SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): October 20, 1998
DANKA BUSINESS SYSTEMS PLC
(Exact name of registrant as specified in its charter)
UNITED KINGDOM 0-20828 98-0052869
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 727-576-6003
ITEM 5. OTHER EVENTS.
As previously reported, the Company entered into a six-year
$1.275 billion multicurrency credit agreement (the "Credit Agreement")
with a consortium of international banks in December 1996. The Credit
Agreement provided the Company with a revolving component in the
aggregate amount of up to $725.0 million, and a term loan component of
$550.0 million. In December 1997, the revolving component was reduced
by $115.0 million to $610.0 million bringing the full capacity of the
Credit Agreement to $1.160 billion. On June 30, 1998 the term loan
component was further reduced to $520 million bringing the full
capacity of the Credit Agreement to $1.13 billion. The Credit
Agreement is secured and guaranteed by certain of the company's
subsidiaries and a covenant that the Company will not pledge its
assets except as specifically permitted under the terms of the Credit
Agreement. The Credit Agreement contains negative and affirmative
covenants and agreements which place restrictions on the Company
regarding disposition of assets, capital expenditures, additional
indebtedness, permitted liens and payment of dividends, as well as
requiring the maintenance of certain financial ratios. The adjustable
interest rate on the Credit Agreement is, at the option of the
Company, either: (i) the applicable InterBank Offered Rate plus a
tiered margin based on leverage for the periods of one, two, three or
six months or (ii) an alternative base rate, consisting of the higher
of the lead bank's prime rate or the Federal Funds Rate plus 0.5%.
The Credit Agreement was first amended on December 5, 1997, primarily
to provide for the adjustment of certain definitions set forth
therein.
On July 28, 1998, the Company entered into a Second Amendment to
its Credit Agreement (the "Second Amendment"). The Second Amendment
principally provided for; (i) the revision to certain definitions;
(ii) an adjustment to certain financial ratios required to be
maintained by the Company; (iii) an increase in the tiered margin
applied to the Interbank Offered Rate under the Credit Agreement; (iv)
an increase in the applicable commitment fee paid by the Company for
the maintenance of the Credit Agreement; and (v) the inclusion of
certain additional covenants related to the year 2000 issue. A copy
of the Second Amendment to the Credit Agreement was included with a
Form 8-K Current Report, dated July 28, 1998 as Exhibit 4.10 thereto
and any description or summary set forth in this Report is qualified
in its entirety by reference to the complete terms and conditions of
the Credit Agreement as amended.
On October 20, 1998 the Company obtained a waiver of its
obligation to comply with certain financial covenants of the Credit
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Agreement and any adverse effect resulting from such non-compliance
for a period from September 30, 1998 through February 28, 1999. Upon
granting of the waiver the lenders advanced $20 million in new loans
to the Company. Terms of the waiver included a .7% increase in the
interest rate applicable to certain of the Company's loans under the
Credit Agreement during the period the waiver is in effect. The total
commitment under the Credit Agreement was reduced by $50 million and
the banks' obligations to make new loans during the waiver period were
limited to $20 million advanced upon the granting of the waiver, plus
$55 million of additional loans which are subject to the Company's
providing projections and a business plan deemed satisfactory by the
banks and similar matters. The Company has agreed, at its expense, to
cooperate with the Banks' and their representatives' review of its
assets. The Company has also agreed to use its best to maintain
during the waiver period at least $30 million in lines of credit
outside the United States. The Company has also agreed that it shall
incur no additional Indebtedness (as defined in the Credit
Agreement) except Indebtedness under the Credit Agreement and
Indebtedness under the lines of credit required to be maintained
outside the United States. During the term of the waiver, the Company
cannot make dividend payments thereby and the banks' consent is
required for any acquisitions or investments by the Company. A copy
of the waiver is included with this Form 8-K Current Report, as
Exhibit 4.11 hereto and any description or summary set forth in this
Report is qualified in its entirety by reference to the complete terms
and conditions of the Credit Agreement as amended thereby.
ITEM 7(c). EXHIBITS.
EXHIBIT
NUMBER EXHIBIT
- ------- -------
4.11 Waiver dated October 20, 1998, of certain financial
covenants contained in the Credit Agreement among
Danka Business Systems PLC, Dankalux Sarl & Co., SCA
and Danka Holding Company, NationsBank, N.A., each
other Bank signatory to the Credit Agreement and
NationsBank, N.A., as agent.
99.1 Press Release dated October 21, 1998 by Danka Business
Systems PLC announcing agreement with lenders.
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SIGNATURE
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 hereunto duly authorized.
DANKA BUSINESS SYSTEMS PLC
By: /s/ Larry K. Switzer
-----------------------------------------
Larry K. Switzer
Its: Financial Director, Chief Financial
Officer, and Principal Accounting Officer
Dated: October 21, 1998
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
4.11 Waiver dated October 20, 1998, of certain financial
covenants contained in the Credit Agreement among
Danka Business Systems PLC, Dankalux Sarl & Co., SCA
and Danka Holding Company, NationsBank, N.A., each
other Bank signatory to the Credit Agreement and
NationsBank, N.A., as agent.
99.1 Press Release dated October 21, 1998 by Danka Business
Systems PLC announcing agreement with lenders.
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October 20, 1998
Danka Holding Company
11201 Danka Circle North
St. Petersburg, Florida
Re: Credit Agreement dated as of December 5, 1996 among Danka
Business Systems PLC, a limited liability company
incorporated in England and Wales (Registered Number
1101386) ("Danka PLC"), Dankalux Sarl & Co. SCA, a
Luxembourg company ("Dankalux"), and Danka Holding Company,
a Nevada corporation ("Danka Holding") (Danka PLC, Dankalux
and Danka Holding are herein each a "Company") and
collectively the "Companies"), NationsBank, National
Association, a national banking association formerly known
as NationsBank, National Association (Carolinas), each other
Bank signatory hereto (each individually, a "Bank" and
collectively, the "Banks"), and NationsBank, National
Association, in its capacity as agent for the Banks (in such
capacity, the "Agent"), as amended. Capitalized terms
contained herein and not otherwise defined shall have the
meaning set forth in the Credit Agreement.
Ladies and Gentlemen:
NationsBank, N.A., as Agent under the Credit Agreement has received the waiver
by the Majority Banks of the violation of Section 8.3 of the Credit Agreement
and the waiver of any adverse effect resulting therefrom for the period from
September 30, 1998 through February 28, 1999, subject to the terms and
conditions set forth in the letter dated October 16, 1998 from you, a copy of
which is attached hereto.
NATIONSBANK, N.A., as Agent
By: /s/ Andrew M. Airheart
------------------------
Andrew M. Airheart
Senior Vice President
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NationsBank, N.A., as Agent October 16, 1998
101 North Tryon Street, NC1-001-15-04
Charlotte, North Carolina 28255
Re: Credit Agreement dated as of December 5, 1996 among Danka
Business Systems PLC, a limited liability company
incorporated in England and Wales (Registered Number
1101386) ("Danka PLC"), Dankalux Sarl & Co. SCA, a
Luxembourg company ("Dankalux"), and Danka Holding Company,
a Nevada corporation ("Danka Holding") (Danka PLC, Dankalux
and Danka Holding are herein each a "Company" and
collectively the "Companies"), NationsBank, National
Association, a national banking association formerly known
as NationsBank, National Association (Carolinas), each other
Bank signatory hereto (each individually, a "Bank" and
collectively, the "Banks"), and NationsBank, National
Association, in its capacity as agent for the Banks (in such
capacity, the "Agent"), as amended.
Ladies and Gentlemen:
The Companies hereby request that NationsBank as Agent seek to obtain
from the Banks a waiver of the enforcement of the financial covenants contained
in Section 8.3 of the Credit Agreement and a waiver of any adverse effect
resulting therefrom, such waiver to be effective as of September 30, 1998 and
for a period from September 30, 1998 through February 28, 1999 (the "Waiver
Period"). The Companies jointly and severally acknowledge and agree that the
consent of the Banks and of the Agent to such waiver shall be subject to the
following terms and conditions:
1. During the Waiver Period the "Applicable Margin" on
outstanding Offshore Rate Loans shall be 2.00%.
2. The Companies acknowledge and agree that the Agent has caused its
counsel to retain PricewaterhouseCoopers LLP as independent business consultant
(the "Consultant") to assess on behalf of the Agent, its counsel and the Banks
the operations, finances, and business affairs of Danka PLC and its Subsidiaries
and to furnish a report of its findings and recommendations solely to the Agent,
its counsel and the Banks. The Companies jointly and severally agree to pay all
fees, costs, and expenses of the Consultant incurred in connection with the
performance by the Consultant of its duties described in this paragraph. The
Companies shall, and shall cause all Subsidiaries, to cooperate
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fully and in a timely manner with the Consultant, including its
agents and employees.
3. Danka Holding shall take, and shall cause all its Subsidiaries to
take, as soon as practicable and at their sole cost and expense, all steps that
the Agent shall in good faith determine to be necessary or advisable to confer,
pursuant to documentation in form and substance satisfactory to the Agent, upon
the Agent (or such sub-agents as the Agent shall in good faith determine to be
necessary or advisable) first priority Liens on all of the assets of Danka
Holding and its Subsidiaries, including but not limited to inventory, accounts
receivable, property, plant and equipment, cash, depositary accounts, contract
rights and general intangibles located within the United States securing the
timely payment of any Loans made pursuant to the Credit Agreement (the
"Advances") subsequent to October 16, 1998 and $150,000,000 of Obligations
incurred prior to October 16, 1998, and to perfect such Liens in favor of the
Agent (or appropriate sub-agent) for the benefit of the Banks subject, among
other things, to (a) such encumbrances as may exist as of the date hereof and
are not prohibited by the terms of the Loan Documents and (b) prohibitions on
the granting of Liens on certain interests in property subject to tax retention
operating leases.
4. The Companies shall furnish to the Agent and the Banks as soon as
practicable but in any event within thirty (30) days of the end of each calendar
month, commencing with the calendar month ending July 31, 1998, the monthly
consolidated balance sheet and consolidated statements of earnings and cash flow
of Danka PLC and its Subsidiaries, certified in writing by any representative
authorized to provide the certification required by Section 7.1(c) of the Credit
Agreement to have been prepared in accordance with GAAP in a manner consistent
with past practices of Danka PLC, and to the best knowledge of such signatory to
be true, correct, and complete in all material respects, subject to routine
audit adjustments; provided, however, the monthly financial statements for July
and August 1998 (and accompanying certification) shall be furnished to the Agent
and the Banks no later than October 20, 1998.
5. Immediately upon being notified by the Agent that the waiver
requested herein is effective, the Companies shall take such action as is
required by the Credit Agreement to effect a permanent reduction in the
Revolving Commitments in an aggregate amount of not less than $50,000,000.
6. The Companies shall not be entitled to receive Advances during the
period from October 16, 1998 through February 28, 1999 under the Credit
Agreement and the International Swing Line Facility in excess of $75,000,000.
During this period a $20,000,000 Advance will be made at the time of approval of
the
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waiver request by the Majority Banks. Advances in excess of
$20,000,000 will be subject to the following:
(i) an additional $20,000,000 Advance shall be made
if requested only (x) upon receipt within 14 days of the date
of the waiver of cash flow projections beginning the date of
the Waiver Period on a weekly basis for a 13 week period; such
projections are to be updated each week thereafter, which
projections demonstrate a need for the additional Advance, and
(y) upon determination by the Consultant that the projections
are reasonable based on information available to it; such
projections to be updated and provided to the Consultant and
the Bank Group each Wednesday and shall include, to the extent
available, actual results for the prior week;
(ii) an additional $35,000,000 shall be made if
requested only (x) upon receipt by the Agent by November 30,
1998 and review by the Consultant and the Bank Group of a
business plan demonstrating a process for reducing outstanding
Indebtedness and achieving results of operations necessary to
permit performance under and satisfactory compliance with the
Credit Agreement and (y) upon receipt of updated cash flow
projections described in (b)(i) above demonstrating a need for
the additional Advances; and
(iii) the Companies making available separately to
the Steering Committee and to the Bank Group shortly following
delivery of the initial cash flow projections described in
(b)(i) and the business plan described in (b)(ii) senior
management of the Companies and representatives of Wasserstein
& Perella to discuss the same.
7. During the Waiver Period (i) Danka PLC shall not pay any dividends
or make any distributions, (ii) neither the Companies nor any of their
Subsidiaries shall make any Acquisitions, and (iii) neither the Companies nor
any of their Subsidiaries will make any Investments.
8. During the Waiver Period the provision set forth in Section
2.9(f)(i) requiring payment of 50% of Net Proceeds in excess of $50,000,000 to
the Banks shall be deemed amended to require payment of 60% of all Net Proceeds
to the Banks.
9. The Companies shall pay to the Agent for the benefit of the Banks a
waiver fee of $1,000,000.
10. The Companies shall, at their expense, permit and fully cooperate
with the Agent and its representatives in a review and evaluation of all assets
of the Companies and their Subsidiaries located in the United States.
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11. The Companies and their Subsidiaries shall use their best efforts
at all times during the Waiver Period to maintain committed and/or discretionary
lines of credit outside the United States of at least $30,000,000; and the
Companies shall notify the Agent of any termination of lines of credit outside
the United States.
12. The Companies will be liable for prompt payment of all reasonable
cost and expenses incurred by the Steering Committee.
13. Neither the Companies nor their Subsidiaries shall incur
additional Indebtedness except to the extent necessary to comply with item 11.
The Companies hereby acknowledge that the amount of outstanding principal
indebtedness under the Credit Agreement and outstanding Letters of Credit
(excluding the International Swing Line) are $814,749,411.28 and $10,
964,906.82, respectively.
14. The Companies and the Guarantors acknowledge that they have no
existing defense, counterclaim, offset, cross-complaint, claim or demand of any
kind or nature whatsoever that can be asserted to reduce or eliminate all or any
part of their respective liability to pay the full indebtedness outstanding
under the terms of the Credit Agreement and any other documents which evidence,
guaranty or secure the Obligations. The Companies and the Guarantors hereby
release and forever discharge the Agent, the Banks and all of their officers,
directors, employees and agents from any and all actions, causes of action,
debts, dues, claims, demands, liabilities and obligations of every kind and
nature, both in law and in equity, known or unknown, whether matured or
unmatured, absolute or contingent.
15. The Companies shall have received a waiver of violations of the
financial covenants incorporated in the tax retention operating lease documents.
16. The $75 million limitation on new Advances shall refer to net
increases in Revolving Loan Outstandings after the date hereof under the Credit
Agreement and the International Swing Line Agreement. The liens provided in
paragraph 3 hereof shall secure only such net increase in Revolving Loan
Outstandings, plus $150 million.
17. The provisions of this document supersede any provisions of the
Credit Agreement and the International Swing Line Agreement to the extent they
are inconsistent.
The Companies further acknowledge and agree that any breach
during the Waiver Period in the timely performance, observance,
or fulfillment of any of the terms or conditions stated above
shall constitute an Event of Default under the Credit Agreement
and, unless the Majority Banks shall otherwise agree in writing,
shall terminate the effectiveness of any waiver obtained by the
Agent from the Banks pursuant to this request. The Companies
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further acknowledge and agree that nothing contained herein is intended to or
shall limit any of the provisions of the Loan Documents as currently in effect,
except that, should the Agent obtain the waiver of Section 8.3 of the Credit
Agreement requested hereby, the enforcement of such provisions shall be waived
during the Waiver Period as well as any adverse effect resulting thereby subject
to the Companies' full and timely compliance with the terms and conditions of
such waiver stated above. Capitalized terms used herein without definition shall
have the meanings thereof provided in the Credit Agreement.
Very truly yours,
DANKA BUSINESS SYSTEMS PLC
By: /s/ Dan Doyle
-------------------------
Name: Dan Doyle
Title: Chief Executive
DANKA HOLDING COMPANY
By: /s/ Dan Doyle
-------------------------
Name: Dan Doyle
Title: Chief Executive
DANKALUX SARL & CO. SCA
By: DANKALUX SARL, COMMANDITE
By: /s/ P.G. Dumond
-------------------------
Name: P. Dumond
Title: Manager
The Guarantors hereby consent to the foregoing.
AMERICAN BUSINESS CREDIT CORPORATION
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
AMERITREND CORPORATION
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
CORPORATE CONSULTING GROUP, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
D.I. INVESTMENT MANAGEMENT, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
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DANKA IMAGING DISTRIBUTION, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
DANKA MANAGEMENT COMPANY, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
DANKA OFFICE IMAGING COMPANY
By: /s/ David P. Berg
------------------------
Name: David P. Berg
Title: Secretary
DYNAMIC BUSINESS SYSTEMS, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
HERMAN ENTERPRISES, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
KIS IMAGING SERVICES, INC.
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
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RYAN FUNDING COMPANY
By: /s/ David P. Berg
-------------------------
Name: David P. Berg
Title: Secretary
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DANKA PRESS RELEASE
FOR IMMEDIATE RELEASE PAUL SUIJK
(727) 579-2881
October 21, 1998 PAUL G. DUMOND
011-44171-399-3000
DANKA ANNOUNCES AGREEMENT WITH LENDERS
Danka Business Systems PLC (NASDAQ: DANKY) today announced that it obtained from
its bank lenders a waiver of certain financial covenants and the consequences of
failing to comply with such covenants under its Senior Credit Facility for the
period beginning on September 30, 1998 and ending February 28, 1999. Larry K.
Switzer, Danka's Chief Financial Officer, said: "While we certainly have
continued challenges ahead of us, we are pleased that we have reached an
agreement regarding the waiver which provides us an opportunity to move forward
and focus on our customers and business."
Upon granting of the waiver the lenders advanced $20 million in new loans to the
Company. Terms of the waiver included a 70 basis point increase in the interest
rate on certain borrowings under the Senior Credit Facility during the waiver
period, the granting of security interests in substantially all of the Company's
U.S. subsidiaries' assets to secure up to $225 million of the borrowings under
the facility, a $50 million reduction in the total commitment by the lenders and
a limitation of new loans during to the waiver period to the $20 million
advanced, plus $55 million of additional loans which are subject to the Company
providing projections and a business plan deemed satisfactory by the banks and
similar matters.
Danka has agreed, at its expense, to cooperate with the banks' and their
representatives' review of the assets of the Company. The Company has also
agreed to use its best efforts to maintain, during the waiver period, at least
$30 million in lines of credit outside the U.S. Danka has also agreed that it
shall not incur additional Indebtedness (as defined in the Senior Credit
Facility) except Indebtedness under the facility and indebtedness under the
lines required to be maintained outside the U.S. During the term of the waiver,
the Company may not pay dividends and the banks' consent is required for any
acquisitions or investments by the Company. The waiver will be available in a
Current Report on Form 8-K to be filed with the U.S. Securities and Exchange
Commission.
Based on currently available financial information, the Company expects to incur
a loss in the second quarter. The Company continues to expect to announce the
second quarter earnings in early November.
Danka Business Systems PLC, headquartered in London, England and St. Petersburg,
Florida, is one of the world's largest independent suppliers of office equipment
and related services, parts and supplies. Danka employs approximately 20,000
people and provides office products and services in more than 30 countries
around the world.
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Forward-Looking Statements
Certain statements contained in this press release, including statements related
to the impact of receiving the waiver, anticipated second quarter results and
the Company's Senior Credit Facility are forward looking, and contain
information relating to the Company that is based on the beliefs of management
as well as assumptions made by, and information currently available to,
management. The words "goal", "expect", "believe" and similar expressions as
they relate to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions that could cause actual results to differ
materially from those reflected in the forward-looking statements, including but
not limited to: (i) the Company's inability to maintain compliance with its
Senior Credit Facility or other financing arrangements, including the
possibility that further amendments or waivers may be required to maintain such
compliance after the expiration of the current waiver; (ii) the possibility that
the $55 million of additional indebtedness permitted to be incurred during the
period the waiver is in effect, may not be sufficient to maintain the Company's
operations; (iii) the Company's inability to satisfy the requirements to obtain
such additional indebtedness; (iv) the Company's inability to restructure its
operations; (v) the Company's inability to retain customers; (vi) the Company's
inability to maintain existing supply arrangements and terms and (vii) the
Company's inability to retain key employees. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation and
does not intend to update these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
11201 Danka Circle North 33 Cavendish Square
St. Petersburg, FL 33716 London, England W1M 0DE
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