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RISKS RELATED TO DAISYTEK
THERE IS A RISK OF CHANGE IN CONTROL OF DAISYTEK.
Daisytek recently announced that it had received an unsolicited offer to
acquire all of Daisytek's outstanding shares. After considering a variety of
factors, Daisytek's board determined that the offer was inadequate and
inconsistent with Daisytek's previously disclosed plans to complete the
spin-off. If, however, the bidder decides to begin a tender offer for the
outstanding shares of Daisytek without the approval of Daisytek's board, such an
offer, or stockholder litigation in connection with such an offer, could
significantly divert our attention away from our operations and disrupt or delay
our proposed spin-off from Daisytek. In addition, if the bidder is successful in
acquiring control of Daisytek prior to the proposed spin-off, it would control a
majority of our shares and the spin-off would likely not occur.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF DAISYTEK DOES NOT COMPLETE
THE SPIN-OFF OF OUR COMPANY.
There are various conditions which must be satisfied, or waived by Daisytek
in its sole discretion, prior to the completion of the spin-off. We cannot
assure you whether or when these conditions will be satisfied or waived by
Daisytek. If any of these conditions are neither satisfied, nor waived by
Daisytek, in a timely manner, the spin-off may not be completed. If the spin-off
is not completed, we will continue to be controlled by Daisytek. If that
happens, the price of our shares in the public market could be adversely
affected because of the reduced liquidity and the uncertainty as to if, when and
how the shares held by Daisytek would be sold or distributed to the public. This
would, in turn, adversely affect the potential benefits offered by employee
equity incentive compensation programs, such as employee stock options. In
addition, we believe that our control by Daisytek may limit our ability to
market our services to some manufacturers. Even if all of the conditions to the
spin-off are satisfied, or waived, we cannot assure you when the spin-off will
occur or whether or when we will obtain the expected benefits.
WE DEPEND ON DAISYTEK FOR VARIOUS SERVICES AND FOR A SIGNIFICANT PORTION OF OUR
REVENUE.
We have historically been dependent on Daisytek for various services,
including facilities, human resources, management information systems, as well
as for working capital. We will enter into a transition services agreement with
Daisytek under which Daisytek will continue to provide certain of these services
to us until the spin-off is completed, but not later than one year following the
closing of this offering. When the term of this agreement expires, we will need
either to extend the term of this agreement, engage other entities to perform
these services or perform these services ourselves. We cannot assure you that
Daisytek will continue to provide these services after the initial term of the
agreement, or that the cost of these services will not be significantly higher
if we purchase services from other parties or devote resources to handle these
functions internally.
In addition, we will be providing transaction management services for
Daisytek's U.S. wholesale consumable computer supplies business under a
five-year agreement. Daisytek is one of our largest clients, and we currently
expect that Daisytek will remain a significant client for the foreseeable
future. Consequently, a substantial portion of our business will be dependent
upon the success of Daisytek's sales and marketing of its products. Daisytek has
the right to terminate the agreement, subject to the payment of a termination
fee. In addition, Daisytek has reported that it has experienced, and may
continue to experience, a decline in sales growth in its U.S. wholesale
consumable computer supplies business. This decline may adversely affect our
service fee revenue arising under this agreement.
All of our agreements with Daisytek were made in the context of a
parent-subsidiary relationship and were negotiated in the overall context of our
spin-off from Daisytek. We cannot
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