-----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, NWwjtJd/ir3rzlozeZwww3aIFUzJ5587yB5EE0VJGp3pv0+A5u8VP38U0R7uC8cm vraiTwhuib+AtBr046j0BA== 0000950134-97-005003.txt : 19970630 0000950134-97-005003.hdr.sgml : 19970630 ACCESSION NUMBER: 0000950134-97-005003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 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: 97632131 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 YEAR ENDED MARCH 31, 1997 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, 1997 Commission File Number 0-25400 DAISYTEK INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2421746 (State or other jurisdiction of (I.R.S. Employer Number) incorporation or organization) 500 North Central Expressway, Plano, Texas 75074 (Address of principal executive offices)(Zip code) Registrant's telephone number, including area code: 972-881-4700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ---- The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 18, 1997 (based on the closing price as reported by the National Association of Securities Dealers Automated Quotation System) was $195,351,246. As of June 18, 1997, there were 6,763,744 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Part II - Prospectus dated January 25, 1996 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 13 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 21 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 43 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 51 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-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 8,000 products to approximately 24,000 customer locations, including value-added resellers ("VARs"), computer supplies dealers, office product dealers, contract stationers, buying groups, computer and office product superstores, warehouse clubs and other retailers who resell the products to end-users. The Company believes it is the largest wholesale distributor of non-paper computer and office automation supplies and accessories in the world. The Company sells primarily nationally known, name-brand products manufactured by over 150 original equipment manufacturers, including Hewlett- Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation, Apple, Panasonic, Kodak, Imation, Epson, Sony, Xerox and Maxell. The Company's products include consumable supplies such as laser toner, copier toner, inkjet cartridges, printer ribbons, diskettes, optical storage products, computer tape cartridges and accessories. The Company's products are used in a broad range of computer and office automation products, such as mainframe, mini, personal, laptop and notebook computers, laser and inkjet printers, photocopiers, fax machines and data storage products. The Company sells its products throughout the United States, Canada, Mexico, Australia and Latin America, as well as in other international markets, by utilizing sophisticated telemarketing technology, including a suite of electronic commerce tools, and innovative marketing programs. The Company presently operates one centralized "superhub" distribution center in Memphis, Tennessee, to service the U.S. and certain international markets and smaller regional sales and distribution centers in Miami, Florida, Mexico, Australia and Canada to service the Latin American, Mexican, Australian and Canadian markets, respectively. Most of the Company's U.S. shipments are shipped via Federal Express under a contractual arrangement (the "Federal Express Agreement") which, together with the Company's centralized distribution center, enables the Company to offer to its customers next business day delivery. During fiscal year 1996, the Company formed Priority Fulfillment Services ("PFS"), a wholly owned subsidiary, to provide outsourcing solutions to its business partners. Through PFS, the Company sells its core competencies in call center, product fulfillment, logistics and support services to client companies worldwide, primarily on a fee-based relationship. PFS customizes these services to meet specific requirements of these companies. PFS's call- center services include: order entry, order tracking and customer service (inbound), outbound telemarketing services and customized reporting of customer and call information. PFS utilizes primarily the Company's centralized distribution facility in Memphis, Tennessee to provide product fulfillment and logistics services, with additional distribution facilities available in Florida, Canada, Mexico and Australia. PFS maintains relationships with a number of shipping companies to provide next business day delivery on domestic package orders, truck shipments on larger domestic orders and a variety of air and surface delivery options for international orders. PFS also provides other support services such as invoicing, credit management and collection services, and accounting and systems support. -3- 4 PRODUCTS The Company distributes over 8,000 different non-paper computer and office automation supplies and related products and regularly updates its product line to reflect advances in technology and avoid product obsolescence. The Company's major product categories can generally be classified as follows: Non-Impact Printer Supplies. Non-impact printer supplies include toner cartridges, inkjet cartridges, optical photo conductor kits, copier supplies and fax supplies. Non-impact printers, such as laser printers, personal copiers and fax machines, are rapidly growing in popularity and have a wide range of applications. Sales of non-impact printer supplies accounted for approximately 53.5% of the Company's total net sales in fiscal year 1997. The Company also sells specialized all-in-one toner cartridges for laser printers produced by manufacturers such as Canon, Hewlett-Packard, Digital, Brother and Apple. Sales of these supplies accounted for approximately 23.6% of the Company's total net sales in fiscal year 1997. Impact Printer Supplies. Impact printer supplies include printwheels, ribbons, elements, fonts and other consumable supplies used in impact printers ranging from electronic typewriters to high speed dot matrix printers. While new technology is moving toward non-impact printing, the Company believes that a substantial installed base of impact printers, such as dot matrix printers, are still in use and require a continuing amount of consumable computer supplies. Sales of impact printer supplies accounted for approximately 8.1% of the Company's total net sales in fiscal year 1997. Magnetic Media Products. Magnetic media products include computer tapes, data cartridges, diskettes, optical disks and other products which store or record computer information and are used in a variety of computers ranging from notebook and personal computers to large mainframe computer systems. Sales of magnetic media products accounted for approximately 9.7% of the Company's total net sales in fiscal year 1997. Accessories and Other Products. Accessories sold by the Company include cleaning supplies, disk storage boxes, data cartridge storage, racks, surge protection devices, workstation accessories and anti-glare screens. The Company also sells a number of other products such as transparencies, banking supplies and selected business machines. Sales of accessories and other products accounted for approximately 5.1% of the Company's total net sales in fiscal year 1997. SUPPLIERS The Company's products are manufactured by over 150 original equipment manufacturers, including Hewlett-Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation, Panasonic, Epson, Imation, Sony, Xerox, Apple, Kodak and Maxell. During fiscal year 1997, approximately 74% of the Company's total net sales were derived from products supplied by the Company's ten largest suppliers, with the sale of Hewlett-Packard and Canon products accounting for approximately 35% and 11% of total net sales, respectively, and the sale of Lexmark, Digital Equipment Corporation, Epson, Okidata, Panasonic and Xerox products each accounting for between approximately 3% to 5% of total net sales. -4- 5 Many of the Company's suppliers offer rebate programs under which, subject to the Company purchasing certain predetermined amounts of inventory, the Company receives rebates based on a percentage of the dollar volume of total rebate program purchases. The Company also takes advantage of several other programs offered by substantially all of its suppliers. These include price protection plans under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory and stock rotation or stock balancing privileges under which the Company can return slow moving inventory in exchange for other products. In addition, in order to introduce new products, many suppliers will permit the Company to return all unsold inventory after an introductory trial period. Material changes by one or more of the Company's key suppliers of their pricing arrangements or other marketing programs may adversely effect the Company's business. The Company's purchases of inventory are closely tied to sales and are generally based upon the sales volume of the most recent six to ten week periods. Many of the Company's suppliers require minimum annual purchases which, for fiscal year 1998, will aggregate approximately $47 million. The Company has entered into written distribution agreements with Hewlett-Packard, Canon, Lexmark, Digital Equipment Corporation, Epson, Okidata, Panasonic and Xerox and many of the other major suppliers of the products it distributes. As is customary in the industry, these agreements generally provide non-exclusive distribution rights, have one year renewable terms and are terminable by either party at any time, with or without cause. The Company considers its relationships with its major suppliers, including Hewlett- Packard, Canon, Lexmark, Digital Equipment Corporation, Epson, Okidata, Panasonic and Xerox to be good; nevertheless, there can be no assurance that a material change in the Company's relationship with one or more of its major suppliers will not have a material adverse effect on the Company's business. Although the Company purchases most of its products directly from authorized U.S. manufacturers, the Company also imports products from foreign sources, particularly when fluctuations in foreign exchange rates or product prices make it attractive to do so. Similarly, depending upon product pricing and availability, the Company also purchases products from secondary sources, such as other wholesalers and selected dealers, rather than from the direct manufacturer. The Company utilizes its ability to purchase imported and secondary source products in order to provide its customers with competitive prices and a wide range of product lines. In order to ensure that such imported and secondary source products are not produced by unauthorized manufacturers, the Company has established various procedures which it believes enable it to identify unauthorized products and, to the extent possible, return such unauthorized products to the foreign or secondary source. Nevertheless, there can be no assurance that the Company will be completely successful in such efforts or that such imported and secondary source products will continue to be available or that any unavailability will not have a material adverse effect on the Company's business. SALES AND MARKETING The Company's customer and prospect list includes U.S., Canadian, Australian, Mexican, Latin American and foreign computer supplies dealers, office product dealers, VARs, buying groups, computer stores, contract stationers, computer and office product superstores, warehouse clubs, catalog merchandisers, college bookstores and other resellers. The Company currently ships its products to approximately 24,000 customer locations. The Company's typical customer is a small to -5- 6 medium sized reseller who does not have the resources to establish direct purchasing relationships with multiple manufacturers and, instead, must rely on wholesale distributors like the Company. The Company also sells its products to computer and office product superstores, which the Company believes will become an increasingly important group of customers as the Company demonstrates its ability to serve the superstores' need for timely delivery of fast-moving products and efficient distribution of a variety of product lines to multiple store locations in a more cost-effective manner than presently provided by many product manufacturers. No single customer accounts for more than 10% of the Company's sales for each of the fiscal years ended March 31, 1997, 1996 and 1995. At March 31, 1997, five computer and office product superstores and warehouse clubs represent approximately 26% of the Company's trade accounts receivable, with the largest being approximately 12% of trade accounts receivable, and reflects the increasing significance of this market segment. The Company's international sales accounted for approximately 18.6% of the Company's total net sales in fiscal year 1997, and the Company believes that international markets represent further opportunities for growth. To take advantage of the growing Far East and Australia marketplace, during fiscal year 1997, the Company acquired Lasercharge Pty Ltd, a large computer and office automation supplies wholesaler in Australia. To service the growing Latin American market, the Company opened a sales office and distribution center in Mexico City, Mexico during fiscal year 1995 and opened a similar facility in Miami, Florida, during fiscal year 1996. The Company also has sales and distribution operations in Canada. There can be no assurance, however, that the Company will be successful in these or other international efforts or that the risks inherent in international operations, such as currency fluctuations or the political or economic instability of certain foreign countries, such as Mexico, will not have a material adverse effect on the Company's results of operations. See Note 8 of the Notes to Consolidated Financial Statements for certain financial information regarding the Company's domestic and international sales during the last three fiscal years. The Company's sales force, as of March 31, 1997, consisted of approximately 221 telemarketing sales representatives located in the Company's headquarters in Plano, Texas, 32 telemarketing sales representatives located in the Company's office in Canada, 9 telemarketing sales representatives located in the Company's office in Mexico, 14 telemarketing sales representatives located in the Company's office in Australia, and 3 telemarketing sales representatives located in the Company's office in Miami, Florida. The Company relies on sophisticated telemarketing, direct mail programs and frequent innovative sales promotions and other marketing efforts. The Company's senior sales staff also often visits certain of the Company's customers in connection with the negotiation of large orders or customized programs. The Company's sales and telemarketing department is divided into several groups or teams, each having its own particular sales objective. For example, the Retail Department focuses specifically on large computer retailers, office product superstores and warehouse clubs and highlights the Company's ability to more efficiently distribute a wide variety of small shipments to a larger number of store locations than presently provided by product manufacturers. Similarly, a separate group of sales representatives are responsible for a select group of national accounts, such as contract stationers, office products dealers and buying groups, while others focus on new accounts, existing business or international and export sales. By utilizing sophisticated telemarketing software and call management systems, including caller identification, sales representatives are able to verify customer account numbers and contact persons and quickly identify a customer's buying patterns, recent purchases, credit availability and other sales and marketing information. The telecommunications software also enables -6- 7 sales and marketing management to better identify, control and monitor sales representatives' prospecting activity with the Company's new and existing customers. The Company provides extensive training for new sales personnel with special emphasis on the need for regular customer contact, response to customers' demands for product information and the need to inform customers of technological advancements by the Company's suppliers. The Company, together with its major suppliers, provide the Company's sales personnel with ongoing product-specific training and education emphasizing computer supplies as well as new technologies, new products and new product applications. In order to maintain its position as a low cost wholesale distributor, the Company regularly monitors the efficiency of its sales staff. By utilizing sophisticated telecommunications equipment, the Company is able to measure the number of calls being fielded by a sales representative, their success rate in terms of orders obtained compared to calls taken and customer service statistics, such as abandoned call rates and average response times. The Company's sales force receives a base salary as well as varying sales incentives based on gross profit margin achievements. In addition, a number of suppliers periodically offer sales bonus programs in connection with specific product sales campaigns which can further augment a sales representative's compensation. One of the Company's primary marketing tools is its quarterly catalog, known as the "Book of Deals." In order to promote its image as a low cost wholesaler and provider of value-added services, the Book of Deals will usually highlight a theme related to specific products, customer services or a combination of the two. The Company presently distributes a total of approximately 39,250 catalogs and contract price books to its active U.S. customers each quarter. The Company also distributes a separate Book of Deals designed specifically for each of its Canadian, Mexican and Australian subsidiaries. Other catalog-type marketing tools used by the Company include customized catalogs produced by the Company for the reseller to distribute to its end-user customers. The Company also distributes "flyers" which announce new product line additions or special promotions and are usually inserted in the Book of Deals or mailed directly to customers. Although the Book of Deals remains one of the Company's primary marketing tools, the Company also uses electronic commerce marketing tools as well. The Company believes it has established itself as a leader in the deployment of electronic commerce in the computer and office automation supplies and accessories industry. These tools are designed to win further market share and to reduce cost in the customer relationship by automating information flow. By accepting both externally developed commercially available technologies as well as internally developed proprietary technologies, the Company can offer a suite of electronic commerce solutions including: traditional X.12 and proprietary EDI; third party software systems such as DDMS, OPUS, Britannia, and Moore O.P. Services; and internet, intranet, and extranet systems. During fiscal year 1997, the Company introduced an electronic catalog and on-line ordering tool, known as "SOLO", the System for Online Ordering. SOLO provides customers with on-line ordering capabilities; fingertip access to up-to-date pricing, product and order information; search and retrieval capabilities based on part numbers, manufacturers, product description, retail price, machine compatibility and other factors; and convenient access to manufacturers' product literature and training videos. The Company provides CD-ROM, diskette and World Wide Web versions of SOLO. -7- 8 Certain of the Company's suppliers provide the Company with cooperative advertising programs, marketing development funds and other types of incentives and discounts which offset the production costs of the Company's quarterly Book of Deals, other published marketing tools and other related costs. The Company permits its customers to return defective products (most of which are then returned by the Company to the manufacturer) and incorrect shipments for credit against other purchases. During the last three fiscal years, the Company's net expense for returns of the Company's consumable supply products has not been material. MANAGEMENT INFORMATION SYSTEMS The Company maintains advanced management information systems and has automated virtually all key business functions using on-line, real time systems. These on-line systems provide management with information concerning sales, inventory levels, customer payments and other operations which is essential for the Company to operate as a low cost, high efficiency wholesale distributor. The implementation of these systems has allowed the Company to offer an advanced suite of electronic commerce tools to its customers so that the Company can communicate with their computer systems and automatically process, send and receive purchase orders, invoices and acknowledgments. The Company offers "customer links" to provide customers with direct access to a proprietary Company database to examine pricing, credit information, product description and availability and promotional information. This link also allows customers to place orders directly into the Company's order processing system. These systems also allow the Company to offer similar features to its customers through SOLO. The Company has also invested in advanced telecommunications, voice response equipment, electronic mail and messaging, automated fax technology, scanning, radio frequency technology, bar-coding, fiber optic network communications and automated inventory management. The Company also utilizes telecommunications technology which provide for automatic customer call recognition and customer profile recall for inbound telemarketing representatives and computer generated outbound call objectives for outbound telemarketing representatives. DISTRIBUTION During fiscal year 1993, the Company consolidated its five U.S. regional distribution centers into a new "superhub" distribution center located in Memphis, Tennessee. During fiscal year 1997, the Company more than doubled the size of this facility to its current size of 371,233 square feet. The facility is located approximately four miles from the Federal Express hub facility and contains automated conveyors, in-line scales for automatic accuracy checking, computerized sorting equipment, powered material handling equipment and scanning and bar-coding systems. Since the consolidation of its regional distribution centers and the opening of the Memphis distribution center, the Company has (i) reduced the amount of "safety stock" inventory previously carried in different distribution centers, which, in turn, has reduced the Company's working capital borrowings, (ii) increased its inventory turnover rate from approximately nine turns to approximately -8- 9 11 turns in fiscal year 1997, (iii) improved its order fill rate to a level of approximately 95%, (iv) improved personnel productivity and reduced shipping errors and their associated costs, (v) improved delivery time to most geographic areas through later order acceptance times (currently 9:00 p.m. eastern standard time) and, with the implementation of the Federal Express Agreement, next business day delivery and (vi) reduced real estate expenses. The Company believes that consumable supplies and other products sold by the Company are particularly suited to cost effective overnight delivery because of their unique value to weight characteristics. Accordingly, all of the Company's U.S. package orders are shipped via Federal Express, except for certain "heavyweight" packages or as otherwise requested by the customer. The Company's centralized distribution center, together with the implementation of the Federal Express Agreement, enables the Company to offer to its customers next business day delivery to most U.S. geographic areas. The Company ships virtually 100% of U.S. orders for product in stock on the same day. The material handling system at its Memphis distribution center includes several high technology enhancements, including an automated package routing system and a paperless order picking system. These systems have allowed the Company to substantially increase the package movement capacity within the existing facility, further improve package shipment accuracy and enhance the Company's ability to perform value-added services for its customers, including custom labeling and price stickering. EMPLOYEES As of March 31, 1997, the Company had 558 full-time employees and 109 part-time employees, of which 175 were in executive and administrative positions, including accounting, purchasing, credit and management information systems, 280 were in sales and marketing and 212 were in warehousing and related functions. None of the Company's employees are represented by a labor union, and the Company has never suffered an interruption of business as a result of a labor dispute. The Company considers its relations with its employees to be favorable, and the Company believes it will be able to continue this relationship by various employee incentive and participation programs, including employee stock options. The Company actively recruits college graduates through on-campus recruiting programs. Each newly-hired employee from this program is placed into the Company's training program for approximately three months which introduces them to most aspects of the Company's business. Management believes that this program is an important tool in recruiting and developing high quality individuals with management potential to support the Company's future growth. COMPETITION The Company believes that most, if not all, of its customers maintain several sources of supply for their product requirements. Accordingly, the Company competes with product manufacturers, general office supply wholesalers, other national and regional wholesale computer supplies distributors, computer hardware and software distributors and, to a lesser extent, non-specialized wholesaler distributors. Many of these competitors such as product manufacturers and general office supply wholesalers are larger and have substantially greater financial and other resources than the Company. -9- 10 Competition in the Company's industry is generally based on price, breadth of product lines, product and credit availability, delivery time and the level and quality of customer services. The Company competes primarily on the basis of its ability to offer low prices and quality service while maintaining a high level of operating efficiency. The Company believes its competitive advantages over product manufacturers and other wholesale distributors include its ability to efficiently maintain a wide selection of name brand products in stock ready to be shipped on a same day basis and delivered overnight, to efficiently distribute its products, to provide innovative and high quality value-added customer service programs and to respond to changing customer demands and product development. BACKLOG The Company does not have a significant backlog of orders and does not consider backlog to be material to an understanding of its business. ITEM 2. PROPERTIES The Company's U.S. sales and executive and administrative offices are located in a 52,363 square foot central office facility located in Plano, Texas, a Dallas suburb. The Company also operates regional sales and distribution centers in Toronto, Ontario; Mexico City, Mexico; Vancouver, British Columbia; Sydney, Australia and Miami, Florida. The Company's central distribution center is located in Memphis, Tennessee. See "Item 1. Business - Distribution." All of the Company's facilities are leased under leases which contain one or more multiple year renewal options. ITEM 3. LEGAL PROCEEDINGS The Company is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None -10- 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed and trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "DZTK." The following table sets forth for the period indicated the high and low sale price for the Common Stock as reported by the Nasdaq National Market:
PRICE ----- HIGH LOW ---- --- Fiscal year 1996 First Quarter $25 $19-1/8 Second Quarter $32-7/8 $21 Third Quarter $33 $26-1/4 Fourth Quarter $35-3/4 $27-3/4 Fiscal year 1997 First Quarter $47 $32-1/2 Second Quarter $44-1/8 $34-1/2 Third Quarter $43-1/2 $34-1/2 Fourth Quarter $42 $31
As of June 18, 1997, there were approximately 1,800 shareholders of which 107 were record holders of the Common Stock. The Company has never paid cash dividends on its Common Stock and does not anticipate the payment of cash dividends on its Common Stock in the foreseeable future. The Company currently intends to retain all earnings to finance the further development of its business. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA The selected historical consolidated statement of operations data presented below for each of the fiscal years ended March 31, 1997, 1996 and 1995, and the selected consolidated balance sheet data as of March 31, 1997 and 1996 have been derived from the consolidated financial statements of Daisytek International Corporation and subsidiaries, which statements have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere in this Form 10-K. The selected consolidated statement of operations data for the fiscal years ended March 31, 1994 and 1993, and the selected balance sheet data as of March 31, 1995, 1994 and 1993 have been derived from the Company's consolidated financial -11- 12 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, --------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (in thousands, except per share data) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $ 603,814 $ 464,169 $ 352,953 $ 276,699 $ 233,458 Cost of sales 543,848 416,199 316,982 247,480 208,972 Provision for losses from disposal of software and hardware inventory -- -- -- 402 1,223 --------- --------- --------- --------- --------- Gross profit 59,966 47,970 35,971 28,817 23,263 Selling, general and administrative expenses 36,630 29,024 23,260 20,338 21,822 Other operating expenses -- -- -- -- 3,701 --------- --------- --------- --------- --------- Income (loss) from operations 23,366 18,946 12,711 8,479 (2,260)(1) Interest expense 1,677 1,482 2,050 1,726 1,723 --------- --------- --------- --------- --------- Income (loss) before income taxes 21,659 17,464 10,661 6,753 (3,983) Provision (benefit) for income taxes 8,292 6,697 4,165 2,496 (1,062) --------- --------- --------- --------- --------- Net income (loss) $ 13,367 $ 10,767 $ 6,496 $ 4,257 $ (2,921) ========= ========= ========= ========= ========= PER SHARE DATA (2): Net income (loss) per common share $ 1.93 $ 1.59 $ 1.17 $ 0.81 $ (0.68) Weighted average common shares outstanding 6,913 6,757 5,542 5,288 4,310 Supplemental net income per common share (3) $ -- $ -- $ 1.09 $ 0.75 $ -- Supplemental weighted average common shares outstanding (3) -- -- 6,683 6,668 --
AS OF MARCH 31, --------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (in thousands) CONSOLIDATED BALANCE SHEET DATA: Working capital $ 80,248 $ 56,663 $ 43,427 $ 28,167 $ 22,290 Total assets 175,288 128,601 94,421 67,385 57,213 Long-term debt, net of current maturities 30,454 16,419 11,334 19,640 16,815 Shareholders' equity 67,193 51,661 40,817 15,937 11,844
- -------------------------- (1) The Company's income from operations for fiscal year 1993 would have been approximately $6.4 million without giving effect to the following events: (i) a $4.3 million loss from operations related to the Company's PC software and hardware division which was eliminated in fiscal year 1993, including a $1.2 million provision for losses from disposal of software and hardware inventory, (ii) a $3.7 million loss from operations related to the following other operating expenses: (1) the Company's write-off of trade receivables and advances owing from a related party in the aggregate amount of $1.2 million and establishment of a reserve of $0.5 million for trade receivables owing from another related party, (2) costs aggregating $1.6 million incurred by the Company in connection with the consolidation of its five U.S. regional distribution centers into one "superhub" distribution center in Memphis, Tennessee, and (3) costs aggregating $0.5 million incurred by the Company in connection with a withdrawn initial public offering and (iii) a $0.7 million loss from operations related to the Company's temporary reduction of outbound shipping rates as part of a promotional marketing program in connection with the opening of the Memphis distribution center. (2) Share data is based on the weighted average common shares and share equivalents outstanding for each period. (3) Adjusted for the events described in Note 11 of the Notes to Consolidated Financial Statements. -12- 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain financial information from the audited Consolidated Statements of Operations of Daisytek International Corporation and subsidiaries expressed as a percentage of net sales.
FISCAL YEAR ENDED MARCH 31, -=------------------------ 1997 1996 1995 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 90.1 89.7 89.8 ------ ------ ------ Gross profit 9.9 10.3 10.2 Selling, general and administrative expenses 6.0 6.2 6.6 ------ ------ ------ Income from operations 3.9 4.1 3.6 Interest expense 0.3 0.3 0.6 ------ ------ ------ Income before income taxes 3.6 3.8 3.0 Provision for income taxes 1.4 1.5 1.2 ------ ------ ------ Net income 2.2% 2.3% 1.8% ====== ====== ======
The following table sets forth certain unaudited quarterly financial data and certain data expressed as a percentage of net sales for fiscal years 1997 and 1996. The unaudited quarterly information includes all adjustments, consisting of only normal recurring adjustments, which management considers necessary for a fair presentation of the information shown. The financial data and ratios for any quarter are not necessarily indicative of results of any future period.
Fiscal Year 1997 Fiscal Year 1996 ------------------------------------------------ ------------------------------------------------ 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. ------------------------------------------------ ------------------------------------------------ (dollars in thousands) Net sales $ 174,343 $ 154,429 $ 138,148 $ 136,894 $ 137,237 $ 116,545 $ 105,421 $ 104,966 Gross profit $ 17,503 $ 15,204 $ 13,589 $ 13,670 $ 13,768 $ 12,233 $ 11,335 $ 10,634 Gross profit margin 10.0% 9.8% 9.8% 10.0% 10.0% 10.5% 10.8% 10.1% SG&A expenses $ 10,552 $ 9,375 $ 8,397 $ 8,306 $ 8,432 $ 7,312 $ 6,685 $ 6,595 Percent of net sales 6.1% 6.1% 6.1% 6.1% 6.1% 6.3% 6.3% 6.3% Income from operations $ 6,951 $ 5,829 $ 5,192 $ 5,364 $ 5,336 $ 4,921 $ 4,650 $ 4,039 Operating margin 4.0% 3.8% 3.8% 3.9% 3.9% 4.2% 4.4% 3.8% Net income $ 4,007 $ 3,364 $ 2,955 $ 3,041 $ 3,091 $ 2,792 $ 2,616 $ 2,268 Net margin 2.3% 2.2% 2.1% 2.2% 2.3% 2.4% 2.5% 2.2%
-13- 14 Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996 Net Sales. Net sales for the year ended March 31, 1997 were $603.8 million as compared to $464.2 million for the year ended March 31, 1996, an increase of $139.6 million, or 30.1%, as the result of an increase in U.S. net sales of $103.0 million, or 26.5%, and an increase in international net sales of $36.6 million, or 48.2%. The growth in U.S. and international net sales was primarily due to increased sales volume to large national accounts, computer and office product superstores, new customers and the Company's continued introduction of new products, and the addition of net sales from its Australian subsidiary which was acquired by the Company during the third quarter of fiscal year 1997. The growth rate in net sales to computer and office product superstore customers for the year ended March 31, 1997 was less than the growth rate experienced for such customers during the prior year. Net sales to new customers for the year ended March 31, 1997 were approximately $49 million, including the net sales from its new Australian subsidiary, while net sales to existing customers increased by approximately $91 million during the year. Gross Profit. Gross profit for the year ended March 31, 1997 was $60.0 million as compared to $48.0 million in fiscal year 1996, an increase of $12.0 million, or 25.0%, primarily as the result of increased sales volume in fiscal year 1997. The Company's gross profit margin as a percent of net sales was 9.9% for the year ended March 31, 1997 as compared to 10.3% for the prior year. Gross profit margin percentage declined during the year ended March 31, 1997 primarily because the prior year's results include the benefit of incremental margins earned on the sale of certain one-time inventory purchases by the Company prior to manufacturer price increases. If the benefits of the one-time inventory purchase actions are excluded from last year's results, gross profit as a percentage of net sales for fiscal year 1997 is slightly lower as compared to last year. Increased sales at lower gross profit margins to large national accounts and computer and office product superstores also contributed to the decline in gross profit margin percentages during the year ended March 31, 1997. The Company believes that the trend in sales to large national accounts and computer and office product superstores and the corresponding decline in gross profit margin percentage will continue during fiscal year 1998. SG&A Expenses. SG&A expenses for the year ended March 31, 1997 were $36.6 million, or 6.0% of net sales, as compared to $29.0 million, or 6.2% of net sales, for the year ended March 31, 1996. The increase in SG&A expenses was primarily a result of the increase in variable costs associated with the Company's increased sales volume. The decrease in SG&A expenses as a percentage of net sales was primarily due to improved operating efficiencies and staff productivity as a result of increased sales volume and continued technological enhancements implemented by the Company. During fiscal 1997, the Company incurred incremental SG&A expenses associated with its subsidiary, Priority Fulfillment Services ("PFS"), and also associated with an expansion of its leased facilities in Memphis and Plano. The Company expects to incur additional incremental SG&A expenses associated with PFS as the Company plans for future growth in this subsidiary. Income from Operations. Income from operations for the year ended March 31, 1997 was $23.3 million as compared to $18.9 million for fiscal year 1996, an increase of $4.4 million, or 23.2%. This increase was primarily due to increased sales volume, increased gross profit and improved operating efficiencies. Income from operations as a percentage of net sales was 3.9% -14- 15 for the year ended March 31, 1997 as compared to 4.1% for last year, primarily as the result of a decrease in gross profit margin as a percentage of net sales which was somewhat offset by a decline in SG&A expenses as a percentage of net sales. Income from operations as a percentage of net sales for the year ended March 31, 1997 declined primarily because the prior year's results include the effects of the one-time inventory purchase actions. When the benefits of the one-time inventory purchase actions are excluded from last year's results, income from operations as a percentage of net sales for fiscal year 1997 was slightly higher than fiscal year 1996. Interest Expense. Interest expense was $1.7 million during the year ended March 31, 1997 and was $1.5 million during the year ended March 31, 1996. Interest expense increased as a result of an increase in the average line of credit to support a larger revenue base, which was partially offset by a reduction in interest rates during fiscal year 1997. The weighted average interest rate was 6.7% during the year ended March 31, 1997 as compared to 7.5% for the previous year. Income Taxes. The Company's provision for income taxes was $8.3 million for the year ended March 31, 1997 as compared to $6.7 million for the year ended March 31, 1996. The increase was primarily due to increased pretax profits. The effective tax rate for both years was approximately 38.3%. For an analysis of the Company's provision for income taxes, see Note 6 of the Notes to Consolidated Financial Statements. Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995 Net Sales. Net sales for fiscal year 1996 were $464.2 million as compared to $353.0 million for fiscal year 1995, an increase of $111.2 million, or 31.5%, as the result of an increase in U.S. net sales of $94.8 million, or 32.3%, and an increase in international net sales of $16.4 million, or 27.6%. The growth in U.S. and international net sales was primarily due to increased sales volume to large national accounts, computer and office product superstores, new customers and the Company's continued introduction of new products. Net sales to new customers for fiscal year 1996 were approximately $35 million, while net sales to existing customers increased by approximately $77 million during this period. Gross Profit. Gross profit for fiscal year 1996 was $48.0 million as compared to $36.0 million in fiscal year 1995, an increase of $12.0 million, or 33.4%, primarily as the result of increased sales volume in fiscal year 1996, as well as incremental gross profit earned on the sale of certain inventory purchased by the Company prior to manufacturer price increases. The Company's gross profit margin was 10.3% for fiscal year 1996 as compared to 10.2% for the prior year. The increase in gross profit margin percentage was primarily the result of incremental margins earned on the sale of certain inventory purchased by the Company prior to manufacturer price increases. Without the benefit gained from such incremental gross profit, gross profit margin percentage for fiscal year 1996 decreased slightly compared to the previous year. This gross profit margin percentage decline occurred primarily as the result of increased sales at lower gross profit margins to large national accounts and computer and office product superstores. SG&A Expenses. SG&A expenses for fiscal year 1996 were $29.0 million, or 6.2% of net sales, as compared to $23.3 million, or 6.6% of net sales, for fiscal year 1995. The increase in SG&A expenses was primarily a result of the increase in costs associated with the Company's increased sales volume. The decrease in SG&A expenses as a percentage of net sales was -15- 16 primarily due to improved operating efficiencies and staff productivity as a result of increased sales volume and continued technological enhancements implemented by the Company. Income from Operations. Income from operations for fiscal year 1996 was $18.9 million as compared to $12.7 million for fiscal year 1995, an increase of $6.2 million, or 49.1%. This increase was primarily due to increased sales volume, increased gross profit and improved operating efficiencies. Income from operations as a percentage of net sales was 4.1% for fiscal year 1996 as compared to 3.6% for fiscal year 1995, primarily as the result of an increase in gross profit margin, related to the one-time inventory purchase actions, and a decline in SG&A expenses as a percentage of net sales. When the benefits of the one-time inventory purchase actions are excluded from fiscal year 1996 results, the Company's income from operations as a percentage of net sales increased slightly from the prior year. Interest Expense. Interest expense for fiscal year 1996 was $1.5 million as compared to $2.1 million in fiscal year 1995. The decrease was primarily the result of a reduction in the outstanding balance in the Company's line of credit attributable to the proceeds received from the Company's initial public offering (the "IPO") in January 1995. The weighted average interest rate was 7.5% during fiscal year 1996 as compared to 7.9% for fiscal year 1995. Interest expense for fiscal year 1996 was also impacted by the incremental borrowings required to finance the Company's additional inventory purchases discussed above. Income Taxes. The Company's provision for income taxes was $6.7 million for fiscal year 1996 as compared to $4.2 million in fiscal year 1995. The increase was primarily due to increased pretax profits. The effective tax rate for fiscal year 1996 was 38.3% as compared to the effective tax rate of 39.1% for fiscal year 1995. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary source of cash has been from financing activities. Net cash provided by financing activities was $11.9 million, $6.2 million and $9.1 million for fiscal years 1997, 1996 and 1995, respectively. Proceeds from bank borrowings, the issuance of common stock, and lease financings have been used to finance the Company's operations and expansion. In January 1995, the Company sold 1,380,000 shares of common stock in the IPO and received net proceeds of approximately $18.6 million. The Company used such net proceeds, along with an aggregate of $2.3 million received by the Company concurrent with the IPO from an officer of the Company and a selling stockholder in repayment of indebtedness owing by such officer and selling stockholder to the Company, to reduce its outstanding indebtedness under the line of credit. Net cash used in operating activities was $3.3 million, $1.3 million and $6.4 million for fiscal years 1997, 1996 and 1995, respectively. The Company's net cash used in operations primarily related to increases in working capital requirements to support growth in the Company's business during these periods. These increased working capital requirements were partially funded by cash generated by the Company's operations. The Company's principal use of funds for investing activities was capital expenditures of $5.9 million, $5.0 million and $3.7 million for fiscal years 1997, 1996 and 1995, respectively. These -16- 17 expenditures have consisted primarily of additions to upgrade the Company's management information systems and its Memphis distribution facility. The Company anticipates that its total investment in upgrades and additions to facilities for fiscal 1998 will be approximately $5 million to $6 million. Working capital increased to $80.2 million at March 31, 1997 from $56.7 million at March 31, 1996, an increase of $23.5 million which was primarily attributable to increases in inventory and accounts receivable which were partially offset by increases in accounts payable. During fiscal years 1997 and 1996, the Company generally maintained an accounts receivable balance of approximately 46 and 45 days of sales, respectively. This increase is primarily related to an increased concentration of receivables from large retail computer and office product superstores, who generally take longer to pay. During fiscal years 1997 and 1996, the Company maintained an inventory turnover rate of approximately 11 turns, excluding inventory owned by the Company related to PFS, its subsidiary which provides product fulfillment and distribution services to third parties. The levels of such inventory is generally managed by the third party and thus is not indicative of the inventory turnover maintained by the Company's core wholesale business. As of March 31, 1995, the Company had a secured line of credit with an institutional lender which, subject to the satisfaction of certain conditions, allowed the Company to borrow up to $35.0 million. The line of credit was to mature in April 1996. In fiscal year 1995, the Company applied the net proceeds of the IPO, together with certain other amounts received concurrently therewith, to reduce outstanding debt under the line of credit. As a result of this reduction in the indebtedness and the Company's reduced borrowing needs, in May 1995, the Company entered into a new agreement with certain banks for a new three-year unsecured revolving line of credit facility (the "new facility"). Under the new facility, the Company could borrow initially up to $25.0 million until April 1996, and up to $30.0 million thereafter until maturity. This facility was amended during fiscal year 1997 to increase the borrowing limit to $50.0 million. Availability under the new facility is based upon amounts of eligible accounts receivable, as defined. As of March 31, 1997, the Company had borrowed $30.1 million under the new facility. Also, as of March 31, 1997, $19.9 million was available for additional borrowings. The new facility matures in May 1998 and accrues interest, at the Company's option, at the prime rate of a bank or a Eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the new facility. The new facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum fixed charge ratio and minimum level of tangible net worth, and restrictions on certain activities of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. During fiscal year 1997, approximately $112.5 million, or 18.6%, of the Company's net sales were sold through the Company's Canadian, Mexican, Australian and U.S. export operations, including Latin America. The Company believes that international markets represent further opportunities for growth. The Company attempts to protect itself from foreign currency fluctuations by denominating substantially all of its non-Canadian and non-Australian international sales in U.S. dollars. In addition, on an annual basis, the Company has entered into various one-year forward Canadian currency exchange contracts in order to hedge the Company's net investment in, and its intercompany payable applicable to, its Canadian subsidiary. There have -17- 18 been no material gains or losses incurred by the Company relating to these contracts. In May 1997, the Company entered into a new $9.6 million (U.S.) one-year forward Canadian currency exchange contract to replace the previous contract which matured during that same month. The Company may consider entering into other forward exchange contracts in order to hedge the Company's net investment in its Mexican, Australian and Canadian subsidiaries, although no assurance can be given that the Company will be able to do so on acceptable terms. See Note 1 of the Notes to Consolidated Financial Statements. Effective October 1, 1996, the Company acquired, with cash and common stock, substantially all of the assets and liabilities of Lasercharge Pty Ltd ("Lasercharge"). Lasercharge is an Australian wholesale distributor of computer and office automation supplies and accessories. The acquisition of Lasercharge was accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets and liabilities assumed based on the fair values at the date of acquisition. The Company believes that the integration of Lasercharge into the Company's business operations will not require significant working capital nor create other significant financing needs. The Company believes it will be able to satisfy its working capital needs for fiscal year 1998, including such additional working capital as may be required by existing or additional PFS logistics contracts, as well as business growth and planned capital expenditures, through funds available under the new facility, trade credit, lease financing, internally generated funds and by increasing the amount available under the new facility (although the Company has presently neither requested nor received any commitment to do so). In addition, although the Company has no plans to do so, and depending on market conditions and the terms thereof, the Company may also consider obtaining additional funds through an additional line of credit, other debt financing or the sale of capital stock; however, no assurance can be given in such regard. The Company may attempt to acquire other businesses to expand its product line and/or in the call-center or public warehousing industries in connection with its efforts to grow its PFS subsidiary. The Company currently has no agreements to acquire any such businesses. Should the Company be successful in identifying an acquisition candidate, however, the Company may require additional financing to consummate such a transaction. Acquisitions involve certain risks and uncertainties, therefore, the Company can give no assurances with respect to whether it will be successful in identifying such a business to acquire, whether it will be able to obtain financing to complete such an acquisition, or whether the Company will be successful in operating the acquired business. INVENTORY MANAGEMENT The Company manages its computer consumables supplies inventories held for sale in its wholesale distribution business by maintaining sufficient quantities of product to achieve high order fill rates while at the same time maximizing inventory turnover rates. Inventory balances will fluctuate as the Company adds new product lines and makes large purchases from suppliers to take advantage of attractive terms. To reduce the risk of loss to the Company due to supplier price reductions and slow moving inventory, the Company's purchasing agreements with many of its suppliers, including most of its major suppliers, contain price protection and stock return privileges under which the Company receives credits against future purchases if the supplier -18- 19 lowers prices on previously purchased inventory or the Company can return slow moving inventory in exchange for other products. During fiscal year 1997, the Company, through its PFS subsidiary, began providing product fulfillment and distribution services for third parties. Certain of these distribution agreements provide that the Company own the related inventory, some of which also allow for the third party to manage the levels of inventory held by the Company. As a result, the levels of inventory held by the Company under these contracts is higher than the Company would normally carry in its core wholesale business. SEASONALITY Although the Company historically has experienced its greatest growth in revenues in its fourth fiscal quarter, management has not been able to determine the specific effect, if any, of seasonal factors that may cause quarterly variability in operating results. Management believes, however, that factors that may influence quarterly variability include the overall growth in the non-paper computer supplies industry and shifts in demand for the Company's products due to a variety of factors, including sales increases resulting from the introduction of new computer supplies products. The Company generally experiences a relative slowness in sales during the summer months, which may adversely affect the Company's first and second fiscal quarter results in relation to sequential quarter performance. The Company believes that the results of operations for a quarterly period may not be indicative of the results for any other quarter or for the full year. INFLATION Management believes that inflation has not had a material effect on the Company's operations. FORWARD-LOOKING INFORMATION The matters discussed in this Report on Form 10-K, other than historical information, and, in particular, information regarding future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995, and are subject to and involve risks and uncertainties which could cause actual results to differ materially from the forward-looking information. These risks and uncertainties include, but are not limited to, the "Risk Factors" set forth in the Company's prospectus dated January 25, 1996 which are incorporated by reference herein, as well as general economic conditions, industry trends, the loss of key suppliers or customers, the loss of strategic product shipping relationships, customer demand, product availability, competition (including pricing and availability), concentrations of credit risk, distribution efficiencies, capacity constraints, technological difficulties, exchange rate fluctuations, and the regulatory and trade environment (both domestic and foreign). IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived -19- 20 assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The effect of the application of SFAS No. 121 was not material. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in fiscal year 1997. The Company has chosen to continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans, and has opted to comply with the disclosure requirements of SFAS No. 123. In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." This statement establishes new standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and earlier application is not permitted. When adopted, the Company will be required to restate its EPS data for all prior periods presented. The adoption of this statement will have no significant impact on previously reported EPS. -20- 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants . . . . . . . . . . . . . . . 22 Consolidated Balance Sheets as of March 31, 1997 and 1996 . . . . . . 23 Consolidated Statements of Operations for the Fiscal Years Ended March 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . 25 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March 31, 1997, 1996 and 1995 . . . . . . . . . . . 26 Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . 27 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -21- 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Daisytek International Corporation: We have audited the accompanying consolidated balance sheets of Daisytek International Corporation (a Delaware corporation) and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Daisytek International Corporation and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas, April 25, 1997 -22- 23 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
March 31, ------------------------ 1997 1996 ---------- ---------- CURRENT ASSETS: Cash $ 552 $ 204 Trade accounts receivable, net of allowance for doubtful accounts of $1,885 and $1,283 at March 31, 1997 and 1996, respectively 90,446 69,169 Receivables from employees and related parties, net of allowance for doubtful accounts of $475 at March 31, 1997 and 1996 332 571 Inventories, net: Inventories, excluding Priority Fulfillment Services Division 54,426 44,358 Inventories, Priority Fulfillment Services Division 10,354 -- Prepaid expenses and other current assets 1,214 2,120 Deferred income tax asset 565 762 ---------- ---------- Total current assets 157,889 117,184 ---------- ---------- PROPERTY AND EQUIPMENT, at cost: Furniture, fixtures and equipment 20,949 15,325 Leasehold improvements 673 306 ---------- ---------- 21,622 15,631 Less - Accumulated depreciation and amortization (9,648) (6,136) ---------- ---------- Net property and equipment 11,974 9,495 EMPLOYEE RECEIVABLES 423 395 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $608 and $468 at March 31, 1997 and 1996, respectively 5,002 1,527 ---------- ---------- Total assets $ 175,288 $ 128,601 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. -23- 24 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, ------------------------ 1997 1996 ---------- ---------- CURRENT LIABILITIES: Current portion of long-term debt $ 662 $ 650 Trade accounts payable 62,552 44,736 Accrued expenses 6,260 4,230 Income taxes payable 1,398 419 Other current liabilities 6,769 10,486 ---------- ---------- Total current liabilities 77,641 60,521 ---------- ---------- LONG-TERM DEBT, less current portion 30,454 16,419 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized at March 31, 1997 and 1996, none issued and outstanding -- -- Common stock, $0.01 par value; 20,000,000 and 10,000,000 shares authorized at March 31, 1997 and 1996, respectively; 6,520,709 and 6,342,753 shares issued and outstanding at March 31, 1997 and 1996, respectively 65 63 Additional paid-in capital 33,331 30,874 Retained earnings 35,103 21,736 Cumulative foreign currency translation adjustment (1,306) (1,012) ---------- ---------- Total shareholders' equity 67,193 51,661 ---------- ---------- Total liabilities and shareholders' equity $ 175,288 $ 128,601 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. -24- 25 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED MARCH 31, --------------------------------- 1997 1996 1995 --------- --------- --------- NET SALES $ 603,814 $ 464,169 $ 352,953 COST OF SALES 543,848 416,199 316,982 --------- --------- --------- Gross profit 59,966 47,970 35,971 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 36,630 29,024 23,260 --------- --------- --------- Income from operations 23,336 18,946 12,711 INTEREST EXPENSE 1,677 1,482 2,050 --------- --------- --------- Income before income taxes 21,659 17,464 10,661 PROVISION (BENEFIT) FOR INCOME TAXES: Current 8,095 6,460 4,470 Deferred 197 237 (305) --------- --------- --------- 8,292 6,697 4,165 --------- --------- --------- NET INCOME $ 13,367 $ 10,767 $ 6,496 ========= ========= ========= NET INCOME PER COMMON SHARE $ 1.93 $ 1.59 $ 1.17 ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,913 6,757 5,542 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. -25- 26 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Common Stock Common Stock Warrants ------------------------ ----------------------- Shares Amount Warrants Amount ---------- ---------- ---------- ---------- BALANCE, March 31, 1994 4,466,004 $ 45 869,349 $ 1,600 Net income -- -- -- -- Exercise and termination of common stock warrants 398,678 4 (869,349) (1,600) Issuance and net proceeds from sale of common stock 1,380,000 13 -- -- Foreign currency translation adjustment -- -- -- -- ---------- ---------- ---------- ---------- BALANCE, March 31, 1995 6,244,682 62 -- -- Net income -- -- -- -- Net proceeds from exercise of common stock options 98,071 1 -- -- Costs associated with secondary offering of stock -- -- -- -- Foreign currency translation adjustment -- -- -- -- ---------- ---------- ---------- ---------- BALANCE, March 31, 1996 6,342,753 63 -- -- Net income -- -- -- -- Net proceeds from exercise of common stock options 157,898 2 -- -- Issuance of common stock for acquisition of subsidiary 19,281 -- -- -- Issuance of common stock 777 -- -- -- Foreign currency translation adjustment -- -- -- -- ---------- ---------- ---------- ---------- BALANCE, March 31, 1997 6,520,709 $ 65 -- $ -- ========= ========== ========== ========== Additional Cumulative Paid-In Retained Translation Capital Earnings Adjustment Total ---------- ---------- ---------- ---------- BALANCE, March 31, 1994 $ 10,652 $ 4,473 $ (833) $ 15,937 Net income -- 6,496 -- 6,496 Exercise and termination of common stock warrants 1,600 -- -- 4 Issuance and net proceeds from sale of common stock 18,544 -- -- 18,557 Foreign currency translation adjustment -- -- (177) (177) ---------- ---------- ---------- ---------- BALANCE, March 31, 1995 30,796 10,969 (1,010) 40,817 Net income -- 10,767 -- 10,767 Net proceeds from exercise of common stock options 562 -- -- 563 Costs associated with secondary offering of stock (484) -- -- (484) Foreign currency translation adjustment -- -- (2) (2) ---------- ---------- ---------- ---------- BALANCE, March 31, 1996 30,874 21,736 (1,012) 51,661 Net income -- 13,367 -- 13,367 Net proceeds from exercise of common stock options 1,636 -- -- 1,638 Issuance of common stock for acquisition of subsidiary 791 -- -- 791 Issuance of common stock 30 -- -- 30 Foreign currency translation adjustment -- -- (294) (294) ---------- ---------- ---------- ---------- BALANCE, March 31, 1997 $ 33,331 $ 35,103 $ (1,306) $ 67,193 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. -26- 27 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended March 31, -------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,367 $ 10,767 $ 6,496 Adjustments to reconcile net income to net cash used in operating activities -- Depreciation and amortization 3,786 2,296 1,393 Provision for doubtful accounts 1,594 999 750 Deferred income tax provision (benefit) 197 237 (305) Changes in operating assets and liabilities - Trade accounts receivable (23,041) (18,929) (16,364) Receivables from related parties 240 41 (4) Inventories, net (19,580) (12,017) (9,863) Trade accounts payable and accrued expenses 18,276 17,561 10,884 Income taxes payable 969 (478) 575 Prepaid expenses and other current assets 873 (1,776) 32 -------- -------- -------- Net cash used in operating activities (3,319) (1,299) (6,406) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (5,931) (4,959) (3,740) Acquisition of subsidiary (2,105) -- -- Collections (advances) of employee receivables, net (30) (80) 1,575 -------- -------- -------- Net cash used in investing activities (8,066) (5,039) (2,165) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payments of) revolving line of credit, net 14,660 5,735 (7,918) Increase (decrease) in other current liabilities (3,717) 934 (1,045) Payments on notes payable and capital leases (656) (571) (541) Net proceeds from sale of stock and exercise of stock options and warrants 1,638 79 18,561 -------- -------- -------- Net cash provided by financing activities 11,925 6,177 9,057 -------- -------- -------- EFFECT OF EXCHANGE RATES ON CASH (192) (83) (82) -------- -------- -------- NET INCREASE (DECREASE) IN CASH 348 (244) 404 CASH, beginning of period 204 448 44 -------- -------- -------- CASH, end of period $ 552 $ 204 $ 448 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. -27- 28 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES: Organization and Nature of Business Daisytek International Corporation (a Delaware corporation) and subsidiaries (the "Company") is a wholesale distributor of non-paper computer and office automation supplies and accessories, whose primary products are laser toner, copier toner, inkjet cartridges, printer ribbons, diskettes, optical storage products, computer tape cartridges and accessories such as cleaning kits and media storage files. The Company, through its wholly owned subsidiaries in the U.S., Canada, Australia and Mexico, sells products primarily in North America, as well as in Latin America, Europe, the Far East, Africa and Australia. The Company's customers include value-added resellers, computer supplies dealers, office product dealers, contract stationers, buying groups, computer and office product superstores, warehouse clubs and other retailers who resell the products to end-users. No single customer accounted for more than 10% of the Company's annual net sales for the fiscal years ended March 31, 1997, 1996 and 1995. At March 31, 1997, five computer and office product superstores and warehouse clubs represent approximately 26% of trade accounts receivable, with the largest being approximately 12% of trade accounts receivable, and reflects the increasing significance of this market segment. The Company recognizes revenue upon shipment of product to customers and provides for estimated returns and allowances. The Company permits its customers to return defective products (many of which are then returned by the Company to the manufacturer) and incorrect shipments for credit against other purchases. The Company offers terms to its customers that it believes are standard for its industry. During fiscal year 1996, the Company formed Priority Fulfillment Services, Inc. ("PFS"), a wholly owned subsidiary, to provide outsourcing solutions to its business partners. Through PFS, the Company sells its core competencies in call-center, product fulfillment, logistics and support services to client companies worldwide, primarily on a fee-based relationship. PFS customizes these services to meet specific requirements of these companies. PFS's call-center services include: order entry, order tracking and customer service (inbound), outbound telemarketing services and customized reporting of customer and call information. PFS utilizes primarily the Company's centralized distribution facility in Memphis, Tennessee to provide product fulfillment and logistics services, with additional distribution facilities available in Florida, Canada, Mexico and Australia. PFS maintains relationships with a number of shipping companies to provide next business day delivery on domestic package orders, truck shipments on larger domestic orders and a variety of air and surface delivery options for international orders. PFS also provides other support services such as invoicing, credit management and collection services, and accounting and systems support. Basis of Presentation The consolidated financial statements include the accounts of Daisytek International Corporation and its subsidiaries. All significant intercompany transactions are eliminated. The preparation of consolidated financial statements in conformity with generally accepted accounting -28- 29 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Reclassifications Certain prior year data has been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income, shareholders' equity or cash flows. Inventories Inventories (merchandise held for resale, all of which is finished goods) are stated at the lower of weighted average cost or market. Inventories held and owned by the Company's PFS subsidiary, relate to product fulfillment and logistics services provided for third parties, and are presented separately in the consolidated balance sheet as these distribution agreements generally allow for the third party to manage the levels of inventory held by the Company. As a result, the levels of inventory held by the Company under these contracts is higher than the Company would normally carry in its core wholesale business. Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets which range from one to seven years. Excess of Cost Over Net Assets Acquired Excess of cost over net assets acquired is amortized on a straight-line basis over 20 to 40 years. The related amortization expense for fiscal year 1997 was $140,000 and for each of the fiscal years 1996 and 1995 was approximately $50,000. Foreign Currency Translation and Transactions For the Company's Canadian and Australian subsidiaries, the local currency is the functional currency. Assets and liabilities are translated at exchange rates in effect at the end of the period, and income and expense items are translated at the average exchange rates for the period. Translation adjustments are reported as a separate component of shareholders' equity. In addition, the Company periodically enters into foreign exchange contracts in order to hedge the Company's net investment in, and its intercompany payable balance (of a long-term investment nature) applicable to its Canadian subsidiary. In May 1996, the Company entered into a one-year, $6.6 million (U.S.) forward exchange contract. As of March 31, 1997, the Company had incurred a gain of approximately $44,000, net of applicable income taxes, on this contract. For the fiscal -29- 30 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) years ended March 31, 1996 and 1995, the Company incurred losses of approximately $59,000 and $31,000, net of income taxes, respectively, related to a one-year, $4.3 million (U.S.) forward exchange contract that expired in May 1996, and a one-year, $3.0 million (U.S.) forward exchange contract that expired in April 1995, respectively. These gains and losses are included as a component of shareholders' equity. For the Company's Mexican subsidiary, the U.S. dollar is the functional currency. Monetary assets and liabilities are translated at the rates of exchange on the balance sheet date and certain assets (notably accounts receivable, inventory, and property and equipment) are translated at historical rates. Income and expense items are translated at average rates of exchange for the period except for those items of expense which relate to assets which are translated at historical rates. The gains and losses from foreign currency transactions and translation related to the Mexican subsidiary are included in net income and have not been material. Net Income Per Common Share Net income per common share is calculated by dividing net income by the weighted average common shares and share equivalents outstanding for each period. The stock split discussed in Note 3 has been reflected in the net income per common share calculation. Adoption of New Accounting Standards The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The effect of the application of SFAS No. 121 was not material. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in fiscal year 1997. The Company has chosen to continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans, and has opted to comply with the disclosure requirements of SFAS No. 123. In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." This statement establishes new standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and earlier application is not permitted. When adopted, the Company will be required to restate its EPS data for all prior periods presented. The adoption of this statement will have no significant impact on previously reported EPS. -30- 31 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Acquisition of Subsidiary Effective October 1, 1996, the Company acquired, with cash and common stock, substantially all of the assets and liabilities of Lasercharge Pty Ltd ("Lasercharge"). Lasercharge is an Australian wholesale distributor of computer and office automation supplies and accessories. The acquisition of Lasercharge was accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets and liabilities assumed based on fair values at the date of acquisition. Cost in excess of fair value of approximately $3,600,000 will be amortized on a straight-line basis over 20 years. Pro forma results of operations have not been presented because the effects of the acquisition were not significant. 2. DEBT: Debt at March 31, 1997 and 1996, is as follows (dollars in thousands):
March 31, ------------------------------------ 1997 1996 --------------- --------------- Revolving line of credit facility with commercial banks, interest (weighted average rate of 6.64% at March 31, 1997) at the Company's option at a prime rate of a bank (8.5% at March 31, 1997) or a Eurodollar rate plus 0.625% to 1.125% (6.26% at March 31, 1997), due May 22, 1998 $ 30,100 $ 15,440 Notes payable and obligations under capital leases for warehouse equipment, computer equipment, office furniture and fixtures, interest at varying rates ranging from 8% to 21%, with lease terms varying from three to seven years 1,016 1,629 --------------- --------------- Long-term debt 31,116 17,069 Less - current portion of long-term debt (662) (650) --------------- --------------- Long-term debt, less current portion $ 30,454 $ 16,419 =============== ===============
On May 22, 1995, the Company entered into an agreement with certain banks for a new three-year unsecured revolving line of credit facility (the "facility"). Initially under the facility, the Company could borrow up to $25.0 million through April 1996 and up to $30.0 million thereafter until maturity. During fiscal year 1997, the Company entered into an agreement with its banks to increase the borrowing availability to $50.0 million. Availability under the facility is based upon amounts of eligible accounts receivable, as defined. The facility accrues interest at the Company's option, at a prime rate of a bank or a Eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the facility. The facility contains various covenants including, among other things, the maintenance of certain financial ratios (minimum fixed charge ratio and minimum level of tangible net worth), and restrictions on certain activities -31- 32 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. As of March 31, 1997, $19.9 million was available for additional borrowings. This facility is part of the Company's integrated cash management system in which accounts receivable collections are used to pay down the facility and disbursements are paid from the facility. This system allows the Company to optimize its cash flow. At March 31, 1997 and 1996, the Company had checks and other items outstanding in excess of its cash balance of approximately $6.8 million and $10.5 million, respectively, which are included in other current liabilities. The Company is a party to a number of non-cancelable capital lease agreements involving warehouse equipment, computer equipment, and office furniture and fixtures. The Company's property held under capital leases, included in furniture, fixtures and equipment in the balance sheet, amounted to approximately $684,000, net of accumulated amortization of approximately $2,054,000 at March 31, 1997, and approximately $1,112,000, net of accumulated amortization of approximately $1,560,000 at March 31, 1996. Annual maturities of long-term debt and capital leases are as follows (in thousands): Fiscal year ending March 31, 1998 ............................................... $ 662 1999 ............................................... 30,364 2000 ............................................... 90 ------- Total ........................................ $31,116 =======
3. STOCK OPTIONS AND SHAREHOLDERS' EQUITY: Public Offerings In January 1995, the Company completed an initial public offering (the "IPO") of 1,380,000 shares of common stock (see Note 11). In January 1996, the Company completed a secondary offering of 1,207,500 shares of common stock, sold by certain principal and selling shareholders. The Company did not receive any of the proceeds from the sale of shares by these principal and selling shareholders. The Company incurred approximately $484,000 in costs related to the secondary offering, which is reflected as a reduction in Shareholders' Equity. Preferred Stock In connection with the IPO, the Company authorized the issuance of up to 1,000,000 shares of preferred stock, par value $1.00 per share, none of which is issued or outstanding at March 31, 1997 and 1996. Stock Splits In conjunction with the IPO (see Note 11), the Company's Board of Directors approved the conversion of each share of common stock into 1.45 shares upon consummation of the IPO. -32- 33 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The consolidated financial statements and the notes thereto have been adjusted to reflect the stock split on a retroactive basis. Stock Purchase Agreement Pursuant to a stock purchase agreement dated December 13, 1991, as amended on December 23, 1991 (the "Stock Purchase Agreement"), the Company issued to a private investor 1,666,830 shares of common stock, warrants to purchase 398,678 shares of common stock (the "A Warrants"), and warrants to purchase 470,671 shares of common stock (the "B Warrants") for an aggregate consideration of $10,000,000. The A Warrants contained an exercise price of $0.01 per share, were only exercisable upon the occurrence of certain specified events, and, subject to certain conditions, granted the Company the right to repurchase all or a portion of the A Warrants at prices ranging from $4.63 per share to $4.81 per share. Such warrants were exercised simultaneous with the IPO. The B Warrants contained an exercise price of $0.01 per share and, pursuant to their terms, terminated in January 1995 in conjunction with the IPO. Stock Options At March 31, 1997, the Company had three employee stock option compensation plans, which are described below. The Company may also, from time to time, issue non-qualified options outside these plans to employees. The Company applies APB Opinion No. 25 and related Interpretations in accounting for these stock options. Accordingly, no compensation cost has been recognized for these stock-based compensation awards. Pro forma net income and earnings per share assuming compensation cost for the Company had been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," would have been as follows (dollars in thousands, except per share data):
1997 1996 ---- ---- Net income: As reported $ 13,367 $ 10,767 Pro forma $ 12,489 $ 10,039 Earnings per share: As reported $ 1.93 $ 1.59 Pro forma $ 1.81 $ 1.49
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in fiscal year 1997: no dividends, expected volatility ranging between 39.25% and 39.50%; risk-free interest rate ranging between 5.9% and 6.6%; and expected life of 6 years. The following assumptions were used for grants during fiscal year 1996: no dividends; expected volatility of 38.51%; risk-free interest rate of 6.9%; and expected life of 6 years. -33- 34 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In January 1989, the Company established an employee stock option plan (the "Plan") in which shares of common stock are reserved for the granting of options at an amount not less than market price, as determined by the Board of Directors, at the date of grant. As of March 31, 1997 and 1996, 8,554 and 6,379 options, respectively, remain available to be granted under the Plan. In 1994, the Company adopted the 1994 Stock Option Plan for Key Employees of Daisytek International Corporation (the "1994 Plan"). The 1994 Plan authorizes the Company to grant options to selected officers and other key employees of the Company and to non-employee directors. The 1994 Plan provides for the granting to employees of both incentive stock options and nonqualified stock options. The maximum number of shares of common stock for which options may be granted is 725,000, subject to adjustments for certain changes in the shares issued and outstanding as described in the 1994 Plan. The exercise price of incentive stock options granted under the 1994 Plan may not be less than the fair market value at the date of the grant. The exercise price of nonqualified stock options granted under the 1994 Plan is determined by the option committee of the Board of Directors. As of March 31, 1997 and 1996, 255,452 and 492,000 options, respectively, remain to be granted in the future under the 1994 Plan. In 1997, the Company adopted the Non-Employee Director Stock Option and Retainer Plan (the "Non-Employee Director Plan"). The Non-Employee Director Plan authorizes the Company to grant nonqualified common stock options to non-employee directors at the fair market value of the Company's common stock on the date of grant. The options vest over a three-year period starting on the date of grant. The maximum number of shares which may be granted under the Non-Employee Director Plan is 50,000 shares, subject to adjustments for certain changes in the shares issued and outstanding as described in the plan. As of March 31, 1997, there were 3,000 options granted under the Non-Employee Director Plan. During fiscal years 1997, 1996 and 1995, the Company granted options to certain employees pursuant to its employee stock option plans. In addition to the options under such plans, during fiscal years 1997 and 1996, respectively, the Company granted options to certain key employees and executives to purchase 55,000 and 22,500 shares of common stock. These options were granted at the fair market value at the date of the grant and become exercisable over a three-year period starting on the date of the grant. -34- 35 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table summarizes stock option activity for the three years in the period ended March 31, 1997.
Price Per Weighted Average Shares Share Exercise Price ------ ----- -------------- Outstanding, March 31, 1994 563,594 $1.28 - $5.30 $4.62 Granted 4,350 $7.59 $7.59 Exercised -- -- -- Canceled (6,379) $5.30 $5.30 -------- Outstanding, March 31, 1995 561,565 $1.28 - $7.59 $4.67 Granted 260,000 $19.50 $19.50 Exercised (98,071) $1.28 - $7.59 $4.71 Canceled (4,500) $19.50 $19.50 -------- Outstanding, March 31, 1996 718,994 $1.28 - $19.50 $15.89 Granted 339,114 $32.50 - $40.00 $33.17 Exercised (157,898) $1.28 - $19.50 $9.65 Canceled (46,741) $7.59 - $32.50 $28.64 -------- Outstanding, March 31, 1997 853,469 $1.28 - $40.00 $27.54 ========
The weighted average fair values of options granted during each of the years ended March 31, 1997 and 1996 were $16.15 and $9.70, respectively. As of March 31, 1997 and 1996, 341,262 and 403,403, respectively, of options outstanding were exercisable. The remaining options will become exercisable over the next three years based on vesting percentages. The following table summarizes information about the Company's stock options outstanding at March 31, 1997:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------------- ---------------------------------- Weighted Average Weighted Weighted Range of Outstanding as Remaining Average Exercisable as Average Exercise Prices of 3/31/97 Contractual Life Exercise Price of 3/31/97 Exercise Price --------------- ---------- ---------------- -------------- ---------------- ---------------- $1.00 - $10.00 313,009 4.60 $ 4.45 313,009 $ 4.45 $10.01 - $20.00 228,630 8.11 $19.50 28,253 $19.50 $20.01 - $40.00 311,830 9.11 $33.23 -- --
-35- 36 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
Fiscal year ended March 31, ---------------------------------- 1997 1996 1995 --------- --------- --------- Cash paid during the period for: Interest ................................. $ 1,830 $ 1,445 $ 2,119 Income taxes ............................. $ 6,411 $ 6,953 $ 3,896 Fixed assets acquired under capital leases .... $ -- $ -- $ 212 Acquisition of subsidiary: Fair value of net assets acquired ........ $ 2,896 $ -- $ -- Stock issued ............................. (791) -- -- --------- --------- --------- Net cash paid for acquisition ........ $ 2,105 $ -- $ -- ========= ========= =========
5. RELATED PARTY TRANSACTIONS: The Company has made various loans to its President, a Senior Vice President, and a Vice President. These loans accrue interest at the Company's effective borrowing rate (6.8% at March 31, 1997). The Company had notes receivable (including accrued interest) from its President of approximately $423,000 and $395,000 as of March 31, 1997 and 1996, respectively, which are classified as non-current assets in the consolidated balance sheet. The Company's notes receivable from its Senior Vice President and Vice President as of March 31, 1997 were approximately $122,000 and $61,000, respectively. The Company also had trade accounts receivable due from companies in which either the Company or its largest shareholder owns a minority interest. Such sales were made in accordance with the Company's usual terms, except that such companies were provided with extended payment terms. In fiscal year 1993, the principal shareholder transferred his minority interest in all but one of these companies to a subsidiary of the Company for a nominal amount, which approximated the fair market value of these minority interests. In fiscal year 1997, the Company sold its remaining interest in one of these companies, and as such, the fiscal year 1997 information presented below excludes such information for this former related party. Trade accounts receivable and advances from these related party companies totaled approximately $42,000 and $282,000 at March 31, 1997 and 1996, respectively, net of a reserve of $475,000 as of each date. Sales to these related parties totaled approximately $1,844,000, $2,707,000, and $2,285,000 for the fiscal years ended March 31, 1997, 1996 and 1995, respectively. 6. INCOME TAXES: Deferred taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. These differences relate primarily to provisions for doubtful accounts, capitalization of inventory costs, reserves for inventory, book versus tax depreciation differences, and certain accrued expenses deducted for book purposes but not yet deductible for tax purposes. -36- 37 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) A reconciliation of the difference between the expected income tax provision at the U.S. Federal statutory corporate tax rate (35.0%, 34.85% and 34.0% in fiscal years 1997, 1996 and 1995, respectively) and the Company's effective tax rate is as follows (in thousands):
Fiscal Year Ended March 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Provision computed at statutory rate $ 7,581 $ 6,086 $ 3,625 Foreign income (loss): Impact of taxation at different rates 270 141 137 Impact of foreign losses 81 88 (181) State income taxes, net of federal benefit 335 297 174 Expenses not deductible for tax purposes 104 56 49 Change in valuation reserve (123) 8 378 Other 44 21 (17) -------- -------- -------- Provision for income taxes $ 8,292 $ 6,697 $ 4,165 ======== ======== ========
The consolidated income before income taxes, by domestic and foreign entities, is as follows (in thousands):
Fiscal Year Ended March 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Domestic $ 18,703 $ 16,355 $ 9,991 Foreign 2,956 1,109 670 -------- -------- -------- Total $ 21,659 $ 17,464 $ 10,661 ======== ======== ========
The provision (benefit) for income taxes is summarized as follows (in thousands):
Fiscal Year Ended March 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Current Domestic $ 6,317 $ 5,349 $ 3,576 State 515 456 263 Foreign 1,263 655 631 -------- -------- -------- Total current 8,095 6,460 4,470 -------- -------- -------- Deferred Domestic 197 265 (237) State -- -- -- Foreign -- (28) (68) -------- -------- -------- Total deferred 197 237 (305) -------- -------- -------- Total $ 8,292 $ 6,697 $ 4,165 ======== ======== ========
-37- 38 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The components of the deferred tax asset as of March 31, 1997 and 1996, are as follows (in thousands):
March 31, ------------------ 1997 1996 ------- ------- Deferred tax asset: Allowance for doubtful accounts $ 295 $ 504 Capitalized inventory costs 170 84 Inventory obsolescence reserve 273 288 Accrued straight-line rent 70 81 Accrued vacation 58 58 Foreign net operating loss carryforwards 631 687 Other 370 432 ------- ------- 1,867 2,134 Less - Valuation reserve (263) (386) ------- ------- Total deferred tax asset 1,604 1,748 ------- ------- Deferred tax liability: Property and equipment (426) (487) Foreign inventory purchases (463) (404) Other (150) (95) ------- ------- Total deferred tax liability (1,039) (986) ------- ------- Deferred tax asset, net $ 565 $ 762 ======= =======
For financial reporting purposes, the tax benefit of cumulative temporary differences is recorded as an asset to the extent that management assesses the utilization of such temporary differences to be "more likely than not." As of March 31, 1997 and 1996, a valuation allowance was recorded due to uncertainties regarding the Company's utilization of its Mexico subsidiary's net tax asset. -38- 39 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES: The Company and its subsidiaries lease equipment and facilities under operating leases expiring in various years through fiscal year 2002. In most cases, management expects that, in the normal course of business, leases will be renewed or replaced by other leases. Minimum future annual rental payments under non-cancelable operating leases having original terms in excess of one year are as follows (in thousands): Fiscal year ending March 31, 1998 $ 3,085 1999 2,635 2000 2,382 2001 1,724 2002 943 Thereafter -- ---------- Total $ 10,769 ==========
Total rental expense under operating leases approximated $3,107,000, $2,255,000 and $1,900,000 for the fiscal years ended March 31, 1997, 1996 and 1995, respectively. Although the Company carries products and accessories supplied by numerous vendors, the Company's net sales from products manufactured by its ten largest suppliers were approximately 74%, 72% and 66% of total net sales during fiscal years 1997, 1996 and 1995, respectively. The Company has entered into written distribution agreements with nearly all of its major suppliers. As is customary in the industry, these agreements generally provide non-exclusive distribution rights, have one-year renewable terms and are terminable by either party at any time, with or without cause. Certain of these agreements require minimum annual purchases. Total minimum purchase requirements for fiscal year 1998 approximate $47 million. Additionally, many of the Company's suppliers offer rebate programs under which, subject to the Company purchasing certain predetermined amounts of inventory, the Company receives rebates based on a percentage of the dollar volume of total rebate program purchases. The Company also takes advantage of several other programs offered by substantially all of its suppliers. These include price protection plans under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory and stock rotation or stock balancing privileges under which the Company can return slow-moving inventory in exchange for other products. Certain of the Company's suppliers also provide the Company with cooperative advertising programs, marketing development funds and other types of incentives and discounts which offset the production costs of the Company's published marketing tools and other related costs. The Company is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material effect on the Company's financial position or results of operations. -39- 40 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. FOREIGN OPERATIONS AND EXPORTS: The Company, through its wholly owned subsidiaries, Daisytek (Canada) Inc., Daisytek Australia Pty Ltd and Daisytek de Mexico, S.A. de C.V., sells products in Canada, Australia and in Mexico. All intercompany activity is eliminated in computing net sales and net income. Information related to the Company's Australia and Mexico subsidiaries are included in Other in the following table. Financial information, summarized by geographical area, is as follows (in thousands):
Fiscal Year Ended March 31, --------------------------------------- 1997 1996 1995 --------- --------- --------- Net Sales: Domestic $ 541,710 $ 424,667 $ 323,462 Canada 57,295 44,459 38,487 Other 26,425 8,932 1,368 Intercompany eliminations (21,616) (13,889) (10,364) --------- --------- --------- Consolidated $ 603,814 $ 464,169 $ 352,953 ========= ========= ========= Net Income: Domestic $ 11,675 $ 10,284 $ 6,437 Canada 1,346 759 640 Other 346 (276) (581) --------- --------- --------- Consolidated $ 13,367 $ 10,767 $ 6,496 ========= ========= ========= Identifiable Assets: Domestic $ 144,836 $ 115,219 $ 83,194 Canada 16,924 10,360 9,055 Other 13,528 3,022 2,172 --------- --------- --------- Consolidated $ 175,288 $ 128,601 $ 94,421 ========= ========= =========
The Company also exports its products for sale throughout Latin America (through its wholly owned subsidiary, Daisytek Latin America, Inc., beginning in January 1996), Europe, the Far East, Africa and Australia. Total export sales to these geographic regions for fiscal years 1997, 1996 and 1995, included in Domestic sales in the preceding table, were approximately $33.5 million, $31.8 million and $28.0 million, respectively. 9. EMPLOYEE SAVINGS PLAN: In fiscal year 1994, the Company implemented a defined contribution employee savings plan under Section 401(k) of the Internal Revenue Code. Substantially all full-time and part-time U.S. employees are eligible to participate in the plan. The Company, at its discretion, may match employee contributions to the plan and also make an additional matching contribution in the form of profit sharing in recognition of Company performance. For fiscal year 1997, the Company matched 20% of the employee contributions resulting in a charge against income of approximately $78,000. For fiscal years 1996 and 1995, the Company matched 25% of the employee contributions resulting in charges against income of approximately $95,000 and $81,000, respectively. -40- 41 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 10. FAIR VALUES OF FINANCIAL INSTRUMENTS: The Company estimates fair value based on market information and appropriate valuation methodologies. Fair value is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The fair values of all non-derivative financial instruments approximate their carrying amounts in the accompanying consolidated balance sheets. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company's derivative financial instruments outstanding as of March 31, 1997 and 1996 consisted of forward foreign currency exchange contracts used to hedge the Company's net investment in, and its intercompany payable balance applicable to its Canadian subsidiary (See Note 1). The fair value of these contracts based on fiscal year-end exchange rates, excluding related income taxes, was a net gain of approximately $67,000 at March 31, 1997, and a net loss of approximately $90,000 at March 31, 1996. 11. SUPPLEMENTAL INCOME PER SHARE DATA (UNAUDITED): In December 1994, the Company filed a Form S-1 registration statement with the Securities and Exchange Commission which became effective in January 1995. The Company reduced outstanding indebtedness under the Company's line of credit through the application of the net proceeds from the sale of 1,380,000 shares of common stock plus that portion of the net proceeds received by certain shareholders which were applied towards the full repayment of certain indebtedness owed by such shareholders to the Company. In addition, 398,678 common stock warrants were exercised concurrently with the consummation of the IPO at an exercise price of $0.01 per warrant. The supplemental income per share data has been calculated assuming the IPO occurred as of the beginning of the respective period.
Fiscal Year Ended March 31, 1995 -------------- (Unaudited) Supplemental net income per common share $ 1.09 Supplemental weighted average common shares outstanding (in thousands) 6,683
-41- 42 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 12. QUARTERLY DATA (UNAUDITED): Summarized quarterly financial data for fiscal years 1997 and 1996 are as follows (dollars in thousands, except per share data):
Fiscal Year 1997 -------------------------------------------------------- 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. ----------- ----------- ----------- ----------- Net sales $ 174,343 $ 154,429 $ 138,148 $ 136,894 Gross profit $ 17,503 $ 15,204 $ 13,589 $ 13,670 Gross profit margin 10.0% 9.8% 9.8% 10.0% SG&A expenses $ 10,552 $ 9,375 $ 8,397 $ 8,306 Percent of net sales 6.1% 6.1% 6.1% 6.1% Income from operations $ 6,951 $ 5,829 $ 5,192 $ 5,364 Operating margin 4.0% 3.8% 3.8% 3.9% Net income $ 4,007 $ 3,364 $ 2,955 $ 3,041 Net margin 2.3% 2.2% 2.1% 2.2% Net income per common share $ 0.58 $ 0.49 $ 0.43 $ 0.44
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
-42- 43 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages and positions of the directors and executive officers of the Company.
NAME AGE POSITION - ---- --- -------- David A. Heap 53 Chairman of the Board Mark C. Layton 37 President, Chief Executive Officer, Chief Operating Officer and Director Christopher Yates 42 Senior Vice President - Business Development and Director James R. Powell 36 Senior Vice President - Sales and Marketing and Director Steve Graham 45 Senior Vice President - Information Technologies, Chief Information Officer Harvey H. Achatz 56 Vice President - Administration and Secretary Thomas J. Madden 35 Vice President - Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer Peter D. Wharf 38 Vice President - International Operations John Snowden 30 Vice President - Operations Suzanne Garrett 32 Vice President - Product Management and Marketing Peter P. J. Vikanis 46 Director Timothy M. Murray 44 Director Edgar D. Jannotta, Jr. 36 Director
DAVID A. HEAP has served as Chairman of the Board and Chief Executive Officer since 1982 and as President from 1982 to 1990. In April 1997, Mr. Heap retired as Chief Executive Officer. From 1970 to 1985, Mr. Heap served as Chairman of ISA International plc (and its predecessors) ("ISA"), a now publicly traded company he founded in England in 1970. ISA is a distributor of computer supplies in Western Europe. Mr. Heap is primarily responsible for the Company's general business strategy and long-term planning. MARK C. LAYTON has served as President, Chief Operating Officer and Chief Financial Officer since 1993, as a Director since 1988, as Executive Vice President from 1990 to 1993 and as Vice President - Operations from 1988 to 1990. Since April 1997, Mr. Layton serves as President, Chief Executive Officer and Chief Operating Officer. Mr. Layton is also a director of GNWC Wire and Cable Network Products, a -43- 44 distributor of wire, cable and other communications related products ("GNWC"). Prior to joining the Company, Mr. Layton served as a management consultant with Arthur Andersen & Co., S.C. for six years through 1988 specializing in wholesale and retail distribution and technology. Mr. Layton is primarily responsible for the Company's overall operations, growth and development. CHRISTOPHER YATES was appointed Senior Vice President - Business Development in February 1996 and has served as Vice President - Business Development from November 1995 to February 1996, as a Director of the Company since February 1995, as Vice President-Marketing from January 1994 to November 1995, as Vice President-Sales from 1988 to 1994 and in various other sales capacities for the Company since 1982. Prior to joining the Company, Mr. Yates served in various sales capacities for ISA. Mr. Yates is primarily responsible for business development, special projects and other sales related functions. JAMES R. POWELL has served as a Director and Senior Vice President - Sales and Marketing since 1996. Mr. Powell has served as Vice President - Sales from 1992 to 1996, and in various other sales capacities from 1988 to 1992. Prior to joining the Company, Mr. Powell was engaged in various sales and marketing activities. Mr. Powell is responsible for U.S. sales and marketing activities including Daisytek's Customer Care Center and the Annual Computer Supplies Expo. STEVE GRAHAM has served as Senior Vice President of Information Technologies and Chief Information Officer since 1996. Prior to joining the Company, Mr. Graham was employed by Ingram Micro, a major microcomputer distributor. Mr. Graham has over 23 years of experience in the information- technology field. Mr. Graham is responsible for all information technology and electronic commerce activities. HARVEY H. ACHATZ serves as Vice President - Administration and Secretary, positions he has held since 1993 and 1984, respectively. Mr. Achatz has served as Vice President - Finance from 1985 to 1993, as Controller from 1981 to 1985 and as a Director from 1984 to 1990. Mr. Achatz is responsible for various administrative functions, including human resources. THOMAS J. MADDEN was recently appointed Chief Financial Officer and serves as Vice President - Finance, Treasurer and as Chief Accounting Officer, positions he has held since November 1994, March 1994 and 1992, respectively. From 1992 to 1994 he also served as Controller. From 1983 to 1992, Mr. Madden served in various capacities with Arthur Andersen & Co., S.C., including financial consulting and audit manager. Mr. Madden is a certified public accountant. Mr. Madden is responsible for the Company's treasury and accounting functions. PETER D. WHARF serves as Vice President - International Operations, a position he has held since February 1996. Mr. Wharf joined the Company in 1992 and has served in various export and international sales capacities since such time. Prior to joining the Company, Mr. Wharf served in various sales capacities for ISA. Mr. Wharf is responsible for all international sales and customer service for the Company's Canada, Mexico, Australia and Latin America locations in addition to the Company's export sales. SUZANNE GARRETT was recently promoted to Vice President of Product Management and Marketing and has served as new-products manager, marketing manager, and director of product management and marketing. Prior to joining the Company in 1991, Ms. Garrett served as an account executive for United Media. Ms. Garrett is responsible for all manufacturer relationships and global marketing activities. -44- 45 JOHN SNOWDEN was recently promoted to Vice President of Operations. Since joining the Company in 1992, Mr. Snowden has served as distribution-operations manager and has served the Company in many capacities, including purchasing manager, director of purchasing, director of fulfillment services, director of distribution and director of procurement. Mr. Snowden is responsible for inventory management and distribution within the United States and overseeing credit and collection activities. TIMOTHY M. MURRAY has served as a Director of the Company since 1991. Mr. Murray is a Principal of William Blair & Company, L.L.C., an investment banking firm he joined in 1979. Mr. Murray is also a director of GNWC and several other privately held corporations. EDGAR D. JANNOTTA, JR. has served as a Director of the Company since 1991. Mr. Jannotta is a Principal of William Blair & Company, L.L.C., an investment banking firm he joined in 1988. Mr. Jannotta is also a director of GNWC and Gibraltar Packaging Group, Inc., a diversified packaging company. PETER P. J. VIKANIS was appointed a Director of the Company during fiscal year 1996. Mr. Vikanis served as Chief Operating Officer of ISA from 1991 to 1995, as a director of ISA from 1979 to 1995, and also served in various management capacities at ISA from 1971 to 1991. Pursuant to the Company's Certificate of Incorporation, the Board of Directors is divided into three classes. Each class serves three years, with the terms of office of the respective classes expiring in successive years. Class I consists of Messrs. Powell and Yates whose term will expire at the annual meeting of stockholders in 1998; Class II consists of Messrs. Murray and Layton whose terms will expire at the annual meeting of stockholders in 1999; and Class III consists of Messrs. Heap, Jannotta and Vikanis whose terms will expire at the annual meeting of stockholders in 1997. Messrs. Heap, Jannotta and Vikanis have been nominated by the Board for election at the 1997 annual meeting. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and controlling stockholders to file initial reports of ownership and reports of changes of ownership of the Company's Common Stock with the Securities and Exchange Commission and the Company. To the Company's knowledge, all reports required to be so filed were filed in accordance with the provisions of said Section 16(a). -45- 46 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation paid or accrued by the Company to its Chief Executive Officer and to each of the four most highly compensated executive officers for services rendered during the fiscal years ended March 31, 1997, 1996 and 1995. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------ ANNUAL NUMBER OF COMPENSATION SECURITIES ------------------------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1) --------------------------- ---- -------- -------- ------------ -------------- David A. Heap 1997 $385,000 $222,900 42,864 $5,970 Chairman and Chief 1996 385,000 280,676 37,833 8,636 Executive Officer (2).............. 1995 350,000 171,000 -- 24,701 Mark C. Layton 1997 $299,013 $222,900 34,916 $8,458 President, Chief Operating 1996 276,386 280,676 28,020 6,008 and Financial Officer (2).......... 1995 250,971 171,000 -- 3,967 Christopher Yates 1997 $232,200 $73,557 20,560 $5,004 Senior Vice President - 1996 215,000 92,623 20,138 2,430 Business Development............... 1995 195,000 -- -- 3,321 James R. Powell 1997 $163,652 $73,557 21,330 $3,715 Senior Vice President -- Sales 1996 150,359 70,169 14,004 3,707 and Marketing...................... 1995 123,551 -- -- 3,414 Thomas J. Madden Vice President - Finance, 1997 $120,276 $22,900 16,587 $4,618 Chief Accounting Officer 1996 112,649 -- 14,703 4,005 and Treasurer (2).................. 1995 94,294 -- -- --
- -------------------- (1) Represents compensation in respect of one or more of the following: personal use of Company automobiles; life insurance premiums paid by the Company for the benefit of the named executive officer; tax return preparation services paid by the Company; and personal travel expenses. (2) Mr. Heap presently serves as Chairman; Mr. Layton presently serves as President, Chief Executive Officer and Chief Operating Officer; and Mr. Madden presently serves as Vice President - Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer. -46- 47 The following table sets forth information with respect to grants of stock options during the year ended March 31, 1997 to the named executive officers reflected in the Summary Compensation Table: OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION INDIVIDUAL GRANTS TERMS (2)(3) ------------------------------------------------------------- ------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN PRICE PER EXPIRATION NAME GRANTED FISCAL YEAR SHARE (3) DATE (1) (3) 5% 10% ---- -------- ----------- ---------- ------------ ------- ----- David A. Heap ... 42,864 12.6% $ 32.50 4-11-06 $ 876,140 $2,220,355 Mark C. Layton .. 34,916 10.3% 32.50 4-11-06 713,683 1,808,649 Christopher Yates 20,560 6.1% 32.50 4-11-06 420,246 1,065,008 James R. Powell . 21,330 6.3% 32.50 4-11-06 435,985 1,104,894 Thomas J. Madden 16,587 4.9% 32.50 4-11-06 339,038 859,207
(1) All of such options are subject to a three year cumulative vesting schedule. (2) These are hypothetical values using assumed annual rates of stock price appreciation as prescribed by the rules of the Securities and Exchange Commission. (3) The fiscal year 1997 option grants were canceled in April 1997 and reissued at an exercise price per share of $25.00 (the fair market value on the date of reissue) and have a ten year term. All such options are subject to a three year cumulative vesting schedule. The following table sets forth information concerning the aggregate stock option exercises during the fiscal year ended March 31, 1997 and stock option values as of the end of fiscal year 1997 for unexercised stock options held by each of the named executive officers: AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT FISCAL YEAR END AT FISCAL YEAR END (1) (3) ACQUIRED ON VALUE ----------------------------- ----------------------------- NAME EXERCISE RECEIVED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- ------------ ------------ ------------ ------------ ------------ David A. Heap ........ -- $ -- 5,675 75,022 $ 66,681 $ 377,868 Mark C. Layton ....... 4,203 69,350 45,766 58,733 1,187,628 279,850 Christopher Yates..... -- -- 63,821 37,677 1,773,651 201,137 James R. Powell ...... 20,500 665,725 6,027 33,233 126,566 139,872 Thomas J. Madden...... 3,300 101,673 17,568 29,085 424,579 146,852
(1) Calculated by determining the difference between $ 31 1/4 (the last sale price of the Common Stock on March 31, 1997 as reported by the Nasdaq National Market) and the exercise price of the shares of Common Stock underlying the options. -47- 48 (2) Calculated by determining the difference between the last sale price of the Common Stock on the date of exercise as reported by the Nasdaq National Market and the exercise price. (3) See footnote 3 above. COMPENSATION OF DIRECTORS Each non-employee director receives an annual director's fee of $20,000 for each year in which he or she serves as a director. Non-employee directors do not receive additional Board or Committee meeting fees. The Company has also adopted a Non-Employee Director Stock Option and Retainer Plan (the "Non- Employee Director Plan") pursuant to which each non-employee director (i) may elect to receive payment of the director's fees in shares of Common Stock in lieu of cash, and (ii) is entitled to receive certain grants of options in accordance with the formula, and subject to the conditions precedent, set forth therein. The Non-Employee Director Plan is a formula grant plan pursuant to which each non-employee director receives options to purchase shares of Common Stock as of the date of each annual meeting of stockholders. Under the terms of the Non-Employee Director Plan, during fiscal year 1997, each of the Company's non-employee directors received options to purchase 1,000 shares of Common Stock at an exercise price of $39.75 (the fair market value on the date of grant). In April 1997, such options were canceled and the Board authorized the issuance to each non-employee director of new options to purchase 1,000 shares of Common Stock at an exercise price of $25.00 (the fair market value on the date of grant). Such new options were not issued under the Non-Employee Director Plan. In addition, under the terms of the Non-Employee Director Plan, each non-employee director will receive options to purchase 1,240 shares of Common Stock as of the date of the 1997 Annual Meeting. The number of options to be issued under the Non-Employee Director Plan will increase each year based on the percentage increase, if any, in the Company's earnings before taxes ("EBT") for such fiscal year over the Company's EBT for the immediately preceding fiscal year. No options will be issued, however, under the Non-Employee Director Plan with respect to any fiscal year in which the Company's EBT does not equal or exceed the Company's projected EBT for such year, nor will any options be issued to any non-employee director who does not attend at least 75% of all Board (and committee) meetings held during such fiscal year. All options issued under the Non-Employee Director Plan are non-qualified options for federal income tax purposes and have an exercise price equal to the fair market value of a share of common stock as of the date of the annual meeting upon which such option is granted. All options are subject to a three year cumulative vesting schedule. Directors who are employees of the Company or any of its subsidiaries do not receive additional compensation for service on the Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The current members of the Compensation Committee of the Company's Board of Directors are Timothy M. Murray and Edgar D. Jannotta, Jr. who are non-employee directors. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of June 18, 1997, certain information regarding the beneficial ownership of the Common Stock by (i) each person who is known to the Company to beneficially own -48- 49 more than 5% of the Common Stock, (ii) each of the Directors and executive officers of the Company individually and (iii) the Directors and executive officers of the Company as a group. The information contained in this table reflects "beneficial ownership" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless otherwise indicated, the stockholders identified in this table have sole voting and investment power with respect to the shares owned of record by them.
Number Name and Address of Beneficial Owner of shares Percent (1) ------------------------------------ --------- ----------- David A. Heap (2) ..................................... 1,088,645 16.1% 500 North Central Expressway Plano, Texas 75074 Royal Bank of Canada Trust Company (Jersey) Limited, Brian Gerald Balleine, Kenneth Edward Rayner, Trustees, of the David Anthony Heap 1996 Interest in Possession Settlement (3) ................. 312,173 4.6% 19-21 Broad Street St. Helier, Jersey, Channel Islands Royal Bank of Canada Trust Company (Jersey) Limited, Brian Gerald Balleine and Kenneth Edward Rayner, Trustees, of the David Heap Life Interest Settlement (No. 10) (4) ............................... 584,673 8.6% 19-21 Broad Street St. Helier, Jersey, Channel Islands A I M Management Group Inc. (5) ....................... 567,000 8.4% 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 Mark C. Layton (6) .................................... 118,631 1.8% Christopher Yates (7) ................................. 13,153 * Harvey H. Achatz (8) .................................. 37,812 * James R. Powell (9) ................................... 36,991 * Thomas J. Madden (10) ................................. 22,928 * Peter D. Wharf (11) ................................... 14,059 * Edgar D. Jannotta, Jr. (12) ........................... 18,911 * Timothy M. Murray (13) ................................ 34,216 * Peter P. J. Vikanis (14) .............................. 439 * Suzanne Garrett (15) .................................. 8,376 * John Snowden (16) ..................................... 2,368 * Steve Graham (17) ..................................... -- -- All directors and executive officers as a group (13 persons) (18) .......................... 1,396,529 20.6%
- ------------------- *Represents less than 1% (1) This table is based on 6,763,744 shares of Common Stock outstanding as of June 18, 1997. -49- 50 (2) Includes outstanding options to purchase 25,346 shares of Common Stock which are fully vested and exercisable. Does not include (i) 900 shares held by Mr. Heap's spouse as custodian for minor children as to which beneficial ownership is disclaimed, (ii) options to purchase 88,264 shares of Common Stock which are not vested or exercisable and (iii) an aggregate of 896,846 shares of Common Stock held of record by the trusts set forth above (the "Heap Trusts"). Although Mr. Heap and members of his family are the primary beneficiaries of the Heap Trusts, neither Mr. Heap nor such beneficiaries have voting or investment power with respect to such shares. Of the shares owned of record by Mr. Heap, 227,532 are pledged to financial institutions to secure indebtedness owing by Mr. Heap to such institutions. (3) Shares are held of record by a Trust established by Mr. Heap for which he and members of his family are the primary beneficiaries, although neither Mr. Heap nor such beneficiaries may exercise voting or investment power with respect to such shares. (4) Shares are held of record by a Trust established by Mr. Heap for which he and members of his family are the primary beneficiaries, although neither Mr. Heap nor such beneficiaries may exercise voting or investment power with respect to such shares. All of such shares are pledged to a financial institution to secure indebtedness owing by such Trust and Mr. Heap to such institution. (5) Based upon a Schedule 13G filing dated February 12, 1997, filed by AIM Management Group Inc. ("AIM"). AIM, as parent holding company to AIM Advisors, Inc. and AIM Capital Management, Inc., investment advisors, has beneficial ownership and shared dispositive power of 567,000 shares. (6) Includes outstanding options to purchase 15,044 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 70,191 shares of Common Stock which are not vested or exercisable. (7) Includes outstanding options to purchase 13,153 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 49,356 shares of Common Stock which are not vested or exercisable. (8) Includes outstanding options to purchase 28,561 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 4,368 shares of Common Stock which are not vested or exercisable. (9) Includes outstanding options to purchase 12,027 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 41,860 shares of Common Stock which are not vested or exercisable. (10) Includes outstanding options to purchase 20,203 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 35,038 shares of Common Stock which are not vested or exercisable. (11) Includes outstanding options to purchase 14,059 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 29,209 shares of Common Stock which are not vested or exercisable. (12) Does not include outstanding options to purchase 1,000 shares of Common Stock which are not vested or exercisable. (13) Does not include outstanding options to purchase 1,000 shares of Common Stock which are not vested or exercisable. (14) Does not include outstanding options to purchase 1,000 shares of Common Stock which are not vested or exercisable. -50- 51 (15) Includes outstanding options to purchase 4,876 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 19,338 shares of Common Stock which are not vested or exercisable. (16) Includes outstanding options to purchase 2,368 shares of Common Stock which are fully vested and exercisable. Does not include outstanding options to purchase 15,234 shares of Common Stock which are not vested or exercisable. (17) Does not include outstanding options to purchase 30,000 shares of Common Stock which are not vested or exercisable. (18) Includes outstanding options to purchase 135,637 shares of Common Stock which are fully vested and exercisable. Does not include (i) outstanding options to purchase 385,858 shares of Common Stock which are not vested or exercisable or (ii) shares of Common Stock held by the Heap Trusts. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS During fiscal year 1997, the Company made loans in varying amounts to Messrs. Layton, Powell and Wharf in order to provide such persons with the funds necessary to satisfy various personal obligations and for other purposes. The largest amount owing by such persons during fiscal year 1997 was $423,552, $122,274 and $60,550, respectively, and as of May 31, 1997, such persons were indebted to the Company in the amount of $428,497, $174,285 and $61,257, respectively. The indebtedness owing by such persons accrues interest at the rate charged to the Company for working capital borrowings. Mr. Layton's indebtedness is due and payable in one installment on April 1, 1999, while Messrs. Powell's and Wharf 's indebtedness is due and payable in one installment on March 31, 1998. David Heap, the Company's Chairman of the Board, owns approximately a one- third equity interest in a small computer supplies dealer, Business Software Centers, Inc. ("BSC"). In December 1991, Mr. Heap agreed to remit to the Company any dividends, distributions or other amounts which he may receive in respect of such interest. Mr. Heap has not received any dividends, distributions or other amounts in respect of his equity interest and it is unlikely that he will receive any in the future. During fiscal year 1997, the Company's sales to BSC aggregated approximately $1,844,000 and constituted less than 1% of the Company's total sales in such fiscal year. Such sales were made in accordance with the Company's usual terms, except that BSC received extended payment terms in return for which BSC agreed, among other things, to provide the Company with quarterly financial information. In December 1993, the Company and BSC agreed that (i) $500,000 of the past due trade receivable then owing by BSC would be evidenced by a promissory note, payable in 48 monthly installments and accruing interest at the rate of 7% per annum, (ii) the Company would provide BSC with 60 day credit terms up to a maximum amount of $350,000 (subject to BSC continuing to meet its obligations under the note), (iii) BSC would provide the Company with quarterly financial information and (iv) at such time as the note is paid in full, Mr. Heap will transfer to BSC, for a nominal consideration, the one-third equity interest held in BSC. As of May 31, 1997, there was approximately $20,000 outstanding under the note and there were past due trade amounts payable of approximately $27,000 by BSC to the Company. -51- 52 In April 1997, the Company entered into a one-year aircraft lease with a company owned by Mr. Heap under which the Company, on a non-exclusive basis, leases an aircraft from such company. Under the terms of the lease, the Company pays monthly lease payments of $14,400 and is responsible for certain operating expenses. The lease is terminable by either party at any time. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets as of March 31, 1997 and 1996 Consolidated Statements of Operations for the Fiscal Years Ended March 31, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Report of Independent Public Accountants Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. 3. Exhibits EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(7) - Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.2(1) - Amended and Restated By-laws of Daisytek International Corporation. 10.1(2) - Employee Stock Option Plan of Daisytek International Corporation. 10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation. 10.3(7) - Non-Employee Director Stock Option and Retainer Plan. -52- 53 10.4(*) - 1997 Employee Stock Option Plan of Daisytek International Corporation 10.5(3) - Credit Agreement dated May 22, 1995 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank National Association, as Agent, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5.1(8) - First Amendment to Credit Agreement dated April 15, 1996 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5.2(9) - Second Amendment to Credit Agreement dated November 14, 1996 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, and Texas Commerce Bank National Association, NBD Bank, and State Street Bank and Trust Company, as Lenders. 10.6(2) - Industrial Lease Agreement between Industrial Developments International, Inc. and Daisytek, Incorporated, as amended. 10.7(2) - Lease Agreement dated September 30, 1991 between AmWest Savings Association and Daisytek, Incorporated, as amended. 10.8(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc. 10.9(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6) Inc. and Daisytek (Canada) Inc. 10.10(2) - Lease Agreement dated December 30, 1988 between Daisytek, Incorporated and State Street Bank and Trust Company. 10.11(2) - Term Lease Master Agreement dated November 29, 1990 between IBM Credit Corporation and Daisytek, Incorporated. 10.12(*) - U.S. Reseller Agreement dated March 10, 1997 between Hewlett- Packard Company and Daisytek, Incorporated, with Addendum. 10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V. 10.14(2) - Marketing Advantage Program Enrollment Agreement dated November 11, 1994 between Federal Express Corporation and Daisytek, Incorporated. 10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners Joint Number Three and Daisytek Latin America, Inc. 10.16(*) - Forward Exchange Contract dated May 22, 1997 between Daisytek and Texas Commerce Bank National Association. 10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and David A. Heap. 10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and Mark C. Layton. 10.19(6) - Second Amendment to Industrial Lease Agreement between New York Life Insurance Company and Daisytek, Incorporated. 10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company and Daisytek, Incorporated. 10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995 between Atrium Associates, L.P. and Daisytek, Incorporated. 10.22(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and David A. Heap. -53- 54 10.23(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Steve Graham. 10.24(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Peter Vikanis. 10.25(*) - Dry Lease Agreement dated April 1, 1997 between Virtual Village Aircraft, Inc. and Daisytek International Corporation. 10.26(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Timothy Murray. 10.27(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Edgar D. Jannotta, Jr. 11(*) - Statement re computation of per share earnings. 21(*) - Subsidiaries of the Registrant. 23(*) - Consents. 27(*) - Financial Data Schedule. - ------------------- (*) Filed herewith. (1) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1994 dated March 10, 1995. (2) Incorporated by reference from Registration Statement on Form S-1 No. 33-86926. (3) Incorporated by reference from Current Report on Form 8-K dated May 22, 1995. (4) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year ended March 31, 1995 dated June 23, 1995. (5) Incorporated by reference from Current Report on Form 8-K dated August 22, 1995. (6) Incorporated by reference from Registration Statement on Form S-1 No. 33-99796. (7) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year ended March 31, 1996 dated June 26, 1996. (8) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 1996 dated August 13, 1996 (9) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1996 dated February 13, 1997 (b) Reports on Form 8-K 1. On January 30, 1997, the Company filed a Current Report on Form 8- K to report under Item 5 the Company's press release dated January 30, 1997 announcing third quarter results. -54- 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Daisytek International Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Daisytek International Corporation (a Delaware corporation) and subsidiaries included in this Form 10- K and have issued our report thereon dated April 25, 1997. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas, April 25, 1997 -55- 56 SCHEDULE II DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED MARCH 31, 1997 (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, 1995: Allowance for doubtful accounts $ 661 750 -- (351) $ 1,060 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance $ -- 378 -- -- $ 378 Fiscal Year Ended March 31, 1996: Allowance for doubtful accounts $ 1,060 999 -- (776) $ 1,283 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance $ 378 8 -- -- $ 386 Fiscal Year Ended March 31, 1997: Allowance for doubtful accounts $ 1,283 1,594 -- (992) $ 1,885 Allowance for related party receivables $ 475 -- -- -- $ 475 Income tax valuation allowance $ 386 -- -- (123) $ 263
-56- 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAISYTEK INTERNATIONAL CORPORATION By: /s/ Mark C. Layton ------------------------------- Mark C. Layton, Chief Executive Officer and President June 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ David A. Heap Chairman of the Board June 27, 1997 - ------------------------------------- David A. Heap /s/ Mark C. Layton Chief Executive Officer, June 27, 1997 - ------------------------------------- President and Director Mark C. Layton (principal executive officer) /s/ Thomas J. Madden Chief Financial Officer June 27, 1997 - ------------------------------------- Vice President - Finance Thomas J. Madden (principal financial and accounting officer) /s/ Christopher Yates Director June 27, 1997 - ------------------------------------- Christopher Yates /s/ James R. Powell Director June 27, 1997 - ------------------------------------- James R. Powell /s/ Timothy M. Murray Director June 27, 1997 - ------------------------------------- Timothy M. Murray /s/ Edgar D. Jannotta, Jr. Director June 27, 1997 - ------------------------------------- Edgar D. Jannotta, Jr. /s/ Peter P. J. Vikanis Director June 27, 1997 - ------------------------------------- Peter P. J. Vikanis
-57- 58 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(7) - Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Daisytek International Corporation. 3.2(1) - Amended and Restated By-laws of Daisytek International Corporation. 10.1(2) - Employee Stock Option Plan of Daisytek International Corporation. 10.2(2) - 1994 Stock Option Plan of Daisytek International Corporation. 10.3(7) - Non-Employee Director Stock Option and Retainer Plan. 10.4(*) - 1997 Employee Stock Option Plan of Daisytek International Corporation 10.5(3) - Credit Agreement dated May 22, 1995 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, Texas Commerce Bank National Association, as Agent, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5.1(8) - First Amendment to Credit Agreement dated April 15, 1996 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, and Texas Commerce Bank National Association and State Street Bank and Trust Company, as Lenders. 10.5.2(9) - Second Amendment to Credit Agreement dated November 14, 1996 between Daisytek, Incorporated, as Borrower, Daisytek International Corporation and Borrower's Subsidiaries, as Guarantors, and Texas Commerce Bank National Association, NBD Bank, and State Street Bank and Trust Company, as Lenders. 10.6(2) - Industrial Lease Agreement between Industrial Developments International, Inc. and Daisytek, Incorporated, as amended. 10.7(2) - Lease Agreement dated September 30, 1991 between AmWest Savings Association and Daisytek, Incorporated, as amended. 10.8(2) - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc. 10.9(4) - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6) Inc. and Daisytek (Canada) Inc. 10.10(2) - Lease Agreement dated December 30, 1988 between Daisytek, Incorporated and State Street Bank and Trust Company. 10.11(2) - Term Lease Master Agreement dated November 29, 1990 between IBM Credit Corporation and Daisytek, Incorporated. 10.12(*) - U.S. Reseller Agreement dated March 10, 1997 between Hewlett- Packard Company and Daisytek, Incorporated, with Addendum. 10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte, S.A. De C.V. and Daisytek De Mexico, S.A. De C.V. 10.14(2) - Marketing Advantage Program Enrollment Agreement dated November 11, 1994 between Federal Express Corporation and Daisytek, Incorporated. 10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners Joint Number Three and Daisytek Latin America, Inc. 10.16(*) - Forward Exchange Contract dated May 22, 1997 between Daisytek and Texas Commerce Bank National Association. 10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and David A. Heap. 10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between Daisytek International Corporation and Mark C. Layton. 59 10.19(6) - Second Amendment to Industrial Lease Agreement between New York Life Insurance Company and Daisytek, Incorporated. 10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company and Daisytek, Incorporated. 10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995 between Atrium Associates, L.P. and Daisytek Incorporated. 10.22(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and David A. Heap. 10.23(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Steve Graham. 10.24(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Peter Vikanis. 10.25(*) - Dry Lease Agreement dated April 1, 1997 between Virtual Village Aircraft, Inc. and Daisytek International Corporation. 10.26(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Timothy Murray. 10.27(*) - Option to Purchase Shares of Common Stock dated April 17, 1997 between Daisytek International Corporation and Edgar D. Jannotta, Jr. 11(*) - Statement re computation of per share earnings. 21(*) - Subsidiaries of the Registrant. 23(*) - Consents. 27(*) - Financial Data Schedule. - ------------------- (*) Filed herewith. (1) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1994 dated March 10, 1995. (2) Incorporated by reference from Registration Statement on Form S-1 No. 33-86926. (3) Incorporated by reference from Current Report on Form 8-K dated May 22, 1995. (4) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year ended March 31, 1995 dated June 23, 1995. (5) Incorporated by reference from Current Report on Form 8-K dated August 22, 1995. (6) Incorporated by reference from Registration Statement on Form S-1 No. 33-99796. (7) Incorporated by reference from Annual Report on Form 10-K for the Fiscal Year ended March 31, 1996 dated June 26, 1996. (8) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 1996 dated August 13, 1996 (9) Incorporated by reference from Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 1996 dated February 13, 1997 EX-10.4 2 1997 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.4 1997 STOCK OPTION PLAN OF DAISYTEK INTERNATIONAL CORPORATION Daisytek International Corporation, a corporation organized under the laws of the State of Delaware, hereby adopts this 1997 Stock Option Plan. The purpose of this Plan is to further the growth, development and financial success of the Company by providing additional incentives to certain of its key Employees by assisting them to become owners of the Company's Common Stock and thus to benefit directly from its growth, development and financial success. ARTICLE I DEFINITIONS Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates. Section 1.1 - Board "Board" shall mean the Board of Directors of the Company. Section 1.2 - Code "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.3 - Committee "Committee" shall mean the Stock Option Committee of the Board, appointed as provided in Section 6.1. Section 1.4 - Company "Company" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing new employee stock options in substitution for, Incentive Stock Options, outstanding under the Plan, in a transaction to which Section 424(a) of the Code applies. 2 Section 1.5 - Director "Director" shall mean a member of the Board. Section 1.6 - Employee "Employee" shall mean any employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of the Company, or of any corporation which is then a Parent Corporation or a Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan. To the extent not included in the foregoing, "Employee" shall also mean any officer, director, employee or consultant of the Company, or any entity which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Company, as the Committee shall from time to time select in its sole discretion. Section 1.7 - Exchange Act "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.8 - Incentive Stock Option "Incentive Stock Option" shall mean an Option which qualifies under Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee. Section 1.9 - Non-Qualified Option "Non-Qualified Option" shall mean an Option which is not an Incentive Stock Option and which is designated as a Non-Qualified Option by the Committee. Section 1.10 - Officer "Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the future. Section 1.11 - Option "Option" shall mean an option to purchase Common Stock of the Company, granted under the Plan. "Options" includes both Incentive Stock Options and Non-Qualified Options. Section 1.12 - Optionee "Optionee" shall mean an Employee to whom an Option is granted under the Plan. -2- 3 Section 1.13 - Parent Corporation "Parent Corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.14 - Plan "Plan" shall mean this 1997 Stock Option Plan of Daisytek International Corporation. Section 1.15 - Rule 16b-3 "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended in the future. Section 1.16 - Secretary "Secretary" shall mean the Secretary of the Company. Section 1.17 - Securities Act "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.18 - Subsidiary "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.19 - Termination of Employment "Termination of Employment" shall mean the time when an Optionee ceases to be an Employee for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous reemployment by the Company, a Parent Corporation, a Subsidiary or any entity which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Company. The Committee, in its absolute discretion, and with respect to all Options hereunder, shall determine all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment is for "cause" and what actions constitute "cause", and all questions of whether particular leaves of absence constitute Terminations of Employment; provided, however, that, with respect to Incentive Stock Options, a leave of absence -3- 4 shall constitute a Termination of Employment if, and to the extent that, such leave of absence interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. ARTICLE II SHARES SUBJECT TO PLAN Section 2.1 - Shares Subject to Plan The shares of stock subject to Options shall be shares of the Company's Common Stock, $.01 par value. The aggregate number of such shares which may be issued upon exercise of Options shall be 1,000,000 shares. The shares to be issued upon exercise of Options may be newly-issued shares or Treasury shares. Section 2.2 - Unexercised Options If any Option expires or is canceled without having been fully exercised, the number of shares subject to such Option but as to which such Option was not exercised prior to its expiration or cancellation may again be optioned hereunder. Section 2.3 - Changes in Company's Shares In the event that the outstanding shares of Common Stock of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, appropriate adjustments shall be made by the Committee in the number and kind of shares for the purchase of which Options may be granted, including adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued on exercise of Options. ARTICLE III GRANTING OF OPTIONS Section 3.1 - Eligibility Any key Employee shall be eligible to be granted Options, subject to such rules and conditions as the Committee may establish from time to time in its sole discretion. Section 3.2 - Qualification of Incentive Stock Options Subject to the provisions of Section 7.7 hereof, no Incentive Stock Option shall be -4- 5 granted unless such Option, when granted, qualifies as an "incentive stock option" under Section 422 of the Code. Section 3.3 - Granting of Options (a) Subject to the provisions hereof, the Committee shall from time to time, in its absolute discretion: (i) Determine which Employees are key Employees and select from among the key Employees (including those to whom Options have been previously granted under the Plan or any other plan of the Company) such of them as in its opinion should be granted Options; and (ii) Determine the number of shares to be subject to such Options granted to such selected key Employees, and determine whether such Options are to be Incentive Stock Options or Non-Qualified Options; and (iii) Determine the terms and conditions of such Options, consistent with the Plan. (b) In selecting the key Employees to whom Options shall be granted hereunder, the number of shares to be subject to such Options and the terms and conditions of such Options, the Committee shall have sole and absolute discretion and shall be free to make non-uniform and selective determinations based upon such factors as it deems relevant. (c) Upon the selection of a key Employee to be granted an Option, the Committee shall instruct the Secretary to issue such Option and may impose such conditions on the grant of such Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Committee may, in its discretion and on such terms as it deems appropriate, require as a condition on the grant of an Option to an Employee that the Employee surrender for cancellation some or all of the unexercised Options which have been previously granted to him. An Option the grant of which is conditioned upon such surrender may have an option price lower (or higher) than the option price of the surrendered Option, may cover the same (or a lessor or greater) number of shares as the surrendered Option, may contain such other terms as the Committee deems appropriate and shall be exercisable in accordance with its terms, without regard to the number of shares, price, option period or any other term or condition of the surrendered Option. -5- 6 ARTICLE IV TERMS OF OPTIONS Section 4.1 - Option Agreement Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized Officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with the Plan. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to qualify such Options as "incentive stock options" under Section 422 of the Code. Section 4.2 - Option Price (a) The price of the shares subject to each Option shall be not less than 100% of the fair market value of such shares on the date such Option is granted; provided, however, that, in the case of an Incentive Stock Option, the price per share shall not be less than 110% of the fair market value of such shares on the date such Option is granted in the case of an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary or any Parent Corporation. (b) For purposes of the Plan, the fair market value of a share of the Company's Common Stock as of a given date shall be: (i) the closing price of a share of the Company's Common Stock on the principal exchange on which shares of the Company's Common Stock are then trading, if any, on the day previous to such date, or, if shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the Company's Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Company's Common Stock, in each case, as of the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if such Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Company's Common Stock, on the day previous to such date, as determined in good faith by the Committee; or (iv) if the Company's Common Stock is not publicly traded, the fair market value established by the Committee acting in good faith. Section 4.3 - Commencement of Exercisability (a) No Option may be exercised in whole or in part during the six months after such Option is granted. (b) Subject to the provisions of paragraph (c) below, each Option granted hereunder shall be subject to the following cumulative vesting schedule: -6- 7 (i) Until the date which is one year from the date of grant, the Option shall not be vested and shall not be exercisable as to any of the shares subject thereto; (ii) From and after the date which is one year from the date of grant, the Option shall vest and be exercisable as to 15% of the number of shares subject thereto; (iii) From and after the date which is two years from the date of grant, the Option shall vest and be exercisable as to 50% of the number of shares subject thereto; and (iv) From and after the date which is three years from the date of grant, the Option shall be fully vested and exercisable as to 100% of the number of shares subject thereto. (c) Subject to the provisions hereof governing Incentive Stock Options, the Committee shall have the right to accelerate the vesting of any outstanding Option, or any portion thereof, at any time and from time to time, and upon such terms and conditions as it shall determine in its sole discretion. (d) Notwithstanding any other provision of this Plan, to the extent that the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the shares of the Company's stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code) are exercisable by any Optionee for the first time by such Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company, any Subsidiary and any Parent Corporation) exceeds $100,000, such Options shall be treated as Non-Qualified Options. For purposes of this Section, Options shall be taken into account in the order in which they were granted. Section 4.4 - Expiration of Options No Option may be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten years from the date the Option was granted; (ii) With respect to an Incentive Stock Option, in the case of an Optionee owning (within the meaning of Section 424(d) of the Code), at the time the Incentive Stock Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary or any Parent Corporation, the expiration of five years from the date the Incentive Stock Option was granted; (iii) The date of the Optionee's Termination of Employment for any reason, other than such Optionee's death or disability (within the meaning of Section 22(e)(3) of the Code), unless the Committee otherwise elects to permit the exercise of such Option for a period of time thereafter; provided, however (a) such period of time shall end no later than ten -7- 8 years from the date the Option was granted, (b) with respect to Incentive Stock Options, such period of time shall not exceed three months from such Termination of Employment and (c) the Committee may make such elections in such manner as it deems appropriate, which may be non-uniform and selective, and based upon such factors as it deems relevant; (iv) With respect to an Incentive Stock Option held by an Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Optionee's Termination of Employment for any reason other than such Optionee's death unless the Optionee dies within said one-year period; (v) The expiration of one year from the date of the Optionee's death with respect to all Incentive Stock Options held by such Optionee; and (vi) With respect to all Options, and notwithstanding any other provision contained herein, the date of the Optionee's Termination of Employment in the event such Termination is for "cause" (as provided in Section 1.19 above). Section 4.5 - Consideration In consideration of the granting of an Option, the Committee may require that the Optionee shall agree to remain in the employ of the Company, a Parent Corporation or a Subsidiary for a period of at least one year after the Option is granted. Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, its Parent Corporations and its Subsidiaries, which are hereby expressly reserved, to discharged any Optionee at any time for any reason whatsoever, with or without cause. Section 4.6 - Adjustments in Outstanding Options In the event that the outstanding shares of the stock subject to Options are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in an outstanding Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in Option price per share; provided, however, that, in the case of Incentive Stock Options, each such adjustment shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. Any such adjustment made by the Committee shall be final and binding upon all Optionees, the Company and all other interested persons. -8- 9 Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution By its acceptance of each Option, each Optionee agrees that the Board shall have the power and right to declare and determine, by a duly adopted resolution of the Board, that each Option may not be exercised after (i) the merger or consolidation of the Company with or into another corporation (if the Company is not the surviving corporation of such merger or consolidation), (ii) the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock or (iii) the liquidation or dissolution of the Company; provided, that such resolution shall be adopted prior to the occurrence of such merger, consolidation, acquisition, liquidation or dissolution. ARTICLE V EXERCISE OF OPTIONS Section 5.1 - Person Eligible to Exercise During the lifetime of the Optionee, only he may exercise an Option (or any portion thereof) granted to him. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its sole discretion, permit the transfer of any Non-Qualified Option, in whole or in part, and the exercise thereof by any transferee thereof. Section 5.2 - Partial Exercise At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof becomes unexercisable under the Plan or the applicable Stock Option Agreement, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee may require any partial exercise to be with respect to a specified minimum number of shares. Section 5.3 - Manner of Exercise An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement: (a) Notice in writing signed by the Optionee or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and -9- 10 (b)(i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; or (ii) With the consent of the Committee, (A) shares of the Company's Common Stock owned by the Optionee duly endorsed for transfer to the Company or (B) except with respect to Incentive Stock Options and subject to the requirements of Section 5.4, shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option, in each case, with a fair market value (as determined under Section 4.2(b)) on the date of Option exercise equal to the aggregate Option price of the shares with respect to which such Option or portion is thereby exercised; or (iii) With the consent of the Committee, any combination of the consideration provided in the foregoing subsections (i) and (ii); and (c) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; provided, that, with the consent of the Committee, any combination of the following may be used to make all or part of such payment: (i) shares of the Company's Common Stock owned by the Optionee duly endorsed for transfer or (ii) except with respect to Incentive Stock Options and subject to the requirements of Section 5.4, shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option, in each case, valued in accordance with Section 4.2(b) at the date of Option exercise; and (d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and (e) In the event that the Option or portion thereof shall be exercised pursuant to Section 5.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 5.4 - Certain Requirements The Committee may, in its sole discretion, limit or restrict the use of Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option to satisfy the Option price or the tax withholding consequences of such exercise (i) to the period beginning on the third business day following the date of release of the quarterly or annual summary statement of sales and earnings of the Company and ending on the twentieth business day following such date or (ii) to its receipt of an irrevocable written election by the Optionee to use shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option to pay all or part of the Option price or the -10- 11 withholding taxes (subject to the approval of the Committee) made at least six months prior to the payment of such Option price or withholding taxes or (iii) in accordance with such other rules and regulations as the Committee may determine to be necessary or appropriate from time to time. Section 5.5 - Conditions to Issuance of Stock Certificates The shares of stock issuable and deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to the fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may establish from time to time for reasons of administrative convenience. Section 5.6 - Rights as Shareholders The holders of Options shall not be, nor have any of the rights or privileges of, shareholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. Section 5.7 - Transfer Restrictions If required at any time by the Committee, no shares acquired upon exercise of any Option by any Officer may be sold, assigned, pledged, encumbered or otherwise transferred until at least six months have elapsed from (but excluding) the date that such Option was granted. The -11- 12 Committee, in its absolute discretion, may impose such other restrictions on the transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such other restriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require the Employee to give the Company prompt notice of any disposition of shares of stock, acquired by exercise of an Incentive Stock Option, within two years from the date of granting such Option or one year after the transfer of such shares to such Employee. The Committee may direct that the certificates evidencing shares acquired by exercise of an Incentive Stock Option refer to such requirement to give prompt notice of disposition. ARTICLE VI ADMINISTRATION Section 6.1 - Stock Option Committee The Stock Option Committee shall consist of two or more Directors, appointed by and holding office at the pleasure of the Board. The Board may limit the members of the Committee to directors who are both "non-employee directors", as defined in Rule 16b-3, and "outside directors", as defined in Section 162(m) of the Code. Subject to the limitations set forth in the preceding sentence, the powers of the Stock Option Committee may be exercised by the Compensation Committee of the Board. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may be removed by the Board at any time and may resign at any time. Vacancies in the Committee shall be filled by the Board. The Board reserves the right to serve as the Stock option Committee if it so elects, and, in which event, the term "Committee" shall mean the Board. Section 6.2 - Duties and Powers of Committee It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Any such interpretations and rules in regard to Incentive Stock Options shall be consistent with the basic purpose of the Plan to grant "incentive stock options" within the meaning of Section 422 of the Code. Section 6.3 - Majority Rule The Committee shall act by a majority of its members in office. The Committee may act either by vote at a meeting or by a memorandum or other written instrument signed by a majority of the Committee. Section 6.4 - Compensation; Professional Assistance; Good Faith Actions Members of the Committee shall receive such compensation for their services as -12- 13 members as may be determined by the Board. All expenses and liabilities incurred by members of the Committee in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its Officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Optionees, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by the Company in respect to any such action, determination or interpretation. The Committee shall have the unrestricted right to make non-uniform decisions and determinations in all matters regarding the Plan and all Options issued hereunder. ARTICLE VII OTHER PROVISIONS Section 7.1 - Options Not Transferable No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent transfers by will or by the applicable laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, permit the holder of any Non-Qualified Option to transfer such Option, or any portion thereof, to such holder's spouse, lineal descendent or trust established for the benefit thereof or any other person or entity. Section 7.2 - Amendment, Suspension or Termination of the Plan The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee, including without limitation, any amendment to increase or decrease the number of shares as to which Options may be granted hereunder, subject to any requirements of shareholder approval set forth in Section 16b-3 or the applicable provisions of the Code. Neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, impair any rights or obligations under any Option theretofore granted. Subject to any applicable provisions of Section 16b-3 and the Code, the Committee and the holder of any Option may at any time, by mutual consent, amend, modify or otherwise waive any of the terms and provisions, including the exercise price, of such holder's Option and Stock Option Agreement. No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under this Plan after the first to -13- 14 occur of (a) March 31, 2007 or (b) the expiration of ten years from the date the Plan is approved by the Company's shareholders under Section 7.3. Section 7.3 - Effective Date; Approval of Plan by Shareholders This Plan will be effective upon its approval by the Board or such other date as the Board shall determine; provided, however, that, notwithstanding any other provision contained herein, no Option shall be exercisable unless this Plan shall be approved within 12 months of its effective date by stockholders holding at least a majority of the Company's voting stock voting in person or by proxy at a duly held stockholders' meeting. Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent Corporation or any Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company, any Parent Corporation or any Subsidiary to (a) establish any other forms of incentives or compensation for employees of the Company, any Parent Corporation or any Subsidiary or (b) grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. Section 7.5 - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Section 7.6 - Conformity to Securities Laws The Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 7.7 - Incentive Stock Options With respect to Incentive Stock Options, if the Plan does not contain any provision now or hereafter required to be included herein under section 422 of the Code, such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out -14- 15 at length herein. Notwithstanding anything contained herein, to the extent any Option which is intended to qualify as an Incentive Stock Option cannot so qualify, such Option, to that extent, shall be deemed to be a Non-Qualified Option under the Code for all purposes of the Plan. Section 7.8 - Exclusion from Pension and Profit-Sharing Computation By acceptance of an Option, each Optionee shall be deemed to have agreed that such grant is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Company or any of its Subsidiaries, whether now existing or hereafter arising. In addition, such Option will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Optionee which is payable to such beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries. -15- EX-10.12 3 U.S. RESELLER AGREEMENT 1 EXHIBIT 10.12 HEWLETT-PACKARD COMPANY U.S. AGREEMENT FOR AUTHORIZED RESELLERS SIGNATURE PAGE ICN # 1988 LEGAL BUSINESS NAME DAISYTEK ADDRESS 500 NORTH CENTRAL EXPRESSWAY FIFTH FLOOR CITY, STATE, ZIP PLANO TX 75074 PHONE, FAX # (800) 527-4212 E-MAIL/INTERNET ADDRESS _____________________________________________________ DBA(s) _____________________________________________________ THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE AND RESALE OF HP PRODUCTS.
AGREEMENT: AMENDMENTS: X U.S. Reseller U.S. International Direct VAR ------ ------ ADDENDA: EXHIBITS: U.S. Dealer EXHIBIT L Approved Locations ------ ------ U.S. GSA Schedule Holder EXHIBIT U11 Calculator and Palmtop Computing Products ------ ------ X U.S. Office Machine Distributor EXHIBIT UD Calculator Distributor Products ------ ------ U.S. Cad/Specialty VAR Distributor *EXHIBIT U201 SEE EXHIBIT ELECTION BELOW ------ ------ U.S. Calculator Dealer EXHIBIT U40A Accessory Products ------ ------ U.S. Calculator Distributor EXHIBIT U40C Consumable Products ------ ------ U.S. Direct Value Added Reseller X EXHIBIT U41A Suppliers Reseller Accessory Products ------ ------ X U.S. Supplies Reseller X EXHIBIT U41C Suppliers Reseller Consumable Products ------ ------ U.S. Consumer Products Distributor X EXHIBIT U60 Office Machine Distributor Products ------ ------ EXHIBIT U80D Cad/Specialty VAR Distributor Products ------ EXHIBIT U82D DesignJet Specialty Distributor Products ------
================================================================================ EXHIBIT ELECTION Reseller and HP agree that Reseller volume level at Net Reseller Price, for HP Products on these Exhibits, noted with a (*) above, for the term of this Agreement is: EXHIBIT U201 COMPUTER RELATED PRODUCTS LEVEL I $50,000,000 - 134,999,999 ----- LEVEL II $135,000,000 - and up -----
SHIPMENT ELECTION Please check one. Shipment elections made on March 1, 1997 regarding shipping options to all products on Exhibits designated with an (*) above. OUTLET HP will ship to all Reseller's approved shipment locations as listed on Exhibit L. - ----- CENTRALIZED HP will ship to no more than six approved shipment locations as listed on Exhibit L. - -----
================================================================================ 2 STATEMENT OF OWNERSHIP: Form of Corporation: (i.e., Corporation, General Partnership, Limited Partnership, Sole Proprietor): _______________________________________ For a Corporation, specify whether: Publicly Held: ____________ Privately Held: ___________ State of Incorporation/Organization ___________ Identify Company ownership and management structure as follows (attach additional if necessary): o Sole Proprietor: Identify all owners, officers and ownership percentages held o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust o Partnership: Identify all General Partners, Limited Partners, Officers and ownership percentages held Specify dollar investment of limited partners o Privately Held Corporation: Identify all shareholders with class and percentage ownership, Officers and Board of Director Members o Publicly Held Corporation Identify owners of 20% or more of each class of shares with class and percentage ownership, Officers and Board of Director Members
NAMES TITLES OWNERSHIP INTEREST Percentage Ownership Type of Ownership Interest (Dollar Investment in (Assets, Common or Limited Partners) Preferred Shares) - ---------------------- --------------------------- ----------------------- -------------------------- - ---------------------- --------------------------- ----------------------- -------------------------- - ---------------------- --------------------------- ----------------------- -------------------------- - ---------------------- --------------------------- ----------------------- -------------------------- - ---------------------- --------------------------- ----------------------- --------------------------
If Company is 100% owned by another corporation, identify the parent corporation's ownership and management structure above and the identity of the parent corporation below: - -------------------------------------------------------------------------------- Parent/Owner, including DBA(s) - -------------------------------------------------------------------------------- Address ( ) - -------------------------------------------------------------------------------- City State ZIP Telephone ( ) - -------------------------------------------------------------------------------- State of Parent/Owner's Incorporation Fax AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY - ------------------------------ --------------------------------------- /S/ MARK C. LAYTON /S/ SUSAN WEATHERMAN - ------------------------------ --------------------------------------- Authorized Signature Susan Weatherman Reseller Contracts Manager MARK C. LAYTON - ------------------------------ Typed Name PRESIDENT 3/10/97 February 28, 1998 - ------------------------------ -------------------- ----------------- Title Effective Date Expiration Date 3 U.S. SUPPLIES RESELLER TABLE OF CONTENTS U.S. RESELLER AGREEMENT 1. APPOINTMENT 2. STATUS CHANGE 3. INTENTIONALLY OMITTED 4. MULTIPLE AGREEMENT DISCOUNTS 5. INTENTIONALLY OMITTED 6. INTENTIONALLY OMITTED 7. PRICES 8. PAYMENT AND SECURITY TERMS 9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES 10. SOFTWARE 11. TRADEMARKS 12. WARRANTY 13. LIMITATION OF REMEDIES AND LIABILITY 14. INTELLECTUAL PROPERTY INDEMNITY 15. RESELLER RECORD-KEEPING 16. AMENDMENTS 17. TERMINATION OF AGREEMENT 18. RELATIONSHIP 19. POLICIES AND PROGRAMS 20. GENERAL CONDITIONS 21. NOTICES U.S. SUPPLIERS RESELLER ADDENDUM 1. APPOINTMENT 2. INTENTIONALLY OMITTED 3. RESELLER RESPONSIBILITIES 4. INTENTIONALLY OMITTED 5. VOLUME COMMITMENT LEVELS 6. RESELLER ORDER MILESTONES 4 U.S RESELLER AGREEMENT 1. APPOINTMENT Hewlett-Packard Company ("HP") appoints Reseller as an authorized, non-exclusive Reseller for marketing the HP Products listed on the Product Exhibits. Reseller's appointment is subject to the terms and conditions set forth in this U.S. Reseller Agreement and the associated Addenda, Product Exhibits, HP Product Categories ("Product Categories") and Operations Policy Manual (collectively, "Agreement") for the period from the effective date through the expiration date of this Agreement. Reseller accepts appointment on these terms. 2. STATUS CHANGE A. If Reseller wishes to: 1. Change its name or that of any approved location; 2. Add, close or change an approved location; 3. Undergo a merger, acquisition, consolidation or other reorganization with the result that any entity controls 50% or more of Reseller's capital stock or assets after such transfer; or 4. Undergo a significant change in control or management of Reseller operations; then Reseller shall notify HP in writing prior to the intended date of change. B. HP agrees to promptly notify Reseller of its approval or disapproval of any proposed change, provided that Reseller has given HP all information and documents reasonably requested by HP. C. HP must approve proposed Reseller changes prior to any obligation of HP to perform under this Agreement with Reseller as changed. 4. MULTIPLE AGREEMENT DISCOUNTS Unless otherwise specified by HP in writing, purchases of HP Products under this Agreement and purchases under any other HP Agreement are exclusive of each other for the purpose of calculating volume commitment and discount levels. 7. PRICES A. HP's corporate price lists are internal data bases indicating current List Prices for HP Products ("List Prices"). HP reserves the right to change List Prices and discounts upon reasonable notice to Reseller. If Reseller is unsure of the List Price to use in calculating Net Reseller price for any HP Product, Reseller should contact its HP sales representative. B. Net Reseller price for HP Products purchased under this Agreement will be the List Price at the time of Reseller's orders, less the discounts based on Reseller's volume or other commitments or elections specified in the Product Exhibits. C. Net Reseller price includes shipment arranged by HP. HP reserves the right to charge Reseller for any special routing, handling or insurance requested by Reseller and agreed to by HP. Orders shipped special routing will be F.O.B. Origin. D. Net Reseller price excludes state and local taxes. HP will invoice Reseller for these taxes, based on point of delivery, unless the appropriate resale exemption certificates are on file at HP's order-entry point or HP agrees the sale is otherwise exempt. E. Upon request from Reseller, at its discretion HP may grant special pricing for particular end-user customer transactions. In good faith, HP may retract the special pricing at any time before acceptance by the end-user 5 customer. HP may extend the pricing on an exclusive or non-exclusive basis and may condition the pricing on a pass-through of all or part of the non-standard offering extended by HP. 8. PAYMENT AND SECURITY TERMS A. Reseller will pay invoices within 30 days from the date of the invoice. HP reserves the right to change credit terms at any time when in HP's opinion Reseller's financial condition or previous payment record so warrants. B. Any Reseller claim for adjustment of an invoice is agreed to be waived if Reseller fails to present it within 90 days from date of HP invoice. No claims, credits, or offsets may be deducted from any invoice. C. If Reseller fails to pay any sum due within 15 days of HP's written notice of delinquency, HP may discontinue performance under this Agreement and may revise credit terms for unshipped orders. 9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES A. Reseller's orders must comply with the minimum order, release, ship-to and other requirements specified in this Agreement. B. HP will honor written, electronic, fax and telephone orders from Reseller's approved locations. Reseller is responsible for ensuring that only authorized employees place, change or delete orders and that the orders conform to all requirements of this Agreement. C. Reseller's requested date for shipment must be within 90 days after order date. HP reserves the right to schedule and reschedule any order, at HP's discretion, and to decline any order for credit reasons or because the order specifies an unreasonably large quantity or makes an unreasonable shipment request. D. HP will use reasonable efforts to meet scheduled shipment dates. However, HP will not be liable for delay in meeting a scheduled shipment date. E. Reseller must own more than 50% of its business at each approved location. HP will ship HP Products to Reseller under HP's standard shipment terms and conditions but only to approved shipment locations authorized by HP on Exhibit L. Shipment locations may be the same as company-owned selling locations. All Reseller's sales, advertising and promotional activities for HP Products must be conducted from selling locations approved by HP. No sales, advertisement or promotion of HP Products may be conducted from shipment locations which are not also approved company-owned selling locations. However, HP will ship to a maximum of six approved shipment locations and will accept orders only from a single order point. An exception will be made where a Product Exhibit indicates drop shipment is available for a specific HP Product under a special program; drop shipment for those HP Products will be subject to limitations indicated in the Product Exhibits. F. Shipments are subject to availability. If HP Product are in short supply, HP will allocate them equitably, at HP's discretion. G. Title to HP Products and risk of loss and damage will pass to Reseller F.O.B. Destination. 10. SOFTWARE Reseller is granted the right to distribute software materials supplied by HP only in accordance with the license terms supplied with these materials. Reseller may alternatively acquire the software materials from HP for its own demonstration purposes in accordance with the terms for use in those license terms. 11. TRADEMARKS A. From time to time, HP may authorize Reseller to display one or more designated HP trademarks. Reseller may display the trademarks solely to promote HP Products. Any display of the trademarks must be in good taste, in a manner that preserves their value as HP trademarks, and in accordance with standards provided by HP for their display. Reseller will not use any name or symbol in way which may imply that Reseller is an agency or branch of 6 HP; Reseller will discontinue any such use of a name or mark as requested by HP. Any rights or purported rights in any HP trademarks acquired through Reseller's use belong solely to HP. B. Reseller grants HP the non-exclusive, royalty-free right to display Reseller's trademarks in advertising and promotional material solely for directing prospective purchasers of HP Products to Reseller's selling locations. Any display of the trademarks must be in good taste, in a manner that preserves their value as Reseller's trademarks, and in accordance with standards provided by Reseller for their display. Any rights or purported rights in any Reseller trademarks acquired through HP's use belong solely to Reseller. 12. WARRANTY A. HP Product User Warranties are described on the Product Exhibits and apply only to end-user purchasers of HP Products. HP revisions to the User Warranties will be effective on the date specified by HP. Copies of User Warranties will be supplied with HP Products. Reseller must provide a copy of the associated User Warranty for an HP Product to each end-user prior to sale. B. HP Product Warranty begins upon purchase by the end-user customer and shall be verified by proof of acquisition by the end-user or via HP's electronic warranty verification system. C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING HP PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. D. Some HP Products may contain selected remanufactured parts equivalent to new in performance. 13. LIMITATION OF REMEDIES AND LIABILITY A. The remedies provided in this Agreement are Reseller's sole and exclusive remedies against HP. B. HP will be liable for damage to tangible property, bodily injury or death to the extent a court of competent jurisdiction determines that an HP Product sold under this Agreement is defective and has directly caused such damage, injury or death, provided that HP's liability for damage to tangible property will be limited to $300,000 per incident. C. HP will be liable to Reseller for any net credits due from HP pursuant to the express provisions of this Agreement. IN NO EVENT WILL HP BE LIABLE FOR LOSS OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY. 14. INTELLECTUAL PROPERTY INDEMNITY A. HP will defend any claim against Reseller that any HP Product infringes a patent, utility model, industrial design, copyright, mask work or trademark in the country where Reseller acquires or sells the Product from HP, provided that Reseller: 1. Promptly notifies HP in writing of the claim; and 2. Cooperates with HP in and grants HP sole authority to control the defense and any related settlement. HP will pay the cost of such defense or settlement and any costs and damages finally awarded by a court against Reseller. B. HP's indemnity shall extend to Reseller's customers and end-users under this Agreement provided they comply with the obligations above. C. HP may procure for Reseller, its customers and end-users the right to continued sale or use,as appropriate, of the Product or HP may modify or replace the Product. If a court enjoins the sale or use of the Product and HP determines that none of the above alternatives is reasonably available, HP will accept return of the Product and refund its depreciated value. 7 D. HP has no obligation for any claim of infringement arising from: 1. HP's compliance with any designs, specifications or instructions of Reseller; 2. Modification of the Product by Reseller or a third party; 3. Use of the Product in a way not specified by HP; or 4. Use of the Product with products not supplied by HP. E. This section states HP's entire liability to Reseller and its customers and end-users for infringement. 15. RESELLER RECORD-KEEPING A. For contract compliance verification, product safety information, operational problem correction and the like, Reseller must maintain records of customer purchases of hardware products for one year. Records must include customer name, address, phone number, ship-to address, serial number and date of sale. B. HP may require Reseller to provide HP or HP's designate with HP Product inventory and sales data including, but not limited to, information such as total units of selected HP Products sold and held in inventory by month for each approved location, in a format specified by HP. HP may require monthly reporting incorporating the previous month's data for each approved location. C. In addition, Reseller must comply with any reporting requirements for HP programs. D. At HP's discretion and upon notice to Reseller, HP or HP's designate will be given prompt access during normal business hours, either on site or through other means specified by HP, to Reseller's customer records, inventory records and other books and records of account of HP Products as HP believes are reasonably necessary to verify and audit Reseller's compliance with this Agreement. E. Failure to promptly comply with HP's request will be considered a repudiation of this Agreement justifying HP's termination of this Agreement on 30 days notice without further cause. F. HP may cover all reasonable actual costs associated with compliance verification procedures from any promotional funds, rebate funds or any other HP accrued funds due Reseller. G. HP may debit Reseller for all wrongfully claimed discounts, rebates, promotional allowances or other amounts determined as a result of HP's audit. 16. AMENDMENTS A. From time to time, HP may add products to or delete them from the Product Exhibits, or implement or change HP policies or programs at HP's discretion, after reasonable notice to Reseller. Additionally, HP may give Reseller 30 days' advance written notice of any other amendment to this Agreement. B. Any amendment will automatically become a part of this Agreement on the effective date specified in the notice. C. Each party agrees that the other has made no commitments regarding the duration or renewal of the Agreement beyond those expressly stated in this Agreement. 17. TERMINATION OF AGREEMENT A. Either party may terminate this Agreement without cause at any time upon 30 days' written notice or with cause at any time upon 15 days' written notice to the other party. B. If either party gives the other notice of termination or advises the other of its intent not to renew this Agreement, HP may require that Reseller pay cash in advance for additional shipments during the remaining term, regardless of Reseller's previous credit status, and may withhold all such shipments until Reseller pays its outstanding balance. 8 C. Upon termination or expiration of this Agreement for any reason, Reseller will immediately cease to be an authorized HP Reseller and will refrain from representing itself as such and from using any HP trademark or trade name. D. Upon any termination or expiration, either party may require that HP purchase from Reseller any HP Products purchased under this Agreement that are on HP's then current Product Exhibits, which are in their unopened, original packaging and marketable as new merchandise. The repurchase price shall be the lower of either the Net Reseller price on the date of termination or expiration or Reseller's original purchase price, in each case less any promotional or other discounts or price protection or other credit extended by HP to Reseller for the HP Product. Reseller should contact its HP sales representative for information about the items eligible for repurchase and instructions for their return at HP's expense. E. Upon termination of this Agreement, or expiration without renewal of this Agreement, all rights to any accrued HP Advantage program or other promotional funds will automatically lapse. F. The indemnities provided in this Agreement will survive termination or expiration of this Agreement. 18. RELATIONSHIP A. Reseller's relationship with HP will be that of an independent contractor. Nothing stated in this Agreement shall be construed as making Reseller and HP a franchise, joint venture or partnership. B. Unless expressly authorized by HP in writing in advance, any commitment made by Reseller to its customers with respect to price, quantities, delivery, specifications, warranties, modifications, interfacing capability or suitability will be Reseller's sole responsibility, and Reseller will indemnify HP from liability for any such commitment by Reseller. C. List Prices are suggested prices for resale to end-user customers and a basis for calculating Net Reseller price. Reseller has the right to determine its own resale price, and no HP representative will require that any particular resale price be charged by Reseller or grant or withhold any treatment to Reseller based on Reseller's resale pricing policies. Reseller agrees that it will promptly report any effort by HP personnel to interface with its pricing policies directly to an HP officer or manager. D. This Agreement applies only to the HP Products listed on the Product Exhibits (U.S. versions only). Reseller acknowledges that HP may market other products, including products in competition with those listed on the Product Exhibits without making them available to Reseller. HP reserves the right to advertise, promote and sell any product, including HP Products on the Product Exhibits, in competition with Reseller. 19. POLICIES AND PROGRAMS From time to time, HP may offer or change HP policies and programs, such as but not limited to the HP Advantage program, Premier Support program and other programs and policies in HP's Operations Policy Manual, participation in which will be on the current terms and conditions of the policies and programs. 20. GENERAL CONDITIONS A. Neither party may assign any rights or obligations in this Agreement without the prior written consent of the other party. Any attempted assignment will be deemed void. B. Neither party's failure to enforce any provision of this Agreement will be deemed a waiver of that provision or of the right to enforce it in the future. C. This Agreement, including the attached Addenda, associated Product Exhibits and Product Categories, contains and constitutes the entire understanding between the parties relating to its subject matter. HP hereby gives notice of objection to any additional or inconsistent terms set forth in any purchase order or other document issued by Reseller. Except as provided in paragraphs 16A and 16B of this Agreement, no modification of this Agreement will be binding on either party unless made in writing and signed by both parties. 9 D. No U.S. Government procurement regulations will be deemed included in this Agreement or binding on either party unless specifically accepted in writing and signed by both parties. E. This Agreement will be governed by the laws of the State of California. F. If any clause of this Agreement is held invalid, the remainder of this Agreement will continue unaffected. 21. NOTICES All notices and demands issued under the terms of this Agreement shall be in writing, delivered by fax, personal service, first class mail postage prepaid, or by registered mail to a location set forth in this Agreement or to HP at 5301 Stevens Creek Boulevard, P.O. Box 58059, Santa Clara, California, 95052-8059 or to the assigned local HP sales representative. 22. U.S. GOVERNMENT Without HP's prior written consent, Reseller is prohibited from issuing any Letter of Supply or guaranteeing to supply any Second Tier Reseller or VAR with HP Product in connection with any U.S. Government Department, Agency or Contractor agreement. 10 U.S. SUPPLIES RESELLER ADDENDUM 1. APPOINTMENT A. HP appoints Reseller as a Supplies Reseller ("Reseller") 3. RESELLER RESPONSIBILITIES A. Reseller will advertise, promote, and sell HP Products only through the company names and approved selling locations listed in Exhibit L and only as permitted in the Product Categories. B. Reseller shall ensure that resellers to whom it sells HP Products comply with all applicable terms and conditions for resale in this Agreement and current HP policies and programs. HP may audit the resellers' compliance. C. HP may prohibit Reseller from selling to terminated Resellers or other identified Customers whom HP does not wish to receive HP Products. D. Reseller agrees to: 1. Forward promptly to resellers the technical, sales and promotional materials, suggested price lists and other information provided by HP for the purpose of reshipment to resellers. 2. Provide pre-sales support and post-sales technical support of HP Products to all resellers. 3. Maintain a stock of HP Products sufficient to meet anticipated demand from its customers on an off-the-shelf basis. 4. Ensure that no sale, advertising, promotion, display or disclosure of any features, availability or price of any new HP Product takes place before HP's public announcement of that Product. 5. Identify and keep current a primary and secondary support contact for both marketing communications and post-sales technical support at each approved selling location. 6. Report promptly to HP all suspected defects in HP Products. 7. Ensure that its employees complete any required training courses and certification programs designated by HP. Additionally, Reseller will assist HP in providing training for Reseller's customers. E. Without HP's prior written consent, Reseller will not export HP Products to any customer outside the U.S. nor sale HP Products for export outside the U.S. F. Reseller may advertise and promote HP Products nationwide. G. Except for sales to resellers permitted in the Product Categories, Reseller may not sell HP Products to or buy them from other resellers for stock balancing or any other reason. 5. VOLUME COMMITMENT LEVELS A. Reseller commitment levels are described on the attached Product Exhibits and are based upon 12-month volume levels. B. If the term of this Agreement or any new Addendum or Product Exhibit is less than 12 months, an applicable 12-month volume commitment level will be calculated for Reseller by projection over a 12-month term. 6. RESELLER ORDER MILESTONE A. Unless otherwise specified in the Product Exhibits, as of five months after the effective date of this Agreement, HP will review Reseller's progress towards its volume commitment level. If Reseller's orders in those first five months represent less than 35% of its 12-month volume commitment level, then HP may terminate this Agreement. 11 U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM TABLE OF CONTENTS U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM 1. APPOINTMENT 2. INTENTIONALLY OMITTED 3. DISTRIBUTOR RESPONSIBILITIES 4. INTENTIONALLY OMITTED 5. VOLUME COMMITMENT LEVELS 6. DISTRIBUTOR ORDER MILESTONES 12 U.S. OFFICE MACHINE DISTRIBUTOR ADDENDUM 1. APPOINTMENT A. HP APPOINTS RESELLER AS AN OFFICE MACHINE DISTRIBUTOR (DISTRIBUTOR). 3. DISTRIBUTOR RESPONSIBILITIES A. DISTRIBUTOR WILL SELL HP PRODUCTS ONLY TO INDEPENDENTLY OWNED AND OPERATED ENTITIES FOR THEIR RESALE TO END-USER CUSTOMERS. B. DISTRIBUTOR WILL ADVERTISE, PROMOTE AND SELL HP PRODUCTS ONLY THROUGH THE COMPANY NAMES AND APPROVED SELLING LOCATIONS LISTED IN EXHIBIT L AND ONLY AS PERMITTED IN THE PRODUCT CATEGORIES. C. DISTRIBUTOR SHALL ENSURE THAT RESELLERS TO WHOM IT SELLS HP PRODUCTS COMPLY WITH ALL APPLICABLE TERMS AND CONDITIONS FOR RESALE IN THIS AGREEMENT AND CURRENT HP POLICIES AND PROGRAMS. HP MAY AUDIT THE RESELLERS' COMPLIANCE. D. HP MAY PROHIBIT DISTRIBUTOR FROM SELLING TO TERMINATED RESELLERS OR OTHER IDENTIFIED CUSTOMERS WHOM HP DOES NOT WISH TO RESALE HP PRODUCTS. E. DISTRIBUTOR AGREES TO: 1. FORWARD PROMPTLY TO RESELLERS THE TECHNICAL, SALES AND PROMOTIONAL MATERIALS, SUGGESTED PRICE LISTS AND OTHER INFORMATION PROVIDED BY HP FOR THE PURPOSE OF RESHIPMENT TO RESELLERS. 2. PROVIDE PRE-SALES SUPPORT AND POST-SALES TECHNICAL SUPPORT OF HP PRODUCTS TO ALL RESELLERS. 3. MAINTAIN A STOCK OF HP PRODUCTS SUFFICIENT TO MEET ANTICIPATED DEMAND FROM ITS CUSTOMERS ON AN OFF-THE-SHELF BASIS. 4. ENSURE THAT NO SALE, ADVERTISING, PROMOTION, DISPLAY, OR DISCLOSURE OF ANY FEATURES, AVAILABILITY OR PRICE OF ANY NEW HP PRODUCT TAKES PLACE BEFORE HP'S PUBLIC ANNOUNCEMENT OF THAT PRODUCT. 5. IDENTIFY AND KEEP CURRENT A PRIMARY AND SECONDARY SUPPORT CONTACT FOR BOTH MARKETING COMMUNICATION AND POST-SALES TECHNICAL SUPPORT AT EACH APPROVED SELLING LOCATION. 6. REPORT PROMPTLY TO HP ALL SUSPECTED DEFECTS IN HP PRODUCTS. 7. APPLY ANY HP ADVANTAGE PROGRAM FUNDS OR OTHER PROMOTIONAL FUNDS, FACILITIES OR SERVICES IN CONFORMITY WITH HP GUIDELINES AND A MUTUALLY AGREED PLAN BETWEEN DISTRIBUTOR AND ITS RESELLERS. 8. ENSURE THAT ITS EMPLOYEES COMPLETE ANY REQUIRED TRAINING COURSES AND CERTIFICATION PROGRAMS DESIGNATED BY HP. ADDITIONALLY, DISTRIBUTOR WILL ASSIST HP IN PROVIDING TRAINING FOR DISTRIBUTOR'S RESELLERS. F. WITHOUT HP'S PRIOR WRITTEN CONSENT, DISTRIBUTOR WILL NOT EXPORT HP PRODUCTS TO ANY CUSTOMER OUTSIDE THE U.S. NOR SELL HP PRODUCTS FOR EXPORT OUTSIDE THE U.S. G. DISTRIBUTOR MAY ADVERTISE AND PROMOTE HP PRODUCTS NATIONWIDE. H. EXCEPT FOR SALES TO RESELLERS PERMITTED IN THE PRODUCT CATEGORIES, DISTRIBUTOR MAY NOT SELL HP PRODUCTS IN OR BUY THEM FROM OTHER RESELLERS FOR STOCK BALANCING OR ANY OTHER REASON. 5. VOLUME COMMITMENT LEVELS A. DISTRIBUTOR COMMITMENT LEVELS ARE DESCRIBED ON THE ATTACHED PRODUCT EXHIBITS AND ARE BASED UPON 12 MONTH PURCHASE VOLUME LEVELS. B. IF THE TERM OF THIS AGREEMENT OR ANY NEW ADDENDUM OR PRODUCT EXHIBIT IS LESS THAN 12 MONTHS, AN APPLICABLE 12 MONTH VOLUME COMMITMENT LEVEL WILL BE CALCULATED FOR DISTRIBUTOR BY PROJECTION OVER A FULL 12 MONTH TERM. 6. DISTRIBUTOR ORDER MILESTONES UNLESS OTHERWISE SPECIFIED IN THE PRODUCT EXHIBITS, AS OF FIVE MONTHS AFTER THE EFFECTIVE DATE OF THIS AGREEMENT HP WILL REVIEW DISTRIBUTOR'S PROGRESS TOWARDS ITS VOLUME COMMITMENT. IF ITS ORDERS IN THE FIRST FIVE MONTHS REPRESENT LESS THAT 35% OF ITS 12 MONTH VOLUME LEVEL, THEN HP MAY TERMINATE THIS AGREEMENT. 13 U.S. DISTRIBUTOR SUMMARY MATIX JANUARY 1, 1997
- ---------------------------------------------------------------------------------------- CALCULATOR OFFICE MACHINE AGGREGATORS DISTRIBUTORS DISTRIBUTORS DISTRIBUTORS - ---------------------------------------------------------------------------------------- Inacom Gates/Arrow Arrowhead Business Arrowhead Business Machine Machine - ---------------------------------------------------------------------------------------- Intelligent Electronics Merisel Common-Wealth Azerty Distributors - ---------------------------------------------------------------------------------------- MicroAge GBC Technologies Douglas Stewart Daisytek - ---------------------------------------------------------------------------------------- Merisel/FAB Avnet/Hall-Mark El Dorado Trading Group New Age Electronics - ---------------------------------------------------------------------------------------- Ingram Alliance Inacom Pro Distributors - ---------------------------------------------------------------------------------------- Tech Data Elect Intelligent Electronics United Stationers - ---------------------------------------------------------------------------------------- MicroAge - ---------------------------------------------------------------------------------------- Neamco - ---------------------------------------------------------------------------------------- Pro Distributors - ---------------------------------------------------------------------------------------- S.P. Richards Company - ---------------------------------------------------------------------------------------- United Stationers - ---------------------------------------------------------------------------------------- Merisel/FAB - ----------------------------------------------------------------------------------------
14 HP PRODUCT CATEGORIES HP manufactures and distributes a large number of personal computer and peripheral products to multiple market segments through a varied set of first and second tier resellers and retailers. This diversity leads to a set of sourcing and distribution rules designed to best allow HP resellers of all types to reach targeted customers of each HP Product in the most efficient and profitable manner. The Product Categories below describe restrictions HP places on resellers selling to customers in the United States. In particular, the Product Categories describe the restrictions HP places on HP Product acquisition and resale for both First Tier Resellers and Distributors as well as Single Tier Resellers, Second Tier Resellers, Second Tier Retailers, and VARS. FIRST TIER RESELLER AND DISTRIBUTOR PRODUCT CATEGORIES HP Products on the Products Exhibits may ONLY be sourced and distributed as indicated below:
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE CUSTOMERS - ---------------- ------------------ --------------------- Q HP Only Any HP Authorized QD Reseller. W HP Only Any HP Authorized Second Tier Retailer who has elected you as its Sole Distributor. X HP Only Any HP Authorized Second Tier Reseller who has elected you as one of its Dual Source Suppliers; any HP Authorized VAR. Y HP Only Any U.S. reseller, whether or not authorized by HP, which resells the product directly to U.S. end-user customers, except for Membership/Warehouse Clubs. Z HP Only Any U.S. reseller, whether or not authorized by HP, which resells the product directly to U.S. end-user customers. O HP or any reseller Any U.S. end-user customer or any U.S. reseller, whether or not authorized by HP.
15 RESELLER/RETAILER, SECOND TIER RESELLER/RETAILER, AND VAR PRODUCT CATEGORIES As used below, Reseller/Retailer is defined as a reseller operating under a current U.S. Reseller Agreement purchasing directly from HP and authorized under the Agreement to sell to U.S. end-user customers. HP Products on the Product Exhibits may ONLY be sourced and distributed a indicated below:
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE CUSTOMERS - ---------------- ------------------ --------------------- C CONTROLLED PRODUCTS Any U.S. end-user customers, HP if you are a subject to Home State Selling Reseller/Retailer, one of Restrictions. your authorized Dual Source Suppliers if you are a Second Tier Reseller, any HP Authorized First Tier Reseller or Distributor if you are a VAR. B HP if you are a Any U.S. end-user customer. Reseller/Retailer; one of your Authorized Dual Source Suppliers if you are a Second Tier Reseller, and HP Authorized First Tier Reseller or Distributor if you are a VAR. A HP or any HP Authorized Any U.S. end-user customer. First Tier Reseller or Distributor Q HP or any HP Authorized Any U.S. end-user customer. Distributor or First Tier Reseller O HP or any reseller Any U.S. end-user customer or any U.S. reseller, whether or not authorized by HP.
16 EXPLANATION OF TERMS USED HOME STATE SELLING RESTRICTIONS Resellers may sell Controlled Products, as defined in the Product Categories, to any U.S. end-user customer. However, the following advertising and sale restrictions apply to Controlled Products: A Reseller's Home State(s) is/are the State(s) in which its approved Selling Location(s), as provided on Exhibit L or on a HP U.S. Authorized VAR Application, is situated. If an approved Selling Location is situated within 50 miles of the boundary of an adjoining State, then the Reseller's Home State(s) will also encompass the adjoining State. 1. Controlled Products may NOT be included or offered for sale on any Internet site; 2. Advertising a well as catalog and other direct response sales of Controlled Products is limited exclusively to a Reseller's Home State(s); and 3. Except as provided in point (1), if a Reseller has an approved Selling Location in 40 or more States, then advertising as well as catalog and other direct response sales of Controlled Products is permitted nationwide. MEMBERSHIP/WAREHOUSE CLUBS Membership/Warehouse Clubs (Such as Price/Costco, Sams/Pace, and Smart and Final) are generally characterized by the following profile: o Sometimes require customers to acquire a membership in order to buy products from any of their locations; o Sell primarily to small businesses and home office end-users, rather than other resellers; o Maintain selling locations of approximately 100,000 square feet or greater; o Offer 3,500 products or more; o Inventory product on the sales floor, usually stacked or stored near their respective categories; o Provide a diversified product offering including food, general merchandise, and consumer products such as tires, clothing, and sporting goods; and o Change merchandise mix often. EX-10.16 4 FORWARD EXCHANGE CONTRACT 1 EXHIBIT 10.16 Texas Commerce Bank National Association Capital Markets Department PO Box 2558 Houston, Texas 77252-8095 CONFIRMATION OF PURCHASE REF-B 440870 DATE- 22 MAY 97 ARRANGED BY- PHONE BR- WE CONFIRM OUR PURCHASE FROM YOU VALUE- 22 MAY 98 CURRENCY/AMOUNT EXCHANGE RATE EQUIVALENT CAD 13,000,000.00 1.3510 USD 9,622,501.80 - ------------------------------------------------------------------------------- CURRENCY PAYABLE TO EQUIVALENT PAYABLE TO ROYAL BANK OF CANADA YOURSELVES THROUGH TORONTO HEAD OFFICE xxxxxxxxxxxxx CURRENCY PAYABLE BY EQUIVALENT PAYABLE BY ORDER OF YOURSELVES OUR CREDIT OF YOUR ACCOUNT xxxxxxxxxxxxx PLEASE SEND US YOUR CONFIRMATION MISC INFO: MAIL TO- DAISYTEK 500 N. CENTRAL EXPRESSWAY PLANO, TX 75074-6763 EX-10.22 5 OPTION TO PURCHASE SHRS/DAISEYTEK & DAVID A. HEAP 1 EXHIBIT 10.22 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 17, 1997, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and DAVID A. HEAP (hereinafter referred to as "EMPLOYEE"): BACKGROUND 1. The Company has issued to the Employee that certain Option to Purchase Shares of Common Stock (the "Old Option") dated April 11, 1996. The Company and the Employee have agreed to cancel the Old Option and issue this Option in its stead. By acceptance of this Option, the Employee and the Company agree that the Old Option is hereby canceled and terminated as of the date hereof. 2. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including any employee stock option plan); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "PARENT CORPORATION" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then 2 owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "SECRETARY" shall mean the Secretary of the Company. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SUBSIDIARY" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "TERMINATION OF EMPLOYMENT" shall mean the time when the employee-employer relationship between the Employee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement, but excluding any termination where there is a simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary. The Board, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment. II. GRANT OF OPTION 2.1 GRANT OF OPTION. In consideration of services rendered by the Employee and the Employee's agreement to remain in the employ of the Company, its Parent Corporations or its Subsidiaries and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Employee the option to purchase any part or all of FIFTEEN THOUSAND (15,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be TWENTY FIVE DOLLARS AND NO CENTS ($25.00) per share without commission or other charge. 2.3 CONSIDERATION TO COMPANY. In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company, a Parent Corporation or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one (1) year from the date this Option is granted. Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, its Parent Corporation and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause. -2- 3 2.4 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Employee, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of fifteen percent (15%) of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of one-hundred percent (100%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (b) Except as may otherwise be permitted by the Board, no portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or -3- 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. --------------------------------------- David A. Heap Daisytek International Corporation --------------------------------------- Name: Title: -8- EX-10.23 6 OPTION TO PURCHASE SHRS/DAISEYTEK & PETER VIKANIS 1 EXHIBIT 10.23 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 17, 1997, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and STEVE GRAHAM (hereinafter referred to as "EMPLOYEE"): BACKGROUND 1. The Company has issued to the Employee that certain Option to Purchase Shares of Common Stock (the "Old Option") dated December 2, 1996. The Company and the Employee have agreed to cancel the Old Option and issue this Option in its stead. By acceptance of this Option, the Employee and the Company agree that the Old Option is hereby canceled and terminated as of the date hereof. 2. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including any employee stock option plan); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. "EMPLOYMENT AGREEMENT" shall mean a written employment agreement, if any, between the Employee and the Company, any Parent Corporation or any Subsidiary, duly executed and delivered by the parties thereto; provided, however, that this Agreement shall not be deemed an Employment Agreement. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 2 "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "PARENT CORPORATION" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "SECRETARY" shall mean the Secretary of the Company. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SUBSIDIARY" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one (1) of the other corporations in such chain. "TERMINATION OF EMPLOYMENT" shall mean the time when the employee-employer relationship between the Employee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement, but excluding any termination where there is a simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary. The Board, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment. II. GRANT OF OPTION 2.1 GRANT OF OPTION. In consideration of services rendered by the Employee and the Employee's agreement to remain in the employ of the Company, its Parent Corporations or its Subsidiaries and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Employee the option to purchase any part or all of TWENTY FIVE THOUSAND (25,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be TWENTY FIVE DOLLARS AND NO CENTS ($25.00) per share without commission or other charge. 2.3 CONSIDERATION TO COMPANY. In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company, a Parent Corporation or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one (1) year from the date this Option is granted. -2- 3 Nothing in this Agreement shall confer upon the Employee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, its Parent Corporation and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause; provided, however, that the foregoing is subject in all respects to the terms and provisions of any Employment Agreement. 2.4 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Employee, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of fifteen percent (15%) of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of one hundred percent (100%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (b) Except as may otherwise be permitted by the Board, no portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. -3- 4 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or (ii) Except if (a) the Employee is totally disabled (within the meaning of Section 22(e)(3) of the Code), (b) the Employee retires within the meaning of clause (iv) below, or (c) the Employee dies, the expiration of three months from the date of the Employee's Termination of Employment for any reason unless the Employee dies within said three-month period; provided, however, that the Board reserves the right to cancel and terminate this Option immediately upon Termination of Employment for cause; or (iii) If the Employee is totally disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Employee's Termination of Employment by reason of his disability unless the Employee dies within said one-year period; or (iv) If the Employee retires after reaching the Company's normal retirement age or takes early retirement with the consent of the Board, the expiration of two years from the date of the Employee's Termination of Employment by reason of such retirement; or (v) The expiration of one year from the date of the Employee's death unless clause (iv) above provides a longer period of exercise; or (vi) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Board waives this provision in connection with such transaction. At least ten (10) days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Board shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3. 3.4 ACCELERATION OF EXERCISABILITY. In the event of the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, the Board may, in its absolute discretion and upon such terms and conditions as it deems appropriate, provide by resolution, adopted prior to such event and incorporated in the notice referred to in Section 3.3(vi), that at some time prior to the effective date of such event this Option shall be exercisable as to all the shares covered hereby, notwithstanding that this Option may not yet have become fully exercisable under Section 3.1(a); provided, however, that this acceleration of exercisability shall not take place if: -4- 5 (i) This Option becomes unexercisable under Section 3.3 prior to said effective date; or (ii) In connection with such an event, provision is made for an assumption of this Option or a substitution therefor of a new option by an employer corporation or a parent or subsidiary of such corporation. The Board may make such determinations and adopt such rules and conditions as it, in its absolute discretion, deems appropriate in connection with such acceleration of exercisability, including, but not by way of limitation, provisions to ensure that any such acceleration and resulting exercise shall be conditioned upon the consummation of the contemplated corporate transaction, and determinations regarding whether provisions for assumption or substitution have been made as defined in clause (ii) above. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Employee, only he may exercise the Option or any portion thereof. After the death of the Employee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Employee's will or under the then applicable laws of descent and distribution. 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one- hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Employee or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Board; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or (ii) With the consent of the Board, shares of the Company's Common Stock owned by the Employee duly endorsed for transfer to the Company with a fair market value -5- 6 (as determined by the Board) on the date of Option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or (iii) With the consent of the Board, any combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and (c) A bona fide written representation and agreement, in a form satisfactory to the Board, signed by the Employee or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Employee or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Board may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; provided, however, with the consent of the Board, shares of the Company's Common Stock owned by the Employee duly endorsed for transfer may be used to make all or part of such payment (which shares be valued at their fair market value on the date of Option exercise as shall be determined by the Board); and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Option. 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Employee upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences only (i) with the consent of the Board and (ii) during such periods of time as employees of the Company are permitted to buy or sell shares of Common Stock. -6- 7 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Board): (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his -7- 8 successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him or her at the address given beneath his or her signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. -8- 9 In Witness Whereof, the Company and the undersigned Employee have executed and delivered this Option as of the day and year above written. --------------------------------------- Steve Graham Address: ------------------------------- ------------------------------- ------------------------------- DAISYTEK INTERNATIONAL CORPORATION By: ------------------------------- Name: Title: -9- EX-10.24 7 OPTION TO PURCHASE SHRS-DAISEYTEK & PETER VIKANIS 1 EXHIBIT 10.24 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 17, 1997, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and PETER VIKANIS (hereinafter referred to as "DIRECTOR"): BACKGROUND 1. The Company has issued to the Director that certain Option to Purchase Shares of Common Stock (the "Old Option") dated August 2, 1996 under the terms of the Company's Non-Employee Director Stock Option and Retainer Plan (the "Plan"). 2. The Board has determined that it is in the best interest of the Company to issue this special one-time option to purchase shares of the Company's Common Stock and, in connection therewith, the Company and the Director have agreed to cancel the Old Option. 3. By acceptance of this Option, the Company and the Director agree that the Old Option is hereby canceled and terminated as of the date hereof. 4. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including the Plan or any other stock option plan); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "SECRETARY" shall mean the Secretary of the Company. 2 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "TERMINATION" shall mean the time when the Director no longer serves as a member of the Board, including without limitation, a termination by resignation, discharge, death or retirement. II. GRANT OF OPTION 2.1 GRANT OF OPTION. For good and valuable consideration, on the date hereof the Company irrevocably grants to the Director the option to purchase any part or all of ONE THOUSAND (1,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be Twenty Five Dollars and No Cents ($25.00) per share without commission or other charge. 2.3 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Director, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of fifteen percent (15%) of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of one-hundred percent (100%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. -2- 3 (b) Upon the Termination of the Director, such portion of this Option which was not then vested and become exercisable shall automatically become fully vested and exercisable, provided, however, that such Termination shall be not less than one year from the date hereof. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or (ii) Except if the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Director's Termination for any reason unless the Director dies within said three-month period; or (iii) If the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Director's Termination by reason of his disability unless the Director dies within said one-year period; or (iv) The expiration of one year from the date of the Director's death. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Director, only he may exercise the Option, or any portion thereof; provided, however, that unless otherwise prohibited by applicable law, the Director may transfer all, or any portion of, this Option to his spouse or immediate family member or any trust for the benefit thereof. After the death of the Director, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Director's will or under the then applicable laws of descent and distribution. 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one-hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Director or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Board; and -3- 4 (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or (ii) With the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer to the Company with a fair market value (as determined by the Board) on the date of Option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or (iii) With the consent of the Board, any combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and (c) A bona fide written representation and agreement, in a form satisfactory to the Board, signed by the Director or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Director or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Board may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; provided, however, with the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer may be used to make all or part of such payment (which shares be valued at their fair market value on the date of Option exercise as shall be determined by the Board); and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Director, appropriate proof of the right of such person or persons to exercise the Option. 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Director upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences only (i) with the consent of the Board and (ii) during such periods of time as employees of the Company are permitted to buy or sell shares of Common Stock. 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but -4- 5 unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Board): (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Board (with the Director abstaining) shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Director, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution, or as otherwise expressly permitted herein. -5- 6 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Director shall be addressed to him or her at the address given beneath his or her signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Director shall, if the Director is then deceased, be given to the Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. In Witness Whereof, the Company and the undersigned Director have executed and delivered this Option as of the day and year above written. --------------------------------------- Peter Vikanis Daisytek International Corporation --------------------------------------- Name: Title: -6- EX-10.25 8 DRY LEASE AGREEMENT 1 EXHIBIT 10.25 DRY LEASE AGREEMENT This Agreement, made and entered into this First day of April, 1997, by and between Virtual Village Aircraft, Inc., a corporation incorporated under the laws of the State of Delaware, with principal offices at 500 North Central Expressway, Suite 202, Plano, Texas, 75074, (hereinafter referred to as "LESSOR"), and Daisytek International Corporation, a corporation incorporated under the laws of the State of Delaware, with principal offices at 500 North Central Expressway, Suite 500, Plano, Texas, 75074, (hereinafter referred to as "LESSEE"); W I T N E S S E T H , that WHEREAS, LESSOR is the registered OWNER of that certain civil AIRCRAFT bearing the United States Registration Number N129DH ("the AIRCRAFT" or "AIRCRAFT") ; and of the type Pilatus PC-12 ; WHEREAS, LESSOR and LESSEE desire to lease said AIRCRAFT on a "DRY LEASE" basis defined in Section 91.54 of the Federal Aviation Regulations [FAR]. 1 2 NOW THEREFORE, LESSOR AND LESSEE, declaring their intention to enter into and be bound by this DRY LEASE AGREEMENT, and for the good and valuable consideration set forth below, hereby covenant and agree as follows: 1. For the sum of One hundred seventy two thousand eight hundred dollars ($172,800.00) LESSOR agrees to lease the AIRCRAFT to LESSEE for the period of Twelve (12) calendar months. LESSEE shall pay LESSOR the above stated amount in twelve equal monthly installments, Fourteen thousand four hundred dollars ($14,400.00) payable on the First day of each month. The AIRCRAFT shall be delivered to LESSEE at McKinney Municipal Airport in McKinney, Texas on April 01, 1997, at which time LESSEE shall inspect the AIRCRAFT to the extent deemed necessary. LESSEE shall have five (5) flight hours following delivery of the AIRCRAFT in which to notify LESSOR in writing of any defects in the AIRCRAFT or its equipment or accessories. If, at the end of such period, LESSOR has not received such notification, it shall be conclusively presumed between the parties that LESSEE has fully inspected the AIRCRAFT having knowledge that it is in good condition and repair and that LESSEE is satisfied with and has accepted the AIRCRAFT in such condition and repair. 2 3 2. This Lease shall commence on April 01, 1997 and continue for one year after said date. Thereafter, this Lease shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Lease upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said party as set forth above. Upon any termination of this Lease, the parties shall equitably adjust any prepaid items or amounts owing as of such date of termination. 3. This Lease shall entitle LESSEE to an aggregate of Three Hundred (300) flight hours during the initial Twelve (12) month term. LESSEE shall have the right to use of the AIRCRAFT in excess of said Three Hundred (300) flight hours, provided, however, that LESSEE and LESSOR shall mutually agree upon an equitable pro rata allocation of all AIRCRAFT costs relating to such excess usage. 3 4 4. Neither LESSEE nor LESSOR will make the AIRCRAFT available for hire within the meaning of the Federal Aviation Regulations. The AIRCRAFT is to be operated strictly in accordance with 14 C.F.R. Part 91. 5. At all times during the term of this Lease, LESSEE and LESSOR shall cause to be carried and maintained, at their own respective cost and expense, the policies and types of insurance described on Schedule I attached hereto. 6. LESSEE may operate the AIRCRAFT only for the purposes and within the geographical limits set forth in the insurance policy or policies obtained in compliance with Paragraph Five of this Lease. The AIRCRAFT shall be operated at all times in accordance with the flight manual and all manufacturer's suggested operating procedures. Furthermore, LESSEE shall not use the AIRCRAFT in violation of any foreign, federal, state, territorial, or municipal law or regulation and shall be solely responsible for any fines, penalties, or forfeitures occasioned by any violation by LESSEE. If such fines or penalties are imposed on LESSOR and paid by LESSOR, LESSEE shall reimburse LESSOR for the amount thereof within thirty (30) days of receipt by LESSEE of written demand from LESSOR. LESSEE will not base the AIRCRAFT, or permit it to be based, outside the limits of the United States of America, without the written consent of LESSOR. 4 5 The AIRCRAFT shall be flown only by certified and qualified pilots who meet all qualifications established by the policies of insurance described in Paragraph Five of this Lease. The AIRCRAFT shall be maintained only by certified and qualified mechanics. In the event the insurance on the AIRCRAFT would be invalidated because LESSEE is unable to obtain certified and qualified pilots and mechanics, LESSEE shall not operate the AIRCRAFT until such time as certified and qualified pilots and mechanics are obtained and insurance on the AIRCRAFT is made valid. LESSEE will not directly or indirectly create, incur, assume or suffer to exist any lien on or with respect to the AIRCRAFT, except any lien created, incurred, assured or permitted by LESSOR. LESSEE will promptly, at its own expense, take such action as may be necessary to discharge any lien not excepted above if the same shall arise at any time. 7. LESSEE agrees to permit LESSOR or any authorized agent to inspect the AIRCRAFT at any reasonable time and to furnish any information in respect to the AIRCRAFT and its use that LESSOR may reasonably request. 5 6 8. Except in accordance with other written agreements entered into subsequent to the date of this Lease between LESSEE and LESSOR regarding maintenance of the AIRCRAFT, LESSEE shall not have the right to alter, modify, or make additions or improvements to the AIRCRAFT without the written permission of the LESSOR. All such alterations, modifications, additions, and improvements as are so made shall become the property of LESSOR and shall be subject to all of the terms of this Lease. 9. The registration of and title to the AIRCRAFT shall be in the name of the LESSOR, and the AIRCRAFT, at all times during the term of this Lease or any extension, shall bear United States of America registration markings. All responsibility and obligations in regard to the operation of the Aircraft as above owned, registered, and marked shall be borne by LESSEE during the term of this Lease. 10. LESSOR shall pay or cause to be paid all taxes incurred by reason of ownership of the AIRCRAFT during the term of this Lease, including personal property taxes. LESSEE shall pay all taxes associated with LESSEE'S use of the AIRCRAFT on LESSEE'S own business, including landing fees, fuel taxes, and any other taxes or fees which may be assessed against a specific flight by LESSEE. 6 7 11. LESSEE shall not assign this Lease or any interest in the AIRCRAFT, or sublet the AIRCRAFT, without prior written consent of LESSOR. Subject to the foregoing, this Lease inures to the benefit of, and is binding on, the heirs, legal representatives, successors, and assigns of the parties. 12. LESSEE shall immediately notify LESSOR of each accident involving the AIRCRAFT, which notification shall specify the time, place, and nature of the accident or damage, the names and addresses of parties involved, persons injured, witnesses, and owners of properties damaged, and such other information as may be known. LESSEE shall advise LESSOR of all correspondence, papers, notices, and documents whatsoever received by LESSEE in connection with any claim or demand involving or relating to the AIRCRAFT or its operation, and shall aid in any investigation instituted by LESSOR and in the recovery of damages from third persons liable therefor. 13. On the termination of this Lease by expiration or otherwise, LESSEE shall return the AIRCRAFT to LESSOR at McKinney Municipal Airport, in McKinney, Texas, in as good operating 7 8 condition and appearance as when received, ordinary wear, tear and deterioration excepted, and shall indemnify LESSOR against any claim for loss or damage occurring prior to the actual physical delivery of the AIRCRAFT to LESSOR. 14. This Lease constitutes the entire understanding between the parties, and any change or modification must be in writing and signed by both parties. 15. This Lease is entered into under, and is to be construed in accordance with, the laws of the State of Texas. 16. The headings in this Agreement are intended solely for the convenience of reference and shall be given no effect in the construction or interpretation of the Agreement. 17. If any provision of this Agreement is deemed or held to be illegal, invalid, or unenforceable, this Agreement shall be considered divisible and inoperative as to such provision to the extent it is deemed to be illegal, invalid or unenforceable, and all other respects this Agreement shall remain in full force and effect; provided, however, that if any provision of this Agreement is deemed or held to be illegal, invalid or unenforceable there shall 8 9 be added hereto automatically a provision as similar as possible to such illegal, invalid or unenforceable provision which would be legal, valid and enforceable. Further, should any provision contained in this Agreement ever be reformed or rewritten by an judicial body of competent jurisdiction, such provision as so reformed or rewritten shall be binding upon all parties hereto. TRUTH IN LEASING STATEMENT The AIRCRAFT, a Pilatus PC-12, manufacture's serial number 140, currently registered with the Federal Aviation Administration as N129DH, has been maintained and inspected under FAR Part 91 during the 12 month period preceding the date of this Lease. The AIRCRAFT will be maintained and inspected under FAR Part 91 for operations to be conducted under this Lease. During the duration of this Lease, Daisytek International Corporation, with principal offices at 500 North Central Expressway, Suite 500, Plano, Texas, 75074, is considered responsible for Operational Control of the AIRCRAFT under this Lease. An explanation of factors bearing on Operational Control and pertinent Federal Aviation Regulations can be obtained from the nearest FAA Flight Standards District Office. 9 10 The "instructions" for compliance with Truth In Leasing Requirements" attached hereto are incorporated herein by reference. I, The Undersigned Mark C. Layton, as President of Daisytek International Corporation, with principal offices at 500 North Central Expressway, Suite 500, Plano, Texas, 75074, certify that I am responsible for operational control of the AIRCRAFT and that I understand my responsibilities for compliance with applicable Federal Aviation Regulations. IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the day and year above written. Virtual Village Aircraft, Inc. By: /s/ JOHN W. WARD John W. Ward Vice President Daisytek International Corporation By: /s/ MARK C. LAYTON Mark C. Layton President 10 11 INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS 1. Mail a copy of the Lease agreement to the following address via certified mail, return receipt requested, immediately upon execution of the agreement (14 C.F.R. requires that the copy be sent within twenty-four hours after it is signed): Federal Aviation Administration Aircraft Registration Branch ATTN: Technical Section P.O. Box 25724 Oklahoma City, Oklahoma 73125 2. Telephone the nearest Flight Standards District Office at least forty-eight hours prior to the first flight under this Lease agreement. 3. Carry a copy of the Lease agreement in the AIRCRAFT at all times. 11 EX-10.26 9 OPTION TO PURCHASE SHRS/DAISEYTEK & TIMOTHY MURRAY 1 EXHIBIT 10.26 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 17, 1997, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and TIMOTHY MURRAY (hereinafter referred to as "DIRECTOR"): BACKGROUND 1. The Company has issued to the Director that certain Option to Purchase Shares of Common Stock (the "Old Option") dated August 2, 1996 under the terms of the Company's Non-Employee Director Stock Option and Retainer Plan (the "Plan"). 2. The Board has determined that it is in the best interest of the Company to issue this special one-time option to purchase shares of the Company's Common Stock and, in connection therewith, the Company and the Director have agreed to cancel the Old Option. 3. By acceptance of this Option, the Company and the Director agree that the Old Option is hereby canceled and terminated as of the date hereof. 4. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including the Plan or any other stock option plan); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 2 "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "SECRETARY" shall mean the Secretary of the Company. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "TERMINATION" shall mean the time when the Director no longer serves as a member of the Board, including without limitation, a termination by resignation, discharge, death or retirement. II. GRANT OF OPTION 2.1 GRANT OF OPTION. For good and valuable consideration, on the date hereof the Company irrevocably grants to the Director the option to purchase any part or all of ONE THOUSAND (1,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be Twenty Five Dollars and No Cents ($25.00) per share without commission or other charge. 2.3 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Director, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: (i) The first installment shall consist of fifteen percent (15%) of the shares -2- 3 covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of one-hundred percent (100%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (b) Upon the Termination of the Director, such portion of this Option which was not then vested and become exercisable shall automatically become fully vested and exercisable, provided, however, that such Termination shall be not less than one year from the date hereof. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or (ii) Except if the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Director's Termination for any reason unless the Director dies within said three-month period; or (iii) If the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Director's Termination by reason of his disability unless the Director dies within said one-year period; or (iv) The expiration of one year from the date of the Director's death. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Director, only he may exercise the Option, or any portion thereof; provided, however, that unless otherwise prohibited by applicable law, the Director may transfer all, or any portion of, this Option to his spouse or immediate family member or any trust for the benefit thereof. After the death of the Director, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Director's will or under the then applicable laws of descent and distribution. -3- 4 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one-hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Director or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Board; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or (ii) With the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer to the Company with a fair market value (as determined by the Board) on the date of Option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or (iii) With the consent of the Board, any combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and (c) A bona fide written representation and agreement, in a form satisfactory to the Board, signed by the Director or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Director or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Board may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this -4- 5 Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; provided, however, with the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer may be used to make all or part of such payment (which shares be valued at their fair market value on the date of Option exercise as shall be determined by the Board); and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Director, appropriate proof of the right of such person or persons to exercise the Option. 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Director upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences only (i) with the consent of the Board and (ii) during such periods of time as employees of the Company are permitted to buy or sell shares of Common Stock. 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Board): (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts -5- 6 which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Board (with the Director abstaining) shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Director, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution, or as otherwise expressly permitted herein. 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Director shall be addressed to him or her at the address given beneath his or her signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Director shall, if the Director is then deceased, be given to the Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post -6- 7 office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. In Witness Whereof, the Company and the undersigned Director have executed and delivered this Option as of the day and year above written. --------------------------------------- (director) Daisytek International Corporation --------------------------------------- Name: Title: -7- EX-10.27 10 OPTION TO PURCHASE SHRS/DAISEYTEK & EDGAR JANNOTTA 1 EXHIBIT 10.27 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of April 17, 1997, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and EDGAR D. JANNOTTA, JR. (hereinafter referred to as "DIRECTOR"): BACKGROUND 1. The Company has issued to the Director that certain Option to Purchase Shares of Common Stock (the "Old Option") dated August 2, 1996 under the terms of the Company's Non-Employee Director Stock Option and Retainer Plan (the "Plan"). 2. The Board has determined that it is in the best interest of the Company to issue this special one-time option to purchase shares of the Company's Common Stock and, in connection therewith, the Company and the Director have agreed to cancel the Old Option. 3. By acceptance of this Option, the Company and the Director agree that the Old Option is hereby canceled and terminated as of the date hereof. 4. This Option is granted as a separate, independent, one-time grant and has not been issued, and shall not be deemed to have been issued, under any "plan" (as such term is used in Rule 16b-3(c)(2)(i) of the Exchange Act) of the Company (including the Plan or any other stock option plan); provided, however, that the shares to be issued upon the exercise of this Option may be registered under the Securities Act on Form S-8 pursuant to Instruction A.1(a) therein, and solely for such purpose, this Option shall be deemed an "employee benefit plan" as defined therein. I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. "BOARD" shall mean the Board of Directors of the Company. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean Daisytek International Corporation, a Delaware corporation. In addition, "Company" shall mean any corporation assuming, or issuing a new option in substitution for, the Option in a transaction to which Section 424(a) of the Code applies. 2 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "OPTION" shall mean the stock option to purchase Common Stock of the Company granted under this Agreement. "SECRETARY" shall mean the Secretary of the Company. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "TERMINATION" shall mean the time when the Director no longer serves as a member of the Board, including without limitation, a termination by resignation, discharge, death or retirement. II. GRANT OF OPTION 2.1 GRANT OF OPTION. For good and valuable consideration, on the date hereof the Company irrevocably grants to the Director the option to purchase any part or all of ONE THOUSAND (1,000) shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be Twenty Five Dollars and No Cents ($25.00) per share without commission or other charge. 2.3 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Director, the Company and all other interested persons. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) The Option shall become exercisable in three (3) cumulative installments as follows: -2- 3 (i) The first installment shall consist of fifteen percent (15%) of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of fifty percent (50%) of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of one-hundred percent (100%) of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (b) Upon the Termination of the Director, such portion of this Option which was not then vested and become exercisable shall automatically become fully vested and exercisable, provided, however, that such Termination shall be not less than one year from the date hereof. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. 3.3 EXPIRATION OF OPTION. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten (10) years from the date the Option was granted; or (ii) Except if the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Director's Termination for any reason unless the Director dies within said three-month period; or (iii) If the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Director's Termination by reason of his disability unless the Director dies within said one-year period; or (iv) The expiration of one year from the date of the Director's death. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Director, only he may exercise the Option, or any portion thereof; provided, however, that unless otherwise prohibited by applicable law, the Director may transfer all, or any portion of, this Option to his spouse or immediate family member or any trust for the benefit thereof. After the death of the Director, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Director's will or under the then applicable laws of descent and distribution. -3- 4 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one-hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Director or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Board; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or (ii) With the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer to the Company with a fair market value (as determined by the Board) on the date of Option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or (iii) With the consent of the Board, any combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and (c) A bona fide written representation and agreement, in a form satisfactory to the Board, signed by the Director or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Director or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Board may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop- -4- 5 transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; provided, however, with the consent of the Board, shares of the Company's Common Stock owned by the Director duly endorsed for transfer may be used to make all or part of such payment (which shares be valued at their fair market value on the date of Option exercise as shall be determined by the Board); and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Director, appropriate proof of the right of such person or persons to exercise the Option. 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Director upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences only (i) with the consent of the Board and (ii) during such periods of time as employees of the Company are permitted to buy or sell shares of Common Stock. 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Board): (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and -5- 6 (d) The payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Board (with the Director abstaining) shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Director, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution, or as otherwise expressly permitted herein. 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Director shall be addressed to him or her at the address given beneath his or her signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Director shall, if the Director is then deceased, be given to the Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and -6- 7 shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. In Witness Whereof, the Company and the undersigned Director have executed and delivered this Option as of the day and year above written. --------------------------------------- Edgar D. Jannotta, Jr. Daisytek International Corporation --------------------------------------- Name: Title: -7- EX-11 11 COMPUTATION OF EARNINGS PER SHARE 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 ----------------- March 31, Fiscal Year Ended --------------------------- March 31, 1997 1996 1995 1995 ------- ------- ------- ----------------- Net income $13,367 $10,767 $ 6,496 $ 7,254 ======= ======= ======= ======= Weighted average common shares outstanding 6,913 6,757 5,542 6,683 ======= ======= ======= ======= Net income per common share $ 1.93 $ 1.59 $ 1.17 $ 1.09 ======= ======= ======= ======= Calculation of weighted average common shares: Weighted average common shares outstanding 6,467 6,301 4,775 6,245 Weighted average common stock warrants, utilizing the treasury stock method (1) -- -- 329 -- Weighted average common stock options, utilizing the treasury stock method (1) 446 456 438 438 ------- ------- ------- ------- 6,913 6,757 5,542 6,683 ======= ======= ======= =======
- ----------------------- (1) Utilizing the weighted average stock price of $15.67 per share for fiscal year 1995. EX-21 12 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 Daisytek De Mexico Services, S.A. de C.V Mexico Priority Fulfillment Services de Mexico, S.A. de C.V. Mexico Daisytek Australia Pty. Ltd. Australia
EX-23 13 CONSENTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement (File No. 33-96728). Dallas, Texas, June 26, 1997 EX-27 14 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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1997 MAR-31-1997 552 0 92,331 1,885 64,780 157,889 21,622 9,648 175,288 77,641 31,116 0 0 65 67,128 175,288 603,814 603,814 543,848 543,848 0 1,594 1,677 21,659 8,292 13,367 0 0 0 13,367 1.93 0
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