (and certain family trusts) and William Blair Leveraged Capital Fund, Limited Partnership ("WBLCF"), Mr. Heap (and such trusts) and WBLCF agreed to vote their respective shares of Common Stock, at each annual or special meeting of stockholders at which directors are to be elected, for two representatives designated by WBLCF and for five representatives designated by David Heap. In addition, under the Stockholders Agreement, WBLCF had the right to designate one representative to each committee of the Company's Board of Directors, to the Board of Directors of each subsidiary of the Company (a "Sub Board") and to each Sub Board committee. In February 1996, following the consummation of a secondary offering of Common Stock by Mr. Heap and WBLCF, the Stockholders Agreement was terminated. See "Item 13. Certain Relationships and Related Transactions." Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and controlling stockholders to file initial reports of ownership and reports of changes of ownership of the Company's Common Stock with the Securities and Exchange Commission and the Company. To the Company's knowledge, all reports required to be so filed were filed in accordance with the provisions of said Section 16(a). ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation paid or accrued by the Company to its Chief Executive Officer and to each of the four most highly compensated executive officers for services rendered during the fiscal years ended March 31, 1996, 1995 and 1994. -41- 42 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------- ANNUAL NUMBER OF COMPENSATION SECURITIES ------------------------------------ UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS COMPENSATION(2) --------------------------- ------ -------- ---------- ---------- --------------- David A. Heap 1996 $385,000 $280,676 37,833 $ 8,636 Chairman and Chief 1995 350,000 171,000 -- 24,701 Executive Officer . . . . . . . . . 1994 325,000 75,760 -- 20,154 Mark C. Layton 1996 $276,386 $280,676 28,020 $ 6,008 President, Chief Operating 1995 250,971 171,000 -- 3,967 and Financial Officer. . . . . . . . 1994 213,621 75,760 32,078 3,874 Christopher Yates 1996 $215,000 $92,623 20,138 $ 2,430 Senior Vice President - 1995 195,000 -- -- 3,321 Business Development . . . . . . . . 1994 150,000 -- 12,688 3,488 James R. Powell 1996 $150,359 $70,169 14,004 $ 3,707 Senior Vice President - Sales 1995 123,551 -- -- 3,414 and Marketing . . . . . . . . . . . 1994 108,852 -- 9,788 1,822 Thomas J. Madden Vice President - Finance, 1996 $112,649 -- 14,703 $ 4,005 Chief Accounting Officer and 1995 94,294 -- -- -- Treasurer . . . . . . . . . . . . . 1994 81,904 -- 11,600 --
_________________ (1) Such amounts are pursuant to an agreement between the Company and Messrs. Heap and Layton pursuant to which, subject to the Company's pre-tax net income (excluding such extraordinary, unusual or non-recurring items as the Board of Directors deems appropriate, in accordance with generally accepted accounting principles) ("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, Messrs. Heap and Layton are each entitled to receive a cash bonus equal to (i) 1% of EBT, to the extent EBT is 100% to 105% of the projected EBT and (ii) 5% of that portion of EBT which exceeds 105% of the projected EBT. For fiscal year 1996, Messrs. Powell and Yates received a cash bonus equal to (i) .25% and .33%, respectively, of EBT, to the extent EBT was 100% to 105% of projected EBT and (ii) 1.25% and 1.65%, respectively, of that portion of EBT which exceeds 105% of projected EBT. (2) Represents compensation in respect of one or more of the following: personal use of Company automobiles; life insurance premiums paid by the Company for the benefit of the named executive officer; tax return preparation services paid by the Company; and personal travel expenses. COMPENSATION OF DIRECTORS Commencing with the Company's 1997 fiscal year, each non-employee Director will receive an annual director's fee of $20,000 for each year in which he or she serves as a director. Non-employee directors will not receive additional Board or Committee meeting fees. If approved by stockholders at the 1996 Annual Meeting, the Company will adopt a Non- Employee Director Stock Option and Retainer 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, (ii) will receive an option to purchase 1,000 shares of Common Stock as of the date of the 1996 Annual Meeting at an exercise price equal to the fair market value of the Common Stock as of such date (as determined in accordance with the provisions of said Plan) and (iii) is entitled to receive future grants of options in accordance with the formula, and subject to the conditions precedent, set forth in said Plan. -42- 43 Directors who are employees of the Company or any of its subsidiaries do not receive additional compensation for service on the Board of Directors. The following table sets forth information with respect to grants of stock options during the year ended March 31, 1996 to the named executive officers reflected in the Summary Compensation Table: OPTION GRANTS IN FISCAL YEAR 1996
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION INDIVIDUAL GRANTS TERMS(2) ------------------------------------------------------------- --------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED FISCAL YEAR PER SHARE DATE(1) 5% 10% ---- -------------- ----------- --------- -------------- ------- ------- David A. Heap . . . 37,833 14.6 $ 19.50 5-9-05 $463,833 $1,175,850 Mark C. Layton . . . 28,020 10.8 19.50 5-9-05 343,525 870,862 Christopher Yates . . 20,138 7.7 19.50 5-9-05 246,892 625,889 James R. Powell . . . 14,004 5.4 19.50 5-9-05 171,689 435,244 Thomas J. Madden . . 14,703 5.7 19.50 5-9-05 180,259 456,969
_________________________________ (1) All of such options are subject to a three year cumulative vesting schedule under which 15% vested on May 9, 1996, 50% will vest on May 9, 1997 and 100% will vest on May 9, 1998. (2) These are hypothetical values using assumed annual rates of stock price appreciation as prescribed by the rules of the Securities and Exchange Commission. The following table sets forth information concerning the aggregate stock option exercises during the fiscal year ended March 31, 1996 and stock option values as of the end of fiscal year 1996 for unexercised stock options held by each of the named executive officers: AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT FISCAL YEAR END AT FISCAL YEAR END (1) ACQUIRED ON VALUE ------------------------ -------------------------------- NAME EXERCISE REALIZED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------ ------------ ----------- ------------- -------------- --------------- David A. Heap . . . - - - 37,833 - $510,746 Mark C. Layton . . - - 29,727 44,059 $ 823,438 822,550 Christopher Yates . - - 54,456 26,482 1,668,825 447,592 James R. Powell . . 12,738 $279,803 19,532 18,898 541,036 324,618 Thomas J. Madden . 1,150 29,555 12,863 20,503 356,305 359,151
___________________________ -43- 44 (1) Calculated by determining the difference between $ 33 (the last sale price of the Common Stock on March 31, 1996 as reported by the Nasdaq National Market) and the exercise price of the shares of Common Stock underlying the options. (2) Calculated by determining the difference between the last sale price of the Common Stock on the date of exercise as reported by the Nasdaq National Market and the exercise price. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The current members of the Compensation Committee of the Company's Board of Directors are David Heap, Chairman of the Board and Chief Executive Officer of the Company, Timothy M. Murray and Edgar D. Jannotta, Jr. Prior to February 1996, Mr. Jannotta served on the Compensation Committee pursuant to the Stockholders Agreement. Under the terms of the Stockholders Agreement, Mr. Heap (and certain family trusts) and WBLCF agreed to vote their respective shares of Common Stock, at each annual or special meeting of stockholders at which directors are to be elected, for two representatives designated by WBLCF and for five representatives designated by David Heap. In addition, under the Stockholders Agreement, WBLCF had the right to designate one representative to each committee of the Company's Board of Directors, to the Board of Directors of each subsidiary of the Company (a "Sub Board") and to each Sub Board committee. In February 1996, following the consummation of a secondary offering of Common Stock by Mr. Heap and WBLCF, the Stockholders Agreement was terminated. See "Item 13. Certain Relationships and Related Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of May 31, 1996, certain information regarding the beneficial ownership of the 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"). 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. -44- 45
Number Name and Address of Beneficial Owner of shares Percent (1) ------------------------------------ --------- ----------- David A. Heap (2) . . . . . . . . . . . . . . . . . . . . . . . . 1,068,974 16.6% 500 North Central Expressway Plano, Texas 75074 Royal Bank of Canada Trust Company (Jersey) Limited, Brian Gerald Balleine, Kenneth Edward Rayner, Trustees, of the David Anthony Heap 1996 Interest in Possession Settlement (3) . . . . . . . . . . . . . . 565,173 8.8% 19-21 Broad Street St. Helier, Jersey, Channel Islands Royal Bank of Canada Trust Company (Jersey) Limited, Brian Gerald Balleine and Kenneth Edward Rayner, Trustees, of the David Heap Life Interest Settlement (No. 10) (4) . . . . . . . . . . . . . . . . . . . . . 584,673 9.1% 19-21 Broad Street St. Helier, Jersey, Channel Islands William Blair Leveraged Capital Fund Limited Partnership . . . . . . . . . . . . . . . . . . . . . . 516,006 8.0% 222 West Adams Street Chicago, Illinois 60606 Mark C. Layton (5) . . . . . . . . . . . . . . . . . . . . . . . 211,087 3.3% Christopher Yates (6) . . . . . . . . . . . . . . . . . . . . . . 124,048 1.9% Harvey H. Achatz (7) . . . . . . . . . . . . . . . . . . . . . . 61,909 * James R. Powell (8) . . . . . . . . . . . . . . . . . . . . . . . 39,265 * Randy L. Stancill (9) . . . . . . . . . . . . . . . . . . . . . . 28,381 * Thomas J. Madden (10) . . . . . . . . . . . . . . . . . . . . . . 25,343 * Peter D. Wharf (11) . . . . . . . . . . . . . . . . . . . . . . . 7,902 * Edgar D. Jannotta, Jr. (12) . . . . . . . . . . . . . . . . . . . 10,327 * Timothy M. Murray (12) . . . . . . . . . . . . . . . . . . . . . 20,000 * Michael P. Krasny . . . . . . . . . . . . . . . . . . . . . . . . 5,000 * Peter P.J. Vikanis. . . . . . . . . . . . . . . . . . . . . . . . -- -- All directors and executive officers as a group (12 persons) (13) . . . . . . . . . . . . . . . . . . 1,602,236 24.9%
____________________________ *Represents less than 1% (1) This table is based on 6,437,774 shares of Common Stock outstanding as of May 31, 1996. (2) Includes outstanding options to purchase 5,675 shares of Common Stock which are fully vested and exercisable. Does not include (i) 900 shares held by Mr. Heap's spouse as custodian for minor children as to which beneficial ownership is disclaimed, (ii) options to purchase 75,022 shares of Common Stock which are not vested or exercisable and (iii) an aggregate of 1,149,846 shares of Common Stock held of record by the trusts set forth above (the "Heap Trusts"). Although Mr. Heap and members of his family are the primary beneficiaries of the Heap Trusts, neither Mr. Heap nor such beneficiaries have voting or -45- 46 investment power with respect to such shares. Of the shares owned of record by Mr. Heap, 76,500 are pledged to a financial institution to secure indebtedness owing by Mr. Heap to such institution. (3) Shares are held of record by a Trust established by Mr. Heap for which he and members of his family are the primary beneficiaries, although neither Mr. Heap nor such beneficiaries may exercise voting or investment power with respect to such shares. (4) Shares are held of record by a Trust established by Mr. Heap for which he and members of his family are the primary beneficiaries, although neither Mr. Heap nor such beneficiaries may exercise voting or investment power with respect to such shares. All of such shares are pledged to a financial institution to secure indebtedness owing by such Trust and Mr. Heap to such institution. (5) Includes outstanding options to purchase 49,969 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 58,733 shares of Common Stock which are not vested or exercisable. (6) Includes outstanding options to purchase 63,821 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 37,677 shares of Common Stock which are not vested or exercisable. (7) Includes outstanding options to purchase 27,658 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 3,360 shares of Common Stock which are not vested or exercisable. (8) Includes outstanding options to purchase 24,527 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 33,233 shares of Common Stock which are not vested or exercisable. (9) Includes outstanding options to purchase 2,005 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 7,541 shares of Common Stock which are not vested or exercisable. (10) Includes outstanding options to purchase 20,868 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 29,085 shares of Common Stock which are not vested or exercisable. (11) Includes outstanding options to purchase 7,902 shares of Common Stock which are fully vested and exercisable. Does not including outstanding options to purchase 21,505 shares of Common Stock which are not vested or exercisable. (12) Does not include shares of Common Stock held by WBLCF as to which beneficial ownership is disclaimed. (13) Includes outstanding options to purchase 202,425 shares of Common Stock which are fully vested and exercisable. Does not include (i) outstanding options to purchase 266,156 shares of Common Stock which are not vested or exercisable or (ii) shares of Common Stock held by WBLCF or the Heap Trusts. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRIVATE PLACEMENT In December 1991, the Company and WBLCF entered into a Stock Purchase Agreement (as amended, the "Stock Purchase Agreement"), pursuant to which the Company issued to WBLCF an aggregate of 1,666,830 shares of Common Stock, warrants to purchase 398,678 shares of Common -46- 47 Stock (the "A Warrants") and warrants to purchase 470,671 shares of Common Stock (the "B Warrants") for an aggregate consideration of $10.0 million (the "Private Placement"). The A Warrants and the B Warrants contained an exercise price of $0.01 per share. The A Warrants were exercised by the holders thereof in January 1995 in connection with the consummation of the Company's initial public offering, and the B Warrants were terminated, pursuant to their terms, on the effective date of the registration statement filed by the Company under the Securities Act with respect to such offering and are no longer outstanding. Under the terms of the Stock Purchase Agreement, the Company was prohibited from taking certain actions, including any merger, consolidation or acquisition (with certain exceptions for smaller transactions), sale of substantially all of its assets, liquidation, dissolution or certain charter amendments, without the consent of WBLCF. In addition, as part of the Private Placement, WBLCF was granted certain registration rights and the Company, WBLCF, Mr. Heap and the Heap Trusts entered into the Stockholders Agreement. See "Compensation Committee Interlocks and Insider Participation." In February 1996, following the consummation of a secondary offering of Common Stock by Mr. Heap and WBLCF, all of the provisions of the Stock Purchase Agreement and the Stockholders Agreement were terminated. CERTAIN TRANSACTIONS During the past several years, the Company made loans in varying amounts to David Heap, the Company's Chairman of the Board and Chief Executive Officer, and Mark Layton, the Company's President, Chief Operating and Financial Officer and a member of its Board of Directors, in order to provide such persons with the funds necessary to satisfy various personal obligations and for other purposes. In February 1995, Mr. Heap repaid his loan in full concurrent with the consummation of the Company's initial public offering. During fiscal year 1996, the largest amount owing by Mr. Layton was $395,052 and as of May 31, 1996, Mr. Layton was indebted to the Company in the amount of $395,652. The indebtedness owing by Mr. Layton accrues interest at the rate charged to the Company for working capital borrowings and is due and payable in one installment on December 31, 1996. David Heap, the Company's Chairman of the Board and Chief Executive Officer, owns approximately a one- third equity interest in a small computer supplies dealer, Business Software Centers, Inc. ("BSC"). In December 1991, Mr. Heap agreed to remit to the Company any dividends, distributions or other amounts which he may receive in respect of such interest. Mr. Heap has not received any dividends, distributions or other amounts in respect of his equity interest and it is unlikely that he will receive any in the future. During fiscal year 1996, the Company's sales to BSC aggregated approximately $1,520,000, and constituted less than 1% of the Company's total sales in such fiscal year. Such sales were made in accordance with the Company's usual terms, except that BSC received extended payment terms in return for which BSC agreed, among other things, to provide the Company with quarterly financial information. In December 1993, the Company and BSC agreed that (i) $500,000 of the past due trade receivable then owing by BSC would be evidenced by a promissory note, payable in -47- 48 48 monthly installments and accruing interest at the rate of 7% per annum, (ii) the Company would provide BSC with 60 day credit terms up to a maximum amount of $350,000 (subject to BSC continuing to meet its obligations under the note), (iii) BSC would provide the Company with quarterly financial information and (iv) at such time as the note is paid in full, Mr. Heap will transfer to BSC, for a nominal consideration, the one-third equity interest held in BSC. As of May 31, 1996, there was approximately $152,000 outstanding under the note and there were no past due trade amounts payable by BSC to the Company. See Note 5 of the Notes to Consolidated Financial Statements. -48- 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets as of March 31, 1996 and 1995 Consolidated Statements of Operations for the Fiscal Years Ended March 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Report of Independent Public Accountants on Financial Statement Schedules Schedule VIII - Valuation and Qualifying Accounts All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. 3. Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(*) - Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.1.1(*) - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.2(1) - Amended and Restated By-laws of Daisytek International Corporation. 10.1(2) - Employee Stock Option Plan of Daisytek International Corporation. 10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation. 10.3(*) - Non-Employee Director Stock Option and Retainer Plan.
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10.4(3) - Credit Agreement dated May 22, 1995 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank National Association, as Agent, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5(2) - Industrial Lease Agreement between Industrial Developments International, Inc. and Daisytek, Incorporated, as amended. 10.6(2) - Lease Agreement dated September 30, 1991 between AmWest Savings Association and Daisytek, Incorporated, as amended. 10.7(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc. 10.8(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6) Inc. and Daisytek (Canada) Inc. 10.9(2) - Lease Agreement dated December 30, 1988 between Daisytek, Incorporated and State Street Bank and Trust Company. 10.10(2) - Term Lease Master Agreement dated November 29, 1990 between IBM Credit Corporation and Daisytek, Incorporated. 10.11(5) - U.S. Reseller Agreement dated March 1, 1995 between Hewlett-Packard Company and Daisytek, Incorporated, with Addendum. 10.11.1(*) - Amendment dated March 1, 1996 to U.S. Reseller Agreement dated March 1, 1995 between Hewlett- Packard Company and Daisytek, Incorporated. 10.12(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V. 10.13(2) - Agreement dated March 31, 1993 between Daisytek International Corporation and William Blair Leveraged Capital Fund, Limited Partnership ("WBLCF"). 10.14(2) - Agreement dated December 23, 1991 between David Heap and Bradford Holdings Group, Ltd. 10.15(2) - Stock Purchase Agreement dated as of December 13, 1991 between Daisytek, Incorporated and WBLCF. 10.16(2) - First Amendment Agreement dated as of December 23, 1991 between Bradford Holdings Group, Ltd. ("Bradford"), Daisytek, Incorporated and WBLCF. 10.17(2) - Registration Agreement dated December 23, 1991 between Bradford and WBLCF. 10.18(2) - Amendment and Waiver of Registration Agreement dated as of December 2, 1994. 10.19(2) - Stockholders Agreement dated December 23, 1991 between Bradford, WBLCF and certain stockholders and optionholders. 10.20(2) - Amendment and Waiver of Stockholders Agreement dated December 2, 1994. 10.21(2) - Marketing Advantage Program Enrollment Agreement dated November 11, 1994 between Federal Express Corporation and Daisytek, Incorporated. 10.22(2) - Bonus Agreement dated December 16, 1993 between Daisytek International Corporation, David Heap and Mark Layton. 10.23(2) - Memorandum of Understanding dated October 22, 1993, between Business Software Centers, Inc. and Daisytek, Incorporated. 10.24(6) - Lease Agreement dated May 22, 1995 between New World Partners Joint Number Three and Daisytek Latin America, Inc.
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10.25(7) - Forward Exchange Contract dated May 25, 1995 between Daisytek and Texas Commerce Bank. 10.26(7) - Letter Agreement dated November, 1995 between Daisytek International Corporation, WBLCF and David Heap. 10.27(7) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and David A. Heap. 10.28(7) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and Mark C. Layton. 10.29(7) - Second Amendment to Industrial Lease Agreement between New York Life Insurance Company and Daisytek, Incorporated. 10.30(7) - Agreement dated December 19, 1995 between Diesel Recon Company and Daisytek, Incorporated. 10.31(7) - Sixth Modification to Lease Agreement dated November 30, 1995 between Atrium Associates, L.P. and Daisytek Incorporated. 10.32(*) - Option to Purchase Shares of Common Stock dated April 11, 1996 between Daisytek International Corporation and David Heap. 11(*) - Statement re computation of per share earnings. 21(*) - Subsidiaries of the Registrant. 23(*) - Consents. 27(*) - Financial Data Schedule.
- ------------------------ (*) Filed herewith. (1) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1994 dated March 10, 1995. (2) Incorporated by reference from Registration Statement on Form S-1 No. 33-86926. (3) Incorporated by reference from Current Report on Form 8-K dated May 22, 1995. (4) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 dated June 23, 1995. (5) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 1995 dated November 13, 1995. (6) Incorporated by reference from Current Report on Form 8-K dated August 22, 1995. (7) Incorporated by reference from Registration Statement on Form S-1 No. 33-99796. (b) Reports on Form 8-K 1. On January 9, 1996, the Company filed a Current Report on Form 8-K to report under Item 5 the Company's press release dated January 8, 1996 announcing third quarter results. 2. On February 22, 1996, the Company filed a Current Report on Form 8-K to report under Item 5 the Company's press release dated February 22, 1996 announcing the appointment of Michael Krasny to the Board of Directors. -51- 52 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Daisytek International Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Daisytek International Corporation (a Delaware corporation) and subsidiaries included in this Form 10-K and have issued our report thereon dated April 23, 1996. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule VIII of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas, April 23, 1996 -52- 53 SCHEDULE VIII DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended March 31, 1996 (Amounts in Thousands)
ADDITIONS --------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COST AND OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ---------- ---------- ------------ ---------- ------------ Fiscal Year Ended March 31, 1994: Allowance for doubtful accounts $ 502 899 -- (740) $ 661 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance $ 218 (218) -- -- -- Fiscal Year Ended March 31, 1995: Allowance for doubtful accounts $ 661 750 -- (351) $ 1,060 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance -- 378 -- -- $ 378 Fiscal Year Ended March 31, 1996: Allowance for doubtful accounts $ 1,060 999 -- (776) $ 1,283 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance $ 378 8 -- -- $ 386
-53- 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAISYTEK INTERNATIONAL CORPORATION By: /s/ MARK C. LAYTON --------------------------------- Mark C. Layton, President June 26, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ DAVID A. HEAP Chairman of the Board and June 26, 1996 - ----------------------------------- Chief Executive Officer David A. Heap (principal executive officer) /s/ MARK C. LAYTON President and Director June 26, 1996 - ------------------------------------- (principal financial officer) Mark C. Layton /s/ THOMAS J. MADDEN Vice President - Finance June 26, 1996 - ------------------------------------- (principal accounting officer) Thomas J. Madden /s/ CHRISTOPHER YATES Director June 26, 1996 - ---------------------------------- Christopher Yates /s/ TIMOTHY M. MURRAY Director June 26, 1996 - ---------------------------------- Timothy M. Murray /s/ EDGAR D. JANNOTTA, JR. Director June 26, 1996 - ---------------------------------- Edgar D. Jannotta, Jr. /s/ MICHAEL P. KRASNY Director June 26, 1996 - ---------------------------------- Michael P. Krasny /s/ PETER P.J. VIKANIS Director June 26, 1996 - ---------------------------------- Peter P.J. Vikanis
-54- 55 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(*) - Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.1.1(*) - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.2(1) - Amended and Restated By-laws of Daisytek International Corporation. 10.1(2) - Employee Stock Option Plan of Daisytek International Corporation. 10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation. 10.3(*) - Non-Employee Director Stock Option and Retainer Plan. 10.4(3) - Credit Agreement dated May 22, 1995 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank National Association, as Agent, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5(2) - Industrial Lease Agreement between Industrial Developments International, Inc. and Daisytek, Incorporated, as amended. 10.6(2) - Lease Agreement dated September 30, 1991 between AmWest Savings Association and Daisytek, Incorporated, as amended. 10.7(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc. 10.8(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6) Inc. and Daisytek (Canada) Inc. 10.9(2) - Lease Agreement dated December 30, 1988 between Daisytek, Incorporated and State Street Bank and Trust Company. 10.10(2) - Term Lease Master Agreement dated November 29, 1990 between IBM Credit Corporation and Daisytek, Incorporated. 10.11(5) - U.S. Reseller Agreement dated March 1, 1995 between Hewlett-Packard Company and Daisytek, Incorporated, with Addendum. 10.11.1(*) - Amendment dated March 1, 1996 to U.S. Reseller Agreement dated March 1, 1995 between Hewlett- Packard Company and Daisytek, Incorporated. 10.12(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V. 10.13(2) - Agreement dated March 31, 1993 between Daisytek International Corporation and William Blair Leveraged Capital Fund, Limited Partnership ("WBLCF"). 10.14(2) - Agreement dated December 23, 1991 between David Heap and Bradford Holdings Group, Ltd. 10.15(2) - Stock Purchase Agreement dated as of December 13, 1991 between Daisytek, Incorporated and WBLCF. 10.16(2) - First Amendment Agreement dated as of December 23, 1991 between Bradford Holdings Group, Ltd. ("Bradford"), Daisytek, Incorporated and WBLCF. 10.17(2) - Registration Agreement dated December 23, 1991 between Bradford and WBLCF. 10.18(2) - Amendment and Waiver of Registration Agreement dated as of December 2, 1994. 10.19(2) - Stockholders Agreement dated December 23, 1991 between Bradford, WBLCF and certain stockholders and optionholders.
56
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.20(2) - Amendment and Waiver of Stockholders Agreement dated December 2, 1994. 10.21(2) - Marketing Advantage Program Enrollment Agreement dated November 11, 1994 between Federal Express Corporation and Daisytek, Incorporated. 10.22(2) - Bonus Agreement dated December 16, 1993 between Daisytek International Corporation, David Heap and Mark Layton. 10.23(2) - Memorandum of Understanding dated October 22, 1993, between Business Software Centers, Inc. and Daisytek, Incorporated. 10.24(6) - Lease Agreement dated May 22, 1995 between New World Partners Joint Number Three and Daisytek Latin America, Inc. 10.25(7) - Forward Exchange Contract dated May 25, 1995 between Daisytek and Texas Commerce Bank. 10.26(7) - Letter Agreement dated November, 1995 between Daisytek International Corporation, WBLCF and David Heap. 10.27(7) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and David A. Heap. 10.28(7) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and Mark C. Layton. 10.29(7) - Second Amendment to Industrial Lease Agreement between New York Life Insurance Company and Daisytek, Incorporated. 10.30(7) - Agreement dated December 19, 1995 between Diesel Recon Company and Daisytek, Incorporated. 10.31(7) - Sixth Modification to Lease Agreement dated November 30, 1995 between Atrium Associates, L.P. and Daisytek Incorporated. 10.32(*) - Option to Purchase Shares of Common Stock dated April 11, 1996 between Daisytek International Corporation and David Heap. 11(*) - Statement re computation of per share earnings. 21(*) - Subsidiaries of the Registrant. 23(*) - Consents. 27(*) - Financial Data Schedule.
___________________________________ (*) Filed herewith. (1) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1994 dated March 10, 1995. (2) Incorporated by reference from Registration Statement on Form S-1 No. 33-86926. (3) Incorporated by reference from Current Report on Form 8-K dated May 22, 1995. (4) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 dated June 23, 1995. (5) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 1995 dated November 13, 1995. (6) Incorporated by reference from Current Report on Form 8-K dated August 22, 1995. (7) Incorporated by reference from Registration Statement on Form S-1 No. 33-99796. EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DAISYTEK INTERNATIONAL CORPORATION (Pursuant to Section 245 of the General Corporation Law of the State of Delaware) DAISYTEK INTERNATIONAL CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify as follows: 1. The name of the corporation is DAISYTEK INTERNATIONAL CORPORATION (the "Corporation"). 2. The name under which the Corporation was originally incorporated is Bradford Holdings Group, Ltd. and the date of filing the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was December 17, 1991, as amended on January 26, 1993 and Certificate of Correction filed on January 25, 1995. 3. This Amended and Restated Certificate of Incorporation amends and restates the provisions of the Certificate of Incorporation of the Corporation, as amended, and was duly adopted by the written consent of the stockholders of the Corporation entitled to vote thereon in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the "GCL"). 4. The Certificate of Incorporation of the Corporation, as amended and restated hereby, shall, upon its filing with the Secretary of State of the State of Delaware, read in its entirety as follows: FIRST: The name of the corporation is Daisytek International Corporation (the "Corporation"). SECOND: The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation and the nature and objects of the business to be transacted, promoted, and carried on are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 2 FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 11,000,000 shares, divided into two classes as follows: (i) 1,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"); and (ii) 10,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"). Upon the filing and effectiveness of this Amended and Restated Certificate of Incorporation with the Office of the Secretary of State of the State of Delaware, each of the previously authorized, issued and outstanding shares of Common Stock, $.01 par value, is hereby converted and split into and shall become 1.45 shares of Common Stock, $.01 par value, and any fractional shares arising therefrom shall be rounded (up or down) to the nearest whole share and any surplus created or arising out of the stock split, if any, shall be paid-in surplus. The designations and the powers, preferences, rights, qualifications, limitations, and restrictions of the Preferred Stock and the Common Stock of the Corporation are as follows: A. Provisions Relating to the Preferred Stock. 1. The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations, and restrictions thereof as are stated and expressed herein and in the resolution or resolutions providing for the issuance of such class or series adopted by the board of directors of the Corporation as hereafter prescribed. 2. Authority is hereby expressly granted to and vested in the board of directors of the Corporation to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, and with respect to each such class or series of the Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the following: (i) whether or not such class or series is to have voting rights, full, special, or limited, or is to be without voting rights, and whether or not such class or series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock; (ii) the number of shares to constitute such class or series and the designations thereof; (iii) the preferences, and relative, participating, optional, or other special rights, if any, and the qualifications, limitations, or restrictions thereof, if any, with respect to any such class or series; (iv) whether or not the shares of any such class or series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the -2- 3 form of cash, notes, securities, or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption; (v) whether or not the shares of such class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the operation thereof; (vi) the dividend rate, whether dividends are payable in cash, stock of the Corporation, or other property, or a combination thereof, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate; (vii) the preferences, if any, and the amounts thereof which the holders of any such class or series shall be entitled to receive upon the voluntary and involuntary dissolution of, or upon any distribution of the assets of, the Corporation; (viii) whether or not the shares of any such class or series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities, or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and (ix) such other special rights and provisions with respect to any such class or series as may to the board of directors of the Corporation seem advisable. 3. The shares of each class or series of the Preferred Stock may vary from the shares of any other class or series thereof in any or all of the foregoing respects. The board of directors of the Corporation may increase the number of shares of Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The board of directors of the Corporation may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution, subtracting from such series unissued shares of the Preferred Stock designated for such class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock. -3- 4 B. Provisions Relating to the Common Stock. 1. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock standing in such holder's name on the records of the Corporation on each matter submitted to a vote of the stockholders. 2. Subject to the rights of the holders of the Preferred Stock, the holders of the Common Stock shall be entitled to receive when, as, and if declared by the board of directors of the Corporation, out of funds legally available therefor, dividends payable in cash, stock or otherwise. 3. Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, and after the holders of the Preferred Stock and the holders of any bonds, debentures, or other obligations of the Corporation shall have been paid in full the amounts to which they shall be entitled (if any), or a sum sufficient for such payment in full shall have been set aside, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests, to the exclusion of the holders of the Preferred Stock and any bonds, debentures, or other obligations of the Corporation. C. General. 1. Subject to the foregoing provisions of this Certificate of Incorporation, the Corporation may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (in any form, but not less in value than the par value thereof) as may be fixed by the board of directors of the Corporation, which is expressly authorized to fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. 2. The Corporation shall have authority to create and issue rights and options entitling their holders to purchase or otherwise acquire shares of the Corporation's capital stock of any class or series or other securities of the Corporation, and such rights and options shall be evidenced by instrument(s) approved by the board of directors of the Corporation or any committee thereof. The board of directors of the Corporation or any committee thereof shall be empowered to set the exercise price, duration, times for exercise, and other terms of such options or rights; provided, however, that the consideration to be received (which may be in any form) for any shares of capital stock subject thereto shall have a value not less than the par value thereof. FIFTH: No contract or transaction between the Corporation and one or more of its directors, officers, or stockholders or between the Corporation and any person (as -4- 5 used herein "person" means any other corporation, partnership, association, firm, trust, joint venture, political subdivision, or instrumentality) or other organization in which one or more of its directors, officers, or stockholders are directors, officers, or stockholders, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the board of directors, a committee thereof (to the extent permitted by applicable law), or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. SIXTH: 1. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board of Directors at any time specifies that such persons are entitled to the benefits of this Article. -5- 6 2. The Corporation shall, from time to time, reimburse or advance to any director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the GCL, such expenses incurred by or on behalf of any director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such director or officer (or other person indemnified hereunder), to repay any such amount so advanced, if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such director, officer or other person is not entitled to be indemnified for such expenses. 3. The rights to indemnification, and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Restated Certificate of Incorporation, the By-laws of the Corporation, any agreement, any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 4. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article shall continue as to a person who has ceased to be a director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 5. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article, the By-laws or under Section 145 of the GCL or any other provision of law. 6. The provisions of this Article shall be a contract between the Corporation, on the one hand, and each director and officer who serves in such capacity at any time while this Article is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such director, officer, or other person intend to be legally bound. No repeal or modification of this Article shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article shall be enforceable by any person -6- 7 entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 8. Any director or officer of the Corporation serving in any capacity for (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 9. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. SEVENTH: All the powers of the Corporation, insofar as the same may be lawfully vested by this Certificate of Incorporation in the board of directors, are hereby conferred upon the board of directors. In furtherance and not in limitation of that power, the board of directors shall have the power, upon the affirmative vote of a majority of the Classified Directors (as hereinafter defined) at a meeting lawfully convened, to make, adopt, alter, amend, and repeal from time to time the Bylaws of the Corporation and to make from time to time new Bylaws of the Corporation, subject to the right of the stockholders entitled to vote thereon to adopt, alter, amend, and repeal Bylaws made by the board of directors or to make new Bylaws; provided, however, that the stockholders of the Corporation shall be entitled to adopt, alter, amend, or repeal Bylaws made by the board of directors or to make new Bylaws solely upon the affirmative vote of the holders of at least a majority of the outstanding shares of each class of capital stock of the Corporation then entitled to vote thereon. -7- 8 EIGHTH: Except for the provisions of Article SIXTH and NINTH herein, the Corporation reserves the right to amend, alter, change, or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law and all rights conferred on officers, directors, and stockholders herein are granted subject to this reservation. NINTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or amendment of this Article NINTH by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation arising from an act or omission occurring prior to the time of such repeal or amendment. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the foregoing provisions of this Article NINTH, a director shall not be liable to the Corporation or its stockholders to such further extent as permitted by any law hereafter enacted, including without limitation any subsequent amendment to the GCL. TENTH: 1. The number of directors constituting the board of directors shall be fixed by, or in the manner provided in, the Bylaws of the Corporation, provided that such number shall be no fewer than three and no more than ten (plus such number of directors as may be elected from time to time pursuant to the terms of any series of Preferred Stock that may be issued and outstanding from time to time). The directors of the Corporation (exclusive of directors who are elected pursuant to the terms of, and serve as representatives of the holders of, any series of Preferred Stock) shall be referred to herein as "Classified Directors" and shall be divided into three classes, with the first class referred to herein as "Class I," the second class as "Class II," and the third class as "Class III." Each class shall consist as nearly as possible of one-third (1/3) of the total number of directors making up the entire board of directors. The term of office of the initial Class I directors shall expire at the 1995 annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the 1996 annual meeting of stockholders, and the term of office of the initial Class III directors shall expire at the 1997 annual meeting of stockholders, with each director to hold office until his successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his successor shall have been duly elected and qualified. 2. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by series or by class (excluding holders of Common Stock), to elect directors, the election, term of office, filling of vacancies, and other features of such directorships shall be -8- 9 governed by the terms of this Certificate of Incorporation (including any amendment to this Certificate of Incorporation that designates a series of Preferred Stock), and such directors so elected by the holders of Preferred Stock shall not be divided into classes pursuant to this Article TENTH unless expressly provided by such terms. 3. Any or all Classified Directors may be removed, with cause, upon the affirmative vote of the holders of a majority of the outstanding shares of each class of capital stock of the Corporation then entitled to vote at an election of such Classified Directors. 4. Election of directors, whether Classified Directors or otherwise, need not be by written ballot. ELEVENTH: The Corporation expressly elects to be governed by Section 203 of the GCL. TWELFTH: Special meetings of stockholders of the Corporation may be called by the board of directors pursuant to a resolution adopted by a majority of the Classified Directors then serving, by the Chairman of the board of directors, or by any holder or holders of at least twenty-five percent (25%) of the outstanding shares of capital stock of the Corporation then entitled to vote on any matter for which the respective special meeting is being called. THIRTEENTH: Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, the affirmative vote of the holders of at least a majority of the outstanding shares of each class of capital stock of the Corporation then entitled to vote thereon shall be required to amend, alter, or repeal any one or more of Articles of this Restated Certificate of Incorporation. IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be executed and attested on this 26th day of January, 1995. DAISYTEK INTERNATIONAL CORPORATION By: /s/ DAVID A. HEAP ------------------------------------------ David A. Heap, Chairman and Chief Executive Officer ATTEST: /s/ HARVEY H. ACHATZ - --------------------------------- Harvey H. Achatz, Secretary -9- EX-3.1.1 3 CERTIFICATE OF AMENDMENT OF AMENDED & RESTATED CER 1 EXHIBIT 3.1.1 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DAISYTEK INTERNATIONAL CORPORATION (A DELAWARE CORPORATION) It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Daisytek International Corporation. 2. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Article FOURTH of Section 4 thereof and by substituting in lieu of said Article the following new Article FOURTH: "The total number of shares which the Corporation shall have authority to issue is Twenty-one Million (21,000,000) shares, consisting of One Million (1,000,000) shares of Preferred Stock, of a par value of One Dollar ($1.00) per share (hereinafter called "Preferred Stock"), and Twenty Million (20,000,000) shares of Common Stock, of the par value of One Cent ($.01) per share (hereinafter called "Common Stock")." 3. The amendment of the Amended and Restated Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed on August 2, 1996. DAISYTEK INTERNATIONAL CORPORATION By: ---------------------------------------- Mark C. Layton, President ATTEST: By: ------------------------------- Harvey Achatz, Secretary EX-10.3 4 NON-EMPLOYEE DIRECTOR STOCK OPTION & RETAINER PLAN 1 EXHIBIT 10.3 NON-EMPLOYEE DIRECTOR STOCK OPTION AND RETAINER PLAN OF DAISYTEK INTERNATIONAL CORPORATION Daisytek International Corporation, a corporation organized under the laws of the State of Delaware, hereby adopts this Non-Employee Director Stock Option and Retainer Plan. The purposes of this Plan are as follows: (1) To further the growth, development and financial success of the Company by providing incentives to its non-employee Directors by assisting them to become owners of the Company's Common Stock and thus to benefit directly from its growth, development and financial success. (2) To enable the Company to obtain and retain the services of qualified non-employee Directors in order to contribute to the long-range success of the Company by providing and offering them an opportunity to become owners of the Company's Common Stock. ARTICLE I DEFINITIONS Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates. Section 1.1 - Board "Board" shall mean the Board of Directors of the Company. Section 1.2 - Code "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.3 - Committee "Committee" shall mean the Committee appointed by the Board, as provided in Section 6.1. Section 1.4 - Company "Company" shall mean Daisytek International Corporation, a Delaware corporation. Section 1.5 - Director "Director" shall mean a member of the Board who is not an Employee. -1- 2 Section 1.6 - Effective Date "Effective Date" shall mean the date upon which this Plan shall be approved by the stockholders of the Company in accordance with the Company's bylaws. Section 1.7 - Employee "Employee" shall mean any employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of the Company, or of any corporation which is then a Parent Corporation or a Subsidiary. Section 1.8 - Exchange Act "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.9 - Non-Qualified Option "Non-Qualified Option" shall mean an Option which is not an incentive stock option and is not qualified under Section 422 of the Code. Section 1.10 - Officer "Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the future. Section 1.11 - Option "Option" shall mean an option to purchase Common Stock of the Company granted under the Plan. Section 1.12 - Optionee "Optionee" shall mean a Director to whom an Option is granted under the Plan. Section 1.13 - Parent Corporation "Parent Corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.14 - Plan "Plan" shall mean this Non-Employee Director Stock Option and Retainer Plan of Daisytek International Corporation. Section 1.15 - Retainer "Retainer" shall mean the annual cash retainer payable to each Director for services as a member of the Board and any committee or committees of the Board. -2- 3 Section 1.16 - Rule 16b-3 "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended in the future. Section 1.17 - Secretary "Secretary" shall mean the Secretary of the Company. Section 1.18 - Securities Act "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.19 - Shares "Shares" shall mean shares of the Company's Common Stock, $.01 par value. Section 1.20 - Subsidiary "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.21 - Termination "Termination" shall mean the time when the Director no longer serves as a member of the Board, including, but not by way of limitation, a termination by resignation, discharge, death or retirement. ARTICLE II SHARES SUBJECT TO PLAN Section 2.1 - Shares Subject to Plan The Shares of stock subject to this Plan shall be shares of the Company's Common Stock, $.01 par value. The aggregate number of such Shares which may be issued pursuant to this Plan shall be 50,000. Section 2.2 - Unexercised Options If any Option expires or is canceled without having been fully exercised, the number of Shares subject to such Option but as to which such Option was not exercised prior to its expiration or cancellation, may again be optioned hereunder, subject to the limitations of Section 2.1. Section 2.3 - Changes in Company's Shares In the event that the outstanding Shares of Common Stock of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, appropriate adjustments shall be made by the Committee in the number and kind of Shares which may be issued hereunder, including adjustment to the number of Options to be issued to Directors hereunder and adjustment to the aggregate number of Shares subject hereto. -3- 4 ARTICLE III RETAINER FEES AND GRANTING OF OPTIONS Section 3.1 - Payment of Retainer (a) Commencing on the Effective Date, each Director may elect under the Plan to receive payment of any Retainer (in such installments as such Retainer shall be payable) in Shares, in lieu of cash, by submitting a written election (the "Notice of Election") to the Company. The Notice of Election shall become effective six months following the date of the Notice of Election or such earlier date as may be permitted under Rule 16b-3 (the "Election Effective Date") and, from and after the Election Effective Date, all Retainers payable to the electing Director (whether in installments or otherwise) shall be payable in Shares in the manner set forth herein. (b) Each Notice of Election shall become effective on its Election Effective Date and shall continue in effect until revoked by the electing Director in a written notice of revocation (the "Notice of Revocation") delivered to the Company; provided, however, that no Notice of Revocation shall become effective until six months following the date of the Notice of Revocation or such earlier date as may be permitted under Rule 16b-3. (c) If no Notice of Election is submitted to the Company, all Retainers shall be payable in cash. Section 3.2 - Number of Shares The number of Shares to be issued to each Director electing to have his or her Retainer paid in Shares shall be determined by dividing the dollar amount of the then payable Retainer by the fair market value of the Shares as of the most recent trading day immediately prior to the date the Retainer is otherwise payable. No fractional Shares shall be issued and any fractional Share shall be rounded to the nearest whole Share. Subject to the terms and provisions hereof, all Shares shall be issued in certificate form in the name of the Director (or any designee) as promptly as practicable following the date of payment. For purposes of this Section, fair market value shall be determined in accordance with Section 4.2(b) below. Section 3.3 - Eligibility Each Director shall be granted Options in accordance with the provisions set forth herein. Section 3.4 - Non-Qualification of Options Each Option shall be a Non-Qualified Option. Section 3.5 - Granting of Options (a) Each person who is a Director on the Effective Date shall receive an Option to purchase 1,000 Shares as of such date. (b) Options shall be granted to each Director under this Plan with respect to the Company's 1997 fiscal year and each fiscal year thereafter so long as this Plan remains in effect, provided, however, that for each such fiscal year, the Company's consolidated income from operations before taxes (excluding such extraordinary, unusual or non-recurring items as the Committee shall determine to be appropriate, in accordance with generally accepted accounting principles) ("EBT") must equal or exceed the projected EBT for such year as set forth in the annual budget for such year approved by the Board within 90 days of the first day of such fiscal year. -4- 5 (c) No Options shall be granted to any Director in respect of the 1997 fiscal year or any fiscal year thereafter if the Company's EBT for such fiscal year does not equal or exceed the projected EBT for such year as aforesaid. (d) For each fiscal year for which Options shall be granted hereunder, the number of Options to be granted to each Director shall equal the sum of the "Option Amount" plus the "Adjustment Amount." As used herein, the "Option Amount" shall mean the number of Options granted to each Director hereunder for the immediately preceding year (which shall be 1,000 for fiscal year 1996) and the "Adjustment Amount" shall mean the product obtained by multiplying (1) the percentage increase, if any, in the Company's EBT for such fiscal year over the Company's EBT for the immediately preceding fiscal year by (2) the Option Amount. (e) Subject to the provisions set forth above, the Options to be granted to each Director hereunder in respect of each fiscal year shall be granted to those persons serving as Directors on the date of the Company's Annual Meeting of Stockholders immediately following the last day of such fiscal year, provided that such Director shall have attended at least 75% of the meetings of the Board (which may include committee meetings) held during such fiscal year. (f) For purposes of illustration, if the Company's fiscal 1997 EBT equals or exceeds the projected EBT for such year, and if the Company's fiscal 1997 EBT is 10% greater than the Company's fiscal 1996 EBT, then each person serving as a Director on the date of the Company's 1997 Annual Meeting of Stockholders (to be held following the last day of the 1997 fiscal year) shall receive 1,100 Options, calculated as follows: Option Amount = 1,000 = Options granted for fiscal year 1996 Adjustment Amount = 100 = 1,000 x 10% Options Granted = 1,100 ARTICLE IV TERMS OF OPTIONS Section 4.1 - Option Agreement Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized Officer of the Company and which shall contain such terms and conditions as are consistent with the Plan. Section 4.2 - Option Price (a) The price of the Shares subject to each Option shall be equal to 100% of the fair market value of such Shares on the date such Option is granted. (b) For purposes of the Plan, the fair market value of a Share of the Company's Common Stock as of a given date shall be: (i) the closing price of a Share of the Company's Common Stock on the principal exchange on which Shares of the Company's Common Stock are then trading; or (ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the Company's Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Company's Common Stock, in each case, on such date as reported by NASDAQ or such successor quotation system; or (iii) if such Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Company's Common Stock, on such date, as determined in good faith by the Committee; or (iv) if the Company's Common Stock is not publicly traded, the fair market value established by the Committee acting in good faith. -5- 6 Section 4.3 - Commencement of Exercisability (a) No Option may be exercised in whole or in part during the six months after such Option is granted. (b) Subject to the provisions of paragraph (c) below, each Option granted hereunder shall be subject to the following cumulative vesting schedule: (i) Until the date which is one year from the date of grant, the Option shall not be vested and shall not be exercisable as to any of the shares subject thereto; (ii) From and after the date which is one year from the date of grant, the Option shall vest and be exercisable as to 15% of the number of shares subject thereto; (iii) From and after the date which is two years from the date of grant, the Option shall vest and be exercisable as to 50% of the original number of shares subject thereto; and (iv) From and after the date which is three years from the date of grant, the Option shall be fully vested and be exercisable as to 100% of the number of shares subject thereto. (c) Upon the Termination of the holder of an Option, such portion of such Option which has not then vested and become exercisable shall automatically become fully vested and exercisable, provided, however, that such Termination shall not be less than one year from the date of grant of such Option. Section 4.4 - Expiration of Options No Option may be exercised to any extent after the first to occur of the following events: (i) The expiration of ten years from the date the Option was granted; or (ii) Except in the case of any Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Optionee's Termination for any reason other than such Optionee's death; or (iii) With respect to an Option held by an Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Optionee's Termination for any reason other than such Optionee's death unless the Optionee dies within said one-year period; or (iv) The expiration of one year from the date of the Optionee's death with respect to all Options held by such Optionee. Section 4.5 - Adjustments in Outstanding Options In the event that the outstanding Shares of the stock subject to Options are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in an outstanding Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in Option price per share. Any such adjustment made by the Committee shall be final and binding upon all Optionees, the Company and all other interested persons. -6- 7 ARTICLE V EXERCISE OF OPTIONS Section 5.1 - Person Eligible to Exercise During the lifetime of the Optionee, only such Optionee may exercise an Option (or any portion thereof) granted to him; provided, however, that, unless otherwise prohibited by Rule 16b-3, an Optionee may transfer all or any portion of an Option to his spouse or immediate family member or any trust for the benefit thereof. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. Section 5.2 - Partial Exercise At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof becomes unexercisable under the Plan, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee may, by the terms of the Option, require any partial exercise to be with respect to a specified minimum number of shares. Section 5.3 - Manner of Exercise An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement: (a) Notice in writing signed by the Optionee or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and (b)(i) Full payment (in cash or by check) for the Shares with respect to which such Option or portion is thereby exercised; or (ii)(A) Shares of the Company's Common Stock owned by the Optionee duly endorsed for transfer to the Company or (B) subject to the timing requirements of Section 5.4, Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option, with a fair market value (as determined under Section 4.2(b)) on the date of Option exercise equal to the aggregate Option price of the Shares with respect to which such Option or portion is thereby exercised; or (iii) Any combination of the consideration provided in the foregoing subsections (i) and (ii); and (c) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; provided, that any combination of the following may be used to make all or part of such payment: (i) Shares of the Company's Common Stock owned by the Optionee duly endorsed for transfer or (ii) subject to the timing requirements of Section 5.4, Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option, valued in accordance with Section 4.2(b) at the date of Option exercise; and (d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on Share certificates and issuing stop-transfer orders to transfer agents and registrars; and -7- 8 (e) In the event that the Option or portion thereof shall be exercised pursuant to Section 5.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 5.4 - Certain Timing Requirements Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences of such exercise only (i) during the trading window period following the date of release of the quarterly or annual summary statement of sales and earnings of the Company as may be established by the Company for its senior executives from time to time or (ii) pursuant to an irrevocable written election by the Optionee to use Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option to pay all or part of the Option price or the withholding taxes made at least six months prior to the payment of such Option price or withholding taxes. Section 5.5 - Conditions to Issuance of Stock Certificates The Shares of stock issuable and deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares which have then been reacquired by the Company. The Company shall not be required to issue or deliver any certificate or certificates for Shares of stock issued in payment of any Retainer or purchased upon the exercise of any Option or portion thereof prior to the fulfillment of all of the following conditions: (a) The admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, if any such registration or qualification may be necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which may be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Secretary of the Company may establish from time to time for reasons of administrative convenience. ARTICLE VI ADMINISTRATION Section 6.1 - Committee The Plan shall be administered by the Committee which shall consist of two or more members of the Board, as the Board may appoint from time to time; provided, however that, in the absence of such appointment, the Plan shall be administered by the Board (in which event the term "Committee" as used herein shall mean the Board); provided, further, however, that, notwithstanding the foregoing, the Plan shall be construed, interpreted, implemented and administered in a manner sufficient to comply with the provisions of Rule 16b-3, and, in particular, in order to provide that the members of the Committee shall at all times satisfy the requirements set forth therein. -8- 9 Section 6.2 - Duties and Powers of Committee It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Section 6.3 - Majority Rule The Committee shall act by a majority of its members in office. The Committee may act either by vote at a meeting or by a memorandum or other written instrument signed by a majority of the Committee. Section 6.4 - Compensation; Professional Assistance; Good Faith Actions Members of the Committee shall receive such compensation for their services as members as may be determined by the Board. All expenses and liabilities incurred by members of the Committee in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its Officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Optionees, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by the Company in respect to any such action, determination or interpretation. ARTICLE VII OTHER PROVISIONS Section 7.1 - Options Not Transferable Except as set forth in Section 5.1 hereof, no Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent transfers by will or by the applicable laws of descent and distribution. Section 7.2 - Amendment, Suspension or Termination of the Plan The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee; provided, however, that no amendment or modification which requires shareholder approval under Rule 16b-3, if any, shall be effective in the absence of such approval. Neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, impair any rights or obligations under any Option theretofore granted. No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under this Plan after the first to occur of the following events: (a) March 31, 2006; or (b) The expiration of ten years from the date the Plan is approved by the Company's shareholders under Section 7.3. -9- 10 Section 7.3 - Approval of Plan by Shareholders This Plan will be submitted for the approval of the Company's shareholders within 12 months after the date of the Board's initial adoption of the Plan. No Options shall be granted prior to such shareholder approval. The Company shall take such actions with respect to the Plan as may be necessary to satisfy the requirements of Rule 16b- 3(b). Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent Corporation or any Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company, any Parent Corporation or any Subsidiary to (a) establish any other forms of incentives or compensation for employees and Directors of the Company, any Parent Corporation or any Subsidiary or (b) grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. Section 7.5 - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Section 7.6 - Conformity to Securities Laws The Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. -10- EX-10.11.1 5 AMENDMENT DATED 3/1/96 TO U.S. RESELLER AGREEMENT 1 EXHIBIT 10.11.1 Hewlett-Packard Company 5301 Stevens Creek Boulevard PO Box 58059 Santa Clara, California 95052-8059 January 1, 1996 1996 Agreement #: 57AIR DAISYTEK 500 NORTH CENTRAL EXPRESSWAY FIFTH FLOOR PLANO TX 75074 Customer ICN: 1988 Dear DAISYTEK, In HP's quest to simplify the contracting and negotiating process, your 1996 HP Agreement and Addendum is based substantially on your 1995 Agreement and Addendum. In fact, the text of the 1995 Agreement, Addendum and Exhibit L as negotiated between HP and you is carried forward and repeated in 1996, except for those modifications indicated in this letter. All other terms and conditions of your 1995 Agreement remain unchanged. Included with this letter are the new companion documents which form a part of your 1996 Agreement, the Operations Policy Manual, Product Acquisition and Resale Categories and Product Exhibits. Amendments to your U.S. Reseller Agreement: Section 2.A.3 Status Change: Modify to read as follows: "Undergo a merger, acquisition, consolidation or other reorganization with the result that any entity controls 50 percent or more of Reseller's capital stock or assets after such transaction; or " Section 10 Price Adjustments; Price Protection: Deleted and moved to the Operations Policy Manual (OPM) as modified. Section 16 Reseller Record Keeping: Modify to read as follows: "HP or HP's designate will be given prompt access during normal business hours, either on sight or through other means specified by HP to Reseller's customer records of account specifically related to HP Products as HP believes are reasonably necessary to verify and audit Reseller's compliance with this Agreement". Amendment to your U.S. Supplies Reseller Addendum: Section 3.H Reseller Responsibilities: Deleted and moved as modified to the HP Product Acquisition and Resale Categories. 2 Amendment to your U.S. Office Machine Distributor Addendum: Section 3.I Distributor Responsibilities: Deleted and moved as modified to the HP Product Acquisition and Resale Categories. Amendment to your U.S. Consumer Products Distributor Addendum: Section 3.F Distributor Responsibilities: Deleted and moved as modified to the HP Product Acquisition and Resale Categories. Signature Page: Change effective date to 3/1/96 and the expiration date to 2/28/97. AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY /s/ Mark C. Layton /s/ Sue Weatherman Authorized Signature Sue Weatherman, Reseller Contracts Manager Mark C. Layton 3/1/96 Typed Name Date President Title 2/12/96 Date EX-10.32 6 OPTION TO PURCHASE SHARES OF COMMON STOCK 1 EXHIBIT 10.32 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 11, 1996, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and DAVID A. HEAP (hereinafter referred to as "EMPLOYEE"): BACKGROUND 1. In consideration of services rendered, and to be rendered, by the Employee to the Company and its Subsidiaries, the Board has determined that it is in the best interests of the Company to issue this special one-time option to purchase shares of the Company's Common Stock. 2. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including the Employee Stock Option Plan of Daisytek International Corporation or the 1994 Stock Option Plan for Key Employees of Daisytek International Corporation); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "PARENT CORPORATION" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns 2 stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "SECRETARY" shall mean the Secretary of the Company. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SUBSIDIARY" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "TERMINATION OF EMPLOYMENT" shall mean the time when the employee-employer relationship between the Employee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement, but excluding any termination where there is a simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary. The Board, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment. II. GRANT OF OPTION 2.1 GRANT OF OPTION. In consideration of services rendered by the Employee and the Employee's agreement to remain in the employ of the Company, its Parent Corporations or its Subsidiaries and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Employee the option to purchase any part or all of FIFTEEN THOUSAND (15,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be Thirty-Two Dollars and Fifty Cents ($32.50) per share without commission or other charge. 2.3 CONSIDERATION TO COMPANY. In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company, a Parent Corporation or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one (1) year from the date this Option is granted. Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the -2- 3 rights of the Company, its Parent Corporation and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause. 2.4 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Employee, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of fifteen percent (15%) of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (b) Except as may otherwise be permitted by the Board, no portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or -3- 4 (ii) Except if (a) the Employee is totally disabled (within the meaning of Section 22(e)(3) of the Code), (b) the Employee retires within the meaning of clause (iv) below, or (c) the Employee dies, the expiration of three months from the date of the Employee's Termination of Employment for any reason unless the Employee dies within said three-month period; provided, however, that the Board reserves the right to cancel and terminate this Option immediately upon Termination of Employment for cause; or (iii) If the Employee is totally disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Employee's Termination of Employment by reason of his disability unless the Employee dies within said one-year period; or (iv) If the Employee retires after reaching the Company's normal retirement age or takes early retirement with the consent of the Board, the expiration of two years from the date of the Employee's Termination of Employment by reason of such retirement; or (v) The expiration of one year from the date of the Employee's death unless clause (iv) above provides a longer period of exercise; or (vi) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Board waives this provision in connection with such transaction. At least ten (10) days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Board shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3. 3.4 ACCELERATION OF EXERCISABILITY. In the event of the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, the Board may, in its absolute discretion and upon such terms and conditions as it deems appropriate, provide by resolution, adopted prior to such event and incorporated in the notice referred to in Section 3.3(vii), that at some time prior to the effective date of such event this Option shall be exercisable as to all the shares covered hereby, notwithstanding that this Option may not yet have become fully exercisable under Section 3.1(a); provided, however, that this acceleration of exercisability shall not take place if: (i) This Option becomes unexercisable under Section 3.3 prior to said effective date; or (ii) In connection with such an event, provision is made for an assumption of this Option or a substitution therefor of a new option by an employer corporation or a parent or subsidiary of such corporation. -4- 5 The Board may make such determinations and adopt such rules and conditions as it, in its absolute discretion, deems appropriate in connection with such acceleration of exercisability, including, but not by way of limitation, provisions to ensure that any such acceleration and resulting exercise shall be conditioned upon the consummation of the contemplated corporate transaction, and determinations regarding whether provisions for assumption or substitution have been made as defined in clause (ii) above. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Employee, only he may exercise the Option or any portion thereof. After the death of the Employee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Employee's will or under the then applicable laws of descent and distribution. 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one- hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Employee or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Board; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or (ii) With the consent of the Board, shares of the Company's Common Stock owned by the Employee duly endorsed for transfer to the Company with a fair market value (as determined by the Board) on the date of Option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or (iii) With the consent of the Board, any combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and -5- 6 (c) A bona fide written representation and agreement, in a form satisfactory to the Board, signed by the Employee or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Employee or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Board may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; provided, however, with the consent of the Board, shares of the Company's Common Stock owned by the Employee duly endorsed for transfer may be used to make all or part of such payment (which shares be valued at their fair market value on the date of Option exercise as shall be determined by the Board); and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Option. 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Employee upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences only (i) with the consent of the Board and (ii) during such periods of time as employees of the Company are permitted to buy or sell shares of Common Stock. 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Board): -6- 7 (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. -7- 8 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him or her at the address given beneath his or her signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. In Witness Whereof, the Company and the undersigned Employee have executed and delivered this Option as of the day and year above written. /s/ DAVID A. HEAP ----------------------------------- David A. Heap Daisytek International Corporation /s/ HARVEY H. ACHATZ ------------------------------- Name: Harvey H. Achatz Title: Vice President Administration and Secretary -8- EX-11 7 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Supplemental ------------------ Fiscal Year Ended Fiscal Year Ended March 31, March 31, --------------------------- ------------------- 1996 1995 1994 1995 1994 --------- -------- -------- -------- --------- Net income $10,767 $6,496 $4,257 $7,254 $5,026 ======= ====== ====== ====== ====== Weighted average common shares outstanding 6,757 5,542 5,288 6,683 6,668 ======= ====== ====== ====== ====== Net income per common share $ 1.59 $ 1.17 $ 0.81 $ 1.09 $ 0.75 ======= ====== ====== ====== ====== Calculation of weighted average common shares: Weighted average common stock outstanding 6,301 4,775 4,338 6,245 6,117 Weighted average common stock warrants, utilizing the treasury stock method (1) -- 329 399 -- -- Weighted average common stock options, utilizing the treasury stock method (1) 456 438 551 438 551 ------- ------ ------ ------ ------ 6,757 5,542 5,288 6,683 6,668 ======= ====== ====== ====== ======
- -------------------- (1) Utilizing the weighted average stock price of $15.67 per share for fiscal year 1995 and the public offering price of $15.00 per share for fiscal year 1994. EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF NAME INCORPORATION - ---- ------------- Daisytek, Incorporated Delaware Subsidiaries of Daisytek, Incorporated: Daisytek (Canada) Inc. Canada Working Capital of America, Inc. Delaware Working Capital Canada Inc. Canada Home Tech Depot, Inc. Delaware Daisytek De Mexico S.A. De C.V. Mexico Daisytek Latin America, Inc. Florida Supplies Express, Inc. Delaware Priority Fulfillment Services, Inc. Delaware Priority Fulfillment Services of Canada, Inc. Canada EX-23 9 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement (File No. 33-96728). ARTHUR ANDERSEN LLP Dallas, Texas, June 26, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1996 MAR-31-1996 204 0 70,452 1,283 44,358 117,184 15,631 6,136 128,601 60,521 17,069 0 0 63 51,598 128,601 464,169 464,169 416,199 416,199 0 999 1,482 17,464 6,697 10,767 0 0 0 10,767 1.59 0
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