<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999
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: 0-20828
DANKA BUSINESS SYSTEMS PLC
--------------------------
(Exact name of registrant as specified in its charter)
ENGLAND 98-0052869
------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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
------------
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report)
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 [ ]
The registrant had 227,067,865 Ordinary Shares outstanding as of June 30, 1999.
===============================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Statements of Earnings for the three months ended
June 30, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Balance Sheets as of June 30, 1999
(Unaudited) and March 31, 1998 (Audited) 4
Consolidated Statements of Cash Flows for the three months
ended June 30, 1999 and 1998 (Unaudited) 5
Consolidated Statement of Shareholders' Equity for the three months
ended June 30, 1999 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 24
Item 2 - Changes in Securities 24
Item 3 - Defaults upon Senior Securities 24
Item 4 - Submission of Matters to a Vote of Security Holders 24
Item 5 - Other Information 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signature 29
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
-------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $165,152 $194,668
Retail service, supplies and rentals 450,721 502,547
Wholesale 29,836 68,184
-------- --------
Total revenue 645,709 765,399
-------- --------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 117,712 141,065
Retail service, supplies and rental costs 262,576 302,084
Wholesale costs of revenue 23,350 57,750
Selling, general and administrative expenses 199,455 223,225
Amortization of intangible assets 3,581 5,372
Commitment to Kodak under R&D agreements -- 12,500
-------- --------
Total costs and operating expenses 606,674 741,996
-------- --------
EARNINGS FROM OPERATIONS 39,035 23,403
Interest expense and other, net 22,031 15,424
-------- --------
EARNINGS BEFORE INCOME TAXES 17,004 7,979
Provision for income taxes 4,761 2,968
-------- --------
NET EARNINGS $ 12,243 $ 5,011
======== ========
BASIC EARNINGS PER ADS:
Net earnings per ADS $ 0.21 $ 0.09
Weighted average ADSs 57,017 56,874
DILUTED EARNINGS PER ADS:
Net earnings per ADS $ 0.21 $ 0.09
Weighted average ADSs 57,306 57,732
</TABLE>
NOTE: CERTAIN PRIOR YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM WITH THE
CURRENT YEAR PRESENTATION
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,915 $ 66,095
Accounts receivable, net 555,589 571,470
Inventories 353,098 356,139
Prepaid expenses, deferred income taxes
and other current assets 55,939 56,951
Assets of business held for sale 63,132 62,791
----------- -----------
TOTAL CURRENT ASSETS 1,065,673 1,113,446
Equipment on operating leases, net 255,542 264,625
Property and equipment, net 90,457 92,963
Intangible assets, net 327,322 337,441
Other assets 87,019 96,667
----------- -----------
TOTAL ASSETS $ 1,826,013 $ 1,905,142
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 99,432 $ 89,732
Accounts payable 183,450 162,294
Accrued expenses and other current liabilities 246,442 333,446
Deferred revenue 50,582 51,818
Liabilities of business held for sale 16,627 17,240
----------- -----------
TOTAL CURRENT LIABILITIES 596,533 654,530
Convertible subordinated notes 200,000 200,000
Long-term debt and notes payable, less current maturities 826,049 852,415
Deferred income taxes and other long-term liabilities 26,167 27,033
----------- -----------
TOTAL LIABILITIES 1,648,749 1,733,978
----------- -----------
SHAREHOLDERS' EQUITY:
Ordinary shares, 1.25 pence stated value; 500,000,000
authorized; 228,067,865 issued and outstanding 4,758 4,758
Additional paid-in capital 304,436 304,436
Retained earnings (60,572) (72,815)
Accumulated other comprehensive income (71,358) (65,215)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 177,264 171,164
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,826,013 $ 1,905,142
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 12,243 $ 5,011
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 40,833 42,430
Loss on sale of property and equipment and
equipment on operating leases 2,418 3,677
Proceeds from sale of rental equipment 1,685 7,941
Changes in assets and liabilities, net of effects from assets and
liabilities of business held for sale:
Accounts receivable 7,925 16
Inventories 2,869 (38,395)
Prepaid expenses, deferred income taxes
and other current assets (1,206) 910
Other noncurrent assets 6,747 (2,618)
Accounts payable 21,795 53,976
Accrued expenses (81,421) (58,236)
Deferred revenue (983) (2,520)
Deferred income taxes and other long-term liabilities (305) (3,869)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,600 8,323
-------- --------
INVESTING ACTIVITIES
Capital expenditures (34,182) (65,846)
Proceeds from sale of property and equipment 853 1,985
Payment for purchase of subsidiaries (232) (231)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (33,561) (64,092)
-------- --------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit agreements (640) 22,376
Principal payments on debt (2,709) (172)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,349) 22,204
-------- --------
EFFECT OF EXCHANGE RATES (3,870) 1,696
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (28,180) (31,869)
Cash and cash equivalents, beginning of period 66,095 34,653
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,915 $ 2,784
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) (LOSS) INCOME TOTAL
----------- ----------- ----------- ----------------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1999 $ 4,758 $ 304,436 $ (72,815) $ (65,215) $ 171,164
Net earnings 12,243 12,243
Currency translation adjustment (6,143) (6,143)
---------
Comprehensive income 6,100
-------- ---------- --------- --------- ---------
BALANCES AT JUNE 30, 1999 $ 4,758 $ 304,436 $ (60,572) $ (71,358) $ 177,264
======== ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) (LOSS) INCOME TOTAL
----------- ----------- ----------- ----------------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1998 $ 4,746 $ 304,197 $ 227,917 $ (56,553) $ 480,307
Net earnings 5,011 5,011
Currency translation adjustment (1,547) (1,547)
---------
Comprehensive income 3,464
------- ---------- --------- --------- ---------
BALANCES AT JUNE 30, 1998 $ 4,746 $ 304,197 $ 232,928 $ (58,100) $ 483,771
======= ========== ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
DANKA BUSINESS SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of June 30,
1999, consolidated statements of earnings for the three months ended June 30,
1999 and 1998, the consolidated statement of shareholders' equity for the three
months ended June 30, 1999 and 1998, and the consolidated statements of cash
flows for the three months ended June 30, 1999 and 1998 are unaudited. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for
the interim periods presented have been reflected herein. The results of
operations for the interim periods are not necessarily indicative of the
results, which may be expected for the entire fiscal year. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in Danka Business Systems
PLC's (the "Company") Annual Report for the year ended March 31, 1999. Certain
prior year amounts have been reclassified to conform to the current year
presentation (See Note 7 for fiscal 1999 quarterly statements of earnings which
reflect such reclassifications).
NOTE 2. RESTRUCTURING CHARGES
FISCAL 1999 CHARGE:
The Company recorded pre-tax restructuring charges totaling $42.7
million for the twelve months ended March 31, 1999. The restructuring charges
were related to the Company's worldwide cost reduction program initiated in the
third quarter of fiscal 1999 with the goal of reducing selling, general and
administrative expenses and improving profitability. The restructuring charges
were for headcount reductions, the elimination of excess facilities and the
write-down of assets. As of June 30, 1999, the Company had completed the
reduction of 1,400 positions, which was in-line with the Company's plan.
Generally, severance is paid out to individuals over a period of time rather
than one lump sum payment. The lease obligations relating to the closure of 60
facilities are expected to continue beyond the year 2001. Unutilized accruals
of $1.9 million relating to fiscal 1998 and 1997 restructuring charges were
adjusted during the third quarter of fiscal 1999, resulting in a net charge of
$40.8 million for the twelve months ended March 31, 1999. The following table
summarizes the restructuring charge and related cash outlays:
1999 RESTRUCTURING CHARGE:
<TABLE>
<CAPTION>
OTHER
TOTAL CASH NON-CASH RESERVE AT
EXPENSE OUTLAYS CHANGES JUNE 30, 1999
$000 $000 $000 $000
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Severance 19,820 (11,066) -- 8,754
Future lease obligations on facility closures 19,790 (3,532) -- 16,258
Write-off of leasehold improvements on
facility closures 3,084 -- (3,084) --
------ ------- ------ ------
Total restructuring charge 42,694 (14,598) (3,084) 25,012
------ ------- ------ ------
</TABLE>
Cash outlays for the three months ended June 30, 1999 relating to
severance and the closure of facilities totaled $5.4 million and $1.5 million,
respectively.
7
<PAGE> 8
FISCAL 1997 RESTRUCTURING CHARGE:
In December 1996, the Company recorded a $35.0 million pre-tax
restructuring charge, related to the integration of the Office Imaging division
acquired from Kodak and the related transition to the Company's Market Based
Approach in North America. As of June 30, 1999, approximately $4.6 million
remained in accrued liabilities, primarily for the closure of duplicate
facilities. Cash outlays relating to these facility closures for the three
months ended June 30, 999 totaled $0.2 million.
NOTE 3. EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the
basic and diluted earnings per American Depositary Share ("ADS") computations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
----------------------------------------- -----------------------------------------
(In 000's except per share amounts) INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $12,243 $5,011
BASIC EARNINGS PER ADS:
Income available to shareholders 12,243 57,017 $0.21 5,011 56,874 $0.09
=====
EFFECT OF DILUTIVE SECURITIES: 289 858
Stock Options ------ ------
DILUTED EARNINGS PER ADS:
Income available to shareholders
plus assumed conversion $12,243 57,306 $0.21 $5,011 57,732 $0.09
======= ====== ===== ====== ====== =====
</TABLE>
The effect of the Company's $200.0 million of Convertible Subordinated
Notes are not included in the computation of diluted earnings per share for the
three months ended June 30, 1999 and 1998 since they are non-dilutive.
NOTE 4. SEGMENT REPORTING
The Company's reportable segments include Danka Americas, Danka
International and Danka Services International (DSI). Danka Americas
distributes photocopiers, facsimiles and other related office imaging equipment
together with the related parts, supplies and services on a direct basis to
retail customers. The geographical areas covered by Danka Americas include the
United States, Canada and Latin America. The Company's Omnifax division, which
distributes private-label facsimiles and related parts, supplies and services
throughout the United States and Canada, is also included in the Danka Americas
segment. Effective July 30, 1999, the Company sold its Omnifax business to
Xerox Corporation for $45.0 million in cash. Danka International also
distributes photocopiers, facsimiles and other related office imaging
equipment. These products, together with the related services, parts and
supplies, are marketed primarily on a direct basis to retail customers. Danka
International also provides photocopiers, facsimiles and other related office
imaging equipment on a wholesale basis to independent dealers. Danka
International has an extensive sales and service network throughout Europe and
additional operations in Australasia. DSI is the Company's worldwide document
outsourcing business, which provides a wide
8
<PAGE> 9
range of document management solutions, including the management of central
reprographics departments, the placement and maintenance of convenience copiers,
print-on-demand operations and document archiving and retrieval services and
document management consulting. The Company measures segment performance as
earnings from operations, which is defined as earnings before interest expense
and other, net and income taxes, as shown on the Company's consolidated
statements of earnings. Other items are shown for purposes of reconciling to the
Company's total consolidated amounts as shown in the following table for the
three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
THREE MONTHS ENDED JUNE 30 $000 $000 $000 $000 $000
- -------------------------- -------- ------------- ------------- ----- ------------
<S> <C> <C> <C> <C> <C>
1999
Total revenue 368,364 207,239 70,106 -- 645,709
Earnings from operations 33,337 6,388 6,548 (7,238) 39,035
Interest expense & other, net 22,031 22,031
Provisions for income taxes 4,761 4,761
Net earnings 12,243
1998
Total revenue 462,112 236,187 67,100 -- 765,399
Earnings from operations 16,782 12,363 6,538 (12,280) 23,403
Interest expense & other, net 15,424 15,424
Provisions for income taxes 2,968 2,968
Net earnings 5,011
</TABLE>
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the first quarter
of the fiscal year beginning after June 15, 2000. Statement No. 133 establishes
accounting and reporting requirements for derivative instruments and hedging
activities, and modifies disclosures previously required under other accounting
standards. Implementation of Statement No. 133 may be complex. The Company does
not expect the adoption of Statement No. 133 to have a material impact on its
results of operations.
NOTE 6. PENDING LITIGATION
The Company, former directors and former officers are defendants in a
purported class action lawsuit. A consolidated class action complaint (the
"Complaint") was filed in the United States District Court for the Middle
District of Florida, Tampa Division on or about June 18, 1998. The Complaint
alleges, principally, that the Company and the other defendants issued
materially false and misleading statements related to the progress of the
Company's integration of its acquisition of Kodak's Office Imaging and
outsourcing businesses, engaged in improper accounting practices and that
certain former officers utilized
9
<PAGE> 10
insider information, in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs seek
to certify their complaints as class actions on behalf of all purchasers of the
Company's American Depositary Receipts in the period between May 13, 1997 and
December 15, 1997, and seek an award of an unspecified amount of monetary
damages, including punitive damages, to all of the members of the purported
class. The Company filed its motion to dismiss the Complaint on or about July
29, 1998 and all briefs have been submitted to the Court. The Company has not
received a ruling from the court on its motion. The case is in the early stages
and while it is impossible to predict the outcome or impact of such litigation,
management believes this litigation is without merit and is vigorously
defending the lawsuit.
In February 1999, the Company was served with a complaint alleging
breach of contract, breach of duty of good faith and fair dealing, conversion
and violation of the Uniform Commercial Code. More particularly, the plaintiffs
allege that in December 1997, they attempted to sell approximately one million
restricted American Depositary Shares at approximately $35.00 per share and
that the Company and its attorneys wrongfully refused and/or unreasonably
delayed in registering the transfer of the plaintiffs' restricted shares. The
complaint further states that the plaintiffs were unable to complete the sale
of shares and were later forced to sell the shares in February 1998 at
approximately $17.00 per share. The plaintiffs are attempting to recover the
difference from the Company and its attorneys. The Company recently filed its
motion to dismiss the complaint. This case is in the early stages and while the
outcome of such litigation is impossible to predict, management believes this
litigation is without merit and intends to vigorously defend the lawsuit.
The Company is subject to other legal proceedings and claims, which
arise, in the ordinary course of its business that will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
10
<PAGE> 11
NOTE 7. RECLASSIFICATIONS
Certain prior year amounts in the Company's statements of earnings
have been restated to reflect certain reclassifications to conform to the
fiscal 2000 presentation. The impact of these changes did not affect earnings
(loss) from operations or net earnings (loss). The reclassifications primarily
related to freight and fringe benefit costs which were moved from general and
administrative expenses to the respective cost categories including the cost of
retail equipment sales and retail service, supplies and rental costs. The
following table reflects the dollar amounts for the reclassified statements of
earnings for each of the quarters and fiscal year represented by the twelve
month period ended March 31, 1999:
<TABLE>
<CAPTION>
THREE THREE THREE THREE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, MARCH 31,
1998 1998 1998 1999 1999
$000 $000 $000 $000 $000
------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Retail equipment sales 194,668 203,997 188,426 168,394 755,485
Retail service, supplies and rentals 502,547 476,318 479,960 461,996 1,920,821
Wholesale 68,184 53,529 55,488 43,713 220,914
------- ------- --------- ------- ---------
Total revenue 765,399 733,844 723,874 674,103 2,897,220
------- ------- --------- ------- ---------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 141,065 149,186 171,942 122,286 584,479
Special charges, cost of retail equipment sales -- -- 47,191 (16,482) 30,709
Retail service, supplies and rental costs 302,084 304,639 302,192 279,412 1,188,327
Special charges, retail service, supplies & rental costs -- -- 25,991 1,153 27,144
Wholesale costs of revenue 57,750 43,919 47,993 39,599 189,261
Special charges, wholesale costs -- -- -- 514 514
Selling, general and administrative expenses 223,225 221,340 246,837 228,495 919,897
Special charges, general and administrative expenses -- -- 17,000 (195) 16,805
Amortization of intangible assets 5,372 5,007 5,131 4,204 19,714
Write-off of goodwill and other long-lived assets -- -- 107,858 1,616 109,474
Commitment to Kodak under R&D agreements 12,500 12,500 12,500 15,934 53,434
Restructuring charges -- -- 38,174 2,644 40,818
------- ------- --------- ------- ---------
Total costs and operating expenses 741,996 736,591 1,022,809 679,180 3,180,576
------- ------- --------- ------- ---------
EARNINGS (LOSS) FROM OPERATIONS 23,403 (2,747) (298,935) (5,077) (283,356)
Interest expense and other, net 15,424 18,520 21,923 18,330 74,197
------- ------- --------- ------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 7,979 (21,267) (320,858) (23,407) (357,553)
Provision (benefit) for income taxes 2,968 (7,912) (46,849) (10,980) (62,773)
------- ------- --------- ------- ---------
NET EARNINGS (LOSS) 5,011 (13,355) (274,009) (12,427) (294,780)
======= ======= ========= ======= =========
</TABLE>
11
<PAGE> 12
The following table reflects the percentage of total revenue
represented by each item for the reclassified statements of earnings for each
of the quarters and fiscal year represented by the twelve month period ended
March 31, 1999:
<TABLE>
<CAPTION>
THREE THREE THREE THREE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, SEPT. 30 DEC. 31, MARCH 31, MARCH 31,
(As a percentage of total revenue) 1998 1998 1998 1999 1999
------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Retail equipment sales 25.4% 27.8% 26.0% 25.0% 26.1%
Retail service, supplies and rentals 65.7 64.9 66.3 68.5 66.3
Wholesale 8.9 7.3 7.7 6.5 7.6
----- ----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 18.4 20.3 23.8 18.1 20.2
Special charges, cost of retail equipment sales -- -- 6.5 (2.4) 1.1
Retail service, supplies and rental costs 39.5 41.5 41.7 41.4 41.0
Special charges, retail service, supplies & rental costs -- -- 3.6 0.2 0.9
Wholesale costs of revenue 7.5 6.0 6.6 5.9 6.5
Special charges, wholesale costs -- -- -- 0.1 --
Selling, general and administrative expenses 29.2 30.2 34.1 33.9 31.8
Special charges, general and administrative expenses -- -- 2.3 -- 0.6
Amortization of intangible assets 0.7 0.7 0.7 0.6 0.7
Write-off of goodwill and other long-lived assets -- -- 14.9 0.2 3.8
Commitment to Kodak under R&D agreements 1.6 1.7 1.7 2.4 1.8
Restructuring charges -- -- 5.3 0.4 1.4
----- ----- ----- ----- -----
Total costs and operating expenses 96.9 100.4 141.3 100.8 109.8
----- ----- ----- ----- -----
EARNINGS (LOSS) FROM OPERATIONS 3.1 (0.4) (41.3) (0.8) (9.8)
Interest expense and other, net 2.0 2.5 3.0 2.7 2.5
----- ----- ----- ----- -----
EARNINGS (LOSS) BEFORE INCOME TAXES 1.1 (2.9) (44.3) (3.5) (12.3)
Provision (benefit) for income taxes 0.4 (1.1) (6.4) (1.7) (2.1)
----- ----- ----- ----- -----
NET EARNINGS (LOSS) 0.7% (1.8)% (37.9)% (1.8)% (10.2)%
===== ===== ===== ===== =====
</TABLE>
The following tables reflect the gross profit margins for the
reclassified statements of earnings for each of the quarters and fiscal year
represented by the twelve month period ended March 31, 1999. The tables present
the gross profit margins both before and after special charges taken during the
third and fourth quarters of fiscal 1999.
AFTER SPECIAL CHARGES:
<TABLE>
<S> <C> <C> <C> <C> <C>
Retail equipment sales 27.5% 26.9% (16.3)% 37.2% 18.6%
Retail service, supplies and rentals 39.9 36.0 31.6 39.3 36.7
Wholesale 15.3 18.0 13.5 8.2 14.1
---- ---- ---- ---- ----
Combined gross profit 34.6 32.2 17.8 36.7 30.3
==== ==== ==== ==== ====
</TABLE>
BEFORE SPECIAL CHARGES:
<TABLE>
<S> <C> <C> <C> <C> <C>
Retail equipment sales 27.5% 26.9% 8.7% 27.4% 22.6%
Retail service, supplies and rentals 39.9 36.0 37.0 39.5 38.1
Wholesale 15.3 18.0 13.5 9.4 14.3
---- ---- ---- ---- ----
Combined gross profit 34.6 32.2 27.9 34.5 32.3
==== ==== ==== ==== ====
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Danka Business Systems PLC together with its Subsidiaries ("Danka" or
the "Company") is one of the world's largest independent suppliers of
photocopiers, facsimiles and other related office imaging equipment. The
Company primarily markets these products and related services, parts and
supplies on a direct basis to retail customers. The Company principally
distributes Canon, Kodak, Ricoh and Toshiba products. It also distributes
Konica and Minolta products in certain markets. In addition, the Company
markets private label photocopiers and facsimiles and related supplies on a
direct basis under the Company's Infotec trademark. The Company also markets
photocopiers and related parts and supplies on a wholesale basis to independent
dealers through its international operations. The Company closed its U.S.
wholesale operations effective March 31, 1999. The closure was related to the
Company's restructuring of its operations and focus on core, higher margin
business.
The Company also provides worldwide document services through its
outsourcing business, Danka Services International ("DSI"). Services provided
by DSI range from on- and off-site document services, including the management
of central reprographics departments, the placement and maintenance of
convenience copiers, print-on-demand operations and document archiving and
retrieval services.
For the three months ended June 30, 1999, the Company reported net
earnings of $12.2 million, or $0.21 per American Depositary Share ("ADS"),
versus $0.09 per ADS for the comparable quarter last year and a loss of $0.22
for the fourth quarter of fiscal 1999. The Company realized improvements in its
gross profit margins and significant reductions in selling, general and
administrative expenses for the first quarter of fiscal 2000 primarily due to
its restructuring initiatives and worldwide cost reduction program implemented
in the third quarter of fiscal 1999.
As previously reported on July 30, 1999, the Company completed the
sale of its facsimile business, Omnifax, to Xerox Corporation for $45.0 million
in cash.
In July 1999, the Company launched worldwide distribution of its first
high-volume digital machine, the DigiSource 9110. The DigiSource 9110 was
developed by Kodak and is designed and manufactured through a joint venture by
Heidelberg Digital and Nexpress Solutions.
13
<PAGE> 14
The following table sets forth for the periods indicated the
percentage of total revenue represented by certain items in the Company's
consolidated statements of earnings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenue:
Retail equipment sales.................................................... 25.6% 25.4%
Retail service, supplies and rentals...................................... 69.8 65.7
Wholesale................................................................. 4.6 8.9
--- -----
Total revenue......................................................... 100.0 100.0
Cost of revenue............................................................. 62.5 65.4
----- -----
Gross profit................................................................ 37.5 34.6
Selling, general and administrative expenses................................ 30.9 29.2
Amortization of intangible assets........................................... 0.6 0.7
Commitment to Kodak under R&D agreements.................................... -- 1.6
----- -----
Earnings from operations.............................................. 6.0 3.1
Interest expense and other, net............................................. 3.4 2.0
----- -----
Earnings before income taxes.......................................... 2.6 1.1
Provision for income taxes.................................................. 0.7 0.4
----- -----
Net earnings......................................................... 1.9% 0.7%
===== =====
</TABLE>
The following table sets forth for the periods indicated the gross
profit margin percentage for each of the Company's revenue classifications:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Retail equipment sales..................................................... 28.7% 27.5%
Retail service, supplies and rentals....................................... 41.7 39.9
Wholesale.................................................................. 21.7 15.3
</TABLE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998:
Revenue
Revenue declined 16% to $645.7 million for the three months ended June
30, 1999 ("first quarter of fiscal 2000") compared to $765.4 million for the
three months ended June 30, 1998 ("first quarter of fiscal 1999"). The
Company's retail equipment sales declined 15% to $165.1 million for the first
quarter of fiscal 2000 compared to $194.7 million for the first quarter of
fiscal 1999, primarily due to lower equipment sales in both the U.S. and
international markets. In fiscal 1999, the Company entered into several key
strategic vendor alliances and expanded its worldwide product portfolio to
encompass new products in color, digital and high-volume. The Company's revenue
for the first quarter of fiscal 2000 was also impacted by the closure of the
Company's U.S. wholesale operations effective March 31, 1999. As a result,
total wholesale revenue for the first quarter of fiscal 2000 declined 56% to
$29.8 million from $68.2 million for the first quarter of fiscal 1999. The
decision to close the Company's U.S. wholesale operations was in-line with its
strategy to focus on core, higher margin businesses.
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<PAGE> 15
Approximately 40% of the Company's revenue is generated in countries
outside of the United States. As in prior periods, foreign exchange rate
fluctuations have negatively impacted the Company's comparable financials
results. Excluding the effect of foreign currency fluctuations, total revenue
for the first quarter of fiscal 2000 would have been approximately $9.0 million
higher.
Gross Profit
Gross profit declined 8% to $242.1 million for the first quarter of
fiscal 2000 from $264.5 million for the first quarter of fiscal 1999. The gross
profit margin as a percentage of total revenue increased to 37.5% for the first
quarter of fiscal 2000 compared to 34.6% for the first quarter of fiscal 1999.
The increase was due to margin improvements in all revenue segments. Gross
profit as a percentage of retail equipment sales increased to 28.7% for the
first quarter of fiscal 2000 from 27.5% for the first quarter of fiscal 1999.
The increase is primarily related to better inventory management initiatives.
As a percentage of revenue, the gross profit margin on retail service, supplies
and rentals increased to 41.7% for the first quarter of fiscal 2000 from 39.9%
for the first quarter of fiscal 1999 primarily due to an improvement in the
U.S. service margin. Improvements in the U.S. service margin were primarily
attributable to better parts utilization and technician productivity. The
Company's wholesale gross profit margin increased to 21.7% for the first
quarter of fiscal 2000 compared with 15.3% for the first quarter of fiscal 1999
primarily due to the closure of the Company's U.S. wholesale operations
affective March 31, 1999. The U.S. wholesale operations generated a lower gross
margin compared to the Company's international wholesale business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased 11% to
$199.5 million for the first quarter of fiscal 2000 compared to $223.2 million
for the first quarter of fiscal 1999. The decrease is primarily related to the
Company's restructuring initiatives and worldwide cost reduction program
implemented during the third quarter of fiscal 1999. As a percentage of
revenue, selling, general and administrative expenses increased to 30.9% for
the first quarter of fiscal 2000 from 29.2% for the first quarter of fiscal
1999. Although the Company made significant progress in reducing its SG&A
expenses for the first quarter of fiscal 2000, the margin increased due to the
lower revenue generated for the first quarter.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $3.6 million for the
first quarter of fiscal 2000 from $5.4 million for the first quarter of fiscal
1999. During the third and fourth quarters of fiscal 1999, the Company
wrote-off a total of $109.5 million in goodwill and other long-lived assets,
the majority of which related to goodwill in the U.S. and Canada. The Company
determined that based on changes in the business environment and an analysis of
projected cash flows, the carrying amount of certain goodwill and other
long-lived assets were not recoverable and therefore written-off.
15
<PAGE> 16
Commitment to Kodak under Research and Development Agreements
In connection with the acquisition of the Office Imaging and
outsourcing businesses in December 1996, the Company was providing funding to
Kodak for ongoing research and development of electrophotographic equipment.
Effective December 15, 1998 the research and development agreement was
terminated. The Company entered into a new agreement during the fourth quarter
of fiscal 1999 under which Kodak was required to finish the development of the
DigiSource 9110. The Company agreed to pay Kodak $23.0 million under the new
agreement. The DigiSource machine was introduced in March 1999 at an
international trade fair in Hanover, Germany. The Company has no further
commitments to Kodak for research and development after fiscal 1999. Effective
May 10, 1999 Kodak sold its equipment, toner and developer manufacturing
operations to a subsidiary of Heidelberger Druckmaschnen AG ("Heidelberg"), a
German global market leader in printing systems. On June 24, 1999, Kodak and
the Company reached an agreement providing for mutual release of claims and
obligations related to certain agreements previously entered into between the
Company and Kodak including research and development commitments. In the
comparable first quarter of fiscal 1999, the Company recorded research and
development commitments totaling $12.5 million.
Earnings from Operations
Earnings from operations increased 67% to $39.0 million for the first
quarter of fiscal 2000 compared to earnings from operations of $23.4 million
for the first quarter of fiscal 1999. The increase was primarily due to
reductions in selling, general and administrative expenses, lower amortization
expense and the elimination of research and development commitments to Kodak.
As a percentage of revenue, earnings from operations increased to 6.0% for the
first quarter of fiscal 2000 from 3.1% for the first quarter of fiscal 1999.
Interest Expense and Other, Net
Interest expense and other, net increased to $22.0 million for the
first quarter of fiscal 2000 compared to $15.4 million for the first quarter of
fiscal 1999. The increase primarily related to higher levels of borrowings and
a higher interest rate for the first quarter of fiscal 2000. The interest rate
increase was due to the amendments to the Company's Credit Agreement effective
June 30, 1998 and waiver fees paid by the Company to its lenders. See
"Liquidity and Capital Resources."
Income Taxes
Income taxes increased to $4.8 million for the first quarter of fiscal
2000 from $3.0 million for the first quarter of fiscal 1999. The increase was
primarily due to higher levels of earnings. The combined effective income tax
rate declined to 28.0% for the first quarter of fiscal 2000 as compared to
37.2% for the first quarter of fiscal 1999. The decline in the effective tax
rate is primarily attributable to the provision of additional taxes for prior
fiscal years, which were included in the first quarter of fiscal 1999.
16
<PAGE> 17
Net Earnings
As a result of the above factors, net earnings increased to $12.2
million for the first quarter of fiscal 2000 from $5.0 million for the first
quarter of fiscal 1999. As a percentage of revenue, net earnings increased to
1.9% for the first quarter of fiscal 2000 compared to 0.7% for the first
quarter of fiscal 1999.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the
U.S. dollar affect the dollar equivalent of the pound sterling of the Ordinary
Shares of the Company on the London Stock Exchange and, as a result, are likely
to affect the market price of the ADSs. The Company operates in 30 countries
worldwide, and therefore, fluctuations in exchange rates between the U.S.
dollar and the currencies in each of the countries in which the Company
operates, will affect the results of the Company's international operations
reported in U.S. dollars and the value of such operations' net assets reported
in U.S. dollars. The results of operations, financial condition and competitive
position of the Company's business are affected by the relative strength of its
currencies in countries where its products are currently sold. The Company's
results of operations and financial condition can be adversely affected by
fluctuations in foreign currencies and by translations of the financial
statements of the Company's foreign subsidiaries from local currencies into
U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for working capital,
servicing its indebtedness and funding capital expenditures. The Company
expects to satisfy these requirements with cash generated from operations and
available borrowings under its credit agreement. The Company also generated
$45.0 million in cash from the sale of its Omnifax business to Xerox
Corporation effective July 30, 1999. Pursuant to the most recent amendment to
the Company's credit agreement, the Company applied 60% of the net proceeds
from the sale of Omnifax, or approximately $27.0 million, to amounts
outstanding under its credit agreement.
Effective June 15 and July 9, 1999, the Company and its bank lenders
entered into amendments to the Company's credit agreement with a consortium of
international bank lenders (the "Credit Agreement"). The Credit Agreement has
been amended to require minimum levels of adjusted consolidated net worth,
cumulative consolidated EBITDA and a ratio of consolidated EBITDA to interest
expense, each as defined in the Credit Agreement. The amendments continue
waiver of compliance with the requirements imposed under certain other
financial covenants, which was waived by the bank lenders pursuant to waivers
granted to the Company in October 1998 and February 1999 after a prior
amendment of the covenants effective June 30, 1998. The terms of the prior
waivers and the 1998 amendment have been described in the Company's filings
with the Securities and Exchange Commission.
Terms of the most recent amendments include an aggregate commitment by
the lenders of $995.6 million, effective July 9, 1999. The Company paid a fee
of $2.0 million related to the execution of the first amendment to the Credit
Agreement and an additional payment equal to $10.0 million is to be paid
pursuant to the second amendment on the earliest to occur of: (i) July 31,
2000, (ii) repayment of all amounts due under the Credit Agreement, or (iii)
sale of the Company's outsourcing subsidiary, Danka Services International.
Payments of approximately $2.4 million, $4.7 million and $9.3 million become
due on October 31, 1999, December 31, 1999 and March 31, 2000, respectively, if
any amounts remain outstanding under the Credit Agreement at those dates. With
respect to the period from July 1,
17
<PAGE> 18
1999 through September 30, 1999, the Company will be required to pay a fee
equating to 0.25% annual interest on the average outstanding loans under the
Credit Agreement if the average outstanding loans exceed $650.0 million. During
the period from October 1, 1999 through December 31, 1999 this fee will be
increased to equate to 0.75% interest if the average outstanding loans in that
period exceed $650.0 million and 0.25% if they do not. Those rates will
increase to 1.25% and 0.50%, respectively, during the period from January 1,
2000 to March 31, 2000 and to 1.50% and 0.75%, respectively, during the period
from April 1, 2000 through July 31, 2000.
Indebtedness under the Credit Agreement is secured by substantially
all of the Company's U.S. assets and the Credit Agreement contains negative and
affirmative covenants which place restrictions on Danka regarding the
disposition of assets, capital expenditures, additional indebtedness and
permitted liens, prohibit the payment of dividends and require the Company to
maintain certain financial ratios. The adjustable interest rate on indebtedness
under the Credit Agreement is at the option of the Company, 2.0% per annum plus
either (i) the applicable Interbank Rate plus a tiered margin based on leverage
for 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 Company is not permitted to make any acquisitions of
businesses, except with the approval of the bank lenders and the Company is
required to apply 60% of the first $200.0 million of net proceeds of any asset
dispositions prior to October 31, 1999 to repayment of amounts due under the
Credit Agreement, to so apply 80% of the next $200.0 million of such net
proceeds and to so apply 90% of any additional net proceeds to the extent any
amounts are outstanding under the Credit Agreement. The Company is required to
make such repayments with 80% of such net proceeds received after October 31,
1999 up to the excess of $400.0 million over the aggregate net proceeds
received on or before October 31, 1999 and 90% of any additional net proceeds
received after October 31, 1999. The lenders commitments under the Credit
Agreement will be reduced by the amount of all such repayments.
While the Company is generally prohibited from incurring new
indebtedness other than under the Credit Agreement, the Company is permitted to
borrow up to $40.0 million at any one time outside of the Credit Agreement to
finance the purchase of high-volume digital copiers and to secure such loans
with liens upon the financed equipment.
The lease pursuant to which certain real property used by the Company
is leased incorporates covenants from the Credit Agreement and contains certain
additional covenants and agreements.
The Company intends to refinance its indebtedness under the Credit
Agreement as soon as practical and is currently in discussions with potential
sources of refinancing. The refinancing is expected to be the final step in the
restructuring process Danka started in the Autumn of 1998. However, there can
be no assurance that such refinancing will be available or be available on
terms reasonably satisfactory to the Company.
Since last Autumn, the Company has implemented a number of
initiatives, including (i) materially reducing selling, general and
administrative expenses, (ii) more effectively managing working capital,
including materially reducing inventory, (iii) completing the sale of its
Omnifax business, (iv) restructuring the Company's long-term relationship with
Kodak, (v) negotiating to maintain sources of financing for the Company's
leasing business, and (vi) other elements of restructuring of Danka's business.
On May 20, 1999, the Company also announced that it signed an
agreement to sell Danka Services International ("DSI") to a newly formed
company controlled by Schroder Ventures, an international private equity group.
On June 30, 1999, the agreement to sell DSI to Schroder Ventures was
terminated. The Company was informed by IBM, a customer of DSI, that there was
a distinct possibility IBM might choose to exercise its right to terminate its
agreement with DSI, and that this action could occur at any time. As a result
of this notice, and after discussions with IBM, Schroder Ventures informed the
Company that Schroder Ventures and its lenders declined to close the
transaction.
18
<PAGE> 19
Effective May 10, 1999 Kodak sold its equipment, toner and developer
manufacturing operations to a subsidiary of Heidelberger Druckmaschnen AG
("Heidelberg"), a German global market leader in printing systems. The Company
and Heidelberg are engaged in negotiations with respect to a long-term supply
agreement for the Kodak equipment, parts and supplies the Company is currently
distributing, as well as an additional agreement with respect to the new
high-volume digital machine, the DigiSource 9110. The DigiSource 9110 was
developed by Kodak and is designed and assembled through a joint venture by
Heidelberg Digital and NexPress Solutions.
The Company's net cash flow provided by operating activities was $12.6
million and $8.3 million for the three months ended June 30, 1999 and 1998,
respectively. Operating cash flow for the three months ended June 30, 1999 was
primarily affected by an increase in net earnings as well as changes in
accounts payable and accrued expenses. Accounts payable increased primarily due
to the availability of better credit terms with the Company's vendors. The
Company's operating cash flow was also affected by reductions in accrued
expenses. Cash flow used in investing activities was $33.6 million and $64.1
million for the three months ended June 30, 1999 and 1998, respectively. The
decrease was primarily due to the Company's reduction in capital expenditures.
Net cash (used in) provided by financing activities was ($3.3) million and
$22.2 million for the three months ended June 30, 1999 and 1998, respectively.
The decline in cash provided by financing activities was primarily due to a
higher level of borrowings for the three months ended June 30, 1998.
As of June 30, 1999, the Credit Agreement had an outstanding balance
of $508.0 million under the revolving component and $405.2 million under the
term loan, incurring interest at a weighted average rate of 7.4% and 7.2% per
annum, respectively.
As a result of the Company's recent amendments to its Credit
Agreement, which will increase the Company's tiered margin spread and require
fee payments as discussed above, the Company's interest expense is expected to
increase.
The Company most recently paid a dividend to shareholders on July 28,
1998. The Company is not permitted to pay dividends under the Credit Agreement
and does not anticipate that the payment of a dividend will be reinstated upon
refinancing the indebtedness outstanding thereunder.
The Company believes cash flow from internally generated funds, the
availability under the most recent amendment to the Credit Agreement and the
proceeds from the sale of Omnifax will be sufficient to support its operations
during the next twelve months.
The Internal Revenue Service is conducting an examination of the
Company's federal income tax returns for the fiscal years ended March 31, 1996
and 1995. The Company has received various notices of proposed adjustments; the
principal adjustment relates to the timing of certain deductions associated
with leased equipment financing. While the ultimate result can not be
determined with certainty, the Company intends to vigorously contest the
proposed adjustments and believes that the ultimate resolution will not have a
material adverse impact upon the Company's consolidated results of operations,
liquidity or financial position.
YEAR 2000
Many computer systems, including several used by the Company, could
experience problems processing information beyond the Year 1999. As a result,
certain computer systems, including the hardware, software and embedded
technologies, need to be modified prior to the Year 2000, in order to remain
functional. The Company has a Year 2000 Worldwide Program office that has
developed an overall Year 2000 plan to address the possible impact of Year 2000
on the processing of date sensitive
19
<PAGE> 20
information by computer systems. The Company's Year 2000 Worldwide Program
office is comprised of senior executives, legal counsel, outside advisers, and
program managers. The progress of the overall Year 2000 program plan is being
monitored and reported to a Worldwide Steering Committee, an Executive
Committee and to the Board of Directors on a regular basis.
The Company's Year 2000 plan is addressing its most critical internal
systems first and has categorized as "priority" those systems whose failure
would cause an extended shutdown of all or part of a business unit, could cause
personal injury, or would have a sustained and significant financial impact.
These activities encompass identification and assessment of operational
systems, including without limitation, business applications, infrastructure
hardware and software applications. To prepare for the Year 2000, where
appropriate, the Company is performing testing, remediation, and validation of
operational systems, and is also testing customer and supplier interfaces with
its internal systems as appropriate. At this time, the Company believes its
Year 2000 criteria and guidelines outline the processes to ensure comprehensive
assessment, remediation, contingency planning and quality control. The Company
will also perform comprehensive integration testing and validation of its major
operational systems during the last phases of the Year 2000 program.
The Company's Year 2000 program plans for its North American, Latin
American and worldwide outsourcing operations contain program administration
and a six-phased remediation approach for the Company's Applications and
Infrastructure areas. The Company is approximately 55% and 65% complete with
the Applications and Infrastructure areas, respectively. The six phases are: 1)
Inventory - prioritized comprehensive lists of hardware, software, business
processes and embedded technologies with assigned compliance status; 2)
Assessment and Analysis - remediation solutions and options are researched,
selected and detailed plans with target completion dates are developed by
Information Systems ("IS") in conjunction with the affected business units; 3)
Remediation Development - includes hardware and software upgrades, vendor and
supplier certification and other related changes; 4) Test and Validate -
testing, conversion and integration of business applications and systems,
including compliance demonstration and user acceptance performed by the
affected business units; 5) Deployment - implementation of solutions into the
operating environment; and 6) Contingency Planning and Post-Year 2000 Support -
the further development and analysis of alternative actions that were initiated
in phase one to limit any adverse impact on the Company's operations. The
Company's Year 2000 worldwide program office meets regularly to review plan
progress, issues and issues resolution. The Company anticipates completion of
phases one through five by October 1, 1999 and the completion of phase six
contingency plans no later than November 30, 1999. In instances where
completion within estimated time frames is not assured, appropriate contingency
plans are being developed or are in place.
The Company's International operations Year 2000 program plan contains
program administration and a five-phased remediation approach for 19 countries.
The five phases are: 1) Inventory - prioritized comprehensive lists of
hardware, software, business processes and embedded technologies with assigned
compliance status, 2) Assessment and Analysis - remediation solutions and
options are researched, selected and detailed plans with target completion
dates are developed, 3) Correction includes hardware and software upgrades,
vendor and supplier certification and other related changes, 4) Test and
Validate - testing, conversion and integration of business applications and
systems, including compliance demonstration, user acceptance, and
implementation; and 5) Contingency Planning and Post-Year 2000 Support - the
further development and analysis of alternative actions to limit any adverse
impact on the Company's operations. The Company's International operations
anticipates completion of phases one through four by October 1, 1999 and the
completion of phase five contingency plans no later than November 30, 1999. In
instances where completion within estimated time frames is not assured,
appropriate contingency plans are being developed or are in place.
The Company believes it is on schedule with the target dates and
continues to finalize assessment and select remediation options. The
remediation options are being developed and validated and, upon approval, are
being placed into the production operating environment.
20
<PAGE> 21
In December 1998, the Company completed the implementation of a new
corporate wide IT infrastructure thereby enabling it to operate independently
from Kodak's computer systems. In May 1999, the Company completed the Latin
American applications separation, thereby enabling it to operate independently
from Kodak's computer systems. The Company believes Canadian application
conversions will be complete by September 30, 1999, and the Company has
contingency plans in place to address any variations from the applications'
conversions schedule.
The Company's Year 2000 plans also include working with its suppliers,
vendors and customers to identify and assess any Year 2000 issues associated
with products, services or facilities (including non-IT/embedded systems). The
Company is currently evaluating its supplier relationships and vendor
manufacturing relationships to assess the potential impact on operations if
third parties are not successful in having their systems Year 2000 compliant in
a timely manner. Highest priority is being placed on working with critical
suppliers, defined by the Company as those suppliers whose failure would have
the greatest impact on business operations within a short period of time. The
Company has made inquiries of its major suppliers and has received satisfactory
responses from all of its critical suppliers. The Company continues to contact
secondary suppliers. A worst-case scenario involving a critical supplier of
products or services would be the complete shutdown of the supplier and the
supplier's resulting inability to provide products or services to the Company
in a timely fashion. The Company does not maintain the ability to produce or
manufacture third-party products. If the Company believes that a supplier will
not be able to continue to provide an adequate level of service, the Company
intends to take appropriate actions to minimize the impact of the Year 2000
changeover on its operations.
The Company is also assessing the readiness of its customers to deal
with Year 2000 issues that may affect its customers' operations and their
ability to order and pay for products. The Company is surveying its major
direct customers about their Year 2000 readiness in critical areas of their
operations. The results may identify areas that need to be addressed by the
customers. The Company's customer base is sufficiently diverse that the Company
does not expect that the Year 2000 issues of a few customers will have a
significant effect on the Company's business. The Company is also communicating
information about its own readiness and the processes used in the Company's
Year 2000 program to customers.
The Company is also compiling information about the Year 2000
capability of products to assist customers in identifying and evaluating their
Year 2000 issues. The Company continues to obtain product "Year 2000 Readiness
Information and/or Statements" from primary suppliers and vendor manufacturers.
The Company's Year 2000 website contains links to the Year 2000 websites of the
manufacturers of the products. The manufacturers' websites generally contain
the manufacturers' analysis of the capability of their products to handle the
Year 2000. Where applicable, the Company is developing strategies to support
customer migration to a Year 2000 solution. The Company is providing customer
support and customer satisfaction services regarding Year 2000 issues, and it
is expected that these expenditures will continue through calendar 1999.
The Company is making inquiries of its leased and owned facilities to
assess the extent to which facilities are Year 2000 capable. Follow-up
activities include additional inquiries for incomplete or non-responsive
replies. Each location relies on local private and governmental suppliers for
electricity, water, sewer and other needed services and supplies. Failure of an
electricity grid or an uneven supply of power would be a worst-case scenario
that would completely shut down the affected facilities. Electrical failure
could also shut down airports and other transportation facilities. Since many
offices engage in similar activities and tasks, certain operations can be
expanded to partially make up for capacity unavailable elsewhere during an
electrical failure. Although overall capacity would be reduced, it is not
expected that the entire business operations would shut down due to the
unavailability of one or two facilities.
21
<PAGE> 22
In January of 1999, an external consulting corporation reviewed the
Company's Year 2000 program and the Company continues to review and implement
the applicable recommendations. The Company's Year 2000 programs assume the
utilization of both internal and external resources and have been undertaken
largely with existing personnel. In some instances, consultants have been
engaged to provide specific assessment, remediation or other services.
The Company estimates that costs related to the Year 2000 program will
approximate $14.3 million. Out of the total program costs the Company estimates
that approximately $7.1 million will be allocated to its North American and
Latin American operations, approximately $5.2 million to its International
operations, and approximately $2.0 million to its worldwide outsourcing
business (DSI). The Company estimates that external costs incurred to date are
approximately $3.2 million.
The Company believes it is taking reasonable steps to avoid
interruption in the business, which may be caused by the Year 2000 changeover.
However, program estimates relating to both costs and completion dates are
based on current knowledge combined with numerous future assumptions that bear
associated risks caused by the Year 2000 changeover, which may potentially
position the Company at risk. The Company can not guarantee that estimates will
be achieved and actual results could differ materially from those anticipated.
The worst case risks include, but are not limited to, inability to perform
financial operations, failure of delivery from leading manufacturers or vendor
services, inability to recover from a catastrophic disaster and the possible
inability to retain appropriate qualified personnel. These events may result in
increased costs caused by the implementation of manual operations, decreased
sales related to the inability to deliver products or provide quality products
and services, or the inability to complete the program no later than the
estimated date of completion.
EURO
On January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union ("EMU") established fixed conversion rates between
their existing currencies and one common currency the Euro. The Euro trades on
currency exchanges and may be used in business transactions. Countries in which
the Company operates that are converted to the Euro include Austria, Belgium,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. The Company's operating subsidiaries affected by the Euro conversion
established plans before the conversion to address the systems and business
issues raised by the Euro currency conversion including information technology
systems, the processes of preparing accounting records, financial instruments
and the continuity of contracts. Where necessary, systems are being updated to
allow "dual currency" functionality to enable the Company to invoice and be
invoiced in either local currencies or the Euro. The conversion to the Euro is
also expected to eliminate exchange risks among the EMU countries and reduce
the need for forward contracts. Those countries that have not converted to the
Euro (e.g., the U.K.) are beginning to prepare for the conversion as well, to
enable a switch to the Euro, should the local governments of these countries
decide to convert at some later date. All contracts prior to the conversion are
still legally enforceable despite the Euro conversion. While there can be no
assurances that external factors associated with the conversion will not impact
the Company, based upon steps taken to date, the Company anticipates that the
Euro conversion will not have a material impact on its financial condition,
results of operations or its ability to continue to operate in countries
affected by the Euro.
22
<PAGE> 23
SEASONALITY
The Company has experienced some seasonality in its business. The
Company's European and Canadian operations have historically experienced lower
revenue for the three month period ended September 30 due to increased vacation
time by Europeans and Canadians during July and August. This has resulted in
reduced sales activity and reduced usage of photocopiers, facsimiles and other
office imaging equipment during such period.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, or otherwise made by
officers of the Company, including statements related to the Company's ability
to meet challenges it faces, the Company's future performance and the Company's
outlook for its businesses and respective markets, projections, statements of
management's plans or objectives, forecasts of market trends and other matters,
are forward-looking statements, 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", "anticipate",
"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. No assurance can be given that the results in any
forward-looking statement will be achieved. For the forward-looking statements,
the Company claims the protection of the safe harbor for forward-looking
statements provided for in the Private Securities Litigation Act of 1995.
Factors that might cause such differences include, but are not limited to (i)
failure to obtain one or more waivers or longer term financing beyond the July
31, 2000 waiver period to meet the Company's liquidity needs, (ii) increased
competition resulting from other high-volume and digital copier distributors
and the discounting of such copiers by competitors, (iii) any inability by the
Company to refinance its outstanding debt in a timely fashion, (iv) any
inability by the Company to procure or any inability by the Company to continue
to gain access to and successfully distribute new, products, including digital
products and high-volume copiers, or to continue to bring current products to
the marketplace at competitive costs and prices, (v) any inability by the
Company to finalize a long-term supply agreement with Heidelberg, (vi) any
inability by the Company to achieve projected cost savings, (vii) any inability
by the Company to obtain adequate funding for its leasing business, (viii) any
inability by the Company to bring SG&A expenditures of the Company's U.S.
division into line with anticipated sales, (ix) business disruption resulting
from year 2000 issues including unidentified noncompliance of technology,
delays or difficulties in implementing new IT infrastructure, delays or
difficulties in converting remaining systems and applications, and untimely
third party completion of year 2000 compliance, (x) the ultimate outcome and
impact of the pending class action lawsuit or any other lawsuit, (xi) any
negative impact from the loss of any key upper management personnel, (xii) any
negative impact on the Company's financial condition or results of operations
caused by the Euro conversion, (xiii) any significant assessment, pursuant to
the review by the Internal Revenue Service (xiv) fluctuations in foreign
currencies and (xv) other risks including those risks identified in any of the
Company's other filings with the Securities and Exchange Commission. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date they are made. 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 such statements are made. Furthermore, as a matter of policy, the
Company does not generally make any specific projections as to future earnings
nor does it endorse any projections regarding future performance, which may be
made by others outside the Company.
23
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, various directors, former officers and a former director
are defendants in a purported class action lawsuit. A consolidated class action
complaint (the "Complaint") was filed in the United States District Court for
the Middle District of Florida, Tampa Division on or about June 18, 1998. The
Complaint alleges, principally, that the Company and the other defendants
issued materially false and misleading statements related to the progress of
the Company's integration of its acquisition of Kodak's Office Imaging and
outsourcing businesses, engaged in improper accounting practices and that
certain former officers utilized insider information, in violation of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. The plaintiffs seek to certify their complaints as
class actions on behalf of all purchasers of the Company's American Depositary
Receipts in the period between May 13, 1997 and December 15, 1997, and seek an
award of an unspecified amount of monetary damages, including punitive damages,
to all of the members of the purported class. The Company filed its motion to
dismiss the Complaint on or about July 29, 1998. The case is in the early
stages and while it is impossible to predict the outcome or impact of such
litigation, management believes this litigation is without merit and intends to
vigorously defend the lawsuit.
In February 1999, the Company was served with a complaint alleging
breach of contract, breach of duty of good faith and fair dealing, conversion
and violation of the Uniform Commercial Code. More particularly, the plaintiffs
allege that in December 1997, they attempted to sell approximately one million
restricted American Depositary Shares at approximately $35.00 per share and
that the Company and its attorneys wrongfully refused and/or unreasonably
delayed in registering the transfer of the plaintiffs' restricted shares. The
complaint further states that the plaintiffs were unable to complete the sale
of shares and were later forced to sell the shares in February 1998 at
approximately $17.00 per share. The plaintiffs are attempting to recover the
difference from the Company and its attorneys. The Company recently filed its
motion to dismiss the complaint. This case is in the early stages and while the
outcome of such litigation is impossible to predict, management believes this
litigation is without merit and intends to vigorously defend the lawsuit.
The Company is subject to other legal proceedings and claims, which
arise, in the ordinary course of its business that will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
24
<PAGE> 25
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER EXHIBIT
- ------- -------
2.1* Asset Purchase Agreement between Eastman Kodak Company and
Danka Business Systems PLC dated as of September 6, 1996,
including Exhibit 5.19 (a) which is the form of Amended
and Restated Supply Agreement by and between Eastman Kodak
Company and _______________________ dated as of
____________________, 1996. (Exhibit 2.1 to the Company's
Form 8-K dated November 14, 1996.)
2.2* Amendment No. 1 to Asset Purchase Agreement between
Eastman Kodak Company and Danka Business Systems PLC dated
December 20, 1996 (Excluding schedules and similar
attachments). (Exhibit 2.2 to the Company's Form 8-K dated
January 15, 1997).
4.1* Memorandum of Association of the Company, including
paragraphs 5 and 6. (Exhibit 2.1 of the Company's
Registration Statement on Form 20-F, No. 0-20828, filed on
November 10, 1992 (the "1992 Registration Statement").
4.2* Articles of Association of the Company, including sections
relating to Shares, Variation of Rights and Votes of
Members. (Exhibit 2.2 to the 1992 Registration Statement).
4.3* Deposit Agreement dated June 25, 1992, Amendment No. 1
dated February 26, 1993 and Amendment No. 2 dated July 2,
1993 (Exhibit 4.9 of the Company's Form S-1 Registration
Statement No. 33-68278 (the "1993 Form S-1"), and
Amendment No. 3 dated August 16, 1994 between The Bank of
New York, the Company and Owners and Holders of American
Depositary Receipts.
4.4* Indenture dated March 13, 1995 between the Company and The
Bank of New York as Depositary and the Company. (Exhibit 2
to the Company's Form 8-K dated March 21, 1995).
4.5* Deposit and Custody Agreement dated March 13, 1995,
between The Bank of New York as Depositary and the
Company. (Exhibit 3 to the Company's Form 8-K dated March
21, 1995).
4.6* Registration Rights Agreement dated as of March 13, 1995
relating to $175 million in Aggregate Principal Amount of
6.75% Convertible Subordinated Notes Due 2002 by and among
the Company and Prudential Securities Incorporated and
Smith Barney, Inc. and Robert W. Baird & Co. and Raymond
James & Associates, Inc. (Exhibit 4.12 to the Company's
Form 10-K dated June 16, 1995).
25
<PAGE> 26
4.8* Credit Agreement dated December 5, 1996, by and among
Danka Business Systems PLC, Dankalux Sarl & Co. SCA, Danka
Holding Company, the several financial institutions from
time to time a party and NationsBank, N.A., as agent
(Exhibit 4 to the Company's Form 8-K December 16, 1996).
4.9* First Amendment to Credit Agreement dated December 5, 1997
among Danka Business Systems PLC, Dankalux Sarl & Co.,
SCA, and Danka Holding Company, NationsBank, National
Association, each other Bank signatory thereto and
NationsBank, National Association, as agent. (Exhibit 4.9
to the Company's Form 10-Q February 12, 1998).
4.10* Second Amendment to Credit Agreement dated July 28, 1998
among Danka Business Systems PLC, Dankalux Sarl & Co.,
SCA, and Danka Holding Company, NationsBank, National
Association, each other Bank signatory thereto and
NationsBank, National Association, as agent. (Exhibit 4.10
to the Company's Form 8-K July 28, 1998).
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. (Exhibit 4.11 to the Company's Form 8-K October
21, 1998).
4.15* Waiver dated February 26, 1999, 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. (Exhibit 4.12 to the Company's Form 8-K March 5,
1999).
4.16* Fifth Amendment to Credit Agreement dated June 15, 1999
among Danka Business Systems PLC, Dankalux Sarl & Co.,
SCA, and Danka Holding Company, NationsBank, National
Association, each other Bank signatory thereto and
NationsBank, National Association, as agent. (Exhibit 4.16
to the Company's Form 8-K July 15, 1999).
4.17* Sixth Amendment to Credit Agreement dated July 9, 1999
among Danka Business Systems PLC, Dankalux Sarl & Co.,
SCA, and Danka Holding Company, NationsBank, National
Association, each other Bank signatory thereto and
NationsBank, National Association, as agent. (Exhibit 4.17
to the Company's Form 8-K July 15, 1999).
10.1* Employment Agreement dated August 28, 1998 among the
Company, Danka Business Systems PLC and Larry K. Switzer.
(Exhibit 10.1 to the Company's Form 10-Q September 30,
1998).
10.2* Employment Agreement dated August 1, 1998 among the
Company, Danka Business Systems PLC and Brian L. Merriman.
(Exhibit 10.2 to the Company's Form 10-Q September 30,
1998).
10.3* Amendments dated February 2, 1999 to the Employment
Agreement among the Company, Danka Business Systems PLC
and Larry K. Switzer (original agreement dated August 28,
1998). (Exhibit 10.3 to the Company's Form 10-Q December
31, 1998).
26
<PAGE> 27
10.4* Amendments dated February 2, 1999 to the Employment
Agreement among the Company, Danka Business Systems PLC
and Brian L. Merriman (original agreement dated August 1,
1998). (Exhibit 10.4 to the Company's Form 10-Q December
31, 1998).
10.5* Employment Agreement dated August 1, 1998 among Danka
Office Imaging Company and F. Mark Wolfinger. (Exhibit
10.5 to the Company's Form 10-Q December 31, 1998).
10.6* Amendments dated February 2, 1999 to the Employment
Agreement among the Company, Danka Business Systems PLC
and F. Mark Wolfinger (original agreement dated August 1,
1998). (Exhibit 10.6 to the Company's Form 10-Q December
31, 1998).
10.7 Employment Agreement dated July 27, 1998 among Danka
Office Imaging Company and David P. Berg.
10.8 Amendments dated February 2, 1999 to the Employment
Agreement among the Company, Danka Business Systems PLC
and David P. Berg (original agreement dated July 27,
1998).
10.9 Change of Control Agreement dated November 6, 1998 among
the Company, Danka Business Systems PLC and David P. Berg.
10.10 Change of Control Agreement dated November 6, 1998 among
the Company, Danka Business Systems PLC and Larry K.
Switzer.
10.11 Change of Control Agreement dated November 6, 1998 among
the Company, Danka Business Systems PLC and Brian L.
Merriman.
10.12 Change of Control Agreement dated November 6, 1998 among
the Company, Danka Business Systems PLC and F. Mark
Wolfinger.
27.1 Financial Data Schedule (for SEC purposes only)
27.2 Restated Financial Data Schedule (June 30, 1998 Form 10-Q)
(for SEC purposes only)
27.3 Restated Financial Data Schedule (September 30, 1998 Form
10-Q) (for SEC purposes only)
27.4 Restated Financial Data Schedule (December 31, 1998 Form
10-Q) (for SEC purposes only)
27.5 Restated Financial Data Schedule (March 31, 1999 Form
10-K) (for SEC purposes only)
* Document has heretofore been filed with the Commission and
is incorporated by reference and made a part hereof.
27
<PAGE> 28
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K, the earliest event occurring
on May 19, 1999, announcing the signing of the agreement to sell Danka Services
International to Schroder Ventures.
The Company filed a report on Form 8-K, the earliest event occurring
on June 17, 1999, announcing the signing of the agreement to sell Omnifax to
Xerox Corporation.
The Company filed a report on Form 8-K, the earliest event occurring
on June 15, 1999, announcing its fifth and sixth amendments to its Credit
Agreement.
28
<PAGE> 29
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 thereunto duly authorized.
DANKA BUSINESS SYSTEMS PLC
--------------------------
(Registrant)
Date: August 12, 1999 /s/ F. Mark Wolfinger
--------------- --------------------------------------
F. Mark Wolfinger, Executive Vice
President and Chief Financial Officer
(Chief Financial Officer and Principal
Accounting Officer)
29
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 27, 1998, between Danka Office
Imaging (the "Company"), and David P. Berg ("Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to provide for the employment of Executive
as Senior Vice President, General Counsel and Secretary of the Company on the
terms and conditions herein set forth; and
WHEREAS, Executive wishes to serve in such capacity on the term and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Employment Powers, Duties and Acceptance.
1.1 The Company hereby employs Executive, for the Term (as
hereinafter defined), to render services to the Company as
Senior Vice President, General Counsel and Secretary of the
Company.
1.2 Executive hereby accepts the employment hereunder and agrees to
use his best efforts to carry out the duties and
responsibilities of Senior Vice President, General Counsel and
Secretary of the Company and such additional assignments and
duties (which may include assignments and duties on behalf of
the Company's affiliates) as may be given to Executive by the
Chief Executive of the Company or his designee. Executive shall
report directly to the Chief Executive of the Company.
Executive agrees to discharge his obligations hereunder and
perform his duties in accordance with the general policies
established by the Board of Directors of the Company.
1.3 Executive shall be a full-time employee of the Company, and
subject to customary paid holidays and vacations, Executive
agrees to devote his full working time to the business of the
Company.
1.4 The principal place of employment of Executive hereunder shall
be at the offices of the Company in the City of St. Petersburg,
Florida. Executive shall travel as may be required to discharge
his obligations and perform his duties hereunder.
1.5 Executive shall be entitled to 4 weeks of vacation with pay
during each calendar year of the Term.
2. Term of Employment. The term of Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall end, unless
such employment is sooner terminated pursuant to Section 5 hereof, on July 27,
1999 (the "Termination Date"). Notwithstanding the foregoing, this Agreement
shall automatically renew for one-year periods unless earlier terminated as
provided herein.
3. Compensation.
3.1 During the Term, the Company shall pay Executive, as
compensation for services to be rendered pursuant to this
Agreement, a salary, payable in accordance with the Company's
standard payroll practices, at the rate of $250,000.00 per
annum (the "Base
<PAGE> 2
Compensation"). Executive shall be eligible for annual
increases at the discretion of the Chief Executive.
3.2 Executive shall have a target bonus of thirty-five (35%) of
his Base Compensation based upon achievement of established
corporate division and individual objectives as approved by the
Chief Executive. Executive will also be eligible for an
additional "stretch" bonus of an additional thirty-five percent
(35%) of his Base Compensation based upon established "stretch"
objectives approved by the Chief Executive, which will be upon
the Company obtaining 103% of its annual profit plan as
approved by the Board of Directors.
3.3 During the Company's Fiscal Year 1999 of this Agreement Company
shall guarantee that Executive receive a minimum bonus of not
less than $87,500.00 payable on or before May 1, 1999.
Company shall grant Executive 40,000 ordinary share stock
options as soon as practicable. Executive understands and
agrees that any granting of stock options is subject to Board
of Directors approval.
3.4 Executive shall receive all of the fringe benefits and
perquisites of office made available to the officers of the
Company, including the following:
o Airline Club expenses - up to $1,000.00 annually
3.5 Subject to Executive's satisfying the eligibility requirements
thereof, Executive shall be entitled to participate in and be
covered by any Executive Deferred Compensation Plan,
Supplemental Executive Retirement Plan, pension, life insurance,
long term disability insurance, health insurance,
hospitalization or other employee benefit plan established and
maintained by the Company on the same basis as generally made
available to executives of the Company without limitation or
restriction by reason of this Agreement. Nothing herein shall
be deemed to require the Company to establish or maintain any
employee benefit plan whatsoever, and Company shall have the
right, in its sole and absolute discretion, to alter, amend,
modify, discontinue or terminate at any time any and all
employee benefit plans maintained by the Company.
4. Expenses. In addition to the compensation provided to be paid under
Section 3 hereof, the Company shall reimburse Executive for all reasonable
out-of pocket expenses paid or incurred by Executive in the performance of his
duties hereunder upon submission of signed itemized lists thereof on the forms
used, and in accordance with the procedures established from time to time, by
the Company for that purpose.
5. Termination. This Agreement may be terminated prior to the
Termination Date in accordance with the following:
5.1 If Executive shall die during the Term, this Agreement shall
terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive the
compensation provided for herein to the last day of the month
in which his death occurs.
5.2 The Company shall have the right (without any liability to
Executive hereunder other than the payment of sum due through
the date of termination) to terminate the employment of
Executive, to relieve Executive of any and all functions as
Senior Vice President, General Counsel and Secretary of the
Company, and to terminate his right to the compensation
provided for herein for cause. As used in this Section 5.2, the
term "for cause" shall mean and be limited to to following
events:
<PAGE> 3
5.2.1 Executive's material breach of any term or condition of
this Agreement, unless Executive cures such breach within
ten days after the Company gives Executive notice of the
breach; or
5.2.2 Executive's commission of any crime that (i) constitutes
a felony in the jurisdiction involved or (ii) involves
loss or damage to or destruction of property of the
Company or (iii) results in the incarceration of
Executive following his conviction for such crime; or
5.2.3 Executive's willful and material violation of any lawful
directions of the Chief Executive or Board of Directors of
the Company; or
5.2.4 Executive's failure or refusal to perform his duties in
accordance with Section 1 hereof; provided, however, that
no discharge "for cause" under this Section 5.2.4 shall
be deemed effective unless Executive shall have first
been given notice by the Company advising Executive of
the specific acts or omissions alleged to constitute a
failure to perform his duties, and such failure continues
after Executive shall have had a reasonable opportunity
(which shall be defined as a period of time consisting of
at least three days from the date Executive receives said
notice from the Company) to correct the acts or omissions
so complained of.
5.3 The Company shall have the right to terminate the employment of
Executive, to relieve Executive of any or all functions as
Senior Vice President, General Counsel and Secretary and to
terminate his right to Base Compensation at any time prior to
the Termination Date upon notice to Executive. If the Company
shall terminate the employment of Executive for any reason not
specified in Section 5.1, or 5.2 hereof, the Company shall pay
Executive his Base Compensation and continue and/or pay
Executive's benefits for the next 12 succeeding months
following termination.
Executive agrees that in order to receive liquidated damages
described herein, Executive at the time of termination, agrees
to execute the General Release and Waiver in, a form similar to
Exhibit A. Notwithstanding the foregoing, Executive shall not
be entitled to any liquidated damages hereunder if termination
occurs prior to the Termination Date and Company or any of
their respective affiliates agrees to employ Executive in an
executive capacity with powers and duties similar to those
assigned to Executive hereunder for a period equal to or
greater than the balance of the Term and to provide Executive
during such period with compensation and benefits equivalent to
those which he would have received hereunder had termination
not occurred.
6. Non-Competition and Confidentiality
6.1 As used in this Section 6, the term "Restricted Area" shall
mean: (i) during the Term, the entire world, and (ii) during
the twelve months following the termination of Executive's
employment hereunder for any reason specified in Section 5.3
hereof, the area within 50 miles of the location of any
business activity conducted by the Company, any constituent
partner of the Company or any of their respective parents,
subsidiaries or affiliates. During the Term and for a period of
twelve months following the termination of Executive's
employment hereunder for any reason specified in Section 5.3
hereof, Executive shall not, in the Restricted Area, directly
or indirectly, enter the employ of, or render any services to,
any person, firm or corporation engaged in any business
competitive with the businesses engaged in by the Company, any
constituent partners of the Company or any of their respective
parents, subsidiaries or affiliates; he shall not engage in
such business on his own account in the Restricted Area; and he
shall not
<PAGE> 4
become interested in such business, directly or indirectly, as
an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or any other
relationship or capacity; provided, however, that nothing
contained in this Section 6 shall be deemed to prohibit
Executive from acquiring, solely as an investment, a less than
one percent interest in the equity of any publicly traded
corporation or limited partnership.
6.2 Executive shall not, at any time hereafter, disclose to any
person, firm or corporation any confidential information
regarding the customers, suppliers, market arrangements or
methods of operations of the Company, any constituent partner
of the Company or any of their respective parents, subsidiaries
or affiliates or any other information of the Company, any
constituent partner of the Company or any of their respective
parents, subsidiaries, affiliates. Without limiting the
generality of the foregoing, the parties hereto acknowledge and
agree that all information not otherwise generally known to the
public relating to each of (i) this Agreement, (ii) the Company,
any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates is confidential
and proprietary and is not to be disclosed to any persons or
entities, except to the extent necessary to conduce the
business of the Company, or to comply with law or the valid
order of a governmental agency or court of competent
jurisdiction.
6.3 Any invention, improvement, design, development or discovery
conceived, developed, invented or made by Executive, alone or
with others, during his employment hereunder and applicable to
the business of the Company, its parents, subsidiaries or
affiliates shall become the sole and exclusive property of the
Company. Executive shall (i) disclose the same completely and
promptly to the Company, (ii) execute all documents requested
by the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all
documents required by the Company for the filing, and
prosecuting of such applications for patents, copyrights and/or
trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all
assistance it may reasonably require including, without
limitation, the giving of testimony in any suit, action or
proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
6.4 Executive, except within the course of the performance of his
duties hereunder, shall not at any time while he is in the
employ of the Company, any constituent partner of the Company
or any of their respective parents, subsidiaries, or affiliates
and for 12 months thereafter (i) employ any individual who is
then employed by the Company, any constituent partner of the
Company or any of their respective parents, subsidiaries,
affiliates, or (ii) in any way cause, influence, or participate
in the employment of any individual which would be contrary to
the Company's best interests, as determined by the Company in
its sole discretion.
6.5 Executive's services are unique and any breach or threatened
breach by Executive of any provision of this Section 6 shall
cause the Company irreparable harm which cannot be remedied
solely by damages. In the event of a breach or threatened
breach by Executive of any of the provisions of this Section 6,
the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or
threatened breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies
available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate
termination of the employment of Executive hereunder.
6.6 If any of the provisions of or covenants contained in this
Section 6 are hereafter construed to be invalid or
unenforceable in a particular jurisdiction, the same shall not
affect the remainder of the provisions or the enforceability
thereof in that jurisdiction,
<PAGE> 5
which shall be given full effect, without regard to the
invalidity or unenforceability thereof in a particular
jurisdiction because of the duration and/or scope of such
provision or covenant in that jurisdiction and, in its reduced
form, said provision or covenant shall be enforceable. In all
other jurisdictions this Section 6 shall at all times remain in
full force and effect.
7. Representations and Warranties. Executive hereby represents and
warrants to the Company as follows:
7.1 Executive is an individual residing at the address set forth in
Section 8.2 hereof.
7.2 Executive has full power and authority to enter into this
Agreement and the execution and delivery of this Agreement by
Executive will not conflict with or result in the breach of or
a default under any agreement or other instrument to which
Executive is a party.
7.3 Executive is not a party to any covenant not-to-compete,
non-disclosure agreement or other similar obligation which is
inconsistent with, or which could impair the performance of,
Executive's duties hereunder.
8. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first-class, postage prepaid, by registered or certified
mail (notices sent by telegram or mailed shall be deemed to have been given on
the date sent), as follows (or to such other address as either party shall
designate by notice in writing to the other in accordance herewith):
8.1 If to the Company:
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: Chief Executive
8.2 If to Executive:
756 18th Avenue N.E.
St. Petersburg, FL 33704
Attention: David P. Berg
9. General.
9.1 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.2 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and
understandings written or oral, relating to the subject matter
hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and
neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
<PAGE> 6
9.3 This Agreement, and Executive's rights and obligations
hereunder, may not be assigned or otherwise transferred by
Executive. The Company may assign its rights hereunder to any
parent, subsidiary, or affiliate and in connection with any
sale, transfer or other disposition of all or substantially all
of its businesses or assets. Upon such assignment, the assignee
thereunder shall be required to assume the obligations of
Executive hereunder and, upon such assumption, the Company
shall be relieved of its obligations hereunder.
9.4 This Agreement constitutes the entire agreement between the
parties with respect to the transactions contemplated hereby
and may be amended, modified, superseded, canceled, renewed or
extended and the terms or covenants hereof may be waived, only
by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in
this Agreement, whether by conduct of otherwise, in any one or
more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this
Agreement.
9.5 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Florida applicable to agreements
entered into and wholly performed therein.
9.6 Any controversy or claim arising out of or relating to this
Employment Agreement, other than a claim for injunctive relief,
shall be scaled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (the "Rules") in effect at the time demand for
arbitration is made by any party. One arbitrator shall be named
by the Company, a second by the Executive and the third
arbitrator shall be named by the two arbitrators so chosen. In
the event that the third arbitrator is not agreed upon, he or
she shall be named by the American Arbitration Association.
Arbitration shall occur in St. Petersburg, Florida. The award
made by all or a majority of the panel of arbitrators shall be
final and binding, and judgment may be entered in any court of
law having competent jurisdiction. The prevailing party shall
be entitled to an award of reasonable attorney's fees, costs and
expenses incurred in connection with the arbitration and any
judicial proceedings related thereto.
9.7 This Agreement may be executed in any number of counterpart
copies, each of which shall be deemed an original, but which
together shall constitute a single instrument.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DANKA OFFICE IMAGING COMPANY
By: /s/ Daniel M. Doyle
------------------------
Daniel M. Doyle
Title:
----------------------------
Executive
By: /s/ David P. Berg
------------------------
Witness:
/s/ Cathy L. Black
- ------------------
<PAGE> 8
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, David F. Berg, ("Employee"), intend all words used in this
Release to have their plain meaning in ordinary English. Technical legal words
am not needed to describe what I mean. Specific terms I use in this Release
have the following meanings:
A. I, Me, and My include both me and anyone who has or obtains any
legal rights or claims through me.
B. Employer, as used herein, shall at all times mean Danka Corporation
or any parent company, subsidiaries, affiliated companies or
entities and their employees, officers, directors, successors and
assigns, its attorneys, consultants and agents, whether in their
individual or official capacities.
C. My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights,
arising out of or in any way related to my employment with
Employer, any my termination of employment, or any employee benefit
plan, including, but not limited to, common law, or equitable
claims, claims for violation or breach of any employment agreement
or understanding; fraud or misrepresentation; and any statutory
claims including alleged violations of the, the federal Age
Discrimination in Employment Act, the Americans with Disabilities
Act, or any other federal, state, or local civil rights laws or
ordinances, defamation; intentional or negligent infliction of
emotional distress; breach of the covenant of good faith and fair
dealing; promissory estoppel; negligence, wrongful termination of
employment any any other claims.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of claims. I
agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any alleged claims. The money I am receiving is a full and fair payment for the
release of all My Claims.
ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
I understand that I may have twenty-one (21) calendar days from the
day that I receive this Release, not counting the day upon which I receive it,
to consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had
sufficient time to decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal civil rights claims
(if any). To be effective, my rescission must be in writing and delivered to
the Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:
1. Postmarked within the relevant period;
2. Properly addressed to the General Counsel; and
<PAGE> 9
3. Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I
have had the opportunity to review this Release with my own
attorney. In agreeing to sign this Release, I have not relied on
any statements or explanations made by the Employer or its agents
other than those set forth in the Release and Employment Agreement.
I understand and agree that this Release and Employment Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.
Dated: _____________________________
____________________________________
Witness: ___________________________
<PAGE> 1
Exhibit 10.8
[LOGO]
February 2, 1999
David P. Berg
Senior Vice President, General Counsel and Secretary
Danka
11201 Danka Circle North
St. Petersburg, FL 33716
Dear David:
The Board of Directors of Danka Business Systems, PLC ("Company") has
approved, effective January 1, 1999, certain changes to your Employment
Agreement dated as of 27 July 1998 ("Employment Agreement") and the Committee
under The Danka 1996 Share Option Plan (including amendments approved by
shareholders on 24 July 1998 and approved by the Board on 25 August 1998)
("Option Plan") has determined to grant you options as described herein. Except
as modified herein, all terms of your Employment Agreement remain in full force
and effect and nothing contained herein shall affect any Change in Control
Agreement provided to you.
1. Salary. Effective January 1, 1999, "$325,000" shall be substituted for
"$250,000" in Section 3.1 of the Employment Agreement in each place it
occurs.
2. Bonus. For performance periods commencing on and after April 1, 1999,
Executive shall have a target bonus of up to 100% of Base Compensation
("Target Bonus") based upon achievement of strategic restructuring
goals as determined by the Board of Directors.
3. Special Cash Bonus. Executive shall be entitled to a special bonus
("Special Bonus") equal to the product of (i) 250,000 and (ii) the
lesser of (a) $2 and (b) the excess of the price of a Danka American
Depository Share (ADS) at the close of trading on NASDAQ immediately
following the expiration of the closed period over $4 5/16 which was
the closing price of a Danka ADS on NASDAQ on January 14, 1999. Such
Special Bonus shall be paid in installments in the same proportions as
the options described in item 5 of this letter are exercised. For
example, if options with respect to 50,000 shares from the options
described in item 5 are exercised, 50,000/250,000 or 20% of the
Special Bonus shall be paid at the time of such option exercise. As
another example, if options with respect to all 250,000 shares
described in item 5 of this letter are exercised at one time, 100% of
the Special Bonus shall be paid at such time of exercise. The Special
Bonus shall accrue no interest.
<PAGE> 2
4. Severance. The liquidated damages payment under Section 5.3 of the
Employment Agreement shall be paid in one lump sum and shall not be
less than the aggregate of Base Compensation for 12 months and the
Target Bonus.
5. Options. The Committee under the Option Plan has irrevocably
determined to grant to you Options with respect to 250,000 American
Depository Shares ("Option Shares") at the expiration of the closed
period. Such Options shall have a term or Exercise Period of ten years
from the date of grant and shall be fully exercisable on the third
anniversary of the date of grant. Options with respect to one-third of
the Option Shares shall become exercisable on the first anniversary of
the date of grant or at such earlier time that the price of a Danka
ADS traded on NASDAQ is at least $7.50. Options with respect to an
additional one-third of the Option Shares (for a total of two-thirds
of the Option Shares) shall become exercisable on the second
anniversary of the date of grant or at such earlier time after the
first anniversary of the date of grant that the price of a Danka ADS
traded on NASDAQ is at least $12.50. Options with respect to the
remaining one third of the Option Shares (for a total of all Option
Shares) shall become exercisable on the third anniversary of the date
of such grant or at such earlier time after the second anniversary of
the date of grant that the price of a Danka ADS traded on NASDAQ is at
least $20.
If you agree to the changes in the Employment Agreement and the
granting of options by the Committee, please execute and return a copy of this
letter.
Sincerely,
/s/ Larry K. Switzer
-------------------------------
Larry K. Switzer
Chief Executive Officer
Danka Business Systems, PLC
Agreed to by:
/s/ David P. Berg
- -------------------------------
David P. Berg
<PAGE> 1
Exhibit 10.9
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for David Berg
- --------------------------------------------------------------------------------
<PAGE> 2
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for David Berg
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions ............................................................1
2. Term of Agreement ......................................................4
3. Reimbursement of Business Expenses .....................................4
4. Entitlement to Severance Benefit .......................................4
5. Confidentiality and Related Covenants ..................................8
6. Amendment or Termination................................................9
7. Resolution of Disputes .................................................9
8. Miscellaneous Provisions ..............................................10
</TABLE>
<PAGE> 3
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made and entered into as of the 6th day of November, 1998
by and among Danka Business Systems PLC ("Danka Business Systems"), Danka
Office Imaging Company ("Danka") (Danka Business Systems and Danka sometimes
referred to herein together with their respective successors and assigns as the
"Company") and David Berg, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company
be able to rely upon Executive to continue serving in his or her position in
the event of a pending or actual Change of Control (as defined) of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is mutually acknowledged, the Company and Executive
(individually a "Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean Executive's annual base salary in
effect at the time of the Change of Control or at the time of termination of
employment, whichever is greater.
(b) "Cause" shall mean and be limited to:
(i) Executive's commission of any crime that (i) constitutes a
felony in the jurisdiction involved or (ii) involves loss
or damage to or destruction of property of the Company or
(iii) results in the incarceration of Executive following
his conviction for such crime; or
(ii) Executive's willful and material violation of any lawful
directions of the Company's Chief Executive or Board after
the Company has provided written notice to Executive and
said violation continues after Executive shall have
reasonable opportunity to cure said violation.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.
(c) A "Change of Control" shall be deemed to have occurred when:
(i) securities of Danka Business Systems representing more than
30 percent of the combined voting power of the then
outstanding voting securities of Danka Business Systems are
acquired pursuant to a general offer for the issued share
capital of the Company which is an offer regulated under
the U.K. Take-Over Code or any other tender
<PAGE> 4
offer or an exchange offer by any person or group of
persons acting in concert (within the meaning of Section
14(d) of the Securities Exchange Act of 1934) other than
the Company, a direct or indirect subsidiary or parent of
the Company, an employee benefit plan or similar trust
established by the Company;
(ii) a merger or consolidation is consummated in which Danka
Business Systems is a constituent corporation and which
results in less than 50 percent of the outstanding voting
securities of the surviving or resulting entity being owned
by the then existing stockholders of Danka Business
Systems;
(iii) a sale is consummated by the Company of substantially all
of the Company's assets (or substantially all of the assets
of Danka) to a person or entity which is not a wholly-owned
subsidiary of Danka Business Systems or any of its
affiliates; or
(iv) during any period of two consecutive years, individuals
who, at the beginning of such period, constituted the Board
of Directors of Danka Business Systems (the "Board") cease,
for any reason, to constitute at least a majority thereof,
unless the election or nomination for election for each new
director was approved by the vote of at least two-thirds of
the directors then still in office who were directors at
the beginning of such two-year period.
For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from
actions or events in which Executive is a participant in a capacity other than
solely as an officer, employee or director of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Disability" shall mean a physical or mental illness which, in
the judgment of the Company after consultation with the licensed physician
attending Executive, impairs Executive's ability to substantially perform his
duties as an employee and as a result of which Executive shall have been unable
to perform his duties for the Company on a full-time basis for a period of 180
consecutive days.
(f) "Effective Date" shall mean the date of this Agreement, as set
forth above.
(g) "Excise Taxes" shall have the meaning set forth in Section 4
below.
(h) "Good Reason" shall mean the occurrence of one or more of the
following events without Executive's prior written consent (except as a result
of a prior termination):
2
<PAGE> 5
(i) any material change in Executive's status, title,
authorities or responsibilities (including reporting
responsibilities) which represents a demotion from
Executive's status, title, position or responsibilities
(including reporting responsibilities) prior to the Change
of Control; the assignment to Executive of any duties or
work responsibilities which are materially inconsistent
with Executive's status, title, position or work
responsibilities prior to the Change of Control, or which
are materially inconsistent with the status, title,
position or work responsibilities of a similarly situated
senior officer; or any removal of Executive from, or
failure to appoint, elect, reappoint or reelect Executive
to, any of such positions, except in the event of
Executive's death or Disability;
(ii) any decrease in Executive's annual Base Salary or target
annual incentive award opportunity;
(iii) the reassignment of Executive to a location more than
thirty (30) miles from Executive's then-current work
location;
(iv) the failure by the Company to continue in effect any
incentive, bonus or other compensation plan in which
Executive participates, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to the failure to continue such
plan, or the failure by the Company to continue Executive's
participation therein, or any action by the Company which
would directly or indirectly materially reduce his
participation therein or reward opportunities thereunder;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof;
(v) the failure by the Company to continue in effect any
employee benefit plan (including any medical,
hospitalization, life insurance, disability or other group
benefit plan in which Executive participates), or any
material fringe benefit or perquisite enjoyed by Executive
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect
to the failure to continue such plan, or the failure by the
Company to continue Executive's participation therein, or
any action by the Company which would directly or
indirectly materially reduce Executive's participation
therein or reward opportunities thereunder, or the failure
by the Company to provide Executive with the benefits to
which Executive is entitled as an employee of the Company;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof,
3
<PAGE> 6
(vi) any purported termination of Executive's employment for
Cause which is not effected by the Company's delivering
written notice to Executive of the termination for Cause
which notice describes the specific acts or omissions
alleged to constitute Cause; or
(vii) the failure of the Company to obtain a satisfactory
agreement from any successor or assignee of the Company to
fully assume and agree to perform this Agreement.
(i) "Retirement" shall mean Executive's termination of employment
with the Company at or after attaining age 65.
(j) "Severance Payments" shall have the meaning set forth in
Section 4 below.
(k) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence on the Effective Date and,
subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the " Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement , notwithstanding
any other provision of this Section 2, the Term shall not expire earlier than
two years after the effective date of such Change of Control.
3. Reimbursement of Business Expenses.
Executive is authorized to incur reasonable expenses in carrying out
Executive's duties and responsibilities on the Company's behalf, and the
Company shall promptly reimburse Executive for all business expenses incurred
in connection therewith, subject to documentation in accordance with the
Company's policy.
4. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in
the event that prior to the consummation of a pending Change of Control
Executive's employment is involuntarily terminated without Cause (other than
due to death or Disability) as a condition to the consummation of the proposed
transaction, whether at the request of the acquiring firm or otherwise,
Executive shall be entitled to receive:
(i) Base Salary through the date of termination of Executive's
employment, which shall be paid in a cash lump sum not
later than 30 days following Executive's termination of
employment;
4
<PAGE> 7
(ii) an amount equal to two (2) full years of Executive's Base
Salary, at the rate in effect on the date of termination of
Executive's employment (or in the event a reduction in Base
Salary is a basis for a termination by Executive for Good
Reason, then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum not later than
30 days following Executive's termination of employment;
(iii) a pro rata annual bonus for the fiscal year which
includes the date of termination, calculated by multiplying
the annual bonus Executive would have earned for the fiscal
year of termination, if the Company's financial performance
targets for the fiscal year were deemed to be satisfied at
a level equal to the financial performance achieved through
the date of termination, or, if greater, any performance
bonus Executive is guaranteed to receive for the fiscal
year under the terms of his employment agreement, by a
percentage equal to the ratio of the number of days worked
by Executive during the fiscal year of the termination to
the total number of work days during such fiscal year,
payable in a cash lump sum not later than 30 days following
Executive's termination of employment;
(iv) an amount equal to two times the annual bonus Executive
would earn for the fiscal year of termination if the
Company's financial performance targets were deemed to be
satisfied at the level equal to the financial performance
achieved through the date of termination, or, if greater,
any performance bonus Executive is guaranteed to receive
for the fiscal year under the terms of his employment ,
payable in a cash lump sum not later than 15 days following
Executive's termination of employment;
(v) immediate vesting of all outstanding stock options and the
right to exercise such stock options at any time during an
extended exercise period of not less than 36 months
following Executive's termination of employment, or the
remainder of the exercise period, if less, in each case, to
the extent permitted by the terms of the Company's stock
option schemes;
(vi) settlement of all deferred compensation arrangements in
accordance with any then applicable deferred compensation
plan or election form;
(vii) continued medical, hospitalization, life and other
insurance benefits being provided to Executive and
Executive's family at the date of termination, for a period
of up to twenty-four (24) months after the date of
termination; provided that the Company shall have no
obligation to continue to provide Executive with these
benefits for any periods after the date Executive obtains
comparable benefits (with no significant pre-existing
condition exclusions) as a result of Executive's employment
in a new position; and
5
<PAGE> 8
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the
Company.
(b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:
(i) For purposes of determining whether any of the Severance
Payments would be subject to the Excise Tax and the amount
of such Excise Tax:
(A) Severance Payments, including any payments or benefits
other than those under this Section 4(b) received or to
be received by Executive in connection with Executive's
termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement
or agreement with the Company, any person whose actions
result in a Change of Control or any person affiliated
with the Company or such person) (which, together with
the Severance Payments, constitute the "Total
Payments"), shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless in the opinion of a
nationally-recognized public accounting firm mutually
acceptable to Executive and the Company such other
payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 28OG(b)(4) of the Code in excess of
the base amount within the meaning of Section
28OG(b)(3) of the Code, or are otherwise not subject to
the Excise Tax;
(B) the amount of the Total Payments which shall be deemed
to be treated as subject to the Excise Tax shall be
equal to the lesser of (x) the total amount of the
Total Payments and (y) the amount of excess parachute
payments within the meaning of Section 28OG(b)(1) of
the Code (after applying Section 4(b)(i)(A) hereof);
and
6
<PAGE> 9
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a nationally
recognized public accounting firm mutually acceptable
to Executive and the Company in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
(ii) If a reduction in the aggregate amount of Severance
Payments Executive otherwise would be entitled to receive
by an amount not exceeding 20% of such Severance Payments
would result in Executive receiving a greater "Net
After-Tax Amount," as such term is defined below, then such
Severance Payments shall be reduced by the amount, not
exceeding 20% of such Severance Payments, as will provide
to Executive the greatest Net After-Tax Amount, such
reduction to be made from such payments under this
Agreement or such other of the Severance Payments not yet
paid to Executive as Executive shall specify. For this
purpose, the term "Net After-Tax Amount" shall mean the net
amount of the Severance Payments after deducting any
federal, state and local income tax and Excise Tax which
would be applicable to such Severance Payments. In the
event that the Excise Tax is subsequently determined to
differ from the amount taken into account hereunder at the
time of termination of employment, adjustments shall be
made in accordance with this Section 4(b)(ii) in light of
the revised determination.
(iii) All determinations under this Section 4(b) shall be made
at the expense of the Company by a nationally recognized
public accounting firm mutually agreeable to Executive and
the Company, and such determination shall be binding upon
Executive and the Company.
(c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be
offset by any remuneration attributable to any subsequent employment that
he/she may obtain.
(d) Nature of Payments, Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
(e) Exclusivity of Severance Payments. Upon termination of
Executive's employment during the Term, he/she shall not be entitled to any
severance payments or severance benefits from the Company or any payments by
the Company on account of any claim by Executive of wrongful termination,
including claims under any federal, state or local human and civil rights or
labor laws, other than the payments and benefits provided in this Section 4.
7
<PAGE> 10
(f) Release of Employment Claims. Executive agrees, as a condition
to receipt of the termination payments and benefits provided for in this
Section 4, that he/she will execute a release agreement, a form of which is
attached hereto as Exhibit A, releasing any and all claims arising out of
Executive's employment.
5. Confidentiality and Related Covenants.
(a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information
of the Company, any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates, except to the extent necessary
to conduct the business of the Company, or to comply with law or the valid
order of a governmental agency or court of competent jurisdiction. Without
limiting the generality of the foregoing, the Parties acknowledge and agree
that all information not otherwise generally known to the public relating to
each of (i) this Agreement, or (ii) the Company, any constituent partner of the
Company or any of their respective parents, subsidiaries or affiliates is
confidential and proprietary and is not to be disclosed, to any persons or
entities or otherwise used, except to the extent necessary to conduct the
business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
(b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose
the same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all documents required by
the Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in
any suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
(c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 12 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.
(d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or
entity
8
<PAGE> 11
participating in such breach or threatened breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the
recovery of damages and the immediate termination of the employment of
Executive hereunder. If any of the provisions of or covenants contained in this
Section 5 are hereafter construed to be invalid or unenforceable in a
particular jurisdiction, the same shall not affect the remainder of the
provisions or the enforceability thereof in that jurisdiction, which shall be
given full effect, without regard to the invalidity or unenforceability thereof
in a particular jurisdiction because of the duration and/or scope of such
provision or covenant in that jurisdiction and, in its reduced form, said
provision or covenant shall be enforceable. In all other jurisdictions this
Section 5 shall at all times remain in full force and effect. The obligations
under this Section 5 shall survive any termination of this Agreement.
6. Amendment or Termination.
Except as otherwise provided in this Section 6, this Agreement may
be amended or terminated only with the express mutual consent of the Company
and Executive and no amendment to the provisions of this Agreement by mutual
consent shall be effective unless such amendment is agreed to in writing and
signed by Executive and an authorized officer of the Company.
Notwithstanding the preceding paragraph, after the first
anniversary of the Effective Date of this Agreement, the Agreement may be
amended or terminated by the Board without the consent of Executive; provided
that, no such amendment or termination of the Agreement without Executive's
express consent shall be effective unless the Company has provided Executive
advance written notice of the amendment or termination not less than one full
year prior to the proposed effective date of the amendment or termination; and
further provided that no such notice may be delivered at any time when a Change
of Control is proposed or pending (to the knowledge of the Board) or during the
first year following the Effective Date of the Agreement. If a Change of
Control occurs during the period between the time a notice of termination or
amendment has been given to Executive and the effective date described in such
notice, the Term of the Agreement shall automatically be extended until two
years after the date on which the Change of Control occurred, and any earlier
termination date specified in the notice shall automatically be revoked and not
take effect.
7. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Employment Agreement, other than a claim for injunctive relief pursuant to
Section 5(d), shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules") in
effect at the time demand for arbitration is made by any party. One arbitrator
shall be named by the Company, a second by the Executive and the third
arbitrator shall be named by the two arbitrators so chosen. In the even that
the third arbitrator is not agreed upon, he or she shall be named by the
American Arbitration Association. Arbitration shall occur in St. Petersburg,
Florida. The award made by all or a majority of the panel of arbitrators shall
be final and binding, and judgment may be entered in any court of law having
competent jurisdiction. The prevailing party shall be entitled to an award of
reasonable attorney's fees, costs and expenses incurred in connection with the
arbitration and any judicial proceedings related thereto.
9
<PAGE> 12
8. Miscellaneous Provisions.
(a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.
(b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive
and the Company. The Company may terminate the employment of Executive at any
time, subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.
(c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred in connection with the sale or transfer of all or substantially all
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that, in the event of a sale or transfer of
assets as described in the preceding sentence, it shall use its best efforts
and take whatever action or actions it legally can in order to cause such
assignee or transferee to expressly assume the liabilities, obligations and
duties of the Company hereunder. No rights or obligations of Executive under
this Agreement may be assigned or transferred by Executive other than his/her
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 78(i) below.
(d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
(e) Entire Agreement. This Agreement contains the entire
understanding and agreement between the Parties concerning the subject matter
hereof and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties
with respect thereto.
(f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company, as the case may be.
(g) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
10
<PAGE> 13
(h) Survivorship. The respective rights and obligations of the
Parties hereunder shall survive any termination of Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
(i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of his/her
incompetence, references in this Agreement to Executive shall be deemed, where
appropriate, to refer to his/her beneficiary, estate or other legal
representative.
(j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to
Sections 5(d) and 7, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts for purposes of resolving
any dispute under this Agreement: (i) the United States District Court for
Florida or (ii) any of the courts of the State of Florida. The Company and
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
it or he/she may now or hereafter have to such jurisdiction and any defense of
inconvenient forum.
(k) Notices. Any notice given to a Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give such notice of:
If to the Company: Danka Business Systems PLC
33 Cavendish Square
London W1 M ODE England
Attention: Secretary
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
If to Executive: David Berg
11201 Danka Circle North
St. Petersburg, FL 33716
11
<PAGE> 14
(l) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(m) Counterparts. This Agreement may be executed in two or more
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
DANKA BUSINESS SYSTEMS PLC
By: /s/ Larry K. Switzer
------------------------
Name: LARRY K. SWITZER
Title:
DANKA OFFICE IMAGING COMPANY
By: /s/ Larry K. Switzer
------------------------
Name: LARRY K. SWITZER
Title:
/s/ David Berg
----------------------------
DAVID BERG
12
<PAGE> 15
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, ___________________, ("Employee"), intend all words used in
this Release to have their plain meaning in ordinary English. Technical legal
words are not needed to describe what I mean. Specific terms I use in this
Release have the following meanings:
I, Me. and My include both me and anyone who has or obtains any
legal rights or claims through me.
Employer, as used herein, shall at all times mean Danka Business
Systems PLC (the "Company"), Danka Office Imaging Company
("Danka"), or any parent company, subsidiaries, affiliated
companies or entities and their employees, officers, directors,
successors and assigns, its attorneys, consultants and agents,
whether in their individual or official capacities.
My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights,
arising out of or in any way related to my employment with
Employer, my termination of employment, or any employee benefit
plan, including, but not limited to, common law, or equitable
claims, claims for violation or breach of any employment agreement
or understanding; fraud or misrepresentation; and any statutory
claims including alleged violations of the, the federal Age
Discrimination in Employment Act, the Americans with Disabilities
Act, or any other federal, state, or local civil rights laws or
ordinances, defamation; intentional or negligent infliction of
emotional distress; breach of the covenant of good faith and fair
dealing; promissory estoppel; negligence, wrongful termination of
employment, any other claims; provided, however, that My Claims do
not include claims for payments or benefits which are to continue
for a specified period of time following my termination of
employment in accordance with Section 4 of the Change of Control
Agreement between the Company, Danka, and me dated as of
November 6, 1998, or any employee benefit plan, or option or award
thereunder, in effect at the time of termination.
Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of My Claims.
I agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any allegation included in My Claims. The money I am receiving is a full and
fair payment for the release of all My Claims.
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
<PAGE> 16
I understand that I may have twenty-one (21) calendar days from the
day that I receive this Release, not counting the day upon which I receive it,
to consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had
sufficient time to decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release
within seven (7) calendar days of signing it to reinstate federal civil rights
claims (if any). To be effective, my rescission must be in writing and
delivered to the Employer, Attention General Counsel, Danka, 11201 Danka Circle
North, St. Petersburg, Florida, 33716, either by hand or by mail within the
required period. If sent by mail, the rescission must be:
Postmarked within the relevant period;
Properly addressed to the General Counsel; and
Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I
have had the opportunity to review this Release with my own
attorney. In agreeing to sign this Release, I have not relied on
any statements or explanations made by the Employer or its agents
other than those set forth in the Release and Change of Control
Agreement.
I understand and agree that this Release and Change of Control
Agreement to which it is attached contain all the agreements between the
Employer and me. We have no other written or oral agreements.
Dated: __________________________
_________________________________
Witness: ________________________
2
<PAGE> 1
Exhibit 10.10
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for Larry Switzer
- --------------------------------------------------------------------------------
<PAGE> 2
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for Larry Switzer
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions ...........................................................1
2. Term of Agreement .....................................................4
3. Reimbursement of Business Expenses ....................................4
4. Entitlement to Severance Benefit ......................................5
5. Confidentiality and Related Covenants .................................8
6. Amendment or Termination...............................................9
7. Resolution of Disputes ...............................................10
8. Miscellaneous Provisions .............................................10
</TABLE>
<PAGE> 3
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made and entered into as of the 6th day of November, 1998
by and among Danka Business Systems PLC ("Danka Business Systems"), Danka
Office Imaging Company ("Danka") (Danka Business Systems and Danka sometimes
referred to herein together with their respective successors and assigns as the
"Company") and Larry Switzer, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company
be able to rely upon Executive to continue serving in his or her position in
the event of a pending or actual Change of Control (as defined) of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is mutually acknowledged, the Company and Executive
(individually a "Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean Executive's annual base salary in
effect at the time of the Change of Control or at the time of termination of
employment, whichever is greater.
(b) "Cause" shall mean and be limited to:
(i) Executive's commission of any crime that (i) constitutes a
felony in the jurisdiction involved or (ii) involves loss
or damage to or destruction of property of the Company or
(iii) results in the incarceration of Executive following
his conviction for such crime; or
(ii) Executive's willful and material violation of any lawful
directions of the Company's Chief Executive or Board after
the Company has provided written notice to Executive and
said violation continues after Executive shall have
reasonable opportunity to cure said violation.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.
(c) A "Change of Control" shall be deemed to have occurred when:
(i) securities of Danka Business Systems representing more than
30 percent of the combined voting power of the then
outstanding voting securities of Danka Business Systems are
acquired pursuant to a general offer for the issued share
capital of the Company which is an offer regulated under
the U.K. Take-Over Code or any other tender
<PAGE> 4
offer or an exchange offer by any person or group of
persons acting in concert (within the meaning of Section
14(d) of the Securities Exchange Act of 1934) other than
the Company, a direct or indirect subsidiary or parent of
the Company, an employee benefit plan or similar trust
established by the Company;
(ii) a merger or consolidation is consummated in which Danka
Business Systems is a constituent corporation and which
results in less than 50 percent of the outstanding voting
securities of the surviving or resulting entity being owned
by the then existing stockholders of Danka Business
Systems;
(iii) a sale is consummated by the Company of substantially all
of the Company's assets (or substantially all of the assets
of Danka) to a person or entity which is not a wholly-owned
subsidiary of Danka Business Systems or any of its
affiliates; or
(iv) during any period of two consecutive years, individuals
who, at the beginning of such period, constituted the Board
of Directors of Danka Business Systems (the "Board") cease,
for any reason, to constitute at least a majority thereof,
unless the election or nomination for election for each new
director was approved by the vote of at least two-thirds of
the directors then still in office who were directors at
the beginning of such two-year period.
For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from
actions or events in which Executive is a participant in a capacity other than
solely as an officer, employee or director of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Disability" shall mean a physical or mental illness which, in
the judgment of the Company after consultation with the licensed physician
attending Executive, impairs Executive's ability to substantially perform his
duties as an employee and as a result of which Executive shall have been unable
to perform his duties for the Company on a full-time basis for a period of 180
consecutive days.
(f) "Effective Date" shall mean the date of this Agreement, as set
forth above.
(g) "Excise Taxes" shall have the meaning set forth in Section 4
below.
(h) "Good Reason" shall mean the occurrence of one or more of the
following events without Executive's prior written consent (except as a result
of a prior termination):
2
<PAGE> 5
(i) any material change in Executive's status, title,
authorities or responsibilities (including reporting
responsibilities) which represents a demotion from
Executive's status, title, position or responsibilities
(including reporting responsibilities) prior to the Change
of Control; the assignment to Executive of any duties or
work responsibilities which are materially inconsistent
with Executive's status, title, position or work
responsibilities prior to the Change of Control, or which
are materially inconsistent with the status, title,
position or work responsibilities of a similarly situated
senior officer; or any removal of Executive from, or
failure to appoint, elect, reappoint or reelect Executive
to, any of such positions, except in the event of
Executive's death or Disability; provided that Executive
acknowledges that the Board retains the authority to
appoint a permanent Chief Executive Officer for the Company
(other than Executive), and further provided that for
purposes of this Section, any changes in the Executive's
position, authority or responsibilities (including
reporting responsibilities) which result from such an
appointment by the Board shall not be considered "Good
Reason" so long as Executive continues to serve as the
Company's Chief Financial Officer (or in a comparable
position as an executive officer of the Company reporting
only to the Chief Executive and the Board) with the status,
authority and responsibilities associated with such
position as of the Effective Date;
(ii) any decrease in Executive's annual Base Salary or target
annual incentive award opportunity;
(iii) the reassignment of Executive to a location more than
thirty (30) miles from Executive's then-current work
location;
(iv) the failure by the Company to continue in effect any
incentive, bonus or other compensation plan in which
Executive participates, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to the failure to continue such
plan, or the failure by the Company to continue Executive's
participation therein, or any action by the Company which
would directly or indirectly materially reduce his
participation therein or reward opportunities thereunder;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof;
(v) the failure by the Company to continue in effect any
employee benefit plan (including any medical,
hospitalization, life insurance, disability or other group
benefit plan in which Executive participates), or any
material fringe benefit or perquisite enjoyed by Executive
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect
to the failure to continue such plan, or the failure by the
Company to continue Executive's
3
<PAGE> 6
participation therein, or any action by the Company which
would directly or indirectly materially reduce Executive's
participation therein or reward opportunities thereunder,
or the failure by the Company to provide Executive with the
benefits to which Executive is entitled as an employee of
the Company; provided, however, that Executive continues to
meet substantially all eligibility requirements thereof,
(vi) any purported termination of Executive's employment for
Cause which is not effected by the Company's delivering
written notice to Executive of the termination for Cause
which notice describes the specific acts or omissions
alleged to constitute Cause; or
(vii) the failure of the Company to obtain a satisfactory
agreement from any successor or assignee of the Company to
fully assume and agree to perform this Agreement.
(i) "Retirement" shall mean Executive's termination of employment
with the Company at or after attaining age 65.
(j) "Severance Payments" shall have the meaning set forth in
Section 4 below.
(k) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence on the Effective Date and
, subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the " Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement , notwithstanding
any other provision of this Section 2, the Term shall not expire earlier than
two years after the effective date of such Change of Control.
3. Reimbursement of Business Expenses.
Executive is authorized to incur reasonable expenses in carrying
out Executive's duties and responsibilities on the Company's behalf, and the
Company shall promptly reimburse Executive for all business expenses incurred
in connection therewith, subject to documentation in accordance with the
Company's policy.
4
<PAGE> 7
4. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in
the event that prior to the consummation of a pending Change of Control
Executive's employment is involuntarily terminated without Cause (other than
due to death or Disability) as a condition to the consummation of the proposed
transaction, whether at the request of the acquiring firm or otherwise,
Executive shall be entitled to receive:
(i) Base Salary through the date of termination of Executive's
employment, which shall be paid in a cash lump sum not
later than 30 days following Executive's termination of
employment;
(ii) an amount equal to two (2) full years of Executive's Base
Salary, at the rate in effect on the date of termination of
Executive's employment (or in the event a reduction in Base
Salary is a basis for a termination by Executive for Good
Reason, then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum not later than
30 days following Executive's termination of employment;
(iii) a pro rata annual bonus for the fiscal year which
includes the date of termination, calculated by multiplying
the annual bonus Executive would have earned for the fiscal
year of termination, if the Company's financial performance
targets for the fiscal year were deemed to be satisfied at
a level equal to the financial performance achieved through
the date of termination, or, if greater, any performance
bonus Executive is guaranteed to receive for the fiscal
year under the terms of his employment agreement, by a
percentage equal to the ratio of the number of days worked
by Executive during the fiscal year of the termination to
the total number of work days during such fiscal year,
payable in a cash lump sum not later than 30 days following
Executive's termination of employment;
(iv) an amount equal to two times the annual bonus Executive
would earn for the fiscal year of termination if the
Company's financial performance targets were deemed to be
satisfied at the level equal to the financial performance
achieved through the date of termination, or, if greater,
any performance bonus Executive is guaranteed to receive
for the fiscal year under the terms of his employment ,
payable in a cash lump sum not later than 15 days following
Executive's termination of employment;
5
<PAGE> 8
(v) immediate vesting of all outstanding stock options and the
right to exercise such stock options at any time during an
extended exercise period of not less than 36 months
following Executive's termination of employment, or the
remainder of the exercise period, if less, in each case, to
the extent permitted by the terms of the Company's stock
option schemes;
(vi) settlement of all deferred compensation arrangements in
accordance with any then applicable deferred compensation
plan or election form;
(vii) continued medical, hospitalization, life and other
insurance benefits being provided to Executive and
Executive's family at the date of termination, for a period
of up to twenty-four (24) months after the date of
termination; provided that the Company shall have no
obligation to continue to provide Executive with these
benefits for any periods after the date Executive obtains
comparable benefits (with no significant pre-existing
condition exclusions) as a result of Executive's employment
in a new position; and
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the
Company.
(b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:
(i) For purposes of determining whether any of the Severance
Payments would be subject to the Excise Tax and the amount
of such Excise Tax:
(A) Severance Payments, including any payments or benefits
other than those under this Section 4(b) received or to
be received by Executive in connection with Executive's
termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement
or agreement with the Company, any person whose actions
result in a Change of Control or any person affiliated
with the Company or such person) (which, together with
the Severance Payments, constitute the "Total
Payments"), shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless in the opinion of a
nationally-recognized public accounting firm mutually
6
<PAGE> 9
acceptable to Executive and the Company such other
payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 28OG(b)(4) of the Code in excess of
the base amount within the meaning of Section
28OG(b)(3) of the Code, or are otherwise not subject to
the Excise Tax;
(B) the amount of the Total Payments which shall be deemed
to be treated as subject to the Excise Tax shall be
equal to the lesser of (x) the total amount of the
Total Payments and (y) the amount of excess parachute
payments within the meaning of Section 28OG(b)(1) of
the Code (after applying Section 4(b)(i)(A) hereof);
and
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a nationally
recognized public accounting firm mutually acceptable
to Executive and the Company in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
(ii) If a reduction in the aggregate amount of Severance
Payments Executive otherwise would be entitled to receive
by an amount not exceeding 20% of such Severance Payments
would result in Executive receiving a greater "Net
After-Tax Amount," as such term is defined below, then such
Severance Payments shall be reduced by the amount, not
exceeding 20% of such Severance Payments, as will provide
to Executive the greatest Net After-Tax Amount, such
reduction to be made from such payments under this
Agreement or such other of the Severance Payments not yet
paid to Executive as Executive shall specify. For this
purpose, the term "Net After-Tax Amount" shall mean the net
amount of the Severance Payments after deducting any
federal, state and local income tax and Excise Tax which
would be applicable to such Severance Payments. In the
event that the Excise Tax is subsequently determined to
differ from the amount taken into account hereunder at the
time of termination of employment, adjustments shall be
made in accordance with this Section 4(b)(ii) in light of
the revised determination.
(iii) All determinations under this Section 4(b) shall be made
at the expense of the Company by a nationally recognized
public accounting firm mutually agreeable to Executive and
the Company, and such determination shall be binding upon
Executive and the Company.
7
<PAGE> 10
(c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be
offset by any remuneration attributable to any subsequent employment that
he/she may obtain.
(d) Nature of Payments, Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
(e) Exclusivity of Severance Payments. Upon termination of
Executive's employment during the Term, he/she shall not be entitled to any
severance payments or severance benefits from the Company or any payments by
the Company on account of any claim by Executive of wrongful termination,
including claims under any federal, state or local human and civil rights or
labor laws, other than the payments and benefits provided in this Section 4.
(f) Release of Employment Claims. Executive agrees, as a condition
to receipt of the termination payments and benefits provided for in this
Section 4, that he/she will execute a release agreement, a form of which is
attached hereto as Exhibit A, releasing any and all claims arising out of
Executive's employment.
5. Confidentiality and Related Covenants.
(a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information
of the Company, any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates, except to the extent necessary
to conduct the business of the Company, or to comply with law or the valid
order of a governmental agency or court of competent jurisdiction. Without
limiting the generality of the foregoing, the Parties acknowledge and agree
that all information not otherwise generally known to the public relating to
each of (i) this Agreement, or (ii) the Company, any constituent partner of the
Company or any of their respective parents, subsidiaries or affiliates is
confidential and proprietary and is not to be disclosed, to any persons or
entities or otherwise used, except to the extent necessary to conduct the
business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
(b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose
the same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all documents required by
the Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in
any suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
8
<PAGE> 11
(c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 12 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.
(d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available at law or in equity for such breach or threatened breach, including
the recovery of damages and the immediate termination of the employment of
Executive hereunder. If any of the provisions of or covenants contained in this
Section 5 are hereafter construed to be invalid or unenforceable in a
particular jurisdiction, the same shall not affect the remainder of the
provisions or the enforceability thereof in that jurisdiction, which shall be
given full effect, without regard to the invalidity or unenforceability thereof
in a particular jurisdiction because of the duration and/or scope of such
provision or covenant in that jurisdiction and, in its reduced form, said
provision or covenant shall be enforceable. In all other jurisdictions this
Section 5 shall at all times remain in full force and effect. The obligations
under this Section 5 shall survive any termination of this Agreement.
6. Amendment or Termination.
Except as otherwise provided in this Section 6, this Agreement may
be amended or terminated only with the express mutual consent of the Company
and Executive and no amendment to the provisions of this Agreement by mutual
consent shall be effective unless such amendment is agreed to in writing and
signed by Executive and an authorized officer of the Company.
Notwithstanding the preceding paragraph, after the first
anniversary of the Effective Date of this Agreement, the Agreement may be
amended or terminated by the Board without the consent of Executive; provided
that, no such amendment or termination of the Agreement without Executive's
express consent shall be effective unless the Company has provided Executive
advance written notice of the amendment or termination not less than one full
year prior to the proposed effective date of the amendment or termination; and
further provided that no such notice may be delivered at any time when a Change
of Control is proposed or pending (to the knowledge of the Board) or during the
first year following the Effective Date of the Agreement. If a Change of
Control occurs during the period between the time a notice of termination or
amendment has been given to Executive and the effective date described in such
notice, the Term of the Agreement shall automatically be extended until two
years after the date on which the Change of Control occurred, and any earlier
termination date specified in the notice shall automatically be revoked and not
take effect.
9
<PAGE> 12
7. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Employment Agreement, other than a claim for injunctive relief pursuant to
Section 5(d), shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules") in
effect at the time demand for arbitration is made by any party. One arbitrator
shall be named by the Company, a second by the Executive and the third
arbitrator shall be named by the two arbitrators so chosen. In the even that
the third arbitrator is not agreed upon, he or she shall be named by the
American Arbitration Association. Arbitration shall occur in St. Petersburg,
Florida. The award made by all or a majority of the panel of arbitrators shall
be final and binding, and judgment may be entered in any court of law having
competent jurisdiction. The prevailing party shall be entitled to an award of
reasonable attorney's fees, costs and expenses incurred in connection with the
arbitration and any judicial proceedings related thereto.
8. Miscellaneous Provisions.
(a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.
(b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive
and the Company. The Company may terminate the employment of Executive at any
time, subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.
(c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred in connection with the sale or transfer of all or substantially all
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that, in the event of a sale or transfer of
assets as described in the preceding sentence, it shall use its best efforts
and take whatever action or actions it legally can in order to cause such
assignee or transferee to expressly assume the liabilities, obligations and
duties of the Company hereunder. No rights or obligations of Executive under
this Agreement may be assigned or transferred by Executive other than his/her
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 8(i) below.
(d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
10
<PAGE> 13
(e) Entire Agreement. This Agreement contains the entire
understanding and agreement between the Parties concerning the subject matter
hereof and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties
with respect thereto.
(f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company, as the case may be.
(g) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(h) Survivorship. The respective rights and obligations of the
Parties hereunder shall survive any termination of Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
(i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of his/her
incompetence, references in this Agreement to Executive shall be deemed, where
appropriate, to refer to his/her beneficiary, estate or other legal
representative.
(j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to
Sections 5(d) and 7, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts for purposes of resolving
any dispute under this Agreement: (i) the United States District Court for
Florida or (ii) any of the courts of the State of Florida. The Company and
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
it or he/she may now or hereafter have to such jurisdiction and any defense of
inconvenient forum.
(k) Notices. Any notice given to a Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give such notice of:
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<PAGE> 14
If to the Company: Danka Business Systems PLC
33 Cavendish Square
London W1 M ODE England
Attention: Secretary
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
If to Executive: Larry Switzer
11201 Danka Circle North
St. Petersburg, FL 33716
(l) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(m) Counterparts. This Agreement may be executed in two or more.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
DANKA BUSINESS SYSTEMS PLC
By: /s/ D. W. Kendall
------------------------
Name: D. W. Kendall
Title: Chairman
DANKA OFFICE IMAGING COMPANY
By:
------------------------
Name:
Title:
/s/ Larry Switzer
------------------------
LARRY SWITZER
12
<PAGE> 1
EXHIBIT 10.11
DANKA BUSINESS SYSTEMS PLC
- -------------------------------------------------------------------------------
Change of Control Agreement for Brian Merriman
- -------------------------------------------------------------------------------
<PAGE> 2
DANKA BUSINESS SYSTEMS PLC
- -------------------------------------------------------------------------------
Change of Control Agreement for Brian Merriman
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions ...................................................... 1
2. Term of Agreement ................................................ 4
3. Reimbursement of Business Expenses ............................... 4
4. Entitlement to Severance Benefit ................................. 4
5. Confidentiality and Related Covenants ............................ 8
6. Amendment or Termination ......................................... 9
7. Resolution of Disputes ........................................... 9
8. Miscellaneous Provisions ......................................... 10
</TABLE>
<PAGE> 3
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made and entered into as of the 6th day of November,1998 by
and among Danka Business Systems PLC ("Danka Business Systems"), Danka Office
Imaging Company ("Danka") (Danka Business Systems and Danka sometimes referred
to herein together with their respective successors and assigns as the
"Company") and Brian Merriman, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company
be able to rely upon Executive to continue serving in his or her position in
the event of a pending or actual Change of Control (as defined) of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is mutually acknowledged, the Company and Executive
(individually a "Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean Executive's annual base salary in effect
at the time of the Change of Control or at the time of termination of
employment, whichever is greater.
(b) "Cause" shall mean and be limited to:
(i) Executive's commission of any crime that (i) constitutes a
felony in the jurisdiction involved or (ii) involves loss
or damage to or destruction of property of the Company or
(iii) results in the incarceration of Executive following
his conviction for such crime; or
(ii) Executive's willful and material violation of any lawful
directions of the Company's Chief Executive or Board after
the Company has provided written notice to Executive and
said violation continues after Executive shall have
reasonable opportunity to cure said violation.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.
(c) A "Change of Control" shall be deemed to have occurred when:
(i) securities of Danka Business Systems representing more
than 30 percent of the combined voting power of the then
outstanding voting securities of Danka Business Systems
are acquired pursuant to a general offer for the issued
share capital of the Company which is an
<PAGE> 4
offer regulated under the U.K. Take-Over Code or any other
tender offer or an exchange offer by any person or group
of persons acting in concert (within the meaning of
Section 14(d) of the Securities Exchange Act of 1934)
other than the Company, a direct or indirect subsidiary or
parent of the Company, an employee benefit plan or similar
trust established by the Company;
(ii) a merger or consolidation is consummated in which Danka
Business Systems is a constituent corporation and which
results in less than 50 percent of the outstanding voting
securities of the surviving or resulting entity being
owned by the then existing stockholders of Danka Business
Systems;
(iii) a sale is consummated by the Company of substantially all
of the Company's assets (or substantially all of the
assets of Danka) to a person or entity which is not a
wholly-owned subsidiary of Danka Business Systems or any
of its affiliates; or
(iv) during any period of two consecutive years, individuals
who, at the beginning of such period, constituted the
Board of Directors of Danka Business Systems (the "Board")
cease, for any reason, to constitute at least a majority
thereof, unless the election or nomination for election
for each new director was approved by the vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from
actions or events in which Executive is a participant in a capacity other than
solely as an officer, employee or director of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Disability" shall mean a physical or mental illness which, in the
judgment of the Company after consultation with the licensed physician
attending Executive, impairs Executive's ability to substantially perform his
duties as an employee and as a result of which Executive shall have been unable
to perform his duties for the Company on a full-time basis for a period of 180
consecutive days.
(f) "Effective Date" shall mean the date of this Agreement, as set
forth above.
(g) "Excise Taxes" shall have the meaning set forth in Section 4
below.
(h) "Good Reason" shall mean the occurrence of one or more of the
following events without Executive's prior written consent (except as a result
of a prior termination):
2
<PAGE> 5
(i) any material change in Executive's status, title,
authorities or responsibilities (including reporting
responsibilities) which represents a demotion from
Executive's status, title, position or responsibilities
(including reporting responsibilities) prior to the Change
of Control; the assignment to Executive of any duties or
work responsibilities which are materially inconsistent
with Executive's status, title, position or work
responsibilities prior to the Change of Control, or which
are materially inconsistent with the status, title,
position or work responsibilities of a similarly situated
senior officer; or any removal of Executive from, or
failure to appoint, elect, reappoint or reelect Executive
to, any of such positions, except in the event of
Executive's death or Disability;
(ii) any decrease in Executive's annual Base Salary or target
annual incentive award opportunity;
(iii) the reassignment of Executive to a location more than
thirty (30) miles from Executive's then-current work
location;
(iv) the failure by the Company to continue in effect any
incentive, bonus or other compensation plan in which
Executive participates, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan)
has been made with respect to the failure to continue such
plan, or the failure by the Company to continue
Executive's participation therein, or any action by the
Company which would directly or indirectly materially
reduce his participation therein or reward opportunities
thereunder; provided, however, that Executive continues to
meet substantially all eligibility requirements thereof;
(v) the failure by the Company to continue in effect any
employee benefit plan (including any medical,
hospitalization, life insurance, disability or other group
benefit plan in which Executive participates), or any
material fringe benefit or perquisite enjoyed by Executive
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect
to the failure to continue such plan, or the failure by
the Company to continue Executive's participation therein,
or any action by the Company which would directly or
indirectly materially reduce Executive's participation
therein or reward opportunities thereunder, or the failure
by the Company to provide Executive with the benefits to
which Executive is entitled as an employee of the Company;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof,
3
<PAGE> 6
(vi) any purported termination of Executive's employment for
Cause which is not effected by the Company's delivering
written notice to Executive of the termination for Cause
which notice describes the specific acts or omissions
alleged to constitute Cause; or
(vii) the failure of the Company to obtain a satisfactory
agreement from any successor or assignee of the Company to
fully assume and agree to perform this Agreement.
(i) "Gross-Up Payment" shall have the meaning set forth in Section 4
below.
(j) "Retirement" shall mean Executive's termination of employment with
the Company at or after attaining age 65.
(k) "Severance Payments" shall have the meaning set forth in Section 4
below.
(l) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence on the Effective Date and ,
subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the " Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement , notwithstanding
any other provision of this Section 2, the Term shall not expire earlier than
two years after the effective date of such Change of Control.
3. Reimbursement of Business Expenses.
Executive is authorized to incur reasonable expenses in carrying out
Executive's duties and responsibilities on the Company's behalf, and the
Company shall promptly reimburse Executive for all business expenses incurred
in connection therewith, subject to documentation in accordance with the
Company's policy.
4. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in
the event that prior to the consummation of a pending Change of Control
Executive's employment is involuntarily terminated without Cause (other than
due to death or Disability) as a condition to the consummation of the proposed
transaction, whether at the request of the acquiring firm, Executive shall be
entitled to receive:
4
<PAGE> 7
(i) Base Salary through the date of termination of Executive's
employment, which shall be paid in a cash lump sum not
later than 30 days following Executive's termination of
employment;
(ii) an amount equal to three (3) full years of Executive's
Base Salary, at the rate in effect on the date of
termination of Executive's employment (or in the event a
reduction in Base Salary is a basis for a termination by
Executive for Good Reason, then the Base Salary in effect
immediately prior to such reduction), payable in a cash
lump sum not later than 30 days following Executive's
termination of employment;
(iii) a pro rata annual bonus for the fiscal year which includes
the date of termination, calculated by multiplying the
annual bonus Executive would have earned for the fiscal
year of termination, if the Company's financial
performance targets for the fiscal year were deemed to be
satisfied at a level equal to the financial performance
achieved through the date of termination, or, if greater,
any performance bonus Executive is guaranteed to receive
for the fiscal year under the terms of his employment
agreement, by a percentage equal to the ratio of the
number of days worked by Executive during the fiscal year
of the termination to the total number of work days during
such fiscal year, payable in a cash lump sum not later
than 30 days following Executive's termination of
employment
(iv) an amount equal to three (3) times the annual bonus
Executive would earn for the fiscal year of termination if
the Company's financial performance targets were deemed to
be satisfied at the level equal to the financial
performance achieved through the date of termination, or,
if greater, any performance bonus Executive is guaranteed
to receive for the fiscal year under the terms of his
employment agreement, payable in a cash lump sum not later
than 15 days following Executive's termination of
employment;
(v) immediate vesting of all outstanding stock options and the
right to exercise such stock options at any time during an
extended exercise period of not less than 36 months
following Executive's termination of employment, or the
remainder of the exercise period, if less, in each case,
to the extent permitted by the terms of the Company's
stock option schemes;
(vi) settlement of all deferred compensation arrangements in
accordance with any then applicable deferred compensation
plan or election form;
5
<PAGE> 8
(vii) continued medical, hospitalization, life and other
insurance benefits being provided to Executive and
Executive's family at the date of termination, for a
period of up to thirty-six (36) months after the date of
termination; provided that the Company shall have no
obligation to continue to provide Executive with these
benefits for any periods after the date Executive obtains
comparable benefits (with no significant pre-existing
condition exclusions) as a result of Executive's
employment in a new position; and
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the
Company.
(b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:
(i) For purposes of determining whether any of the Severance
Payments would be subject to the Excise Tax and the amount
of such Excise Tax:
(A) Severance Payments, including any payments or
benefits other than those under this Section 4(b)
received or to be received by Executive in connection
with Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any
person whose actions result in a Change of Control or
any person affiliated with the Company or such
person) (which, together with the Severance Payments,
constitute the "Total Payments"), shall be treated as
"parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of
the Code shall be treated as subject to the Excise
Tax, unless in the opinion of a nationally-recognized
public accounting firm mutually acceptable to
Executive and the Company such other payments or
benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable
compensation for services actually rendered within
the meaning of Section 28OG(b)(4) of the Code in
excess of the base amount within the meaning of
Section 28OG(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;
6
<PAGE> 9
(B) the amount of the Total Payments which shall be
deemed to be treated as subject to the Excise Tax
shall be equal to the lesser of (x) the total amount
of the Total Payments and (y) the amount of excess
parachute payments within the meaning of Section
28OG(b)(1) of the Code (after applying Section
4(b)(i)(A) hereof); and
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a
nationally recognized public accounting firm mutually
acceptable to Executive and the Company in accordance
with the principles of Sections 280G(d)(3) and (4) of
the Code.
(ii) If a reduction in the aggregate amount of Severance
Payments Executive otherwise would be entitled to receive
by an amount not exceeding 20% of such Severance Payments
would result in Executive receiving a greater "Net
After-Tax Amount," as such term is defined below, then
such Severance Payments shall be reduced by the amount,
not exceeding 20% of such Severance Payments, as will
provide to Executive the greatest Net After-Tax Amount,
such reduction to be made from such payments under this
Agreement or such other of the Severance Payments not yet
paid to Executive as Executive shall specify. For this
purpose, the term "Net After-Tax Amount" shall mean the
net amount of the Severance Payments after deducting any
federal, state and local income tax and Excise Tax which
would be applicable to such Severance Payments. In the
event that the Excise Tax is subsequently determined to
differ from the amount taken into account hereunder at the
time of termination of employment, adjustments shall be
made in accordance with this Section 4(b)(ii) in light of
the revised determination
(iii) All determinations under this Section 4(b) shall be made
at the expense of the Company by a nationally recognized
public accounting firm mutually agreeable to Executive and
the Company, and such determination shall be binding upon
Executive and the Company.
(c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be
offset by any remuneration attributable to any subsequent employment that
he/she may obtain.
(d) Nature of Payments, Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
7
<PAGE> 10
(e) Exclusivity of Severance Payments. Upon termination of Executive's
employment during the Term, he/she shall not be entitled to any severance
payments or severance benefits from the Company or any payments by the Company
on account of any claim by Executive of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 4.
(f) Release of Employment Claims. Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section
4, that he/she will execute a release agreement, a form of which is attached
hereto as Exhibit A, releasing any and all claims arising out of Executive's
employment.
5. Confidentiality and Related Covenants.
(a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information
of the Company, any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates, except to the extent necessary
to conduct the business of the Company, or to comply with law or the valid
order of a governmental agency or court of competent jurisdiction. Without
limiting the generality of the foregoing, the Parties acknowledge and agree
that all information not otherwise generally known to the public relating to
each of (i) this Agreement, or (ii) the Company, any constituent partner of the
Company or any of their respective parents, subsidiaries or affiliates is
confidential and proprietary and is not to be disclosed, to any persons or
entities or otherwise used, except to the extent necessary to conduct the
business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
(b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose
the same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all documents required by
the Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in
any suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
(c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 12 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.
8
<PAGE> 11
(d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available at law or in equity for such breach or threatened breach, including
the recovery of damages and the immediate termination of the employment of
Executive hereunder. If any of the provisions of or covenants contained in this
Section 5 are hereafter construed to be invalid or unenforceable in a
particular jurisdiction, the same shall not affect the remainder of the
provisions or the enforceability thereof in that jurisdiction, which shall be
given full effect, without regard to the invalidity or unenforceability thereof
in a particular jurisdiction because of the duration and/or scope of such
provision or covenant in that jurisdiction and, in its reduced form, said
provision or covenant shall be enforceable. In all other jurisdictions this
Section 5 shall at all times remain in full force and effect. The obligations
under this Section 5 shall survive any termination of this Agreement.
6. Amendment or Termination.
Except as otherwise provided in this Section 6, this Agreement may be
amended or terminated only with the express mutual consent of the Company and
Executive and no amendment to the provisions of this Agreement by mutual
consent shall be effective unless such amendment is agreed to in writing and
signed by Executive and an authorized officer of the Company.
Notwithstanding the preceding paragraph, after the first anniversary
of the Effective Date of this Agreement, the Agreement may be amended or
terminated by the Board without the consent of Executive; provided that, no
such amendment or termination of the Agreement without Executive's express
consent shall be effective unless the Company has provided Executive advance
written notice of the amendment or termination not less than one full year
prior to the proposed effective date of the amendment or termination; and
further provided that no such notice may be delivered at any time when a Change
of Control is proposed or pending (to the knowledge of the Board) or during the
first year following the Effective Date of the Agreement. If a Change of
Control occurs during the period between the time a notice of termination or
amendment has been given to Executive and the effective date described in such
notice, the Term of the Agreement shall automatically be extended until two
years after the date on which the Change of Control occurred, and any earlier
termination date specified in the notice shall automatically be revoked and not
take effect.
7. Resolution of Disputes.
Any controversy or claim arising out of or relating to this Employment
Agreement, other than a claim for injunctive relief pursuant to Section 5(d),
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules") in effect at the
time demand for arbitration is made by any party. One arbitrator shall be
9
<PAGE> 12
named by the Company, a second by the Executive and the third arbitrator shall
be named by the two arbitrators so chosen. In the even that the third
arbitrator is not agreed upon, he or she shall be named by the American
Arbitration Association. Arbitration shall occur in St. Petersburg, Florida.
The award made by all or a majority of the panel of arbitrators shall be final
and binding, and judgment may be entered in any court of law having competent
jurisdiction. The prevailing party shall be entitled to an award of reasonable
attorney's fees, costs and expenses incurred in connection with the arbitration
and any judicial proceedings related thereto.
8. Miscellaneous Provisions.
(a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.
(b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive
and the Company. The Company may terminate the employment of Executive at any
time, subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.
(c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred in connection with the sale or transfer of all or substantially all
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that, in the event of a sale or transfer of
assets as described in the preceding sentence, it shall use its best efforts
and take whatever action or actions it legally can in order to cause such
assignee or transferee to expressly assume the liabilities, obligations and
duties of the Company hereunder. No rights or obligations of Executive under
this Agreement may be assigned or transferred by Executive other than his/her
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 8(i) below.
(d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
(e) Entire Agreement. This Agreement contains the entire understanding
and agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect
thereto.
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<PAGE> 13
(f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company, as the case may be.
(g) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(h) Survivorship. The respective rights and obligations of the Parties
hereunder shall survive any termination of Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
(i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of his/her
incompetence, references in this Agreement to Executive shall be deemed, where
appropriate, to refer to his/her beneficiary, estate or other legal
representative.
(j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to
Sections 5(d) and 7, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts for purposes of resolving
any dispute under this Agreement: (i) the United States District Court for
Florida or (ii) any of the courts of the State of Florida. The Company and
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
it or he/she may now or hereafter have to such jurisdiction and any defense of
inconvenient forum.
(k) Notices. Any notice given to a Party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address
as such Party may subsequently give such notice of:
If to the Company: Danka Business Systems PLC
33 Cavendish Square
London W1 M ODE England
Attention: Secretary
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
11
<PAGE> 14
If to Executive: Brian Merriman
11201 Danka Circle North
St. Petersburg, FL 33716
(l) Headings. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
(m) Counterparts. This Agreement may be executed in two or more.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
DANKA BUSINESS SYSTEMS PLC
By: /s/ Larry K. Switzer
----------------------------------------
Name:
Title:
DANKA OFFICE IMAGING COMPANY
By: /s/ Larry K. Switzer
----------------------------------------
Name:
Title:
EXECUTIVE:
/s/ Brian Merriman
----------------------------------------
BRIAN MERRIMAN
12
<PAGE> 15
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, ___________________, ("Employee"), intend all words used in
this Release to have their plain meaning in ordinary English. Technical legal
words are not needed to describe what I mean. Specific terms I use in this
Release have the following meanings:
I, Me, and My include both me and anyone who has or obtains any legal
rights or claims through me.
Employer, as used herein, shall at all times mean Danka Business
Systems PLC (the "Company"), Danka Office Imaging Company ("Danka"),
or any parent company, subsidiaries, affiliated companies or entities
and their employees, officers, directors, successors and assigns, its
attorneys, consultants and agents, whether in their individual or
official capacities.
My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights, arising
out of or in any way related to my employment with Employer, my
termination of employment, or any employee benefit plan, including,
but not limited to, common law, or equitable claims, claims for
violation or breach of any employment agreement or understanding;
fraud or misrepresentation; and any statutory claims including alleged
violations of the, the federal Age Discrimination in Employment Act,
the Americans with Disabilities Act, or any other federal, state, or
local civil rights laws or ordinances, defamation; intentional or
negligent infliction of emotional distress; breach of the covenant of
good faith and fair dealing; promissory estoppel; negligence, wrongful
termination of employment, any other claims; provided, however, that
My Claims do not include claims for payments or benefits which are to
continue for a specified period of time following my termination of
employment in accordance with Section 4 of the Change of Control
Agreement between the Company, Danka, and me dated as of November 6,
1998, or any employee benefit plan, or option or award thereunder, in
effect at the time of termination.
Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of My Claims.
I agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any allegation included in My Claims. The money I am receiving is a full and
fair payment for the release of all My Claims.
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
<PAGE> 16
I understand that I may have twenty-one (21) calendar days from the day that I
receive this Release, not counting the day upon which I receive it, to consider
whether I wish to sign this Release. I further understand that the Employer
recommends that I consult with an attorney before executing this Release. I
agree that if I sign this Release before the end of the twenty-one (21) day
period, it is because I have decided that I have already had sufficient time to
decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release within seven (7)
calendar days of signing it to reinstate federal civil rights claims (if any).
To be effective, my rescission must be in writing and delivered to the
Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:
Postmarked within the relevant period;
Properly addressed to the General Counsel; and
Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I have had the
opportunity to review this Release with my own attorney. In agreeing to sign
this Release, I have not relied on any statements or explanations made by the
Employer or its agents other than those set forth in the Release and Change of
Control Agreement.
I understand and agree that this Release and Change of Control Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.
Dated:
Witness:
<PAGE> 1
Exhibit 10.12
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for Forrest Wolfinger
- --------------------------------------------------------------------------------
<PAGE> 2
DANKA BUSINESS SYSTEMS PLC
- --------------------------------------------------------------------------------
Change of Control Agreement for Forrest Wolfinger
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions .........................................................1
2. Term of Agreement ...................................................4
3. Reimbursement of Business Expenses ..................................4
4. Entitlement to Severance Benefit ....................................4
5. Confidentiality and Related Covenants ...............................8
6. Amendment or Termination.............................................9
7. Resolution of Disputes ..............................................9
8. Miscellaneous Provisions ...........................................10
</TABLE>
<PAGE> 3
CHANGE OF CONTROL AGREEMENT
AGREEMENT, made and entered into as of the 6th day of November,1998
by and among Danka Business Systems PLC ("Danka Business Systems"), Danka
Office Imaging Company ("Danka") (Danka Business Systems and Danka sometimes
referred to herein together with their respective successors and assigns as the
"Company") and Forrest Wolfinger, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company
be able to rely upon Executive to continue serving in his or her position in
the event of a pending or actual Change of Control (as defined) of the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is mutually acknowledged, the Company and
Executive (individually a "Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean Executive's annual base salary in
effect at the time of the Change of Control or at the time of termination of
employment, whichever is greater.
(b) "Cause" shall mean and be limited to:
(i) Executive's commission of any crime that (i) constitutes a
felony in the jurisdiction involved or (ii) involves loss
or damage to or destruction of property of the Company or
(iii) results in the incarceration of Executive following
his conviction for such crime; or
(ii) Executive's willful and material violation of any lawful
directions of the Company's Chief Executive or Board after
the Company has provided written notice to Executive and
said violation continues after Executive shall have
reasonable opportunity to cure said violation.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.
(c) A "Change of Control" shall be deemed to have occurred when:
(i) securities of Danka Business Systems representing more than
30 percent of the combined voting power of the then
outstanding voting securities of Danka Business Systems are
acquired pursuant to a general offer for the issued share
capital of the Company which is an offer regulated under
the U.K. Take-Over Code or any other tender
<PAGE> 4
offer or an exchange offer by any person or group of
persons acting in concert (within the meaning of Section
14(d) of the Securities Exchange Act of 1934) other than
the Company, a direct or indirect subsidiary or parent of
the Company, an employee benefit plan or similar trust
established by the Company;
(ii) a merger or consolidation is consummated in which Danka
Business Systems is a constituent corporation and which
results in less than 50 percent of the outstanding voting
securities of the surviving or resulting entity being owned
by the then existing stockholders of Danka Business
Systems;
(iii) a sale is consummated by the Company of substantially all
of the Company's assets (or substantially all of the assets
of Danka) to a person or entity which is not a wholly-owned
subsidiary of Danka Business Systems or any of its
affiliates; or
(iv) during any period of two consecutive years, individuals
who, at the beginning of such period, constituted the Board
of Directors of Danka Business Systems (the "Board") cease,
for any reason, to constitute at least a majority thereof,
unless the election or nomination for election for each new
director was approved by the vote of at least two-thirds of
the directors then still in office who were directors at
the beginning of such two-year period.
For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from
actions or events in which Executive is a participant in a capacity other than
solely as an officer, employee or director of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Disability" shall mean a physical or mental illness which, in
the judgment of the Company after consultation with the licensed physician
attending Executive, impairs Executive's ability to substantially perform his
duties as an employee and as a result of which Executive shall have been unable
to perform his duties for the Company on a full-time basis for a period of 180
consecutive days.
(f) "Effective Date" shall mean the date of this Agreement, as set
forth above.
(g) "Excise Taxes" shall have the meaning set forth in Section 4
below.
(h) "Good Reason" shall mean the occurrence of one or more of the
following events without Executive's prior written consent (except as a result
of a prior termination):
2
<PAGE> 5
(i) any material change in Executive's status, title,
authorities or responsibilities (including reporting
responsibilities) which represents a demotion from
Executive's status, title, position or responsibilities
(including reporting responsibilities) prior to the Change
of Control; the assignment to Executive of any duties or
work responsibilities which are materially inconsistent
with Executive's status, title, position or work
responsibilities prior to the Change of Control, or which
are materially inconsistent with the status, title,
position or work responsibilities of a similarly situated
senior officer; or any removal of Executive from, or
failure to appoint, elect, reappoint or reelect Executive
to, any of such positions, except in the event of
Executive's death or Disability;
(ii) any decrease in Executive's annual Base Salary or target
annual incentive award opportunity;
(iii) the reassignment of Executive to a location more than
thirty (30) miles from Executive's then-current work
location;
(iv) the failure by the Company to continue in effect any
incentive, bonus or other compensation plan in which
Executive participates, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to the failure to continue such
plan, or the failure by the Company to continue Executive's
participation therein, or any action by the Company which
would directly or indirectly materially reduce his
participation therein or reward opportunities thereunder;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof;
(v) the failure by the Company to continue in effect any
employee benefit plan (including any medical,
hospitalization, life insurance, disability or other group
benefit plan in which Executive participates), or any
material fringe benefit or perquisite enjoyed by Executive
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect
to the failure to continue such plan, or the failure by the
Company to continue Executive's participation therein, or
any action by the Company which would directly or
indirectly materially reduce Executive's participation
therein or reward opportunities thereunder, or the failure
by the Company to provide Executive with the benefits to
which Executive is entitled as an employee of the Company;
provided, however, that Executive continues to meet
substantially all eligibility requirements thereof,
3
<PAGE> 6
(vi) any purported termination of Executive's
employment for Cause which is not effected
by the Company's delivering written notice
to Executive of the termination for Cause
which notice describes the specific acts or
omissions alleged to constitute Cause; or
(vii) the failure of the Company to obtain a
satisfactory agreement from any successor or
assignee of the Company to fully assume and
agree to perform this Agreement.
(i) "Retirement" shall mean Executive's termination of employment
with the Company at or after attaining age 65.
(j) "Severance Payments" shall have the meaning set forth in
Section 4 below.
(k) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence on the Effective Date
and, subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the "Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement , notwithstanding
any other provision of this Section 2, the Term shall not expire earlier than
two years after the effective date of such Change of Control.
3. Reimbursement of Business Expenses.
Executive is authorized to incur reasonable expenses in carrying
out Executive's duties and responsibilities on the Company's behalf, and the
Company shall promptly reimburse Executive for all business expenses incurred
in connection therewith, subject to documentation in accordance with the
Company's policy.
4. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in
the event that prior to the consummation of a pending Change of Control
Executive's employment is involuntarily terminated without Cause (other than
due to death or Disability) as a condition to the consummation of the proposed
transaction, whether at the request of the acquiring firm or otherwise,
Executive shall be entitled to receive:
(i) Base Salary through the date of termination of Executive's
employment, which shall be paid in a cash lump sum not
later than 30 days following Executive's termination of
employment;
4
<PAGE> 7
(ii) an amount equal to two (2) full years of Executive's Base
Salary, at the rate in effect on the date of termination of
Executive's employment (or in the event a reduction in Base
Salary is a basis for a termination by Executive for Good
Reason, then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum not later than
30 days following Executive's termination of employment;
(iii) a pro rata annual bonus for the fiscal year which
includes the date of termination, calculated by multiplying
the annual bonus Executive would have earned for the fiscal
year of termination, if the Company's financial performance
targets for the fiscal year were deemed to be satisfied at
a level equal to the financial performance achieved through
the date of termination, or, if greater, any performance
bonus Executive is guaranteed to receive for the fiscal
year under the terms of his employment agreement, by a
percentage equal to the ratio of the number of days worked
by Executive during the fiscal year of the termination to
the total number of work days during such fiscal year,
payable in a cash lump sum not later than 30 days following
Executive's termination of employment;
(iv) an amount equal to two times the annual bonus Executive
would earn for the fiscal year of termination if the
Company's financial performance targets were deemed to be
satisfied at the level equal to the financial performance
achieved through the date of termination, or, if greater,
any performance bonus Executive is guaranteed to receive
for the fiscal year under the terms of his employment
agreement , payable in a cash lump sum not later than 15
days following Executive's termination of employment;
(v) immediate vesting of all outstanding stock options and the
right to exercise such stock options at any time during an
extended exercise period of not less than 36 months
following Executive's termination of employment, or the
remainder of the exercise period, if less, in each case, to
the extent permitted by the terms of the Company's stock
option schemes;
(vi) settlement of all deferred compensation arrangements in
accordance with any then applicable deferred compensation
plan or election form;
(vii) continued medical, hospitalization, life and other
insurance benefits being provided to Executive and
Executive's family at the date of termination, for a period
of up to twenty-four (24) months after the date of
termination; provided that the Company shall have no
obligation to continue to provide Executive with these
benefits for any periods after the date Executive obtains
comparable benefits (with no significant pre-existing
condition exclusions) as a result of Executive's employment
in a new position; and
5
<PAGE> 8
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the
Company.
(b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:
(i) For purposes of determining whether any of the Severance
Payments would be subject to the Excise Tax and the amount
of such Excise Tax:
(A) Severance Payments, including any payments or benefits
other than those under this Section 4(b) received or to
be received by Executive in connection with Executive's
termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement
or agreement with the Company, any person whose actions
result in a Change of Control or any person affiliated
with the Company or such person) (which, together with
the Severance Payments, constitute the "Total
Payments"), shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless in the opinion of a
nationally-recognized public accounting firm mutually
acceptable to Executive and the Company such other
payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 28OG(b)(4) of the Code in excess of
the base amount within the meaning of Section
28OG(b)(3) of the Code, or are otherwise not subject to
the Excise Tax;
(B) the amount of the Total Payments which shall be deemed
to be treated as subject to the Excise Tax shall be
equal to the lesser of (x) the total amount of the
Total Payments and (y) the amount of excess parachute
payments within the meaning of Section 28OG(b)(1) of
the Code (after applying Section 4(b)(i)(A) hereof);
and
6
<PAGE> 9
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a nationally
recognized public accounting firm mutually acceptable
to Executive and the Company in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
(ii) If a reduction in the aggregate amount of Severance
Payments Executive otherwise would be entitled to receive
by an amount not exceeding 20% of such Severance Payments
would result in Executive receiving a greater "Net
After-Tax Amount," as such term is defined below, then such
Severance Payments shall be reduced by the amount, not
exceeding 20% of such Severance Payments, as will provide
to Executive the greatest Net After-Tax Amount, such
reduction to be made from such payments under this
Agreement or such other of the Severance Payments not yet
paid to Executive as Executive shall specify. For this
purpose, the term "Net After-Tax Amount" shall mean the net
amount of the Severance Payments after deducting any
federal, state and local income tax and Excise Tax which
would be applicable to such Severance Payments. In the
event that the Excise Tax is subsequently determined to
differ from the amount taken into account hereunder at the
time of termination of employment, adjustments shall be
made in accordance with this Section 4(b)(ii) in light of
the revised determination.
(iii) All determinations under this Section 4(b) shall be made
at the expense of the Company by a nationally recognized
public accounting firm mutually agreeable to Executive and
the Company, and such determination shall be binding upon
Executive and the Company.
(c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be
offset by any remuneration attributable to any subsequent employment that
he/she may obtain.
(d) Nature of Payments, Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
(e) Exclusivity of Severance Payments. Upon termination of
Executive's employment during the Term, he/she shall not be entitled to any
severance payments or severance benefits from the Company or any payments by
the Company on account of any claim by Executive of wrongful termination,
including claims under any federal, state or local human and civil rights or
labor laws, other than the payments and benefits provided in this Section 4.
7
<PAGE> 10
(f) Release of Employment Claims. Executive agrees, as a condition
to receipt of the termination payments and benefits provided for in this
Section 4, that he/she will execute a release agreement, a form of which is
attached hereto as Exhibit A, releasing any and all claims arising out of
Executive's employment.
5. Confidentiality and Related Covenants.
(a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information
of the Company, any constituent partner of the Company or any of their
respective parents, subsidiaries or affiliates, except to the extent necessary
to conduct the business of the Company, or to comply with law or the valid
order of a governmental agency or court of competent jurisdiction. Without
limiting the generality of the foregoing, the Parties acknowledge and agree
that all information not otherwise generally known to the public relating to
each of (i) this Agreement, or (ii) the Company, any constituent partner of the
Company or any of their respective parents, subsidiaries or affiliates is
confidential and proprietary and is not to be disclosed, to any persons or
entities or otherwise used, except to the extent necessary to conduct the
business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction.
(b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose
the same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right,
title and interest, in and to the same, (iii) execute all documents required by
the Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in
any suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.
(c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 12 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.
(d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or
entity
8
<PAGE> 11
participating in such breach or threatened breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the
recovery of damages and the immediate termination of the employment of
Executive hereunder. If any of the provisions of or covenants contained in this
Section 5 are hereafter construed to be invalid or unenforceable in a
particular jurisdiction, the same shall not affect the remainder of the
provisions or the enforceability thereof in that jurisdiction, which shall be
given full effect, without regard to the invalidity or unenforceability thereof
in a particular jurisdiction because of the duration and/or scope of such
provision or covenant in that jurisdiction and, in its reduced form, said
provision or covenant shall be enforceable. In all other jurisdictions this
Section 5 shall at all times remain in full force and effect. The obligations
under this Section 5 shall survive any termination of this Agreement.
6. Amendment or Termination.
Except as otherwise provided in this Section 6, this Agreement may
be amended or terminated only with the express mutual consent of the Company
and Executive and no amendment to the provisions of this Agreement by mutual
consent shall be effective unless such amendment is agreed to in writing and
signed by Executive and an authorized officer of the Company.
Notwithstanding the preceding paragraph, after the first
anniversary of the Effective Date of this Agreement, the Agreement may be
amended or terminated by the Board without the consent of Executive; provided
that, no such amendment or termination of the Agreement without Executive's
express consent shall be effective unless the Company has provided Executive
advance written notice of the amendment or termination not less than one full
year prior to the proposed effective date of the amendment or termination; and
further provided that no such notice may be delivered at any time when a Change
of Control is proposed or pending (to the knowledge of the Board) or during the
first year following the Effective Date of the Agreement. If a Change of
Control occurs during the period between the time a notice of termination or
amendment has been given to Executive and the effective date described in such
notice, the Term of the Agreement shall automatically be extended until two
years after the date on which the Change of Control occurred, and any earlier
termination date specified in the notice shall automatically be revoked and not
take effect.
7. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Employment Agreement, other than a claim for injunctive relief pursuant to
Section 5(d), shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules") in
effect at the time demand for arbitration is made by any party. One arbitrator
shall be named by the Company, a second by the Executive and the third
arbitrator shall be named by the two arbitrators so chosen. In the even that
the third arbitrator is not agreed upon, he or she shall be named by the
American Arbitration Association. Arbitration shall occur in St. Petersburg,
Florida. The award made by all or a majority of the panel of arbitrators shall
be final and binding, and judgment may be entered in any court of law having
competent jurisdiction. The prevailing party shall be entitled to an award of
reasonable attorney's fees, costs and expenses incurred in connection with the
arbitration and any judicial proceedings related thereto.
9
<PAGE> 12
8. Miscellaneous Provisions.
(a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.
(b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive
and the Company. The Company may terminate the employment of Executive at any
time, subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.
(c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred in connection with the sale or transfer of all or substantially all
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that, in the event of a sale or transfer of
assets as described in the preceding sentence, it shall use its best efforts
and take whatever action or actions it legally can in order to cause such
assignee or transferee to expressly assume the liabilities, obligations and
duties of the Company hereunder. No rights or obligations of Executive under
this Agreement may be assigned or transferred by Executive other than his/her
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 8(i) below.
(d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
(e) Entire Agreement. This Agreement contains the entire
understanding and agreement between the Parties concerning the subject matter
hereof and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties
with respect thereto.
(f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company, as the case may be.
(g) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
10
<PAGE> 13
(h) Survivorship. The respective rights and obligations of the
Parties hereunder shall survive any termination of Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
(i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of his/her
incompetence, references in this Agreement to Executive shall be deemed, where
appropriate, to refer to his/her beneficiary, estate or other legal
representative.
(j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to
Sections 5(d) and 7, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts for purposes of resolving
any dispute under this Agreement: (i) the United States District Court for
Florida or (ii) any of the courts of the State of Florida. The Company and
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
it or he/she may now or hereafter have to such jurisdiction and any defense of
inconvenient forum.
(k) Notices. Any notice given to a Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give such notice of:
If to the Company: Danka Business Systems PLC
33 Cavendish Square
London W1 M ODE England
Attention: Secretary
Danka Office Imaging Company
11201 Danka Circle North
St. Petersburg, FL 33716
Attention: General Counsel
If to Executive: Forrest Wolfinger
11201 Danka Circle North
St. Petersburg, FL 33716
11
<PAGE> 14
(l) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(m) Counterparts. This Agreement may be executed in two or more
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
DANKA BUSINESS SYSTEMS PLC
By: /s/ Larry K. Switzer
------------------------
Name: Larry K. Switzer
Title:
DANKA OFFICE IMAGING COMPANY
By: /s/ Larry K. Switzer
------------------------
Name: Larry K. Switzer
Title:
/s/ Forest Wolfinger
------------------------
FORREST WOLFINGER
12
<PAGE> 15
EXHIBIT A
RELEASE OF CLAIMS
DEFINITIONS: I, ___________________, ("Employee"), intend all words used in
this Release to have their plain meaning in ordinary English. Technical legal
words are not needed to describe what I mean. Specific terms I use in this
Release have the following meanings:
I, Me and My include both me and anyone who has or obtains any legal
rights or claims through me.
Employer, as used herein, shall at all times mean Danka Business
Systems PLC (the "Company"), Danka Office Imaging Company ("Danka"),
or any parent company, subsidiaries, affiliated companies or entities
and their employees, officers, directors, successors and assigns, its
attorneys, consultants and agents, whether in their individual or
official capacities.
My Claims means all of the rights I have to any relief of any kind
from Employer, whether or not I now know about those rights, arising
out of or in any way related to my employment with Employer, my
termination of employment, or any employee benefit plan, including,
but not limited to, common law, or equitable claims, claims for
violation or breach of any employment agreement or understanding;
fraud or misrepresentation; and any statutory claims including alleged
violations of the, the federal Age Discrimination in Employment Act,
the Americans with Disabilities Act, or any other federal, state, or
local civil rights laws or ordinances, defamation; intentional or
negligent infliction of emotional distress; breach of the covenant of
good faith and fair dealing; promissory estoppel; negligence, wrongful
termination of employment, any other claims; provided, however, that
My Claims do not include claims for payments or benefits which are to
continue for a specified period of time following my termination of
employment in accordance with Section 4 of the Change of Control
Agreement between the Company, Danka, and me dated as of November 6,
1998, or any employee benefit plan, or option or award thereunder, in
effect at the time of termination.
Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of My Claims.
I agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any allegation included in My Claims. The money I am receiving is a full and
fair payment for the release of all My Claims.
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.
<PAGE> 16
I understand that I may have twenty-one (21) calendar days from the
day that I receive this Release, not counting the day upon which I receive it,
to consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had
sufficient time to decide whether to sign the Release.
I understand that I may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal civil rights claims
(if any). To be effective, my rescission must be in writing and delivered to
the Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:
Postmarked within the relevant period;
Properly addressed to the General Counsel; and
Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I
have had the opportunity to review this Release with my own attorney.
In agreeing to sign this Release, I have not relied on any statements
or explanations made by the Employer or its agents other than those
set forth in the Release and Change of Control Agreement.
I understand and agree that this Release and Change of Control
Agreement to which it is attached contain all the agreements between the
Employer and me. We have no other written or oral agreements.
Dated: ________________________
_______________________________
Witness: ______________________
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DANKA BUSINESS SYSTEMS PLC AND IS QUALIFIED
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 37,915
<SECURITIES> 0
<RECEIVABLES> 555,589
<ALLOWANCES> 43,067
<INVENTORY> 353,098
<CURRENT-ASSETS> 1,065,673
<PP&E> 710,760
<DEPRECIATION> 364,761
<TOTAL-ASSETS> 1,826,013
<CURRENT-LIABILITIES> 596,533
<BONDS> 1,125,481
0
0
<COMMON> 4,758
<OTHER-SE> 172,506
<TOTAL-LIABILITY-AND-EQUITY> 1,826,013
<SALES> 645,709
<TOTAL-REVENUES> 645,709
<CGS> 403,638
<TOTAL-COSTS> 403,638
<OTHER-EXPENSES> 203,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,031
<INCOME-PRETAX> 17,004
<INCOME-TAX> 4,761
<INCOME-CONTINUING> 12,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,243
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DANKA BUSINESS SYSTEMS PLC AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 2,784
<SECURITIES> 0
<RECEIVABLES> 632,314
<ALLOWANCES> 25,403
<INVENTORY> 526,507
<CURRENT-ASSETS> 1,195,313
<PP&E> 702,130
<DEPRECIATION> 300,296
<TOTAL-ASSETS> 2,213,020
<CURRENT-LIABILITIES> 811,358
<BONDS> 872,878
0
0
<COMMON> 4,746
<OTHER-SE> 479,025
<TOTAL-LIABILITY-AND-EQUITY> 2,213,020
<SALES> 765,399
<TOTAL-REVENUES> 765,399
<CGS> 500,899
<TOTAL-COSTS> 500,899
<OTHER-EXPENSES> 241,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,424
<INCOME-PRETAX> 7,979
<INCOME-TAX> 2,968
<INCOME-CONTINUING> 5,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,011
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DANKA BUSINESS SYSTEMS PLC AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 15,376
<SECURITIES> 0
<RECEIVABLES> 615,053
<ALLOWANCES> 19,023
<INVENTORY> 540,088
<CURRENT-ASSETS> 1,205,448
<PP&E> 741,262
<DEPRECIATION> 329,661
<TOTAL-ASSETS> 2,235,174
<CURRENT-LIABILITIES> 780,577
<BONDS> 944,474
0
0
<COMMON> 4,746
<OTHER-SE> 466,076
<TOTAL-LIABILITY-AND-EQUITY> 2,235,174
<SALES> 1,499,243
<TOTAL-REVENUES> 1,499,243
<CGS> 988,643
<TOTAL-COSTS> 998,643
<OTHER-EXPENSES> 479,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,944
<INCOME-PRETAX> (13,288)
<INCOME-TAX> (4,944)
<INCOME-CONTINUING> (8,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,344)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DANKA BUSINESS SYSTEMS PLC AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 46,654
<SECURITIES> 0
<RECEIVABLES> 593,575
<ALLOWANCES> 28,614
<INVENTORY> 435,800
<CURRENT-ASSETS> 1,102,496
<PP&E> 755,316
<DEPRECIATION> 352,383
<TOTAL-ASSETS> 1,978,398
<CURRENT-LIABILITIES> 688,506
<BONDS> 1,073,678
0
0
<COMMON> 4,758
<OTHER-SE> 188,313
<TOTAL-LIABILITY-AND-EQUITY> 1,978,398
<SALES> 2,223,117
<TOTAL-REVENUES> 2,223,117
<CGS> 1,593,952 <F1>
<TOTAL-COSTS> 1,593,952 <F1>
<OTHER-EXPENSES> 907,444 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,867
<INCOME-PRETAX> (334,146)
<INCOME-TAX> (51,793)
<INCOME-CONTINUING> (282,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (282,353)
<EPS-BASIC> (4.96)
<EPS-DILUTED> (4.96)
<FN>
<F1>Includes $73.2 million in special charges to cost
of revenue.
<F2>Includes $163.0 million in restructuring and other
special charges.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 66,095
<SECURITIES> 0
<RECEIVABLES> 571,470
<ALLOWANCES> 61,266
<INVENTORY> 356,139
<CURRENT-ASSETS> 1,113,446
<PP&E> 696,124
<DEPRECIATION> 338,536
<TOTAL-ASSETS> 1,905,142
<CURRENT-LIABILITIES> 654,530
<BONDS> 0
0
0
<COMMON> 4,758
<OTHER-SE> 166,406
<TOTAL-LIABILITY-AND-EQUITY> 1,905,142
<SALES> 2,897,220
<TOTAL-REVENUES> 2,897,220
<CGS> 2,020,434 <F1>
<TOTAL-COSTS> 2,020,434 <F1>
<OTHER-EXPENSES> 1,160,142 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,197
<INCOME-PRETAX> (357,553)
<INCOME-TAX> (62,773)
<INCOME-CONTINUING> (294,780)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,780)
<EPS-BASIC> (5.18)
<EPS-DILUTED> (5.18)
<FN>
<F1>Includes $58.4 million in special charges to cost of revenue.
<F2>Includes $167.1 million in restructuring and other special charges.
</FN>
</TABLE>
