-----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, WGFc+7ualyxeLf+W1j88GbA7HIUN3+rCYPpRgO0drFoh6bmFcOgMHxC6dhaVmlnw v5EnE4k1RNtw/bUH7AssFg== 0000950134-03-002655.txt : 20030214 0000950134-03-002655.hdr.sgml : 20030214 20030214180416 ACCESSION NUMBER: 0000950134-03-002655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25400 FILM NUMBER: 03569070 BUSINESS ADDRESS: STREET 1: 1025 CENTRAL EXPRESSWAY SOUTH STE 200 CITY: ALLEN STATE: TX ZIP: 75013 BUSINESS PHONE: 9728814700 MAIL ADDRESS: STREET 1: 1025 CENTRAL EXPRESSWAY SOUTH STE 200 CITY: ALLEN STATE: TX ZIP: 75013 10-Q 1 d03164e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______ to _______ Commission File Number 0-25400 DAISYTEK INTERNATIONAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 75-2421746 - ------------------------- ------------------------------------- (State of Incorporation) (I.R.S. Employer I.D. No.) 1025 CENTRAL EXPRESSWAY SOUTH, SUITE 200, ALLEN, TEXAS 75013 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 881-4700 --------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- -------- At February 11, 2003 there were 18,551,286 shares of the registrant's common stock outstanding, excluding 1,773,905 shares of common stock in treasury. DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets (unaudited)................................ 3 Condensed Consolidated Statements of Operations (unaudited) ..................... 4 Condensed Consolidated Statements of Cash Flows (unaudited)...................... 5 Notes to Condensed Consolidated Financial Statements (unaudited)................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................... 23 Item 4. Controls and Procedures.......................................................... 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................ 23 Item 6. Exhibits and Reports on Form 8-K ................................................ 24 SIGNATURES ............................................................................. 25 CERTIFICATIONS ............................................................................. 25
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31, 2002 2002 --------- --------- (unaudited) ASSETS Current assets: Cash and cash equivalents ....................................................... $ 11,738 $ 4,147 Accounts receivable, net of allowance for doubtful accounts of $5,845 and $4,038 at December 31, 2002 and March 31, 2002, respectively ..... 241,617 175,921 Inventories, net ................................................................ 190,698 115,377 Prepaid expenses and other current assets ....................................... 36,440 13,259 --------- --------- Total current assets ..................................................... 480,493 308,704 --------- --------- Property and equipment, at cost: Furniture, fixtures and equipment ............................................... 62,463 38,176 Leasehold improvements .......................................................... 5,407 3,875 --------- --------- 67,870 42,051 Less accumulated depreciation and amortization .................................. (26,772) (21,245) --------- --------- Net property and equipment ............................................... 41,098 20,806 Investment in ISA ................................................................. -- 28,082 Other assets ...................................................................... 15,605 1,928 Goodwill and other intangible assets, net ......................................... 73,078 54,870 --------- --------- Total assets ............................................................. $ 610,274 $ 414,390 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ............................................... $ 26,225 $ 7,069 Trade accounts payable .......................................................... 191,223 84,718 Accrued expenses and other current liabilities .................................. 16,801 13,575 --------- --------- Total current liabilities ................................................ 234,249 105,362 --------- --------- Long-term debt, less current portion .............................................. 198,571 111,343 Other liabilities ................................................................. -- 1,665 Commitments and contingencies Shareholders' equity: Preferred stock, $1.00 par value; 1,000,000 shares authorized, none issued and outstanding .................................................................... -- -- Common stock, $0.01 par value; 50,000,000 shares authorized and 20,315,439 shares issued at December 31, 2002; and 30,000,000 shares authorized and 19,684,711 shares issued at March 31, 2002 ................................................ 203 197 Additional paid-in capital ...................................................... 123,676 117,946 Retained earnings ............................................................... 79,115 103,268 Accumulated other comprehensive loss ............................................ (13,848) (13,699) Treasury stock at cost, 1,773,905 at December 31, 2002 and March 31, 2002 ....... (11,692) (11,692) --------- --------- Total shareholders' equity ............................................... 177,454 196,020 --------- --------- Total liabilities and shareholders' equity ............................... $ 610,274 $ 414,390 ========= =========
The accompanying notes are an integral part of these financial statements. -3- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER, ------------- ----------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net revenues .................................................... $ 478,617 $ 309,338 $ 1,334,020 $ 861,059 Cost of revenues ................................................ 429,525 278,400 1,215,865 769,052 ----------- ----------- ----------- ----------- Gross profit .............................................. 49,092 30,938 118,155 92,007 Selling, general and administrative expenses .................... 39,365 20,639 111,341 63,666 Goodwill impairment charges ..................................... -- -- 13,864 -- Depreciation and amortization ................................... 2,090 1,537 6,176 3,901 Restructuring and nonrecurring costs ............................ 2,701 2,044 7,754 6,469 ----------- ----------- ----------- ----------- Income (loss) from operations ............................. 4,936 6,718 (20,980) 17,971 Interest expense, net ........................................... 4,401 1,850 11,397 5,190 ----------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes .............................................. 535 4,868 (32,377) 12,781 Provision (benefit) for income taxes ............................ 188 1,752 (7,004) 4,720 ----------- ----------- ----------- ----------- Income (loss) from continuing operations before equity in net income of affiliate and minority interest .................................................. 347 3,116 (25,373) 8,061 Equity in net income (loss) of affiliate and minority interest .................................................. 600 -- 1,220 -- ----------- ----------- ----------- ----------- Income (loss) from continuing operations .................. 947 3,116 (24,153) 8,061 Discontinued operations Loss from operations of discontinued subsidiary, net of tax ............................................... -- -- -- (1,085) ----------- ----------- ----------- ----------- Net income (loss) ......................................... $ 947 $ 3,116 $ (24,153) $ 6,976 =========== =========== =========== =========== Net income (loss) per common share: Basic Income (loss) from continuing operations .................. $ 0.05 $ 0.20 $ (1.32) $ 0.52 Loss from operations of discontinued subsidiary, net of tax ............................................... -- -- -- (0.07) ----------- ----------- ----------- ----------- Net income (loss) ......................................... $ 0.05 $ 0.20 $ (1.32) $ 0.45 =========== =========== =========== =========== Diluted Income (loss) from continuing operations .................. $ 0.05 $ 0.18 $ (1.32) $ 0.48 Loss from operations of discontinued subsidiary, net of tax ............................................... -- -- -- (0.07) ----------- ----------- ----------- ----------- Net income (loss) ......................................... $ 0.05 $ 0.18 $ (1.32) $ 0.41 =========== =========== =========== =========== Weighted average common and common share equivalents outstanding: Basic ..................................................... 18,497 15,899 18,282 15,378 Diluted ................................................... 18,978 17,315 18,282 16,811
The accompanying notes are an integral part of these financial statements. -4- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, -------------------- 2002 2001 -------- -------- Net cash provided by (used in) operating activities from continuing operations ..................................................... $(13,382) $ 11,562 Cash flows from investing activities: Purchases of property and equipment ........................... (7,273) (9,158) Proceeds from the sale and leaseback of equipment ............. -- 8,000 Payment for acquisition of and investment in ISA, net of cash acquired ..................................................... (7,793) (18,553) Other acquisitions of businesses, net of cash acquired ........ (2,119) (16,249) Acquisition of Memphis distribution assets .................... -- (10,700) Disposition of subsidiary ..................................... -- 923 Increase in note receivable and other assets .................. (69) (525) -------- -------- Net cash used in investing activities ............. (17,254) (46,262) -------- -------- Cash flows from financing activities: Proceeds from lines of credit, net ............................ 31,578 8,095 Net proceeds from private placement of common stock ........... -- 16,430 Net proceeds from exercise of stock options and issuance of common stock ............................................. 3,836 13,338 Other ......................................................... -- (334) -------- -------- Net cash provided by financing activities ......... 35,414 37,529 Effect of exchange rates on cash and cash equivalents ............. 2,813 528 -------- -------- Net increase in cash and cash equivalents ......................... 7,591 3,357 Cash and cash equivalents, beginning of period .................... 4,147 1,971 -------- -------- Cash and cash equivalents, end of period .......................... $ 11,738 $ 5,328 ======== ======== Net cash used in operating activities from discontinued operations $ -- $ (685) Activities not affecting cash: Property and equipment acquired under capital leases ............ $ 12,445 $ 3,088
The accompanying notes are an integral part of these financial statements. -5- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been included. Interim period results are not necessarily indicative of results to be expected for the year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Daisytek International Corporation ("Daisytek" or the "Company") Annual Report on Form 10-K for the year ended March 31, 2002. The year-end consolidated balance sheet data was derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, effective April 1, 2002. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of gains and losses on debt extinguishment such that most debt extinguishment gains and losses will no longer be classified as extraordinary; amends SFAS No. 13 with respect to sales-leaseback transactions; and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material impact on the Company's reported results of operations or financial position. Approximately $0.2 million of debt termination costs that would have been classified as extraordinary under the provisions of SFAS No. 4 are included in restructuring and nonrecurring costs for the nine months ended December 31, 2002. The Company will adopt Emerging Issues Task Force ("EITF") Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor, effective January 1, 2003. The EITF consensus standardizes the accounting treatment and classification of monies received from vendors and generally requires, unless certain criteria are met, that such cash consideration be treated as a reduction of the cost of inventory acquired from the vendor. The EITF also concluded that rebates or refunds that are earned based upon a specified level of purchases, or continued purchases over a specified period of time, should be accrued if it is probable they will be earned and can be estimated. Because Daisytek receives a significant amount of vendor consideration in the form of rebates, cooperative advertising and marketing development funds, the effect on the Company's financial statements could be material. Management is in the process of evaluating the effect of this new standard on the Company's financial statements. In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees. The Interpretation's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective this quarter (see Note 13). Management does not expect that the adoption of this Interpretation will have a material impact on the Company's consolidated financial statements or disclosures. -6- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 gives entities that elect to adopt the fair market value method of accounting for stock options granted to employees provided for in SFAS No. 123, Accounting for Stock-Based Compensation, three alternative transitional accounting methods. SFAS No. 148 also provides that certain pro forma and other information regarding stock options which is currently required only in an entity's annual financial statements will now be required in interim reports as well. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and for interim periods beginning after December 15, 2002. Management is in the process of evaluating the implications of this new standard on the Company's consolidated financial statements. NOTE 3 - ACQUISITION OF ISA During September 2001, Daisytek invested 8.0 million British pounds, or approximately $11.4 million, in preference shares of ISA International plc ("ISA") a pan-European distributor of computer supplies, which indirectly owns 47% of Kingfield Heath Ltd. ("Kingfield Heath"), a U.K.-based wholesaler of office products. The preference shares were convertible into 50% plus one share of ISA at Daisytek's option at any time over a period of five years. The preference shares earned a quarterly variable rate cumulative preferential dividend. ISA did not pay the preference dividend due to Daisytek on April 1, 2002. Failure to pay a preference dividend for more than 14 days after its due date constituted an event of default under ISA's articles of association, unless waived by Daisytek. Daisytek had agreed to waive the outstanding payment, but this agreement to waive expired on May 6, 2002. As a result of this event of default, as of May 7, 2002, Daisytek was entitled to vote its preference shares on an as-converted basis (50% plus one share), entitling Daisytek to majority voting control and allowing the Company to appoint to the board of ISA a number of directors equivalent to 50%. Accordingly, the Company began using consolidation accounting for the investment in ISA effective May 7, 2002. On May 23, 2002, the Company mailed a recommended offer to shareholders of ISA. During the first quarter of fiscal 2003, Daisytek received acceptances from ISA shareholders totaling more than 90% of ISA ordinary shares. During August 2002, the Company exercised its rights under U.K. law to pursue compulsory acquisition and completed the acquisition of the remainder of the ISA ordinary shares. The aggregate purchase price of and investment in ISA is approximately $37.8 million, including cash purchases of ISA shares of approximately $4.7 million, the issuance of approximately 140,000 unregistered Daisytek common shares valued at approximately $1.9 million (based on the average Daisytek share value upon mailing of the recommended offer) in exchange for ISA shares, Daisytek's prior investment in ISA preference shares of approximately $11.4 million, funds previously advanced by Daisytek to ISA of approximately $16.7 million and transactions costs of $3.1 million. The acquisition of ISA provides the Company with access to ISA's pan-European reach and local knowledge and resulted in the recognition of approximately $27.0 million of goodwill. The following table summarizes the estimated fair value of ISA's assets acquired and liabilities assumed at the date of merger. This purchase price allocation is preliminary pending final completion of appraisals and other fair value analysis of assets and liabilities.
(in thousands) Current assets......................................... $ 120,412 Property and equipment................................. 6,379 Deferred tax asset..................................... 8,805 Goodwill............................................... 26,987 Other assets........................................... 30 Current liabilities.................................... (71,622) Long-term debt......................................... (53,151) ----------- Total net assets acquired............................ $ 37,840 ===========
-7- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The results of operations for the three months and nine months ended December 31, 2002 include the operations of ISA from May 7, 2002, based on the Company's ownership percentages during this period. Unaudited pro forma consolidated results of operations, assuming that the Company acquired 100% of ISA on April 1, 2001 follow:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net revenues ............................ $ 478,617 $ 445,876 $ 1,390,105 $ 1,234,886 Net income (loss) ....................... $ 947 $ 2,560 $ (24,190) $ 2,596 Net income (loss) per common share - Basic ............................... $ 0.05 $ 0.16 $ (1.32) $ 0.17 Net income (loss) per common share - Diluted ............................. $ 0.05 $ 0.15 $ (1.32) $ 0.15
The pro forma information is not necessarily indicative of the actual results that would have been achieved had the ISA acquisition occurred for the periods presented, nor is it indicative of future results of operations. NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS The Company's purchase agreement for the acquisition of Digital Storage, LLC ("Digital Storage"), completed during the first quarter of fiscal year 2002, provided for an adjustment to the purchase price based on certain performance criteria for each of the two years following the acquisition. Based on Digital Storage's performance during the first year following the acquisition, the Company has increased the original purchase price and goodwill by approximately $2.1 million. Goodwill and Other Intangible Assets includes a non-compete covenant acquired during the quarter ending December 31, 2002. The fair value of the non-compete covenant is approximately $0.4 million and will be amortized using the straight-line method over the one-year life of the asset. During the quarter ended September 30, 2002, the Company recognized total goodwill impairment charges of approximately $13.8 million. No tax benefit was recognized. The total charge related to impairment of goodwill at the professional tape products unit was $12.0 million, representing approximately half of the total goodwill balance at this unit. The Company performed the two-step impairment test required by SFAS No. 142, Goodwill and Other Intangible Assets, on its professional tape products unit due to persisting negative business and industry trends, including industry wide price degradation, which resulted in worse than expected performance and lower earnings forecasts during the second quarter. The total charge related to the impairment of goodwill at the Argentinean computer and office supplies unit was $1.8 million, representing the entire goodwill balance of this unit. The Company performed the SFAS No. 142 impairment test on its Argentinean computer and office supplies unit due to economic and political issues in Argentina, which significantly reduced the Company's operations there during the second quarter and resulted in reduced earnings forecasts. Fair values for both the professional tape products and Argentinean computer and office supplies units were determined using discounted fair value of expected future cash flows. -8- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - INVESTMENT The Company indirectly owns a 47% investment in Kingfield Heath, a U.K.-based wholesaler of office products. The Company is accounting for this investment using the equity method. The investment was obtained as part of the ISA acquisition. Therefore, the Company's 47% interest in the results of operations of Kingfield Heath are included from May 7, 2002, based on the Company's ownership percentages of ISA and Kingfield Heath during this period. Summarized income statement financial information for Kingfield Heath follows (in thousands):
THREE MONTHS NINE MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, 2002 2002 ------------ ------------ Net revenues ................................... $ 80,073 $ 205,125 Gross profit ................................... 18,665 45,547 Net income ..................................... 1,276 2,825
NOTE 6 - COMPREHENSIVE INCOME The Company includes currency translation adjustments and changes in the fair value of certain derivative financial instruments which qualify for hedge accounting in comprehensive income. The following table sets forth comprehensive income (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income (loss) ........................... $ 947 $ 3,116 $(24,153) $ 6,976 Comprehensive income adjustments: Foreign currency translation adjustment ........................... 2,544 (3,142) 326 (3,073) Cumulative effect of adoption of SFAS 133 as of April 1, 2001, net of tax of $240 ................................. -- -- -- (445) Change in fair value of derivative financial instruments, net of tax of $(102) and $81 for the three months ended December 31, 2002 and 2001, respectively, and $256 and $512 for the nine months ended December 31, 2002 and 2001, respectively .......... 189 151 (475) (951) -------- -------- -------- -------- Comprehensive income (loss) ................. $ 3,680 $ 125 $(24,302) $ 2,507 ======== ======== ======== ========
-9- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - EARNINGS PER SHARE DATA The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31 DECEMBER 31, ----------------------- ------------------------ 2002 2001 2002 2001 ---------- ---------- ---------- ---------- NUMERATOR: Income (loss) from continuing operations ........ $ 947 $ 3,116 $ (24,153) $ 8,061 Loss from operations of discontinued subsidiary, net of tax ....................... -- -- -- (1,085) ---------- ---------- ---------- ---------- Net income (loss) ............................. $ 947 $ 3,116 $ (24,153) $ 6,976 ========== ========== ========== ========== DENOMINATOR: Denominator for basic earnings per share - Weighted average shares ....................... 18,497 15,899 18,282 15,378 Effect of dilutive securities: Stock options ................................. 481 1,416 -- 1,433 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - Adjusted weighted average shares .............. 18,978 17,315 18,282 16,811 ========== ========== ========== ========== Basic earnings per common share: Income (loss) from continuing operations ...... $ 0.05 $ 0.20 $ (1.32) $ 0.52 Loss from operations of discontinued subsidiary, net of tax ....................... -- -- -- (0.07) ---------- ---------- ---------- ---------- Net income (loss) ............................. $ 0.05 $ 0.20 $ (1.32) $ 0.45 ========== ========== ========== ========== Diluted earnings per common share: Income (loss) from continuing operations ...... $ 0.05 $ 0.18 $ (1.32) $ 0.48 Loss from operations of discontinued subsidiary, net of tax ....................... -- -- -- (0.07) ---------- ---------- ---------- ---------- Net income (loss) ............................. $ 0.05 $ 0.18 $ (1.32) $ 0.41 ========== ========== ========== ==========
Employees and former employees exercised stock options to acquire 51,022 shares for proceeds of approximately $0.6 million during the three months ended December 31, 2002 and 421,315 shares for proceeds of approximately $3.5 million during the nine months ended December 31, 2002. NOTE 8 - DEBT UNITED STATES CREDIT FACILITY During April 2002, Daisytek signed a $200 million senior secured debt facility expiring on April 24, 2005, which was amended, syndicated and increased to $250 million during June 2002. This credit facility replaced the existing $150 million credit facility expiring on December 19, 2003. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowings under the credit facility accrue interest, at the Company's option, at the prime rate of the lead bank plus an adjustment ranging from 0.0% to 0.75% or the LIBOR rate plus an adjustment ranging from 2.0% to 2.75%, both of which are limited by a maximum rate, as defined. The Company pays fees of 0.375% per annum on the unused portion of the credit facility. The credit 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, including loans and payments to related parties, payment of dividends, capital expenditures, acquisitions, investments and asset sales. -10- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During November 2002, the Company amended certain terms of its domestic credit facility and received a waiver of compliance for its fixed charge ratio and tangible net worth covenants for the quarter ended September 30, 2002. As amended, borrowings under the domestic credit facility through September 30, 2003 accrue interest, at the Company's option, at the prime rate of the lead bank plus an adjustment of 1.0% or the LIBOR rate plus an adjustment of 3.0%. Subsequent to September 30, 2003, borrowings under the credit facility accrue interest, at the Company's option, at the prime rate of the lead bank plus an adjustment ranging from 0.0% to 0.75% or the LIBOR rate plus an adjustment ranging from 2.0% to 2.75%, both of which are limited by a maximum rate, as defined. Daisytek also amended various covenants, including a revision of the calculation of minimum fixed charge ratios and tangible net worth requirements. A new covenant was added which requires the Company to use its best efforts to raise additional capital having net proceeds of not less than $20 million by March 31, 2003 and to raise such additional capital, in any event, on or before September 30, 2003. Provided, however, in certain circumstances such as if the average availability under the facility for any trailing 30-day period first calculated on February 14, 2003 is less than $15 million, then $20 million (net) of additional capital must be raised within 90 days of such event. Upon the first calculation on February 14, 2003, the Company's trailing 30-day average availability under this facility is less than $15 million. Therefore, in addition to the requirement that the Company will use its best efforts to raise the additional capital by March 31, 2003, the Company will be required, in any event, to raise such capital within 90 days of February 14, 2003 (by May 15, 2003). The Company anticipates being able to raise the additional capital by the required deadline. INTERNATIONAL CREDIT FACILITIES During July 2002, the Company's Mexican subsidiary entered into a secured revolving line of credit facility with a Mexican bank with maximum credit availability of 90.0 million Mexican pesos, or approximately $8.6 million, expiring during July 2005. Availability under the credit facility is subject to certain borrowing base limitations, as defined. The facility accrues interest at the Interbank Equilibrium Interest Rate in Mexico City plus 325 basis points. During February 2003, ISA signed a 33.5 million British pounds (approximately $53.9 million) secured debt facility with an initial period expiring during February 2006. This facility replaced existing facilities of approximately 22.8 million British pounds (approximately $36.7 million) which were payable on demand. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowings under the credit facility accrue interest, at the LIBOR rate plus an adjustment ranging from 1.35% to 2.35%. The credit facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum interest cover ratio and minimum level of tangible net worth as well as maintaining accounts receivable and accounts payable days outstanding below defined maximum levels, and restrictions on certain activities, including loans and payments to related parties, payment of dividends and asset sales. In November 2002, Daisytek Australia Pty. Ltd. signed a 35 million Australian dollar (approximately $19.6 million) revolving credit facility, expiring on November 18, 2005. This credit facility replaced the existing 20 million Australian dollar (approximately $11.2 million) unsecured credit facility. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowing under the credit facility accrues interest at the index rate plus 2.7%. Fees are 0.5% per annum on the unused portion of the credit facility. The credit facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum fixed charge ratio, a minimum level of tangible net worth, restriction on certain activities, loans, payments to related parties, capital expenditures, acquisitions, investments, assets sales and sale-leaseback transactions. -11- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - RESTRUCTURING AND NONRECURRING COSTS Restructuring and nonrecurring costs consist of the following for the three months and nine months ended December 31, 2002 and 2001 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ----------------- 2002 2001 2002 2001 ------ ------ ------ ------ Restructuring charges (a) .............. $2,701 $2,044 $7,599 $2,044 Final PFSweb separation charges (b) .... -- -- -- 4,425 Other .................................. -- -- 155 -- ------ ------ ------ ------ $2,701 $2,044 $7,754 $6,469 ====== ====== ====== ======
(a) During the third quarter of fiscal year 2002, the Company commenced a United States restructuring plan that includes (1) information technology enhancements; (2) distribution improvements and consolidation of subsidiary warehouses into new regional hub facilities in order to leverage distribution costs; and (3) centralization of certain back-office resources. During the three months ended December 31, 2002, the Company incurred pre-tax charges of approximately $2.7 million, including $2.5 million related to warehouse and distribution initiatives (including costs associated with the opening and testing of the new distribution facilities in Bakersfield, California, and Albany, New York, and the integration of office products at the Company's central distribution center in Memphis) and $0.2 million related to other back-office improvements. During the nine months ended December 31, 2002, the Company incurred pre-tax charges of approximately $7.6 million, including $5.9 million related to warehouse and distribution initiatives; $0.4 million related to the termination of employees; and $1.3 million related to other back-office improvements. (b) As part of the Company's May 2001 transaction to terminate certain transaction management services agreements between the Company and its former subsidiary PFSweb, Inc. ("PFSweb") and to purchase certain Memphis distribution assets from PFSweb, the Company recognized a pre-tax nonrecurring charge of $4.4 million. This charge included transaction costs, a separation payment and finalization of other balances between the Company and PFSweb. NOTE 10 - INCOME TAXES The provision for income taxes for the quarter ended September 30, 2002 was affected by goodwill impairment charges of $13.8 million, which were not tax deductible in the same period as this charge. The provision for income taxes for the quarter ended June 30, 2002 was affected by a recovery of approximately $0.3 million of previously paid state income taxes. The income tax rate is expected to be approximately 35% for the remainder of the fiscal year, down from the prior year due to the acquisition of ISA. -12- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT DATA The Company currently operates in two reportable business segments - (1) computer and office supplies and (2) professional tape products. Separate financial data for each of the Company's operating segments, excluding discontinued operations, is provided below (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net revenues: Computer and office supplies, excluding discontinued operations ................... $ 463,067 $ 291,984 $ 1,286,008 $ 807,195 Professional tape products ................. 15,550 17,354 48,012 53,864 ------------ ------------ ------------ ------------ Consolidated ............................... $ 478,617 $ 309,338 $ 1,334,020 $ 861,059 ============ ============ ============ ============ Operating contribution: Computer and office supplies, excluding discontinued operations .................. 6,804 8,776 (2,498) 21,967 Professional tape products ............... 833 886 (10,728) 3,373 ------------ ------------ ------------ ------------ Consolidated ............................. $ 7,637 $ 9,662 $ (13,226) $ 25,340 ============ ============ ============ ============
The Company's computer and office supplies segment includes certain expenses that relate to the professional tape products segment which are not allocated by management to this segment. These expenses primarily represent: (1) costs related to the Company's centralized management information, warehouse and telephone systems and (2) executive, administrative and other corporate costs. Restructuring and nonrecurring costs of $2.7 million and $2.9 million for the three months ended December 31, 2002 and 2001 respectively, have not been allocated to the reportable segments and must be included to reconcile to the income from operations reported in the Company's consolidated financial statements. Restructuring and nonrecurring costs of $7.8 million and $7.4 million for the nine months ended December 31, 2002 and 2001, respectively, have not been allocated to the reportable segments and must be included to reconcile to the income from operations reported in the Company's consolidated financial statements. NOTE 12 - RESERVE ESTIMATES AND ADJUSTMENTS During the second quarter of fiscal year 2003, the Company recorded increases in reserve estimates and other adjustments totaling $20.2 million ($12.9 million after tax). These charges are summarized below (in millions):
Pre-Tax Post-Tax Charge Charge ------ -------- Items affecting gross profit: Costs related to U.S. business, including the office products initiative, distribution center and logistics costs and vendor programs (office products and computer supplies) .......................................................... $ 10.6 $ 6.8 Costs related to The Tape Company ................................................. 1.2 0.7 Costs related to Latin American operations ........................................ 3.7 2.4 Other ............................................................................. 0.5 0.3 ------ ------ $ 16.0 $ 10.2 Items affecting selling, general and administrative expenses: Costs related to The Tape Company ................................................. 0.2 $ 0.2 Costs related to Latin American operations ........................................ 1.5 0.9 Professional costs, acquisition costs and other ................................... 2.5 1.6 ------ ------ $ 4.2 $ 2.7 Total .............................................................................. $ 20.2 $ 12.9 ====== ======
-13- DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Daisytek's professional tape products unit continues to experience negative industry trends. Recent price changes have diminished management's long-term outlook for this industry. In light of the industry-wide issues and current management forecasts, the Company recorded increases in reserve estimates for customer and vendor accounts receivable, inventory and other assets totaling approximately $1.4 million ($0.9 million after tax). The professional tape products unit represented approximately 3% of the Company's total third quarter revenues. The Argentinean computer and office supplies unit was further impacted by countrywide economic and political issues. Argentina currently represents less than 1% of total revenues. In addition to Argentina, other Latin American export markets are experiencing economic uncertainty at present. The Company conducted a review of major asset accounts such as customer and vendor accounts receivable, inventory and other assets related to all of the Latin American businesses, including Argentina, Mexico and the U.S.-based export business. In light of operating decisions related to the amount and type of business the Company conducts in Latin America and due to this review of the net realizable value of assets, reserve estimates were increased by approximately $5.2 million ($3.3 million after tax). The Company's Mexican operations are performing in line with expectations, however the Company is currently reviewing all levels of business into its export markets. Costs related to the U.S. business, including Daisytek's expansion into office products and the distribution center reorganization impacted the Company's performance for the quarters ended September 30, 2002 and December 31, 2002. During the second quarter, the Company made three decisions that negatively impacted short-term earnings but that were believed to be important for the long-term success of the overall business. (1) Management decided to reset the Memphis Superhub to the new management warehouse system over a longer time period, in order to maintain the highest-possible customer service and minimize risks. (2) The Company gave away the new full-line computer and office supplies catalogs to many customers, instead of selling them, in order to get the catalog in as many hands as possible, as quickly as possible, to accelerate revenue growth. (3) The Company reduced its short-term cooperative marketing efforts with office products and computer supplies vendors to ensure promotion of long-term channel development. As a result of these decisions and a review of asset net realizable values, the Company increased certain reserve estimates for balance sheet items including customer and vendor accounts receivable, deferred costs, inventory and other by $10.6 million ($6.8 million after tax). NOTE 13- GUARANTEES In connection with the initial public offering of PFSweb, the Company has guaranteed or subleased to PFSweb certain operating lease obligations. Total minimum payments for these agreements are $17.2 million, including $5.6 million due in less than one year, $6.5 million due in one to three years, $4.2 million due in four to five years and $0.9 million due after five years. The Company does not expect to make payments under these guarantees or sublease agreements. If performance were required, the Company would seek to mitigate our exposure with lease terminations and/or subleases, although no assurance can be provided that the Company would be successful in mitigation. The Company's financial statements do not include any liability for these guarantees. NOTE 14 -- RELATED PARTY TRANSACTIONS AND RELATIONSHIPS In the past, the Company has made available one-year and three-year loans to its executive officers and non-employee directors. The one-year loans accrue interest at the Company's effective borrowing rate (6.47% at December 31, 2002 and 3.8% at March 31, 2002) and the three-year loans accrue interest at the prime rate plus one percent. Loan amounts classified as short-term under these contracts are included in other current assets on the Company's consolidated balance sheets and totaled $1.9 million at December 31, 2002 and $0.2 million at March 31, 2002. Loan amounts classified as long-term under these contracts are included in other assets on the Company's consolidated balance sheets and totaled $0.2 million at December 31, 2002 and $1.0 million at March 31, 2002. James R. Powell, the Company's President and Chief Executive Officer, had outstanding loans totaling $0.8 million at December 31, 2002. Of this amount, $0.2 million, plus interest, is past due and in default. The Board of Directors and Audit Committee has demanded payment from Mr. Powell and believes that it will receive payment. In the event the payment is not received, the Board of Directors will pursue appropriate action. -14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Unless otherwise indicated, all references to "Daisytek," "we," "us," and "our" refer to Daisytek International Corporation, a Delaware corporation, and its direct and indirect subsidiaries, including Daisytek, Incorporated, which is Daisytek's primary operating subsidiary. References in the Report to Daisytek's fiscal year mean the twelve-month period ending on March 31 of such fiscal year. Daisytek is a leading global distributor of computer and office supplies and professional tape products. To enhance our relationship with our computer and office supplies customers worldwide, we also provide unique, value-added services such as direct marketing, merchandising and demand generation. We sell our products and services in the United States, Europe, Canada, Australia, Mexico and South America. RESULTS OF OPERATIONS Recent Accounting Pronouncements We adopted Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, effective April 1, 2002. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of gains and losses on debt extinguishment such that most debt extinguishment gains and losses will no longer be classified as extraordinary; amends SFAS No. 13 with respect to sales-leaseback transactions; and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material impact on our reported results of operations or financial position. Approximately $0.2 million of debt termination costs that would have been classified as extraordinary under the provisions of SFAS No. 4 are included in restructuring and nonrecurring costs for the nine months ended December 31, 2002. We will adopt Emerging Issues Task Force ("EITF") Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor, effective January 1, 2003. The EITF consensus standardizes the accounting treatment and classification of monies received from vendors and generally requires, unless certain criteria are met, that such cash consideration be treated as a reduction of the cost of inventory acquired from the vendor. The EITF also concluded that rebates or refunds that are earned based upon a specified level of purchases, or continued purchases over a specified period of time, should be accrued if it is probable they will be earned and can be estimated. Because Daisytek receives a significant amount of vendor consideration in the form of rebates, cooperative advertising and marketing development funds, the effect on our financial statements could be material. We are in the process of evaluating the effect of this new standard on our financial statements. In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees. The Interpretation's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective this quarter (see Note 13). We do not expect that the adoption of this Interpretation will have a material impact on our consolidated financial statements or disclosures. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 gives entities that elect to adopt the fair market value method of accounting for stock options granted to employees provided for in SFAS No. 123, Accounting for Stock-Based Compensation, three alternative transitional accounting methods. SFAS No. 148 also provides that certain pro forma and other information regarding stock options which is currently required only in an entity's annual financial statements will now be required in interim reports as well. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and for interim periods beginning after December 15, 2002. We are in the process of evaluating the implications of this new standard on our consolidated financial statements. -15- Acquisition of ISA On May 23, 2002, we mailed a recommended offer to shareholders of ISA International plc ("ISA"), a pan-European distributor of computer supplies, which indirectly owns 47% of Kingfield Heath Ltd. ("Kingfield Heath"), a U.K.-based wholesaler of office products. During the first quarter of fiscal 2003, we received acceptances from ISA shareholders totaling more than 90% of ISA ordinary shares. During August 2002, we exercised our rights under U.K. law to pursue compulsory acquisition and completed the acquisition of the remainder of the ISA ordinary shares. We began using consolidation accounting for our investment in ISA and equity method accounting for the 47% investment in Kingfield Heath effective May 7, 2002. Three Months Ended December 31, 2002 Compared to Three Months Ended December 31, 2001 Net Revenues. Net revenues for the quarter ended December 31, 2002 increased 54.7% to $478.6 million compared to $309.3 million for the prior year quarter. Computer and office supplies net revenues increased 58.6% for the quarter ended December 31, 2002 compared to the prior year. The increase in revenue over the prior year is attributable to (1) the acquisition of ISA; (2) growth in sales of computer media, accessories and supplies at the Digital Storage division; and (3) growth in sales of copier and fax supplies at the Arlington division. Increases at Digital Storage and Arlington were primarily volume-related. Excluding ISA, computer and office supplies net revenues increased 2.5%. Within the computer and office supplies segment, domestic operations increased approximately 5.5% and international operations, in U.S. dollars and excluding ISA, decreased approximately 2.5% compared to the prior year quarter. Excluding revenue from Argentina, which has been negatively impacted by a currency devaluation and general economic slowdown, international operations, in U.S. dollars and excluding ISA, increased approximately 1.6% compared to the prior year quarter. The computer and office supplies revenue increase for the quarter ended December 31, 2002 was partially offset by a 10.4% revenue decrease in our professional tape products segment, due to increased competition, decreases in volume and industry price decreases. Gross Profit. Gross profit as a percentage of net revenues was 10.3% for the quarter ended December 31, 2002 compared to 10.0% for the prior year. Gross profit was favorably impacted by the acquisition of ISA in Europe, which typically operates at higher margin percentages than our traditional US computer supplies business. This higher European margin results from operation of a "hybrid" distributor model that includes both direct and indirect sales channels, which is not generally supported in the U.S. market. This favorable impact was partially offset by comparatively lower vendor program money recognized during the quarter and a reduction in revenue at the Tape Company, which typically operates at higher gross margins. Our adoption on January 1, 2003 of EITF Issue No. 02-16 (see "Recent Accounting Pronouncements") could negatively affect our gross profit in the fourth fiscal quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for the quarter ended December 31, 2002 was $39.4 million, or 8.2% of net revenues, compared to $20.6 million, or 6.7% of net revenues, for the prior year. The increase in SG&A (both in dollars and as a percentage of sales) is primarily due to the acquisition of ISA which operates with higher SG&A percentages. SG&A also increased compared to the prior year due to investments we have made to build an infrastructure to support the launch of our expansion into office products in January 2003. This included the addition of new warehouse facilities near Bakersfield, California and Albany, New York, combined with investments in a dedicated sales and management team to support this expansion. SG&A improvements resulting from our restructuring activities have partially offset these factors. Depreciation and Amortization. Depreciation and amortization for the quarter ended December 31, 2002 was $2.1 million compared to $1.5 million for the prior year quarter. The increase is due to the acquisition of ISA and to new capital expenditures related to the new warehouse facilities and the reconfiguration of our Memphis warehouse. -16- Restructuring and Nonrecurring costs. During the quarter ended December 31, 2002, we recognized pre-tax charges of $2.7 million related to restructuring activities, including $2.5 million related to warehouse and distribution initiatives (including costs associated with the opening and testing of the new distribution facilities in Bakersfield, California, and Albany, New York, and the integration of office products at our central distribution center in Memphis) and $0.2 million related to other back-office improvements. Interest Expense, net. Interest expense increased to $4.4 million for the quarter ended December 31, 2002 compared to $1.9 million for the prior year quarter. The increase in interest expense is primarily attributable to higher interest rates compared to the prior year and increases in our debt levels due to: (1) the impact of the investment in and working capital advances to ISA during fiscal year 2002 and the subsequent acquisition of ISA during fiscal year 2003 and (2) higher working capital related to investments in infrastructure and inventory to support the office products rollout. These increases in debt levels were partially offset by debt reductions using cash proceeds from the exercise of stock options and the completion of a private placement of common stock on December 20, 2001. Income Taxes. Our effective income tax rate was 35.1% and 36.0% for the three months ended December 31, 2002 and 2001, respectively. We expect our effective tax rate for the remainder of fiscal year 2003 to be approximately 35%. Equity in Net Income of Affiliate and Minority Interest. Equity in net income of affiliate and minority interest was $0.6 million for the quarter ended December 31, 2002, representing equity method net income related to ISA's investment in Kingfield Heath. Nine Months Ended December 31, 2002 Compared to Nine Months Ended December 31, 2001 Goodwill Impairment Charges, Reserve Estimates and Adjustments. During the second quarter of fiscal year 2003, we recorded goodwill impairment charges of $13.8 million (no tax benefit) and increases in reserve estimates and other adjustments totaling $20.2 million ($12.9 million after tax). These charges are summarized below (in millions):
Pre-Tax Post-Tax Charge Charge ------ ------- Items affecting gross profit: Costs related to U.S. business, including the office products initiative, distribution center and logistics costs and vendor programs (office products and computer supplies) .......................................................... $ 10.6 $ 6.8 Costs related to The Tape Company ................................................. 1.2 0.7 Costs related to Latin American operations ........................................ 3.7 2.4 Other ............................................................................. 0.5 0.3 ------ ------ $ 16.0 $ 10.2 Items affecting selling, general and administrative expenses: Costs related to The Tape Company ................................................. 0.2 $ 0.2 Costs related to Latin American operations ........................................ 1.5 0.9 Professional costs, acquisition costs and other ................................... 2.5 1.6 ------ ------ $ 4.2 $ 2.7 Goodwill impairment charges: Tape (no tax effect) .............................................................. $ 12.0 $ 12.0 Argentina (no tax effect) ......................................................... 1.8 1.8 ------ ------ $ 13.8 $ 13.8 Total .............................................................................. $ 34.0 $ 26.7 ====== ======
-17- Daisytek's professional tape products unit continues to experience negative industry trends. Recent price changes have diminished management's long-term outlook for this industry. As a result, we reviewed our impairment calculation in light of new operating assumptions and we recorded a goodwill impairment charge during the quarter ended September 30, 2002 of $12.0 million, representing approximately half of the total goodwill balance at the professional tape products unit. Also in light of the industry-wide issues and management forecasts, we recorded increases in reserve estimates for customer and vendor accounts receivable, inventory and other assets totaling approximately $1.4 million ($0.9 million after tax). The professional tape products unit represents 3% of our total third quarter revenues. The Argentinean computer and office supplies unit was further impacted by countrywide economic and political issues. In light of the deteriorating environment and revised operating assumptions of zero profitability, we recorded a goodwill impairment charge during the quarter ended September 30, 2002 of $1.8 million, representing all of the goodwill balance originating from the October 2000 acquisition of Etertin y CIA, S.A. in Argentina. Argentina currently represents less than 1% of total revenues. We currently intend to continue our Argentinean operations for the immediate future. In addition to Argentina, other Latin American export markets are experiencing economic uncertainty at present. We conducted a review of major asset accounts such as customer and vendor accounts receivable, inventory and other assets related to all our Latin American businesses, including Argentina, Mexico and our U.S.-based export business. In light of operating decisions related to the amount and type of business we are conducting in Latin America and due to this review of the net realizable value of assets, we have increased reserve estimates by approximately $5.2 million ($3.3 million after tax). Our Mexican operations are performing in line with expectations, however we are currently reviewing all levels of business into these markets. Costs related to our U.S. business, including our expansion into office products and the distribution center reorganization, impacted our performance for the quarter ended September 30, 2002. During this quarter, we made three decisions that negatively impacted short-term earnings but that we believe were important for the long-term success of our overall business. (1) We decided to reset our Memphis Superhub to the new management warehouse system over a longer time period, in order to maintain the highest-possible customer service and minimize risks. (2) We gave away the new full-line computer and office supplies catalogs to many customers, instead of selling them, in order to get the catalog in as many hands as possible, as quickly as possible, to accelerate revenue growth. (3) We reduced our short-term cooperative marketing efforts with office products and computer supplies vendors to ensure we are promoting long-term channel development. As a result of these decisions and a review of asset net realizable values, we increased certain reserve estimates for balance sheet items including customer and vendor accounts receivable, deferred costs, inventory and other by $10.6 million ($6.8 million after tax). Net Revenues. Net revenues for the nine months ended December 31, 2002 increased 54.9% to $1,334.0 million compared to $861.1 million for the comparable prior year period. Computer and office supplies net revenues increased 59.3% for the quarter ended December 31, 2002 compared to the prior year. The increase in revenue over the prior year is attributable primarily to (1) the acquisition of ISA; (2) growth in the emerging consumer channels such as web-based resellers, drug and grocery stores, mass merchants and direct marketers; (3) growth in sales of copier and fax supplies at the Arlington division; and (4) the acquisitions of Digital Storage during the first quarter of fiscal year 2002 and General Stationery Supplies during the second quarter of fiscal year 2002. Increases were primarily volume-related. Excluding ISA, computer and office supplies net revenues for the nine months ended December 31, 2002 increased 11.7%. Within the computer and office supplies segment, domestic operations increased approximately 16.1% and international operations, in U.S. dollars and excluding ISA, increased approximately 4.8% compared to the prior year. Excluding revenue from Argentina, which has been negatively impacted by a currency devaluation and general economic slowdown, international operations for the nine months ended December 31, 2002, in U.S. dollars and excluding ISA, increased approximately 11.5% compared to the prior year. -18- The computer and office supplies revenue increase for the nine months ended December 31, 2002 was partially offset by an 10.9% revenue decrease in our professional tape products segment, due to increased competition, decreases in volume and industry price decreases. Gross Profit. Gross profit as a percentage of net revenues was 8.9% for the nine months ended December 31, 2002 compared to 10.7% for the prior year. The decline in gross margin percentage is attributable primarily to certain reserves and adjustments recorded during the quarter ended September 30, 2002, as described in "Goodwill Impairment Charges, Reserve Estimates and Adjustments." Additionally, gross margin was negatively impacted by (1) factors related to our U.S. business, including our expansion into office products and the distribution center reorganization, including the production of the new 900-page full-line computer and office supplies catalog; higher-than-expected costs in the build-out of new warehouses near Bakersfield, California, and Albany, New York; and certain delays in converting from more expensive air delivery to lower-cost ground; (2) the decline in revenue in the professional tape products segment, which typically operates at higher gross margin percentages; and (3) the acquisition during the first quarter of fiscal 2002 of certain assets and liabilities of Digital Storage, which typically operates at lower gross margins than the remainder of our business. The decline in gross margin percentage was partially offset by a higher gross margin for ISA. Selling, General and Administrative Expenses. SG&A for the nine months ended December 31, 2002 was $111.3 million, or 8.3% of net revenues, compared to $63.7 million, or 7.4% of net revenues, for the prior year. The increase in SG&A is primarily due to the acquisition of ISA. The increase in SG&A as a percentage of net revenues is attributable primarily to certain reserves and adjustments totaling $4.2 million recorded during the quarter ended September 30, 2002, as described in "Goodwill Impairment Charges, Reserve Estimates and Adjustments." Additionally, SG&A was negatively impacted by factors related to our U.S. business, including our expansion into office products and the distribution center reorganization, including the production of the new 900-page full-line computer and office supplies catalog; higher-than-expected costs in the build-out of new warehouses near Bakersfield, California, and Albany, New York; and certain delays in converting from more expensive air delivery to lower-cost ground. Offsetting these factors, SG&A as a percentage of revenues improved due to (1) our restructuring activities; (2) the acquisition of Digital Storage during the first quarter of fiscal 2002, which typically operates at a lower SG&A percentage than our other businesses; and (3) the acquisition of our Memphis distribution assets and termination of the transaction services agreement with our former subsidiary PFSweb, Inc. ("PFSweb") in May 2001, which has allowed us to operate the facility rather than pay an outsourcing service fee. Goodwill Impairment Charges. Goodwill impairment charges of $13.8 million for the nine months ended December 31, 2002 included a $12.0 million charge related to our professional tape products business and a $1.8 million charge related to our Argentinean business. See "Goodwill Impairment Charges, Reserve Estimates and Adjustments" for further details. Depreciation and Amortization. Depreciation and amortization for the nine months ended December 31, 2002 was $6.2 million compared to $3.9 million for the comparable prior year period. The increase is due to the acquisition of ISA and to new capital expenditures and business acquisitions. Restructuring and Nonrecurring costs. During the nine months ended December 31, 2002, we recognized pre-tax charges of (1) $7.6 million related to restructuring activities, including $5.9 million related to warehouse and distribution initiatives (including costs associated with the opening and testing of the new distribution facilities in Bakersfield, California, and Albany, New York, and the integration of office products at our central distribution center in Memphis), $0.4 million related to the termination of employees and $1.3 million related to other back-office improvements, and (2) $0.2 million related to the write-off of unamortized debt acquisition costs. During the nine months ended December 31, 2001, we recognized pre-tax charges of (1) $2.0 million related to restructuring activities, including $0.7 million related to warehouse and distribution initiatives (including the integration of office products at our central distribution center in Memphis), $1.1 million related to the termination of employees during the third quarter and $0.2 million related to other back-office improvements and (2) $4.4 million related to the acquisition of the Memphis distribution assets and the termination of certain transactions management service agreements between PFSweb and Daisytek, including transactions costs, a separation payment and finalization of other balances with PFSweb. -19- Interest Expense, net. Interest expense increased to $11.4 million for the nine months ended December 31, 2002 compared to $5.2 million for the prior year comparable period. The increase in interest expense is primarily attributable to higher interest rates compared to the prior year and increases in our debt levels due to: (1) the impact of the investment in and working capital advances to ISA during fiscal year 2002 and the subsequent acquisition of ISA during fiscal year 2003; (2) volume growth requiring higher working capital; (3) higher working capital related to the office products rollout; (4) the acquisitions of Digital Storage and General Stationery Supplies during fiscal year 2002; and (5) the acquisition of our Memphis distribution assets during May 2001. These increases in debt levels were partially offset by debt reductions using cash proceeds from the exercise of stock options and the completion of a private placement of common stock on December 20, 2001. Income Taxes. Our effective income tax rate was 21.6% and 36.9% for the nine months ended December 31, 2002 and 2001, respectively. Fiscal year 2003 taxes were affected negatively by goodwill impairment charges of $13.8 million, which were not tax deductible, and positively affected by a recovery of approximately $0.3 million of previously paid state income taxes. Equity in Net Income of Affiliate and Minority Interest. Equity in net income of affiliate and minority interest was $1.2 million for the nine months ended December 31, 2002. This includes equity method income of $1.3 million related to ISA's investment in Kingfield Heath, offset by $0.1 million related to operations of ISA owned by third parties during the period. Seasonality. Although historically we have experienced our greatest sequential quarter revenue growth in our fourth fiscal quarter, management has not been able to determine the specific or, if any, seasonal factors that may cause quarterly variability in operating results. As the international portion of our business grows, seasonality may become more of a factor due to holidays and work patterns in these countries. Management believes that factors that may influence quarterly variability include the overall growth in the non-paper computer supplies industry and shifts in demand for computer supplies products due to a variety of factors, including sales increases resulting from the introduction of new products. We generally experience a relative slowness in sales during the summer months, which may adversely affect our first and second fiscal quarters in relation to sequential quarter performance. DILUTION Because of the wide range of exercise prices on outstanding stock options, the number of shares included in our dilutive earnings per share calculation and the resulting diluted earnings per share could vary greatly depending on the average market price of our common stock. The following table summarizes the diluted shares outstanding at various price points using common stock outstanding at December 31, 2002 of 18,541,534.
DILUTED SHARES AVERAGE SHARE PRICE OUTSTANDING -------------------- -------------- $5.00......................... 18,541,566 $6.00......................... 18,553,191 $7.00......................... 18,667,814 $8.00......................... 18,821,958 $9.00......................... 19,023,352 $10.00........................ 19,189,395 $11.00........................ 19,355,132 $12.00........................ 19,493,733 $13.00........................ 19,622,576
LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities from continuing operations for the nine months ended December 31, 2002 was $13.4 million, compared with net cash provided by operating activities of $11.6 million for the same period in the prior year. Working capital, excluding the current portion of long-term debt and cash balances, increased to $260.7 million at December 31, 2002 from $206.3 million at March 31, 2002, attributable primarily to our acquisition of ISA, revenue growth and inventory stocking at the two new regional distribution centers in Bakersfield, California and Albany, New York and at the Memphis, Tennessee superhub. The working capital requirements were funded primarily with proceeds from our credit facilities. -20- Net cash used in investing activities during the nine months ended December 31, 2002 was $17.3 million. Payments included cash paid for the acquisition of ISA, which was funded with proceeds from our credit facilities. Capital expenditures for the nine months ended December 31, 2002 were $19.7 million, including $12.4 million acquired under a capital lease and $7.3 million funded with proceeds from our credit facilities. Proceeds from the exercise of stock options and the issuance of common shares were $3.8 million for the nine months ended December 31, 2002, which were used to reduce outstanding balances under our credit facilities. Our purchase agreement for the acquisition of Digital Storage, LLC ("Digital Storage"), completed during the first quarter of fiscal year 2002, provided for an adjustment to the purchase price based on certain performance criteria for each of the two years following the acquisition. An amount of $2.1 million was paid during fiscal year 2003 based on the first year performance. The second year performance period will end during the first quarter of fiscal year 2004. Financing Activities Domestic Credit Facility. During April 2002, Daisytek signed a $200 million senior secured debt facility expiring on April 24, 2005, which was amended, syndicated and increased to $250 million during June 2002. This credit facility replaced the existing $150 million credit facility expiring on December 19, 2003. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowings under the credit facility accrue interest, at our option, at the prime rate of the lead bank plus an adjustment ranging from 0.0% to 0.75% or the LIBOR rate plus an adjustment ranging from 2.0% to 2.75%, both of which are limited by a maximum rate, as defined. We pay fees of 0.375% per annum on the unused portion of the credit facility. The credit 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, including loans and payments to related parties, payment of dividends, capital expenditures, acquisitions, investments and asset sales. As of December 31, 2002, the outstanding balance under this credit facility was $122.2 million and, based on our borrowing base limit at December 31, 2002, $9.4 million was available for future borrowings. During November 2002, we amended certain terms of the domestic credit facility and received a waiver of compliance with its fixed charge ratio and tangible net worth covenants for the quarter ended September 30, 2002. As amended, borrowings under the domestic credit facility through September 30, 2003 accrue interest, at our option, at the prime rate of the lead bank plus an adjustment of 1.0% or the LIBOR rate plus an adjustment of 3.0%. Subsequent to September 30, 2003, borrowings under the credit facility accrue interest, at our option, at the prime rate of the lead bank plus an adjustment ranging from 0.0% to 0.75% or the LIBOR rate plus an adjustment ranging from 2.0% to 2.75%, both of which are limited by a maximum rate, as defined. We also amended various covenants, including a revision of the calculation of minimum fixed charge ratios and tangible net worth requirements. A new covenant was added which requires us to use our best efforts to raise additional capital having net proceeds of not less than $20 million by March 31, 2003 and to raise such additional capital, in any event, on or before September 30, 2003. Provided, however, in certain circumstances such as if the average availability under the facility for any trailing 30-day period first calculated on February 14, 2003 is less than $15 million, then $20 million (net) of additional capital must be raised within 90 days of such event. Upon the first calculation on February 14, 2003, our trailing 30-day average availability under this facility is less than $15 million. Therefore, in addition to the requirement that we will use our best efforts to raise the additional capital by March 31, 2003, we will be required, in any event, to raise such capital within 90 days of February 14, 2003 (by May 15, 2003). We anticipate being able to raise the additional capital by the required deadline. In addition, we are currently pursuing operational improvements that are expected to generate a higher level of cash flow, including improvements in working capital, such as elimination of redundant costs carried in connection with the office products launch, and a focus on profitability, including product mix and a review of all customer relationships. Near-term growth will be controlled as we gradually eliminate unprofitability or non-strategic activities and focus on the channels, products and customers that are most accretive to our business. Foreign Credit Facilities. During March 2001, we entered into a revolving credit facility with a Canadian bank with maximum credit availability of 40.0 million Canadian dollars, or approximately $25.4 million, expiring during March 2004. Availability under the credit facility is subject to certain borrowing base limitations, as defined. For Canadian dollar borrowings, the Canadian credit facility accrues interest at the bank's prime rate plus 75 basis points. For U.S. dollar borrowings, the Canadian credit facility accrues interest at the bank's U.S. dollar base rate in New York plus 75 basis points. As of December 31, 2002, the outstanding balance under the Canadian credit -21- facility was 23.0 million Canadian dollars, or approximately $14.6 million. Based on our borrowing base limit at December 31, 2002, we had 5.6 million Canadian dollars, or approximately $3.5 million, available for future borrowings. In November 2002, Daisytek Australia Pty. Ltd. signed a 35 million Australian dollar (approximately $19.6 million) revolving credit facility, expiring on November 18, 2005. This credit facility replaced the existing 20 million Australian dollar (approximately $11.2 million) unsecured credit facility. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowing under the credit facility accrues interest at the index rate plus 2.7%. Fees are 0.5% per annum on the unused portion of the credit facility. The credit facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum fixed charge ratio, a minimum level of tangible net worth, restriction on certain activities, loans, payments to related parties, capital expenditures, acquisitions, investments, assets sales and sale-leaseback transactions. As of December 31, 2002, the outstanding balance under the Australian credit facility was 20.8 million Australian dollars, or approximately $11.7 million. We had $0.1 million Australian dollars, or approximately $0.07 million, available for future borrowings. Upon acquisition of ISA, we assumed debt of 36.5 million British pounds, or approximately $53.2 million. ISA debt balances in the U.K. at December 31, 2002 include revolving credit facilities of 18.3 million British pounds, or approximately $29.5 million, which were payable upon demand. ISA also has revolving credit facilities with various European banks of 14.6 million British pounds, or approximately $23.6 million, which are payable upon demand, and a term loan with a bank in Norway for 0.4 million British pounds, or approximately $0.6 million. During February 2003, ISA signed a 33.5 million British pounds (approximately $53.9 million) secured debt facility with an initial period expiring during February 2006. This facility replaced existing facilities of approximately 22.8 million British pounds (approximately $36.7 million) which were payable on demand. Availability under the credit facility is subject to certain borrowing base limitations, including eligible accounts receivable and inventory, as defined. Borrowings under the credit facility accrue interest, at the LIBOR rate plus an adjustment ranging from 1.35% to 2.35%. The credit facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum interest cover ratio and minimum level of tangible net worth as well as maintaining accounts receivable and accounts payable days outstanding below defined maximum levels, and restrictions on certain activities, including loans and payments to related parties, payment of dividends and asset sales. Approximately 0.9 million British pounds, or approximately $1.4 million was available for future borrowings upon signing of the new credit facility in February 2003. During July 2002, our Mexican subsidiary entered into a secured revolving line of credit facility with a Mexican bank with maximum credit availability of 90.0 million Mexican pesos, or approximately $8.6 million, expiring during July 2005. Availability under the credit facility is subject to certain borrowing base limitations, as defined. The facility accrues interest at the Interbank Equilibrium Interest Rate in Mexico City plus 325 basis points. As of December 31, 2002, the outstanding balance under the Mexican credit facility was 90.0 million Mexican pesos, or approximately $8.6 million, with no additional funds available for future borrowings. Contractual Obligations and Guarantees. Obligations under long-term debt, capital leases, non-cancelable operating leases and other agreements at December 31, 2002 are as follows (in millions):
PAYMENTS DUE BY PERIOD ----------------------------------------------------- LESS THAN AFTER CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS ------ --------- --------- --------- ------- Long-term debt ............... $210.8 $ 23.1 $187.5 $ 0.2 $ -- Capital lease obligations .... 14.0 3.2 4.0 3.6 3.2 Operating leases ............. 37.3 8.6 12.3 8.4 8.0 Other ........................ 0.7 0.7 -- -- -- ------ --------- --------- --------- ------- Total ........................ $262.8 $ 35.6 $203.8 $ 12.2 $ 11.2
In connection with the initial public offering of PFSweb, we have guaranteed or subleased to PFSweb certain operating lease obligations. Total minimum payments for these agreements are $17.2 million, including $5.6 million due in less than one year, $6.5 million due in one to three years, $4.2 million due in four to five years and $0.9 million due after five years. We do not expect to make payments under these guarantees or sublease agreements. If performance were required, we would seek to mitigate our exposure with lease terminations and/or subleases, although no assurance can be provided that we would be successful in mitigation. Our financial statements do not include any liability for these guarantees. -22- FORWARD-LOOKING STATEMENTS Certain statements used in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements about the financial condition, prospects, operations and business of Daisytek are generally accompanied by words such as "anticipates," "expects," "estimates," "believes," "intends," "plans" or similar expressions. These forward-looking statements are subject to numerous risks, uncertainties and other factors, some of which are beyond the control of Daisytek that could cause actual results to differ materially from those forecasted or anticipated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: general economic conditions; industry trends; the loss of or inability to hire skilled personnel; the loss of key suppliers or customers; the loss or material decline in service of strategic product shipping relationships; customer demand; product availability; competition (including pricing and availability); risks inherent in acquiring, integrating and operating new businesses and investments; concentrations of credit risk; distribution efficiencies; capacity constraints; technological difficulties, including equipment failure or a breach of our security measures; the volatility of our common stock; economic and political uncertainties arising as a result of terrorist attacks; seasonality; exchange rate fluctuations; foreign currency devaluations; economic and political uncertainties in international markets; potential obligations under operating lease commitments of our former subsidiary PFSweb and the regulatory and trade environment (both domestic and foreign). These risks and others are more fully described in Daisytek's Annual Report of Form 10-K for the year ended March 31, 2002. Because such forward-looking statements are subject to risks, uncertainties and assumptions, you are cautioned not to place undue reliance on these forward-looking statements, which reflect management's view only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have experienced no material changes in interest rate risk or foreign exchange risk during the nine months ended December 31, 2002. Our market risk is described in more detail in our Annual Report on Form 10-K for the year ended March 31, 2002. During the nine months ended December 31, 2002, 52.6% of our revenues were derived from customers located outside the United States. ITEM 4. CONTROLS AND PROCEDURES Based on an evaluation completed within 90 days of the filing of this Form 10-Q, our Chief Executive Officer and Acting Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed in this report is accumulated and communicated to management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Daisytek is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material adverse affect on our financial position, results of operations or liquidity. -23- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.1* A$ Facility Agreement between GE Capital Finance PTY LTD and Daisytek Australia PTY LTD (The Company) and Daisytek Australia (QLD) PTY LTD (The Guarantor) 10.2* Facilities Agreement between Daisytek - ISA Limited (as borrower) and GMAC Commercial Credit Limited 10.3* Separation Agreement (Daisytek has requested confidential treatment for certain portions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended. The portions of this Exhibit that are subject to this confidential treatment request have been omitted and have been filed separately with the Securities and Exchange Commission.) 99.1* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by James R. Powell, President and Chief Executive Officer. 99.2* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by John D. Kearney, Sr., Executive Vice President - Corporate Development and Acting Chief Financial Officer. * Filed herewith (b) Reports on Form 8-K. Current report on form 8-K (Items 5 and 7), dated October 24, 2002 and filed on October 25, 2002, regarding earnings for the quarter ended September 30, 2002. Current report on form 8-K (Items 5 and 7), dated November 7, 2002 and filed on November 8, 2002, regarding earnings for the quarter ended September 30, 2002. Current report on form 8-K (Items 5 and 7), dated November 14, 2002 and filed on November 15, 2002, to announce the amendment of certain terms of Daisytek's $250 million credit facility and the receipt of waivers of compliance with certain covenants for the quarter ended September 30, 2002. Current report on form 8-K (Item 9), dated November 14, 2002 and filed on November 15, 2002, to provide the signed certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by each of James R. Powell, President and Chief Executive Officer, and Ralph Mitchell, Executive Vice President - Finance and Chief Financial Officer. -24- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 14, 2003 DAISYTEK INTERNATIONAL CORPORATION By: /s/ John D. Kearney, Sr. ------------------------------------------------ John D. Kearney, Sr. Acting Chief Financial Officer, Acting Chief Accounting Officer, Executive Vice President - Corporate Development (duly authorized officer and Principal Financial Officer) CERTIFICATIONS I, James R. Powell, President and Chief Executive Officer of Daisytek International Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Daisytek International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure control and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and -25- 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 DAISYTEK INTERNATIONAL CORPORATION By: /s/ James R. Powell ------------------------------------- James R. Powell President and Chief Executive Officer I, John D. Kearney, Sr., Acting Chief Financial Officer of Daisytek International Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Daisytek International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure control and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 DAISYTEK INTERNATIONAL CORPORATION By: /s/ John D. Kearney, Sr. ------------------------------------- John D. Kearney, Sr. Acting Chief Financial Officer -26- EXHIBIT INDEX 10.1* A$ Facility Agreement between GE Capital Finance PTY LTD and Daisytek Australia PTY LTD (The Company) and Daisytek Australia (QLD) PTY LTD (The Guarantor) 10.2* Facilities Agreement between Daisytek - ISA Limited (as borrower) and GMAC Commercial Credit Limited 10.3* Separation Agreement (Daisytek has requested confidential treatment for certain portions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended. The portions of this Exhibit that are subject to this confidential treatment request have been omitted and have been filed separately with the Securities and Exchange Commission.) 99.1* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by James R. Powell, President and Chief Executive Officer. 99.2* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by John D. Kearney, Sr., Executive Vice President - Corporate Development and Acting Chief Financial Officer.
* Filed herewith EX-10.1 3 d03164exv10w1.txt A$ FACILITY AGREEMENT EXHIBIT 10.1 GE CAPITAL FINANCE PTY LTD DAISYTEK AUSTRALIA PTY LTD ACN 075 675 795 (COMPANY) DAISYTEK AUSTRALIA (QLD) PTY LTD ACN 097 222 163 (GUARANTOR) --------------------------------- A$ FACILITY AGREEMENT --------------------------------- GE CAPITAL FINANCE PTY LTD (ACN 075 554 175) A$ FACILITY AGREEMENT - -------------------------------------------------------------------------------- PARTIES GE CAPITAL: GE CAPITAL FINANCE PTY LIMITED ACN 075 554 175 Level 13, 255 George Street, Sydney NSW 2000 Facsimile No: 02 8249 3783 COMPANY: DAISYTEK AUSTRALIA PTY LTD. ACN 075 675 795 Unit 3, 196 Bourke Road, Alexandria NSW 2015 Facsimile No: (02) 9700 7580 GUARANTOR: DAISYTEK AUSTRALIA (QLD) PTY LTD. ACN 097 222 163 Unit 3, 196 Bourke Road, Alexandria NSW 2015 Facsimile No: (02) 9700 7580 - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 2 of 79 Pages DETAILS FACILITY DESCRIPTION: Revolving credit facility,. FACILITY LIMIT: A$35,000,000 LETTER OF CREDIT FACILITY LIMIT: A$500,000 as a sublimit of the facility limit. MATURITY DATE: 3 years from the date of this agreement. INTEREST RATE: Index rate plus 2.7%. PURPOSE: Working capital, refinancing existing working capital indebtedness including partial repayment of inter-company debt and trade finance. FEES CLOSING FEE: A$150,000 - see clause 7.1 (a). UNUSED FACILITY FEE: 0.5% per annum on that part of the facility limit that is unused - see clause 7.1(b). STANDBY LETTER OF CREDIT FEE: 2.5% per annum on the face value amount of standby letters of credit issued (calculated on the basis of a 360-day year and actual days elapsed) payable monthly in arrears, plus any charges assessed by the issuing bank - see clause 7.1(d). TRADE LETTER OF CREDIT ISSUANCE FEE: 0.5% flat for each six month validity (or part thereof) on the face value amount of trade letters of credit, payable at the end of the month in which the trade letters of credit are issued (subject to a minimum fee of A$100), plus any charges assessed by the issuing bank - see clause 7.1(e). - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 3 of 79 Pages TRADE LETTERS OF CREDIT AMENDMENT FEE: An amendment fee of 0.5% flat (subject to a minimum fee of A$100) for any amendment to any trade letters of credit in which: (a) there is an increase in the face value amount; or (b) the expiry date is extended beyond any six month validity, on the increase in face value amount - see clause 7.1(f). All other amendments would attract an amendment fee of A$100, payable at the time of the amendment, plus any charges assessed by the issuing bank. TERM LETTER OF CREDIT FEE: 2.7% per annum (calculated on the basis of a 360-day year and actual days elapsed) on the face value amount of any drawing under a term letter of credit, calculated from the date of GE Capital's acceptance of the drawing until the required maturity payment date - see clause 7.1(g). FIELD EXAMINATION FEE: A$900.00 per person, per day for each field examination - see clause 7.1(c). EARLY TERMINATION FEE: (a) 2% of the facility limit if the facility is cancelled or terminated before the first anniversary of the date of this agreement due to: (i) a voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor; (ii) the company terminating the facility (other than pursuant to clause 11.4); or (iii) the facility is terminated due to voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor; (b) 1% of the facility limit if the facility is cancelled or terminated after the first anniversary of the date of this agreement but before the second anniversary due to: (i) a voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 4 of 79 Pages (ii) the company terminating the facility (other than pursuant to clause 11.4); or (iii) the facility is terminated due to voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor; (c) 0.5% of the facility limit if the facility is cancelled or terminated after the second anniversary of the date of this agreement but before the third anniversary due to: (i) a voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor; (ii) the company terminating the facility (other than pursuant to clause 11.4); or (iii) the facility is terminated due to voluntary default (being an event of default arising from events or circumstances over which an obligor has direct control) by an obligor. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 5 of 79 Pages ================================================================================ GENERAL TERMS INTERPRETATION Definitions of terms printed like this are at the end of these General Terms before the Schedules. 1. THE FACILITY 1.1 GE Capital agrees to provide the company with a loan facility in Australian dollars of an amount not exceeding the facility limit. The facility limit is an overall collective limit which. 2. USING THE FACILITY DRAWINGS 2.1 The company need not use the facility. However, if the company wants to use the facility, it may do so by one or more drawings. REQUESTING A DRAWING 2.2 If the company wants a drawing, the company agrees to give a drawdown notice signed by an authorised officer of the company to GE Capital by 11am on the business day it wants the drawing and GE Capital agrees to compare the signature of the authorised officer on the drawdown notice against the specimen signature certificate provided to it. EFFECT OF A DRAWDOWN NOTICE 2.3 A drawdown notice is effective when GE Capital actually receives it in legible form. An effective drawdown notice is irrevocable unless the company advises GE Capital in writing that the company no longer requires a drawing and at that time GE Capital has not taken any steps to make the drawing available which GE Capital cannot rescind or reverse without GE Capital incurring a loss. CONDITIONS TO FIRST DRAWING 2.4 Before the company requests the first drawing, the company must: (a) ensure that GE Capital receives every item listed in Schedule 1 in form and substance satisfactory to GE Capital; and (b) ensure that GE Capital receives all other documents required by GE Capital to verify the items in Schedule 1 in form and substance satisfactory to GE Capital. 2.5 The company must ensure that the information contained in all transaction documents is true, complete and not misleading or deceptive and discloses all matters material to GE Capital. Before GE Capital is obliged to provide any financial accommodation, it must be satisfied as to those matters. GE Capital is entitled to rely on the items in Schedule 1 and the information contained in them without further enquiry. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 6 of 79 Pages 2.6 Any transaction document required to be certified must be certified by a secretary or a director of the relevant entity as being true, complete and not misleading or deceptive as at the time of certification and at the date of this agreement. 2.7 GE Capital agrees to notify the company as soon as practicable after GE Capital is satisfied that the conditions to first drawing are satisfied. To the extent that the company is unable to secure a landlord acknowledgement referred to in item 17 of Schedule 1 by the date that the first drawing is required, GE Capital agrees to hold, as a reserve against Excess Availability, an amount representing rent for a three month period for each of the properties that are occupied by the company at which eligible inventory is located that the company has not procured a landlord acknowledgement for the period that the acknowledgement is not in place. CONDITIONS TO ALL DRAWINGS 2.8 GE Capital need not provide any financial accommodation unless: (a) it is to be provided prior to the maturity date set out in the Details; and (b) GE Capital is satisfied that providing the drawing will not result in a breach of clause 3.1; and (c) GE Capital has received a drawdown notice in respect of it; and (d) GE Capital is satisfied that the representations and warranties in clause 12 ("Representations and warranties") and the statements in the drawdown notice are true, complete and not misleading at the date of the drawdown notice and at the drawdown date; and (e) GE Capital is satisfied that no event of default has occurred (other than one which has either been waived by GE Capital or remedied) and no event of default would result from the provision of the financial accommodation. BENEFIT OF CONDITIONS 2.9 Each condition precedent to drawing is for the sole benefit of GE Capital and may be waived or modified by GE Capital. LETTERS OF CREDIT 2.10 The provisions set out in Schedule 5 and Schedule 8A apply in relation to letters of credit provided or to be provided under this agreement. The obligors agree to comply with the provisions set out in those Schedules. 3. AVAILABILITY LIMITS 3.1 The total of the current drawings and the letter of credit liability at any time must not exceed the lesser of: (a) the facility limit; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 7 of 79 Pages (b) the aggregate borrowing base at that time. 3.2 If the total of the current drawings and letter of credit liability exceeds the limits set out in clause 3.1, the company agrees to immediately repay to GE Capital so much of the current drawings or cancel or repay a letter of credit equal to the excess. 4. INTEREST INTERPRETATION 4.1 In this clause 4, references to the company in respect of a current drawing are references to the company in whose name the current drawing is made. INTEREST CHARGES 4.2 The company agrees to pay interest on the daily balance of each current drawing. The interest charge for each day is calculated by applying the interest rate to the daily balance of the current drawing on the basis of a 360 day year. The interest rate for any day will be determined on the first business day of the calendar month in which the day falls. INTEREST PAYMENT 4.3 On each interest payment date the company agrees to pay GE Capital the interest which has accrued from and including the first day of the calendar month of the preceding month up to and including the last day of that calendar month. 5. PAYMENTS REPAYMENT 5.1 The company agrees to pay to GE Capital all cash receipts, by way of deposit into a controlled account. To the extent not already paid, each company agrees to repay to GE Capital the total of the current drawings and on the maturity date. PREPAYMENT 5.2 The company may prepay a current drawing at any time. The facility limit is not reduced by the amounts prepaid under this clause 5.2. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 8 of 79 Pages MANNER OF PAYMENT 5.3 The obligor agrees to make payments under each transaction document to GE Capital on the due date (or, if that is not a business day, on the next business day) in Australian dollars in immediately available funds without set-off or counterclaim and without any deduction in respect of taxes (unless prohibited by law) into the account nominated by GE Capital. The obligor satisfies a payment obligation only when GE Capital receives the amount. PAYMENT APPLICATION 5.4 A payment under a transaction document will be applied by GE Capital on the next business day after it is actually received by GE Capital in the account nominated by GE Capital only for the purpose of calculating interest. CONVERSION OF CURRENCY 5.5 All payments by the obligors under this agreement must be made in Australian dollars. If GE Capital receives an amount in a currency other than Australian dollars: (a) it may convert the amount received into Australian dollars (even though it may be necessary to convert through a third currency to do so) on the day and at the rates (including spot rate, same day value rate or value tomorrow rate) as it considers appropriate. It may deduct its usual costs in connection with the conversion; and (b) the obligor satisfies its obligation to pay in Australian dollars only to the extent of the amount of Australian dollars obtained from the conversion after deducting the costs of the conversion. 5.6 Where GE Capital is obliged to make a payment under this agreement in a currency other than Australian dollars, the obligor must reimburse GE Capital for that payment in Australian dollars unless GE Capital specifies otherwise. For the purpose of calculating the amount payable in Australian dollars, GE Capital may: (a) convert the amount payable into Australian dollars (even though it may be necessary to convert through a third currency to do so) on the day and at the rates (including spot rate, same day value rate or value tomorrow rate) as it considers appropriate. It may add its usual costs in connection with the conversion in calculating the amount payable; and (b) the obligor satisfies its obligation to make any payment under this agreement only to the extent that the moneys received by GE Capital are sufficient to pay the liability in the other currency including the costs of the conversion to that currency. APPLICATION OF PAYMENTS 5.7 GE Capital will apply amounts paid by the obligor or on its behalf and/or to GE Capital from any controlled account, towards: - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 9 of 79 Pages (a) satisfying obligations under the transaction documents in the manner GE Capital sees fit, unless the transaction documents expressly provide otherwise; and (b) satisfying any money owed by the obligor to any related entity of GE Capital. 5.8 If there are no current drawings, no letter of credit liabilities and no money payable or to become payable in the future by the obligor to GE Capital or any of its related entities, GE Capital will at the written direction of the company, apply amounts paid by the obligor or on its behalf to an account of the company nominated by the company. 5.9 Once the facility has terminated (either through the effluxion of time or otherwise) and all current drawings and other money due and owing to GE Capital have been repaid, GE Capital will direct the bank that maintains the blocked account to transfer any credit balance in the blocked account to an account nominated by the company. 6. CANCELLATION 6.1 The company may cancel or terminate the facility. It may do this if the company gives GE Capital at least 20 business days notice in writing. Once given, the notice is irrevocable. When the cancellation or termination takes effect, the total of the current drawings and all other amounts payable or to become payable in the future under the transaction documents are immediately due and payable including without limitation the early termination fee. 7. FEES FEES 7.1 The company agrees to pay GE Capital: (a) the closing fee on the first drawdown date under this agreement; (b) the unused facility fee payable monthly in arrears on the first business day of each month and on the maturity date; (c) the field examination fee on completion of any field examination after the date of this agreement, the amount of which will be notified by GE Capital to the company by way of debit from the company's loan account plus all out of pocket expenses incurred by GE Capital in conducting the field examination; (d) the standby letter of credit fee of 2.5% per annum on the face value amount of standby letters of credit issued payable monthly in arrears, plus any charges assessed by the issuing bank; (e) the trade letter of credit issuance fee of 0.5% flat for each six month validity (or part thereof) on the face value amount of trade letters of credit payable at the end of the month in which trade letters of credit are issued (subject to a minimum fee of A$100, plus any charges assessed by the issuing bank; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 10 of 79 Pages (f) the trade letter of credit amendment fee as specified in the Details on the date of the amendment; (g) the term letter of credit fee of 2.7% per annum on the face value amount of any drawing under a term letter of credit payable monthly in arrears (calculated on the basis specified in the Details); and (h) subject to the other terms of this agreement, the early termination fee, if required under the Details, on the date on which the facility is cancelled or terminated, (but only if the facility is cancelled or terminated prior to the maturity date) either voluntarily by the company or otherwise. 7.2 GE Capital agrees that, provided it has received the early termination fee, it waives its rights to take action against the company for loss of bargain damages or loss of yield. 8. LOAN ACCOUNT 8.1 GE Capital agrees to maintain a loan account on its books to record: (a) all current drawings; (b) all other amounts due and payable by the obligor to GE Capital under the transaction documents including but not limited to interest, fees and amounts deemed to be current drawings; (c) all payments made by or on behalf of the obligor or by means of the locked box agreement or blocked account agreement; and (d) all other debits and credits as provided for in the transaction documents. The balance in the loan account is sufficient evidence (absent error) of the amounts due and owing to GE Capital by the obligors. However, a failure to record or an error in recording does not limit or otherwise affect an obligor's obligations under the transaction documents. 8.2 GE Capital agrees to provide the company with a monthly statement of transactions for the facility. Unless the company notifies GE Capital of any objection to any item in that statement (specifically describing the basis for the objection), within 120 days after the date of the statement, each item in the statement is (absent obvious error) prima facie evidence of the correctness of the item. 9. WITHHOLDING TAX PAYMENTS TO GE CAPITAL 9.1 If a law requires the obligor to deduct an amount in respect of taxes from a payment under any transaction document such that GE Capital would not actually receive on the due date the full amount provided for under the transaction document, then: - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 11 of 79 Pages (a) the amount payable is increased so that, after making the deduction and further deductions applicable to additional amounts payable under this clause 9.1, GE Capital is entitled to receive (at the time the payment is due) the amount it would have received if no deductions had been required; and (b) the obligor agrees to make the deductions; and (c) the obligor agrees to pay the amounts deducted to the relevant authority in accordance with applicable law and deliver the copies of receipts to GE Capital. 10. COMPENSATION FOR CHANGED CIRCUMSTANCES COMPENSATION 10.1 The company agrees to compensate GE Capital on demand if, in GE Capital's opinion, any law or change in law taking effect after the date of this agreement, a change in any law's interpretation or application by an authority after the date of this agreement or compliance by GE Capital or any of its related entities with any such law, changed law or changed interpretation or application directly: (a) increases the cost of the facility to GE Capital; or (b) reduces any amount received or receivable by GE Capital, or its effective return, in connection with the facility; or (c) reduces GE Capital's return on capital allocated to the facility, or its overall return on capital. Compensation need not be in the form of a lump sum and may be demanded as a series of payments. GE Capital agrees that this clause does not apply to an increased cost event such as a change in company tax rates or the introduction of other expenses that does not directly effect or increase the cost to GE Capital of providing financial accommodation under the Transaction Documents. CALCULATION IN REASONABLE DETAIL 10.2 If GE Capital makes a demand under clause 10.1, it agrees to provide the company with reasonably detailed calculations of how the amount demanded has been ascertained. However, nothing in this clause 10.2 obliges GE Capital to provide details of its business or tax affairs which it considers in good faith to be confidential. MITIGATION 10.3 If requested by the company, in any case where clause 10.1 applies, GE Capital will use its reasonable endeavours to take such steps as may be reasonable and available to it to minimise the amount of any increased cost, reduction, loss of return or payment. Failure by GE Capital to do so does not release the company from its obligations under clause 10.1 and the company agrees that no right of action arises as a result. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 12 of 79 Pages 10.4 Nothing in clause 10.3 obliges GE Capital to incur any additional costs or to take any steps which, in GE Capital's opinion, could be detrimental to its interests, whether by way of an economic, legal or regulatory disadvantage or in any other way. 10.5 The company must reimburse GE Capital on demand for any costs incurred in taking any steps under clause 10.3. 11. ILLEGALITY OR IMPOSSIBILITY GE CAPITAL'S RIGHT TO SUSPEND OR CANCEL 11.1 This clause 11 applies if GE Capital determines that: (a) a change in a law; or (b) a change in the interpretation or administration of a law by an authority; or (c) a new law taking effect after the date of this agreement, makes it (or will make it) illegal or impossible for GE Capital to fund, provide, or continue to fund or provide, financial accommodation under the transaction documents. In these circumstances, GE Capital, by giving a notice to the company, may suspend or cancel some or all of GE Capital's obligations under this agreement as indicated in the notice. EXTENT AND DURATION 11.2 The suspension or cancellation: (a) must apply only to the extent necessary to avoid the illegality or impossibility; and (b) in the case of suspension, may continue only for so long as the illegality or impossibility continues. NOTICE REQUIRING REPAYMENT 11.3 If the illegality or impossibility relates to a current drawing, GE Capital, by giving a notice to the company, may require repayment of all or part of that current drawing. The company agrees to repay the amount specified within 5 business days after receiving the notice. FEES 11.4 The early termination fee is not payable by the company if the early repayment occurs solely because of a cancellation or suspension under this clause, and provided no event of default has occurred. 11.5 The unused facility fee is not payable by the company for that part of the facility that is cancelled or suspended under this clause, and provided no event of default has occurred or occurs, for the period of the suspension or cancellation. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 13 of 79 Pages 12. REPRESENTATIONS AND WARRANTIES REPRESENTATIONS AND WARRANTIES 12.1 The obligor (to the extent applicable) represents and warrants (except in relation to matters disclosed to GE Capital by the company and accepted by GE Capital in writing) that: (a) (INCORPORATION AND EXISTENCE) it has been incorporated as a company limited by shares in accordance with the laws of its place of incorporation, is validly existing under those laws and has power and authority to carry on its business as it is now being conducted; and (b) (POWER) it has power to enter into the transaction documents to which it is a party and observe its obligations under them; and (c) (AUTHORISATIONS) it has in full force and effect the authorisations necessary for it to enter into the transaction documents to which it is a party, to observe its obligations and exercise its rights under them and to allow them to be enforced; and (d) (NO CONTRAVENTION OR EXCEEDING POWER) the transaction documents and the transactions under them which involve it do not contravene its constituent documents or any law or obligation by which it is bound or to which any of its assets are subject or cause a limitation on its powers or the powers of its directors to be exceeded; and (e) (OBLIGATIONS VALID, BINDING AND ENFORCEABLE) its obligations under the transaction documents are valid and binding and enforceable against it in accordance with their terms; and (f) (FINANCIAL STATEMENTS) its most recent audited or unaudited (as the case may be) financial statements and any other of its financial statements which it has given to GE Capital are a true and fair statement of its financial position as at the date to which they are prepared, are prepared in accordance with GAAP and disclose or reflect all its actual and (in respect of the end of the financial year audited financial statements only) contingent liabilities as at that date, and there has been no change in its financial position since the date of those statements that is likely to have a material adverse effect. For the purposes of this clause, GE Capital agrees that a change in the obligor's financial position that is less than $300,000 shall not constitute a material adverse effect; and (g) (CONSOLIDATED ACCOUNTS) the most recent audited consolidated financial statements of the reporting group of the company and any other consolidated financial statements which it has given to GE Capital are a true and fair statement of the reporting group's financial position as at the date to which they are prepared, are prepared in accordance with GAAP and disclose or reflect all the economic entity's actual and (in respect of the end of the financial year audited consolidated financial statements only) contingent liabilities as at that date, and there has been no change in its financial position since the date of those - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 14 of 79 Pages statements that is likely to have a material adverse effect. For the purposes of this clause, GE Capital agrees that a change in the obligor's financial position that is less than $300,000 shall not constitute a material adverse effect; and (h) (EVENT OF DEFAULT) no event of default has occurred or continues unremedied; and (i) (DEFAULT UNDER LAW - MATERIAL ADVERSE EFFECT) neither it nor any of its subsidiaries is in default under a law or obligation affecting any of them or their assets in a way which is likely to have a material adverse effect; and (j) (LITIGATION) there is no pending or threatened proceeding affecting it or any of its subsidiaries or any of their assets before a court, governmental agency, commission or arbitrator except those in which a decision against it or the subsidiary (either alone or together with other decisions) would be insignificant; and all proceedings which seek damages in excess of A$250,000 or injunctive relief or allege criminal misconduct of it or any of its subsidiaries have been set out in the disclosure statement; and (k) (TRUSTEE MATTERS) it enters into the transaction documents in its own capacity and as trustee of each of the trusts or settlements which have been listed in the disclosure statement, and in respect of each of the trusts listed in the disclosure statement: (i) it has power to enter into and perform the transaction documents and carry on the transactions contemplated by the transaction documents; (ii) it holds the trust property on trust under the deeds and documents referred to in the disclosure statement which are up to date and comprise all documents in relation to the trust and all terms of the trust and all resolutions and directions relating to the trust; (iii) the transaction documents are entered into as part of the due and proper administration of the trust and are for the benefit of the beneficiaries of the trust; (iv) no conflict of interest or breach of trust occurs as a result of the obligor entering into the transaction documents; and (v) no beneficiary is presently entitled to any of the assets subject to the trust; and (l) (REAL PROPERTY) all of the real property owned, leased, subleased or used by it or any of its subsidiaries have been set out in the disclosure statement; and the disclosure statement specifies whether it or any of its subsidiaries is a lessor, sublessor or assignor in respect of that property; and specifies whether it or any of its subsidiaries has any contractual rights in respect of any real property; and (m) (NO DAMAGE TO REAL PROPERTY) none of its real property has suffered any material damage by fire or other cause which has not been repaired and restored in all material respects to its original condition or otherwise remedied; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 15 of 79 Pages (n) (EMPLOYMENT MATTERS) there are no pending or threatened strikes or other material employment disputes against it or any of its subsidiaries; and hours worked and payments made to its employees or the employees of any of its subsidiaries comply with all applicable laws; and except as set out in the disclosure statement neither it nor any of its subsidiaries is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement or any employment agreement, in each case involving more than A$250,000 and except as set out in the disclosure statement and there are no complaints or charges against it or any of its subsidiaries pending or, to its knowledge, threatened to be filed with any authority or arbitrator in connection with the employment or termination of employment by it or any of its subsidiaries of any individual; and (o) (JOINT VENTURES, SUBSIDIARIES AND AFFILIATES) except as set out in the disclosure statement neither it nor any of its subsidiaries has any subsidiaries, is engaged in any joint venture or partnership, or is an affiliate of any other person; and (p) (CAPITAL STRUCTURE) all of its issued and outstanding share capital and the issued and outstanding share capital of any of its subsidiaries is owned by each of the persons and in the amounts set out in the disclosure statement; and there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which it or any of its subsidiaries may be required to issue, sell, repurchase or redeem any of their share capital or other equity securities or any share capital or other equity securities of its subsidiaries; and (q) (INDEBTEDNESS) all of its indebtedness in excess of A$250,000 excluding indebtedness under this agreement) and the indebtedness in excess of A$250,000 of each of its subsidiaries is described in the disclosure statement; and (r) (TAXES) all taxes which are due and payable by it and each of its subsidiaries have been paid or provision has been made for them to be paid, except where the amount of the tax is the subject of a good faith contest with the appropriate authority and meeting the requirements set out in clause 13.1 k); and details of any of its tax returns or any tax return of its subsidiaries which are currently being audited are set out in the disclosure statement along with any assessments or threatened assessments in connection with those audits; and neither it nor any of its subsidiaries has executed or filed any agreement or other document extending the period for assessment or collection of any taxes or having that effect; and neither it nor any of its subsidiaries are liable for any taxes under any agreement or as a transferee; and (s) (BROKERS) no broker or finder acting on its behalf or on behalf of any of its subsidiaries brought about the obtaining or making of the facility other than as disclosed in writing to GE Capital; and (t) (INTELLECTUAL PROPERTY) it and each of its subsidiaries owns or has rights to use all intellectual property necessary to conduct that business, and each patent, trademark, copyright and licence is listed, together with application or registration numbers, as applicable, in the disclosure statement; and it and each of its subsidiaries conducts its business without infringing or interfering with any intellectual property of any person; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 16 of 79 Pages (u) (RANKING OF SECURITY) GE Capital has been granted a first ranking fixed and floating charge and mortgage over all present and future assets of the company which takes priority over all other security interests; and (v) (ENVIRONMENTAL MATTERS) except as set out in the disclosure statement: (i) its real property is free of any hazardous material other than those that are used by the obligor as part of carrying on its business; (ii) it and each of its subsidiaries are and have been in compliance with all environmental laws, except for such non-compliance which would not result in environmental liabilities which could reasonably be expected to exceed A$250,000; (iii) it and each of its subsidiaries have obtained, and are in compliance with, all environmental permits required for the operations of their business as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such environmental permits would not result in environmental liabilities which could reasonably be expected to exceed A$250,000, and all such environmental permits are valid and uncontested; (iv) it and each of its subsidiaries are not involved in operations or know of any facts, circumstances or conditions that are likely to result in any environmental liabilities which could be reasonably be expected to exceed A$250,000; (v) neither it nor any of its subsidiaries has received a notice identifying any of them as a person who may be the potential recipient of any clean-up notice or potential recipient of any claim for contribution or indemnity by any other person who may be served with a clean-up notice or requesting information under any statutes, and, to its knowledge, there are no facts, circumstances or conditions that may result in it or any of its subsidiaries being identified as a person who may be the potential recipient of any clean-up notice or potential recipient of any claim for contribution or indemnity by any other person who may be served with a clean-up notice under any statutes; (vi) it and each of its subsidiaries have provided to GE Capital copies of all existing environmental reports, reviews and audits and all written information pertaining to their actual or potential environmental liabilities; and (w) (INSURANCE) the disclosure statement sets out all insurance policies maintained by it or any of its subsidiaries, as well as a summary of the terms of those policies; and (x) (BANK ACCOUNTS) the disclosure statement lists all banks and other financial institutions at which it or any of its subsidiaries maintains deposits or other accounts and correctly identifies the name, address and telephone number of each - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 17 of 79 Pages institution, the name in which the account is held, a description of the purpose of the account, and the complete account number; and (y) (AGREEMENTS AND OTHER DOCUMENTS) it has given GE Capital accurate and complete copies (or summaries) of all of the following agreements or documents to which it or any of its subsidiaries is subject and each of which are listed in the disclosure statement: (i) supply agreements and purchase agreements not terminable within 60 days following written notice issued by that entity and involving transactions in excess of A$500,000 per annum; (ii) any lease of equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of A$250,000 per annum; (iii) licenses and permits, the absence of which could be reasonably likely to have a material adverse effect; (iv) instruments or documents evidencing indebtedness in excess of A$250,000 and any security interest granted with respect thereto; and (v) instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of that entity; and (z) (OWNERSHIP OF PROPERTY) it has good title to all real property (other than leasehold properties) held by it or on its behalf and all undertakings carried on by it, as beneficial owner, or as trustee of a trust set out in the disclosure statement, free from encumbrances other than permitted security interests and easements and covenants burdening real property, and there are no facts known to it or any of its subsidiaries which may result in any encumbrances arising over that property; and (aa) (BENEFIT) it benefits by entering into the transaction documents to which it is a party; and (bb) (SOLVENCY) there are no reasonable grounds to suspect that it or any of its subsidiaries is unable to pay its debts as and when they become due and payable; and (cc) (NO BENEFIT TO RELATED PARTY) no person has contravened or will contravene section 208 of the Corporations Act 2001 (Cwlth) by entering into any transaction document or participating in any transaction in connection with a transaction document; and (dd) (FULL DISCLOSURE) it has disclosed in writing to GE Capital all facts relating to it and its subsidiaries, the transaction documents and all things in connection with them which are material to the assessment of the nature and amount of the risk undertaken by GE Capital in entering into the transaction documents and doing anything in connection with them; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 18 of 79 Pages (ee) (DISCLOSURES) all information disclosed to GE Capital in connection with any transaction document is true and complete and is not misleading or deceptive in any material way, including information contained in any borrowing base certificate, drawdown notice and disclosure statement; and (ff) (NO IMMUNITY) neither it nor any of its subsidiaries has immunity from the jurisdiction of a court or from legal process. CONTINUATION AND REPETITION OF REPRESENTATIONS AND WARRANTIES 12.2 The obligor repeats each of the representations and warranties in this clause 12 at the time of each drawdown notice and on each drawdown date. 12.3 The obligor must notify GE Capital of anything that happens at any time that makes any one or more of the representations and warranties in this clause 12 untrue, incomplete or misleading and deceptive by reference to the then current circumstances. 13. UNDERTAKINGS GENERAL UNDERTAKINGS 13.1 The reporting group undertakes to: (a) (ACCOUNTING RECORDS) keep proper accounting records in accordance with GAAP and ensure that each of its subsidiaries does the same; and (b) (INFORMATION) promptly give GE Capital any document or other information that GE Capital reasonably requests from time to time; and (c) (STATUS CERTIFICATES) on request from GE Capital, give GE Capital a certificate signed by two of its directors which states whether (to the best of their knowledge after making due enquiries) an event of default continues unremedied; and (d) (MAINTAIN AUTHORISATIONS) obtain, renew on time and comply with the terms of, each authorisation necessary for it to enter into the transaction documents to which it is a party, to observe its obligations and exercise its rights under them and to allow them to be enforced; and (e) (INCORRECT REPRESENTATION OR WARRANTY) promptly notify GE Capital if any representation or warranty made by it or on its behalf in connection with a transaction document is found to be or becomes incorrect or misleading; and (f) (ENSURE NO EVENT OF DEFAULT) do everything necessary to ensure that no event of default occurs and ensure that each of its subsidiaries does the same; and (g) (NOTIFY DETAILS OF EVENT OF DEFAULT) if an event of default or other event which has a material adverse effect occurs, notify GE Capital as soon as possible but, in any event, within five business days giving full details of the event and any step taken or proposed to remedy it; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 19 of 79 Pages (h) (PURPOSE) use the facility only for the purpose set out in the Details; and (i) (CONTINUE BUSINESS) continue to conduct its business substantially as now conducted or as otherwise permitted under the transaction documents; and (j) (USE ONLY CERTAIN NAMES) transact business in those business and company names listed in the disclosure statement; and (k) (MAKE PAYMENTS) duly and punctually pay and discharge or cause to be paid and discharged all taxes, assessments and other charges imposed by any authority on it or its property. However, it may in good faith contest by appropriate proceedings the validity or amount of any such charge if: (i) at the time it commences the contest no event of default has occurred and is continuing; (ii) adequate reserves in respect of the charge are maintained in its books; (iii) the contest is maintained and prosecuted continuously with due diligence and operates to suspend collection or enforcement of the charge or any encumbrance in respect of it; (iv) no encumbrance arises in respect of the charge; and (v) GE Capital has not notified the company that GE Capital reasonably believes that the charge could have or result in a material adverse effect; and (l) (LANDLORD, MORTGAGEE AND BAILEE AGREEMENTS) promptly obtain agreements in form and substance satisfactory to GE Capital from each landlord or mortgagee of the company, of real property where any property owned, used or occupied by the company or subject to a security interest in favour of GE Capital is located and each bailee of its property, containing a waiver or subordination of all encumbrances or claims that that person may assert against the company's property; and (m) (DEPOSIT OF FUNDS) within one business day of receipt of any cheques, cash or other items of payment deposit those items into a controlled account; and (n) (PUBLIC NOTICES) give to GE Capital copies of all: (i) documents issued by it as required by applicable law to be issued to its shareholders; (ii) material documents filed by it with the Australian Securities and Investments Commission; and (iii) press releases made available by it to the public, promptly following issue or filing of the relevant document or statement; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 20 of 79 Pages (o) (DEFAULT NOTICES UNDER LEASES) give to GE Capital copies of any default notices received under or with respect to any licensed or leased location or warehouse where any property owned, used or occupied by the company or subject to a security interest in favour of GE Capital is located immediately upon receipt by the company; and (p) (CLOSE ACCOUNTS - CREDIT REASONS) if requested by GE Capital, promptly, but in any case within 30 days of the request, close those accounts specified by GE Capital and establish replacement accounts. GE Capital may only make a request under this clause if, in its reasonable judgment, it decides that the creditworthiness of the bank or financial institution holding the relevant account is no longer acceptable; and (q) (CLOSE ACCOUNTS - OPERATIONAL REASONS) if requested by GE Capital, promptly, but in any case within 30 days of the request, close those of its accounts specified by GE Capital and establish replacement accounts. GE Capital may only make a request under this clause if, in its reasonable opinion, the operating performance, funds transfer and/or availability procedures or performance of the relevant bank or financial institution with respect to the relevant accounts is no longer acceptable; and (r) (ENVIRONMENTAL MATTERS) conduct its operations and keep and maintain its real property in compliance with all environmental laws and environmental permits other than non-compliance which could not reasonably be expected to have a material adverse effect; and implement any and all investigation, remediation, removal and response actions which are appropriate or necessary to maintain the value and marketability if its real property or to otherwise comply with environmental laws and environmental permits; and notify GE Capital promptly after it becomes aware of any violation of environmental laws or environmental permits which is reasonably likely to result in environmental liabilities in excess of A$250,000 and of any fact, matter or circumstance which it knows or reasonably anticipates may make it or any of its subsidiaries a person who may be the potential recipient of any clean-up notice or potential recipient of any claim for contribution or indemnity by any other person who may be served with a clean-up notice; and promptly forward to GE Capital a copy of any order, notice, request for information or any communication or report (including any actual or threatened clean-up notice) received by it in connection with any such violation or any other matter relating to any environmental laws or environmental permits that could reasonably be expected to result in environmental liabilities in excess of A$250,000, in each case whether or not any authority has taken or threatened any action in connection with any such violation or other matter; and (s) (INTELLECTUAL PROPERTY) conduct its business without infringing or interfering with any intellectual property of any person; and obtain all patents, trademarks, copyrights permits and licences necessary or required for the conduct of its business. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 21 of 79 Pages FINANCIAL UNDERTAKINGS 13.2 The company agrees: (a) to ensure that the capital expenditures of the reporting group in any financial year do not (in total) exceed: (i) A$1,200,000 or such other amount as agreed by the parties for the year ended 31 March 2003; (ii) A$500,000 or such other amount as agreed by the parties for the year ended 31 March 2004; (iii) A$500,000 or such other amount as agreed by the parties for the year ended 31 March 2005; (iv) A$500,000 or such other amount as agreed by the parties for the year ended 31 March 2006; and (b) to ensure that, at all times, the tangible net worth of the reporting group is at least $4,000,000; and (c) to ensure that, at all times, the fixed charge coverage ratio of the reporting group (calculated by reference to the previous 12 month period) is not less than [1.10:1] at all times. NEGATIVE COVENANTS 13.3 The reporting group undertakes that it will not (in its own capacity or as trustee of any trust or in respect of any property subject to any trust of which it is a trustee), without the prior consent (not to be unreasonably withheld) of GE Capital: (a) (MERGERS) form or acquire any subsidiary or merge or consolidate with, acquire all or substantially all of the assets or share capital or otherwise combine with or acquire any person; or (b) (INVESTMENTS) make or permit to exist any investment in, or any loan or other financial accommodation to any person; or (c) (INDEBTEDNESS) incur, assume or permit to exist any indebtedness except permitted indebtedness; or (d) (REPAYMENT) voluntarily prepay, redeem, purchase, defease or otherwise satisfy indebtedness prior to its due date except under the transaction documents,; or (e) (RELATED PARTY TRANSACTIONS) enter into or be party to any transaction with any other company or related entity to the company except: (i) for the payment of permitted payments; or (ii) where the transaction is: (A) in the ordinary course of business; and (B) pursuant to the reasonable requirements of its business; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 22 of 79 Pages (C) upon terms that are no less favourable to it than would be obtained in a comparable arm's length transaction with a person who is not another company or a related entity, or affiliate of the company; or (f) (LOANS TO EMPLOYEES) enter into any lending transaction (other than any advances on commissions to employees) with any of its employees or any employees of any of its subsidiaries for a principal amount of more than A$10,000, or in aggregate A$50,000 or increase existing indebtedness except permitted indebtedness; or (g) (CAPITAL STRUCTURE) make any change in its capital structure as described in the disclosure statement; or (h) (BUSINESS) make any change to any of its business objectives, purposes or operations if that change could have a material adverse effect; or (i) (GUARANTEES) enter into or give any guarantee or other assurance against financial loss in connection with money borrowed or raised by it or at its request or any of its subsidiaries; or (j) (SECURITY INTERESTS) create or allow to exist a security interest on the whole or any part of its present or future property except permitted security interests; or (k) (DISPOSE OF PROPERTY) dispose of all or a substantial part of its property (either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily) except: (i) the sale of inventory in the ordinary course of business; or (ii) disposals of equipment, real property or fixtures that are obsolete or no longer used or useful in its business where the value of the property disposed of is less than A$250,000 in total for the reporting group in any financial year; or (iii) disposals of other equipment or fixtures where the value of the property disposed of is less than A$250,000 in total for the reporting group in any financial year; or (l) (SALE-LEASEBACKS) enter into any sale-leaseback, synthetic lease or similar transaction involving its assets; or (m) (CANCELLATION OF INDEBTEDNESS) cancel any claim or debt owing to it except for reasonable consideration negotiated on an arm's length basis and in the ordinary course of business consistent with past practices; or (n) (RESTRICTED PAYMENTS) make any restricted payment other than payment of permitted payments; or (o) (COMPANY NAME AND CONSTITUTION) change its name, identity, corporate structure or constitution; or - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 23 of 79 Pages (p) (LOCATION OF BUSINESS) change its registered office address, principal place of business, corporate offices or warehouses or locations at which any of its property is held; or (q) (FINANCIAL YEAR) change its financial year; or (r) (IMPAIRMENT OF INTERCOMPANY TRANSFERS) directly or indirectly enter into or become bound by any agreement or other arrangement other than the transaction documents which could directly or indirectly restrict, prohibit or require the consent of any person with respect to the payment of dividends or distributions or repayment of intercompany loans by any of its subsidiaries to it; or (s) (SPECULATIVE TRANSACTIONS) enter into any transaction involving commodity options, futures contracts, interest rate swaps or similar transactions except solely to hedge against fluctuations in the prices of foreign currencies receivable or payable by it; or (t) (LICENCES AND LEASES) enter into one or more operating licences or leases for equipment or real property if the total of all payments under those licences or leases in any year of the licences or leases are greater than A$250,000; or (u) (ACQUIRE REAL PROPERTY OR WAREHOUSE SPACE) lease or acquire any real property or warehouse space or send any inventory to a processing or converting facility unless agreements referred to in clause 13.1(l) have been obtained for that real property, warehouse space or facility; or (v) (PRESS RELEASES) issue any press release or other public disclosure using the name of GE Capital or any of its related entities or referring to any transaction document without the prior written consent of GE Capital, unless it is required to do so by law and it consults with GE Capital before issuing that press release or other public disclosure; or (w) (BANK ACCOUNT BALANCES) accumulate or maintain cash in disbursement or payroll accounts as at the date of any determination in excess of the total sum of cheques outstanding against those accounts as at that date, amounts necessary to meet unanticipated liabilities incurred in the ordinary course of business in an amount no greater than $250,000 and amounts necessary to meet minimum balance requirements; or (x) (NEW BANK ACCOUNTS) open any new deposit or other accounts with any bank or financial institution or create any term deposit, unless GE Capital has consented to the opening of the account; or (y) (RELATED PARTY INDEBTEDNESS) pay or otherwise satisfy indebtedness owed or payable to any related entity of the company except; or (z) (TRUST MATTERS) exercise any power, take any step or grant any consent or approval in respect of any trust of which it is trustee to: (i) amend any trust deed; (ii) make any capital distribution in cash from trust assets; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 24 of 79 Pages (iii) resign or appoint any new or additional trustee appointor or other similar position; (iv) appoint any new beneficiaries to the class of beneficiaries; (v) alter the vesting date; (vi) allow use of the trust property by any beneficiaries of the trust; (vii) blend or mix trust property with any other property; (viii) breach any of its obligations under the trust deed or limit or exclude the company's right of indemnity under the trust. FINANCIAL REPORTING 13.4 The company undertakes to: (a) (MONTHLY FINANCIAL INFORMATION) give GE Capital, within 30 days of the end of each month: (i) an unaudited consolidated and consolidating balance sheet of the reporting group as at the last day of that financial month; and (ii) unaudited consolidated and consolidating profit and loss statements both for that month and the financial year to date for the reporting group setting out in comparative form the figures for the corresponding period in the previous year and the figures contained in the projections for that year; and (iii) a certificate signed by the directors of the company showing the calculations used in determining compliance with the financial undertakings set out in clause 13.2 and stating that the financial information gives a true and fair view in accordance with GAAP of the financial position and results of operations of the reporting group, any other information presented is true and complete in all material respects and that no event of default has occurred or is continuing or, if that statement cannot be made, the nature of each event of default and the steps taken to correct them; and (b) (QUARTERLY FINANCIAL INFORMATION) give GE Capital, within 30 days of the end of each March, June, September and December, unaudited consolidated and consolidating cash flow statements both for that quarter and the financial year to date for the reporting group setting out in comparative form the figures for the corresponding period in the previous year and the figures contained in projections for that year; and (c) (OPERATING PLAN) give to GE Capital as soon as it is available but by no later than 30 days after the end of each financial year an annual operating plan on a monthly basis for the reporting group approved by the directors of each company in the reporting group. The operating plan must include: - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 25 of 79 Pages (i) a statement of all of the material assumptions on which the plan is based; and (ii) monthly balance sheets and a monthly profit and loss and cash flow statements for the following year. The operating plan must include sales, gross profits, operating expenses, operating profit, cash flow projections, excess borrowing availability and all prepared on the same basis and in similar detail as that on which the financial information referred to in sub-paragraph (a) are provided (and in the case of cash flow projections, representing management's good faith estimates of future financial performance based on historical performance), and include plans for capital expenditures; and (d) (MANAGEMENT LETTER) give to GE Capital within five business days after its receipt, a copy of any management letter, exception report or similar letters or reports received by the obligor from its auditors or accountants; and (e) (ANNUAL FINANCIAL STATEMENTS) give the consolidated and consolidating financial statements of each obligor and the unqualified audited consolidated financial statements of the reporting group for each financial year to GE Capital within 120 days after the end of that year. Those consolidated financial statements must set out in comparative form the figures for the corresponding period in the previous year; and (f) (OFFICER'S CERTIFICATE) give to GE Capital at the same time as the financial statements in clause 13.4(d), a certificate signed by its directors showing in reasonable detail the calculations used in determining compliance with each of the financial undertakings in clause 13.2 and stating that the financial information gives a true and fair view in accordance with GAAP of the financial position and results of operations of each obligor and the reporting group, any other information presented is true, complete and not misleading or deceptive in any material respects and that no event of default has occurred or is continuing or, if that statement cannot be made, the nature of each event of default and the steps taken to correct them; and (g) (RECONCILIATION REPORT) give GE Capital at the same time as the delivery of the monthly financial reports referred to in clause 13.4(a) a reconciliation of the accounts receivable and accounts payable trial balances and month end inventory perpetual reports of the reporting group to the general ledger of the reporting group and monthly financial reports delivered under clause 13.4(a); and (h) (INTELLECTUAL PROPERTY APPLICATIONS) give GE Capital at the same time as the delivery of the annual financial statements referred to in clause 13.4(d), a list of any applications for the registration of any patent trademark or copyright which the obligor has filed in the preceding year. OTHER REPORTS 13.5 The company undertakes to provide to GE Capital in form and substance satisfactory to GE Capital: - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 26 of 79 Pages (a) (BORROWING BASE CERTIFICATE) on request by GE Capital, but no less frequently than 10 business days after the end of each month except for each March month end where the information is to be provided within 15 business days from the March month end, a borrowing base certificate for the company; and (b) (ACCOUNTS RECEIVABLE ROLL FORWARD ANALYSIS) within 10 business days after the end of each month except for each March month end where the information is to be provided within 15 business days from the March month end, reports showing all additions and reductions (cash and non-cash) to the accounts receivable of the company for that month; and (c) (DISCLOSURE STATEMENT) on request by GE Capital a disclosure statement for; and (d) (INVENTORY ANALYSIS) within 10 business days after the end of each month except for each March month end where the information is to be provided within 15 business days from the March month end, reports showing all inventory held by the company at the end of the preceding month identifying separately raw materials, work in progress, unfinished goods, finished goods and their respective values and identifying the composition of the raw materials, work in progress, unfinished goods and finished goods and their respective locations; and (e) (OUTSTANDING ACCOUNTS) on request by GE Capital, but no less frequently than 10 business days after the end of each month except for each March month end where the information is to be provided within 15 business days from the March month end, a summary report of accounts outstanding of the company aged from invoice date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more; and (f) (ACCOUNTS PAYABLE) on request by GE Capital, but no less frequently than 10 business days after the end of each month except for each March month end where the information is to be provided within 15 business days from the March month end, a summary report of accounts payable of the company aged from invoice date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more. COMMUNICATIONS WITH THIRD PARTIES 13.6 The obligor authorises GE Capital to communicate directly with its accountants, auditors and other advisers and agrees to instruct them to make available to GE Capital all information which they have concerning it and its subsidiaries provided GE Capital gives prior written notice to the relevant obligor. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 27 of 79 Pages 14. OTHER RIGHTS OF GE CAPITAL 14.1 If GE Capital at any time has a reasonable basis to believe that there may be a violation of any environmental laws or environmental permits by any obligor or any environmental liability or any threatened or actual service of any clean-up notice or any claim for contribution or indemnity against any obligor by any other person served or threatened to be served with any clean-up notice, which, in each case, could reasonably be expected to have a material adverse effect, then the obligor on the request of GE Capital agrees to: (a) cause the performance of such environmental investigations and preparation of such environmental reports as GE Capital may reasonably request, which must be conducted by reputable environmental consulting firms acceptable to GE Capital and be in form and substance acceptable to GE Capital; and (b) permit GE Capital or its representatives to have access to all real property for the purpose of conducting such environmental investigations and testing as it deems reasonably appropriate. 15. EVENTS OF DEFAULT EVENTS OF DEFAULT 15.1 Each of the following is an event of default: (a) (NON PAYMENT - TRANSACTION DOCUMENT) the company does not pay on time any amount payable under any transaction document in the manner required under it; or (b) (CROSS DEFAULT) any present or future monetary obligations of the obligor or any of its subsidiaries for amounts totalling more than A$250,000 are not satisfied on time (or at the end of their period of grace) or become prematurely payable. (A "monetary obligation" means a monetary obligation in connection with: (i) money borrowed or raised; or (ii) any hiring arrangement, redeemable preference share, letter of credit or financial markets transaction (including a swap, option or futures contract); or (iii) a guarantee or indemnity in connection with money borrowed or raised.); or (c) (NON OBSERVANCE OF OBLIGATIONS) the obligor does not observe any of its obligations under any transaction documents or under any other agreement or obligation with GE Capital or its related entities; or (d) (ENFORCEMENT AGAINST ASSETS) distress is levied or a judgment, order or encumbrance is enforced, or becomes enforceable, against any property of the - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 28 of 79 Pages obligor or any of its subsidiaries for amounts in total exceeding A$250,000 (or the equivalent in any other currency in which the enforcement occurs); or (e) (INCORRECT DOCUMENT) any document or information contained in any document given under clause 2.4 ("Conditions to first drawing") is untrue, incomplete or misleading in any material respect in GE's opinion; or (f) (INCORRECT REPRESENTATION OR WARRANTY) a representation or warranty made by or in respect of the obligor in connection with a transaction document is found to have been untrue, incorrect or misleading when made, or the obligor fails to make a disclosure in accordance with clause 12.3 ("Continuation of representations and warranties"); or (g) (INSOLVENCY) the obligor is or becomes insolvent or steps are taken to make any of those persons insolvent; or (h) (CEASING BUSINESS) the obligor stops payment, ceases to carry on its business or a material part of it, or threatens to do either of those things except to reconstruct or amalgamate while solvent on terms approved by GE Capital; or (i) (VOIDABLE TRANSACTION DOCUMENT) a transaction document or a transaction in connection with it is or becomes (or is claimed to be) wholly or partly void, voidable or unenforceable or is terminated without the written consent of GE Capital or does not have (or is claimed not to have) the priority GE Capital intended it to have ("claimed" in this case means claimed by the obligor or any of its related entities or anyone on behalf of any of them); or (j) (CHANGE OF CONTROL) the persons who at the date of this agreement have control of the obligor cease to have control of the obligor, or one or more other persons acquire control of the obligor after the date of this agreement in each case, without the prior consent of GE Capital; or (k) (CHANGE IN GROUP STRUCTURE) the persons who at the date of this agreement are affiliates, subsidiaries, or related entities of the reporting group cease to have that relationship with the obligor or the reporting group (other than persons that are non-Australian corporations); or (l) (REDUCTION OF CAPITAL) the obligor, without the consent of GE Capital, takes action to reduce its capital or buy back any of its ordinary shares or passes a resolution referred to in section 254N(1) of the Corporations Act 2001 (Cwlth); or (m) (APPOINTMENT OF MANAGER) a person is appointed under legislation to manage any part of the affairs of the obligor; or (n) (MATERIAL ADVERSE CHANGE) an event occurs which is (or a series of events occur which, together, are) likely to have a material adverse effect on the obligor and its subsidiaries or the reporting group individually or taken as a whole; or (o) (BREACH OF UNDERTAKING) an undertaking given to GE Capital or its solicitors by the obligor or another person in a transaction document is breached or not wholly performed within any period specified in the undertaking or, where no period is - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 29 of 79 Pages specified and the undertaking is not an on-going undertaking, within 7 days after the date of the undertaking; or (p) (DEFAULT UNDER OTHER TRANSACTION DOCUMENT) an event occurs which is called an event of default under any transaction document other than this agreement or any other event occurs which renders a transaction document enforceable; or (q) (POTENTIAL EVENT OF DEFAULT) an event occurs which, with the giving of notice, lapse of time or fulfilment of any condition, would become an event of default in the reasonable opinion of GE Capital; or (r) (TRUST MATTERS) any of the following occur in respect of any trust of which the obligor is trustee: (i) the obligor makes any cash distribution or resettlement of the assets of the trust; (ii) the obligor resigns its position as trustee of the trust or is removed or replaced as trustee or for any other reason ceases to be the sole trustee of the trust; (iii) the terms of the trust are amended, revoked, varied, altered or added to so as to limit or prejudice the powers of the obligor to perform its obligations under the transaction documents to GE Capital; (iv) the obligor breaches the terms of the trust; (v) the trust is wound up or a controller, receiver or receiver and manager is appointed to the trust or any trust property; or (vi) the trust is found to be improperly constituted, the trust is terminated or the trustee does not have the requisite powers to enter into the transaction documents. CONSEQUENCES OF DEFAULT 15.2 If an event of default occurs, then at the option of GE Capital: (a) the interest rate applicable to the current drawings is the default rate; (b) the total of the current drawings, interest on them and all other amounts payable under the transaction documents, are either: (i) payable on demand; or (ii) immediately due for payment; and (c) any of GE Capital's obligations may be terminated. GE Capital may elect any or all of these options in its absolute discretion. The election of any of these options gives immediate effect to those provisions, without any need for notice to the obligor. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 30 of 79 Pages 16. COSTS AND INDEMNITIES REIMBURSEMENT AND INDEMNITY 16.1 The company agrees to pay or reimburse GE Capital and indemnifies GE Capital for and against loss, liability and costs it suffers or incurs, on demand for: (a) GE Capital's costs in connection with: (i) the negotiation, preparation, execution, stamping and registration of all transaction documents; and (ii) it being satisfied that conditions to drawing have been met; and (iii) the general on-going administration of the facility (including giving and considering consents, waivers and releases); and (b) GE Capital's costs in otherwise acting in connection with the transaction documents, such as enforcing or preserving rights (or considering enforcing or preserving them) or doing anything in connection with any enquiry by an authority involving the company or any of its related entities; and (c) taxes and fees (including registration fees) and fines and penalties in respect of fees paid or that GE Capital reasonably believes are payable in connection with any transaction document or a payment or receipt or any other transaction contemplated by any transaction document or any supply of anything by GE Capital to the company. However, the company need not pay a fine or penalty in connection with taxes or fees to the extent that it has placed GE Capital in sufficient cleared funds for GE Capital to be able to pay the taxes or fees by the due date; and (d) if GST has application to any supply made under or in connection with this agreement or a transaction document, in addition to any other consideration expressed as payable elsewhere in this agreement or a transaction document, an additional amount on account of GST, such amount to be calculated by multiplying the amount or consideration payable by the company for the relevant supply by the prevailing GST rate (taking into account any input tax credit actually received by GE Capital which in GE Capital's opinion relates to a GST payment made in respect of any supply made under or in connection with this agreement). Any amount payable on account of GST by the company under this clause must be calculated without any deduction or set off of any other amount (other than as expressly permitted under this clause) and is payable by the company on demand by GE Capital whether the demand is by means of an invoice or otherwise; and (e) if GE Capital is unable to obtain a full input tax credit for an amount paid on account of GST by GE Capital to another person in respect of a supply made by another person to GE Capital in respect of this agreement or a transaction document or matters arising under this agreement or a transaction document, an amount equal to the input tax credit to which GE Capital is not entitled under the GST legislation. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 31 of 79 Pages OTHER LOSS 16.2 The company indemnifies GE Capital from and against any costs, liability or loss suffered or incurred by GE Capital arising from, or in connection with: (a) any claim made against it by reason of financial accommodation requested under a transaction document not being provided in accordance with the request for any reason except default of GE Capital; and (b) financial accommodation under a transaction document being repaid, discharged or made payable other than on its due date; and (c) GE Capital acting in connection with a transaction document in good faith on fax or telephone instructions purporting to originate from the offices of the company or to be given by an authorised officer of the company; and (d) an event of default; and (e) GE Capital exercising or attempting to exercise rights in connection with a transaction document after an event of default; and (f) any indemnity GE Capital gives a controller or an administrator of the company; and (g) all claims by third parties in respect of letters of credit issued under this agreement including without limitation, all letter of credit liabilities. ITEMS INCLUDED IN LOSS, LIABILITY AND COSTS 16.3 The company agrees that: (a) the costs referred to in clause 16.1 ("Reimbursement and indemnity") and the liability, loss or costs in clause 16.2 ("Other loss") include legal costs in accordance with any written agreement as to legal costs or, if no agreement, on whichever is the higher of a full indemnity basis or solicitor and own client basis; and (b) the costs referred to in clauses 16.1(a) and (b) ("Reimbursement and indemnity") include those paid or payable, to persons engaged by GE Capital in connection with the transaction documents (such as consultants). PAYMENT OF EMPLOYEES' LOSSES 16.4 The company agrees to pay GE Capital an amount equal to any liability, loss or costs of the kind referred to in clause 16.2 ("Other loss") suffered or incurred by any employee, officer, agent or contractor of GE Capital. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 32 of 79 Pages CURRENCY CONVERSION ON JUDGMENT DEBT 16.5 If a judgment or proof of debt for an amount in connection with a transaction document is expressed in a currency other than Australian dollars, then the company indemnifies GE Capital against: (a) any difference arising from converting the other currency if the rate of exchange used by GE Capital under clause 5.5 ("Conversion of currency") for converting currency when it receives a payment in the other currency is less favourable to GE Capital than the rate of exchange used for the purpose of the judgment or acceptance of proof of debt; and (b) the costs of conversion. CERTIFICATE BY GE CAPITAL 16.6 A statement or certificate given by GE Capital setting out the amount of any loss, liability or costs incurred or suffered by GE Capital (including the extent of GE Capital's entitlement to a full or reduced input tax credit for GST paid in respect of any matter contemplated in a transaction document) is, absent manifest error, final, binding and conclusive evidence against the obligor of the amount of that loss, liability or cost. 17. INTEREST ON OVERDUE AMOUNTS OBLIGATION TO PAY 17.1 If the obligor fails to pay any amount under this agreement on the due date for payment, the obligor agrees to pay to GE Capital on demand interest on that amount at the default rate. The interest accrues from day to day from and including the due date up to but excluding the date of actual payment and is calculated on actual days elapsed and a year of 360 days. COMPOUNDING 17.2 Interest payable under clause 17.1 ("Obligation to pay") which is not paid when due for payment may be added to the overdue amount by GE Capital at intervals which GE Capital determines from time to time or, if no determination is made, every 30 days. Interest is payable on the increased overdue amount at the default rate in the manner set out in clause 17.1 ("Obligation to pay"). INTEREST FOLLOWING JUDGMENT 17.3 If a liability becomes merged in a judgment, then the company agrees to pay GE Capital on demand interest on the amount of that liability as an independent obligation. This interest: (a) accrues from the date the liability becomes due for payment both before and after the judgment until the liability is paid; and (b) is calculated at the rate that is the higher of the judgment rate and the default rate. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 33 of 79 Pages 18. GUARANTEE AND INDEMNITY REQUEST AND CONSIDERATION 18.1 By signing this agreement, the guarantor requests GE Capital to enter into this agreement and agrees to be bound by this guarantee, the provisions set out in Schedule 7, and this agreement in consideration of GE Capital doing so. 19. ATTORNEY APPOINTMENT OF ATTORNEY 19.1 The obligor irrevocably appoints GE Capital and each of its authorised officers individually as its attorney and agrees to ratify all action taken by an attorney under clause 19.2 ("Attorneys' powers"). ATTORNEYS' POWERS 19.2 Each attorney may where an Event of Default has occurred and subsists: (a) perform and observe the obligations of the obligor under this agreement to enable GE Capital to exercise its rights under this agreement; and (b) do anything which an obligor may lawfully do to exercise their right of proof after an event relating to insolvency occurs in respect of obligor (these things may be done in the obligor's name or the attorney's name and they include signing and delivering documents, taking part in legal proceedings and receiving any dividend arising out of the right of proof); and (c) delegate its powers (including this power) and may revoke a delegation; and (d) exercise its powers even if this involves a conflict of duty and even if it has a personal interest in doing so. APPLICATION OF INSOLVENCY DIVIDENDS 19.3 The attorney need not account to an obligor for any dividend received on exercising the right of proof under clause 19.2 ("Attorneys' powers") except to the extent that any dividend remains after GE Capital has received all amounts payable or to become payable in the future under this agreement. RIGHT OF PROOF LIMITED 19.4 Each obligor agrees not to exercise a right of proof after an event occurs relating to the insolvency of the company or any other obligor independently of an attorney appointed under clause 19.1 ("Appointment of attorney"). - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 34 of 79 Pages 20. DEALING WITH INTERESTS NO DEALING BY COMPANY 20.1 The obligor may not assign or otherwise deal with its rights under any transaction document or allow any interest in them to arise or be varied, in each case without GE Capital's written consent. DEALINGS BY GE CAPITAL 20.2 GE Capital may assign or otherwise deal with its rights under the transaction documents (including by participation or syndication) in any way it sees fit and without the consent of any other person, including an obligor. GE Capital must notify the company as soon as reasonably practicable of any assignment or other dealing with its rights under the transaction documents. NO SET-OFF AGAINST ASSIGNEES 20.3 If GE Capital assigns or otherwise deals with its rights under this agreement, the obligor may claim against any assignee (or any other person who has an interest in this agreement) any right of set-off or other right the obligor has against GE Capital provided that the rights of the obligor arise under this agreement or the transaction documents. 21. NOTICES FORM 21.1 All notices, certificates, consents, approvals, waivers and other communications in connection with a transaction document ("Notices") must be in writing, signed by an authorised officer of the sender and marked for attention as set out in the Parties or, if the recipient has notified otherwise in writing, then marked for attention in the way last notified. DELIVERY 21.2 All Notices must be: (a) left at the address set out in the Parties; or (b) sent by prepaid post (airmail, if outside Australia) to the address set out in the Parties; or (c) sent by facsimile to the number set out in the Parties. If the intended recipient has notified the sender in writing of a changed postal address or changed facsimile number, then the Notice must be to the address or number notified. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 35 of 79 Pages WHEN EFFECTIVE 21.3 A Notice takes effect from the time it is received unless a later time is specified in it. DEEMED RECEIPT - POSTAL 21.4 If sent by post, a Notice is taken to be received one business day after posting (or seven days after posting if sent to or from a place outside Australia). DEEMED RECEIPT - FACSIMILE 21.5 If sent by facsimile, a Notice is taken to be received at the time shown in the transmission report of the sender as the time that the whole facsimile was sent. 22. GENERAL SET-OFF 22.1 At any time after an event of default, GE Capital may set off any amount due for payment by GE Capital to the obligor against any amount due for payment by the obligor to GE Capital under the transaction documents. Where an event of default has occurred and subsists, the obligor may claim or set-off any money owing by GE Capital to it against money owing by the obligor to GE Capital. SUSPENSE ACCOUNT 22.2 GE Capital may place in a suspense account for no longer than 5 Business Days and provided an event of default has occurred and subsists any payment it receives from the obligor for as long as it thinks prudent and need not apply it towards satisfying any money owing to GE Capital under this agreement. CERTIFICATES 22.3 GE Capital may give the obligor a certificate about an amount payable or other matter in connection with a transaction document. The certificate is (absent obvious error) final, binding and conclusive evidence of the amount or matter. PROMPT PERFORMANCE 22.4 If this agreement specifies when the obligor must perform an obligation, the obligor agrees to perform it by the time specified. The obligor agrees to perform all other obligations promptly. DISCRETION IN EXERCISING RIGHTS 22.5 GE Capital may exercise a right or remedy or give or refuse its consent in any way it considers appropriate, including by imposing conditions unless a transaction document states otherwise. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 36 of 79 Pages CONSENTS 22.6 The obligor agrees to comply with all conditions in any consent GE Capital gives in connection with any transaction document. PARTIAL EXERCISING OF RIGHTS 22.7 If GE Capital does not exercise a right or remedy fully or at a given time, GE Capital can still exercise it later. NO LIABILITY FOR LOSS 22.8 GE Capital is not liable for loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising, a right or remedy other than caused by GE's negligence or default. REMEDIES CUMULATIVE 22.9 The rights and remedies of GE Capital under any transaction document are in addition to other rights and remedies given by law independently of that transaction document. RIGHTS AND OBLIGATIONS ARE UNAFFECTED 22.10 Rights given to GE Capital under this agreement and the obligor's liabilities under it are not affected by any law that might otherwise affect them. INDEMNITIES 22.11 The indemnities in this agreement are continuing obligations, independent of the obligor's other obligations under this agreement and continue after this agreement ends. It is not necessary for GE Capital to incur expense or make payment before enforcing a right of indemnity conferred by this agreement. VARIATION AND WAIVER 22.12 Unless this agreement expressly states otherwise, a provision of this agreement, or right created under it, may not be waived or varied except in writing signed by the party or parties to be bound. CONFIDENTIALITY 22.13 The obligors consent to GE Capital disclosing information provided by the obligors that is not publicly available: (a) in connection with any person exercising rights or dealing with rights or obligations under a transaction document (including in connection with preparatory steps such as negotiating with any potential assignee or potential participant of GE Capital's rights or other person who is considering contracting with GE Capital in connection with a transaction document); or - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 37 of 79 Pages (b) to a person considering entering into (or who does enter into) a credit swap with GE Capital involving credit events relating to the obligor or any of its related entities; or (c) to officers, employees, legal and other advisers and auditors of GE Capital; or (d) to any party to a transaction document or any related entity of GE Capital; or (e) with the consent of the obligor about whom the information relates (which consent must not be unreasonably withheld); or (f) as allowed necessary or required by any law court, regulatory body, tribunal, authority, judicial or quasi-judicial proceedings or by any stock exchange. FUrTHER STEPS 22.14 The obligor agrees to do anything GE Capital asks (such as obtaining consents, signing and producing documents and getting documents completed and signed) to bind the obligor and any other person intended to be bound under the transaction documents. INCONSISTENT LAW 22.15 To the extent permitted by law, each transaction document prevails to the extent it is inconsistent with any law. SUPERVENING LEGISLATION 22.16 Any present or future legislation which operates to vary the obligations of an obligor in connection with a transaction document with the result that GE Capital's rights, powers or remedies are adversely affected (including by way of delay or postponement) is excluded except to the extent that its exclusion is prohibited or rendered ineffective by law. TIME OF THE ESSENCE 22.17 Time is of the essence in any transaction document in respect of an obligation of the obligor to pay money. APPLICABLE LAW 22.18 The transaction documents are governed by the law in force in New South Wales. The obligor and GE Capital submit to the non-exclusive jurisdiction of the courts of New South Wales. SERVING DOCUMENTS 22.19 Without preventing any other method of service, any document in a court action may be served on a party by being delivered to or left at that party's address for service of notices under clause 21 ("Notices"). - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 38 of 79 Pages ADVERTISING 22.20 The obligor consents to the publication by GE Capital of a "tombstone" or similar advertising material relating to the transactions contemplated in the transaction documents. COUNTERPARTS 22.21 This agreement may consist of a number of copies of this agreement each signed by one or more parties to the agreement. When taken together, the signed copies are treated as making up the one document. Any copy of this agreement signed by a party is binding on that party whether or not that or any other copy is signed by or binding upon any other party. SEVERANCE 22.22 Each word, phrase, sentence, paragraph and clause in each transaction document is severable no matter how they are linked. If any word, phrase, sentence, paragraph or clause is defective, unenforceable, void or voidable they may be severed and the remaining words will continue to be of full force and effect. 23. INTERPRETATION MEANINGS 23.1 These meanings apply in each transaction document unless the contrary intention appears: AFFILIATE means, in relation to a person: (a) each person that directly or indirectly owns or controls 5% or more of the share capital having ordinary voting power in the election of directors of that corporation; and (b) each person that controls, is controlled by or is under common control with that corporation. AGGREGATE BORROWING BASE means for a particular day, an amount equal to the sum of: (c) 85% (less the borrowing base dilution) of the value (as determined by GE Capital) of the company's eligible accounts; PLUS (d) the lesser of: (i) $20,000,000; and - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 39 of 79 Pages (ii) 50% of the company's eligible inventory valued on a first in first out basis at the lower of cost and net realisable (market) value, in each case less any reserves established by GE Capital from time to time. AUTHORISED OFFICER means: (a) in the case of GE Capital, a director, secretary or an officer whose title contains the word "manager" or a person performing the functions of any of them or the solicitor of GE Capital; and (b) in the case of an obligor, a person appointed in writing by the relevant obligor to act as an authorised officer under the transaction documents to which it is a party. BILL has the meaning it has in the Bills of Exchange Act 1909 (Cwlth) and a reference to the drawing or acceptance or endorsement of, or other dealing with, a bill is to be interpreted in accordance with that Act. BLOCKED ACCOUNT AGREEMENT means an agreement governing any bank account into which deposits by the company are made, containing an irrevocable direction to the bank to transfer funds in the account telegraphically daily to an account nominated by GE Capital. BORROWING BASE CERTIFICATE means a certificate in the form set out in Schedule 3, or any other form required by GE Capital, duly completed by the company and signed by an authorised officer of the company. BORROWING BASE DILUTION is the amount expressed as a percentage by which the dilution exceeds 5% at the time of calculation. BUSINESS DAY means a day on which banks are open for general banking business in Sydney (not being a Saturday, Sunday or public holiday in Sydney). CAPITAL EXPENDITURE means any expenditure for fixed assets or improvements (or for replacements, substitutions or additions to them) that have a useful life of more than one year and that are required to be capitalised under GAAP. CAPITAL LEASES means any lease of property that in accordance with GAAP would be required to be classified and accounted for as a finance lease on the balance sheet of the lessee. CAPITAL LEASE OBLIGATIONS means with respect to any capital lease the amount of the obligation of the lessee that, in accordance with GAAP, would appear on the balance sheet of the lessee in respect of that capital lease. CLEAN-UP NOTICE means any order, direction, notice or other requirement of any authority in respect of remediation. CLOSING DATE means the date of the first drawdown of funds under this agreement. CLOSING FEE means the fee described as such in the Details. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 40 of 79 Pages COMPANY means each of the persons so described in the Parties, jointly and severally in its own capacity and as trustee of any trust. A reference to any property of the company includes a reference to property or assets of the company as trustee of the trusts in the disclosure statement. CONTROL of a corporation includes the direct or indirect power to directly or indirectly: (a) be in a position to cast or control the casting of, more than 30% of the maximum number of votes that may be cast at a general meeting; or (b) control the membership of its board of directors, whether or not the power has statutory, legal or equitable force or is based on statutory, legal or equitable rights and whether or not it arises by means of trusts, agreements, arrangements, understandings, practices, the ownership of any interest in shares or stock of the corporation or otherwise. CONTROLLER has the meaning it has in the Corporations Act 2001 (Cwlth). CONTROLLED ACCOUNT means each account governed and operated by the locked box agreement or the blocked account agreement. COSTS includes charges, expenses and internal administration costs; and costs, charges and expenses in connection with advisers on a full indemnity basis, and any GST paid or payable by GE Capital except to the extent that GE Capital is entitled to a full or reduced input tax credit. CURRENT DRAWING means the outstanding principal amount of a drawing made under the facility and any amount deemed to be a drawing under the facility. CURRENT LC means any letter of credit which has not been discharged in full or in respect of which LC obligations remain unsatisfied. DEFAULT RATE means the interest rate plus 3% per annum. DEPRECIATION EXPENSE means depreciation expense of the reporting group determined in accordance with GAAP. DILUTION, which is to be calculated monthly, means for each of the companies, severally, the total of non cash credits made to the accounts receivable of the company for the 12 month period ending on the date of determination divided by the total sales for that period, expressed as a percentage and rounded to the nearest whole number. The dilution is calculated at any time by reference to the most recent accounts receivable roll forward analysis provided by the company to GE Capital under clause 13.5 or as otherwise determined by GE Capital. DISCLOSURE STATEMENT means a statement or notice containing or purporting to contain the disclosures referred to in Schedule 6 or otherwise required or made under this agreement, duly completed by the reporting group and signed by an authorised officer of the company/reporting as being true, correct and not misleading or deceptive at the date of the statement or notice and includes each statement or notice given prior to the date of this agreement. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 41 of 79 Pages DRAWDOWN DATE means the date on which a drawing is or is to be made. DRAWDOWN NOTICE means a completed and signed notice containing the information and representations and warranties set out in Schedule 2, or otherwise in the form required by GE Capital from time to time. EARLY TERMINATION FEE means the fee described as such in clause 7.1(h) and the Details. EBITDA means an amount equal to net income of the reporting group less the sum of: (a) income tax credits; and (b) interest income; and (c) gain from extraordinary items; and (d) any aggregate net gain (but not any aggregate net loss) arising from the sale, exchange or other disposition of capital assets (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities); and (e) any other non-cash gains which have been added in determining net income, in each case to the extent included in the calculation of net income in accordance with GAAP, but without duplication; PLUS (to the extent deducted in determining net income), the sum of: (f) amortisation of goodwill; and (g) depreciation expenses; and (h) any income tax expense; and (i) interest expense; and (j) loss from extraordinary items; and (k) the amount of any deduction to net income as the result of any grant to any members of the management of any shares, in each case to the extent included in the calculation of net income in accordance with GAAP, but without duplication. For purposes of the definition of EBITDA, the following items are excluded in determining net income: (a) the income (or deficit) of any person accrued prior to the date it became a subsidiary of, or was merged or consolidated into, the company or any of its subsidiaries; (b) the income (or deficit) of any person (other than a subsidiary) in which the company or any of its subsidiaries has an ownership interest, except to the extent any such income has actually been received in the form of cash dividends or distributions; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 42 of 79 Pages (c) the undistributed earnings of any subsidiary of the company or any of its subsidiaries to the extent that the declaration or payment of dividends or similar distributions by such subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such subsidiary; (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during the relevant period; (e) any write-up of any asset; (f) any net gain from the collection of the proceeds of life insurance policies; (g) any net gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any indebtedness, of the company or any of its subsidiaries; (h) in the case of a successor to the company or any of its subsidiaries by consolidation or merger or as a transferee of its assets, any earnings of such successor prior to such consolidation, merger or transfer of assets; and (i) any deferred credit representing the excess of equity in any subsidiary of the company or any of its subsidiaries at the date of acquisition of such subsidiary over the cost to the company or any of its subsidiaries of the investment in such subsidiary. ELIGIBLE ACCOUNTS means those accounts of each company which GE Capital, in its reasonable judgment, determines to be eligible accounts based on the most recent borrowing base certificate and excluding, among other accounts, the exclusionary criteria. ELIGIBLE INVENTORY means the inventory of the company which GE Capital in its reasonable judgment determines to be eligible inventory at the time based on the most recent borrowing base certificate, and excluding, amongst other items the exclusionary criteria. ENCUMBRANCE means any security interest, notice under section 218 or 255 of the Income Tax Assessment Act 1936 (Cwlth) or under any similar provision of a State, Territory or Commonwealth law, right to remove things from land (known as a "profit a prendre"), easement, restrictive or positive covenant (other than easements and covenants burdening real property), equity, interest, garnishee order, writ of execution, right of set-off, lease, licence to use or occupy, assignment of income or monetary claim, and any agreement to create any of them or allow any of them to exist. ENVIRONMENTAL LAWS means any law concerning the environment and includes laws, statutes, ordinances, codes, rules, standards, regulations and policies from time to time concerning: (a) the carrying out of uses, works or development or the subdivision of land; (b) emissions of substances into the atmosphere, waters and land; (c) pollution and contamination of the atmosphere, waters and land; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 43 of 79 Pages (d) production, use, handling, storage, transportation and disposal of: (i) waste; (ii) hazardous substances; and (iii) dangerous goods; (e) conservation, heritage and natural resources; (f) threatened, endangered and other flora and fauna species; (g) the erection and use of structures; and (h) the health and safety of people, whether made or in force before or after the date of this agreement. ENVIRONMENTAL LIABILITIES means, with respect to any person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages (including all consequential and indirect damages) costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions, claims for contribution and indemnity, whether arising under statute or otherwise, and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any environmental laws or environmental permits. ENVIRONMENTAL PERMITS means all permits, licences, authorisations, consents, certificates, approvals, registration or other written documents required by any authority under any environmental laws. EVENT OF DEFAULT means an event of default so described in this agreement (see clause 15 ("Events of default")). EXCLUSIONARY CRITERIA means the criteria set out in Schedule 4. EXCESS AVAILABILITY means at any time: (a) the lesser of the facility limit and the aggregate borrowing base; LESS (b) current drawings and current LC's at that time, as calculated by GE Capital. FACE VALUE AMOUNT means in respect of a letter of credit, the amount shown on a letter of credit as the maximum amount payable under it. If a letter of credit is issued in a currency other than Australian dollars, GE Capital may at any time convert the amount shown on the letter of credit into Australian dollars on the day and at the rates as it - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 44 of 79 Pages considers appropriate (even though it may be necessary to convert through a third currency) for the purpose of determining the face value amount at that time. FACILITY means the facilities made available under this agreement or any one of them. FACILITY LIMIT means the amount set out as such in the Details. FIELD EXAMINATION FEE means the fee set out in clause 7.1(c) and the Details. FINANCIAL STATEMENTS means: (a) a profit and loss statement; (b) a balance sheet; and (c) a statement of cash flows, together with any notes to those documents and a directors' declaration as required under the Corporations Act 2001 (Cwlth) and any other information necessary to give a true and fair view prepared in accordance with GAAP. FIXED CHARGE COVERAGE RATIO means the ratio of: (a) EBITDA for that period; less any capital expenditures for the same period which are not financed through the incurrence of indebtedness (excluding under this facility); plus any proceeds of a sale - leaseback transaction for which GE Capital's prior written consent has been granted in accordance with clause 13.3(l), for the same period; to (b) fixed charges. FIXED CHARGES means the total of all cash interest expense, fee expense and income taxes of the reporting group paid or accrued plus scheduled payments of principal with respect to indebtedness. FUNDED DEBT means all indebtedness of the reporting group for borrowed money evidenced by notes, bonds, debentures, or similar evidences of indebtedness and which by its terms matures more than one year from, or is directly or indirectly renewable or extendable at the debtor's option under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including capital lease obligations, current maturities of long-term debt, revolving credit and short-term debt extendable beyond one year at the option of the debtor, and also including its obligations under the transaction documents. GAAP means generally accepted accounting principles in Australia, consistently applied. GE CAPITAL means the person so described in the Parties. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 45 of 79 Pages GST means any tax in the nature of a consumption tax, a goods and services tax, a value added tax or similar tax including without limitation any tax arising out of the passage of the "A New Tax System (Goods and Services Tax) Act, 1999" (Commonwealth) and associated legislation. GUARANTEE means the guarantee and indemnity in clause 18 ("Guarantee and indemnity"). GUARANTEED MONEY means, at any time, all amounts then due for payment or which will or may become due for payment in the future by the company to GE Capital in connection with the transaction documents (including transactions in connection with them). GUARANTOR means each of the persons so described in the Parties, jointly and severally. HAZARDOUS MATERIAL means any substance, material or waste which is regulated by or forms the basis of liability (including, without limitation any environmental liability) now or hereafter under, any environmental laws, including any material or substance which is: (a) defined as a "solid waste", "hazardous waste", "hazardous material", "hazardous substance", "extremely hazardous waste", "restricted hazardous waste", "pollutant", "contaminant", "hazardous constituent", "special waste", "toxic substance" or other similar term or phrase under any environmental laws; (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls or any radioactive substance; or (c) may be the subject of any clean-up notice. INDEBTEDNESS means all indebtedness, actual or contingent, including but without duplication: (a) all indebtedness for borrowed money or for the deferred purchase price of property payment for which is deferred six months or more; (b) all reimbursement and other obligations with respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured; (c) all obligations evidenced by notes, bonds, debentures or similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all capital lease obligations; (f) all obligations under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured; (g) all obligations under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 46 of 79 Pages arrangement designed to alter risks arising from fluctuations in currency values or interest rates, in each case whether contingent or matured; (h) all indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any encumbrance upon or in property or other assets (including accounts and contract rights) owned by the company and its subsidiaries on a consolidated basis, even though the company and its subsidiaries on a consolidated basis has not assumed or become liable for the payment of such indebtedness; and (i) obligations under the transaction documents. INDEX RATE means in respect of each month: (a) the 90 day Bank Bill Swap Rate for the first business day of that month which is quoted as the "Bank Bill Swap Reference Rate- Average Bid" in the Money Market section in the following business day's edition of the Australian Financial Review; or (b) if there is an obvious error in the rate described in (a), or if that rate or publication is not published, the average bid rate for bills having a tenor of 90 days as displayed on the Reuters Monitor System designated "BBSY" on the first business day of that month; or (c) if there is an obvious error in the rate described in (b) or if that rate is not displayed by 10:30am Sydney time on the relevant day, the rate set by GE Capital in good faith at 10:30am on that date. INSOLVENT means: (a) being an insolvent under administration or insolvent (each as defined in the Corporations Act 2001 (Cwlth)), or having a controller appointed, or being in receivership, in receivership and management, in liquidation, in provisional liquidation, under administration, wound up, subject to any arrangement, deed of company arrangement, assignment or composition, protected from creditors under any statute, dissolved (other than to carry out a reconstruction while solvent) or otherwise being unable to pay debts when they fall due or having something similar happen; and (b) in the case of any person registered under the Companies Act 1993 of New Zealand, a body corporate presumed to be unable to pay its debts under Section 287 of that Act, or declared at risk under the Corporations (Investigation and Management) Act 1989 of New Zealand, or a statutory manager is appointed or any step is taken with a view to making an appointment. INTELLECTUAL PROPERTY means all patents, copyrights, trademarks, trade secrets, customer lists and any licence to use any of them. INTEREST EXPENSE means interest expense of the reporting group (whether cash or non-cash) determined in accordance with GAAP. It also includes interest expense with respect to any funded debt. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 47 of 79 Pages INTEREST PAYMENT DATE means the first business day of each month and the maturity date. INTEREST RATE means the interest rate set out in the Details. LAW means a treaty, a law, regulation, ordinance, an official directive or request having the force of law, and an official directive, request, guideline or policy with which obligors similar to or of the same class as the obligor carrying on business in Australia normally comply. LC OBLIGATIONS means the obligations incurred by GE Capital under or in relation to a letter of credit. LETTER OF CREDIT means any letter of credit, services, accommodation, guarantee, indemnity, payment, undertaking or confirming facility provided at the company's request by or on behalf of GE Capital or any steps taken to attempt to provide those facilities by GE Capital. LETTER OF CREDIT APPLICATION means a request that GE Capital incur LC obligations in a form acceptable to the issuing bank selected by GE Capital. LETTER OF CREDIT FACILITY means the letter of credit facility provided under this agreement. LETTER OF CREDIT FACILITY LIMIT means the amount set out as such in the Details. LETTER OF CREDIT FEE means the fee described in clause 7.1(c) and the Details. LETTER OF CREDIT LIABILITY means any claim, action, loss, liability, charge, cost, expense, outgoing or payment which GE Capital incurs or which is payable or to become payable in the future by GE Capital in relation to or arising out of: (a) GE Capital procuring the issuance of or making any payment in relation to any letter of credit or any request by the company to issue a letter of credit including without limitation under any indemnity given by GE Capital to procure the issuance of a letter of credit; (b) any claim for payment in relation to a letter of credit; (c) anything done by any person who is or claims to be entitled to the benefit of a letter of credit; or (d) anything done by the issuer of any letter of credit, including without limitation, interest, commission, charges, costs and expenses paid, payable or charged to GE Capital in respect of a letter of credit. MATERIAL ADVERSE EFFECT means something which in the reasonable opinion of GE Capital materially adversely affects: (a) the legality, validity or enforceability of a transaction document; or (b) the relevant entity's ability to observe its obligations under any transaction document or carry on its business as it is currently being conducted; or - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 48 of 79 Pages (c) the rights of GE Capital under a transaction document; or (d) the ability of GE Capital to enforce its rights under the transaction documents; or (e) the relevant entity's business, assets, value, operations, prospects or financial or other condition; or (f) the risks to GE Capital under any transaction document. MATURITY DATE means the maturity date set out in the Details, but if that is not a business day, then the preceding business day. OBLIGOR means the company and the guarantors and each of them jointly and severally. PERMITTED INDEBTEDNESS means: (a) the indebtedness described in the disclosure statement which has been approved by GE Capital; and (b) indebtedness arising under the transaction documents; and (c) indebtedness otherwise expressly permitted or required under the transaction documents; and (d) indebtedness owing to trade creditors incurred in the ordinary course of business that are not overdue by more than six months unless such are contested in good faith; and (g) all obligations under any foreign exchange contracts entered into in the ordinary course of the company's business; PERMITTED PAYMENT means a payment by the company to a person that has entered into a transaction document with GE Capital provided the payment is made in accordance with the terms of the transaction document, and no event of default has occurred or will occur by making the payment. PERMITTED SECURITY INTERESTS means: (a) a security interest created under a transaction document; and (b) a security interest arising by operation of law to secure a monetary obligation maturing not more than 90 days after the date on which it is originally incurred; and (c) a retention of title provision or romalpa clause created under any document. PROJECTIONS means forecasted balance sheets, profit and loss statements and cash flow statements, all prepared on a consolidated and consolidating basis, and otherwise consistent with the historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. REAL PROPERTY means, in respect of a person, the real property owned, leased, subleased used or controlled by that person. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 49 of 79 Pages RELATED ENTITY has the meaning it has in the Corporations Act 2001 (Cwlth). REMEDIATION means the investigation, clean-up, removal, abatement, disposal, control, containment, encapsulation or other treatment of any hazardous material and includes the monitoring and risk management of any hazardous material. REPORTING GROUP means each of the obligors that are companies, and their subsidiaries on a consolidated basis jointly and severally, in their own capacities and as trustee of any trust. RESTRICTED PAYMENT means: (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of a company's share capital; or (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a person's share capital or any other payment or distribution made in respect of the company's share capital, either directly or indirectly; or (c) any payment or repayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission or with respect to, any subordinated debt of the company; or (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire the company's share capital; or (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of shares in the company's share capital or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; or (f) any payment, repayment, loan, contribution, or other disposition or transfer of funds or other property to any affiliate or related entity of the company; or (g) management or consultancy fees paid or payable to a related entity or affiliate of the company. SECURITY INTEREST means any security for the payment of money or performance of obligations including a mortgage, charge, lien, pledge, trust or power. Security interest also includes a guarantee. STANDBY LETTER OF CREDIT means each letter of credit which is not a trade letter of credit or a term letter of credit. SUBSIDIARY of an entity means another entity which is a subsidiary of the first within the meaning of part 1.2 division 6 of the Corporations Act 2001 (Cwlth) or is a subsidiary of or otherwise controlled by the first within the meaning of any approved accounting standard. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 50 of 79 Pages TANGIBLE NET WORTH means the book value of the assets of the reporting group less: (a) goodwill, capitalised organisational expenses, capitalised research and development expenses, capitalised marketing costs, trademarks, trade names, copyrights, patents, patent applications, licences and rights in any of them and other intangible items; (b) unamortised debt discount and expense; (c) prepaid expenses; (d) any write up in the book value of any asset resulting from a revaluation; (e) any reserves applicable to those assets; and (f) the liabilities of the reporting group (including accrued and deferred income taxes but excluding all amounts owing to Daisytek Inc. subordinated under the subordination agreement referred to in Item 18 of Schedule 1), all as determined in accordance with GAAP. TAXES means taxes, levies, imposts, charges and duties imposed by any authority (including without limitation GST, stamp duty and any other transaction duties) (together with any related interest, penalties, fines and expenses in connection with them), except if imposed on the overall net income of GE Capital. TERM LETTER OF CREDIT means any letter of credit issued which is payable on a deferred payment basis or at a fixed and determinable future date. TRADE LETTER OF CREDIT means any letter of credit issued in connection with the purchase by the company of finished goods and/or capital equipment approved in advance by GE Capital. TRANSACTION DOCUMENTS means: (a) this agreement; (b) each of the documents set out in Schedule 1 or required to be provided as set out in Schedule 1; (c) each document required to be provided by or on behalf of an obligor under this agreement; (d) each document which the company acknowledges in writing to be a transaction document; (e) each document including or containing obligations of any of the obligors to GE Capital; and (f) each other document connected with any of the documents set out in sub-clauses (a) to (e). UNUSED FACILITY FEE means the fee described in clause 7.1(b) and the Details. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 51 of 79 Pages WORKING CAPITAL means current assets less current liabilities as those terms are defined in schedule 5 to the regulations to the Corporations Act 2001 (Cwlth). REFERENCES TO CERTAIN GENERAL TERMS 23.2 Unless the contrary intention appears, a reference in a transaction document to: (a) a group of persons is a reference to any two or more of them collectively and to each of them individually; (b) an agreement, representation or warranty in favour of two or more persons is for the benefit of them collectively and each of them individually; (c) an agreement, representation or warranty by two or more persons binds them collectively and each of them individually; (d) anything (including an amount) is a reference to the whole and each part of it; (e) a document (including this agreement) includes any variation or replacement of it; (f) any legislation includes any consolidation, amendment, re-enactment or replacement of it and any regulations and other instruments made under it; (g) an accounting term is a reference to that term as it is used in accounting standards under the Corporations Act 2001 (Cwlth), or, if not inconsistent with those standards, in accounting principles and practices generally accepted in Australia; (h) Australian dollars or $ is a reference to the lawful currency of Australia; (i) a time of day is a reference to Sydney time; (j) a week is a reference to the period of seven consecutive days commencing on each Sunday; (k) the word "person" includes an individual, a firm, a body corporate, an unincorporated association and an authority; (l) a particular person includes a reference to the person's executors, administrators, successors, substitutes (including persons taking by novation) and assigns; (m) the word "payable" in relation to an amount, means an amount which is currently payable or will or may be payable in the future; and (n) the words "including", "for example" or "such as" when introducing an example, do not limit the meaning of the words to which the example relates to that example or examples of a similar kind. NUMBER 23.3 The singular includes the plural and vice versa. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 52 of 79 Pages HEADINGS 23.4 Headings are for convenience only and do not affect the interpretation of this agreement. Page 53 of 79 Pages SCHEDULE 1 - CONDITIONS PRECEDENT (CLAUSE 2.4)
ITEM FORM RESPONSIBLE - --------------------------------------------------------------- -------------------- ---------------------------------- 1 Extract of minutes of a meeting of each obligor's Certified Copy Format provided by GE Capital. board of directors which evidences the resolutions: Executed copy from company (a) authorising the signing and delivery of transaction documents to which the entity is a party and the observance of obligations under those documents; and (b) appointing authorised officers of the entity; and (c) which acknowledge that the transaction documents (to which the entity is a party) will benefit that entity; and (d) authorising the execution of a power of attorney to enable execution of transaction documents to which it is a party by the attorney. 2 Each document which evidences any other necessary Certified copy Company corporate or other action of each obligor in connection with the transaction documents to which it is party. 3 Certificate of specimen signatures of: Original Format supplied by GE Capital (a) each authorised officer of the obligor; and Executed copy from obligor (b) each other person who is authorised to sign a transaction document for the obligor. 4 A$ Facility Agreement fully signed by each obligor. Original Company 5 Fixed and floating charge over all present and Original Company future assets and undertaking of the obligors fully signed and in registrable form.
- -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 54 of 79 Pages
ITEM FORM RESPONSIBLE - --------------------------------------------------------------- -------------------- ---------------------------------- 6 Fully signed Corporations Act 2001 (Cwlth) Form Original Company 309 from each of the obligors. 7 A statutory declaration from a director or Original Company secretary of each obligor providing the charge setting out the value and location of the assets of the obligor. 8 Evidence of payment of stamp duty or a cheque in Original Company favour of GE Capital's solicitors for the amount of the estimated duty. 9 Initial borrowing base certificate completed and Original Format from GE Capital. certified. Completed by company. 10 A letter authorising the obligor's accountant to Original Company communicate with GE Capital in accordance with clause 13.6. 11 Financial statements for the year ended 31 March Original Company 2002 12 Initial disclosure statement completed and Original Format from GE Capital. certified by each obligor. Completed by Company. 13 Initial drawdown notice completed and certified. Original Format from GE Capital. Completed by company. 14 Certified copy of all trust deeds to which any Certified copy Company obligor is a party including all variations to the trust deeds. 15 All documents required by GE Capital to satisfy GE Original Company Capital that the trust deeds to which any obligor is a party will not have a material adverse effect on any transaction document including acknowledgements by trustees and beneficiaries. 16 A legal opinion from GE Capital's solicitor on Original GE Capital terms acceptable to GE Capital. 17 18 Acknowledgments or agreements fully executed by Original Company all landlords, mortgagees, and occupiers of properties at which eligible inventory is located, or other persons in possession of eligible inventory.
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ITEM FORM RESPONSIBLE - --------------------------------------------------------------- -------------------- ---------------------------------- 19 Subordination agreement fully executed by all Original Company parties, subordinating the repayment of all indebtedness of the company to its related entities and affiliates so long as the company has any liability to GE Capital on terms acceptable to GE Capital. 20 Power of attorney for execution of transaction Certified copy Company documents. 21 Evidence of insurance on terms and in amounts Copy Company approved by GE Capital and noting GE Capital's security interest. 22 Evidence that the excess availability of the Copy Company reporting group on the closing date is at least A$2,250,000 without increase to current liabilities or deterioration in working capital. 23 Authority to complete documents and comply with Original Company requisitions, fully signed by each of the obligor. 24 Blocked account agreement fully signed, in respect Original Company of all blocked accounts operated by the reporting group. 25 Release of all security interests over assets of Original Company the obligors other than those approved by GE Capital. 26 Evidence of corporate structure, capital Copies Company structure, debt instruments and material contracts, on terms acceptable to GE Capital. 27 Evidence of all waivers and consents required by Copies Company government or semi government authorities or third parties allowing the obligors to enter into the transaction documents on terms acceptable to GE Capital. 28 Statutory declaration as to corporate matters Original Company disclosing matters required by GE Capital 29 A US legal opinion provided by the internal legal Original Company counsel of Daisytek, Inc. on terms acceptable to GE Capital.
- -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 56 of 79 Pages SCHEDULE 2 - INITIAL DRAWDOWN NOTICE (CLAUSE 2.2) To: GE Capital Finance Pty Limited Level 13, 255 George Street Sydney NSW 2000 Attention: The Account Manager - Daisytek Australia Pty Limited [DATE] DRAWDOWN NOTICE - A$ FACILITY AGREEMENT BETWEEN DAISYTEK AUSTRALIA PTY LIMITED, DAISYTEK AUSTRALIA (QLD) PTY LIMITED AND GE CAPITAL FINANCE PTY LIMITED DATED [ ] ("FACILITY AGREEMENT") Under clause 2.2 ("Requesting a drawing") of the facility agreement, we give notice that the company wants to borrow under the facility as follows: (a) the requested drawdown date is ; (b) the amount of the proposed drawing is A$ ; (c) the proposed drawing is to be paid to: Account number: Account name: Bank: Branch: BSB: (d) the company making the proposed drawing is ________. _________________ represents and warrants that the representations and warranties in clause 12 ("Representations and warranties") of the facility agreement are true complete and correct and not misleading on the date of this notice and that each will be true complete and correct and not misleading on the drawdown date and that I am an authorised officer of the company. The Interpretation clause of the facility agreement applies to this notice as if it was fully set out in this notice. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 57 of 79 Pages ------------------------------------------ Signed ------------------------------------------ Printed Name being an authorised officer of ------------------------------------------ - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 58 of 79 Pages SCHEDULE 3 - BORROWING BASE CERTIFICATE
GE CAPITAL Commercial Finance - ------------------------------------------------------------------------------------------------------------------------- BORROWING BASE CERTIFICATE ------------------------------------ Borrower Name: DAISYTEK AUSTRALIA PTY LTD PREVIOUSLY FAXED: Y or N - ------------------------------------------------------------------------------------------------------------------------- Date: CERTIFICATE NUMBER: - ------------------------------------------------------------------------------------------------------------------------- TOTAL A$ 1. Total Accounts Receivables as of : $ ------------------------ 2. Ineligible Accounts Receivable as of: (a) Accounts over 90 days past invoice date $ ------------------------ (b) Credits over 90 days past invoice date $ ------------------------ (c) Cross Age (>50% past invoice date) $ ------------------------ (d) Inter company or related party Accounts (<90 days invoice date) $ ------------------------ (e) Contra Accounts(<90 days past invoice date) $ ------------------------ (f) Foreign Accounts Other than Goldata NV trading as Goldata Computer Supplies (up to $3.0 million) or relating to a debtor outside Australia, New Zealand, Canada, the United Kingdom $ and the United States of America (Not Under L/C or Credit Insurance) (<90 days past invoice date) ------------------------ (g) Rebates and Discounts (<90 days past invoice date) $ ------------------------ (h) Non Trade Debtors (<90 days past invoice date) $ ------------------------ (i) Cash & Employee Accounts (< 90 days past invoice date) $ ------------------------ (j) Other: _________ $ ------------------------ 3. Total ineligible Accounts Receivable $ ------------------------ 4. Total Eligible Accounts Receivable (line 1 less line 3) $ ------------------------ 5. Account Receivable Advance Rate 85% ------------------------ 6. Available Accounts Receivable (line 4 times line 5) $ ------------------------ 7. Total Inventories As Per Perpetual as of: 8. Ineligible Inventories: ------------------------ (a) Stock In Transit $ ------------------------ (b) Book To Physical Variance Reserve ------------------------ (c) At Locations of Less Than $100,000 $ ------------------------ (d) Held At Outside Storage (For Which Bailee Waivers Are Not Held) $ ------------------------ (e) Packaging/Non Stock Items $ ------------------------ (f) Stock Subject to Retention of Title $ ------------------------
- -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 59 of 79 Pages (g) Excess Inventory Calculation $ ------------------------ (h) Other:___________ $ ------------------------ 9. Total ineligible Inventories $ ------------------------ 10. Total Eligible Inventories (line 7 less line 9) $ ------------------------ 11. Inventory Advance Rate 50% ------------------------ 12. Available Inventory (line 10 times line 11) $ ------------------------ 13. Less Employee Entitlements $ ------------------------ 14. Net Inventory Availability (line 12 less line 13) $ ------------------------ 15. Total Revolver Availability (line 6 plus line 14) $ ------------------------ 16. Current Revolving Loan Balance $ ------------------------ 17. Reserve for Bank Guarantees/Letters of Credit/FX $ ------------------------ 18. Reserve - Other $ ------------------------ 19. Reserve for Rent (3 Months Per Location) $ ------------------------ 20. Reserve for Stamp Duty $ 21. Excess Availability (line 15 less lines 16, 17, 18,19,20) ------------------------ $ ========================
I certify that the above information is true and correct and not misleading and that the eligible accounts in line 4 and eligible inventory in line 10 include only eligible accounts and eligible inventory permissible under the A$ Facility Agreement dated ____________________ between GE Capital Finance Pty Limited and Daisytek Australia Pty Ltd. PREPARED BY: SIGNATURE: ------------------- --------------------- (Print Name Please) TITLE: ------------------------- - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 60 of 79 Pages SCHEDULE 4 - EXCLUSIONARY CRITERIA 1. In respect of eligible accounts, the exclusionary criteria excludes any account: (a) which does not arise from the sale of goods or the performance of services by the company in the ordinary course of its business; (b) if the company's right to receive payment is not absolute or is contingent; (c) if the company is not able to bring suit or otherwise enforce its remedies against the account debtor through judicial process; (d) to the extent any defence, counterclaim, set-off or dispute is asserted as to the account; (e) if the account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the account debtor's obligation to pay that invoice is subject to the company's completion of further performance under that contract; (f) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the account for goods sold to or services rendered and accepted by the applicable account debtor; (g) with respect to which an invoice, acceptable to GE Capital in form and substance, has not been sent to the applicable account debtor; (h) that is not owned by the company; (i) that is subject to any right, claim, security interest or other interest of any other person other than a retention of title interest or claim, other than in favour of or GE Capital; (j) that arises from a sale to any officer, other employee, related entity or affiliate of the obligor, or to any entity which has any common officer with the obligor; (k) that is not paid within 90 days following its invoice date; (l) if the relevant account debtor is or becomes insolvent: (m) if GE Capital's interest in it is not a first priority perfected security interest; (n) as to which any of the representations or warranties pertaining to accounts set forth in any transaction document is untrue; (o) which is payable in any currency other than Australian Dollars; (p) that is the obligation of a debtor outside Australia, New Zealand, Canada, the United Kingdom and the United States of America, unless the account is supported by a letter of credit in which GE Capital has a first priority security interest or credit insurance acceptable to GE Capital except for debts owing to the company by Goldata NV trading as Goldata Computer Supplies (Belgium) who - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 61 of 79 Pages shall be eligible for debts up to an amount not exceeding A$3,000,000 or such other amounts as advised from time to time in writing by GE Capital to the company; (q) that is the obligation of a debtor to whom the company is or may become liable for goods sold or services rendered by the debtor to the company, to the extent of the company's liability to the debtor; (r) that arises with respect to goods which are delivered on a cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the debtor may be conditional; (s) payable by a debtor where the total unpaid accounts of that debtor exceed 25%, except where the debtor is Officeworks Superstores Pty Ltd (a subsidiary of Coles Myer Limited) in which case its total unpaid accounts exceeding 30% (or such other percentages advised to the company in writing by GE Capital from time to time), of the aggregate of all accounts payable to the company at that time, to the extent of that excess; (t) that are accounts of a debtor if 50% or more of the accounts owing from that debtor remain unpaid within the periods specified in (k) for the debtor; (u) that arises from any bill-and-hold or other sale of goods which remain in the company's possession or under the company's control; (v) to the extent that the account exceeds any credit limit established by GE Capital in GE Capital's sole discretion; (w) that represents interest payments or service charges owing to the company; or (x) which is unacceptable to GE Capital in its reasonable credit judgment. 2. In respect of eligible inventory, the exclusionary criteria excludes any item: (y) subject to any retention of title claim (to the extent of all amounts owing from time to time to any supplier having or claiming a retention of title claim) or encumbrance or which is covered by a negotiable document of title other than any right or claim of GE Capital; (z) not located on premises owned or operated by the company and identified in the disclosure statement; (aa) not located on premises where an agreement, acknowledgment or waiver in a form acceptable to GE Capital has been provided to GE Capital by the owner, mortgagee and occupier (if it is not an obligor) of the premises where the inventory is located; (bb) located on premises where the aggregate value of the items on those premises is less than A$100,000; (cc) in transit; - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 62 of 79 Pages (dd) which is not covered by insurance acceptable to GE Capital; (ee) in GE Capital's good faith credit judgement which is obsolete, unsaleable, shop worn, damaged or unfit for further processing or is not of good and merchantable quality or free from defects; (ff) which consists of slow moving items, discontinued items, returned items, or used items held for re-sale or finished goods on hand for a period in excess of 12 months where the current inventory holdings are greater than the sales levels for that item for the previous 12 months; (gg) which does not meet all standards imposed by any government authority, including relating to its production, acquisition or importation; (hh) which is held by the company on consignment or placed by the company on consignment; (ii) subject to any licensing, patent, royalty, trademark, trade name or copyright agreement (excluding agreements made between the company and Hewlett Packard, Avery Denison, Epson, Lexmark, Kyocera, Panasonic or any other suppliers as advised from time to time in writing by GE Capital to the company) or requires the consent of any person for the completion, manufacture or sale; (jj) which is unacceptable to GE Capital in its reasonable credit judgment; (kk) which is covered by a negotiable document of title, unless the document and evidence of acceptable insurance covering the inventory has been delivered to GE Capital; (ll) which does not consist of finished goods; (mm) which is held for rental or lease by or on behalf of the company; (nn) which in any way fails to meet or violates any warranty, representation or covenant contained in this agreement or any other transaction document. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 63 of 79 Pages SCHEDULE 5 - LETTERS OF CREDIT (CLAUSE 2.11) REQUESTING A LETTER OF CREDIT s5.1 If the company wants a letter of credit to be issued, the company must have excess availability in excess of the face value amount of the letter of credit requested. The company agrees to give a letter of credit application to GE Capital no later than 2 business days before the proposed issuance date. The letter of credit application must contain: (oo) details of the beneficiary of the requested letter of credit; and (pp) the proposed issuance date of the requested letter of credit (which must be no later than 2 business days after the date of the letter of credit application); and (qq) the proposed expiry date (if any) of the requested letter of credit which must be no later than one year after the issuance date without GE Capital's written consent, and must not be any later than the maturity date; and (rr) the face value amount in Australian dollars of the requested letter of credit (which must be an amount which when added to the face value amount of each current LC must not exceed the letter of credit facility limit and must not exceed the amount of any excess availability calculated at that time); and (ss) any other information GE Capital may reasonably require from time to time. GE Capital is not obliged to incur LC obligations. LETTER OF CREDIT FACILITY LIMIT s5.2 The total amount of the letter of credit liability which is payable or to become payable in respect of all letters of credit issued under this agreement must not exceed the letter of credit facility limit. EFFECT OF A LETTER OF CREDIT APPLICATION s5.3 A letter of credit application is effective when GE Capital actually receives it in legible form. An effective letter of credit application is irrevocable unless the company advises GE Capital in writing that the company no longer requires a letter of credit and at that time GE Capital has not taken any steps to make the letter of credit available which GE Capital cannot rescind or reverse without GE Capital incurring a loss. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 64 of 79 Pages CONDITIONS PRECEDENT TO ISSUE OF AN LC s5.4 The company must ensure to GE Capital's reasonable satisfaction that all requirements of the letter of credit regarding a request for payment under the letter of credit are satisfactory to GE Capital and the issuing bank. PAYMENT OF AN LC s5.5 If a letter of credit is called or if any letter of credit liability arises or is paid by GE Capital, then the amount called, payable or paid must be immediately repaid to GE Capital. GE Capital may debit the company's loan account with the amount required to be paid. The debit is deemed to be a current drawing under the facility of the amount called payable or paid. The company acknowledges its indebtedness to GE Capital for the amount of that current drawing. s5.6 If any letter of credit is issued in a currency other than Australian dollars, GE Capital may convert the amount of the letter of credit liability into Australian dollars (even though it may be necessary to convert through a third currency to do so) for the purpose of calculating the amount of the letter of credit liability on the day and at the rates it considers appropriate and may add its usual costs in connection to the conversion to Australian dollars. s5.7 Without prejudice to any other power of GE Capital, upon or at any time after the occurrence of an event of default, GE Capital may require the company by notice to pay to GE Capital cash cover equal to 105% of the face value amount of each current LC. Upon receiving the notice the company must immediately pay the cash cover specified in the notice to GE Capital in immediately available funds and in Australian dollars. The additional 5% of the face value amount of each current LC ("Buffer") is to be applied by GE Capital against any costs relating to foreign exchange conversion. To the extent that such costs are less than the amount representing the Buffer, GE Capital shall repay the balance of the cash cover to the company. s5.8 If any LC obligations are subsisting on the maturity date, the company must either immediately: (tt) cause each current LC to be returned to the issuer and cancelled; or (uu) pay to GE Capital, in immediately available funds, an amount equal to 105% of the aggregate amount of the face value amount of each current LC to be held by GE Capital as cash collateral in an account of GE Capital; or (vv) procure the delivery to GE Capital of a bank guarantee in form and substance and in currencies approved by GE Capital in an amount equal to 105% of the aggregate amount of the face value amount of current LCs. s5.9 Without prejudice to any other power of GE Capital, if any LC obligations are subsisting on the maturity date or on the occurrence of any event of default, GE Capital may pay the beneficiary all amounts payable or to become payable in the future under the letter of credit. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 65 of 79 Pages SCHEDULE 6 - DISCLOSURES 1 CLAUSE 12.1 j) - LITIGATION MATTERS 2 CLAUSE 12.1 k) - TRUSTEE MATTERS 3 CLAUSE 12.1 l) - REAL PROPERTY 4 CLAUSE 12.1 n) - EMPLOYMENT MATTERS 5 CLAUSE 12.1 o) - JOINT VENTURES, SUBSIDIARIES AND AFFILIATES 6 CLAUSE 12.1 p) - SHARE CAPITAL SHAREHOLDER SHARES HELD FULLY PAID 7 CLAUSE 12.1 q) - INDEBTEDNESS 8 CLAUSE 12.1 r) - TAXES 9 CLAUSE 12.1 t) - INTELLECTUAL PROPERTY 10 CLAUSE 12.1 v) - ENVIRONMENTAL MATTERS 10 CLAUSE 12.1 w) - INSURANCE POLICIES 11 CLAUSE 12.1 x) - BANK ACCOUNTS 12 CLAUSE 12.1 y) - AGREEMENTS AND OTHER DOCUMENTS 13 CLAUSE 13.1 j) - BUSINESS NAMES - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 66 of 79 Pages SCHEDULE 7 - GUARANTEE AND INDEMNITY (CLAUSE 18.1) GUARANTEE s7.1 The guarantor unconditionally and irrevocably guarantees payment to GE Capital of the guaranteed money and guarantees to GE Capital the due performance by the company of the company's obligations to GE Capital under the transaction documents as a principal obligation. If the company does not pay the guaranteed money on time and in accordance with the transaction documents, then the guarantor agrees to pay the guaranteed money to GE Capital on demand. A demand may be made at any time and from time to time and whether or not GE Capital has made demand on the company. NATURE OF GUARANTEE s7.2 This guarantee is a continuing obligation and extends to all of the guaranteed money. INDEMNITY s7.3 The guarantor unconditionally and irrevocably indemnifies GE Capital as a principal obligation against any liability or loss (including consequential or economic loss) arising, and any costs GE Capital suffers or incurs: (ww) if an obligor does not, is not obliged to, or is unable to, pay the guaranteed money in accordance with the transaction documents; or (xx) if the guarantor is not obliged to pay GE Capital an amount under clause s7.1 ("Guarantee"); or (yy) if GE Capital is obliged, or agrees, to pay an amount to a trustee in bankruptcy or liquidator (of an insolvent person) in connection with a payment by an obligor (for example, GE Capital may have to, or may agree to, pay interest on the amount); or (zz) if the guarantor defaults under this guarantee; or (aaa) in connection with any person exercising, or not exercising, rights under this guarantee; or (bbb) if any obligor defaults under this agreement or any transaction document; or (ccc) if the guaranteed money is not recoverable or recovered by GE Capital from any obligor. REINSTATEMENT OF RIGHTS s7.4 A trustee in bankruptcy, liquidator or controller or any other person may ask GE Capital to refund a payment it has received or otherwise repay money it has received in connection with this guarantee the guaranteed money or the - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 67 of 79 Pages transactions documents. To the extent GE Capital is obliged to, or agrees to, make a refund or repayment it may treat the payment as if it had not been made. It is then entitled to its rights against the guarantor under this guarantee as if the payment had never been made. This applies despite anything in this guarantee. RIGHTS OF GE CAPITAL ARE PROTECTED s7.5 Rights given to GE Capital under this guarantee (and the guarantor's liabilities under it) are not affected by any act or omission by GE Capital or by anything else that might otherwise affect them under law or otherwise, including: (ddd) the fact that it varies or replaces any arrangement under which the guaranteed money is expressed to be owing, such as by increasing the facility limit or extending the term; or (eee) the fact that it releases the company or an obligor or gives it a concession, such as more time to pay or compromises any of the guaranteed money; or (fff) the fact that the company opens an account with it; or (ggg) the fact it releases, loses the benefit of or does not obtain any transaction document; or (hhh) the fact that it does not register any transaction document which could be registered; or (iii) the fact that it releases any person who guarantees any of the company's obligations; or (jjj) the fact that a person becomes a guarantor after the date of this agreement; or (kkk) the fact that the obligations of any person who guarantees any of the company's obligations may be void or may not be enforceable; or (lll) the fact that any person who was intended to guarantee any of the company's obligations does not do so or does not do so effectively; or (mmm) the death, mental or physical disability or insolvency of any person including an obligor; or (nnn) changes in the membership, name or business of any person; or (ooo) any neglect, omission, default or delay of GE Capital. NO MERGER s7.6 This guarantee does not merge with or adversely affect, and is not adversely affected by, any of the following: (ppp) any other guarantee, indemnity, or security interest, or other right or remedy to which GE Capital is entitled; or - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 68 of 79 Pages (qqq) a judgment which GE Capital obtains against the guarantor in connection with the guaranteed money or any other amount payable under this guarantee. GE Capital may still exercise rights under this guarantee as well as under the judgment, other guarantee, indemnity, security interest, or other right or remedy. EXTENT OF GUARANTOR'S OBLIGATIONS s7.7 If more than one person is named as "guarantor" each of them is liable for all the obligations under this guarantee both separately on its own and jointly with any one or more other persons named as "guarantor". This guarantee binds each person who signs as "guarantor" even if another person who was intended to sign does not sign it or is not bound by it. GUARANTOR'S RIGHTS ARE SUSPENDED s.7.8 As long as any of the guaranteed money remains unpaid, the guarantor may not, without GE Capital's written consent: (rrr) reduce its liability under this guarantee by claiming that it or any obligor or any other person has a right of set-off subrogation or counterclaim against GE Capital; or (sss) exercise any legal right to claim to be entitled to the benefit of another guarantee, indemnity, or security interest given in connection with the guaranteed money or any other amount payable under this guarantee (for example, the guarantor may not try to enforce any security interest GE Capital has taken to ensure repayment of the guaranteed money); or (ttt) claim an amount from the company, or another guarantor of the company's obligations, under a right of indemnity or any other claim, or enforce any right against either of them; or (uuu) claim an amount in the insolvency of any obligor; or (vvv) directly or indirectly withdraw or seek to withdraw any money loaned by the guarantor to the company or otherwise owing to the guarantor by the company or accept or receive any property or payment of the company or take any encumbrance or security interest from the company; or (www) transfer, assign or otherwise dispose of any claim the guarantor may have against the company other than by way of complete release or make or cause any other person to claim, demand or bring an action against the company directly or indirectly. Any money, property or other benefit received by the guarantor from the company in contravention of this clause is received on the basis that it is held on trust for GE Capital and will be paid to GE Capital on receipt by the guarantor. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 69 of 79 Pages CROSS GUARANTEE s7.9 This guarantee takes effect as a cross-guarantee and cross-indemnity when one or more of the company are the same as one or more of the guarantor. In those circumstances it is a separate guarantee and indemnity in relation to each obligor as if that person were: (xxx) the only person included in the definition of "company"; and (yyy) excluded from the definition of "guarantor". - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 70 of 79 Pages SCHEDULE 8A - MASTER AGREEMENT FOR DOCUMENTARY LETTERS OF CREDIT TERMS AND CONDITIONS The company ("APPLICANT") will require, from time to time, Documentary Letters of Credit. GE Capital Finance Pty Limited ("GE CAPITAL") may, upon the Applicant's application therefor, and to the extent such application is approved in accordance with the Facility Agreement by GE Capital, arrange for the issuance of credits through GE Capital Trade Services Ltd (the "BANK"), a Hong Kong corporation and wholly owned by General Electric Capital Corporation or through another financial institution satisfactory to GE Capital. Each Documentary Letter of Credit issued through the Bank (hereinafter each such Documentary Letter of Credit will be referred to as the "Credit") will be governed by and interpreted in accordance with the following terms and conditions. Capitalized terms shall have the meanings accorded them in Section 9, Definitions, below. 1. PAYMENT TERMS. Applicant agrees to pay to GE Capital on demand in the manner provided for by the Facility Agreement in the currency stipulated in the Facility Agreement, in immediately available funds: (i) each amount drawn under the Credit in Dollars or in the event that drafts under the Credit are payable in a currency other than Dollars, the Dollar Equivalent of each amount so drawn; (ii) interest on each amount (or the Dollar Equivalent thereof) so drawn for each day from the date of payment of the relevant draft to and including the date of payment in full of such amount by Applicant to GE Capital, at a rate per annum equal to the rate per annum on Annex A hereto, or, if none is specified, in accordance with the Facility Agreement; and (iii) any and all commissions and charges of, and any and all costs and expenses incurred by, GE Capital, the Bank and each of their correspondents in relation to the Credit and all drafts thereunder. 2. SECURITY INTEREST. Under the Transaction Documents the Applicant has granted to GE Capital security over all of its assets and undertakings. The rights under the Transaction Documents do not limit any other rights GE Capital or the Bank may have at law, including the interest in and unqualified right to the possession and disposal of all property shipped under or in connection with the Credit, and also in and to all shipping documents, documents of title or drafts drawn under the Credit. 3. ADMINISTRATION OF CREDIT. (a) Applicant will promptly examine the copy of the Credit (and any amendments thereof) sent to Applicant, as well as all other instruments and documents delivered to Applicant from time to time in connection with the Credit, and, in the event Applicant has any claim of non-compliance with the instructions or of any discrepancy or other irregularity, Applicant will immediately notify GE Capital thereof in writing, and Applicant will conclusively be deemed to have waived any such claim against GE Capital, Bank and their correspondents unless such immediate notice is given as aforesaid. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 71 of 79 Pages (b) Neither Bank, GE Capital nor any of their correspondents shall be responsible for, and neither Bank's and GE Capital's powers and rights hereunder nor Applicant's Obligations shall be affected by: (i) any act or omission pursuant to Applicant's instructions; (ii) any other act or omission of Bank, GE Capital or their correspondents or their respective agents or employees other than any such arising from its or their gross negligence or wilful misconduct; (iii) the validity, accuracy or genuineness of drafts, documents or required statements, even if such drafts, documents or statements should in fact prove to be in any or all respects invalid, inaccurate, fraudulent or forged (and notwithstanding that Applicant shall have notified Bank or GE Capital thereof); (iv) failure of any draft to bear any reference or adequate reference to the Credit; (v) errors, omissions, interruptions or delays in transmission of delivery of any messages however sent and whether or not in code or otherwise; (vi) any act, default, omission, insolvency or failure in business of any other person (including any correspondent) or any consequences arising from causes beyond Bank's or GE Capital's control; or (vii) any acts or omissions of any Beneficiary of the Credit or transferee of the Credit, if transferable. Without limiting the generality of the foregoing, the Bank may (i) act in reliance on any oral, telephone, telegraphic, electronic, facsimile or written request, notice, or instruction believed in good faith to be from or have been authorized by the Applicant, (ii) receive, accept or pay as complying with the terms of the Credit any Drafts or other documents, otherwise in order, which are signed by or issued to any person or entity acting as the representative of, or in the place of, the party in whose name the Credit provides that any Drafts or other documents should be drawn or issued and (iii) waive its stipulation that the bank nominated in the Credit shall accept or pay the Drafts, and the Bank may then accept presentations of Drafts and documents for payment directly. (c) GE Capital may appoint any of its other related bodies corporate as "Bank" at any time and any Bank may assign or otherwise deal with all or any portion of its rights under this Agreement or the Credit, (including without limitation any reimbursement obligation owing to it) in any way it sees fit including to any subsidiary or related bodies corporate of General Electric Capital Corporation, in each case without prior notice to Applicant. GE shall notify the Applicant of any such appointments. 4. EXTENSIONS, INCREASES AND MODIFICATIONS OF CREDIT. Each Applicant agrees that GE Capital, acting through the Bank may at any time and from time to time, in its discretion, by agreement with one or more other Applicants: (a) further finance or refinance any transaction under the Credit; (b) renew, extend or change the time of payment or the manner, place or terms of payment of any of the Obligations; (c) settle or compromise any of the Obligations or subordinate the payment thereof to the payment of any other debts of or claims against any Applicant which may at the time be due or owing to the Bank; or (d) release any Applicant or any Guarantor or any Collateral, or modify the terms under which such Collateral is held, or forego any right of setoff, or modify or amend in any way this Agreement or the Credit, or give any waiver of consent under this Agreement. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 72 of 79 Pages 5. RESERVE REQUIREMENTS AND SIMILAR COSTS. If Bank is now or hereafter becomes subject to any reserve, special deposit or similar requirement against assets of, deposits with, or for the account of, or credit extended by, Bank, or any other condition is imposed upon Bank which imposes a cost upon Bank, and the result, in the determination of Bank is to increase the cost to Bank of maintaining a Credit or paying or funding the payment of any draft thereunder, or to reduce the amount of any sum received or receivable, directly, by Bank hereunder, Applicant will pay to Bank upon demand such amounts required to compensate Bank for such increased cost or reduction. In making the determinations contemplated hereunder, Bank may make such estimates, assumptions, allocations and the like which Bank in good faith determines to be appropriate, but Bank's selection thereof, and Bank's determinations based thereon, shall be final and binding and conclusive upon Applicant absent manifest error. 6. POSSESSION OF PROPERTY BY APPLICANT. If the Applicant obtains possession of goods or other property, if any, covered by the Credit, prior to the Bank's receipt and review of documents, then all discrepancies and other irregularities of said documents shall be deemed waived by the Applicant, and the Bank is authorized and directed to pay any Drafts drawn or purporting to be drawn upon the Credit. 7. PARTIAL SHIPMENTS. (a) Except as otherwise expressly stated in the Credit (i) partial shipments may be made under the Credit, and the Bank may honour the relative Drafts without inquiry regardless of any apparent disproportion between the quantity shipped and the amount of the relative Draft and the total amount of the Credit and the total quantity to be shipped under the Credit, and (ii) if the Credit specifies shipments in instalments within stated periods and the shipper fails to ship in any designated period, shipments of subsequent instalments may nevertheless be made in their respective designated periods and the Bank may honour the relative Drafts. 8. EVENTS OF DEFAULT, REMEDIES; PRE-FUNDING. (a) If any Event of Default shall have occurred and be continuing, GE Capital may declare all or any part of the Obligations (including any such which may be contingent and not matured) to be immediately due and payable. GE Capital may exercise any other rights it may have under the Transaction Documents if an Event of Default occurs. (b) Without limiting the generality of the foregoing, Applicant agrees that if: (a) any Event of Default or event which with notice or lapse of time would become an Event of Default shall have occurred; (b) GE Capital at any time and for any reason reasonably deems itself or Bank to be insecure or the risk of non-payment or non-performance of any of the Obligations to have increased; or (c) in the event that the Credit is denominated in a currency other than Dollars, GE Capital determines that such currency is unavailable or that the transactions contemplated by this Agreement are unlawful or contrary to any regulations to which GE Capital or Bank may be subject or that due to currency fluctuations the Dollar Equivalent of the amount of a Credit exceeds the amount of Dollars that Bank in its sole judgment expected to be its maximum exposure under a Credit, then Applicant will upon - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 73 of 79 Pages demand pay to GE Capital an amount equal to the undisbursed portion, if any, of the Credits, and such amount shall be held as additional Collateral for the payment of all Obligations, and after the expiration hereof, to the extent not applied to the Obligations, shall be returned to Applicant. 9. DEFINITIONS. As used herein, the following terms shall have the following meanings: "AGREEMENT" shall mean, collectively, the Application of Documentary Letter of Credit, these terms and conditions, the Joint Signature Agreement, and the Authorization and Agreement of Account Party appended hereto, as the same may be amended, modified, supplemented or restated from time to time. "APPLICANT" shall mean the Company as defined in the Facility Agreement; provided that if two or more persons or entities are named as companies the terms "Applicant" and "Applicants" shall mean each and all of such persons and entities, individually and collectively, except that, if the term "Applicant" is preceded by the word "any" or "each" or a word or words of similar import, such terms shall be deemed to refer to each of such persons or entities, individually. "CREDIT" shall mean a Documentary Letter of Credit issued by Bank upon Applicant's request of GE Capital, as the same may be amended and supplemented from time to time, and any and all renewals, increases, extensions and replacements thereof and therefor. "DOLLAR EQUIVALENT" shall mean: (a) the number of Dollars that is equivalent to an amount of a currency other than Dollars, determined by applying the Bank's selling rate (or the relevant currency against Dollars applicable to cable transfers to the place where and in the currency in which the relevant amount is payable; or (b) in the event that Bank shall not at the time be offering such a rate, the amount of Dollars that Bank, in its sole judgment, specifies as sufficient to reimburse or provide funds to Bank in respect of amounts drawn or drawable under a Credit; in either case as and when determined by Bank. "DOLLARS" shall mean currency stipulated in the Facility Agreement for payment of a Letter of Credit. "DRAFT" means any draft (sight or time), receipt, acceptance, cable or other written demand for payment. "EVENT OF DEFAULT" has the meaning assigned to it in the Facility Agreement. "FACILITY AGREEMENT" means this Facility Agreement between the Applicant and GE Capital. "GUARANTOR" shall mean any maker, drawer, acceptor, guarantor, endorser, surety, accommodation party or other person liable upon or in respect of the Obligations. "OBLIGATIONS" shall mean and include all indebtedness, obligations and liabilities of Applicant to GE Capital or Bank, present or future, due or to become due, absolute or contingent, arising hereunder, in connection with the Credit or any financing or refinancing thereof or under the Facility Agreement. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 74 of 79 Pages "TRANSACTION DOCUMENT has the meaning assigned to it in the Facility Agreement. 10. EXPENSES; INDEMNIFICATION. Applicant agrees to reimburse GE Capital and Bank upon demand for and to indemnify and hold GE Capital and Bank harmless from and against all claims, liabilities, losses, costs and expenses, including attorneys' fees and disbursements, incurred or suffered by GE Capital and/or Bank in connection with the Credit; such claims, liabilities, losses, costs and expenses shall include but not be limited to all such incurred or suffered by GE Capital and/or Bank in connection with (a) GE Capital and/or Bank's exercise of any right or remedy granted to it hereunder, (b) any claim and the prosecution or defence thereof arising out of or in any way connected with this Agreement including, without limitation, as a result of any act or omission by a Beneficiary, (c) the collection or enforcement of the Obligations, and (d) any of the events or circumstances referred to in paragraph 3(b) hereof. 11. LICENSES; INSURANCE. The Applicant shall indemnify GE Capital for any losses, expenses incurred by it as a consequence of the failure by the Beneficiaries of the Credit to procure any necessary import and export or other licenses for import or export or shipping of any goods referred to in or pursuant to the Credit and to comply and to cause the Beneficiaries to comply with all foreign and domestic governmental regulations in regard to the shipment and warehousing of such goods or otherwise relating to or affecting the Credit, including governmental regulations pertaining to transactions involving designated foreign countries or their nationals. The Applicant shall to keep such goods adequately covered by insurance in amounts, with carriers and for such risks as shall be satisfactory to GE Capital, and to cause GE Capital's interest to be endorsed thereon, and to furnish GE Capital on demand with evidence thereof. Should the insurance upon said goods for any reason be unsatisfactory to GE Capital, GE Capital may, at its expense, obtain insurance satisfactory to it. 12. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE. No delay by GE Capital or Bank in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude other or further exercises thereof or the exercise of any other right. No waiver or amendment of any provision of this Agreement shall be enforceable against GE Capital or Bank unless in writing and signed by an officer of GE Capital, and unless it expressly refers to the provision affected, any such waiver shall be limited solely to the specific event waived. All rights granted GE Capital or Bank hereunder shall be cumulative and shall be supplementary of and in addition to those granted or available to GE Capital or Bank under applicable law and nothing herein shall be construed as limiting any such other right. 13. CONTINUING AGREEMENT; TERMINATION. This Agreement shall continue in full force and effect until the expiration of the Credit, but, notwithstanding any such expiration, this Agreement shall continue in full force and effect until all Obligations then outstanding (whether absolute or contingent) shall have been paid in full and all rights of Bank hereunder shall have been satisfied or other arrangements for the securing of such rights satisfactory to Bank shall have been made. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 75 of 79 Pages 14. PERFORMANCE STANDARDS. Notwithstanding any provision to the contrary herein, GE Capital reserves the right to decline (i) any request made by the Applicant for the issuance of a Credit or (ii) any instruction provided by the Customer if, in its discretion, GE Capital determines that the issuance of such Credit or the carrying out of such instruction contravenes GE Capital's customary procedures or policy or any applicable law, rule or regulation. 15. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS. (a) This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of New South Wales, and GE Capital and Bank shall have the rights and remedies of a party under applicable law. (b) Applicant agrees that all actions and proceedings relating directly or indirectly to this Agreement shall be litigated only in courts located within the State of New South Wales or elsewhere as GE Capital may select and that such courts are convenient forums therefor and submits to the personal jurisdiction of such courts. (c) Applicant waives personal service of process upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested, directed to Applicant at its address last specified for notices hereunder, and service so made shall be deemed completed two (2) days after the same shall have been so mailed. (d) Each Credit and this Agreement shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500, or the most recent revision thereof, the terms of which are known to the parties, and the same shall be considered as incorporated herein. 16. NOTICES. Any notice to GE Capital or Bank shall be provided in the manner stipulated in the Facility Agreement. Any notice to Bank should be addressed to GE Capital (on behalf of the Bank). 17. THIRD PARTY BENEFICIARY. Applicant hereby acknowledges that Bank may enforce its rights under this Agreement directly against the Applicant as if Bank were named herein as a party. 18. GENERAL. (a) If this Agreement is executed by two or more Applicants, they shall be jointly and severally liable hereunder. (b) This Agreement shall be binding upon the heirs, executors, administrators, assigns or successors of each of the Applicants and shall inure to the benefit of and be enforceable by GE Capital, its successors, transferees and assigns. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 76 of 79 Pages prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall be deemed to be a "Transaction Document" for all purposes under the Facility Agreement. - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 77 of 79 Pages SIGNING PAGE EXECUTED AS AN AGREEMENT DATE: - -------------------------------------------------------------------------------- SIGNED by as attorney for GE CAPITAL FINANCE PTY LIMITED under power of attorney dated in the presence of: - -------------------------------- -------------------------------- Signature of witness By signing this agreement as attorney the attorney states that the attorney has not received notice of revocation of the power of attorney - -------------------------------- Name of witness (block letters) - -------------------------------- Address of witness - -------------------------------- Occupation of witness - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 78 of 79 Pages SIGNED by as attorney for DAISYTEK AUSTRALIA PTY LIMITED ACN 075 675 795 under power of attorney dated in the presence of: - -------------------------------- -------------------------------- Signature of witness By signing this agreement as attorney the attorney states that the attorney has not received notice of revocation of the power of attorney - -------------------------------- Name of witness (block letters) - -------------------------------- Address of witness - -------------------------------- Occupation of witness SIGNED by - -------------------------------------------------------------------------------- as attorney for DAISYTEK AUSTRALIA (QLD) PTY LIMITED ACN [ ] under power of attorney dated in the presence of: - -------------------------------- -------------------------------- Signature of witness By signing this agreement as attorney the attorney states that the attorney has not received notice of revocation of the power of attorney - -------------------------------- Name of witness (block letters) - -------------------------------- Address of witness - -------------------------------- Occupation of witness - -------------------------------------------------------------------------------- Facility Agreement-Daisytek Australia Pty Limited 12/02/03 Page 79 of 79 Pages EX-10.2 4 d03164exv10w2.txt FACILITIES AGREEMENT EXHIBIT 10.2 - -------------------------------------------------------------------------------- DATED 2003 (1) DAISYTEK - ISA LIMITED (AS BORROWER) - AND - (2) GMAC COMMERCIAL CREDIT LIMITED (GMAC) ---------------------------------------------------- FACILITIES AGREEMENT ---------------------------------------------------- ================================================================================ CONTENTS 1. CONSTRUCTION.........................................................................................1 2. THE FACILITIES......................................................................................11 3. PURPOSE.............................................................................................11 4. INVOICE DISCOUNTING FACILITY........................................................................12 5. SUPPLIER FINANCE FACILITY...........................................................................12 6. TERM LOAN FACILITY..................................................................................12 7. CONDITIONS PRECEDENT/SUBSEQUENT.....................................................................13 8. FEES................................................................................................13 9. REPAYMENT OF PRINCIPAL..............................................................................13 10. DEPOSIT.............................................................................................14 11. INTEREST............................................................................................14 12. PREPAYMENT..........................................................................................14 13. MANDATORY PRE-PAYMENT...............................................................................15 14. DEFAULT INTEREST ON TERM LOAN FACILITY..............................................................15 15. PAYMENTS............................................................................................15 16. CHANGES IN CIRCUMSTANCES AND INCREASED COSTS........................................................16 17. REPRESENTATIONS AND WARRANTIES......................................................................17 18. FINANCIAL INFORMATION/REPORTING.....................................................................19 19. FINANCIAL COVENANTS.................................................................................20 20. NEGATIVE COVENANTS..................................................................................22 21. POSITIVE COVENANTS..................................................................................23 22. EVENTS OF DEFAULT...................................................................................24 23. ASSIGNMENT AND TRANSFER.............................................................................26 24. NOTICES.............................................................................................26 25. WAIVERS.............................................................................................26 26. EXPENSES............................................................................................27 27. CONVERSION OF CURRENCIES/TRANSFER FEES..............................................................27
28. ILLEGALITY..........................................................................................28 29. SET-OFF.............................................................................................28 30. GOVERNING LAW AND JURISDICTION......................................................................28 31. DEMANDS AND NOTIFICATION BINDING....................................................................29 32. EURO................................................................................................29 33. CERTIFICATIONS......................................................................................29 34. COUNTERPARTS........................................................................................29 35. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT.............................................................30 36. JOINT AND SEVERAL LIABILITY.........................................................................30 SCHEDULE 1...................................................................................................31 Pre-Conditions Documents................................................................................31 Part 1 ...............................................................................................31 Part 2 ...............................................................................................33 The Security Documents..................................................................................33 SCHEDULE 2...................................................................................................35 (Form of Compliance Certificate)........................................................................35 SCHEDULE 3...................................................................................................37 Form of Notice of Drawdown..............................................................................37 SCHEDULE 4...................................................................................................38 ANNEX 1......................................................................................................43 Forecast................................................................................................43
THIS FACILITIES AGREEMENT is made on 2003 BETWEEN: (1) DAISYTEK - ISA LIMITED (company number 04226999 whose registered office is at 66/70 Vicar Lane, Bradford, West Yorkshire, BD1 5AG (the "BORROWER"); (2) GMAC COMMERCIAL CREDIT LIMITED (company number 0661920) whose registered office is at Sovereign House, Church Street, Brighton BN1 1SS (GMAC); WHEREAS It is agreed to make available to the Borrower financing facilities upon the terms and subject to the conditions set out in this Agreement. IT IS AGREED as follows: 1. CONSTRUCTION 1.1 DEFINITIONS In this Agreement, unless the context otherwise requires, the following words and expressions will have the meaning set out opposite them: "ACCOUNT REFERENCE DATE" means 31 December 2002 or such other date as GMAC shall agree to; "ACCOUNTS" means the Term Loan Account, the Client Account and all other accounts maintained by GMAC in relation to any of the Facilities; "ACCOUNT BALANCES" means the debit balance on the Accounts from time to time; "ACT" means the Companies Act 1985; "AGREEMENT" means this Agreement as the same may be amended or supplemented in writing by the parties from time to time and shall include the Schedules and the Annex hereto; "APPROVED CURRENCY" means in relation to the Term Loan Facility, Sterling, in relation to the Invoice Discounting Facility, Swedish or Norwegian Kroner, euro or Sterling and/or any other currency which GMAC shall approve in writing and in relation to the Supplier Finance Facility, euro or any other currency which GMAC shall approve in writing; "ARRANGEMENT FEE" means an amount of Pound Sterling130,000 payable pursuant to clause 8.3; "AUDITED ACCOUNTS" means the latest available consolidated audited accounts of the Borrower prepared in accordance with Clause 18.1; - -------------------------------------------------------------------------------- 1 "AVAILABLE INVOICE DISCOUNTING FACILITY" means at any time the lesser of: (i) at any time such sum as shall be produced by deducting the Special Margin from the Outstanding Debts Notified to GMAC under the Invoice Discounting Facility and multiplying the result by the Prepayment Percentage and thereafter deducting therefrom the aggregate of all Outstanding Prepayments, the Term Loan Reserve; and (ii) Pound Sterling27,500,000 minus the Term Loan Reserve; "AVAILABLE SUPPLIER FINANCE FACILITY" means the Supplier Finance Facility less the aggregate unpaid invoices purchased by GMAC under the Supplier Finance Facility; "BORROWINGS" means the following: (i) money borrowed or raised and includes capitalised interest; (ii) any liability under any bond, note, debenture, loan stock, instrument or security; (iii) any liability for acceptance or documentary credits or discounted instruments; (iv) any liability for the acquisition cost of assets or services payable on deferred payment terms where the period of deferment is more than 90 days; (v) any liability under debt purchase, factoring and similar agreements and capital amounts owing under finance leases, hire purchase or conditional sale agreements or arrangements; and (vi) any liability under any guarantee or indemnity (except product warranties); "BUSINESS DAY" means a day (other than a Saturday or Sunday) on which banks are open in London for business of the nature required for the purposes of this Agreement; "CAPITAL EXPENDITURE" has the meaning given to that term by UK GAAP; "CASH DEPOSIT" means the sum (if any) deposited from time to time pursuant to Clause 10; "CLIENT ACCOUNT" has the meaning ascribed to it in the UK Invoice Discounting Agreement; "COLLATERAL MONITORING FEE" means Pound Sterling45,000 payable as provided in clause 8; "COMMENCEMENT DATE" means the date of this Agreement; "COMPLIANCE CERTIFICATE" means the certificate in the form shown in Schedule 2 (or such other form agreed between GMAC and the Borrower) to be delivered to GMAC pursuant to Clause 18.5 (Financial Information) and signed by the finance director or the managing director of the Borrower, or by the Borrower's auditors if delivered at the same time as the Audited Accounts; - -------------------------------------------------------------------------------- 2 "COSTS OF CONVERSION" means the currency conversion costs incurred by GMAC in providing any of the Facilities in the Approved Currencies, less such costs incurred in relation to conversion already deducted under the separate Facilities. "DEFAULT RATE" means the rate which is 2% (two per cent) per annum above the Interest Rate; "DIRECT OBLIGATIONS" means any amounts directly or contingently owed by any Obligor to GMAC (including Costs of Conversion) together with the aggregate of Prepayments under the Invoice Discounting Agreement and payments made in respect of the Invoice Purchase Prices under the Supplier Finance Agreement; "DRAWDOWN DATE" means any date on which the whole or any part of the Facilities are drawn hereunder including when requests for Prepayments are made under the Invoice Discounting Agreement and when any Invoice Purchase Prices are paid pursuant to the Supplier Finance Agreements; "EARLY TERMINATION FEE EXCEPTIONS" means any/all of the following: (i) the Group makes an acquisition which GMAC chooses to finance independently or as agent of a syndicate group which in turn results in a revision or revisions being made to any of the Finance Documents notwithstanding that the fees which GMAC requires to be paid in respect of such revisions are paid by the relevant parties; or (ii) GMAC agrees to accept a new funding package in relation to the Group to be provided by a third party financier as agent (for itself and GMAC) ("NEW FUNDING PACKAGE") provided that: (a) GMAC retains a holding in such New Funding Package, the returns on which are the same or better than these GMAC is entitled to receive under the Facilities; and (b) the Group reimburse GMAC for all its legal and due diligence costs in respect of such New Funding Package on or before the date of entering into that New Funding Package; in which case GMAC will be entitled to a revised participation fee, net of any early termination fee which it would have been entitled to receive but for its agreeing to enter into the New Funding Package. (iii) termination of the Invoice Discounting Facility is effected as a consequence of an increase in the Administration Charge (as defined in the UK Invoice Discounting Agreement) payable under clause 18.2 of that agreement; "EVENT OF DEFAULT" means any of the events specified in clause 22 (Events of Default); "ENVIRONMENTAL APPROVAL" means any permit, licence, approval, ruling, exemption or other authorisation required under applicable Environmental Laws; "ENVIRONMENTAL LAWS" means any and all laws, rules, orders, regulations, statutes, ordinances or codes of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection - -------------------------------------------------------------------------------- 3 matters, including without limitation, in relation to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, as now or may at any time hereafter be in effect; "FACILITIES" means the Invoice Discounting Facility, the Supplier Finance Facility and the Term Loan Facility and "FACILITY" means any of them; "FINANCE DOCUMENTS" means this Agreement, the Invoice Discounting Agreements, the Supplier Finance Agreements, the Security Documents and the H-P Invoice Purchase Agreement, the Participation Agreement and Trust Deed the Source Supplies Acknowledgement and Indemnity, the Supplies Team Acknowledgement and Indemnity, the RAW Acknowledgement and Indemnity, the LRB Acknowledgement and Indemnity and all other deeds and documents entered into pursuant to or ancillary to such documents; "FORECAST" means the forecast as set out in Annex 1. "GERMAN OBLIGORS" means ISA Deutschland GmbH, PAR Beteilgungs GmbH and Supplies Team GmbH; "GOVERNMENTAL AUTHORITY" means any nation or government, any state or political sub-division thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of any of the foregoing; "GROUP" means the Borrower and all of its Subsidiaries and any Subsidiaries of such Subsidiaries from time to time and "MEMBER OF THE GROUP" or "GROUP COMPANY" means any of them; "HEWLETT PACKARD" means Hewlett-Packard Europe BV Amsterdam, Meyrin Branch 150, route du Nant d'Avril , 1217 Geneva, Switzerland; "HEWLETT PACKARD INVOICE PURCHASE AGREEMENT" means the agreement made between GMAC and Hewlett-Packard on or about the date hereof pursuant to which GMAC may purchase from Hewlett Packard debts arising in respect of invoices issued by Hewlett Packard to the Supplier Finance Beneficiaries; "INSOLVENCY EVENT" and "INSOLVENT" shall, where applicable, have the same meanings as "Insolvency" as such terms are defined in the Invoice Discounting Agreements; "INTELLECTUAL PROPERTY RIGHTS" means know-how, patents, trademarks, service marks, designs, business names, topographical or similar rights, copyrights or other intellectual property monopoly rights, and any licence or other interest in any such rights and "INTELLECTUAL PROPERTY" shall be construed accordingly; "INTEREST PAYMENT DATE" means the last Business Day of each calendar month after the date hereof; "INTEREST RATE" means the rate which is 1.55% (and reducing to 1.35% with effect from the Margin Reduction Date) above the base rate of Lloyds TSB Bank Plc as fluctuating from time to time; "INVOICE DISCOUNTING AGREEMENTS" means the UK Invoice Discounting Agreement and the Overseas Invoice Discounting Agreements; - -------------------------------------------------------------------------------- 4 "INVOICE DISCOUNTING FACILITY" means the UK Invoice Discounting Facility and the Overseas Invoice Discounting Facilities in the maximum aggregate amount of Pound Sterling27,500,000; "ISA INVOICE DISCOUNTERS" means collectively the Overseas ISA Invoice Discounters and the UK ISA Invoice Discounter; "LRB ACKNOWLEDGEMENT AND INDEMNITY" means the acknowledgement and indemnity to be given by LRB Trading Limited to GMAC on or about the date hereof; "MARGIN REDUCTION DATE" means the date when: (i) Audited Accounts for 2002 are available which confirm that the profits before tax in such accounts are at or exceed those forecast in the base case forecast as set out in the Forecast; or (ii) interim accounts confirmed by an auditor for the 6 month period to 30 June 2003 confirm that profits before tax are at or exceed the Forecast or a subsequent forecast prepared by the Company and agreed with GMAC; or (iii) full period Audited Accounts after 31 December 2002 confirm that profits before tax are at or exceed the Forecast or a subsequent forecast prepared by the Company and agreed with GMAC; AND a reconciliation is provided of the different accounting methods (where applied) that have been used within the Forecast and audited figures; "MATERIAL ADVERSE EFFECT" means any effect which could be expected to be materially adverse to: (i) the ability of any member of the Group to perform its payment obligations under any of the Finance Documents; (ii) the business, assets, financial condition or prospects of the Group taken as a whole; "MATERIALS OF ENVIRONMENTAL CONCERN" means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and distillates, and all hazardous substances defined or regulated as such in or under any Environmental Law; "MONTHLY MANAGEMENT ACCOUNTS" means each set of management accounts of the Group prepared by the Borrower at such intervals and in such manner as is set out in Clause 18.2; "NEW GROUP COMPANY" means any company which becomes part of the Group subsequent to the Commencement Date; "NORWEGIAN OBLIGORS" means the Supplies Team Norge AS and ISA Scandinavia AS; "OBLIGORS" means the Borrower and each other member of the Group (including the ISA Invoice Discounters, the Swedish Obligors, the Norwegian Obligors, the German - -------------------------------------------------------------------------------- 5 Obligors, the UK Obligors and the Supplier Finance Beneficiaries) which have undertaken (or in the future undertake) obligations pursuant to one or more of the Finance Documents, and "OBLIGOR" means any of them; "OVERSEAS INVOICE DISCOUNTING AGREEMENTS" means the invoice discounting agreements in a form acceptable to GMAC to be entered into between GMAC and the Overseas ISA Invoice Discounters in relation to the Overseas Invoice Discounting Facility; "OVERSEAS INVOICE DISCOUNTING FACILITY" means the invoice discounting facilities made available by GMAC to the Overseas ISA Invoice Discounters pursuant to clause 2.4 and on the terms of the Overseas Invoice Discounting Facility Agreements; "OVERSEAS ISA INVOICE DISCOUNTERS" means Oscar Dellert AB and Supplies Team Norge AS; "OVERSEAS SUPPLIER FINANCE AGREEMENTS" means the supplier finance facility agreements in a form acceptable to GMAC to be entered into between GMAC and the Overseas Supplier Finance Beneficiaries on or about the date hereof; "OVERSEAS SUPPLIER FINANCE FACILITIES" means the distribution finance facilities made available by GMAC on the terms of the Overseas Supplier Finance Agreements; "OVERSEAS SUPPLIER FINANCE BENEFICIARIES" means Oscar Dellert AB (for itself and for Supplies Team Norge AS) and ISA Deutschland GmbH; "PARENT" means Daisytek International Corporation ; "PARTICIPATION AGREEMENT AND TRUST DEED" means the deed pursuant to which GMAC agrees to the participation of Barclays Bank PLC in the Facilities on the terms agreed therein and made between GMAC and Barclays Bank PLC on or about the date hereof; "PERMITTED BORROWINGS" means: (i) Borrowings under invoice discounting facilities made available by Euro Sales Finance plc to ISA Daisytek SA, ISA Deutschland GmbH and by any third party sources of finance to ISA Scandinavia AS and Supplies Team SRL; (ii) intra-group loan facilities made between Obligors which may be made after the Commencement Date; (iii) any Borrowings of any New Group Company provided that no Group Company being part of the Group on the Commencement Date provides any guarantee or security whatsoever in respect of such borrowing; and (iv) trading debts any member of the Group has with the Parent or any subsidiary of the Parent in the ordinary course of business. (v) any Borrowings pursuant to the facility in existence at the date hereof between KBC Bank Deutschland and ISA Deutschland GmbH. - -------------------------------------------------------------------------------- 6 "PERMITTED SECURITY INTEREST" means: (i) a lien or right of set off arising in the ordinary course of trading solely by operation of law (or by contractual provisions having a substantially similar effect) except for any lien the rights to which have been asserted; (ii) Security Interests arising under the Security Documents; and (iii) Security Interests which GMAC have at any time in writing agreed shall be a Permitted Security Interest; (iv) the security currently in existence which has been granted to Eurosales Finance plc by ISA Daisytek SA and ISA Deutschland GmbH and security granted to any third party financier pursuant to (i) of the definition of "Permitted Borrowings" by ISA Scandinavia AS and Supplies Team SRL; and (v) the security currently in existence which has been granted to KBC Bank Deutschland AG by ISA Deutschland GmbH. "PREFERENTIAL CREDITORS" means those creditors of any Obligor who, upon the insolvency of such Obligor, would have a preferential or priority right to repayment ahead of the holder of a floating charge in England (or, in the case of any other jurisdiction, any creditor which may have equivalent priority over any security granted to GMAC by the Security Documents); "PRIOR CHARGEHOLDERS" means the holder or beneficiary of any mortgage, charge, trust, lien, reservation of ownership, security interest or any other interest effecting the absolute and unfettered ownership of or a first priority security interest in the charged property; "QUALIFYING INVENTORY" means all Hewlett Packard branded inventory which is evidenced by (i) a supplier invoice and (ii) proof of delivery form signed by the Borrower and/or relevant Supplier Finance Beneficiary both in form satisfactory to GMAC; "QUARTERLY PERIOD" means each of the respective periods of three months ending on the last day of March, June, September and December; "RAW ACKNOWLEDGEMENT AND INDEMNITY" means the acknowledgment and indemnity to be given by RAW The Real Alternative Wholesale Company Limited to GMAC on or about the date hereof; "RESERVE" has the meaning ascribed to it in the UK Invoice Discounting Agreement; "SECURITY DOCUMENTS" means those documents listed in part 2 of Schedule 1 and any other documents for the time being securing (directly or indirectly) all or any of the Borrower's obligations under this Agreement and/or all or any other obligation (present or future, actual or contingent) of an Obligor under the Finance Documents and references to any such documents shall include the same as varied or amended in writing by the parties thereto from time to time; "SECURITY INTEREST" includes any mortgage, pledge, lien, charge (whether fixed or floating), assignment by way of security, hypothecation, security interest, standard - -------------------------------------------------------------------------------- 7 security, assignment or assignation by way of security or any other security agreement, retention of title, encumbrance of any kind or arrangement relating to existing or future assets having substantially the same economic affect as any of the foregoing (including, without limitation, the deposit of monies or property with a person with the primary intention of affording such person a right of set-off or lien); "SHARES" means shares of any class or description in the Borrower or any Obligor; "SOURCE SUPPLIES ACKNOWLEDGEMENT AND INDEMNITY" means the acknowledgement and indemnity to be given by Source Supplies Limited to GMAC to be dated on or about the date hereof; "STERLING" means the lawful currency for the time being of the United Kingdom; "SUBSIDIARY" means: (i) a subsidiary as defined in section 736 of the Companies Act 1985; and (ii) a subsidiary undertaking as defined in section 53(1) of the Companies Act 1989; "SUPPLIER FINANCE AGREEMENTS" means the UK Supplier Finance Agreement and the Overseas Supplier Finance Agreements; "SUPPLIER FINANCE ANNUAL FEE" means the annual fee of Pound Sterling120,000 payable under clause 8: "SUPPLIER FINANCE BENEFICIARIES" means collectively the UK Supplier Finance Beneficiary and the Overseas Supplier Finance Beneficiaries; "SUPPLIER FINANCE FACILITY" means collectively the UK Supplier Finance Facility and the Overseas Supplier Finance Facilities up to the maximum aggregate amount of Pound Sterling6,000,000; "SUPPLIES TEAM ACKNOWLEDGEMENT AND INDEMNITY" means the acknowledgement and indemnity to be given by Supplies Team Limited to GMAC on or about the date hereof; "SWEDISH OBLIGORS" means Oscar Dellert AB and CTS Svenska AB; "TAXES" means all present and future taxes (including VAT and PAYE), levies, duties, withholdings or similar charges of whatever nature and wherever levied or assessed, together with interest thereon and any penalties in respect thereof; "TERM LOAN ACCOUNTS" means an account or accounts in the name of the Borrower with GMAC opened in connection with the Term Loan Facility; "TERM LOAN ACCOUNT BALANCES" means the debit balance on the Term Loan Accounts from time to time; "TERM LOAN ADVANCE" means a single advance made under Term Loan Facility; - -------------------------------------------------------------------------------- 8 "TERM LOAN FACILITY" means the loan facility to be made available by GMAC to the Borrower pursuant to which GMAC will make available the maximum aggregate amount of Pound Sterling15,000,000, on the conditions contained herein; "TERM LOAN INDEBTEDNESS" means the outstanding principal amount of the Term Loan Facility and shall include interest due thereon but unpaid as from time to time reduced by repayment or prepayment or by any Cash Deposit (as defined in clause 10); "TERM LOAN MATURITY DATE" means 3 years from the date of this Agreement; "TERM LOAN RESERVE" means the aggregate amount from time to time outstanding under the Term Loan Facility; "TOTAL LINE SIZE" means Pound Sterling33,500,000; "TRANSFER FEES" means fees which GMAC incurs on the bank accounts maintained in respect of the Facilities and in relation to the movements between such accounts and GMAC's general bank accounts; "UK INVOICE DISCOUNTING AGREEMENT" means the invoice discounting agreement in a form acceptable to GMAC to be entered into between GMAC and the UK ISA Invoice Discounter on or about the date hereof; "UK INVOICE DISCOUNTING FACILITY" means the invoice discounting facility made available by GMAC to the UK Supplier Finance Beneficiary upon the terms of the UK Invoice Discounting Agreement; "UK ISA INVOICE DISCOUNTER" means ISA Wholesale Plc; "UK OBLIGORS" means the Borrower, the UK ISA Invoice Discounter, ISA International plc, Supplies team Limited, LRB Trading Limited, ISA International Holdings Limited, ISA Multimedia Limited, Computanet Corporation Limited, Hundleby Computer Supplies Limited, Source Supplies Limited; OST Office Supplies Team Limited and R.A.W. The Real Alternative Wholesale Company Limited; "UK SUPPLIER FINANCE AGREEMENT" means the agreement entered into between GMAC and the UK Supplier Finance Beneficiary in a form acceptable to GMAC to be entered on or about the date hereof; "UK SUPPLIER FINANCE BENEFICIARY" means ISA Wholesale Plc, "UK SUPPLIER FINANCE FACILITY" means the extended payment facility made available by GMAC to the UK Supplier Finance Beneficiary upon the terms of the UK Supplier Finance Agreement. "VALUER" means any reputable Valuer appointed by GMAC from time to time. - -------------------------------------------------------------------------------- 9 1.2 INTERPRETATION In this Agreement: 1.2.1 unless otherwise defined in this Agreement or the context requires otherwise, words and expressions defined in the UK Invoice Discounting Agreement and the Supplier Finance Facility Agreement shall have the same meanings when used in this Agreement; 1.2.2 a clause or schedule shall (except where the context otherwise requires) be construed as a reference to the relevant clause in or schedule to (and forming a part of) this Agreement; 1.2.3 a person shall include a body corporate, individual, firm or an unincorporated body of persons (as the case may be); 1.2.4 the singular shall include the plural and vice-versa and the masculine, the feminine and the neuter; 1.2.5 any statutory provision shall be deemed to mean and to include a reference to any modification, consolidation or re-enactment thereof for the time being in force and any analogous provision or rule under any applicable law; 1.2.6 "BORROWER" shall, where the context admits, include their respective personal representatives, successors in title or permitted assigns (whether immediate or derivative); 1.2.7 any reference herein to any document, including to this Agreement includes such document as amended, novated, supplemented, substituted, extended, assigned or replaced from time to time and includes any document which is supplemental hereto or thereto; 1.2.8 the meaning of general words introduced by the word "OTHER" and the word "OTHERWISE" shall not be limited by reference to any preceding words or enumeration including a particular class of acts, matters or things; 1.2.9 where a word or phrase has to be considered in relation to a jurisdiction outside England and there is no exact equivalent of such word or phrase then it shall have the meaning of the closest equivalent in such jurisdiction; 1.2.10 "INDEBTEDNESS" includes any obligation (whether incurred as principal, guarantor or surety) for the payment or repayment of money, whether present or future, actual or contingent. 1.2.11 whether something is "MATERIAL" shall be determined by GMAC acting reasonably taking into account the financial position of the Group and/or any potential adverse effect on GMAC's security. 1.2.12 a "MONTH" is a reference to a period starting on one day in a calendar month and ending on (but not including) the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a business day, it shall end on the next succeeding business day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it - -------------------------------------------------------------------------------- 10 shall end on the immediately preceding business day; provided that, if a period starts on the last business day in a calendar month or if there is not numerically corresponding day in the month in which that period ends, that period shall end on the last business day in the later month (and references to "MONTHS" shall be construed accordingly). 1.2.13 for the purposes of identification of the Obligors, the full names and corporate details of each of the Obligors are set out in Schedule 4. The headings in this Agreement are inserted for convenience only and shall not affect its construction or interpretation. 2. THE FACILITIES 2.1 Subject to the terms of this Agreement and the Invoice Discounting Agreements, GMAC agrees to make available to the UK ISA Invoice Discounter and the Overseas ISA Invoice Discounters the Invoice Discounting Facility. 2.2 Subject to the terms of this Agreement and the Supplier Finance Agreements, GMAC agrees to make available to the Borrower and the Overseas ISA Supplier Finance Beneficiaries the Supplier Finance Facility. 2.3 Subject to the terms of this Agreement, GMAC agree to make available to the Borrower the Term Loan Facility. 2.4 The Invoice Discounting Facility, Supplier Finance Facility and Term Loan Facility shall be made available to the relevant Obligors, provided that at no time the aggregate of: 2.4.1 the Term Loan Advance; 2.4.2 the total aggregate of Prepayments Outstanding under the Invoice Discounting Facility; 2.4.3 the total aggregate of unpaid invoices outstanding under the Supplier Finance Facility; 2.4.4 the Direct Obligations other than those specified in Clauses 2.4.1 to 2.4.3; and 2.4.5 the Reserves; shall exceed the Total Line Size. 2.5 GMAC shall make the Facilities Available in the Approved Currencies. 3. PURPOSE The Facilities may be used by the Borrower and the relevant Obligors: 3.1 to fund the working capital and medium term financing requirements of the Group; and 3.2 for such other purposes as GMAC may agree, - -------------------------------------------------------------------------------- 11 but may not be used for any purpose which could constitute unlawful financial assistance and GMAC shall not be bound to enquire as to, nor shall it be responsible for, the use or application by the Borrower or the Obligors of all or any part of the Facilities. 4. INVOICE DISCOUNTING FACILITY 4.1 UTILISATION OF THE INVOICE DISCOUNTING FACILITY Subject to the provisions of clause 7 (Conditions Precedent) being satisfied, the UK ISA Invoice Discounter and the Overseas ISA Invoice Discounters may only request Prepayments under the Invoice Discounting Facility if the amount of the Prepayment requested to be made does not exceed the Available Invoice Discounting Facility. 4.2 GOVERNING TERMS The Invoice Discounting Facility shall be available to the UK ISA Invoice Discounter subject to and upon the terms and conditions of the UK Invoice Discounting Agreement and to the Overseas ISA Invoice Discounters on the terms and conditions of the Overseas Invoice Discounting Agreements. 5. SUPPLIER FINANCE FACILITY 5.1 Subject to the provisions of clause 7 (Conditions Precedent) being satisfied, the UK Supplier Finance Beneficiary and the Overseas Supplier Finance Beneficiaries may only utilise the Supplier Finance Facility if the amount of the payment required to be made, or the liability to be assumed by GMAC in respect of such payment or other utilisation does not exceed the Available Supplier Finance Facility. 5.2 GOVERNING TERMS The Supplier Finance Facility shall be available to the UK Supplier Finance Beneficiary and the Overseas Supplier Finance Beneficiaries subject to and upon such terms and conditions as set out in the UK Supplier Finance Agreement and the Overseas Supplier Finance Agreements respectively. 6. TERM LOAN FACILITY Subject to the provisions contained in clause 7 (Conditions Precedent) and the terms contained herein, the Term Loan Facility shall be available for drawing by the Borrower subject as follows: 6.1 the Term Loan Facility shall be available for drawing subject to the provisions of this Agreement by the Borrower by way of a single advance to the Borrower for the period of 3 Business Days from the date of this Agreement, after which the Term Loan Facility will cease to be available (without prejudice to the availability of the Supplier Finance Facility and the Invoice Discounting Facility); 6.2 The receipt by GMAC of a drawdown notice as per Schedule 3. The Borrower acknowledges that any notice of drawdown given in accordance with the Term Loan Facility shall be irrevocable and shall oblige the Borrower to borrow the amount specified on the relevant Drawdown Date. - -------------------------------------------------------------------------------- 12 7. CONDITIONS PRECEDENT/SUBSEQUENT 7.1 The Facilities will only become effective once GMAC has received in form and substance satisfactory to them, all of the documents and evidence listed in parts 1 and 2 of Schedule 1; 7.2 The Facilities will only be available for drawing if:- 7.2.1 there is no Event of Default and no event has occurred which, with the lapse of time or giving of notice or both, would constitute an Event of Default; 7.2.2 the representations and warranties set out in clause 17 (Representations and Warranties) are true and accurate as of the date of the proposed Drawdown Date and would remain true following such drawdown and thereafter the representation and warranties set out in clause 17 (Representations and Warranties) which are deemed to be repeated on the dates set out therein are true and accurate; 7.2.3 the ISA Invoice Discounters shall have entered into the Invoice Discounting Agreements and the Invoice Discounting Agreements are then in full force and effect and none of the ISA Invoice Discounters are in default thereunder; 7.2.4 the Supplier Finance Beneficiaries shall have entered into the Supplier Finance Agreements and none of the Supplier Finance Beneficiaries are in default thereunder. 7.3 The Term Loan Facility will only be available for drawing under clause 6 if at the relevant time, the Available Invoice Discounting Facility is at least Pound Sterling15,000,000. 8. FEES 8.1 All fees will be fully earned upon becoming due and will not be refundable. 8.2 The Collateral Monitoring Fee shall be payable by equal monthly instalments in arrears. 8.3 The Arrangement Fee shall be paid by the Borrower to GMAC on the earlier of Commencement Date or the Drawdown Date. 8.4 Fees payable under this clause 8 (Fees) shall be paid in accordance with clause 15 (Payments). 8.5 The Supplier Finance Annual Fee shall be payable by the Supplier Finance Beneficiaries on the last Business Day of each anniversary of the Commencement Date or in accordance with Clause 15.5; 8.6 An Administration Charge shall be payable in accordance with Invoice Discounting Agreement; 9. REPAYMENT OF PRINCIPAL 9.1 Subject to the other provisions of this Agreement, the Borrower shall repay all amounts outstanding under the Term Loan Facility in one instalment on the Term Loan Maturity Date. - -------------------------------------------------------------------------------- 13 10. DEPOSIT 10.1 In the event that the Available Invoice Discounting Facility (but prior to the deduction of the Term Loan Reserve) is less than the Term Loan Reserve the Borrower shall immediately on demand place with GMAC a cash deposit (the "CASH DEPOSIT") equal to such deficit (the "DEFICIT"). 10.2 If the Deficit increases, the Borrower shall increase the Cash Deposit pro tanto. If the Deficit decreases, GMAC shall refund the Cash Deposit pro tanto. 11. INTEREST 11.1 Interest on the Term Loan Facility will be charged on the Term Loan Account Balances less the Cash Deposit (if any) at the Interest Rate and will be due and payable on each Interest Payment Date. 11.2 All interest on the Term Loan Facility shall accrue from day to day and shall be computed on the basis of a 365 day year and the number of days elapsed. 11.3 Interest payable under this clause 11 (Interest) shall be paid in accordance with clause 15 (Payments). 12. PREPAYMENT 12.1 The Borrower or any Group Company may voluntarily prepay the whole but not part of the Facilities (including any Direct Obligations) provided that GMAC has received from the Borrower not less than 90 days' prior written notice of the proposed date of prepayment. Such written notice when given shall be irrevocable. Any such amount once it has been prepaid may not be re-drawn. 12.2 The Borrower may voluntarily prepay the whole or part of the Supplier Finance Facility on or after the first anniversary of the Commencement Date provided that: (i) the relevant Supplier Finance Beneficiary or Beneficiaries give not less than 90 days prior written notice to GMAC; and (ii) a prepayment fee equal to the Supplier Finance Annual Fee (or instalments thereof) which would, but for the prepayment being made, be payable up to the anniversary of the Commencement Date if the prepayment is made in the first year or up to subsequent applicable anniversaries depending on which year the prepayment is made, being paid in full. Upon satisfaction of (i) and (ii) above the Collateral Monitoring Fee and the Supplier Finance Annual Fee will cease to be payable. For the avoidance of doubt, termination of the Supplier Finance Facility pursuant to this Clause 12.2 shall not result in a requirement for the Borrower to terminate any of the other Facilities. Such written notice when given shall be irrevocable. Any such amount once it has been prepaid may not be re-drawn. 12.3 Subject to the Early Termination Fee Exceptions, upon termination of any of the Facilities other than the Supplier Finance Facility, prior to the end of the initial 3 year term, or prior to any subsequent annual renewal thereafter, GMAC will be entitled to an early termination fee equal to 1% of the Total Line Size, but less any sum paid by - -------------------------------------------------------------------------------- 14 an Obligor under similar provisions in any of the other Finance Documents and less the amount of any prepayment fee payable under Clause 12.2. 12.4 For the avoidance of doubt, should the Hewlett Packard Invoice Purchase Agreement be terminated for whatever reason, such termination shall trigger a requirement that the whole (not part) of the Supplier Finance Facility be immediately repaid and the appropriate prepayment fee as set out in part (ii) of Clause 12.2 shall become immediately payable to GMAC. 13. MANDATORY PRE-PAYMENT 13.1 If at any time during the availability of the Term Loan Facility any of the events described in Clause 19.1 and 19.2 of the Invoice Discounting Agreements (or their equivalent in the Overseas Invoice Discounting Agreements) occur (irrespective of whether GMAC subsequently terminates the relevant agreement as a result) the Borrower shall prepay all the Facilities on demand by GMAC together with interest and other amounts payable thereunder. 14. DEFAULT INTEREST ON TERM LOAN FACILITY 14.1 If the Borrower fails to pay any amount due on the Term Loan Facility under this Agreement on its due date, the Borrower shall be liable (if GMAC so requires) for interest on such amount from the date of such default until the date of actual payment (as well after as before judgement or demand) at the Default Rate. The Borrower's liability under this clause shall be in substitution for the liability for interest on such defaulted amount at the otherwise applicable rate of interest under this Agreement. Such interest shall be payable on demand and, to the extent not actually paid, shall be compounded monthly in arrears and debited to any of the Accounts as GMAC shall at its option nominate. 14.2 For so long as any Event of Default has occurred and is continuing, (if GMAC so requires) the rate specified for the purpose of the definition of "Interest Rate" shall be increased so that such rate is equal to the Default Rate. The other provisions of this Agreement relating to the calculation and payment of interest shall continue to apply. This clause 14.2 shall not apply to any amount on which the Borrower is liable to pay interest under clause 14.1. 14.3 GMAC and the Borrower agree that the Default Rate and any increase to the Interest Rate which takes effect pursuant to clause 14.2 represents a genuine pre-estimate of the GMAC's administrative, funding and other costs, loss and increased risk and is not a penalty. 15. PAYMENTS 15.1 The Borrower and relevant Obligors will make all payments due under this Agreement: 15.1.1 in cleared funds for value on the relevant date; and 15.1.2 without set-off or counterclaim and, except when required by law, without any deduction for taxes or for any other reason. If the Borrower or any Obligor is compelled by law to make any deductions, the Borrower or any Obligor shall pay such additional amounts ("ADDITIONAL AMOUNTS") as are necessary to ensure receipt by GMAC of the full amount which GMAC - -------------------------------------------------------------------------------- 15 would have received but for such deduction. Without prejudice to the foregoing, in the event of any such deduction for tax, the Borrower or any Obligor will within seven days of effecting any such deduction provide GMAC with any appropriate certificate (R185 or similar certificate) in favour of GMAC in relation to such tax deduction and shall provide GMAC with evidence satisfactory to GMAC of payment to the Inland Revenue of the tax deducted within seven days of the due date for payment of the same to the Inland Revenue. On receipt by GMAC of such appropriate certificate, GMAC shall repay to the Borrower or the relevant Obligor an amount equal to the relevant Additional Amounts. 15.2 For the purposes of this clause, GMAC confirms that it is the person beneficially entitled to interest under this Agreement and is a company resident, for United Kingdom tax purposes, in the United Kingdom. 15.3 GMAC shall be entitled (and is hereby authorised by the Borrower who will procure that each Obligor which is a party to any of the Facility Agreements shall consent thereto) to debit all payments (including, without limitation, principal and interest and other amounts due under the Facilities) due under this Agreement or any of the Security Documents either to the Accounts or any other Accounts(s) of the Borrower or of any such Obligor held with GMAC. 15.4 The Borrower and relevant Obligors shall repay the amounts owing under the Facilities in the Approved Currency in which that Borrower or relevant Obligor borrowed or utilised the relevant portion of that Facility. 15.5 Notwithstanding Clause 8.1 and 8.5, the Supplier Finance Annual Fees in respect of each annual sum (payable in accordance with clause 8.5) may be payable to GMAC by way of equal instalments in advance, the first such instalment being payable on the Commencement Date with successive instalments being payable thereafter at successive three monthly intervals. 15.6 Sterling is the currency of account and payment for each and every sum at any time due from the Borrower under the Term Loan Facility. 15.7 If any sum due from the Borrower under the Term Loan Facility or any order or judgment given or made in relation thereto is in a currency other than sterling, GMAC shall convert such currency into sterling at its spot rate for such other currency and the Borrower shall indemnify and hold harmless GMAC from and against any loss suffered as a result of any such conversion. 16. CHANGES IN CIRCUMSTANCES AND INCREASED COSTS 16.1 If at any time it becomes unlawful or impossible for GMAC to advance, maintain or fund the whole or any part of the Term Loan Facility or the Accounts Balance, GMAC may at any time by written notice to the Borrower require the Borrower to repay the whole or any part of the Term Loan Facility, and/or the Accounts Balance (in addition to its obligations under the Invoice Discounting Agreements and the Supplier Finance Agreements) immediately, together with any outstanding interest and all other sums due under this Agreement and the Security Documents. 16.2 The Borrower shall pay to GMAC on demand such amount as GMAC may from time to time certify as being necessary to compensate it for any increase in the cost of funding the Term Loan Facility or the Accounts Balance or for any reduction in the - -------------------------------------------------------------------------------- 16 rate of return under this Agreement, incurred by GMAC as a result of compliance with any official directives, requirements or requests of any regulatory authority (whether or not having the force of law) or any law or regulation (including any changes to, or change in the interpretation of, the 1988 Capital Accord as a result of any proposals made by the Bank Committee on Basel Regulation and Supervisory Practice for Reform of the 1988 Capital Accord, published in June 1999 as revised or amended, including any further proposals of the Basel Committee (including, without limitation, those relating to reserve assets, special deposits, taxes (other than tax on its overall net income), capital adequacy and/or asset ratios). 17. REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants in relation to itself and each other Obligor that: 17.1 it is a limited liability company incorporated under the laws of England and Wales (or relevant overseas jurisdiction) and has the power to own its property and assets and carry on its business as it is now being and will be conducted; 17.2 it has the power to enter into and perform its obligations under each of the Finance Documents to which it is a party and all necessary action (corporate or otherwise) has been taken to authorise its unconditional entry into and performance of its obligations under each of the Finance Documents to which it is a party and the borrowing or utilising of the Facilities upon the terms and conditions contained herein; 17.3 all authorisations, approvals, consents, licences, exemptions, filings, registrations, notarisations and other matters required in connection with the entry into, performance and validity of the Finance Documents, the borrowing or utilisation of the Facilities and the granting of the Security Documents have been obtained and are in full force and effect, and any requirements thereof have been or will be at the appropriate time complied with or fulfilled; 17.4 the Finance Documents to which it is a party constitute its legal, valid, binding and enforceable obligations or will, following appropriate registration, constitute legal valid and enforceable obligations and subject in each case to the principle that specific performance and other equitable remedies (where relevant) are discretionary remedies of the court and subject to insolvency laws affecting the rights of creditors generally; 17.5 the entry into and performance of the Finance Documents to which it is party and the transactions contemplated hereby and thereby do not and will not conflict with (a) any law or regulation or any official or judicial order, or (b) its memorandum or articles of association (or overseas equivalent); or (c) any agreement or document to which it is a party or which is binding upon it or its assets; 17.6 no member of the Group is in default under any agreement to which it is a party which would have a Material Adverse Effect and no litigation, arbitration or administrative proceedings are current or pending or (to the knowledge of the Borrower) threatened which would have a Material Adverse Effect; 17.7 it is not aware of any material fact or circumstances that has not been disclosed to GMAC which, if disclosed, would be likely at the date of this Agreement to be relevant in relation to (a) any material liability of GMAC under the Finance Documents, or (b) in respect of Environmental Laws; - -------------------------------------------------------------------------------- 17 17.8 there has been no material adverse change to the nature of business of the Group Companies since the decision was taken by GMAC to provide the Facilities to the relevant Group Companies; 17.9 it is in all material respects in full compliance with all Environmental Laws as presently applied and enforced which are currently applicable to its operations and all Environmental Approvals required in respect thereof have been obtained from the appropriate authorities and are in full force and effect; 17.10 the latest Audited Accounts delivered to GMAC under clause 18.1 hereof have been prepared in accordance with generally accepted Accounting principles which have been consistently applied (or if not consistently applied, such inconsistency has been notified to GMAC) and such audited Accounts represent a true and fair view of the financial position of the companies in the Group for the relevant period for which such Accounts were prepared; 17.11 the Monthly Management Accounts delivered to GMAC under clause 18.2 hereof: 17.11.1 fairly represent the financial condition and operations of the Group as at the date up to which they have been prepared and for the period for which such management Accounts relate; and 17.11.2 were or will when the same are produced be prepared on a basis substantially in accordance with the Accounting principles used in the latest audited Accounts (other than in the event of any change notified to GMAC), in each case within the reasonable parameters which may be expected of management Accounts not the subject of audit procedures; 17.12 none of its assets, property and undertaking are subject to any Security Interest (other than as constituted by Permitted Security Interests) and it is not a party to, nor are its assets bound by any order, agreement or instrument under which it is, or in certain events may be, required to create, assume or permit to arise any Security Interest; 17.13 no Event of Default has occurred or is outstanding and no event has occurred which with the giving of notice or the lapse of time or both would constitute an Event of Default; and 17.14 it has good valid and marketable freehold or leasehold title to each or valid leases or licences of the properties over which it purports to create security under the Security Documents; 17.15 all of the assets, property and undertaking which are not subject to any lease or lease agreement are legally and beneficially owned by it and all filings necessary for the registration of title have been obtained or made; 17.16 the Intellectual Property Rights owned by, or licensed to, an Obligor: 17.16.1 are all of the Intellectual Property Rights required by it in order for it to carry on its business as currently conducted, and the relevant Obligor, in carrying on its business, does not infringe any Intellectual Property Rights of any third party; - -------------------------------------------------------------------------------- 18 17.16.2 are (in the case of Intellectual Property Rights which are owned) free of any Security Interests (save for those created by Permitted Security Interests) and any right or interest in favour of a third party. Any Intellectual Property Rights licensed to the relevant Obligor are free from any Security Interests and any rights or interests in favour of a third party save for those created by this Deed and for those in favour of the owner(s) of such Intellectual Property Rights; and 17.16.3 there is no actual or, to the best of the relevant Obligor's knowledge and belief, threatened infringement of the Intellectual Property Rights owned by such Obligor. The representations and warranties set out in this clause 17 shall be deemed to be repeated on each Drawdown Date and on each Interest Payment Date with reference to the facts and circumstances then subsisting as if made at each such time. 18. FINANCIAL INFORMATION/REPORTING 18.1 As soon as available and in any event within 150 days after the end of each of its financial years the Borrower will deliver to GMAC the Audited Accounts of the Group as at the end of such financial year which shall have been audited or certified by an Accountant acceptable to GMAC. 18.2 No later than 45 days after the end of each calendar month the Borrower will deliver to GMAC Monthly Management Accounts in respect of itself and the rest of the Group for the most recent calendar month. 18.3 No later than 60 days after the end of each calendar month, the Borrower will deliver to GMAC Monthly Management Accounts in respect of Kaye Office Supplies Limited. 18.4 No later than 30 days after the end of each financial year (or at other intervals which GMAC shall determine) the Borrower will provide to GMAC annual projections and monthly cash flow statements in the form required by GMAC. At GMAC's option those projections and/or cash flows will be compiled by a director of the Borrower. 18.5 No later than 45 days after the end of each Quarterly Period the Borrower will deliver a Compliance Certificate to GMAC. 18.6 The Borrower shall deliver to GMAC confirmation of: (i) all insurance policy renewals or, as the case may, be replacements provided their the levels and nature of the replacement policies or are the same or better than the policies to be replaced; and (ii) premiums paid in respect of the Group. 18.7 Notwithstanding the specific provisions set out in clause 18.1 to 18.6 (inclusive) GMAC reserve the right so long as the Facilities (or any of them) remain in place to require the Borrower to provide GMAC (at the Borrower's cost) with such financial information or other information about the Borrower and/or the Group as GMAC may from time to time reasonably require. - -------------------------------------------------------------------------------- 19 19. FINANCIAL COVENANTS 19.1 For the duration of the Facilities, the Borrower shall procure that: 19.1.1 Tangible Net Worth in respect of the Group shall not be less than: (i) Pound Sterling2,000,000 as at 31 December 2002; and (ii) not less than the following amounts at such Quarterly Periods thereafter: 31 March 2003 Pound Sterling2,500,000 30 June 2003 Pound Sterling2,500,000 30 September 2003 Pound Sterling2,750,000 31 December 2003 Pound Sterling3,000,000 This covenant shall be reset for the remainder of the term of the Facility from future forecasts provided by ISA which are acceptable to GMAC. 19.1.2 The ratio of Total Operating Profit to Gross Financing Costs shall not be less than: (a) 1.5:1:0 for all tests up to and including 30 September 2003; (b) 2.0:1.0 for all tests thereafter 19.1.3 Accounts Payable Turn in respect of the Borrower on a consolidated basis shall not exceed 42 days. 19.1.4 Accounts Receivable Turn in respect of the Borrower on a consolidated basis shall not exceed 52 days. 19.1.5 the aggregate gross value (including VAT) of all credit notes issued by the ISA Invoice Discounters, expressed as a percentage of the Gross Purchase Price of all Debts purchased by GMAC pursuant to the Invoice Discounting Agreements, shall not exceed six per cent (6%) in any given period. 19.1.6 The monthly declaration of dilutions in respect of the UK Supplier Finance Facility and each of the Overseas Supplier Finance Facilities shall not exceed 5% on each respective facility. 19.1.7 With regard to the financial covenants specified in clause 19.1.1 to 19.1.5 (as the case may be): (a) in the case of the covenant at 19.1.2, it shall be measured at successive three monthly intervals commencing on 31 March 2003 and on a rolling twelve month basis with effect from 31 December 2003 and thereafter but prior to that date, at the ends of March, June and September 2003 on three, six and nine months rolling bases respectively. - -------------------------------------------------------------------------------- 20 (b) in the case of the covenant at 19.1.5, it shall be measured at successive monthly intervals, on a rolling three month basis, commencing with the three month period ending on 31 March 2003. (c) each of the covenants will be tested by reference to the relevant monthly financial statements in a format containing at least the information in those received from the Group for the period ending October 2002 unless the Audited Accounts required to be delivered to GMAC pursuant to clause 18.1 for the relevant period are available on the relevant testing date, in which case such Audited Accounts shall be used instead together with any available relevant monthly financial statements on a pro-rata basis; (d) if the Audited Accounts are not available when the covenant is tested but when such Audited Accounts become available they demonstrate that the figures in any relevant Monthly Management Accounts or financial statements used for any calculation of the financial covenant cannot have been substantially accurate, then GMAC shall require such adjustment to the calculations made or to be made as it, in its sole discretion, considers appropriate to rectify such inaccuracy and compliance with the financial covenants will be determined by references to such adjusted figures; (e) the components of the relevant financial covenants shall be calculated in accordance with accounting principles, standards and practices of the Borrower from time to time provided always that they are consistent with those generally accepted from time to time in the United Kingdom and approved by the Accounting Standards Board ("UK GAAP"). In the case of any component calculated by reference to management accounts or unaudited financial statements, UK GAAP will be applied within the reasonable parameters which may be expected of such accounts or financial statements not the subject of audit procedures. 19.2 In this Clause 19, the following terms shall bear the following meanings: "ACCOUNT RECEIVABLES TURN" means Trade Accounts Receivable divided by cumulative sales (including VAT) in the year to date multiplied by the number of days in the year to date; "ACCOUNT PAYABLE TURN" means Gross Trade Accounts Payable divided by cumulative Gross cost of sales (including VAT) in the year to date multiplied by the number of days in the year to date; "CAPITAL EXPENDITURE" has the meaning given to that term by UK GAAP. "DILUTIONS" means the total credit notes given by Hewlett-Packard to the Group in the last 12 months divided by the total number of credit notes plus total remittances received from the Group in the last 12 months; "GROSS FINANCING COSTS" means in respect of any relevant period, all interest, acceptance commission, payments under interest rate management arrangements (whether by way of swap, cap, collar, floor, option, forward rate agreement or otherwise) and other continuing, regular or periodic costs, charges and expenses in - -------------------------------------------------------------------------------- 21 the nature of interest (whether paid, payable or capitalised and including the interest element in hire purchase and finance leasing charges) incurred by the Group during such relevant period in effecting, servicing or maintaining borrowings or borrowing facilities; "GROSS TRADE ACCOUNTS PAYABLE" means all amounts inclusive of tax payable by all the members of the Group in respect of purchases by them of goods for the purposes of resale; "TANGIBLE NET WORTH" means the aggregate of the amount paid up or credited as paid up on the issued share capital and the amount standing to the credit of the consolidated capital and revenue reserves (including share premium account capital redemption reserve and profit and loss account) of the Group but after deducting: (i) goodwill (including goodwill arising on consolidation) and other intangible assets; (ii) (to the extent included) any reserve created by any upward revaluations of fixed assets made after the Account Reference Date of the most recent Audited Accounts published prior to the date of this Agreement; (iii) (to the extent included) amounts attributable to minority interest and deferred taxation; (iv) any debit balance on profit and loss account, (but so that no amount shall be included or excluded more than once); and (v) any other item identified by GMAC acting reasonably but in its sole discretion; "TOTAL OPERATING PROFIT" means in respect of any relevant period, the consolidated total operating profit for continuing operations, acquisitions (as a component of continuing operations) and discontinued operations (as set out in Financial Reporting Standard No. 3) of the Group but ignoring any exceptional items. "TRADE ACCOUNTS PAYABLE" means sums due by any of the Group in respect of goods purchased by them for the purposes of resale; "TRADE ACCOUNTS RECEIVABLE" means Debts (as defined in the UK Invoice Discounting Agreement); 20. NEGATIVE COVENANTS So long as the Facilities (or any of them) remain in place the Borrower shall not (and shall procure that no member of the Group shall) without GMAC's prior written consent: 20.1 create or permit to subsist any Security Interest over any of its assets, property or undertaking except for Permitted Security Interests; 20.2 by one or a series of transactions, whether related or not, sell or otherwise dispose of all or any material part of its property, assets or undertaking including without limitation by any form of sale and leaseback or factoring (except in the normal course of its business); - -------------------------------------------------------------------------------- 22 20.3 carry on any trade or business with a company which is not an Obligor other than in the normal course of trading; 20.4 subscribe for any shares, loan notes, debentures, commercial paper or other financial instrument issued or proposed to be issued by a company which is not an Obligor or make any other type of investment in such a company; 20.5 save as between Obligors pay any dividends or other distributions or issue or redeem any Shares with the exception of payment of preferential dividends provided that: 20.5.1 performances to the Forecast or subsequent forecasts which are provided by the Group and which are acceptable to GMAC; 20.5.2 relevant covenants (which are to be determined by GMAC) are given; and 20.5.3 that a minimum of Pound Sterling5,000,000 of the Total Line Size shall be available for drawing but is undrawn on the date of such payment and remaining available but undrawn for 30 days after such payment has been made; 20.6 lend to, provide trade credit other than on arms length terms to, or guarantee the obligations of, any company (or person) which is not an Obligor; and 20.7 enter into any Borrowings (save for Permitted Borrowings) other than pursuant to the Finance Documents. 21. POSITIVE COVENANTS 21.1 The Borrower shall procure upon GMAC's written request that any Subsidiary who is not already an Obligor of the Borrower shall enter into security documents in form similar to those entered into by the Obligors. 21.2 The Borrower will promptly notify GMAC if any Event of Default arises and of anything which might result in an Event of Default. 21.3 The Borrower shall and will procure that each Group Company will pay all material Taxes due and payable by it or that Group Company within a reasonable time of the relevant due date. 21.4 The Borrower shall and will procure that each Group Company shall effect and maintain adequate insurances in relation to its business and assets (which shall be insured for their full replacement value) with reputable underwriters or insurers against such risks as are usual for companies carrying on a business such as that carried out by such Group Company and that all such insurance policies shall name GMAC as first loss payee. 21.5 The Borrower shall and will procure that it and each Overseas ISA Invoice Discounter will effect and maintain credit insurances at its own expense in respect of all Domestic Debts with reputable insurers. Such insurances shall: 21.5.1 provide cover against all risks which are normally insured against by other companies; 21.5.2 be in such amounts as would in the circumstances be prudent for such companies; and - -------------------------------------------------------------------------------- 23 21.5.3 have the interest of GMAC as mortgagee noted on all relevant policies (where it is possible to do so), and the Borrower will supply on reasonable request copies of each policy of insurance required to be maintained in accordance with this clause 21.5, together with the current premium receipts relating thereto. 22. EVENTS OF DEFAULT In the event that: 22.1 any Obligor fails to pay on the due date any amount payable by it under any Finance Document to which it is a party except where such failure arises solely from an error in the transmission of funds and the failure to pay is not remedied within two Business Days of the due date for payment; or 22.2 any Obligor: 22.2.1 fails to comply with any of its obligations in clause 18 (Financial Information) or clause 19 (Financial Covenants); or 22.2.2 fails to perform any of its respective obligations under any Finance Document (other than those specified in clause 22.1 or 22.2.1) within 3 Business Days of such Obligors becoming aware of the relevant breach; or 22.3 any representation, warranty or statement made under or in connection with any Finance Document is or proves to be untrue in any material respect on the date as of which it was made or deemed to be made or repeated; or 22.4 there is any termination of any waiver, consent or priority arrangement in GMAC's favour; 22.5 an Insolvency Event occurs in respect of any Obligor ; or 22.6 it becomes impossible or unlawful: 22.6.1 for an Obligor or any member of the Group to perform any of its respective material obligations contained in the Finance Documents or any of them; or 22.6.2 for GMAC to exercise any of its rights under this Agreement and/or the Supplier Finance Agreements and/or the Invoice Discounting Agreements and/or the Security Documents or any of them; or 22.7 any Finance Document does not come into or ceases to be in full force and effect or is not for any reason valid and binding upon and enforceable in all respects against an Obligor; or 22.8 GMAC is of the opinion acting reasonably that an event or events have occurred which have caused a Material Adverse Effect; or 22.9 anything is done or permitted or omitted to be done by an Obligor which GMAC is of the opinion acting reasonably may materially impair the security created by the Security Documents and/or prejudice or detract from an Obligor's ability to perform the obligations contained in any Finance Document; or - -------------------------------------------------------------------------------- 24 22.10 any of the events specified in clauses 22.6 to 22.9 above occurs in relation to any other Company which is (for the time being) the holding company of the Borrower or which is a subsidiary of any such holding company (if any); or 22.11 the Invoice Discounting Agreements (or any of them) are terminated for any reason or the Borrower or any of the Obligors are in default of obligations under the Invoice Discounting Agreements (or any of them) in circumstances which gives GMAC the immediate right to terminate the Invoice Discounting Agreements (or any of them); 22.12 any of the UK Supplier Finance Beneficiary, the Overseas Supplier Finance Beneficiaries or the Obligors are in default of obligations under the Supplier Finance Agreements (or any of them) in circumstances which give GMAC the immediate right to terminate the Supplier Finance Agreements (or any of them); 22.13 the UK ISA Invoice Discounter fails to comply with any of one of its obligations under the UK Invoice Discounting Agreement or any of the Invoice Discounters fail to comply with the equivalent clauses of the relevant Overseas Invoice Discounting Agreements; 22.14 the UK Supplier Finance Beneficiary fails to comply with any of one of its obligations under the UK Supplier Finance Agreement or any of the Overseas Supplier Finance Beneficiaries fail to comply with their obligations under the relevant Overseas Supplier Finance Agreements; 22.15 if the Borrower or any Obligor has any obligation to a third party for repayment of borrowed money in an amount in excess of Pound Sterling50,000 which is declared due prior to its stated maturity date or which the Borrower or any Obligor does not pay it when due; 22.16 if there is any change of control of the Borrower or any Obligor which for these purposes shall mean a change in the beneficial ownership of 50 per cent or more of the issued share capital of the relevant company, or 22.17 any application is made by any creditor of the Borrower or any Obligor for a court order that GMAC must pay money to such creditor; or 22.18 any Obligor ceases or threatens to cease to carry on its business; or 22.19 the Insolvency or death of any person who has given a guarantee or indemnity to GMAC for the obligations of the Obligors, or notice of intention to end such guarantee or indemnity is served or the legal disability of that person arises unless a person satisfactory to GMAC is prepared to provide a replacement guarantee or indemnity; or 22.20 the Borrower or any Obligor factors or discounts its debts with another party save for the invoice discounting arrangements which have been entered into by ISA Daisytek SA and ISA Deutschland GmbH with Euro Sales Finance plc and those entered into by Supplies Team SRL and ISA Scandinavia AS with any other financing source; or 22.21 the Borrower or any Obligor suspends or threatens to suspend its operation or except in the ordinary course of business sell lease transfer or otherwise dispose of all or any substantial part of its assets (whether by a single transaction or by a series) or all or any part of its assets are seized or appropriated by or on behalf of any governmental or other authority or are compulsorily acquired; - -------------------------------------------------------------------------------- 25 then, in any such event GMAC may by notice in writing (a) terminate the Facilities (or any of them) and/or (b) declare the Accounts Balance and any other amounts due hereunder immediately due and payable whereupon the Borrower and the relevant Obligor will immediately comply with such demand by repaying the Accounts Balance together with all outstanding interest and any other amounts due under the Finance Documents. 23. ASSIGNMENT AND TRANSFER 23.1 The Borrower may not transfer or assign any of its rights under any of the Finance Documents. 23.2 GMAC may, without notice, transfer or assign all or any part of and/or grant co-participation in the Facilities (or any of them) and/or the Security Documents to any company, person or body and the Borrower hereby irrevocably consents to any such transfer, assignment or participation (and the disclosure by GMAC to a transferee, assignee or participant or prospective transferee, assignee or participant of any information about the Borrower or the Group and the Facilities as GMAC may consider appropriate) and undertakes to execute any documentation GMAC may require to effect any such transfer or assignment or participation. 23.3 Any costs, charges or expenses (including legal expenses) incurred by GMAC by reason of or in connection with the transfer or assignment of, or grant of a participation in, this agreement or the benefit of all or any part thereof shall be for the sole account of GMAC, including the cost of preparing any documentation to be entered into by the Borrower to give effect to or otherwise facilitate such transfer, assignment or participation PROVIDED that: 23.3.1 for the avoidance of doubt, this clause shall not affect the responsibility of the Borrower in relation to the costs (including legal costs) incurred in relation to the participation granted to Barclays Bank PLC by GMAC on the date of this Agreement; and 23.3.2 GMAC will reimburse the Borrower for any out-of-pocket legal expenses (excluding VAT) reasonably incurred by the Borrower in connection with its execution of any documentation required by GMAC for the purpose of any such transfer, assignment or participation (save costs incurred under clause 23.3.1). 24. NOTICES Any notice by either party to another shall be sent to the address or telefax number and marked for the attention set out on the signature page to this Agreement or such other address or telefax number as may from time to time be notified by that party to the other in accordance with this clause and shall be deemed duly given, if delivered personally or sent by facsimile, when so delivered or sent and, if sent by first class, registered or recorded delivery post, two days after the notice is posted. Any notice which by virtue of the provisions of this clause 24 be deemed served on a day which is not a Business Day or after 5.30pm on a Business Day shall be deemed to have been served at 9.00am on the next succeeding Business Day. 25. WAIVERS No failure or delay by GMAC in exercising any right, power or privilege under any Finance Document shall operate as a waiver thereof nor will any single or partial exercise of any right, - -------------------------------------------------------------------------------- 26 power or privilege preclude any further exercise thereof or prejudice any other or further exercise by GMAC of any of its rights or remedies under any Finance Document. Such rights and remedies are cumulative and not exclusive of any right or remedy provided by law. 26. EXPENSES 26.1 The Borrower shall be obliged pay to GMAC on demand on a full indemnity basis (taking into account any expenses already accounted for by GMAC under Finance Documents other than this Agreement) whether or not there is a drawing under the Facilities (or any of the foregoing): 26.1.1 any stamp documentary registration and other similar duties or taxes in connection with the Finance Documents; and 26.1.2 all costs and expenses (provided that any such costs or expenses have been agreed by the Borrower in advance) incurred in connection with the preparation, negotiation or enforcement of the Finance Documents (including legal fees, charges, disbursements, survey and valuation fees, and value added tax and disbursements, incidental to the administering of the Term Loan Facility and/or the Accounts incurred by GMAC). 26.2 The Borrower shall also indemnify GMAC against any loss or expense incurred by it as a consequence of the occurrence of any non-payment. 26.3 As soon as any of the above amounts become due from the Borrower GMAC shall be entitled to debit such amounts either to the Accounts or any other Accounts(s) of the Borrower. 27. CONVERSION OF CURRENCIES/TRANSFER FEES 27.1 In the event that GMAC makes any Prepayment in a currency (the "PAYMENT CURRENCY") other than the currency of the relevant Debt (the "DEBT CURRENCY"), GMAC shall be entitled (but not obliged) on a daily basis whilst the relevant Debt is Outstanding, to calculate the amount (the "CONVERTED AMOUNT") of the Payment Currency which could be purchased with the original amount of the Prepayment expressed in the Debt Currency. 27.2 If the above calculation reveals that the Converted Amount is less than the amount of the Prepayment, GMAC shall be entitled to deduct the amount of such deficit from the amount which would otherwise be available to be drawn down by the Borrower and the respective Overseas ISA Invoice Discounters. 27.3 Furthermore GMAC shall be entitled to deduct the amount of such deficit from the amount which would otherwise be available to be drawn down by the Borrower and the respective Overseas ISA Invoice Discounters for any Costs of Conversion which GMAC incurs as a result of converting repayments in currencies other than the Payment Currency, whether received through enforcing security or otherwise. 27.4 In the event that the Borrower or any of the other Obligors becomes Insolvent, GMAC shall be entitled to claim the equivalent in any of the Approved Currencies of any Costs of Conversion which have been incurred by GMAC and remain unpaid. - -------------------------------------------------------------------------------- 27 27.5 GMAC shall be entitled to deduct from the amount which would otherwise be available to be drawn down by the Borrower and the other Overseas ISA Invoice discounters the amount equivalent to any Transfer Fees. 28. ILLEGALITY If any of the provisions of this Agreement become invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. 29. SET-OFF In addition to any right of set-off or other similar right to which GMAC may be entitled in law, GMAC acting (through any of its branches) may at any time and without notice to the Borrower combine and consolidate all or any of the Accounts between the Borrower and GMAC and/or set-off any monies and in any currency whatsoever, which GMAC may at any time hold for the Accounts of the Borrower, against any liabilities whatsoever which may be due and payable to GMAC from the Obligors. 30. GOVERNING LAW AND JURISDICTION LAW This Agreement shall be governed by and construed in accordance with English law. JURISDICTION 30.1.1 SUBMISSION Each of the parties to this Agreement irrevocably agrees that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes which may arise out of, or in connection with, this agreement and, for such purposes, irrevocably submits to the jurisdiction of such courts. 30.1.2 FORUM Each of the parties irrevocably waives any objection which it might now or hereafter have to the courts referred to in clause 30.1.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes which may arise out of, or in connection with, this Agreement and agrees not to claim that any such court is not a convenient or appropriate forum. 30.1.3 OTHER COMPETENT JURISDICTIONS The submission to the jurisdiction of the courts referred to in clause 30.1.1 shall not (and shall not be construed so as to) limit the right of GMAC to take proceedings against the Borrower or any Obligor in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. - -------------------------------------------------------------------------------- 28 30.1.4 CONSENT TO ENFORCEMENT The Borrower hereby consents and procures the consent of the Obligors generally in respect of any legal action or proceeding arising out of, or in connection with, this Agreement, to the giving of any relief, or the issue of any process in connection with such action or proceeding including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such action or proceeding. 30.1.5 WAIVER OF IMMUNITY To the extent that the Borrower or any Obligor may in any jurisdiction claim for itself or its assets, immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and, to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), the Borrower hereby irrevocably agrees that it and procures that the Obligors shall not claim and hereby irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction. 31. DEMANDS AND NOTIFICATION BINDING Any demand notification or certificate given by GMAC in writing and signed by a duly authorised officer of the GMAC specifying any rate of interest or any amounts due and payable under or in connection with any provision of the Finance Documents shall be conclusive and binding upon the Borrower (in the absence of manifest error) and in any proceedings against the Borrower shall be prima facie evidence of such rate of interest or amounts so due and payable unless the Borrower objects thereto within 30 days. 32. EURO If the United Kingdom moves to the third stage of EMU, GMAC shall be entitled to make such changes to this Agreement and/or any of the Invoice Discounting Agreements and/or any of the Supplier Finance Agreements and/or the Security Documents as it reasonably considers are necessary to reflect the changeover to the euro (including, without limitation, the rounding (up or down) of fixed monetary amounts to convenient fixed amounts in the euro and amending any provisions to reflect the market conventions for a euro facility of the kind contemplated in this Agreement). 33. CERTIFICATIONS Any certification given by any director or other officer of the Borrower to GMAC under this Agreement shall be given on behalf of the Borrower and without any personal liability on behalf of such director or officer unless given fraudulently. 34. COUNTERPARTS This Agreement may be executed in any number of original or facsimile counterparts and by different parties hereto in separate original or facsimile counterparts, each of which when so executed and delivered to GMAC shall be an original, but all counterparts shall together constitute one and the same instrument. Upon receipt by GMAC of original or facsimile counterparts executed by all parties hereto, GMAC shall forthwith date each such counterpart and give notice in writing of such delivery and dating to all other parties. - -------------------------------------------------------------------------------- 29 35. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT A person who is not party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. This clause does not affect any right or remedy of any person which exists or is available otherwise than pursuant to that Act. 36. JOINT AND SEVERAL LIABILITY If there are two or more persons comprised in the expressions "THE BORROWER", "THE BORROWERS", "THE OBLIGOR" or "THE OBLIGORS" such persons shall be bound as joint and several obligors and such expressions shall be deemed to include all or any or each of such persons. None of such persons shall be released from liability hereunder by reason of this Agreement never being or ceasing to be binding as a continuing security on any other or others of them. IN WITNESS whereof the parties have executed this Agreement as a Deed on the date set out above. - -------------------------------------------------------------------------------- 30 SCHEDULE 1 PRE-CONDITIONS DOCUMENTS PART 1 1. Certified copy board resolutions of each Obligor approving and authorising the execution of the Finance Documents to which it is a party (and containing specimen signatures of the person(s) authorised to execute the Finance Documents). 2. A certified true copy of the Certificate of Incorporation (or overseas equivalent) of each Obligor. 3. A certified true and up-to-date copy of the Memorandum and Articles of Association (or overseas equivalent) of each Obligor. 4. Such other documents, licences, waivers, approvals, resolutions and evidence as GMAC and its advisers shall deem necessary or advisable and notified to the Borrower prior to the first Drawdown Date. 5. Originals of the Finance Documents. 6. Evidence (including, without limitation, Forms DS1) (or their overseas equivalent) of the discharge of all existing financial arrangements with third parties and all security interests pursuant thereto over the assets and the properties of the Obligors and, in respect of any floating charges, certificates of non-crystallisation from the relevant chargee and evidence that none of the Obligors has any outstanding liabilities to such third parties save in respect of Permitted Security and Permitted Borrowings. 7. A search of the register of mortgages and charges for the Borrower at the Companies Registry or Register showing, inter alia, no appointment of a receiver, liquidator or administrator or the presentation of any petition in respect of any of the same and similar exercise in respect of the other Obligors. 8. Evidence that the insurances required to be taken out pursuant to the Security Documents have been (or will prior to the Drawdown Date be) taken out and are in full force and effect and a letter from the Borrower's insurance brokers in form and substance satisfactory to GMAC confirming, inter alia, that GMAC will be noted as first loss payee on all insurance policies. 9. A letter from Hewlett Packard to GMAC confirming details of their bank Accounts for payments under the Supplier Finance Facility Agreement. 10. Confirmation from GMAC's solicitors that the Borrower has title to all Qualifying Inventory and that such Qualifying Inventory is free from any Security Interest in favour of any third party. 11. GMAC is to be satisfied with the results of its pre-funding audit of the Borrower including Qualifying Inventory. 12. Annual Accounts filed on 22 May 2002. 13. GMAC is to be satisfied with the up to date Monthly Management Accounts of the Borrower. - -------------------------------------------------------------------------------- 31 14. GMAC is to be provided with a detailed sources and uses of cash as at closing and a pro forma balance sheet reflecting the detailed closing adjustments. 15. Confirmation from the Borrower that no event has occurred since 5 April 2002 which would cause a Material Adverse Effect. 16. Compliance with GMAC's money laundering policies including the provision of satisfactory bank references and such other status information upon all directors, shareholders and senior managers of the Group as GMAC shall require. 17. Satisfaction that the overall Facilities meet with the Group's ongoing cashflow requirements. 18. Completion of all GMAC's internal due diligence. 19. There must be available for drawing but remain undrawn on the Commencement Date a minimum of Pound Sterling1,000,000. 20. Sight of and satisfaction with up-to-date management accounts of Kaye Office Supplies Ltd. 21. Written confirmation that Norwegian taxes are paid up to date. 22. Up to date credit insurance limits from Sweden and Norway. 23. Written confirmation of renewal of UK and Norwegian trade credit insurance. 24. The conclusion by GMAC of satisfactory arrangements between it and Barclays Bank Plc for the participation by Barclays of 50% of the facilities. 25. Sight of and satisfaction with a pro-forma report of covenant calculations (except interest cover) for the period to 30 October 2002. 26. Certified copies of Board Resolutions confirming the capitalisation of Pound Sterling11 million at 30 April 2003 and Pound Sterling6.9 million at 20 December 2002 of the Daisytek International Corporation loan to the Group. 27. The Group will quarantine any Qualifying Inventory purchased directly by the Group. 28. Satisfactory review by GMAC's Swedish and Norwegian lawyers of all documentation relating to post giro and bank giro arrangements and confirmation from Nordea that all necessary bank account/clearing numbers have been satisfactorily transferred to Nordea. - -------------------------------------------------------------------------------- 32 PART 2 THE SECURITY DOCUMENTS 1. A pledge over floating shares of Oscar Dellert AB and all other Subsidiaries of the Group in Sweden. 2. Share Pledges by CTS Svenska AB in respect of their shares in Oscar Dellert AB, ISA International Holdings Limited in respect of their shares in CTS Svenska AB and Oscar Dellert AB in respect of their shares in Supplies Team Sverige AB. 3. Factoring Agreement and Agreement for charge over inventory for Supplies Team Norge AS providing a registered first security interest on inventory and book debts of Supplies Team Norge AS. 4. Factoring Agreement and Agreement for charge over inventory between Supplies Team Norge AS and Oscar Dellert AB together with an Assignment of this Agreement for charge over inventory to GMAC. 5. Guarantee from ISA Scandinavia AS in favour of Oscar Dellert AB for Supplies Team Norge AS' obligations to Oscar Dellert AB. 6. Guarantee from ISA Scandinavia AS in favour of GMAC for Oscar Dellert AB's obligations to GMAC. 7. Guarantee from Supplies Team Norge AS in favour of GMAC for Oscar Dellert AB's obligations to GMAC. 8. Guarantee from ISA Scandinavia AS in favour of GMAC for Supplies Team Norge AS' obligations to GMAC. 9. Security Agreement for Supplies Team Norge AS and Oscar Dellert AB. 10. Security Agreement for Supplies Team Norge AS and GMAC. 11. A first security interest over the Qualifying Inventory of ISA Deutschland GmbH PAR Beteiligungs GmbH and Supplies Team GmbH; 12. First priority all assets debenture from ISA Wholesale Plc, Daisytek - ISA Limited, ISA International Holdings Ltd, ISA International Plc and all their respective UK Subsidiaries together with the guarantees of all such companies in respect of all liabilities of all UK and overseas Subsidiaries. 13. German law and English law Guarantees from ISA Deutschland GmbH, PAR Beteiligungs GmbH and Supplies Team GmbH in respect of ISA Wholesale Plc, the Borrower and the Group Overseas ISA Invoice Discounters and Overseas Supplier Finance Beneficiaries and their subsidiaries. 14. A guarantee from Daisytek Inc Limited to Pound Sterling4,000,000 in respect of liabilities of the Group under the Supplier Finance Facility plus related costs and interest. 15. An assignment of acceptable trade credit insurance policies effected with Royal and Sun Alliance, Hermes and Gerling NCM and for such policies to name GMAC as first loss payee. - -------------------------------------------------------------------------------- 33 16. Inter-creditor agreements in form acceptable to GMAC with all other secured creditors. 17. Such consents and waivers as GMAC and its solicitors consider necessary including any landlords, mortgages and others who may have liens or other security interests which may impeded GMAC's access to the Group's asset or may adversely affect the enforcement of any security. 18. The execution of an agreement for the use of GMAC's Interface Computer Link. - -------------------------------------------------------------------------------- 34 SCHEDULE 2 (FORM OF COMPLIANCE CERTIFICATE) GMAC Commercial Credit Limited The Victoria 150-182 The Quays Harbour City Salford M5 2SP For the attention of : David Nadler [Date] Dear Sirs RE: ISA WHOLESALE PLC We refer to the Facilities Agreement dated [ ] 2003 (the "AGREEMENT") and deliver this certificate pursuant to the covenants in clauses 19, 20 and 21 thereof (the "COVENANTS"). Terms defined in the Agreement shall have the same meaning when used in this certificate. We confirm that on or as of the last day of the financial period ending [ ], as determined by reference to the (Audited)/Monthly Management Accounts of the Group in respect of such period: MONTHLY REQUIREMENTS: 1. No Group Company is in default or has agreed a revised payment schedule in making any due payments with respect to any liability due to Preferential Creditors. 2. To the best of the Borrower's knowledge there are no County Court judgements issued against any Group Company. 3. All disputes arising in respect of invoices raised by Hewlett Packard to the Borrower have been appropriately advised to GMAC as they have arisen. 4. Accounts Payable Turn was [ ] days, (clause 19.1.3). 5. Accounts Receivable Turn was [ ] days (clause 19.1.4). 6. Dilutions in respect of the Supplier Finance Facility equal [ ]% (clause 19.1.6). QUARTERLY PERIOD (CUMULATIVE): 7. Tangible Net Worth is not less than Pound Sterling [ ] (clause 19.1.1). 8. The Ratio of Total Operating Profit to Gross Financing Costs is not less than [ ] (clause 19.1.2). 9. The value of credit notes issued as a percentage of the Gross Purchase Price is [ ]% (clause 19.1.5). - -------------------------------------------------------------------------------- 35 Based on the above we confirm that the Group was in compliance with the covenants as contained in clause [*] of the Facility Agreement [or, if not indicate the extent of any non-compliance] as at the end of such financial period. For and on behalf of: ISA WHOLESALE PLC MANAGING DIRECTOR/ FINANCE DIRECTOR Signatory's name in full: ------------------------ - -------------------------------------------------------------------------------- 36 SCHEDULE 3 FORM OF NOTICE OF DRAWDOWN From: + To: + Dated: Dear Sirs, We refer to the facilities agreement dated + and made inter alia between [+ ] (the "FACILITIES AGREEMENT"). Terms defined in the Facilities Agreement shall have the same meaning in this notice. We hereby request, subject to the provisions of clause 6, an advance under the Term Loan Facility in the amount of Pound Sterling +. Please make such advance available on the date hereof by way of a telegraphic transfer to +. We confirm that: (i) the representations and warranties repeated pursuant to clause 17, 18 and 19 of the Facilities Agreement are true and correct and will be true and correct immediately as such advance is made as if made in relation to the facts and circumstances existing at that date; and (ii) no Event of Default has occurred and is continuing (which has not been remedied to the satisfaction of GMAC or expressly waived in writing by GMAC), or would occur as a result of the making of such advance. Yours faithfully For and on behalf of + - -------------------------------------------------------------------------------- 37 SCHEDULE 4 NAMES AND ADDRESSES OF ISA COMPANIES SWEDEN CTS SVENSKA AB Registered Number 556292 - 5288 Registered Address Box 23143 104 35 Stockholm Sweden OSCAR DELLERT AB Registered Number 556037 - 4364 Registered Address Box 23143 104 35 Stockholm Sweden NORWAY SUPPLIES TEAM NORGE AS Registered Number 960806 263 Kakkelovnskroken 2 0901 Oslo Norway ISA SCANDANAVIA AS Registered Number 968 250 043 Kakkelovnskroken 2 0901 Oslo Norway - -------------------------------------------------------------------------------- 38 UK DAISYTEK - ISA LIMITED Registered Number: 04226999 66/70 Vicar Lane Bradford West Yorkshire UK BD1 5AG UK ISA INTERNATIONAL PLC Registered Number: 01925205 66/70 Vicar Lane Bradford West Yorkshire UK BD1 5AG UK ISA INTERNATIONAL HOLDINGS LIMITED Registered Number: 01109744 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK ISA WHOLESALE PLC Registered Number: 01431689 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK - -------------------------------------------------------------------------------- 39 SUPPLIES TEAM LIMITED Registered Number: 03257705 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK LRB TRADING LIMITED Registered Number: 02307833 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK ISA MULTIMEDIA LIMITED Registered Number: 02794008 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK COMPUTANET CORPORATION LIMITED Registered Number: 03305341 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK - -------------------------------------------------------------------------------- 40 OST OFFICE SUPPLIES TEAM LIMITED Registered Number: 00634814 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK R.A.W. THE REAL ALTERNATIVE WHOLESALE COMPANY LIMITED Registered Number: 01104019 66/70 Vicar Lane Bradford West Yorkshire BD1 5AG UK SCOTLAND HUNDLEBY COMPUTER SUPPLIES LIMITED Registered Number: SC 62913 Custom House Bo'ness West Lothian EH51 9AU Scotland NORTHERN IRELAND SOURCE SUPPLIES LIMITED Registered Number: NI24039 ISA House Unit 4 537 Saintfield Road Belfast BT8 8ES - -------------------------------------------------------------------------------- 41 GERMANY PAR BETEILIGUNGS GMBH Europadamm 2-6, 41460 Neuss Germany ISA DEUTSCHLAND GMBH Europadamm 2-6, 41460 Neuss Germany SUPPLIES TEAM GMBH Europdamm 2-6, 41460 Neuss Germany - -------------------------------------------------------------------------------- 42 ANNEX 1 FORECAST See separate Schedules - -------------------------------------------------------------------------------- 43 EXECUTED AS A DEED BY DAISYTEK - ISA LIMITED acting by a Director and } ---------------------------------------- a Director/Secretary* } ---------------------------------------- (Insert full names above and where indicated by * clarify whether the person is a Director or a Secretary) GMAC EXECUTED AS A DEED by ) ) as Attorney for GMAC COMMERCIAL CREDIT LIMITED ) in the presence of ) ) Witness Name: ---------------------------------------- Witness Signature: ---------------------------------------- Witness Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- Occupation: ---------------------------------------- - -------------------------------------------------------------------------------- 44 EX-10.3 5 d03164exv10w3.txt SEPARATION AGREEMENT EXHIBIT 10.3 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH PORTIONS ARE DESIGNATED "***". SEPARATION AGREEMENT Daisytek International Corporation ("Daisytek") and *** enter the following agreement ("Agreement"), effective December 4, 2002 ("Effective Date"), for the purpose of completely resolving any and all issues, disputes and claims related to ***'s employment with Daisytek, the termination of ***'s employment with Daisytek, and all other matters related in any way to, or resulting in any way from, the relationship between *** and Daisytek. 1. PAYMENTS AND BENEFITS. As consideration to *** for ***'s promises, releases and representations in this Agreement, Daisytek agrees to provide the following payments and benefits to ***: a. *** b. *** c. *** d. *** 2. RESIGNATION BY ***. *** agrees to voluntarily resign ***'s employment with Daisytek effective January 1, 2003, and Daisytek agrees to accept ***'s resignation effective January 1, 2003. *** agrees that his decision to resign his employment is purely voluntary, and that he has not been discriminated or retaliated against during his employment with Daisytek. 3. RELEASE BY ***. In return for the payments, releases and other consideration described herein, ***, for himself and his heirs and assigns, hereby releases and waives all claims and causes of action of any and every sort against Daisytek, its parents, subsidiaries, affiliates, partners, limited partners, successors, shareholders, directors, officers, employees, agents, attorneys and assigns, which *** has, has had, or may have in the future arising in any way from any event, act or omission which occurred at any time from the beginning of time to the Effective Date, including, but not limited to ***'s employment with Daisytek, the termination of ***'s employment with Daisytek, and all other matters related in any way to the relationship between *** and Daisytek. This release includes, but is not limited to, claims in tort, contract, under statute, in equity or otherwise, and claims for compensation, severance, retaliation, bonuses, stock, stock options, performance incentives, payments as the result of a sale merger or business combination, benefits, vehicle payments or expenses, incidental and consequential damages, expense reimbursement of any sort, injuries, or any other sort of damages or relief whatsoever. This release also includes, but is not limited to, claims under the Americans With Disabilities Act, Age Discrimination in Employment Act, Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, the Texas Commission on Human Rights Act, the Texas Payday Act, any workers' compensation statute, and any other federal, state or local act or ordinance pertaining to employment. The intent of *** and Daisytek is that this release will be interpreted in as broad a fashion as possible and that it is intended to be a total and complete release of all claims of any sort whatsoever. 4. *** 5. TRADE SECRETS/CONFIDENTIAL INFORMATION. *** acknowledges that Daisytek's Confidential Information is uniquely valuable to Daisytek and agrees that during ***'s lifetime, *** will not disclose Confidential Information to any other person or entity without Daisytek's prior written consent and will not duplicate, copy, disseminate or attempt to duplicate, copy or disseminate Confidential Information or any part or portion of it or allow or permit any person or entity within ***'s control to do so. "Confidential Information" as used in this Agreement includes the following: all trade secrets of Daisytek and any information or item that does not qualify under applicable law as a trade secret but to which Daisytek limits access, to any extent, either internally or externally. Confidential Information includes but is not limited to information and items related to plans, strategies, inventions, devices, services, products, processes, properties, assets, customers, customer lists, customer preferences, markets, marketing strategies, rebate programs, incentive programs, promotions, management, employees, technology, know-how, financial conditions or prospects, employee compensation, fee information, cost information, pricing information, business development plans and strategies, marketing plans and strategies, instructional methodology and techniques, computer software, specifications and code, sources of supply, products or services, designs, analyses, drawings, photographs and reports, computer operating systems, applications and program listings, flow charts, manuals, documentation, databases, accounting and business methods, production procedures, or merchandising systems. 6. RETURN OF PROPERTY. On or before the Effective Date, *** will return to Daisytek's counsel all property, tangible or intangible, that Daisytek provided to *** during the course of or as the result of ***'s employment with Daisytek, as well as all property, tangible or intangible, that *** developed or produced as the result of or in the course of ***'s employment with Daisytek. This includes, but is not limited to, all keys, computers, computer passwords, equipment, and originals and all copies of computer discs, emails, schedules, worksheets, spreadsheets, files or other stored information, documents, and voice, video or data recordings of any sort that are within his possession or control. 7. COVENANT NOT TO COMPETE. a. *** agrees that for the *** period immediately following the Effective Date or for *** from the date of any court order enforcing all or part of this Agreement, whichever is later, *** will not in the ***, or ***, (i) Either directly or indirectly, for ***'s own behalf or on behalf of any other person or entity, engage in or carry on any business or in any way become associated with any business that distributes or provides corporate supplies, peripherals, professional tape products, office products, customer care, logistics, distribution, fulfillment, or demand generation services similar to those that Daisytek offered or planned to offer while *** was employed by Daisytek ("Business of Daisytek"); (ii) Either directly or indirectly attempt in any manner to solicit, from any person or entity that is or was a client of Daisytek, business of the type performed or formerly performed by Daisytek for such client or to persuade any such client to cease to do business or to reduce the amount of business which any such client has customarily done with Daisytek or contemplates doing with Daisytek (as used herein the noun "client" shall mean anyone who is a client or customer, supplier, trading group, dealer, trader, venture partner or sales representative or affiliate of any of the above who purchases Daisytek product or services or otherwise does business with Daisytek at any time during the *** period immediately preceding the Effective Date and any prospective persons to whom Daisytek had made a formal presentation (or similar offering of services) within a period of *** immediately preceding the Effective Date); (iii) Either directly or indirectly, for ***'s own behalf or on behalf of any other person or entity, be or become an employee, agent, consultant or representative of or become a director or officer of any person, firm, corporation, association or other entity that is engaged in or currently intends to become engaged in, or is carrying on any business that is in direct or indirect competition with the Business of Daisytek; or (iv) Either directly or indirectly be or become a shareholder, joint venturer in or owner (in whole or in part) of or be a partner of or associated with or have any proprietary or financial interest, in any firm, corporation, joint venture, partnership or association or other entity that is engaged -2- in, or currently intends to become engaged in or is carrying on any business that is in direct or indirect competition with the Business of Daisytek. Nothing in this Section will prevent *** from owning less than five percent (5%) of the stock of any publicly traded corporation as long as *** is not a participant in the management or affairs of the corporation in a manner that would otherwise violate any prohibition contained in this Section. b. It is understood and agreed that the scope of the covenants contained in this Section are reasonable as to time, area and scope of activity restrained and are necessary to protect Daisytek's legitimate business interests. Specifically, *** has considered the covenants in light of the benefits *** will obtain by means of this Agreement and has concluded that the covenants leave *** with a reasonable number and variety of permitted avenues for engaging in employment in a number of locations and a number of occupations during the period of restriction. c. If the restrictions contained in this Section regarding time, geography, or scope of activity are determined by a court to be unenforceable, Daisytek and *** agree that said court may substitute a provision it believes to be enforceable for the one it believes to be unenforceable, and this Agreement may be enforced as amended. 8. NON-DISPARAGEMENT. *** and Daisytek agree not to make any negative or disparaging remarks of any sort regarding one another. 9. RESPONSIBILITY FOR TAXES. *** assumes responsibility for all taxes, if any, due by him on or as a result of any payment made to him under this Agreement, with the sole exception of any mandatory payroll withholding and employer contribution required by local, state or federal law. Daisytek makes no representations of any kind relating to the taxability or non-taxability of any payments made or consideration given under this Agreement. *** acknowledges that he should seek independent advice regarding the taxability of the payments made hereunder, to the extent he desires such advice. *** also acknowledges that a report of the payments herein may or may not be made by Daisytek or Daisytek's representatives to the Internal Revenue Service depending upon applicable tax laws. *** acknowledges that he must pay all of his own legal or tax advice fees, taxes and COBRA continuation premiums out of the proceeds of the consideration described in this Agreement. 10. COOPERATION WITH DAISYTEK'S AUDIT COMMITTEE. *** agrees that he has been given a full and fair opportunity to express concerns about Daisytek's alleged practices and financial and accounting improprieties to Daisytek's Audit Committee. *** further agrees that he has done so and that he has no material concerns that he has not brought to the attention of the Audit Committee. *** agrees to continue to make himself reasonably available to confer with, report to, and/or assist Daisytek's Audit Committee with regard to the Audit Committee's investigation of any practices or alleged improprieties of Daisytek. If *** fails to do so, in addition to all other remedies that Daisytek may have for ***'s breach of this Agreement, Daisytek may cancel all remaining payments due to *** by Daisytek under this Agreement. 11. CONFIDENTIALITY. Maney agrees to keep amounts, terms and conditions of this Agreement strictly confidential. Except as required by law or legal process issued by a court or government agency with competent jurisdiction, *** agrees that he shall not disclose the amounts, terms and conditions of this Agreement to any person or entity except for his attorneys or tax advisors, and spouse. *** additionally agrees that he will inform his attorneys, tax advisors, and spouse that the amounts, terms and conditions of this Agreement are to be kept strictly confidential, and that they are bound to this confidentiality provisions as ***'s agents. 12. DUTY TO REPORT. *** and Daisytek agree that notwithstanding the provisions regarding nondisparagement and confidentiality contained in paragraphs 7 and 10 of this Agreement, *** may report facts known by him about Daisytek which he has a duty to report by law or public policy to any governmental entity or agency. -3- 13. REAPPLICATION FOR EMPLOYMENT. *** agrees that he shall neither seek nor accept reemployment with or through Daisytek, whether such employment be directly with Daisytek or a parent, subsidiary or affiliate of Daisytek. 14. SEVERABILITY. If any provision of this Agreement is declared to be illegal, invalid or unenforceable, such provision(s) will be severed from this Agreement and this Agreement shall be construed as if such illegal, invalid or unenforceable provision was never part of this Agreement. Any such illegal, invalid or unenforceable provision will not affect the validity or the enforceability of this Agreement or its remaining provisions. 15. GOVERNING LAW/LEGAL FEES AND COSTS. This Agreement is made under, and will be construed in accordance with the laws of the State of Texas. In the event that any legal action is necessary to enforce this Agreement, the prevailing party will be entitled to recover his, its reasonable attorneys' fees and costs. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first written above. DAISYTEK INTERNATIONAL CORPORATION *** By: ------------------------------ Its /s/ President/CEO By: /s/ *** -------------------------- ------------------------------ Date: Date: /s/ 12/4/02 ------------------------------ ------------------------------ -4- EX-99.1 6 d03164exv99w1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, James R. Powell, President and Chief Executive Officer of Daisytek International Corporation, certify that to the best of my knowledge: (i) the Form 10-Q for the quarterly period ended December 31, 2002, (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Daisytek International Corporation. Date: February 14, 2003 DAISYTEK INTERNATIONAL CORPORATION By: /s/ James R. Powell ------------------------------------- James R. Powell President and Chief Executive Officer EX-99.2 7 d03164exv99w2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, John D. Kearney, Sr., Acting Chief Financial Officer of Daisytek International Corporation, certify that to the best of my knowledge: (i) the Form 10-Q for the quarterly period ended December 31, 2002, (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Daisytek International Corporation. Date: February 14, 2003 DAISYTEK INTERNATIONAL CORPORATION By: /s/ John D. Kearney, Sr. ------------------------------ John D. Kearney, Sr. Acting Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----