<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 SEPTEMBER 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 OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
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 228,067,865 Ordinary Shares outstanding as of September 30,
1999.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998 (Unaudited) 3
Consolidated Statements of Operations for the six months ended
September 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and March 31, 1999 5
Consolidated Statements of Cash Flows for the six months
ended September 30, 1999 and 1998 (Unaudited) 6
Consolidated Statements of Shareholders' Equity for the six months
ended September 30, 1999 and 1998 (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 30
Item 2 - Changes in Securities and Use of Proceeds 31
Item 3 - Defaults upon Senior Securities 31
Item 4 - Submission of Matters to a Vote of Security Holders 32
Item 5 - Other Information 34
Item 6 - Exhibits and Reports on Form 8-K 34
Signature 37
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ----------------------------------------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $ 181,329 $ 203,997
Retail service, supplies and rentals 414,928 476,318
Wholesale 24,022 53,529
- ----------------------------------------------- --------------- ---------------
Total revenue 620,279 733,844
- ----------------------------------------------- --------------- ---------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 128,841 149,186
Retail service, supplies and rental costs 253,107 304,639
Wholesale costs of revenue 19,090 43,919
Selling, general and administrative expenses 179,622 221,340
Amortization of intangible assets 3,503 5,007
Commitment to Kodak under R&D agreements -- 12,500
- ----------------------------------------------- --------------- ---------------
Total costs and operating expenses 584,163 736,591
- ----------------------------------------------- --------------- ---------------
EARNINGS (LOSS) FROM OPERATIONS 36,116 (2,747)
Interest expense and other, net 26,729 18,520
- ----------------------------------------------- --------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES 9,387 (21,267)
Provision (benefit) for income taxes 2,628 (7,912)
- ----------------------------------------------- --------------- ---------------
NET EARNINGS (LOSS) $ 6,759 $ (13,355)
=============================================== =============== ===============
BASIC EARNINGS (LOSS) PER ADS:
Net earnings (loss) per ADS $ 0.12 $ (0.23)
Weighted average ADSs 57,017 56,874
DILUTED EARNINGS (LOSS) PER ADS:
Net earnings (loss) per ADS $ 0.12 $ (0.23)
Weighted average ADSs 58,345 56,874
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ----------------------------------------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE:
Retail equipment sales $ 346,481 $ 398,665
Retail service, supplies and rentals 865,649 978,865
Wholesale 53,858 121,713
- ----------------------------------------------- --------------- ---------------
Total revenue 1,265,988 1,499,243
- ----------------------------------------------- --------------- ---------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales 246,553 290,251
Retail service, supplies and rental costs 515,683 606,723
Wholesale costs of revenue 42,440 101,669
Selling, general and administrative expenses 379,077 444,565
Amortization of intangible assets 7,084 10,379
Commitment to Kodak under R&D agreements -- 25,000
- ----------------------------------------------- --------------- ---------------
Total costs and operating expenses 1,190,837 1,478,587
- ----------------------------------------------- --------------- ---------------
EARNINGS FROM OPERATIONS 75,151 20,656
Interest expense and other, net 48,760 33,944
- ----------------------------------------------- --------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES 26,391 (13,288)
Provision (benefit) for income taxes 7,389 (4,944)
- ----------------------------------------------- --------------- ---------------
NET EARNINGS (LOSS) $ 19,002 $ (8,344)
=============================================== =============== ===============
BASIC EARNINGS (LOSS) PER ADS:
Net earnings (loss) per ADS $ 0.33 $ (0.15)
Weighted average ADSs 57,017 56,874
DILUTED EARNINGS (LOSS) PER ADS:
Net earnings (loss) per ADS $ 0.33 $ (0.15)
Weighted average ADSs 57,825 56,874
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
- ------------------------------------------------------ --------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 74,028 $ 66,095
Accounts receivable, net 560,276 571,470
Inventories 343,755 356,139
Prepaid expenses, deferred income taxes
and other current assets 66,809 56,951
Assets of business held for sale -- 62,791
- ------------------------------------------------------ --------------- --------------
TOTAL CURRENT ASSETS 1,044,868 1,113,446
Equipment on operating leases, net 248,405 264,625
Property and equipment, net 91,217 92,963
Intangible assets, net 329,860 337,441
Deferred income taxes and other assets 85,962 96,667
--------------- --------------
- ------------------------------------------------------
TOTAL ASSETS $ 1,800,312 $ 1,905,142
====================================================== =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes $ 97,984 $ 89,732
payable
Accounts payable 176,167 162,294
Accrued expenses and other current liabilities 281,248 333,446
Deferred revenue 49,646 51,818
Liabilities of business held for sale -- 17,240
--------------- --------------
- ------------------------------------------------------
TOTAL CURRENT LIABILITIES 605,045 654,530
Convertible subordinated notes 200,000 200,000
Long-term debt and notes payable, less current maturities 779,937 852,415
Other long-term liabilities 26,942 27,033
- ------------------------------------------------------ --------------- --------------
TOTAL LIABILITIES 1,611,924 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 (deficit) (53,813) (72,815)
Accumulated other comprehensive income (loss) (66,993) (65,215)
--------------- --------------
- ------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 188,388 171,164
- ------------------------------------------------------ --------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,800,312 $ 1,905,142
====================================================== =============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ------------------------------------------------------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 19,002 $ (8,344)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 80,891 82,695
Loss on sale of property and equipment and
equipment on operating leases 3,339 7,309
Proceeds from sale of rental equipment 7,786 17,482
Loss on sale of Omnifax business 2,061 --
Changes in assets and liabilities, net of effects from
assets and liabilities of business held for sale:
Accounts receivable 6,763 11,211
Inventories 13,546 (52,738)
Prepaid expenses, deferred income taxes
and other current assets (10,069) 4,689
Other noncurrent assets 10,536 785
Accounts payable 15,720 11,790
Accrued expenses (59,672) (35,658)
Deferred revenue (2,800) (1,844)
Other long-term liabilities 260 (9,635)
- ------------------------------------------------------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,363 27,742
- ------------------------------------------------------------- --------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (63,825) (117,374)
Proceeds from sale of property and equipment 864 2,475
Proceeds from sale of Omnifax business 45,000 --
Payment for purchase of subsidiaries (332) (1,341)
- ------------------------------------------------------------- --------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (18,293) (116,240)
- ------------------------------------------------------------- --------------- ---------------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit agreements (57,167) 68,278
Principal payments on other long-term debt (3,583) (679)
Dividends -- (5,952)
- ------------------------------------------------------------- --------------- ---------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (60,750) 61,647
- ------------------------------------------------------------- --------------- ---------------
EFFECT OF EXCHANGE RATES (387) 7,574
- ------------------------------------------------------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,933 (19,277)
Cash and cash equivalents, beginning of period 66,095 34,653
- ------------------------------------------------------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 74,028 $ 15,376
============================================================= =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) INCOME (LOSS) 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 19,002 19,002
Currency translation adjustment (1,778) (1,778)
------------
Comprehensive income 17,224
- -------------------------------- ------------ ------------ ------------ --------------- ------------
BALANCES AT SEPTEMBER 30, 1999 $ 4,758 $ 304,436 $ (53,813) $ (66,993) $ 188,388
================================ ============ ============ ============ =============== ============
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
ORDINARY PAID-IN EARNINGS COMPREHENSIVE
SHARES CAPITAL (DEFICIT) INCOME (LOSS) 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 loss (8,344) (8,344)
Currency translation adjustment 4,811 4,811
------------
Comprehensive loss (3,533)
Dividends (5,952) (5,952)
- -------------------------------- ------------ ------------ ------------ --------------- ------------
BALANCES AT SEPTEMBER 30, 1998 $ 4,746 $ 304,197 $ 213,621 $ (51,742) $ 470,822
================================ ============ ============ ============ =============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE> 8
DANKA BUSINESS SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of September
30, 1999, consolidated statements of operations for the three months and six
months ended September 30, 1999 and 1998, the consolidated statements of
shareholders' equity for the six months ended September 30, 1999 and 1998, and
the consolidated statements of cash flows for the six months ended September
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 that 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 10 for fiscal 1999 quarterly statements of
operations which reflect such reclassifications).
NOTE 2. SALE OF OMNIFAX BUSINESS
On July 30, 1999, the Company sold its Omnifax business, a supplier of
facsimiles and related services, parts and supplies, to Xerox Corporation for
$45.0 million in cash. At July 30, 1999, the assets and liabilities of Omnifax
totaled $63.8 million and $18.0 million, respectively, and consisted primarily
of property and equipment, accounts receivable, inventories, accounts payable
and accrued expenses. 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. Interest expense and other, net on the consolidated
statements of operations for the three and six months ended September 30, 1999,
includes a $2.1 million loss on the sale of the Omnifax business.
NOTE 3. RESTRUCTURING CHARGES
FISCAL 1999 CHARGE:
The Company recorded pre-tax restructuring charges totaling $42.7
million for the third and fourth quarters of fiscal 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. The Company substantially completed
the planned reduction of 1,400 positions as of June 30, 1999. 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:
8
<PAGE> 9
1999 RESTRUCTURING CHARGE:
<TABLE>
<CAPTION>
------------------------------------------------------------
TOTAL SECOND
FISCAL RESERVE SECOND QTR. RESERVE
1999 AT JUNE 30, QTR. OTHER AT
(in 000's) EXPENSE 1999 CASH NON-CASH SEPTEMBER 30,
OUTLAYS CHANGES 1999
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance $19,820 $ 8,754 ($3,851) -- $ 4,903
Future lease obligations on
facility Closures 19,790 16,258 (2,298) -- 13,960
Write-off of leasehold
improvements on
facility closures 3,084 -- -- -- --
--------------------------------------------------------
Total restructuring charge $42,694 $25,012 ($6,149) -- $18,863
--------------------------------------------------------
</TABLE>
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 September 30, 1999, approximately $4.2 million
remained in accrued liabilities, primarily for lease obligations for the
closure of duplicate facilities. Cash outlays relating to these facility
closures for the three months ended September 30, 1999 totaled $0.4 million.
NOTE 4. SUBSEQUENT EVENTS
On November 2, 1999, the Company entered into a definitive agreement
with equity funds managed by The Cypress Group LLC, a New York based equity
firm, to purchase 200,000 shares of a new class of participating shares to be
issued by the Company for an aggregate purchase price of $200.0 million. The
new participating shares would carry voting rights and would be convertible
into Ordinary Shares of the Company. In addition, the participating shares
would have a preference as to dividends which equal the greater of (a) an
amount per annum equal to 6.50% of the liquidation return payable on the
applicable participating shares and (b) the deemed per annum rate of dividends,
if any, declared on the Company's Ordinary Shares in the applicable quarter.
The participating shares would also have a preference upon liquidation over the
Ordinary Shares equal to their $1,000 per share initial issuance price plus
accumulated and unpaid dividends. Anticipated net proceeds to the Company from
the sale of the participating shares are estimated to be approximately $190.0
million. The participating shares would be convertible into Ordinary Shares at
a conversion price of $3.125 per Ordinary Share (equivalent to $12.50 per ADS),
subject to adjustment in certain circumstances. For a more detailed description
of the participating shares and agreements with the purchasers, see the
Company's Current Report on Form 8-K filed November 5, 1999.
The issuance of the participating shares is subject to various
conditions, including approval by the Company's shareholders at an
extraordinary general meeting, obtaining a commitment to refinance the
Company's bank indebtedness reasonably satisfactory to the investors, obtaining
specified amendments to the existing financing agreements and a condition that
the average closing price of the ADSs not fall below $9.00 for a ten-day
period. The net proceeds of the issuance of participating shares will be used
primarily to repay indebtedness under the Credit Agreement.
9
<PAGE> 10
NOTE 5. EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the
basic and diluted earnings (loss) per ADS computations for the three months and
six months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
(In 000's except per ---------------------------------- -------------------------------------
share amounts) INCOME SHARES PER-SHARE INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ --------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $6,759 ($13,355)
BASIC EARNINGS (LOSS)
PER ADS:
Income available to
shareholders 6,759 57,017 $0.12 (13,355) 56,874 ($0.23)
===== ======
EFFECT OF DILUTIVE
SECURITIES:
Stock options 1,328 --
------ -----
DILUTED EARNINGS (LOSS)
PER ADS:
Income available to
shareholders
Plus assumed
conversion $6,759 58,345 $0.12 ($13,355) 56,874 ($0.23)
====== ====== ===== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
(In 000's except per ---------------------------------- -------------------------------------
share amounts) INCOME SHARES PER-SHARE INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ --------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $19,002 ($8,344)
BASIC EARNINGS (LOSS)
PER ADS:
Income available to
shareholders 19,002 57,017 $0.33 (8,344) 56,874 ($0.15)
===== ======
EFFECT OF DILUTIVE
SECURITIES:
Stock options 808 --
------ -----
DILUTED EARNINGS (LOSS)
PER ADS:
Income available to
shareholders
Plus assumed
conversion $19,002 57,825 $0.33 ($8,344) 56,874 ($0.15)
======= ====== ===== ======= ====== ======
</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 and six months ended September 30, 1999 and 1998 because they are not
dilutive.
10
<PAGE> 11
NOTE 6. 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 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. Danka International distributes photocopiers,
facsimiles and other related office imaging equipment. These products, together
with 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 Australia and New
Zealand. DSI is the Company's worldwide document outsourcing business, which
provides a wide 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 operations. Other items are shown for
purposes of reconciling to the Company's total consolidated amounts as shown in
the following tables for the three and six months ended September 30, 1999 and
1998:
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
THREE MONTHS ENDED SEPTEMBER 30 AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
- ---------------------------------------------------------------------------------------------
(in 000's)
<S> <C> <C> <C> <C> <C>
1999
Total revenue $340,847 $210,284 $69,148 -- $620,279
Earnings (loss) from operations 26,368 7,135 5,765 ($3,152) 36,116
Interest expense & other, net 26,729 26,729
Provision for income taxes 2,628 2,628
Net earnings 6,759
- --------------------------------------------------------------------------------------------
1998
Total revenue $433,791 $230,956 $69,097 -- $733,884
Earnings (loss) from operations (2,364) 4,828 6,740 ($11,951) (2,747)
Interest expense & other, net 18,520 18,520
Provision (benefit) for income
taxes (7,912) (7,912)
Net loss (13,355)
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
SIX MONTHS ENDED SEPTEMBER 30 AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
- -----------------------------------------------------------------------------------------------
(in 000's)
<S> <C> <C> <C> <C> <C>
1999
Total revenue $709,211 $417,523 $139,254 -- $1,265,988
Earnings (loss) from operations 59,703 13,523 12,312 ($10,387) 75,151
Interest expense & other, net 48,760 48,760
Provision for income taxes 7,389 7,389
Net earnings 19,002
- --------------------------------------------------------------------------------------------
1998
Total revenue $895,903 $467,143 $136,197 -- $1,499,243
Earnings (loss) from operations 14,418 17,191 13,278 ($24,231) 20,656
Interest expense & other, net 33,944 33,944
Provision (benefit) for income
taxes (4,944) (4,944)
Net loss (8,344)
</TABLE>
The Company's total assets by reportable segment for the periods ended
September 30, 1999 and March 31, 1999 are reflected in the table below. The 11%
decline in the total assets for Danka Americas was primarily related to the
sale of the Company's Omnifax business on July 30, 1999 and the closure of the
Company's U.S. wholesale division effective March 31, 1999.
<TABLE>
<CAPTION>
DANKA
DANKA DANKA SERVICES CONSOLIDATED
TOTAL ASSETS AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL
- ----------------------------------------------------------------------------------------------
(in 000's)
<S> <C> <C> <C> <C> <C>
September 30, 1999 $832,681 $677,447 $140,950 $149,234 $1,800,312
March 31, 1999 $933,883 $696,654 $134,013 $140,592 $1,905,142
</TABLE>
NOTE 7. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three months ended September 30,
1999 and 1998 was $11.1 million and ($7.0) million, respectively.
NOTE 8. 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. The Company does not expect the adoption of Statement No. 133 to
have a material impact on its results of operations.
NOTE 9. 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 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
12
<PAGE> 13
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, filed in
the United States District Court, Southern District of New York, 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 filed its motion to
dismiss the complaint on or about May 17, 1999. The Company has not received a
ruling from the Court on its motion. 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.
13
<PAGE> 14
NOTE 10. RECLASSIFICATIONS
Certain amounts in the Company's prior year statements of operations
have been reclassified 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 operations 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,
(in 000's) 1998 1998 1998 1999 1999
- ---------------------------------------------------------------------------------------------------
<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>
14
<PAGE> 15
The following table reflects the percentage of total revenue
represented by each item for the reclassified statements of operations 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 operations 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>
<CAPTION>
<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
- -----------------------------------------------------------------------------------------------
BEFORE SPECIAL CHARGES:
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>
15
<PAGE> 16
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 the products of Canon, Heidelberg, Ricoh and Toshiba. It also
distributes Konica and Minolta products in certain markets. In addition, the
Company markets private label photocopiers and facsimile machines 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 provides worldwide document management services through
its outsourcing business, Danka Services International ("DSI"). Services
provided by DSI range from on- and off-site document management 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.
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. In October 1999, the Company signed
a five-year agreement to distribute worldwide black and white
electrophotographic products manufactured by Heidelberg Digital, including the
new DigiSource 9110 print system. In addition, Danka is the exclusive
distributor of the former Kodak Ektaprint and ImageSource products, parts and
supplies.
16
<PAGE> 17
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 operations:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Retail equipment sales............... 29.2% 27.8% 27.4% 26.6%
Retail service, supplies and rentals. 66.9 64.9 68.4 65.3
Wholesale............................ 3.9 7.3 4.3 8.1
----- ----- ----- -----
Total revenue.................... 100.0 100.0 100.0 100.0
Cost of revenue........................ 64.7 67.8 63.6 66.6
----- ----- ----- -----
Gross profit........................... 35.3 32.2 36.4 33.4
Selling, general and administrative
expenses............................. 29.0 30.2 29.9 29.7
Amortization of intangible assets...... 0.5 0.7 0.6 0.6
Research and development costs......... -- 1.7 -- 1.7
----- ----- ----- -----
Earnings (loss) from operations.. 5.8 (0.4) 5.9 1.4
Interest expense and other, net........ 4.3 2.5 3.8 2.3
----- ----- ----- -----
Earnings (loss) before income
taxes.......................... 1.5 (2.9) 2.1 (0.9)
Provision for income taxes............. 0.4 (1.1) 0.6 (0.3)
----- ----- ----- -----
Net earnings (loss) .............. 1.1 % (1.8)% 1.5% (0.6)%
===== ===== ===== =====
</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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Retail equipment sales................ 28.9% 26.9% 28.8% 27.2%
Retail service, supplies and rentals.. 39.0 36.0 40.4 38.0
Wholesale............................. 20.5 18.0 21.2 16.5
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998:
Revenue
Revenue declined 15% to $620.3 million for the three months ended
September 30, 1999 ("second quarter of fiscal 2000") compared to $733.8 million
for the three months ended September 30, 1998 ("second quarter of fiscal
1999"). Total revenue for the second quarter of fiscal 2000 was affected by the
sale of the Company's Omnifax business effective July 30, 1999. The Omnifax
business reported total revenue of $8.3 million for the second quarter of
fiscal 2000 compared to $27.5 million for the second quarter of fiscal 1999.
The Company's retail equipment sales declined 11% to $181.3 million
for the second quarter of fiscal 2000 compared to $204.0 million for the second
quarter of fiscal 1999. In fiscal 1999, the Company entered into several key
strategic vendor alliances and expanded its worldwide product portfolio to add
new products in color, digital and high-volume. As discussed above, the sale of
the Omnifax business also affected retail equipment sales. On a sequential
basis, retail equipment sales increased 10% over the first quarter of fiscal
2000.
17
<PAGE> 18
Retail service, supplies and rentals revenue declined 13% to $414.9
million in the second quarter of fiscal 2000 from $476.3 million in the second
quarter of fiscal 1999. The decline was primarily due to the sale of non-core
operations including the Company's Omnifax business, as well as declines in the
Company's low-end analog machine base due to shifts in the industry and product
mix to mid and high-end digital and color placements.
The Company's total revenue for the second 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 second
quarter of fiscal 2000 declined 55% to $24.0 million from $53.5 million for the
second quarter of fiscal 1999. For the second quarter of fiscal 1999, the
Company's U.S. wholesale business reported revenue of approximately $26.0
million.
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 second quarter of fiscal 2000 would have been approximately $12.0
million higher.
Gross Profit
Gross profit decreased 7% to $219.2 million for the second quarter of
fiscal 2000 from $236.1 million for the second quarter of fiscal 1999. The
gross profit margin as a percentage of total revenue increased to 35.3% for the
second quarter of fiscal 2000 from 32.2% for the second quarter of fiscal 1999.
The increase in the combined gross profit margin was due to improvements in the
gross profit margins in each of the Company's revenue segments.
Gross profit as a percentage of retail equipment sales increased to
28.9% for the second quarter of fiscal 2000 from 26.9% for the second quarter
of fiscal 1999 primarily related to the Company's inventory management
initiatives taken during fiscal 1999 and changes in the current product mix
resulting from new, higher margin products in color, digital and high-volume.
As a percentage of revenue, the gross profit margin on retail service,
supplies and rentals increased to 39.0% for the second quarter of fiscal 2000
from 36.0% for the second quarter of fiscal 1999, primarily attributable to
improvements in U.S. service productivity.
As a percentage of revenue, the gross profit margin on wholesale sales
increased to 20.5% for the second quarter of fiscal 2000 from 18.0% for the
second quarter of fiscal 1999 primarily due to the closure of the Company's
U.S. wholesale operations effective March 31, 1999. The U.S. wholesale
operations generated a lower gross profit margin than to the Company's
international wholesale business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") declined 19%, or
$41.7 million, to $179.6 million for the second quarter of fiscal 2000 compared
to $221.3 million for the second quarter of fiscal 1999. The decrease was due
to cost savings achieved through the Company's restructuring initiatives and
worldwide cost reduction program implemented last year as well as the closure
of the Company's U.S. wholesale division in March 1999 and the sale of Omnifax
in July 1999. As a percentage of
18
<PAGE> 19
revenue, selling, general and administrative expenses decreased to 29.0% for
the second quarter of fiscal 2000 from 30.2% for the second quarter of fiscal
1999.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $3.5 million for the
second quarter of fiscal 2000 from $5.0 million for the second 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 would not be recoverable.
Commitment to Kodak under Research and Development Agreements
In connection with the acquisition of Kodak's office imaging and
outsourcing businesses in December 1996, the Company was providing funding to
Kodak for ongoing research and development of certain 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 and the Company agreed to pay Kodak $23.0 million. 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. In the comparable second quarter of fiscal 1999, the
Company recorded research and development commitments totaling $12.5 million.
Earnings from Operations
The Company reported earnings from operations of $36.1 million for the
second quarter of fiscal 2000 compared to a loss of $2.7 million for the second
quarter of fiscal 1999. The increase was attributable to gross profit
improvements, 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 rose
to 5.8% for the second quarter of fiscal 2000 compared to an operating loss for
the comparable period last year.
Interest Expense and Other, Net
Interest expense and other, net increased to $26.7 million for the
second quarter of fiscal 2000 compared to $18.5 million for the second quarter
of fiscal 1999. The increase is related to several factors, including a loss of
$2.1 million related to the sale of the Company's Omnifax business in July 1999
and foreign exchange losses of $0.4 million. Excluding these losses, the
interest expense totaled $24.2 million for the second quarter of fiscal 2000.
The interest expense increase was primarily due to a higher interest rate as
well as waiver fees paid by the Company, relating to amendments to the
Company's Credit Agreement effective June 15 and July 9, 1999. See "Liquidity
and Capital Resources."
19
<PAGE> 20
Income Taxes
Income taxes increased to $2.6 million for the second quarter of
fiscal 2000 compared to a tax benefit of $7.9 million for the second 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 second quarter of fiscal
2000 as compared to 37.2% for the second quarter of fiscal 1999. The reduction
from the statutory UK tax rate of 31.0% in the current fiscal year is due to
utilization of tax loss carry-forwards.
Net Earnings (Loss)
As a result of the above factors, net earnings increased to $6.8
million for the second quarter of fiscal 2000 compared to a net loss of $13.4
million for the second quarter of fiscal 1999. As a percentage of revenue, net
earnings rose to 1.1% for the second quarter of fiscal 2000 compared to a net
loss for the same period last year.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1998:
Revenue
Revenue declined 16% to $1.3 billion for the six months ended
September 30, 1999 compared to $1.5 billion for the six months ended September
30, 1998. Total revenue for the six months ended September 30, 1999 was
affected by the sale of the Company's Omnifax business effective July 30, 1999.
The Omnifax business reported revenue of $35.7 million for the six months ended
September 30, 1999 compared to $57.5 million for the six months ended September
30, 1998.
The Company's retail equipment sales declined 13% to $346.5 million
for the six months ended September 30, 1999 compared to $398.7 million for the
six months ended September 30, 1998. In fiscal 1999, the Company entered into
several key strategic vendor alliances and expanded its worldwide product
portfolio to add new products in color, digital and high-volume. As noted
above, retail equipment sales were also impacted for the six months ended
September 30, 1999 by the sale of the Omnifax business.
The Company's retail service, supplies and rentals revenue declined
12% to $865.6 million for the six months ended September 30, 1999 from $978.9
million for the six months ended September 30, 1998. The decline was due to the
sale of non-core operations including the Company's Omnifax business in July
1999, as well as declines in the Company's low-end analog machine base due to
shifts in the industry and product mix to mid and high-end digital and color
placements.
The Company's total revenue for the six months ended September 30,
1999 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 six months ended September 30, 1999 declined 56% to $53.9 million from
$121.7 million for the six months ended September 30, 1998. For the six months
ended September 30, 1999 the Company's U.S. wholesale business, reported
revenue of approximately $63.0 million.
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
20
<PAGE> 21
comparable financials results. Excluding the effect of foreign currency
fluctuations, total revenue for the six months ended September 30, 1999 would
have been approximately $21.0 million higher.
Gross Profit
Gross profit declined 8% to $461.3 million for the six months ended
September 30, 1999 from $500.6 million for the six months ended September 30,
1998. The gross profit margin as a percentage of total revenue increased to
36.4% for the six months ended September 30, 1999 from 33.4% for the six months
ended September 30, 1998. The increase in the combined gross profit margin was
due to improvements in the gross profit margins in each of the Company's
revenue segments.
Gross profit as a percentage of retail equipment sales increased to
28.8% for the six months ended September 30, 1999 from 27.2% for the six months
ended September 30, 1998. The increase primarily related to the Company's
inventory management initiatives taken during fiscal 1999 and changes in the
current product mix resulting from new, higher margin products in color,
digital and high-volume.
As a percentage of revenue, the gross profit margin on retail service,
supplies and rentals increased to 40.4% for the six months ended September 30,
1999 from 38.0% for the six months ended September 30, 1998, primarily
attributable to improvements in U.S. service productivity.
As a percentage of revenue, the gross profit margin on wholesale sales
increased to 21.2% for the six months ended September 30, 1999 compared to
16.5% for the six months ended September 30, 1998 primarily due to the closure
of the Company's U.S. wholesale operations effective March 31, 1999. The U.S.
wholesale operations generated a lower gross profit margin than the
Company's international wholesale business
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 15%, or $65.5
million, to $379.1 million for the six months ended September 30, 1999 from
$444.6 million for the six months ended September 30, 1998. The decrease was
due to cost savings achieved through the Company's restructuring initiatives
and worldwide cost reduction program implemented last year as well as the
closure of the Company's U.S. wholesale division in March 1999 and the sale of
Omnifax in July 1999. As a percentage of revenue, selling, general and
administrative expenses remained relatively flat at 29.9% and 29.7% for the six
months ended September 30, 1999 and 1998, respectively.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $7.1 million for the
six months ended September 30, 1999 from $10.4 million for the six months ended
September 30, 1998. 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 would not be recoverable.
21
<PAGE> 22
Commitment to Kodak under Research and Development Agreements
In connection with the acquisition of Kodak's office imaging and
outsourcing businesses in December 1996, the Company was providing funding to
Kodak for ongoing research and development of certain 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 and the Company agreed to pay Kodak $23.0 million. 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. In the comparable six months ended September 30,
1998, the Company recorded research and development commitments totaling $25.0
million.
Earnings from Operations
Earnings from operations increased to $75.1 million for the six months
ended September 30, 1999 from $20.7 million for the six months ended September
30, 1998. The increase was attributable to gross profit improvements,
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 rose to 5.9% for the six
months ended September 30, 1999 compared to 1.4% for the six months ended
September 30, 1998.
Interest Expense and Other, Net
Interest expense and other, net increased to $48.8 million for the six
months ended September 30, 1999 compared to $33.9 million for the six months
ended September 30, 1998. The increase is related to several factors, including
a loss of $2.1 million related to the sale of the Company's Omnifax business in
July 1999 and foreign exchange losses of $0.7 million. Excluding these losses,
the interest expense totaled $46.0 million for the six months ended September
30, 1999. The interest expense increase was primarily due to a higher interest
rate as well as waiver fees paid by the Company, relating to amendments to
the Company's Credit Agreement effective June 15 and July 9, 1999. See
"Liquidity and Capital Resources".
Income Taxes
The Company recorded income taxes of $7.4 million for the six months
ended September 30, 1999 compared to a tax benefit of $4.9 million for the six
months ended September 30, 1998. The increase was primarily due to higher
levels of earnings. The combined effective income tax rate declined to 28.0%
for the six months ended September 30, 1999 compared to 37.2% for the six
months ended September 30, 1998. The reduction from the statutory UK tax rate
of 31.0% in the current fiscal year is due to utilization of tax loss
carry-forwards.
Net Earnings (Loss)
As a result of the above factors, the Company reported net earnings of
$19.0 million for the six months ended September 30, 1999 compared to a net
loss of $8.3 million for the six months ended
22
<PAGE> 23
September 30, 1998. As a percentage of revenue, net earnings rose to 1.5% for
the six months ended September 30, 1999 compared to a net loss for the
comparable period last year.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the
U.S. dollar affect the dollar equivalent of the pound sterling market price 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 has a credit agreement with a consortium of international
bank lenders (the "Credit Agreement"). As amended, the Credit Agreement
requires 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. Recent amendments continue waiver of
compliance with the requirements imposed under certain other financial
covenants, which were 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.
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 such 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. The
Company paid a fee of $2.4 million related to amounts outstanding under the
Credit Agreement on October 31, 1999. Payments of approximately $4.7 million
and $9.3 million become due on 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, 1999 through September 30,
1999, the Company was required to pay a fee of $0.6 million (equating to 0.25%
annual interest on the average outstanding loans under the Credit Agreement).
During the period from October 1, 1999 through December 31, 1999 this fee will
be increased to equate to 0.75% interest if
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<PAGE> 24
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. The Company is
required to apply 80% of the first $200.0 million of net proceeds of any asset
dispositions 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 the indebtedness outstanding under
the Credit Agreement as soon as possible and is currently in discussions with
potential sources of refinancing.
The Company has entered into a definitive agreement with equity funds
managed by The Cypress Group LLC, a New York based equity firm, to purchase
200,000 shares of a new class of participating shares to be issued by the
Company for an aggregate purchase price of $200.0 million. The new
participating shares would carry voting rights and would be convertible into
Ordinary Shares of the Company. In addition, the participating shares would
have a preference as to dividends which equal the greater of (a) an amount per
annum equal to 6.50% of the liquidation return payable on the applicable
participating shares and (b) the deemed per annum rate of dividends, if any,
declared on the Company's Ordinary Shares in the applicable quarter. The
participating shares would also have a preference upon liquidation over the
Ordinary Shares equal to their $1,000 per share initial issuance price plus
accumulated and unpaid dividends. Anticipated net proceeds to the Company from
the sale of the participating shares are estimated to be approximately $190.0
million. The participating shares would be convertible into Ordinary Shares at
a conversion price of $3.125 per Ordinary Share (equivalent to $12.50 per ADS),
subject to adjustment in certain circumstances. For a more detailed description
of the participating shares and agreements with the purchasers, see the
Company's Current Report on Form 8-K filed November 5, 1999.
The Company believes that this increase in its equity base should
assist it in refinancing the bank indebtedness. A major factor in choosing this
form of equity financing was that the transaction could be accomplished quickly
and the parties that have agreed to purchase the participating shares are
prepared to purchase the entire $200.0 million that the Company's financial
advisors have advised is needed to obtain refinancing of the Credit Agreement
indebtedness on favorable terms. The issuance of the participating shares is
subject to various conditions, including approval by the Company's shareholders
at an extraordinary general meeting, obtaining a commitment to refinance the
Company's bank indebtedness reasonably satisfactory to the investors, obtaining
specified amendments to the existing financing agreements and a condition that
the average closing price of the ADSs not fall below $9.00 for a ten-day
period. While the Company expects to refinance its bank indebtedness shortly
after consummation of the issuance of the 200,000 shares of participating
stock, there can be no assurance that such sale will be consummated or that the
Company's bank indebtedness can be refinanced on favorable terms, whether or
not such sale is consummated. The net proceeds of the issuance of participating
shares will be used primarily to repay indebtedness under the Credit Agreement.
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<PAGE> 25
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
DigiSource 9110 was developed by Kodak and is designed and assembled through a
joint venture by Heidelberg Digital and NexPress Solutions. In October 1999,
the Company signed a five-year agreement to distribute worldwide black and
white electrophotographic products manufactured by Heidelberg Digital,
including the new DigiSource 9110 print system. In addition, Danka is the
exclusive distributor of the former Kodak Ektaprint and ImageSource products,
parts and supplies.
The Company's cash flow provided by operating activities was $87.4
million and $27.7 million for the six months ended September 30, 1999 and 1998,
respectively. Operating cash flow for the six months ended September 30, 1999
was positively impacted by an increase in net earnings as well as decreases in
inventory. Accounts payable increased primarily due to the availability of
better credit terms with the Company's vendors. Cash flow used in investing
activities was $18.3 million and $116.2 million for the six months ended
September 30, 1999 and 1998, respectively. The decrease was due to the
Company's reduction in capital expenditures and the $45.0 million in cash
proceeds received from the sale of the Omnifax business. Cash (used in)
provided by financing activities was ($60.7) million and $61.6 million for the
six months ended September 30, 1999 and 1998, respectively. The decline in cash
provided by financing activities was primarily attributable to changes in the
level of borrowings.
As of September 30, 1999, the Credit Agreement had an outstanding
balance of $505.2 million under the revolving component and $365.4 million
under the term loan, incurring interest at a weighted average rate of 7.5% and
6.1% per annum, respectively, excluding any additional leverage fees as
outlined above.
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's last dividend to shareholders was paid 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
$200.0 million investment proceeds by Cypress
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<PAGE> 26
Group L.L.C., which is subject to various conditions as outlined above, 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 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 READINESS DISCLOSURE
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 information by computer systems. The
Company's Year 2000 Worldwide Program office is comprised of senior executives,
legal counsel, outside advisers, and program manager. 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
could cause an extended shutdown of all or part of a business unit, could cause
personal injury, or could 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 process necessary to ensure
comprehensive assessment, remediation, contingency planning and quality
control. The Company will also complete 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 (DSI) contain program
administration and a six-phased remediation approach for the Company's
Applications and Infrastructure areas. The Company's U.S. operations are
approximately 98% and 87% complete with the Applications and Infrastructure
areas, respectively. The Company's Application and Infrastructure areas for its
Canada operations (including Canada's application conversion from the Kodak
computer system) are approximately 73% complete and its Latin American
operations are approximately 52% complete. The Company's Application and
Infrastructure areas for DSI are approximately 75% complete. The six phases
are: 1) Inventory-prioritize 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-
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<PAGE> 27
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 the U.S., Canada and Latin American
operations by November 30, 1999. The Company's U.S. operations are
approximately 92% complete with its contingency plans. The Company anticipates
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 operation Year 2000 program contains
program administration and a five-phased remediation approach for l9 countries.
The Company's International operations are approximately 82% complete. 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 operation anticipates completion of
phases one through five by 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.
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 has evaluated 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 was 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 believes that it
has made inquiries of its primary and secondary suppliers and believes that it
has received satisfactory responses. 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. Based on the information the
Company has received from its suppliers, the Company believes that its
suppliers will be able to continue to provide an adequate level of service.
The Company continues to assess 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 its customers.
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<PAGE> 28
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 and secondary suppliers and
vendor manufacturers. The Company's Year 2000 website contains links to the
Year 2000 websites of the manufacturers of products sold by the Company. 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
would continue into calendar Year 2000.
To assess the extent, to which facilities are Year 2000 capable, the
Company continues to make inquiries of its leased and owned facilities.
Follow-up activities include new inquires for recently acquired and / or leased
facilities and 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
of the Company's 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.
In January of l999, 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 program assumes the
utilization of both internal and external resources and has 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 $6.3 million. Expenditures through September 30, 1999 totaled $5.3
million of which approximately $2.0 million were for capital equipment.
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 cannot 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,
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<PAGE> 29
decreased sales related to the inability to deliver products or provide quality
products, 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.
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 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
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<PAGE> 30
Litigation Act of 1995. Factors that might cause actual results to differ
materially from those reflected in any forward looking statements include, but
are not limited to (i) failure to close the contemplated $200.0 million
investment by Cypress in the Company's participating shares, including the
failure to obtain necessary consents and approvals, (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) (vi) 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, (vii) the ultimate
outcome and impact of the pending class action lawsuit or any other lawsuit,
(viii) any negative impact from the loss of any key upper management personnel,
(ix) any negative impact on the Company's financial condition or results of
operations caused by the Euro conversion, (x) any significant assessment,
pursuant to the review by the Internal Revenue Service (xi) fluctuations in
foreign currencies and (xii) 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 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, filed in
the United States District Court, Southern District of New York, 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
30
<PAGE> 31
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 filed its motion to dismiss the complaint on or about
May 17, 1999. The Company has not received a ruling from the Court on its
motion. 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 AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual General Meeting of shareholders of Danka Business Systems
PLC was held on October 19, 1999. At the meeting, the following actions were
taken by the shareholders:
1. David W. Kendall was re-elected to serve as a Director of the
Company, in accordance with the Company's Articles of Association. The voting
on the resolution was as follows:
FOR 199,164,853
AGAINST 8,225,430
ABSTAINED 3,259
2. Larry K. Switzer, who was appointed during the course of the year,
was re-elected to serve as a Director of the Company, in accordance with the
Company's Articles of Association. The voting on the resolution was as follows:
FOR 202,440,176
AGAINST 4,683,139
ABSTAINED 270,227
3. Brian L. Merriman, who was appointed during the course of the year,
was re-elected to serve as a Director of the Company, in accordance with the
Company's Articles of Association. The voting on the resolution was as follows:
FOR 202,433,451
AGAINST 4,689,864
ABSTAINED 270,227
4. Michael B. Gifford, who was appointed during the course of the
year, was re-elected to serve as a Director of the Company, in accordance with
the Company's Articles of Association. The voting on the resolution was as
follows:
FOR 206,318,398
AGAINST 1,071,885
ABSTAINED 3,259
5. Richard C. Lappin, who was appointed during the course of the year,
was re-elected to serve as a Director of the Company, in accordance with the
Company's Articles of Association. The voting on the resolution was as follows:
FOR 206,194,336
AGAINST 1,195,947
ABSTAINED 3,259
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6. C. Anthony Wainwright, who was appointed during the course of the
year, was re-elected to serve as a Director of the Company, in accordance with
the Company's Articles of Association. The voting on the resolution was as
follows:
FOR 206,182,579
AGAINST 1,207,704
ABSTAINED 3,259
7. KPMG Audit Plc was appointed as the Company's auditors for fiscal
year 2000, and the Board of Directors was authorized to fix the auditor's
remuneration. The voting on the resolution was as follows:
FOR 205,995,286
AGAINST 1,394,997
ABSTAINED 3,259
8. The Board of Directors of the Company was granted the authority to
allot securities up to an aggregate nominal amount of (pound)950,282. The
voting on the resolution was as follows:
FOR 198,580,685
AGAINST 8,809,598
ABSTAINED 3,259
9. The Board of Directors of the Company was granted the authority to
allot equity securities up to an aggregate nominal amount of (pound)570,170
without providing certain pre-emptive rights. The voting on the resolution was
as follows:
FOR 176,135,658
AGAINST 31,254,625
ABSTAINED 3,259
10. The Company was granted the authority to buy back up to 15% of its
outstanding share capital. The voting on the resolution was as follows:
FOR 206,280,476
AGAINST 1,109,807
ABSTAINED 3,259
11. Approval of the Company's amended 401 (k) U.S. Profit Sharing Plan
to permit the Company to match employee contributions with shares of the
Company stock:
FOR 182,730,812
AGAINST 9,878,519
ABSTAINED 14,784,211
12. Approval of the Danka 1999 Share Option Plan was granted. The
voting on the resolution was as follows:
FOR 181,855,078
AGAINST 11,021,221
ABSTAINED 14,517,243
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ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
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).
</TABLE>
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<CAPTION>
<S> <C>
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).
</TABLE>
35
<PAGE> 36
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<CAPTION>
<S> <C>
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.
10.13 Amended and Restated Employment Agreement dated September 20,
1999 among the Company, Danka Business Systems PLC and Larry
K. Switzer (original agreement dated August 28, 1998 and
amendment dated February 2, 1999).
10.14 Amended and Restated Employment Agreement dated September 20,
1999 among the Company, Danka Business Systems PLC and Brian
L. Merriman (original agreement dated August 1, 1998 and
amendment dated February 2, 1999).
10.15 Distribution Agreement by and between Nexpress Solutions and
Danka Holding Company dated October 6, 1999.
10.16 Distribution Agreement by and between Nexpress Solutions and
Danka Group B.V. dated October 6, 1999.
27.1 Financial Data Schedule (for SEC purposes only)
</TABLE>
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K, the earliest event occurring
on July 30, 1999, announcing the completion of the sale of Omnifax to Xerox
Corporation for $45.0 million in cash.
36
<PAGE> 37
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: November 12, 1999 /s/ F. MARK WOLFINGER
---------------------------------
F. Mark Wolfinger, Executive Vice
President and Chief Financial
Officer (Principal Accounting
Officer)
37
<PAGE> 1
EXHIBIT 10.13
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Employment
Agreement") is made and entered into as of the ____ day of September, 1999, by
and among Danka Business Systems PLC, ("Danka Business Systems"), and Larry
Switzer, an individual ("Executive").
WITNESSETH:
WHEREAS, Executive is a party to an Employment Agreement dated as of
August 28, 1998 between the Company and the Executive as amended by a letter
agreement dated February 2, 1999 (collectively, "Prior Employment Agreement")
and Executive is also party to a Change of Control Agreement, dated as of
November 6, 1998 by and among the Company, Danka Office Imaging Company and the
Executive ("Change of Control Agreement");
WHEREAS, the Company wishes to assure itself of the services of
Executive, on the terms and conditions set forth herein; and
WHEREAS, Executive desires to be so employed by the Company on said
terms.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties agree as follows:
Section 1. EMPLOYMENT. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
Section 2. CAPACITY AND DUTIES. Executive is and shall be employed in
the capacity of Chief Executive Officer of the Company and shall have such
other duties, responsibilities and authorities as are assigned to him by the
Board of Directors of Danka Business Systems (the "Board") as long as such
additional duties, responsibilities and authorities are consistent with
Executive's position and level of authority as the Chief Executive Officer of
the Company. Executive may serve as a director of any direct or indirect
subsidiary of Danka Business Systems, without additional consideration unless
agreed otherwise by the Board, but Executive's failure or refusal to serve on
the Board of one or more subsidiaries shall not constitute a breach of this
Agreement. Executive shall be nominated by the Board to serve as director and
executive member of the Board and the Company shall use its best efforts to
cause the Executive to be elected as a director and executive member of the
Board.
Section 3. TERM OF EMPLOYMENT. The term of employment of Executive by
the Company pursuant to this Employment Agreement shall be for the period (the
"Employment Period") commencing on September 1, 1999 (the "Commencement Date"),
and ending on August 31, 2002 or such earlier date that Executive's employment
is terminated in accordance with the provisions of this Employment Agreement.
Section 4. PLACE OF EMPLOYMENT. Executive's principal place of work
shall be located in the Tampa Bay, Florida metropolitan area. The parties
acknowledge that this is consistent with the extensive national and
international business travel which may be required of Executive in connection
with his performance of his duties under this Agreement.
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Section 5. BASE SALARY AND BONUS. During the Employment Period and
subject to all the terms and conditions of this Employment Agreement, the
Company shall pay Executive a base salary at an annual rate of not less than
$800,000 per annum, payable in a manner consistent with the Company's payroll
procedures for U.S. salaried employees. The Human Resources Committee of the
Board (the "H.R. Committee") shall review Executive's annual base salary on or
before the beginning of each fiscal year of the Company beginning subsequent to
March 31, 2000 in which this Agreement is in effect and may increase
Executive's annual base salary from time to time as the H.R. Committee deems to
be appropriate.
In addition to the annual base salary, Executive shall be entitled to
receive an annual bonus opportunity under a performance bonus plan developed by
the H.R. Committee. The H.R. Committee shall establish during the first quarter
of each fiscal year financial performance targets for such fiscal year, stated
in terms of net income, diluted earnings per share, operating cash flow or such
other measures as may be selected by the H.R. Committee, as well as the annual
bonuses available upon achievement of target, threshold and maximum levels of
performance. The bonus available upon achievement of the target level shall be
one hundred percent (100%) of Executive's annual base salary, and the bonus
available for meeting or exceeding maximum level of performance shall be two
hundred percent (200%) of Executive's annual base salary. Subject to H.R.
Committee's certification of the Company's achievement of the relevant
financial goals for the fiscal year at not less than the threshold level,
payment of each such annual bonus shall be made to Executive in cash (net of
applicable taxes) as promptly after the end of the relevant fiscal year as the
H.R. Committee is able to certify the achievement of the applicable target
performance goals, subject to any deferral election made by Executive under the
terms of the Company's deferred compensation plan for U.S. executives.
All salary and bonus payments to Executive under this Agreement shall
be paid to Executive by Danka Office Imaging Company, through its U.S. payroll
system. If Danka Office Imaging Company should fail to make any such payment to
Executive when due, Danka Holding Company, Danka Office Imaging Company and
Danka Business Systems shall be jointly and severally liable to Executive.
Section 6. ADDITIONAL COMPENSATION AND BENEFITS. During the
Employment Period, the Company shall pay to or provide Executive such other
compensation and benefits as are established by or approved by the H.R.
Committee, including the following additional compensation and welfare and
fringe benefits:
(a) Stock Options. Executive shall be eligible to receive stock
option awards, as described in Section 7 below, on such basis and
at such times as the H.R. Committee may determine to be equitable
and consistent with Executive's position and performance.
(b) Medical Insurance. The Company shall provide Executive and his
dependents with health insurance coverage no less favorable than
that from time to time made available to other key employees of
the Company located in the United States.
(c) Vacation. Executive shall be entitled to at least four (4) weeks
of vacation during each year during the term of this Agreement,
prorated for partial years.
(d) Business Expenses. The Company shall reimburse Executive for all
reasonable, ordinary and necessary expenses he incurs in
connection with his employment by the Company (including but not
limited to, automobile and other business travel, and customer
entertainment expenses).
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<PAGE> 3
(e) Car. The Company shall provide, at the Company's expense, a
Mercedes or Jaguar, or similar type automobile for Executive's
use.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 6, the Executive shall be eligible to participate in
all executive compensation and retirement plans of the Company applicable
generally to officers of the Company located in the United States, including,
without limitation, airline club expenses up to $1,000 annually and life
insurance premiums up to $15,000 annually, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other United States employees from time to time.
Section 7. STOCK OPTIONS. During the Employment Period, Executive
shall be granted additional stock options with respect to American Depository
Shares representing ordinary shares of Danka Business Systems ("ADSs") on an
equitable basis consistent with his position, provided that Executive has
continued his employment with the Company through the relevant grant date and
has not given a Notice of Termination as defined in Section 10 below.
All of the stock options of Executive shall be subject to the
following terms and conditions:
(a) The Options granted to Executive shall become fully vested on an
accelerated basis upon: (1) expiration of the Employment Period
(or, if such original Employment Period is extended or renewed by
mutual agreement of Executive and the Company, expiration of the
final renewal period); (2) Executive's death or permanent
disability; (3) an involuntary termination of Executive's
employment other than for Cause [as defined in Section 10]; (4)
Executive's voluntary termination of employment for Good Reason
[as defined in Section 10 below]; or (5) the date the Company
gives Executive a Notice to Terminate [other than for Cause as
defined in Section 10].
(b) Upon termination of Executive's employment for Cause [as defined
in Section 10], any unexercised Options held by Executive
(including both vested and unvested Options) shall be forfeited
immediately. Upon delivery of a Notice of Termination by
Executive or other voluntary termination by Executive [other than
for Good Reason as defined in Section 10.02], any vested but
unexercised options held by Executive shall continue to be
exercisable during the period of twelve (12) months following the
date of termination. If Executive's options vest on an
accelerated basis pursuant to paragraph (a), or if Executive's
employment terminates at the expiration of the Employment Period,
the options not exercised by the termination date shall continue
to be exercisable for a period of thirty-six (36) months
following such date (but not later than the expiration of the
option's original ten (10) year term). Such continued right to
exercise the options shall be subject to Executive's adherence to
the terms of such non-competition, confidentiality and similar
restrictive covenants as the H.R. Committee may require to be
included in the stock option certificates, provided that such
restrictive covenants shall be deemed to be waived upon a Change
of Control [as defined in the Change of Control Agreement].
(c) At the Committee's discretions, the options may be granted for
the equivalent number of ordinary shares of Danka Business
Systems, instead of ADSs.
Section 8. TERMINATION BY THE COMPANY OR BY EXECUTIVE. This
Employment Agreement may be terminated by the Board of Danka Business Systems
or by Executive upon one (1) year's written notice, provided that Danka
Business Systems or Executive, as the case may be, shall
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<PAGE> 4
give Notice of Termination (as hereinafter defined). Compensation paid to
Executive during the one-year notice period following the giving of the Notice
of Termination shall be considered to be part of the severance pay described in
Section 9 of this Employment Agreement.
This Employment Agreement may be terminated upon six months' written
notice by Danka Business Systems by reason of the Disability (as hereinafter
defined) of Executive. This Employment Agreement may be terminated by the Board
of Danka Business Systems immediately upon giving Notice of Termination for
Cause (as hereinafter defined) and may be terminated by Executive for Good
Reason (as hereinafter defined) immediately upon giving Notice of Termination,
provided that the Company shall in either case pay to Executive the
compensation and other benefits described in Section 9 of this Employment
Agreement.
Section 9. PAYMENTS UPON TERMINATION.
(a) If Executive's employment is terminated during the term of this
Agreement, either by the Board or by Executive, or in the event of death or
disability, Executive shall be entitled to receive his base salary accrued
through the date of termination, any accrued but unpaid vacation pay for the
year of the termination, plus any bonus earned but not previously paid with
respect to fiscal years preceding the termination date. If Executive's
employment is terminated during the term of this Agreement by Executive for
Good Reason (as defined in Section 10 below), or by the Company other than for
Cause [as defined in Section 10], then Executive shall also receive the
additional termination pay and benefits set forth in Sections 9(b), 9(c), 11 or
other applicable provisions of this Employment Agreement.
(b) If Executive's employment is involuntarily terminated by the
Company for any reason other than death, disability or Cause (as defined in
Section 10), including by giving a Notice of Termination to Executive, or if
the Executive gives a Notice of Termination for Good Reason (as defined in
Section 10), the Company shall also be obligated to provide Executive with the
following severance compensation:
(i) The Company shall pay to Executive (subject to withholding of
applicable taxes) termination payments, in an amount equal to the sum
of (A) two (2) full years of Executive's annual base salary, at the
rate in effect on the date the Notice of Termination is given, and (B)
twice the target annual bonus (i.e., twice the annual target bonus of
100 percent of annual base salary) which would be payable to Executive
for the fiscal year in which the Notice of Termination is given if the
Company's financial performance targets were deemed to be satisfied at
the budgeted target level for such fiscal year. The Company shall
deliver a lump sum payment equal to one-half (1/2) of such amount
(subject to withholding of applicable taxes) to Executive by wire
transfer or cashier's check within ten (10) business days after the
termination of his employment. The remainder shall be paid to
Executive in a series of twelve (12) equal monthly payments, beginning
on the first anniversary of the date of termination. These payments
shall be offset by any amounts the Company pays to the Executive as
annual salary or bonus for his services during the one-year notice
period following the date the Notice of Termination was given, but
shall not be offset by any amounts Executive may receive as
compensation for services he performs for any other employer after his
employment with the Company terminates.
(ii) In addition to these termination payments, Executive shall be
entitled to receive a pro rata annual bonus from the Company for the
fiscal year which includes the date of termination, calculated by
determining the performance bonus earned for the fiscal year which
includes the
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date of termination, based on the extent to which the Company actually
satisfies the relevant financial performance targets for the fiscal
year by the end of such fiscal year, and multiplying this amount 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. This pro rata bonus shall
be paid to Executive (subject to withholding at applicable taxes)
promptly after the end of the fiscal year, once the H.R. Committee has
certified the Company's achievement of the relevant performance
targets.
(iii) The Company shall continue to provide the Executive and his wife
with coverage under all medical, hospitalization, life and other
insurance benefits being provided to Executive at the date the Notice
of Termination is given, 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 earlier of (A) the expiration of the Employment
Period, or (B) the date Executive obtains comparable benefits (with no
significant pre-existing condition exclusions) as a result of
Executive's employment in a new position.
(iv) Any stock options awarded to Executive under any stock option
plan or scheme maintained by the Company shall (A) if not previously
vested, immediately become fully vested and exercisable in full, and
(B) be deemed to be amended to permit their exercise by Executive at
any time during the period of thirty-six (36) months following the
date of termination (but no later than the expiration of any such
stock option's original ten-year term), subject to the Executive's
adherence to the terms of such non-competition, confidentiality and
similar restrictive covenants as the H.R. Committee may require to be
included in the relevant stock option agreements.
(v) The Executive shall also receive any vested benefits payable to
him under the terms of any deferred compensation, retirement,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
(c) If Executive's employment is terminated by the Board for Cause,
the amount Executive shall be entitled to receive from the Company shall be
limited to his base salary accrued through the date of termination, any accrued
but unpaid vacation pay for the year of termination, any bonuses earned but not
previously paid with respect to the fiscal year of Danka Business Systems most
recently ended, and any vested benefits payable to Executive under the terms of
any deferred compensation, retirement, stock option or other incentive plans
maintained by the Company.
(d) If Executive voluntarily terminates his employment by giving
Notice of Termination before the end of the Employment Period (other than for
Good Reason as defined in Section 10.02), or retires at the end of the
Employment Period, the amount Executive shall be entitled to receive from the
Company shall be limited to his base salary accrued through the date of
termination, any accrued but unpaid vacation pay for the year, any bonus earned
but not previously paid with respect to the fiscal year of Danka Business
Systems most recently ended, and any other vested benefits payable to the
Executive under the terms of any deferred compensation, retirement, stock
option or other incentive plans of the Company.
(e) All payments to Executive under this Section 9 shall be paid by
Danka Office Imaging Company, but in the event Danka Office Imaging Company
should fail to make any such payment when due, Danka Office Imaging Company,
Danka Holding and Danka Business Systems shall be jointly and severally liable
to Executive.
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<PAGE> 6
(f) Executive shall not be required to mitigate amounts or benefits
payable under this Employment Agreement by seeking other employment or
otherwise.
Section 10. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 10 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
10.01 Disability. "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 under this
Employment Agreement as an employee and as a result of which he shall
have been unable to perform his duties for the Company on a full-time
basis for six (6) consecutive months.
10.02 Good Reason. "Good Reason" shall mean the occurrence
of any of the following events without Executive's prior express
written consent: (i) any material change in Executive's status, title,
authorities or responsibilities (including reporting responsibilities)
under this Employment Agreement which represents a demotion from such
status, title, position or responsibilities (including reporting
responsibilities); the assignment to him of any duties or work
responsibilities which are materially inconsistent with his status,
title, position or work responsibilities set forth in this Employment
Agreement or which are materially inconsistent with the status, title,
position or work responsibilities of a chief executive officer of a
United Kingdom/United States publicly traded corporation; or any
removal of Executive from, or failure to appoint, elect, reappoint or
reelect Executive to, any of such positions, including a failure to
reelect Executive as an Executive Director, except as a result of his
death or Disability; (ii) the relocation of the principal office of
the Company or the reassignment of Executive to a location more than
thirty (30) miles from St. Petersburg, Florida; (iii) 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; and
further provided, that if the terms of any incentive compensation plan
assign the H.R. Committee discretion to grant awards, any exercise of
such discretion by the H.R. Committee that does not result in an award
to Executive for a relevant period shall not by itself constitute
"Good Reason"; (iv) 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 him 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, or the
failure by the Company to provide him with the benefits to which he
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is entitled under this Employment Agreement; provided, however, that
Executive continues to meet substantially all eligibility requirements
thereof; (v) any other material breach by the Company of any provision
of this Employment Agreement; or (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of this Employment Agreement,
and for purposes of this Employment Agreement, no such purported
termination shall be effective; or (vii) the failure of the Company to
obtain a satisfactory agreement from any successor or assignee of the
Company to assume and agree to perform this Employment Agreement.
10.03 Cause. For purposes of this Agreement, "Cause" shall
mean and be limited to (i) Executive being convicted of a felony (or
entering a guilty or nolo contendere plea to such a crime); or (ii)
Executive being convicted of any lesser crime committed in connection
with the performance of his duties hereunder involving fraud or moral
turpitude; or (iii) the intentional and willful failure by Executive
to substantially perform his duties hereunder as directed by the Board
(other than any such failure resulting from Executive's incapacity due
to physical or mental disability) after a written demand for
substantial performance is made on Executive by the Board and such
failure continues after Executive shall have had reasonable
opportunity to correct the acts or omissions so complained of.
10.04 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Employment Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated; provided, however, no such purported termination shall be
effective without such Notice of Termination; provided further,
however, any purported termination by the Company or by Executive
shall be communicated by a Notice of Termination to the other party
hereto in accordance with Section 13 of this Employment Agreement.
Section 11. DEATH. Upon Executive's death during the Employment
Period, this Employment Agreement shall terminate immediately upon the date of
Executive's death, provided that the Company shall:
(a) pay to Executive's estate Executive's base salary accrued through
the date of death, accrued but unpaid vacation pay for the year
of death, any bonus earned but unpaid with respect to periods
prior to the date of death, and a pro rata bonus for the fiscal
year which includes the date of death, calculated by multiplying
the performance bonus payable for the fiscal year, based on the
Company's actual satisfaction of its performance goals for the
year, by a percentage equal to the ratio of the number of days
Executive worked prior to his death to the total number of work
days during the fiscal year.
(b) pay any death benefits owed in respect of Executive under the
terms of any life insurance plan, retirement or deferred
compensation plan, or other benefit plan of the Company, to
Executive's surviving spouse or such other beneficiary as
Executive has designated.
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Section 12. NON-COMPETITION AND CONFIDENTIALITY. As used in this
Section, the term "Restricted Area" shall mean, during the Employment Period,
and during the twenty-four (24) months following the termination of Executive's
employment hereunder for any reason specified in the Employment Agreement, the
entire world. During the Employment Period and for a period of twenty-four
months following the termination of Executive's employment hereunder for any
reason specified in the Employment Agreement, 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, 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 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.
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 24 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 (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.
Executive's services are unique and any breach or threatened breach by
Executive of any provision of this Section 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, 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 or 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 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 jurisdiction this Section shall at all times
remain in full force and effect.
Section 13. NOTICES. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party to the other (provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company) or to such other address as either party
may have furnished to the other in writing in accordance herewith. All notices
and communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
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Section 14. SUCCESSORS. This Employment Agreement shall be binding on
the Company and any successor to any of its businesses or to a substantial
fraction of its business assets. Without limiting the effect of the prior
sentence, the Company shall use its best efforts to require any successor or
assigns (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Employment Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. As used in this
Employment Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assignee to its business and/or a substantial fraction of
its assets as aforesaid which assumes and agrees to perform this Employment
Agreement or which is otherwise obligated under this Agreement, by operation of
law or otherwise.
Section 15. BINDING EFFECT. This Employment Agreement shall inure to
the benefit of and be enforceable by Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Employment Agreement to Executive's estate.
Section 16. MODIFICATION AND WAIVER. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Executive and
such officer of the Company as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Employment
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Section 17. HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
Section 18. WAIVER OF BREACH. The waiver of either the Company or
Executive of a breach of any provision of this Employment Agreement shall not
operate or be construed as a waiver of any subsequent breach by either the
Company or Executive.
Section 19. AMENDMENTS. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same is in
writing and signed by all of the parties hereto.
Section 20. SEVERABILITY. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability.
Section 21. ENTIRE AGREEMENT. Except for the Change of Control
Agreement and the options and special cash bonus provided for in the prior
Employment Agreement, this Employment Agreement sets forth the entire agreement
and understanding of the Company and Executive in respect of the terms and
conditions of Executive's employment after the Commencement Date, and
supersedes all prior employment agreements, covenants or representations or
warranties, whether oral or written, made by the parties, or any representative
of the Company, with respect to such terms and conditions of employment.
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Section 22. GOVERNING LAW. This Employment Agreement shall be
construed and enforced pursuant to the laws of the State of Florida.
Section 23. ARBITRATION. Any controversy or claim arising out of or
relating to this Employment Agreement or any transactions provided for herein,
or the breach thereof, other than a claim for injunctive relief 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 shall be named by 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 or such other
location as may be mutually agreed to by the Company and Executive. 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 award is subject to confirmation, modification, correction,
or vacation only as explicitly provided in Title 9 of the United States Code,
as amended. The prevailing party shall be entitled to an award of pre- and
post-award interest as well as reasonable attorneys' fees, costs and expenses
incurred in connection with the arbitration and any judicial proceedings
related thereto.
Section 24. COUNTERPARTS. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Company and Executive as of the date first above written.
"COMPANY" - DANKA BUSINESS SYSTEMS PLC
By:
-------------------------------------
DANKA HOLDING COMPANY
By:
-------------------------------------
"EXECUTIVE"
-----------------------------------
Larry Switzer
DANKA OFFICE IMAGING COMPANY
By:
-------------------------------------
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EXHIBIT 10.14
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Employment
Agreement") is made and entered into as of the ____ day of September, 1999, by
and among Danka Business Systems PLC, ("Danka Business Systems"), and Brian
Merriman, an individual ("Executive").
WITNESSETH:
WHEREAS, Executive is a party to an Employment Agreement dated as of
August 1, 1998 between Danka Office Imaging Company and the Executive as
amended by a letter agreement dated February 2, 1999 (collectively, "Prior
Employment Agreement") and Executive is also party to a Change of Control
Agreement, dated as of November 6, 1998 by and among the Company, Danka Office
Imaging Company and the Executive ("Change of Control Agreement");
WHEREAS, the Company wishes to assure itself of the services of
Executive, on the terms and conditions set forth herein; and
WHEREAS, Executive desires to be so employed by the Company on said
terms.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties agree as follows:
Section 1. EMPLOYMENT. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
Section 2. CAPACITY AND DUTIES. Executive is and shall be employed in
the capacity of President and Chief Operating Officer of the Company and shall
have such other duties, responsibilities and authorities as are assigned to him
by the Chief Executive Officer of the Company as long as such additional
duties, responsibilities and authorities are consistent with Executive's
position and level of authority as the President and Chief Operating Officer of
the Company. Executive may serve as a director of any direct or indirect
subsidiary of Danka Business Systems, without additional consideration unless
agreed otherwise by the Board of Directors of Danka Business Systems (the
"Board"), but Executive's failure or refusal to serve on the Board of one or
more subsidiaries shall not constitute a breach of this Agreement.
Section 3. TERM OF EMPLOYMENT. The term of employment of Executive by
the Company pursuant to this Employment Agreement shall be for the period (the
"Employment Period") commencing on September 1, 1999 (the "Commencement Date"),
and ending on August 31, 2002 or such earlier date that Executive's employment
is terminated in accordance with the provisions of this Employment Agreement.
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Section 4. PLACE OF EMPLOYMENT. Executive's principal place of work
shall be located in the Tampa Bay, Florida metropolitan area. The parties
acknowledge that this is consistent with the extensive national and
international business travel which may be required of Executive in connection
with his performance of his duties under this Agreement.
Section 5. BASE SALARY AND BONUS. During the Employment Period and
subject to all the terms and conditions of this Employment Agreement, the
Company shall pay Executive a base salary at an annual rate of not less than
$650,000 per annum, payable in a manner consistent with the Company's payroll
procedures for U.S. salaried employees. The Human Resources Committee of the
Board (the "H.R. Committee") shall review Executive's annual base salary on or
before the beginning of each fiscal year of the Company beginning subsequent to
March 31, 2000 in which this Agreement is in effect and may increase
Executive's annual base salary from time to time as the H.R. Committee deems to
be appropriate.
In addition to the annual base salary, Executive shall be entitled to
receive an annual bonus opportunity under a performance bonus plan developed by
the H.R. Committee. The H.R. Committee shall establish during the first quarter
of each fiscal year financial performance targets for such fiscal year, stated
in terms of net income, diluted earnings per share, operating cash flow or such
other measures as may be selected by the H.R. Committee, as well as the annual
bonuses available upon achievement of target, threshold and maximum levels of
performance. The bonus available upon achievement of the target level shall be
one hundred percent (100%) of Executive's annual base salary, and the bonus
available for meeting or exceeding maximum level of performance shall be one
hundred sixty percent (160%) of Executive's annual base salary. Subject to H.R.
Committee's certification of the Company's achievement of the relevant
financial goals for the fiscal year at not less than the threshold level,
payment of each such annual bonus shall be made to Executive in cash (net of
applicable taxes) as promptly after the end of the relevant fiscal year as the
H.R. Committee is able to certify the achievement of the applicable target
performance goals, subject to any deferral election made by Executive under the
terms of the Company's deferred compensation plan for U.S. executives.
All salary and bonus payments to Executive under this Agreement shall
be paid to Executive by Danka Office Imaging Company, through its U.S. payroll
system. If Danka Office Imaging Company should fail to make any such payment to
Executive when due, Danka Holding Company, Danka Office Imaging Company and
Danka Business Systems shall be jointly and severally liable to Executive.
Section 6. ADDITIONAL COMPENSATION AND BENEFITS. During the
Employment Period, the Company shall pay to or provide Executive such other
compensation and benefits as are established by or approved by the H.R.
Committee, including the following additional compensation and welfare and
fringe benefits:
(a) Stock Options. Executive shall be eligible to receive stock
option awards, as described in Section 7 below, on such basis and
at such times as the H.R. Committee may determine to be equitable
and consistent with Executive's position and performance.
(b) Medical Insurance. The Company shall provide Executive and his
dependents with health insurance coverage no less favorable than
that from time to time made available to other key employees of
the Company located in the United States.
(c) Vacation. Executive shall be entitled to at least four (4) weeks
of vacation during each year during the term of this Agreement,
prorated for partial years.
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(d) Business Expenses. The Company shall reimburse Executive for all
reasonable, ordinary and necessary expenses he incurs in
connection with his employment by the Company (including but not
limited to, automobile and other business travel, and customer
entertainment expenses).
(e) Car. The Company shall provide, at the Company's expense, a
Mercedes or Jaguar, or similar type automobile for Executive's
use.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 6, the Executive shall be eligible to participate in
all executive compensation and retirement plans of the Company applicable
generally to officers of the Company located in the United States, including,
without limitation, airline club expenses up to $1,000 annually and life
insurance premiums up to $15,000 annually and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other United States employees from time to time.
Section 7. STOCK OPTIONS. During the Employment Period, Executive
shall be granted additional stock options with respect to American Depository
Shares representing ordinary shares of Danka Business Systems ("ADSs") on an
equitable basis consistent with his position, provided that Executive has
continued his employment with the Company through the relevant grant date and
has not given a Notice of Termination as defined in Section 10 below.
All of the stock options of Executive shall be subject to the
following terms and conditions:
(a) The Options granted to Executive shall become fully vested on an
accelerated basis upon: (1) expiration of the Employment Period
(or, if such original Employment Period is extended or renewed by
mutual agreement of Executive and the Company, expiration of the
final renewal period); (2) Executive's death or permanent
disability; (3) an involuntary termination of Executive's
employment other than for Cause [as defined in Section 10]; (4)
Executive's voluntary termination of employment for Good Reason
[as defined in Section 10 below]; or (5) the date the Company
gives Executive a Notice to Terminate [other than for Cause as
defined in Section 10].
(b) Upon termination of Executive's employment for Cause [as defined
in Section 10], any unexercised Options held by Executive
(including both vested and unvested Options) shall be forfeited
immediately. Upon delivery of a Notice of Termination by
Executive or other voluntary termination by Executive [other than
for Good Reason as defined in Section 10.02], any vested but
unexercised options held by Executive shall continue to be
exercisable during the period of twelve (12) months following the
date of termination. If Executive's options vest on an
accelerated basis pursuant to paragraph (a), or if Executive's
employment terminates at the expiration of the Employment Period,
the options not exercised by the termination date shall continue
to be exercisable for a period of thirty-six (36) months
following such date (but not later than the expiration of the
option's original ten (10) year term). Such continued right to
exercise the options shall be subject to Executive's adherence to
the terms of such non-competition, confidentiality and similar
restrictive covenants as the H.R. Committee may require to be
included in the stock option certificates, provided that such
restrictive covenants shall be deemed to be waived upon a Change
of Control [as defined in the Change of Control Agreement].
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(c) At the Committee's discretions, the options may be granted for
the equivalent number of ordinary shares of Danka Business
Systems, instead of ADSs.
Section 8. TERMINATION BY THE COMPANY OR BY EXECUTIVE. This
Employment Agreement may be terminated by the Board of Danka Business Systems
or by Executive upon one (1) year's written notice, provided that Danka
Business Systems or Executive, as the case may be, shall give Notice of
Termination (as hereinafter defined). Compensation paid to Executive during the
one-year notice period following the giving of the Notice of Termination shall
be considered to be part of the severance pay described in Section 9 of this
Employment Agreement.
This Employment Agreement may be terminated upon six months' written
notice by Danka Business Systems by reason of the Disability (as hereinafter
defined) of Executive. This Employment Agreement may be terminated by the Board
of Danka Business Systems immediately upon giving Notice of Termination for
Cause (as hereinafter defined) and may be terminated by Executive for Good
Reason (as hereinafter defined) immediately upon giving Notice of Termination,
provided that the Company shall in either case pay to Executive the
compensation and other benefits described in Section 9 of this Employment
Agreement.
Section 9. PAYMENTS UPON TERMINATION.
(a) If Executive's employment is terminated during the term of this
Agreement, either by the Board or by Executive, or in the event of death or
disability, Executive shall be entitled to receive his base salary accrued
through the date of termination, any accrued but unpaid vacation pay for the
year of the termination, plus any bonus earned but not previously paid with
respect to fiscal years preceding the termination date. If Executive's
employment is terminated during the term of this Agreement by Executive for
Good Reason (as defined in Section 10 below), or by the Company other than for
Cause [as defined in Section 10], then Executive shall also receive the
additional termination pay and benefits set forth in Sections 9(b), 9(c), 11 or
other applicable provisions of this Employment Agreement.
(b) If Executive's employment is involuntarily terminated by the
Company for any reason other than death, disability or Cause (as defined in
Section 10), including by giving a Notice of Termination to Executive, or if
the Executive gives a Notice of Termination for Good Reason (as defined in
Section 10), the Company shall also be obligated to provide Executive with the
following severance compensation:
(i) The Company shall pay to Executive (subject to withholding of
applicable taxes) termination payments, in an amount equal to the sum
of (A) two (2) full years of Executive's annual base salary, at the
rate in effect on the date the Notice of Termination is given, and (B)
160 percent of the target annual bonus (i.e., 1.6 times the annual
target bonus of 100 percent of annual base salary) which would be
payable to Executive for the fiscal year in which the Notice of
Termination is given if the Company's financial performance targets
were deemed to be satisfied at the budgeted target level for such
fiscal year. The Company shall deliver a lump sum payment equal to
one-half (1/2) of such amount (subject to withholding of applicable
taxes) to Executive by wire transfer or cashier's check within ten
(10) business days after the termination of his employment. The
remainder shall be paid to Executive in a series of twelve (12) equal
monthly payments, beginning on the first anniversary of the date of
termination. These payments shall be offset by any amounts the Company
pays to the Executive as annual salary or bonus for his services
during the one-year notice period following the date the Notice of
Termination was given, but shall not be offset by any amounts
Executive may receive as
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compensation for services he performs for any other employer after his
employment with the Company terminates.
(ii) In addition to these termination payments, Executive shall be
entitled to receive a pro rata annual bonus from the Company for the
fiscal year which includes the date of termination, calculated by
determining the performance bonus earned for the fiscal year which
includes the date of termination, based on the extent to which the
Company actually satisfies the relevant financial performance targets
for the fiscal year by the end of such fiscal year, and multiplying
this amount 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. This pro rata bonus
shall be paid to Executive (subject to withholding at applicable
taxes) promptly after the end of the fiscal year, once the H.R.
Committee has certified the Company's achievement of the relevant
performance targets.
(iii) The Company shall continue to provide the Executive and his wife
with coverage under all medical, hospitalization, life and other
insurance benefits being provided to Executive at the date the Notice
of Termination is given, 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 earlier of (A) the expiration of the Employment
Period, or (B) the date Executive obtains comparable benefits (with no
significant pre-existing condition exclusions) as a result of
Executive's employment in a new position.
(iv) Any stock options awarded to Executive under any stock option
plan or scheme maintained by the Company shall (A) if not previously
vested, immediately become fully vested and exercisable in full, and
(B) be deemed to be amended to permit their exercise by Executive at
any time during the period of thirty-six (36) months following the
date of termination (but no later than the expiration of any such
stock option's original ten-year term), subject to the Executive's
adherence to the terms of such non-competition, confidentiality and
similar restrictive covenants as the H.R. Committee may require to be
included in the relevant stock option agreements.
(v) The Executive shall also receive any vested benefits payable to
him under the terms of any deferred compensation, retirement,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
(c) If Executive's employment is terminated by the Board for Cause,
the amount Executive shall be entitled to receive from the Company shall be
limited to his base salary accrued through the date of termination, any accrued
but unpaid vacation pay for the year of termination, any bonuses earned but not
previously paid with respect to the fiscal year of Danka Business Systems most
recently ended, and any vested benefits payable to Executive under the terms of
any deferred compensation, retirement, stock option or other incentive plans
maintained by the Company.
(d) If Executive voluntarily terminates his employment by giving
Notice of Termination before the end of the Employment Period (other than for
Good Reason as defined in Section 10.02), or retires at the end of the
Employment Period, the amount Executive shall be entitled to receive from the
Company shall be limited to his base salary accrued through the date of
termination, any accrued but unpaid vacation pay for the year, any bonus earned
but not previously paid with respect to the fiscal year of Danka Business
Systems most recently ended, and any other vested benefits payable to the
Executive under the terms of any deferred compensation, retirement, stock
option or other incentive plans of the Company.
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(e) All payments to Executive under this Section 9 shall be paid by
Danka Office Imaging Company, but in the event Danka Office Imaging Company
should fail to make any such payment when due, Danka Office Imaging Company,
Danka Holding and Danka Business Systems shall be jointly and severally liable
to Executive.
(f) Executive shall not be required to mitigate amounts or benefits
payable under this Employment Agreement by seeking other employment or
otherwise.
Section 10. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 10 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
10.01 Disability. "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 under this
Employment Agreement as an employee and as a result of which he shall
have been unable to perform his duties for the Company on a full-time
basis for six (6) consecutive months.
10.02 Good Reason. "Good Reason" shall mean the occurrence
of any of the following events without Executive's prior express
written consent: (i) any material change in Executive's status, title,
authorities or responsibilities (including reporting responsibilities)
under this Employment Agreement which represents a demotion from such
status, title, position or responsibilities (including reporting
responsibilities); the assignment to him of any duties or work
responsibilities which are materially inconsistent with his status,
title, position or work responsibilities set forth in this Employment
Agreement or which are materially inconsistent with the status, title,
position or work responsibilities of a president of a United
Kingdom/United States publicly traded corporation; or any removal of
Executive from, or failure to appoint, elect, reappoint or reelect
Executive to, any of such positions, including a failure to reelect
Executive as an Executive Director, except as a result of his death or
Disability; (ii) the relocation of the principal office of the Company
or the reassignment of Executive to a location more than thirty (30)
miles from St. Petersburg, Florida; (iii) 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; and further provided, that if the
terms of any incentive compensation plan assign the H.R. Committee
discretion to grant awards, any exercise of such discretion by the
H.R. Committee that does not result in an award to Executive for a
relevant period shall not by itself constitute "Good Reason"; (iv) 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
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participates), or any material fringe benefit or perquisite enjoyed by
him 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, or the failure by the
Company to provide him with the benefits to which he is entitled under
this Employment Agreement; provided, however, that Executive continues
to meet substantially all eligibility requirements thereof; (v) any
other material breach by the Company of any provision of this
Employment Agreement; or (vi) any purported termination of Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Employment Agreement, and for
purposes of this Employment Agreement, no such purported termination
shall be effective; or (vii) the failure of the Company to obtain a
satisfactory agreement from any successor or assignee of the Company
to assume and agree to perform this Employment Agreement.
10.03 Cause. For purposes of this Agreement, "Cause" shall
mean and be limited to (i) Executive being convicted of a felony (or
entering a guilty or nolo contendere plea to such a crime); or (ii)
Executive being convicted of any lesser crime committed in connection
with the performance of his duties hereunder involving fraud or moral
turpitude; or (iii) the intentional and willful failure by Executive
to substantially perform his duties hereunder as directed by the Board
(other than any such failure resulting from Executive's incapacity due
to physical or mental disability) after a written demand for
substantial performance is made on Executive by the Board and such
failure continues after Executive shall have had reasonable
opportunity to correct the acts or omissions so complained of.
10.04 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Employment Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated; provided, however, no such purported termination shall be
effective without such Notice of Termination; provided further,
however, any purported termination by the Company or by Executive
shall be communicated by a Notice of Termination to the other party
hereto in accordance with Section 13 of this Employment Agreement.
Section 11. DEATH. Upon Executive's death during the Employment
Period, this Employment Agreement shall terminate immediately upon the date of
Executive's death, provided that the Company shall:
(a) pay to Executive's estate Executive's base salary accrued through
the date of death, accrued but unpaid vacation pay for the year
of death, any bonus earned but unpaid with respect to periods
prior to the date of death, and a pro rata bonus for the fiscal
year which includes the date of death, calculated by multiplying
the performance bonus payable for the fiscal year, based on the
Company's actual satisfaction of its performance goals for the
year, by a percentage equal to the ratio of the number of days
Executive worked prior to his death to the total number of work
days during the fiscal year.
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(b) pay any death benefits owed in respect of Executive under the
terms of any life insurance plan, retirement or deferred
compensation plan, or other benefit plan of the Company, to
Executive's surviving spouse or such other beneficiary as
Executive has designated.
Section 12. NON-COMPETITION AND CONFIDENTIALITY. As used in this
Section, the term "Restricted Area" shall mean, during the Employment Period,
and during the twenty-four (24) months following the termination of Executive's
employment hereunder for any reason specified in the Employment Agreement, the
entire world. During the Employment Period and for a period of twenty-four
months following the termination of Executive's employment hereunder for any
reason specified in the Employment Agreement, 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, 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 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.
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 24 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 (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.
Executive's services are unique and any breach or threatened breach by
Executive of any provision of this Section 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, 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 or 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 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 jurisdiction this Section shall at all times
remain in full force and effect.
Section 13. NOTICES. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party to the other (provided that all
notices to the Company shall be directed to the attention of the
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<PAGE> 9
Board with a copy to the Secretary of the Company) or to such other address as
either party may have furnished to the other in writing in accordance herewith.
All notices and communication shall be deemed to have been received on the date
of delivery thereof, on the third business day after the mailing thereof, or on
the second day after deposit thereof with an expedited courier service, except
that notice of change of address shall be effective only upon receipt.
Section 14. SUCCESSORS. This Employment Agreement shall be binding on
the Company and any successor to any of its businesses or to a substantial
fraction of its business assets. Without limiting the effect of the prior
sentence, the Company shall use its best efforts to require any successor or
assigns (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Employment Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. As used in this
Employment Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assignee to its business and/or a substantial fraction of
its assets as aforesaid which assumes and agrees to perform this Employment
Agreement or which is otherwise obligated under this Agreement, by operation of
law or otherwise.
Section 15. BINDING EFFECT. This Employment Agreement shall inure to
the benefit of and be enforceable by Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Employment Agreement to Executive's estate.
Section 16. MODIFICATION AND WAIVER. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Executive and
such officer of the Company as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Employment
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Section 17. HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
Section 18. WAIVER OF BREACH. The waiver of either the Company or
Executive of a breach of any provision of this Employment Agreement shall not
operate or be construed as a waiver of any subsequent breach by either the
Company or Executive.
Section 19. AMENDMENTS. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same is in
writing and signed by all of the parties hereto.
Section 20. SEVERABILITY. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability.
Section 21. ENTIRE AGREEMENT. Except for the Change of Control
Agreement and the options and special cash bonus provided for in the prior
Employment Agreement, this Employment
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Agreement sets forth the entire agreement and understanding of the Company and
Executive in respect of the terms and conditions of Executive's employment
after the Commencement Date, and supersedes all prior employment agreements,
covenants or representations or warranties, whether oral or written, made by
the parties, or any representative of the Company, with respect to such terms
and conditions of employment.
Section 22. GOVERNING LAW. This Employment Agreement shall be
construed and enforced pursuant to the laws of the State of Florida.
Section 23. ARBITRATION. Any controversy or claim arising out of or
relating to this Employment Agreement or any transactions provided for herein,
or the breach thereof, other than a claim for injunctive relief 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 shall be named by 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 or such other
location as may be mutually agreed to by the Company and Executive. 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 award is subject to confirmation, modification, correction,
or vacation only as explicitly provided in Title 9 of the United States Code,
as amended. The prevailing party shall be entitled to an award of pre- and
post-award interest as well as reasonable attorneys' fees, costs and expenses
incurred in connection with the arbitration and any judicial proceedings
related thereto.
Section 24. COUNTERPARTS. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Company and Executive as of the date first above written.
"COMPANY" - DANKA BUSINESS SYSTEMS PLC
By:
-----------------------------------
DANKA HOLDING COMPANY
By:
-----------------------------------
"EXECUTIVE"
--------------------------------------
Brian Merriman
DANKA OFFICE IMAGING COMPANY
By:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.15
DISTRIBUTION AGREEMENT
By and between
NEXPRESS SOLUTIONS LLC
And
DANKA HOLDING COMPANY
Effective as of October 6, 1999
<PAGE> 2
This Distribution Agreement dated as of October 6, 1999 ("Effective
Date") by and between NexPress Solutions LLC, a New York limited liability
company with an address of 901 Elmgrove Road, Building 11, Rochester, New York
14653-6053 ("NexPress"), and Danka Holding Company, a company formed under the
laws of Delaware with an address of 11201 Danka Circle North, St. Petersburg,
Florida, 33716 ("Danka").
W I T N E S S E T H:
WHEREAS, NexPress is engaged in the distribution of manufactured and
remanufactured electrophotographic systems (digital and analog) for office
imaging and reprographics and related parts and supplies and in research and
development related thereto; and
WHEREAS, Danka is engaged in the business of selling and servicing
certain electrophotographic systems (digital and analog) for office imaging and
reprographics and desires to purchase certain of said products from NexPress;
WHEREAS, NexPress and Danka desire to set out certain terms that will
relate to the sale of such equipment, accessories, software supplies, spare
parts and services in the territory specified herein as the United States, its
territories and possessions;
WHEREAS, simultaneously with the execution of this Agreement, NexPress
and Danka Group B.V., a company incorporated under the laws of the Netherlands,
are entering into a distribution agreement relating to the territory consisting
of the world, excluding the United States, its territories and possessions
("Danka B.V. Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Specific Definitions. As used in this Agreement and in any
Exhibit referenced herein, the following terms have the meanings set forth or
referenced below:
"Accessories" means devices or components for use in or with Equipment
for image or document feeding, positioning, finishing or other image or document
handling functions.
"Agents" means Danka Imaging and Danka Distribution.
"Agreement" means this Distribution Agreement, as the same may be
amended or supplemented from time to time in accordance with the terms hereof.
<PAGE> 3
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks in New York City are authorized or obligated by law or executive
order to close.
"Carcasses" means used Equipment and Accessories.
"Confidential Information" means all information that is either
disclosed in tangible form clearly marked as confidential or, if initially
disclosed in any other form, summarized in a written document that is marked
confidential and delivered to the other party within thirty (30) calendar days
after the date of initial disclosure. Confidential Information includes models,
samples, prototypes, drawings, specifications, test reports, sketches,
blueprints, procedures, techniques, processes, research reports, production
planning and scheduling information, proposed products market data, sales and
marketing programs, sales results, service training programs, cost and pricing
data and customer base information including but not limited to, customer names,
addresses, telephone numbers, internal customer contacts, inventory information
and run rate information. Confidential Information shall not include information
that:
(a) was in the receiving party's possession before receipt
hereunder from the party requesting confidentiality without an obligation to
keep it confidential;
(b) is or becomes a matter of public knowledge other than as a
result of any action or inaction of the receiving party;
(c) is rightfully received by the receiving party from a third
party not under any duty of confidentiality with respect thereto;
(d) is independently developed by or on behalf of the
receiving party without use of Confidential Information; or
(e) is required to be disclosed to any governmental agency or
court of competent jurisdiction by written order, subpoena or decree, provided
however, that the disclosing party is given advance written notice thereof and
has a reasonable opportunity to obtain an appropriate protective order or
otherwise challenge such disclosure. The party from whom disclosure is sought
shall cooperate with the other party to the extent the latter may seek to limit
such disclosure.
"Current Product" means any manufactured, remanufactured or salvaged
Black & White and Accent Color Equipment, Software, Supply, Accessory or Spare
Part (excluding toners and other products manufactured for use in other
manufacturer's equipment) assembled for NexPress as of the Effective Date and
any New Product following the third anniversary of the Initial Announcement with
respect thereto, in each case as modified from time to time by any Enhancements
thereto.
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"Danka Affiliate" means any Person in the Territory, other than any
Person that is a direct or indirect competitor of NexPress or a NexPress
Affiliate, that is directly or indirectly controlling, controlled by or under
common control with Danka, at any time during the period for which affiliation
is being determined and that sells, services or distributes the Products, and
the Agents. For purposes of this definition, the term control shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of management policies of such Person, whether through the ownership
of voting securities, by contract or otherwise.
"Danka Distribution" means Danka Distribution GmbH, a company
incorporated under the laws of Germany.
"Danka B.V." means Danka Group B.V., a company incorporated under the
laws of the Netherlands, or such other entity as designated by Danka.
"Danka Imaging" means Danka Imaging Distribution, Inc., a Delaware
corporation, or such other U.S. entity as designated by Danka.
"Dealer" means a Person who regularly sells or distributes goods or
services at wholesale, retail or discount prices.
"Documentation" means any information, written or fixed in another
tangible form, that NexPress possesses, including logic diagrams, manuals,
lists, drawings, maintenance information, pricing and product information.
"Duty Drawback" means a refund mechanism from customs for percentage of
duties paid on imported Products which are subsequently exported or used in the
manufacture of exported Products under this Agreement.
"Enhancements" means any modification to any Equipment, Software,
Supply, Accessory or Spare Part that is developed by NexPress or a NexPress
Affiliate pursuant to Article IX.
"Endemic Failure" shall mean a condition caused by NexPress or a
NexPress Affiliate (a) resulting in ten percent (10%) or more of all units of
the same Product supplied by NexPress to Danka in a single month to fail for
substantially the same defect, or (b) resulting in five percent (5%) or more of
the total field population of the same Product supplied by NexPress to Danka
during any consecutive three (3) month period to fail for substantially the same
defect.
"Equipment" means Black and White and Accent Color electrophotographic
equipment for office imaging and office reprographics that are assembled for
NexPress.
"Initial Announcement" means, with respect to any Equipment, Software,
Supply, Accessory or Spare Part, the Business Day on which NexPress announces
publicly to third parties generally or to Danka that such product is available
for sale.
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"Installed Base" means all Equipment and Accessories manufactured or
remanufactured by or for NexPress or Eastman Kodak Company ("Kodak") and sold or
otherwise placed by Danka or NexPress or their respective Affiliates or Dealers.
"Intellectual Property" means patents, patent applications, Inventions,
invention disclosures, trade secrets, know-how, registered and unregistered
copyrights, works of authorship, computer software programs, data bases, mask
rights, trademarks, service marks, trade names, trade dress and any similar
proprietary rights and any licenses or user rights related to the foregoing.
"Invention" means any new device, computer program, article, method,
process or improvement thereon, whether or not patentable, copyrightable, and
protectable under any applicable mask works law, protectable as a trade secret
or protectable under any similar law.
"New Product" means any Black & White and Accent Color Equipment,
Software, Supply, Accessory or Spare Part (excluding toners and other products
manufactured for use in other manufacturer's equipment) having an Initial
Announcement occurring after the Effective Date.
"NexPress Affiliate" means any Person fifty per cent (50%) or more of
whose shares, securities, or ownership interest representing the right to make
the decisions for such Person is now or hereafter owned or controlled, directly
or indirectly, by NexPress, or who now or hereafter owns or controls, directly
or indirectly, fifty percent (50%) or more of NexPress' ownership interest
representing the right to make the decisions for NexPress, but such person shall
be deemed to be an Affiliate only so long as such ownership or control exists.
"NexPress's Designated Point of Delivery" means, with respect to any
Product, the location listed on Exhibit 1.1.
"OEM-Out Agreement" means any agreement to which NexPress or any
NexPress Affiliate is a party, at any time, whereunder the other party thereto
purchases for resale or for incorporation into its products any Equipment,
Supplies, Accessories or Spare Parts not bearing a brand name belonging to
NexPress, a NexPress Affiliate or Kodak.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
"Products" means Current Products and New Products.
"Purchase Order" means a written purchase order substantially in the
form mutually approved by the parties.
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"Software" means software platforms, products, and capabilities that
include object and source codes and that enable print on demand, variable data
printing, image capture, document assembly, replication and distribution for
Equipment assembled for NexPress, including software families such as Lionheart.
"Software License" means the license to use and sublicense the Software
set forth in Section 3.5 of this Agreement.
"Spare Part" means any assembly, subassembly or part for use in the
service or maintenance of Equipment or Accessories and, except as provided in
Section 4(a) of Exhibit 4, image loops, pressure rollers and fuser rollers.
"Supplies" means developer, toner, fuser oil and other sundry products
manufactured by or for NexPress or a NexPress Affiliate and intended for use in
or in connection with the operation of the Equipment.
"Territory" means the United States, its territories and possessions.
"Third-Party Remanufactured or Reconditioned Equipment and Accessories"
means any Equipment or Accessories remanufactured or reconditioned by or for
NexPress or a NexPress Affiliate using Carcasses manufactured by a Person other
than NexPress or a NexPress Affiliate.
Section 1.2 Other Terms. Other terms may be defined elsewhere in the
text of this Agreement or in an Exhibit referenced herein and, unless otherwise
indicated, shall have such meaning throughout this Agreement.
Section 1.3 Other Definitional Provisions.
(a) The words "hereof', "herein", and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "Dollars" and `$' shall mean United States
Dollars.
(d) References herein to a specific Article, Section,
Subsection or Schedule shall refer, respectively, to Sections, Subsections or
Schedules of this Agreement unless the express context otherwise requires.
(e) Wherever the word "include," "includes," or "including" is
used in this Agreement, it shall be deemed to be followed by the words "without
limitation."
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<PAGE> 7
ARTICLE II
TERM OF AGREEMENT
Section 2.1 Term of Agreement. Subject to Section 2.2, this Agreement
shall commence on the Effective Date and, unless earlier terminated pursuant to
Article X, shall be in effect for five (5) years.
Section 2.2 Renewal. No later than six (6) months prior to the
then-scheduled expiration of this Agreement, NexPress and Danka may extend this
Agreement for an additional two (2) year period upon such terms, as the parties
shall mutually agree.
ARTICLE III
DISTRIBUTION OF PRODUCTS
Section 3.1 Distribution of Products. On the terms and subject to the
conditions set forth in this Agreement, NexPress and or a NexPress Affiliate
shall sell to Danka and Danka shall buy from NexPress those Products that Danka
orders from NexPress for distribution in the Territory in accordance with the
terms of this Agreement.
Section 3.2 Discontinuing Purchase of Products. Danka shall use
commercially reasonable efforts to provide NexPress with written notice no less
than 12 months prior to such time as Danka plans or expects to terminate
entirely its purchasing or marketing of a Product.
Section 3.3 Further Availability of Supplies and Spare Parts.
(a) Unless this Agreement is terminated by NexPress pursuant
to Section 10.1(a)(ii) or Section 10.1(a)(iii), NexPress shall, for a period of
five years from the date on which NexPress makes the last shipment of the
particular model of Equipment or Accessory under this Agreement, make Supplies
and Spare Parts relating to such model of Equipment or Accessory available for
purchase by Danka on the same terms generally available to its other
distribution channels; provided, however, that if NexPress intends to cease to
be a supplier of such Supplies or Spare Parts on or after the termination of
such five-year period it will provide Danka with six months' written notice
prior to such cessation. Danka may place orders for Supplies and Spare Parts in
that six-month period provided such Supplies or Spare Parts are for shipment to
Danka by NexPress not later than the last Business Day of such six-month period.
(b) If this Agreement is terminated by NexPress pursuant to
Section 10.1(a)(ii) or Section 10.1(a)(iii), NexPress shall, until the earlier
of (i) five years from the date of termination and (ii) five years from the date
on which NexPress makes the last delivery of the particular model of Equipment
or Accessory to Danka under this Agreement, make available to Danka for purchase
on the same terms generally available to its other distribution channels,
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<PAGE> 8
Supplies and Spare Parts relating to such model of Equipment and Accessories
distributed prior to such termination.
(c) The continued sale of Supplies and Spare Parts to Danka
during the periods referenced in Sections 3.3(a) and 3.3(b) is contingent, in
each case, upon Danka's compliance with commercially reasonable standards for
quality and service.
(d) Notwithstanding any other provision in this Agreement,
NexPress shall have no obligation to make Supplies or Spare Parts available for
(a) equipment bearing the Kodak brand name originally sold by third parties to
Danka, (b) the IS70 product beginning upon depletion of the NexPress or NexPress
Affiliate's inventory of such related Supplies and Spare Parts existing as of
the Effective Date, or (c) Kodak-branded products that are not being supplied by
Kodak as of the Effective Date, beginning five (5) years from the date of last
delivery of such product by Kodak.
Section 3.4 Resale of Products by Danka.
(a) Danka and Danka Affiliates may resell in the Territory any
Current Product or New Product purchased hereunder (subject, in the case of
Software, to the terms of the Software License as set forth herein) only to
end-users of such Product and to such Dealers that are listed on Exhibit 3.4
hereto provided that Danka represents and warrants to NexPress that such Dealer
shall comply with the terms and conditions of this Agreement.
(b) NexPress warrants and represents that it has the authority
and legal right to sell the Products and related goods to Danka and the Danka
Affiliates in the Territory.
Section 3.5 Software License.
(a) NexPress hereby grants to Danka and Danka Affiliates, for
Current Products and New Products, the following: a non-transferable,
nonexclusive license to sublicense and to sublicense Dealers the right to
sublicense the Software in object code formats only to end-users. Any sublicense
to end-users is subject to the terms of this Software License. End users may be
granted the right to make a single copy of the Software for system backup or
archival purposes. To each copy of the Software (whether in whole or in part)
made by Danka or end user for the purposes stated above, Danka or end user shall
affix the same copyright or other proprietary rights notice as was originally
affixed to the Software when shipped by NexPress. All copies of the Software, in
whole or in part, including all updates and modifications to the Software in any
form are the exclusive property of NexPress or the NexPress Affiliate, as the
case may be, and no title to or ownership of the Software or any parts thereof
are hereby transferred to Danka or end user. The Software constitutes
proprietary and confidential information of NexPress or a NexPress Affiliate and
Danka agrees not to provide, disclose, or make available the Software or any
part thereof to any third party except as expressly allowed herein without the
prior written permission of NexPress. Danka shall not use, print, copy, modify,
translate, alter, sublicense or display the Software in whole or in part except
as expressly provided for in this Agreement. Danka will not attempt to "reverse
compile", decompile, or
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<PAGE> 9
otherwise derive the source code for the Software. Any such attempt is a breach
of this Agreement entitling NexPress to legal and equitable remedies, including
injunctive relief.
(b) The additional terms and conditions contained in Exhibit
3.5(b) hereto are applicable to any Software that contains software licensed by
Adobe Systems Inc. ("Adobe"), and must be incorporated into any sublicense for
such Software.
(c) NexPress reserves for itself the right to add additional
terms and conditions to this Software License should such additional terms be
necessitated by new or additional Software products or be required by Adobe.
(d) NexPress warrants that it has the full power and authority
to grant the Software Licenses described in this Agreement. NexPress warrants
that for a period of six (6) months after delivery, the media on which the
Software is delivered will be free from defects in material and workmanship
under normal use, and for a period of one hundred twenty (120) days after
shipment, the Software will perform substantially as described in the NexPress's
published specifications for the Software as of the shipment date of such
Software, including any user manuals and technical documentation.
(e) NexPress warrants that based solely on prior testing, it
has no reason to believe that the Software will not be capable of accurately
processing, providing and/or receiving date data from, into and between the
twentieth and twenty-first centuries, provided, however, that neither NexPress
nor any NexPress Affiliate makes any such warranty with regard to software,
equipment, or accessories supplied by or manufactured by third parties.
(f) As its sole responsibility for breach of the foregoing
warranty during the warranty period, NexPress will use reasonable efforts to
promptly correct such defects. If NexPress is unable within a reasonable period
of time to correct such defects, Danka may, at its option, terminate the license
and return the Products affected by such Software to NexPress and receive a full
credit for any amounts paid for the returned Products, plus costs associated
with shipping and storage, less a reasonable allowance for beneficial use or
damage.
(g) NEXPRESS AND NEXPRESS AFFILIATES EXPRESSLY EXCLUDE ALL
REMEDIES OR WARRANTIES OTHER THAN THE FOREGOING, EXPRESS OR IMPLIED, IN RELATION
TO THE MEDIA OR SOFTWARE (AND ANY SERVICES RENDERED TO SUPPORT THE SOFTWARE),
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE.
(h) EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER DANKA NOR ANY
THIRD PARTY CLAIMING RIGHTS THROUGH DANKA WILL HOLD NEXPRESS OR NEXPRESS
AFFILIATES, OR ANY THIRD PARTY FROM WHOM NEXPRESS HAS DERIVED RIGHTS IN THE
SOFTWARE, LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE
BECAUSE OF ANY DEFECT OR INEFFECTIVENESS OF THE SOFTWARE, INCLUDING WITHOUT
LIMITATION, ANY INTERRUPTION OF BUSINESS OR LOST PROFITS.
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(i) Any technical information supplied during the term of this
Agreement is made subject to any restrictions concerning the export of products
or technical data from the United States of America which may be imposed upon
NexPress or Danka from time to time by the Government of the United States of
America. Furthermore, Danka agrees that at no time, either during the term of
this Agreement or thereafter, will it knowingly export, directly or indirectly,
any United States source technical data acquired from NexPress or a NexPress
Affiliate under this Agreement or any direct products of that technical data to
any country for which the U.S. Government or any agency thereof at the time of
export requires an export license or other governmental approval, without first
obtaining that license or approval when required by applicable United States
law.
Section 3.6 Software Modifications and Customization.
In the event that Danka desires to make modifications and
customizations to Software that Danka's field service engineers or systems
engineers are not capable of implementing (absent re-engineering), Danka may
request NexPress to, and subject to the provisions of this Section 3.6, NexPress
shall cooperate with Danka in making such modifications. In the event that Danka
requests such cooperation, Danka shall be responsible for submitting a
customization request, installing customized software at its customer's site,
and paying NexPress fees for implementing, testing and delivering the requested
customization, which fees shall be as set forth in a written estimate prepared
by NexPress promptly upon its receipt of Danka's request set forth in the
preceding sentence. NexPress shall respond to customization requests by
supplying cost and time estimates to implement, test, and deliver the requested
customization and, if such estimates are accepted by Danka, NexPress shall
provide customization provided the parties negotiate a mutually acceptable
software customization agreement.
ARTICLE IV
ORDERS
Section 4.1 Current Products. For the term of this Agreement, Danka
shall, or shall cause Danka Affiliates to, use the ordering process set forth on
Exhibit 4 hereto, to order for purchase and purchase Products from NexPress
pursuant to the terms and conditions set forth in this Agreement; provided,
however, that the parties shall periodically meet to negotiate in good faith any
alternative ordering process as may be appropriate from time to time.
ARTICLE V
PRICING
Section 5.1 The purchase price and payment terms with respect to
Products that are subject to this Agreement are set forth in Exhibit 5 attached
hereto.
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ARTICLE VI
DISTRIBUTION AND DELIVERIES
Section 6.1 Non-Exclusivity.
(a) Except as provided in Section 6.1(b), Danka shall have a
non-exclusive right to distribute Products in the Territory.
(b) Danka shall have the exclusive right to purchase for
distribution in the Territory, the Kodak-branded equipment listed on Exhibit
6.1(b) hereto (the "Exclusive Equipment") and related spare parts and supplies
(the "Exclusive Spare Parts and Supplies") (collectively, "Exclusive Equipment,
Spare Parts and Supplies") subject to the conditions that, for so long as Danka
has the exclusive right hereunder (i) Danka shall use commercially reasonable
efforts to market such Exclusive Equipment, Spare Parts and Supplies; (ii) Danka
shall purchase all of its requirements for such Exclusive Equipment Spare Parts
and Supplies from NexPress; (iii) provided NexPress' quoted prices, in total
cost to Danka, are not materially higher than Danka's alternative suppliers,
NexPress shall receive right of first refusal with regard to supplying Danka
with services necessary to strip and salvage such Exclusive Spare Parts from
used Carcasses owned by Danka; (iv) Danka shall use commercially reasonable
efforts to meet the demand for Exclusive Spare Parts and Supplies by independent
service organizations ("ISO's") and shall comply with all laws applicable to
Danka in connection with its sale of Exclusive Spare Parts and Supplies to
ISO's; (v) Danka shall purchase 700 units of the EK95 Product (when combined
with the purchase of such Products under the Danka B.V. Agreement) by on or
before March 31, 2000 and in the event that Danka does not have access to
sufficient Carcasses to meet the EK95 purchase commitment the parties shall
negotiate either a reasonable extension of time for Danka to meet such purchase
commitment or the substitution of a new product; (vi) Danka shall use
commercially reasonable efforts to provide service and maintenance for the
Installed Base of Exclusive Equipment during the term of this Agreement; (vii)
Danka shall designate a Danka representative to serve as a contact person in
connection with the sale of Exclusive Spare Parts and Supplies to ISO's and
(viii) Danka shall on a quarterly basis provide written evidence, reasonably
satisfactory to NexPress, that Danka has complied with the terms of this Section
6.1(b) including, without limitation, a summary of ISO price changes, ISO order
fulfillment rates and ISO complaints if any; provided, however, nothing herein
shall prevent NexPress from (a) selling the Exclusive Equipment, or any
variation thereof, directly to end-users so long as Danka is recommended as the
preferred service provider to service such Exclusive Equipment sold by NexPress
or (b) selling such Exclusive Equipment or any variation thereof pursuant to an
OEM Agreement or a distribution agreement with Heidelberg Sales and Service
Units.
(c) Danka's obligations under Section 6.1(b) are subject to
NexPress satisfying Danka's forecasted demand for Exclusive Equipment, Spare
Parts and Supplies pursuant to the prices established according to Exhibit 5.
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(d) If Danka fails to cure any material breach of its
obligations under Section 6.1(b) within 30 days after receiving notice of such
breach from NexPress, NexPress' sole remedy (except as provided in Section
6.1(e)) shall be to terminate all exclusivity rights granted and obligations of
Danka relating thereto in Section 6.1(b) and thereafter the rights to distribute
the Exclusive Equipment, Spare Parts and Supplies shall be nonexclusive and
Danka may purchase such Products in accordance with the terms of Section 4.1.
(e) NexPress represents and warrants that (i) neither it nor a
NexPress Affiliate is under a contractual obligation with respect to the
distribution of Exclusive Spare Parts and Supplies to independent service
organizations pursuant to the Contribution and Sale Agreement dated as of March
17, 1999 by and between Eastman Kodak Company, Eastman Graphic Holding, Inc.,
Heidelberg Druckmaschinen A.G., Heidelberg Digital L.L.C., and NexPress
Solutions LLC. In reliance of the foregoing representation and warranty, and so
long as NexPress satisfies Danka's forecasted demand for Exclusive Supplies and
Spare Parts, Danka shall, consistent with the terms of Section 12.1, defend,
indemnify and hold harmless NexPress and the NexPress Affiliates for any failure
of Danka or a Danka Affiliate to comply with the provisions of Section
6.1(b)(iv).
Section 6.2 Title and Risk of Loss. Each Product ordered hereunder
shall be shipped FOB NexPress's Designated Point of Delivery. Danka shall select
the carrier and prepay, or make arrangements with the carrier for payment of,
the transportation charges to the warehouse destination designated by Danka
along with any transportation charges, insurance, handling and other costs, and
any customs, import, export and similar duties, associated with the conveyance
of Products. NexPress shall cooperate with and provide copies of existing
documentation to Danka, as reasonably requested, to assist Danka in its recovery
of available Duty Drawback related to re-export of Products under this
Agreement.
Section 6.3 Shipping Frequency and Quantity. NexPress shall not be
required to ship Products more than once a day to Danka. Danka shall be required
to accept shipment as frequently as reasonably requested by NexPress but not
more often than once a day without Danka's approval. Shipment of quantities of
Products constituting partial orders shall be accepted by Danka; provided that
Danka shall only be invoiced for the quantity actually shipped. Any order
shortfall shall be shipped as soon as commercially reasonable. The parties shall
cooperate to ensure that shipments are made in a cost-effective manner.
ARTICLE VII
WARRANTY, INSPECTION AND QUALITY ASSURANCE
Section 7.1 Inspection and Warranty. Prior to their shipment, NexPress
shall cause all Products to be sold hereunder to be inspected (and, where
applicable, tested) in accordance with NexPress's Functional Total Quality Plan
or such other procedures as are mutually agreed upon by the parties hereto in
order to assure conformance of Products to product specifications. Danka also
shall have the right to conduct its own inspection test in accordance with such
procedures no
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later than the earlier of (i) 90 days after the date of delivery of any Products
to Danka and (ii) the installation of such Product. If Danka determines that any
item does not substantially conform to product specifications it shall, within
thirty (30) days after completion of the inspection, notify NexPress and request
it to institute a consulting inspection. NexPress may designate other companies
to perform a consulting inspection. Within thirty (30) days after receipt of
notice from Danka, NexPress or a company designated by NexPress, shall perform a
consulting inspection, and if the consulting inspection reveals a non-conformity
that does not reasonably appear to have resulted from, or occurred during,
shipping of the inspected item, NexPress or a company designated by NexPress
shall be responsible for causing the non-conforming item to achieve, by means of
NexPress' choosing, substantial compliance with its product specifications at
NexPress' expense. Upon shipment, the Products shall be paid for within the time
frame provide in this Agreement even if non-conformance is found under the
circumstances set forth herein. In the case of Spare Parts and Supplies,
NexPress, at its option, shall replace those non-conforming items or give credit
to Danka for such non-conforming items, plus handling and shipping costs which
shall be applied against subsequent purchases of those items.
Section 7.2 Quality Assurance.
(a) Danka shall (i) provide NexPress with such installation
and service data and (ii) perform or permit NexPress, or a company designated by
NexPress that is not a competitor of Danka or Danka Affiliates, to perform such
quality checks, as NexPress requires to maintain the quality of Equipment,
Software, Spare Parts Supplies and Accessories that are Products. If the rate of
field reliability of any Product is lower than reasonably expected by Danka or
NexPress, NexPress, or a company designated by NexPress that is not a competitor
of Danka or Danka Affiliates, may in its discretion upon reasonable notice to
Danka, or upon the request of Danka, monitor installation and servicing of such
items at Danka's customer locations, and Danka shall facilitate such monitoring.
If NexPress reasonably determines that Danka's installation or servicing
procedures is a cause of the reliability problem, Danka shall make such
revisions to its procedures as NexPress reasonably requests.
(b) NexPress or a company designated by NexPress that is not a
competitor of Danka or Danka Affiliates shall require and perform audits of
Danka's service operations, as outlined in the Brand Certification Criteria set
forth in Exhibit 11.1 in order to ensure the maintenance of high quality
service. If NexPress determines that Danka's service operations failed to meet
such standard, Danka shall make such revisions to its service procedures as
NexPress requests.
Section 7.3 Equipment Warranty. WITH RESPECT TO EQUIPMENT, ACCESSORIES,
SOFTWARE AND SPARE PARTS, NEXPRESS WARRANTS SUCH EQUIPMENT, SOFTWARE,
ACCESSORIES AND SPARE PARTS SHALL BE FREE FROM LIENS OR OTHER DEFECTS IN TITLE.
NEXPRESS AND NEXPRESS AFFILIATES MAKE NO OTHER WARRANTIES. THE EQUIPMENT,
SOFTWARE, ACCESSORIES AND SPARE PARTS ARE SOLD "AS IS" WITHOUT ANY WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, OTHER THAN THOSE SET FORTH IN
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SECTIONS 3.5 AND 7.1 AND THE FIRST SENTENCE OF THIS SECTION 7.3. NEXPRESS AND
NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR PROPERTY DAMAGE OR PERSONAL INJURY
UNLESS DIRECTLY CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF
NEXPRESS. NEXPRESS OR NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR LOSS OF
PROFITS OR OTHER INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE
USE OF OR INABILITY TO USE THE EQUIPMENT, ACCESSORIES, SOFTWARE AND SPARE PARTS,
WHETHER ON ACCOUNT OF TORT, CONTRACT OR OTHERWISE.
Section 7.4 Supplies Warranty.
(a) WITH RESPECT TO SUPPLIES, NEXPRESS WARRANTS THAT ALL UNITS
OF SUCH SUPPLIES SHALL BE FREE FROM LIENS OR OTHER DEFECTS IN TITLE. NEXPRESS
FURTHER WARRANTS THAT SUPPLIES FURNISHED TO DANKA UNDER THIS AGREEMENT SHALL BE
FREE OF DEFECTS IN MATERIAL AND WORKMANSHIP FOR A PERIOD OF 12 MONTHS FROM THE
DATE OF SHIPMENT TO DANKA.
(b) AS NEXPRESS' SOLE OBLIGATION UNDER THIS WARRANTY, NEXPRESS
SHALL AT ITS OPTION AND AT NO COST TO DANKA, REPAIR OR REPLACE ANY DEFECTIVE
SUPPLY, OR ISSUE TO DANKA A CREDIT EQUAL TO THE PRICE, PLUS HANDLING AND
SHIPPING COSTS, OF ANY SUPPLY RETURNED TO NEXPRESS WHICH PROVES DEFECTIVE WITHIN
THE APPLICABLE WARRANTY PERIOD PROVIDED IN THIS SECTION 7.4. DANKA SHALL NOT BE
OBLIGATED TO, AND SHALL NOT, RETURN ANY SUCH ITEMS IN LOTS CONTAINING AN
AGGREGATE ORIGINAL PURCHASE PRICE OF LESS THAN FIVE HUNDRED DOLLARS ($500.00).
NEXPRESS, AT ITS OPTION, MAY WAIVE THE RIGHT TO HAVE ANY SUCH DEFECTIVE ITEMS
RETURNED, BUT SHALL STILL BE OBLIGATED TO ISSUE THE APPLICABLE CREDIT. NEXPRESS
OR NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR LOSS OF PROFITS OR OTHER
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR
INABILITY TO USE THE SUPPLIES, WHETHER ON ACCOUNT OF TORT, CONTRACT OR
OTHERWISE.
Section 7.5 Endemic Failures. As its sole responsibility on account of
an event of any Endemic Failure in Products supplied by NexPress to Danka under
this Agreement, of which Danka notifies NexPress within one hundred and twenty
(120) calendar days (not Business Days) after receipt of such Products, NexPress
agrees to negotiate in good faith with Danka the steps that NexPress will take
to remedy the problem, and take such steps as are in NexPress' discretion
commercially reasonable to cure such defects, replace such Products or to issue
Danka a credit equal to the purchase price paid by Danka for such Products, plus
shipping and handling costs
Section 7.6 Service for NexPress Products. Danka will be responsible
for providing adequate service at its own risk and expense for Equipment,
Accessories and Software purchased pursuant to this Agreement, provided however
that NexPress shall provide technical information and support and training to
Danka in accordance with the terms of this Agreement.
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ARTICLE VIII
TECHNICAL INFORMATION: HAZARDS AND PRECAUTIONARY PROCEDURES
Section 8.1 Technical Information.
(a) Any technical information or assistance provided by
NexPress or any company designated by NexPress to Danka shall not be deemed a
warranty or a specification. Danka shall familiarize itself with all hazards and
precautionary procedures with respect to the handling, transportation or use of
the Products, and the containers in which the Products are shipped, and shall
manage the Products and containers accordingly. If NexPress provides to Danka
any product safety information concerning any Product, Danka shall forward such
information to its employees, all others who handle the Products for Danka and
Danka's customers.
(b) NexPress shall provide to Danka at no charge one set of
English language technical operations and service materials, including any
service software and licenses associated with the use thereof, and related
technical information necessary to service and operate all Products purchased
under this Agreement. Danka may (i) reprint the materials in whole without
change, (ii) reproduce and publish all or portions of the materials for
incorporation in its own operation training and maintenance manuals for
Equipment, and (iii) translate the materials into any other language. If Danka
reprints the materials in whole, the material shall retain the signature,
corporate symbol, and copyright notice and warranty disclaimer of NexPress or
any NexPress Affiliate, as the case may be. If Danka incorporates the materials
into Danka's own materials, revises, or translates the materials, the material
shall bear Danka's own signature, logo, copyright notice and warranty
disclaimer. If Danka makes any revisions to materials of NexPress or a NexPress
Affiliate other than edits for clarity or creates its own materials, Danka shall
obtain NexPress's written approval of such materials prior to publication and
distribution. NexPress or the NexPress Affiliate, as the case may be, shall
retain all rights to the materials that Danka translates, revises or
incorporates into Danka's own materials, and Danka shall not attempt to transfer
any rights therein to third parties. Danka shall own the copyright in the
revised or translated material; provided, that (x) Danka grants NexPress or a
NexPress Affiliate a perpetual, royalty-free license to use and distribute any
revised material in creating materials for other Products and (y) upon the
termination or expiration of this Agreement, provided that NexPress is not in
default, Danka shall assign the copyright in any revised or translated materials
to NexPress or the NexPress Affiliate, as the case may be. Danka shall not
reproduce, without NexPress's permission, any other materials made available by
NexPress or the NexPress Affiliate, as the case may be.
(c) Danka acknowledges that the aforementioned technical
operations and service materials contain technical information and know-how,
which NexPress considers to be valuable, proprietary and Confidential
Information. Danka shall use efforts comparable to those it uses in relation to
its own valuable, proprietary and Confidential Information, but no less than a
reasonable degree of care, to restrict use and distribution of such materials to
Danka's personnel for use solely in operating and servicing Products purchased
under this Agreement.
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(d) Upon Danka's request, NexPress shall use commercially
reasonable efforts to make available to Danka technical training programs
conducted in Rochester, New York for each Current Product or New Product sold
hereunder. NexPress operator and service materials shall be used during the
training. Danka shall be billed at the daily rate in effect at the time of the
request.
Section 8.2 Technical Aid. During the term of this Agreement NexPress
shall make available at Danka's request on an "as available" basis, consultation
and/or service engineering support at Danka's customer sites or Danka's service
headquarters, with respect to Current Products and New Products. For each
request, Danka shall pay NexPress's reasonable travel expenses and Danka shall
be billed at the daily rate in effect at the time of the request. NexPress shall
credit back to Danka the cost of on-site support if it subsequently is
determined that on-site support was required because a particular product did
not comply with the applicable inspection test procedures for such product. A
manufacturing engineer contact shall be available by NexPress and NexPress shall
provide a reasonable amount of such assistance, free of charge, to address
Danka's Equipment, Accessory and Software service questions that are not related
to the immediate resolution of an inoperative equipment condition. Prior to
providing assistance for which NexPress will charge a fee, NexPress shall
provide Danka reasonable notice of NexPress's intent to do so and the amount of
such fee.
ARTICLE IX
ENHANCEMENTS
Section 9.1 Mandatory Enhancements. NexPress may, from time to time in
its sole discretion, implement field service modifications to Products that
improve safety or are required for regulatory compliance of Products. Following
NexPress's written request, Danka shall install the required modifications at
its expense, using its best efforts to do so in a timely manner. NexPress shall
make available to Danka, at NexPress's expense, any necessary kits, Spare Parts
and technical Documentation required for the installation of required field
service modifications.
ARTICLE X
TERMINATION
Section 10.1 Termination.
(a) This Agreement may be terminated at any time:
(i) by mutual agreement of Danka and NexPress;
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(ii) by either Danka or NexPress, after a material
breach of this Agreement and the Confidentiality
Agreement referenced herein by the other party (the
"Defaulting Party"), upon written notice to the
Defaulting Party (hereinafter, the "Default Notice")
specifying the default, unless the Defaulting Party
cures the default within 60 days after receipt of the
Default Notice, or such longer period as may be
reasonably necessary to cure such default; it being
understood that, for purposes of this Agreement, (A)
NexPress shall have the sole discretion to declare
Danka or a Dealer to be in breach of its obligations
to comply with the requirements of the Brand Name
Certification Criteria referred to in Section 11.1 of
this Agreement; provided, however, that upon such
breach by Danka, and provided that such breach
continues after NexPress has provided written notice
and a five (5) day cure period, as NexPress' sole and
exclusive remedy NexPress shall give Danka at its
sole expense the option of substituting a new brand
name provided such name is acceptable to NexPress and
the NexPress Affiliates (which acceptance will not be
unreasonably withheld) and Products bearing such new
brand name shall be in all respects subject to the
terms and conditions of this Agreement and, further
provided, if no substitute brand name is accepted by
NexPress within thirty (30) days of the expiration of
the cure period NexPress shall have the option to
terminate this Agreement; and (B) any breach by Danka
or a Dealer of the provisions of Section 11.3(b)
shall constitute a material breach if not cured
within five (5) days of receipt of written notice
thereof;
(iii) by NexPress, upon 60 days' prior written notice
to Danka, in the event that any undisputed invoice,
or any undisputed portion thereof, is not paid on the
due date unless the invoice or the undisputed portion
thereof is paid within such 60-day period;
(iv) by Danka, upon 60 days' prior written notice to
NexPress, in the event that NexPress fails to pay any
undisputed amount when due unless NexPress pays such
amount within such 60-day period.
(v) upon Danka's material breach of the Danka B.V.
Agreement if such breach is not cured after any
applicable cure period.
(b) NexPress reserves the right to terminate with written
notice to Danka, the right of Danka to sell products to any Dealer if such
Dealer is in material breach of this Agreement and the breach continues uncured
after NexPress has provided Danka with written notice and a five day cure
period, and upon such termination all rights of such Dealer under this Agreement
shall terminate.
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(c) In lieu of terminating this Agreement, a party possessing
the right to terminate under Section 10.1 (a)(ii), (iii) or (iv) may elect to
suspend performance of its obligations until, in the case of clause (ii), such
time as the material breach is cured and, in the case of clauses (iii) and (iv),
such time as the undisputed amount is paid.
Section 10.2 Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 10.1(a), this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to the other party hereto or their respective Affiliates, directors,
officers or employees; provided, however, that neither the expiration of this
Agreement under Section 2.1 nor the termination of this Agreement pursuant to
this Article X shall (i) affect the liability of a party for breach of this
Agreement, (ii) discharge any of either party's obligations to pay any amount
owing and payable on the date of termination or (iii) affect the obligations
which by their terms survive termination, including without limitation, this
Section 10.2 or Sections 3.3, 7.1, 7.3, 7.4, 7.5, 8.1(a), (b) and (c), 11.2,
11.3, 11.4, 12.1, 12.2, and 13.1 hereof (and any related definitional provisions
set forth in Article 1), which shall survive and (b) Danka shall cease to have
the right to purchase Equipment bearing a brand name and corporate symbol
designated by NexPress, or such other trademarks as NexPress or NexPress's
Affiliates then use, or to any associated rights with respect to such brand
name, corporate symbol or trademark, provided however that nothing contained
herein shall affect NexPress' obligations under Section 3.3.
ARTICLE XI
TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Section 11.1 Brand Name. For the first five years following the
Effective Date, or for such longer period as Danka and NexPress mutually agree,
NexPress shall supply all Products with a brand name and corporate symbol
designated by NexPress or NexPress Affiliates and such other trademarks as
NexPress or NexPress Affiliates adopts for use on New Products, provided
however, that if NexPress changes the brand name and corporate symbol after the
Effective Date, NexPress shall bear the costs relating to changes in design,
manufacturing and marketing information made necessary as a result of the new
brand name. NexPress's obligation to supply Products with a brand name and
corporate symbol designated by NexPress and such other trademarks as NexPress
and NexPress's Affiliates currently use, is (a) contingent on Danka's and
Dealer's compliance with this Agreement and (b) is at all times subject to
Danka's and Dealer's strict compliance with the brand name certification
requirements as set forth on Exhibit 11.1, which may be amended from time to
time by NexPress or any NexPress Affiliate in its sole discretion.
Section 11.2 Product Identification. Subject to Section 11.1, each unit
of Equipment and Accessory shipped to Danka shall bear an appropriate tag or
plate, permanently affixed to it, showing its model number, date of manufacture
and serial number. Danka shall not, and shall cause the Danka Affiliates to not,
remove or alter tags or plates that display serial number or agency approval
information for any reason unless required to do so by law. Danka shall inform
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NexPress of any removal or alteration of the tags or plates required by law and
shall give NexPress the opportunity to approve the form and content of the
change, which approval shall not be unreasonably withheld or delayed. Any
removal or alteration, unless required by law and with the knowledge of
NexPress, shall, at NexPress's option, void any applicable warranty as set forth
in this Agreement, unless replaced within fifteen (15) days of Danka's receipt
of written notice from NexPress.
Section 11.3 Danka's Use of Trademarks, and Proprietary Markings.
(a) During the term of this Agreement, Danka may use, without
undue prominence, the product name trademarks of Products in advertising that
promotes Products and the servicing thereof and other product-related marketing
materials, provided that Danka and each Danka Affiliate agrees to comply with,
and to use its best efforts to cause their respective customers to comply with,
such reasonable advertising guidelines that NexPress may issue from time to time
and correct, at Danka's own expense, such material that NexPress reasonably
determines to be objectionable or misleading.
(b) Except as provided expressly herein, Danka acknowledges
that Danka has no right, interest, ownership or privilege of use of, any trade
dress, trade name, trademark or logo of NexPress or a NexPress Affiliate, as the
case may be. Danka agrees that all of the foregoing is the sole property of
NexPress or a NexPress Affiliate as the case may be. Danka further agrees not to
contest, both during the term of this Agreement and after termination, any
NexPress or NexPress Affiliate trade dress, trade name, trademark or service
mark related in any way to Products distributed pursuant to this Agreement or
the servicing of such Products, and Danka agrees, both during the terms of this
Agreement and after termination, not to use or attempt to register any trade
dress, trade name, trademark or service mark confusingly similar to any NexPress
or NexPress Affiliate trade dress, trade name, trademark or service mark. Danka
may not represent that it provides "NexPress Service" or service of a NexPress
Affiliate, but may represent that it is authorized to service copiers branded by
NexPress or NexPress Affiliates. Danka acknowledges that any material breach of
the preceding sentence would constitute a material breach if not cured within
five days of receipt of written notice thereof, for which NexPress could
terminate this Agreement pursuant to Section 10.1(a)(ii).
(c) Without limiting Danka's obligations and covenants under
Section 11.2, Danka shall not remove, alter, conceal or destroy any nameplates,
logos or dataplates on Products, enclosures or cabinets or proprietary markings
or legends placed upon or within such Products, supporting Documentation or
other materials that are the subject of this Agreement.
Section 11.4 Software. NexPress shall not be obligated hereunder to
provide Danka with access to the source code for any Software. If Danka develops
a modification, addition or customization of any Software for one of its
customers, Danka shall be prohibited from representing to its customers that
such modification, addition or customization constitutes a Software Product of
NexPress or a NexPress Affiliate and shall instead prominently display on such
Software or the Equipment to which it relates the phrase "Independently Modified
by Danka for Danka." NexPress shall not be obligated to assure that subsequent
versions of its
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Software products are compatible with any modification, addition, or
customization that has been developed by Danka.
Section 11.5 Ownership of Intellectual Property. Notwithstanding any
other provision of this Agreement or the termination hereof, NexPress or a
NexPress Affiliate, as the case may be, shall own all its respective rights and
interests in and to all Intellectual Property (including, all patented and
unpatented technology and Inventions) developed by NexPress or a NexPress
Affiliate, as the case may be, during the terms of this Agreement. Except as
explicitly provided in Sections 3.5, 3.6, 11.1, 11.3 and 11.4, this Agreement
does not transfer, assign, lease, license or otherwise provide Danka with any
rights or interests in any Intellectual Property used, developed or owned by
NexPress or a NexPress Affiliate.
ARTICLE XII
INDEMNITY
Section 12.1 Danka's Indemnity. Danka hereby agrees that it shall
indemnify, defend and hold harmless NexPress and NexPress Affiliates, and, if
applicable, their respective directors, officers, attorneys, agents and
employees and their heirs, successors and assigns (collectively, the "NexPress
Indemnified Parties") from, against and in respect of, any damages, claims,
losses, charges, actions, suits, proceedings, costs, and expenses of any kind
whatsoever including reasonable attorneys' fees, (collectively, the "Losses")
imposed on, sustained, incurred or suffered by or asserted against any of the
NexPress Indemnified Parties, directly or indirectly, relating to or arising
from (i) Danka's storage, transportation, use, modification, sale or other means
of disposition or disposal of any Product, (ii) Danka's performance claims
regarding Products in promotional or advertising materials, (iii) any alleged
infringement arising out of or resulting from compliance with Danka's requests,
instructions or specifications, or from any modification of a Product or brand
name or tradename not authorized by NexPress, (iv) Danka's breach of this
Agreement, or (v) any representation or warranty or statement with respect to
Equipment, Accessories, Supplies or Spare Parts, made by Danka or a Danka
Affiliate prior to or after the Effective Date, other than to pass through to
end-users those representations and warranties expressly made by NexPress
herein; and not caused by NexPress' negligent acts or omissions or willful
misconduct (which shall not be deemed to exist if such action or inaction is
taken at, and in accordance with, Danka's direction or by Danka's employees).
(a) Danka's indemnification is limited to the payment of
damages awarded against any NexPress Indemnified Party and the payment of
reasonable attorneys' fees and expenses for the period prior to the time Danka
assumed exclusive control of the defense. In no event shall Danka reimburse any
NexPress Indemnified Party for attorneys' fees and expenses incurred by a
NexPress Indemnified Party after Danka assumed the defense of a claim.
Notwithstanding the foregoing, NexPress shall have the right to consult in the
defense of a claim and to employ counsel, at NexPress's expense, separate from
the counsel employed by Danka to the extent such claim involves potential
conflicts of interest between or different defenses for Danka and NexPress and
NexPress reasonably determines that separate representation would be
appropriate.
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(b) The obligation shall arise only if NexPress gives Danka
prompt notice of the claim and grants Danka, in writing, exclusive control over
its defense and settlement; provided, however, that a failure by NexPress to
give prompt notice of a claim under this Section 12.1 shall affect the rights of
NexPress hereunder only to the extent that such failure has a prejudicial effect
on the defenses or other rights available to Danka with respect to such claim.
(c) Subsections 12.1(a) through (c) state Danka's exclusive
obligation with respect to claims by NexPress Indemnified Parties.
Section 12.2 NexPress Indemnification.
(a) Indemnification. NexPress shall indemnify, defend and hold
harmless Danka, and Danka Affiliates, and, if applicable, their respective
directors, officers, attorneys, agents, employees, and their heirs, successors
and assigns (collectively, the "Danka Indemnified Parties") from and against any
and all losses, damages, claims, charges, actions, suits, proceedings, costs,
and expenses of any kind whatsoever, including reasonable attorneys' fees
(collectively the "Losses"), imposed on, sustained, incurred or suffered by or
asserted against any of the Danka Indemnified Parties directly or indirectly,
relating to or arising from, (i) NexPress' negligence resulting in personal
injury or property damage, (ii) any representation or warranty in Sections
6.1(e) or 13.19, and (iii) any claim that a Product as delivered by NexPress
infringes, misappropriates or otherwise violates any third party's patent,
copyright, trade secret, software or other Intellectual Property right; and
which are not caused by Danka's negligent acts or omissions or willful
misconduct (which shall not be deemed to exist if such action or inaction is
taken at, and in accordance with, NexPress' direction or by NexPress'
employees).
(b) The obligation shall arise only if Danka gives NexPress
prompt notice of the claim and grants NexPress, in writing, exclusive control
over its defense and settlement; provided, however, that a failure by Danka to
give prompt notice of a claim under this Section 12.2 shall affect the rights of
Danka hereunder only to the extent that such failure has a prejudicial effect on
the defenses or other rights available to NexPress with respect to such claim.
(c) The obligation shall cover only the Product as delivered
by NexPress to Danka, and not any correction, modification or addition made by
anyone other than NexPress, without NexPress's written authorization.
(d) The obligation shall not cover (i) any claim based on the
use of any Products other than that for which the Product is normally intended,
(ii) the furnishing of any information, service, or technical support provided
by Danka, or (iii) any claim that any Product infringes any third party's rights
as used in combination with any product(s) not supplied by NexPress, if that
claim could have been avoided but for the use of the Product in combination with
other products except to the extent such combined use is authorized or approved
in writing by NexPress.
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(e) If any infringement claim is asserted, or if NexPress
believes one likely, NexPress shall have the right at its expense, to (i)
procure a license from the Person claiming or likely to claim infringement, (ii)
modify the Product as appropriate to avoid the claim of infringement, as long as
modification for this purpose does not materially impair the operation thereof
or (iii) cease further sale of the Product subject to, or likely to be subject
to, the claim and accept return of the Products sold and refund to Danka the
purchase price paid for the returned Product(s) using a five (5) year
straight-line depreciation reflecting any quantity or other discounts granted to
Danka, plus reasonable costs of handling and shipping.
NexPress's indemnification is limited to the payment of damages awarded
against any Danka Indemnified Party and the payment of reasonable attorneys'
fees and expenses for the period prior to the time NexPress assumed exclusive
control of the defense. In no event shall NexPress reimburse any Danka
Indemnified Party for attorneys' fees and expenses incurred by a Danka
Indemnified Party after NexPress assumed the defense of a claim. Notwithstanding
the foregoing, Danka shall have the right to consult in the defense of a claim
and to employ counsel, at Danka's expense, separate from the counsel employed by
NexPress to the extent such claim involves potential conflicts of interest
between or different defenses for Danka and NexPress and Danka reasonably
determines that separate representation would be appropriate.
(f) Subsections 12.2(a) through (f) state NexPress' exclusive
obligation with respect to claims by Danka Indemnified Parties.
ARTICLE XIII
GENERAL PROVISIONS
Section 13.1 Notices.
(a) All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three Business
Days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
Business Day later, if sent by overnight delivery via a national courier
service, in each case (i) through (iv), addressed to the intended recipient at
the address set forth below. Any party may change the address to which notices
or other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
To Danka: Danka Holding Company
Attention: Chief Operating Officer
11201 Danka Circle North
St. Petersburg, Florida 33716
and
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<PAGE> 23
Danka Group B.V.
Attention: Chief Operating Officer
Middelandsc Zee 15
Post Bus 256, 3446
CG Woerden
The Netherlands
With a copy to: Danka Office Imaging Company
Attention: General Counsel
11201 Danka Circle North
St. Petersburg, Florida 33716
To NexPress: NexPress Solutions, LLC
901 Elmgrove Road, Building 11
Rochester, New York 14653-6053
Telephone: (716)726-3253
Telecopy: (716)726-2181
Attn: Chairman of the Board
With a copy to: NexPress Solutions, LLC
901 Elmgrove Road, Building 11
Rochester, New York 14653-6053
Attn: Chief Operating Officer,
Black and White B.U.
Section 13.2 Amendment; Waiver. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Danka and NexPress, or in the case of a
waiver, by the party against whom the waiver is to be effective.
Section 13.3 Exclusive Remedies. As herein set forth, the remedies of
the parties for breach of any obligation arising under this Agreement shall be
the sole and exclusive remedies therefore. NOTWITHSTANDING ANYTHING CONTAINED IN
THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR SUCH OTHER PARTY'S INDIRECT OR CONSEQUENTIAL DAMAGES OR LOST
PROFITS, EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
Section 13.4 Assignment.
(a) NexPress may not assign any of its rights or delegate any
of its obligations hereunder; provided, that NexPress may so assign any of its
rights and delegate any of its obligations hereunder to a NexPress Affiliate
provided that NexPress guarantees the due and punctual performance and
observance of each and every obligation so delegated.
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<PAGE> 24
(b) Danka may not assign any of Danka's rights or delegate any
of its obligations hereunder; provided, that with the consent of NexPress, which
consent shall not be unreasonably withheld or delayed, Danka may so assign, and
may license, any of its rights and delegate any of its obligations hereunder to
a Danka Affiliate, and such assignment or license and delegation need not be to
one Danka Affiliate but rather, with respect to each country in the Territory,
may be to a Danka Affiliate organized in, or otherwise qualified to do business
in, such country; provided, that (i) each such Danka Affiliate appoints Danka
Distribution to act as its exclusive Agent with respect to any dealings with
NexPress' or NexPress Affiliate's European factories and Danka Imaging to act as
its exclusive Agent with respect to any dealings with NexPress' or NexPress
Affiliate's North American factories, (ii) Danka Distribution and Danka Imaging
shall have accepted such appointment and agreed, in all cases, to coordinate and
aggregate all matters relating to Danka Affiliates, including Purchase Orders,
notices and payments, (iii) no Danka Affiliate shall have any right or power to
act on its own rather than through the Agents and (iv) Danka unconditionally
guarantees the due and punctual performance and observance of each and every
such obligation.
Section 13.5 Entire Agreement. This Agreement, (including all Exhibits
hereto) contains the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters.
Section 13.6 Fulfillment of Obligations. Any obligation of any party to
any other party under this Agreement, which obligation is performed, satisfied
or fulfilled by an Affiliate of such party, shall be deemed to have been
performed, satisfied or fulfilled by such party.
Section 13.7 Parties in Interest; No Additional Third-Party
Beneficiaries. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, the NexPress Indemnified Parties, the Danka Indemnified
Parties and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any other Person
(except as provided in Sections 3.5, 7.3, 7.4, 8.1(b), 11.3(b), 11.4, 11.5,
12.1, and 12.2 hereof), any rights or remedies under or by reason of this
Agreement.
Section 13.8 Market Data and Access to Records of Danka.
(a) From time to time from the Effective Date, NexPress shall
at its expense conduct a marketing survey to assist each party in its effort to
increase the probability of success of Products in the marketplace and the
successful development of enhancements and follow-on offering to the Products
(the "Market Surveys"). The Market Surveys shall solicit information including
the Products' success in the marketplace, customer satisfaction, prospective
customer feedback, and such other information as NexPress shall request.
NexPress shall provide Danka with copies of the Market Surveys in a timely
manner. Notwithstanding anything contained in this Agreement to the contrary,
Danka shall at no time be required to release its customer base identification
information to NexPress or a NexPress Affiliate.
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<PAGE> 25
(b) NexPress agrees to advertise and promote Products in the
Territory and will furnish Danka from time to time with promotional and
advertising materials. NexPress shall provide reasonable sales and marketing
support to Danka, as mutually agreed upon from time to time.
Section 13.9 Press Release and Public Announcement. Except as may be
required by law or as otherwise permitted or expressly contemplated herein, no
party hereto or its respective affiliates, employees, agents and representatives
shall disclose to any third party (other than such party's legal counsel and
financial advisers) the terms and conditions of this Agreement or the subject
matter hereof without the prior written consent of the other party hereto. No
press release or other public announcement related to this Agreement or the
transaction contemplated hereby shall be issued by any party hereto without the
prior written approval of the other party (which approval shall not be
unreasonably withheld or delayed), except that either party may make such public
disclosure that it believes in good faith to be required by the requirements of
a securities exchange.
Section 13.10 GOVERNING LAW; SUBMISSION JURISDICTION: SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH PARTY HERETO AGREES THAT
IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY
THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE
SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY (THE "CHOSEN COURTS")
AND SOLELY IN CONNECTION WITH CLAIMS ARISING UNDER THIS AGREEMENT OR THE
TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT (1) IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS (II) WAIVES ANY
OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS,
AND (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM
OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO.
Section 13.11 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
Section 13.12 Headings. The heading references herein are for
convenience purposes only, do not constitute a part of this Agreement and shall
not be deemed to limit or affect any of the provisions hereof.
Section 13.13 Confidentiality. Confidential Information provided or
exchanged pursuant to this Agreement shall be provided or exchanged under a
standard confidentiality agreement in substantially the form set forth in
Exhibit 13.13.
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<PAGE> 26
Section 13.14 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
Section 13.15 Relationship of Parties. Each party in performing its
obligations and duties hereunder shall be conclusively deemed to be an
independent contractor and not under the control and supervision of the other
party hereto. No agency, employment, franchise, partnership or joint venture and
no trust or other fiduciary relationship is created or implied by the terms of
this Agreement, and neither of the parties is, or shall hold itself out as,
agent, legal representative, partner, subsidiary, joint venture or employee of
the other party. Neither party shall have the right or power to, or shall, bind
or obligate the other party in any way or manner, or represent that such party
has the right to do so. Neither party has the authority to make any commitment
on behalf of the other party. The sole relationship between Danka and NexPress
is a commercial, arms' length business relationship.
Section 13.16 Force Majeure.
(a) Neither party shall be held responsible for failure or
delay to comply with nonmonetary obligations under this Agreement, if such
failure is due to act of God or public enemy, war, government acts or
regulations, fire, flood, embargo, quarantine, epidemic, labor strike, inability
to acquire raw materials, inevitable accident, unusually severe weather or other
cause similar to the foregoing, beyond the control of the other party (each such
event, a "Force Majeure"). In the event of failure of or delay in delivery or
acceptance due to a Force Majeure, the quantity provided for in the Purchase
Order so affected may be reduced accordingly by written notice by either party
to the other.
(b) If the performance of any nonmonetary obligations under
this Agreement by either party is prevented, restricted or interfered with by
reason of a Force Majeure event, the party whose performance is so affected,
upon giving prompt notice to the other party, shall be excused from such
performance to the extent of such Force Majeure event; provided, however, that
the party so affected shall take all reasonable steps to avoid or remove such
causes of nonperformance and shall continue performance hereunder with dispatch
whenever such causes are removed.
Section 13.17 Conflict. To the extent that this Agreement is in
conflict with any Exhibit, this Agreement shall take precedence.
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<PAGE> 27
Section 13.18 Compliance with Law. Each of the parties to this
Agreement and their respective Affiliates shall fully comply with all foreign,
federal, state or local laws, rules and regulations applicable to its business
and its distribution and sale of products in the jurisdiction where Products are
sold.
Section 13.19 Prior Sales. Any sales of Products by NexPress to Danka
prior to the Effective Date shall be deemed subject to the terms and conditions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers effective as of the
Effective Date.
NEXPRESS SOLUTIONS LLC
By Heidelberg Digital L.L.C., Member
By:
- -------------------------------- --------------------------------------
Witness Name: Wolfgang Pfizenmaier
Title: President
DANKA HOLDING COMPANY
By:
- -------------------------------- -------------------------------------
Witness Name:
Title:
\
26
<PAGE> 1
EXHIBIT 10.16
DISTRIBUTION AGREEMENT
By and between
NEXPRESS SOLUTIONS LLC
And
DANKA GROUP B.V.
Effective as of October 6, 1999
<PAGE> 2
This Distribution Agreement dated as of October 6, 1999 ("Effective
Date") by and between NexPress Solutions LLC, a New York limited liability
company with an address of 901 Elmgrove Road, Building 11, Rochester, New York
14653-6053 ("NexPress"), and Danka Group B.V., a company formed under the laws
of the Netherlands with an address of Middellandsc Zee 15, Post Bus 256, 3446,
CG Woerden, The Netherlands ("Danka").
W I T N E S S E T H:
WHEREAS, NexPress is engaged in the distribution of manufactured and
remanufactured electrophotographic systems (digital and analog) for office
imaging and reprographics and related parts and supplies and in research and
development related thereto; and
WHEREAS, Danka is engaged in the business of selling and servicing
certain electrophotographic systems (digital and analog) for office imaging and
reprographics and desires to purchase certain of said products from NexPress;
WHEREAS, NexPress and Danka desire to set out certain terms that will
relate to the sale of such equipment, accessories, software supplies, spare
parts and services in the territory specified herein;
WHEREAS, simultaneously with the execution of this Agreement, NexPress
and Danka Holding Company ("Danka Holding"), a company incorporated under the
laws of Delaware, are entering into a distribution agreement relating to the
territory consisting of the United States, its territories and possessions
("Danka Holding Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Specific Definitions. As used in this Agreement and in any
Exhibit referenced herein, the following terms have the meanings set forth or
referenced below:
"Accessories" means devices or components for use in or with Equipment
for image or document feeding, positioning, finishing or other image or document
handling functions.
"Agents" means Danka Imaging and Danka Distribution.
"Agreement" means this Distribution Agreement, as the same may be
amended or supplemented from time to time in accordance with the terms hereof.
<PAGE> 3
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks in New York City are authorized or obligated by law or executive
order to close.
"Carcasses" means used Equipment and Accessories.
"Confidential Information" means all information that is either
disclosed in tangible form clearly marked as confidential or, if initially
disclosed in any other form, summarized in a written document that is marked
confidential and delivered to the other party within thirty (30) calendar days
after the date of initial disclosure. Confidential Information includes models,
samples, prototypes, drawings, specifications, test reports, sketches,
blueprints, procedures, techniques, processes, research reports, production
planning and scheduling information, proposed products market data, sales and
marketing programs, sales results, service training programs, cost and pricing
data and customer base information including but not limited to, customer names,
addresses, telephone numbers, internal customer contacts, inventory information
and run rate information. Confidential Information shall not include information
that:
(a) was in the receiving party's possession before receipt
hereunder from the party requesting confidentiality without an obligation to
keep it confidential;
(b) is or becomes a matter of public knowledge other than as a
result of any action or inaction of the receiving party;
(c) is rightfully received by the receiving party from a third
party not under any duty of confidentiality with respect thereto;
(d) is independently developed by or on behalf of the
receiving party without use of Confidential Information; or
(e) is required to be disclosed to any governmental agency or
court of competent jurisdiction by written order, subpoena or decree, provided
however, that the disclosing party is given advance written notice thereof and
has a reasonable opportunity to obtain an appropriate protective order or
otherwise challenge such disclosure. The party from whom disclosure is sought
shall cooperate with the other party to the extent the latter may seek to limit
such disclosure.
"Current Product" means any manufactured, remanufactured or salvaged
Black & White and Accent Color Equipment, Software, Supply, Accessory or Spare
Part (excluding toners and other products manufactured for use in other
manufacturer's equipment) assembled for NexPress as of the Effective Date and
any New Product following the third anniversary of the Initial Announcement with
respect thereto, in each case as modified from time to time by any Enhancements
thereto.
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<PAGE> 4
"Danka Affiliate" means any Person in the Territory, other than any
Person that is a direct or indirect competitor of NexPress or a NexPress
Affiliate, that is directly or indirectly controlling, controlled by or under
common control with Danka, at any time during the period for which affiliation
is being determined and that sells, services or distributes the Products, and
the Agents. For purposes of this definition, the term control shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of management policies of such Person, whether through the ownership
of voting securities, by contract or otherwise.
"Danka Distribution" means Danka Distribution GmbH, a company
incorporated under the laws of Germany or such other European entity designated
by Danka.
"Danka Imaging" means Danka Imaging Distribution, Inc., a Delaware
corporation, or such other U.S. entity as designated by Danka Holding.
"Dealer" means a Person who regularly sells or distributes goods or
services at wholesale, retail or discount prices.
"Documentation" means any information, written or fixed in another
tangible form, that NexPress possesses, including logic diagrams, manuals,
lists, drawings, maintenance information, pricing and product information.
"Duty Drawback" means a refund mechanism from customs for percentage of
duties paid on imported Products which are subsequently exported or used in the
manufacture of exported Products under this Agreement.
"Enhancements" means any modification to any Equipment, Software,
Supply, Accessory or Spare Part that is developed by NexPress or a NexPress
Affiliate pursuant to Article IX.
"Endemic Failure" shall mean a condition caused by NexPress or a
NexPress Affiliate (a) resulting in ten percent (10%) or more of all units of
the same Product supplied by NexPress to Danka in a single month to fail for
substantially the same defect, or (b) resulting in five percent (5%) or more of
the total field population of the same Product supplied by NexPress to Danka
during any consecutive three (3) month period to fail for substantially the same
defect.
"Equipment" means Black and White and Accent Color electrophotographic
equipment for office imaging and office reprographics that are assembled for
NexPress.
"Initial Announcement" means, with respect to any Equipment, Software,
Supply, Accessory or Spare Part, the Business Day on which NexPress announces
publicly to third parties generally or to Danka that such product is available
for sale.
"Installed Base" means all Equipment and Accessories manufactured or
remanufactured by or for NexPress or Eastman Kodak Company ("Kodak") and sold or
otherwise placed by Danka or NexPress or their respective Affiliates or Dealers.
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<PAGE> 5
"Intellectual Property" means patents, patent applications, Inventions,
invention disclosures, trade secrets, know-how, registered and unregistered
copyrights, works of authorship, computer software programs, data bases, mask
rights, trademarks, service marks, trade names, trade dress and any similar
proprietary rights and any licenses or user rights related to the foregoing.
"Invention" means any new device, computer program, article, method,
process or improvement thereon, whether or not patentable, copyrightable, and
protectable under any applicable mask works law, protectable as a trade secret
or protectable under any similar law.
"New Product" means any Black & White and Accent Color Equipment,
Software, Supply, Accessory or Spare Part (excluding toners and other products
manufactured for use in other manufacturer's equipment) having an Initial
Announcement occurring after the Effective Date.
"NexPress Affiliate" means any Person fifty per cent (50%) or more of
whose shares, securities, or ownership interest representing the right to make
the decisions for such Person is now or hereafter owned or controlled, directly
or indirectly, by NexPress, or who now or hereafter owns or controls, directly
or indirectly, fifty percent (50%) or more of NexPress' ownership interest
representing the right to make the decisions for NexPress, but such person shall
be deemed to be an Affiliate only so long as such ownership or control exists.
"NexPress's Designated Point of Delivery" means, with respect to any
Product, the location listed on Exhibit 1.1.
"OEM-Out Agreement" means any agreement to which NexPress or any
NexPress Affiliate is a party, at any time, whereunder the other party thereto
purchases for resale or for incorporation into its products any Equipment,
Supplies, Accessories or Spare Parts not bearing a brand name belonging to
NexPress, a NexPress Affiliate or Kodak.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
"Products" means Current Products and New Products.
"Purchase Order" means a written purchase order substantially in the
form mutually approved by the parties.
"Software" means software platforms, products, and capabilities that
include object and source codes and that enable print on demand, variable data
printing, image capture, document assembly, replication and distribution for
Equipment assembled for NexPress, including software families such as Lionheart.
"Software License" means the license to use and sublicense the Software
set forth in Section 3.5 of this Agreement.
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<PAGE> 6
"Spare Part" means any assembly, subassembly or part for use in the
service or maintenance of Equipment or Accessories and, except as provided in
Section 4(a) of Exhibit 4, image loops, pressure rollers and fuser rollers.
"Supplies" means developer, toner, fuser oil and other sundry products
manufactured by or for NexPress or a NexPress Affiliate and intended for use in
or in connection with the operation of the Equipment.
"Territory" means the world except for the United States, its
territories and possessions.
"Third-Party Remanufactured or Reconditioned Equipment and Accessories"
means any Equipment or Accessories remanufactured or reconditioned by or for
NexPress or a NexPress Affiliate using Carcasses manufactured by a Person other
than NexPress or a NexPress Affiliate.
Section 1.2 Other Terms. Other terms may be defined elsewhere in the
text of this Agreement or in an Exhibit referenced herein and, unless otherwise
indicated, shall have such meaning throughout this Agreement.
Section 1.3 Other Definitional Provisions.
(a) The words "hereof', "herein", and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "Dollars" and `$' shall mean United States
Dollars.
(d) References herein to a specific Article, Section,
Subsection or Schedule shall refer, respectively, to Sections, Subsections or
Schedules of this Agreement unless the express context otherwise requires.
(e) Wherever the word "include," "includes," or "including" is
used in this Agreement, it shall be deemed to be followed by the words "without
limitation."
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<PAGE> 7
ARTICLE II
TERM OF AGREEMENT
Section 2.1 Term of Agreement. Subject to Section 2.2, this Agreement
shall commence on the Effective Date and, unless earlier terminated pursuant to
Article X, shall be in effect for five (5) years.
Section 2.2 Renewal. No later than six (6) months prior to the
then-scheduled expiration of this Agreement, NexPress and Danka may extend this
Agreement for an additional two (2) year period upon such terms, as the parties
shall mutually agree.
ARTICLE III
DISTRIBUTION OF PRODUCTS
Section 3.1 Distribution of Products. On the terms and subject to the
conditions set forth in this Agreement, NexPress and or a NexPress Affiliate
shall sell to Danka and Danka shall buy from NexPress those Products that Danka
orders from NexPress for distribution in the Territory in accordance with the
terms of this Agreement.
Section 3.2 Discontinuing Purchase of Products. Danka shall use
commercially reasonable efforts to provide NexPress with written notice no less
than 12 months prior to such time as Danka plans or expects to terminate
entirely its purchasing or marketing of a Product.
Section 3.3 Further Availability of Supplies and Spare Parts.
(a) Unless this Agreement is terminated by NexPress pursuant
to Section 10.1(a)(ii) or Section 10.1(a)(iii), NexPress shall, for a period of
five years from the date on which NexPress makes the last shipment of the
particular model of Equipment or Accessory under this Agreement, make Supplies
and Spare Parts relating to such model of Equipment or Accessory available for
purchase by Danka on the same terms generally available to its other
distribution channels; provided, however, that if NexPress intends to cease to
be a supplier of such Supplies or Spare Parts on or after the termination of
such five-year period it will provide Danka with six months' written notice
prior to such cessation. Danka may place orders for Supplies and Spare Parts in
that six-month period provided such Supplies or Spare Parts are for shipment to
Danka by NexPress not later than the last Business Day of such six-month period.
(b) If this Agreement is terminated by NexPress pursuant to
Section 10.1(a)(ii) or Section 10.1(a)(iii), NexPress shall, until the earlier
of (i) five years from the date of termination and (ii) five years from the date
on which NexPress makes the last delivery of the particular model of Equipment
or Accessory to Danka under this Agreement, make available to Danka for purchase
on the same terms generally available to its other distribution channels,
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<PAGE> 8
Supplies and Spare Parts relating to such model of Equipment and Accessories
distributed prior to such termination.
(c) The continued sale of Supplies and Spare Parts to Danka
during the periods referenced in Sections 3.3(a) and 3.3(b) is contingent, in
each case, upon Danka's compliance with commercially reasonable standards for
quality and service.
(d) Notwithstanding any other provision in this Agreement,
NexPress shall have no obligation to make Supplies or Spare Parts available for
(a) equipment bearing the Kodak brand name originally sold by third parties to
Danka, (b) the IS70 product beginning upon depletion of the NexPress or NexPress
Affiliate's inventory of such related Supplies and Spare Parts existing as of
the Effective Date, or (c) Kodak-branded products that are not being supplied by
Kodak as of the Effective Date, beginning five (5) years from the date of last
delivery of such product by Kodak.
Section 3.4 Resale of Products by Danka.
(a) Danka and Danka Affiliates may resell in the Territory any
Current Product or New Product purchased hereunder (subject, in the case of
Software, to the terms of the Software License as set forth herein) only to
end-users of such Product and to such Dealers that are listed on Exhibit 3.4
hereto provided that Danka represents and warrants to NexPress that such Dealer
shall comply with the terms and conditions of this Agreement.
(b) NexPress warrants and represents that it has the authority
and legal right to sell the Products and related goods to Danka and the Danka
Affiliates in the Territory.
Section 3.5 Software License.
(a) NexPress hereby grants to Danka and Danka Affiliates, for
Current Products and New Products, the following: a non-transferable,
nonexclusive license to sublicense and to sublicense Dealers the right to
sublicense the Software in object code formats only to end-users. Any sublicense
to end-users is subject to the terms of this Software License. End users may be
granted the right to make a single copy of the Software for system backup or
archival purposes. To each copy of the Software (whether in whole or in part)
made by Danka or end user for the purposes stated above, Danka or end user shall
affix the same copyright or other proprietary rights notice as was originally
affixed to the Software when shipped by NexPress. All copies of the Software, in
whole or in part, including all updates and modifications to the Software in any
form are the exclusive property of NexPress or the NexPress Affiliate, as the
case may be, and no title to or ownership of the Software or any parts thereof
are hereby transferred to Danka or end user. The Software constitutes
proprietary and confidential information of NexPress or a NexPress Affiliate and
Danka agrees not to provide, disclose, or make available the Software or any
part thereof to any third party except as expressly allowed herein without the
prior written permission of NexPress. Danka shall not use, print, copy, modify,
translate, alter, sublicense or display the Software in whole or in part except
as expressly provided for in this Agreement. Danka will not attempt to "reverse
compile", decompile, or
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<PAGE> 9
otherwise derive the source code for the Software. Any such attempt is a breach
of this Agreement entitling NexPress to legal and equitable remedies, including
injunctive relief.
(b) The additional terms and conditions contained in Exhibit
3.5(b) hereto are applicable to any Software that contains software licensed by
Adobe Systems Inc. ("Adobe"), and must be incorporated into any sublicense for
such Software.
(c) NexPress reserves for itself the right to add additional
terms and conditions to this Software License should such additional terms be
necessitated by new or additional Software products or be required by Adobe.
(d) NexPress warrants that it has the full power and authority
to grant the Software Licenses described in this Agreement. NexPress warrants
that for a period of six (6) months after delivery, the media on which the
Software is delivered will be free from defects in material and workmanship
under normal use, and for a period of one hundred twenty (120) days after
shipment, the Software will perform substantially as described in the NexPress's
published specifications for the Software as of the shipment date of such
Software, including any user manuals and technical documentation.
(e) NexPress warrants that based solely on prior testing, it
has no reason to believe that the Software will not be capable of accurately
processing, providing and/or receiving date data from, into and between the
twentieth and twenty-first centuries, provided, however, that neither NexPress
nor any NexPress Affiliate makes any such warranty with regard to software,
equipment, or accessories supplied by or manufactured by third parties.
(f) As its sole responsibility for breach of the foregoing
warranty during the warranty period, NexPress will use reasonable efforts to
promptly correct such defects. If NexPress is unable within a reasonable period
of time to correct such defects, Danka may, at its option, terminate the license
and return the Products affected by such Software to NexPress and receive a full
credit for any amounts paid for the returned Products, plus costs associated
with shipping and storage, less a reasonable allowance for beneficial use or
damage.
(g) NEXPRESS AND NEXPRESS AFFILIATES EXPRESSLY EXCLUDE ALL
REMEDIES OR WARRANTIES OTHER THAN THE FOREGOING, EXPRESS OR IMPLIED, IN RELATION
TO THE MEDIA OR SOFTWARE (AND ANY SERVICES RENDERED TO SUPPORT THE SOFTWARE),
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE.
(h) EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER DANKA NOR ANY
THIRD PARTY CLAIMING RIGHTS THROUGH DANKA WILL HOLD NEXPRESS OR NEXPRESS
AFFILIATES, OR ANY THIRD PARTY FROM WHOM NEXPRESS HAS DERIVED RIGHTS IN THE
SOFTWARE, LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE
BECAUSE OF ANY DEFECT OR INEFFECTIVENESS OF THE SOFTWARE, INCLUDING WITHOUT
LIMITATION, ANY INTERRUPTION OF BUSINESS OR LOST PROFITS.
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(i) Any technical information supplied during the term of this
Agreement is made subject to any restrictions concerning the export of products
or technical data from the United States of America which may be imposed upon
NexPress or Danka from time to time by the Government of the United States of
America. Furthermore, Danka agrees that at no time, either during the term of
this Agreement or thereafter, will it knowingly export, directly or indirectly,
any United States source technical data acquired from NexPress or a NexPress
Affiliate under this Agreement or any direct products of that technical data to
any country for which the U.S. Government or any agency thereof at the time of
export requires an export license or other governmental approval, without first
obtaining that license or approval when required by applicable United States
law.
Section 3.6 Software Modifications and Customization.
In the event that Danka desires to make modifications and
customizations to Software that Danka's field service engineers or systems
engineers are not capable of implementing (absent re-engineering), Danka may
request NexPress to, and subject to the provisions of this Section 3.6, NexPress
shall cooperate with Danka in making such modifications. In the event that Danka
requests such cooperation, Danka shall be responsible for submitting a
customization request, installing customized software at its customer's site,
and paying NexPress fees for implementing, testing and delivering the requested
customization, which fees shall be as set forth in a written estimate prepared
by NexPress promptly upon its receipt of Danka's request set forth in the
preceding sentence. NexPress shall respond to customization requests by
supplying cost and time estimates to implement, test, and deliver the requested
customization and, if such estimates are accepted by Danka, NexPress shall
provide customization provided the parties negotiate a mutually acceptable
software customization agreement.
ARTICLE IV
ORDERS
Section 4.1 Current Products. For the term of this Agreement, Danka
shall, or shall cause Danka Affiliates to, use the ordering process set forth on
Exhibit 4 hereto, to order for purchase and purchase Products from NexPress
pursuant to the terms and conditions set forth in this Agreement; provided,
however, that the parties shall periodically meet to negotiate in good faith any
alternative ordering process as may be appropriate from time to time.
ARTICLE V
PRICING
Section 5.1 The purchase price and payment terms with respect to
Products that are subject to this Agreement are set forth in Exhibit 5 attached
hereto.
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ARTICLE VI
DISTRIBUTION AND DELIVERIES
Section 6.1 Non-Exclusivity.
(a) Except as provided in Section 6.1(b), Danka shall have a
non-exclusive right to distribute Products in the Territory.
(b) Danka shall have the exclusive right to purchase for
distribution in the Territory, the Kodak-branded equipment listed on Exhibit
6.1(b) hereto (the "Exclusive Equipment") and related spare parts and supplies
(the "Exclusive Spare Parts and Supplies") (collectively, "Exclusive Equipment,
Spare Parts and Supplies") subject to the conditions that, for so long as Danka
has the exclusive right hereunder (i) Danka shall use commercially reasonable
efforts to market such Exclusive Equipment, Spare Parts and Supplies; (ii) Danka
shall purchase all of its requirements for such Exclusive Equipment Spare Parts
and Supplies from NexPress; (iii) provided NexPress' quoted prices, in total
cost to Danka, are not materially higher than Danka's alternative suppliers,
NexPress shall receive right of first refusal with regard to supplying Danka
with services necessary to strip and salvage such Exclusive Spare Parts from
used Carcasses owned by Danka; (iv) Danka shall use commercially reasonable
efforts to meet the demand for Exclusive Spare Parts and Supplies by independent
service organizations ("ISO's") and shall comply with all laws applicable to
Danka in connection with its sale of Exclusive Spare Parts and Supplies to
ISO's; (v) Danka shall purchase 700 units of the EK95 Product (when combined
with the purchase of such Products under the Danka Holding Agreement) by on or
before March 31, 2000 and in the event that Danka does not have access to
sufficient Carcasses to meet the EK95 purchase commitment the parties shall
negotiate either a reasonable extension of time for Danka to meet such purchase
commitment or the substitution of a new product; (vi) Danka shall use
commercially reasonable efforts to provide service and maintenance for the
Installed Base of Exclusive Equipment during the term of this Agreement; (vii)
Danka shall designate a Danka representative to serve as a contact person in
connection with the sale of Exclusive Spare Parts and Supplies to ISO's and
(viii) Danka shall on a quarterly basis provide written evidence, reasonably
satisfactory to NexPress, that Danka has complied with the terms of this Section
6.1(b) including, without limitation, a summary of ISO price changes, ISO order
fulfillment rates and ISO complaints if any; provided, however, nothing herein
shall prevent NexPress from (a) selling the Exclusive Equipment, or any
variation thereof, directly to end-users so long as Danka is recommended as the
preferred service provider to service such Exclusive Equipment sold by NexPress
or (b) selling such Exclusive Equipment or any variation thereof pursuant to an
OEM Agreement or a distribution agreement with Heidelberg Sales and Service
Units.
(c) Danka's obligations under Section 6.1(b) are subject to
NexPress satisfying Danka's forecasted demand for Exclusive Equipment, Spare
Parts and Supplies pursuant to the prices established according to Exhibit 5.
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(d) If Danka fails to cure any material breach of its
obligations under Section 6.1(b) within 30 days after receiving notice of such
breach from NexPress, NexPress' sole remedy (except as provided in Section
6.1(e)) shall be to terminate all exclusivity rights granted and obligations of
Danka relating thereto in Section 6.1(b) and thereafter the rights to distribute
the Exclusive Equipment, Spare Parts and Supplies shall be nonexclusive and
Danka may purchase such Products in accordance with the terms of Section 4.1.
(e) NexPress represents and warrants that (i) neither it nor a
NexPress Affiliate is under a contractual obligation with respect to the
distribution of Exclusive Spare Parts and Supplies to independent service
organizations pursuant to the Contribution and Sale Agreement dated as of March
17, 1999 by and between Eastman Kodak Company, Eastman Graphic Holding, Inc.,
Heidelberg Druckmaschinen A.G., Heidelberg Digital L.L.C., and NexPress
Solutions LLC. In reliance of the foregoing representation and warranty, and so
long as NexPress satisfies Danka's forecasted demand for Exclusive Supplies and
Spare Parts, Danka shall, consistent with the terms of Section 12.1, defend,
indemnify and hold harmless NexPress and the NexPress Affiliates for any failure
of Danka or a Danka Affiliate to comply with the provisions of Section
6.1(b)(iv).
Section 6.2 Title and Risk of Loss. Each Product ordered hereunder
shall be shipped FOB NexPress's Designated Point of Delivery. Danka shall select
the carrier and prepay, or make arrangements with the carrier for payment of,
the transportation charges to the warehouse destination designated by Danka
along with any transportation charges, insurance, handling and other costs, and
any customs, import, export and similar duties, associated with the conveyance
of Products. NexPress shall cooperate with and provide copies of existing
documentation to Danka, as reasonably requested, to assist Danka in its recovery
of available Duty Drawback related to re-export of Products under this
Agreement.
Section 6.3 Shipping Frequency and Quantity. NexPress shall not be
required to ship Products more than once a day to Danka. Danka shall be required
to accept shipment as frequently as reasonably requested by NexPress but not
more often than once a day without Danka's approval. Shipment of quantities of
Products constituting partial orders shall be accepted by Danka; provided that
Danka shall only be invoiced for the quantity actually shipped. Any order
shortfall shall be shipped as soon as commercially reasonable. The parties shall
cooperate to ensure that shipments are made in a cost-effective manner.
ARTICLE VII
WARRANTY, INSPECTION AND QUALITY ASSURANCE
Section 7.1 Inspection and Warranty. Prior to their shipment, NexPress
shall cause all Products to be sold hereunder to be inspected (and, where
applicable, tested) in accordance with NexPress's Functional Total Quality Plan
or such other procedures as are mutually agreed upon by the parties hereto in
order to assure conformance of Products to product specifications. Danka also
shall have the right to conduct its own inspection test in accordance with such
procedures no
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later than the earlier of (i) 90 days after the date of delivery of any Products
to Danka and (ii) the installation of such Product. If Danka determines that any
item does not substantially conform to product specifications it shall, within
thirty (30) days after completion of the inspection, notify NexPress and request
it to institute a consulting inspection. NexPress may designate other companies
to perform a consulting inspection. Within thirty (30) days after receipt of
notice from Danka, NexPress or a company designated by NexPress, shall perform a
consulting inspection, and if the consulting inspection reveals a non-conformity
that does not reasonably appear to have resulted from, or occurred during,
shipping of the inspected item, NexPress or a company designated by NexPress
shall be responsible for causing the non-conforming item to achieve, by means of
NexPress' choosing, substantial compliance with its product specifications at
NexPress' expense. Upon shipment, the Products shall be paid for within the time
frame provide in this Agreement even if non-conformance is found under the
circumstances set forth herein. In the case of Spare Parts and Supplies,
NexPress, at its option, shall replace those non-conforming items or give credit
to Danka for such non-conforming items, plus handling and shipping costs which
shall be applied against subsequent purchases of those items.
Section 7.2 Quality Assurance.
(a) Danka shall (i) provide NexPress with such installation
and service data and (ii) perform or permit NexPress, or a company designated by
NexPress that is not a competitor of Danka or Danka Affiliates, to perform such
quality checks, as NexPress requires to maintain the quality of Equipment,
Software, Spare Parts Supplies and Accessories that are Products. If the rate of
field reliability of any Product is lower than reasonably expected by Danka or
NexPress, NexPress, or a company designated by NexPress that is not a competitor
of Danka or Danka Affiliates, may in its discretion upon reasonable notice to
Danka, or upon the request of Danka, monitor installation and servicing of such
items at Danka's customer locations, and Danka shall facilitate such monitoring.
If NexPress reasonably determines that Danka's installation or servicing
procedures is a cause of the reliability problem, Danka shall make such
revisions to its procedures as NexPress reasonably requests.
(b) NexPress or a company designated by NexPress that is not a
competitor of Danka or Danka Affiliates shall require and perform audits of
Danka's service operations, as outlined in the Brand Certification Criteria set
forth in Exhibit 11.1 in order to ensure the maintenance of high quality
service. If NexPress determines that Danka's service operations failed to meet
such standard, Danka shall make such revisions to its service procedures as
NexPress requests.
Section 7.3 Equipment Warranty. WITH RESPECT TO EQUIPMENT, ACCESSORIES,
SOFTWARE AND SPARE PARTS, NEXPRESS WARRANTS SUCH EQUIPMENT, SOFTWARE,
ACCESSORIES AND SPARE PARTS SHALL BE FREE FROM LIENS OR OTHER DEFECTS IN TITLE.
NEXPRESS AND NEXPRESS AFFILIATES MAKE NO OTHER WARRANTIES. THE EQUIPMENT,
SOFTWARE, ACCESSORIES AND SPARE PARTS ARE SOLD "AS IS" WITHOUT ANY WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, OTHER THAN THOSE SET FORTH IN
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SECTIONS 3.5 AND 7.1 AND THE FIRST SENTENCE OF THIS SECTION 7.3. NEXPRESS AND
NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR PROPERTY DAMAGE OR PERSONAL INJURY
UNLESS DIRECTLY CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF
NEXPRESS. NEXPRESS OR NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR LOSS OF
PROFITS OR OTHER INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE
USE OF OR INABILITY TO USE THE EQUIPMENT, ACCESSORIES, SOFTWARE AND SPARE PARTS,
WHETHER ON ACCOUNT OF TORT, CONTRACT OR OTHERWISE.
Section 7.4 Supplies Warranty.
(a) WITH RESPECT TO SUPPLIES, NEXPRESS WARRANTS THAT ALL UNITS
OF SUCH SUPPLIES SHALL BE FREE FROM LIENS OR OTHER DEFECTS IN TITLE. NEXPRESS
FURTHER WARRANTS THAT SUPPLIES FURNISHED TO DANKA UNDER THIS AGREEMENT SHALL BE
FREE OF DEFECTS IN MATERIAL AND WORKMANSHIP FOR A PERIOD OF 12 MONTHS FROM THE
DATE OF SHIPMENT TO DANKA.
(b) AS NEXPRESS' SOLE OBLIGATION UNDER THIS WARRANTY, NEXPRESS
SHALL AT ITS OPTION AND AT NO COST TO DANKA, REPAIR OR REPLACE ANY DEFECTIVE
SUPPLY, OR ISSUE TO DANKA A CREDIT EQUAL TO THE PRICE, PLUS HANDLING AND
SHIPPING COSTS, OF ANY SUPPLY RETURNED TO NEXPRESS WHICH PROVES DEFECTIVE WITHIN
THE APPLICABLE WARRANTY PERIOD PROVIDED IN THIS SECTION 7.4. DANKA SHALL NOT BE
OBLIGATED TO, AND SHALL NOT, RETURN ANY SUCH ITEMS IN LOTS CONTAINING AN
AGGREGATE ORIGINAL PURCHASE PRICE OF LESS THAN FIVE HUNDRED DOLLARS ($500.00).
NEXPRESS, AT ITS OPTION, MAY WAIVE THE RIGHT TO HAVE ANY SUCH DEFECTIVE ITEMS
RETURNED, BUT SHALL STILL BE OBLIGATED TO ISSUE THE APPLICABLE CREDIT. NEXPRESS
OR NEXPRESS AFFILIATES SHALL NOT BE LIABLE FOR LOSS OF PROFITS OR OTHER
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR
INABILITY TO USE THE SUPPLIES, WHETHER ON ACCOUNT OF TORT, CONTRACT OR
OTHERWISE.
Section 7.5 Endemic Failures. As its sole responsibility on account of
an event of any Endemic Failure in Products supplied by NexPress to Danka under
this Agreement, of which Danka notifies NexPress within one hundred and twenty
(120) calendar days (not Business Days) after receipt of such Products, NexPress
agrees to negotiate in good faith with Danka the steps that NexPress will take
to remedy the problem, and take such steps as are in NexPress' discretion
commercially reasonable to cure such defects, replace such Products or to issue
Danka a credit equal to the purchase price paid by Danka for such Products, plus
shipping and handling costs
Section 7.6 Service for NexPress Products. Danka will be responsible
for providing adequate service at its own risk and expense for Equipment,
Accessories and Software purchased pursuant to this Agreement, provided however
that NexPress shall provide technical information and support and training to
Danka in accordance with the terms of this Agreement.
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ARTICLE VIII
TECHNICAL INFORMATION: HAZARDS AND PRECAUTIONARY PROCEDURES
Section 8.1 Technical Information.
(a) Any technical information or assistance provided by
NexPress or any company designated by NexPress to Danka shall not be deemed a
warranty or a specification. Danka shall familiarize itself with all hazards and
precautionary procedures with respect to the handling, transportation or use of
the Products, and the containers in which the Products are shipped, and shall
manage the Products and containers accordingly. If NexPress provides to Danka
any product safety information concerning any Product, Danka shall forward such
information to its employees, all others who handle the Products for Danka and
Danka's customers.
(b) NexPress shall provide to Danka at no charge one set of
English language technical operations and service materials, including any
service software and licenses associated with the use thereof, and related
technical information necessary to service and operate all Products purchased
under this Agreement. Danka may (i) reprint the materials in whole without
change, (ii) reproduce and publish all or portions of the materials for
incorporation in its own operation training and maintenance manuals for
Equipment, and (iii) translate the materials into any other language. If Danka
reprints the materials in whole, the material shall retain the signature,
corporate symbol, and copyright notice and warranty disclaimer of NexPress or
any NexPress Affiliate, as the case may be. If Danka incorporates the materials
into Danka's own materials, revises, or translates the materials, the material
shall bear Danka's own signature, logo, copyright notice and warranty
disclaimer. If Danka makes any revisions to materials of NexPress or a NexPress
Affiliate other than edits for clarity or creates its own materials, Danka shall
obtain NexPress's written approval of such materials prior to publication and
distribution. NexPress or the NexPress Affiliate, as the case may be, shall
retain all rights to the materials that Danka translates, revises or
incorporates into Danka's own materials, and Danka shall not attempt to transfer
any rights therein to third parties. Danka shall own the copyright in the
revised or translated material; provided, that (x) Danka grants NexPress or a
NexPress Affiliate a perpetual, royalty-free license to use and distribute any
revised material in creating materials for other Products and (y) upon the
termination or expiration of this Agreement, provided that NexPress is not in
default, Danka shall assign the copyright in any revised or translated materials
to NexPress or the NexPress Affiliate, as the case may be. Danka shall not
reproduce, without NexPress's permission, any other materials made available by
NexPress or the NexPress Affiliate, as the case may be.
(c) Danka acknowledges that the aforementioned technical
operations and service materials contain technical information and know-how,
which NexPress considers to be valuable, proprietary and Confidential
Information. Danka shall use efforts comparable to those it uses in relation to
its own valuable, proprietary and Confidential Information, but no less than a
reasonable degree of care, to restrict use and distribution of such materials to
Danka's personnel for use solely in operating and servicing Products purchased
under this Agreement.
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(d) Upon Danka's request, NexPress shall use commercially
reasonable efforts to make available to Danka technical training programs
conducted in Rochester, New York for each Current Product or New Product sold
hereunder. NexPress operator and service materials shall be used during the
training. Danka shall be billed at the daily rate in effect at the time of the
request.
Section 8.2 Technical Aid. During the term of this Agreement NexPress
shall make available at Danka's request on an "as available" basis, consultation
and/or service engineering support at Danka's customer sites or Danka's service
headquarters, with respect to Current Products and New Products. For each
request, Danka shall pay NexPress's reasonable travel expenses and Danka shall
be billed at the daily rate in effect at the time of the request. NexPress shall
credit back to Danka the cost of on-site support if it subsequently is
determined that on-site support was required because a particular product did
not comply with the applicable inspection test procedures for such product. A
manufacturing engineer contact shall be available by NexPress and NexPress shall
provide a reasonable amount of such assistance, free of charge, to address
Danka's Equipment, Accessory and Software service questions that are not related
to the immediate resolution of an inoperative equipment condition. Prior to
providing assistance for which NexPress will charge a fee, NexPress shall
provide Danka reasonable notice of NexPress's intent to do so and the amount of
such fee.
ARTICLE IX
ENHANCEMENTS
Section 9.1 Mandatory Enhancements. NexPress may, from time to time in
its sole discretion, implement field service modifications to Products that
improve safety or are required for regulatory compliance of Products. Following
NexPress's written request, Danka shall install the required modifications at
its expense, using its best efforts to do so in a timely manner. NexPress shall
make available to Danka, at NexPress's expense, any necessary kits, Spare Parts
and technical Documentation required for the installation of required field
service modifications.
ARTICLE X
TERMINATION
Section 10.1 Termination.
(a) This Agreement may be terminated at any time:
(i) by mutual agreement of Danka and NexPress ;
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(ii) by either Danka or NexPress, after a material breach
of this Agreement and the Confidentiality Agreement
referenced herein by the other party (the "Defaulting
Party"), upon written notice to the Defaulting Party
(hereinafter, the "Default Notice") specifying the
default, unless the Defaulting Party cures the
default within 60 days after receipt of the Default
Notice, or such longer period as may be reasonably
necessary to cure such default; it being understood
that, for purposes of this Agreement, (A) NexPress
shall have the sole discretion to declare Danka or a
Dealer to be in breach of its obligations to comply
with the requirements of the Brand Name Certification
Criteria referred to in Section 11.1 of this
Agreement; provided, however, that upon such breach
by Danka, and provided that such breach continues
after NexPress has provided written notice and a five
(5) day cure period, as NexPress' sole and exclusive
remedy NexPress shall give Danka at its sole expense
the option of substituting a new brand name provided
such name is acceptable to NexPress and the NexPress
Affiliates (which acceptance will not be unreasonably
withheld) and Products bearing such new brand name
shall be in all respects subject to the terms and
conditions of this Agreement and, further provided,
if no substitute brand name is accepted by NexPress
within thirty (30) days of the expiration of the cure
period NexPress shall have the option to terminate
this Agreement; and (B) any breach by Danka or a
Dealer of the provisions of Section 11.3(b) shall
constitute a material breach if not cured within five
(5) days of receipt of written notice thereof;
(iii) by NexPress, upon 60 days' prior written notice
to Danka, in the event that any undisputed invoice,
or any undisputed portion thereof, is not paid on the
due date unless the invoice or the undisputed portion
thereof is paid within such 60-day period;
(iv) by Danka, upon 60 days' prior written notice to
NexPress, in the event that NexPress fails to pay any
undisputed amount when due unless NexPress pays such
amount within such 60-day period.
(v) upon Danka's material breach of the Danka Holding
Agreement if such breach is not cured after any
applicable cure period.
(b) NexPress reserves the right to terminate with written
notice to Danka, the right of Danka to sell products to any Dealer if such
Dealer is in material breach of this Agreement and the breach continues uncured
after NexPress has provided Danka with written notice and a five day cure
period, and upon such termination all rights of such Dealer under this Agreement
shall terminate.
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(c) In lieu of terminating this Agreement, a party possessing
the right to terminate under Section 10.1 (a)(ii), (iii) or (iv) may elect to
suspend performance of its obligations until, in the case of clause (ii), such
time as the material breach is cured and, in the case of clauses (iii) and (iv),
such time as the undisputed amount is paid.
Section 10.2 Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 10.1(a), this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to the other party hereto or their respective Affiliates, directors,
officers or employees; provided, however, that neither the expiration of this
Agreement under Section 2.1 nor the termination of this Agreement pursuant to
this Article X shall (i) affect the liability of a party for breach of this
Agreement, (ii) discharge any of either party's obligations to pay any amount
owing and payable on the date of termination or (iii) affect the obligations
which by their terms survive termination, including without limitation, this
Section 10.2 or Sections 3.3, 7.1, 7.3, 7.4, 7.5, 8.1(a), (b) and (c), 11.2,
11.3, 11.4, 12.1, 12.2, and 13.1 hereof (and any related definitional provisions
set forth in Article 1), which shall survive and (b) Danka shall cease to have
the right to purchase Equipment bearing a brand name and corporate symbol
designated by NexPress, or such other trademarks as NexPress or NexPress's
Affiliates then use, or to any associated rights with respect to such brand
name, corporate symbol or trademark, provided however that nothing contained
herein shall affect NexPress' obligations under Section 3.3.
ARTICLE XI
TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Section 11.1 Brand Name. For the first five years following the
Effective Date, or for such longer period as Danka and NexPress mutually agree,
NexPress shall supply all Products with a brand name and corporate symbol
designated by NexPress or NexPress Affiliates and such other trademarks as
NexPress or NexPress Affiliates adopts for use on New Products, provided
however, that if NexPress changes the brand name and corporate symbol after the
Effective Date, NexPress shall bear the costs relating to changes in design,
manufacturing and marketing information made necessary as a result of the new
brand name. NexPress's obligation to supply Products with a brand name and
corporate symbol designated by NexPress and such other trademarks as NexPress
and NexPress's Affiliates currently use, is (a) contingent on Danka's and
Dealer's compliance with this Agreement and (b) is at all times subject to
Danka's and Dealer's strict compliance with the brand name certification
requirements as set forth on Exhibit 11.1, which may be amended from time to
time by NexPress or any NexPress Affiliate in its sole discretion.
Section 11.2 Product Identification. Subject to Section 11.1, each unit
of Equipment and Accessory shipped to Danka shall bear an appropriate tag or
plate, permanently affixed to it, showing its model number, date of manufacture
and serial number. Danka shall not, and shall cause the Danka Affiliates to not,
remove or alter tags or plates that display serial number or agency approval
information for any reason unless required to do so by law. Danka shall inform
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NexPress of any removal or alteration of the tags or plates required by law and
shall give NexPress the opportunity to approve the form and content of the
change, which approval shall not be unreasonably withheld or delayed. Any
removal or alteration, unless required by law and with the knowledge of
NexPress, shall, at NexPress's option, void any applicable warranty as set forth
in this Agreement, unless replaced within fifteen (15) days of Danka's receipt
of written notice from NexPress.
Section 11.3 Danka's Use of Trademarks, and Proprietary Markings.
(a) During the term of this Agreement, Danka may use, without
undue prominence, the product name trademarks of Products in advertising that
promotes Products and the servicing thereof and other product-related marketing
materials, provided that Danka and each Danka Affiliate agrees to comply with,
and to use its best efforts to cause their respective customers to comply with,
such reasonable advertising guidelines that NexPress may issue from time to time
and correct, at Danka's own expense, such material that NexPress reasonably
determines to be objectionable or misleading.
(b) Except as provided expressly herein, Danka acknowledges
that Danka has no right, interest, ownership or privilege of use of, any trade
dress, trade name, trademark or logo of NexPress or a NexPress Affiliate, as the
case may be. Danka agrees that all of the foregoing is the sole property of
NexPress or a NexPress Affiliate as the case may be. Danka further agrees not to
contest, both during the term of this Agreement and after termination, any
NexPress or NexPress Affiliate trade dress, trade name, trademark or service
mark related in any way to Products distributed pursuant to this Agreement or
the servicing of such Products, and Danka agrees, both during the terms of this
Agreement and after termination, not to use or attempt to register any trade
dress, trade name, trademark or service mark confusingly similar to any NexPress
or NexPress Affiliate trade dress, trade name, trademark or service mark. Danka
may not represent that it provides "NexPress Service" or service of a NexPress
Affiliate, but may represent that it is authorized to service copiers branded by
NexPress or NexPress Affiliates. Danka acknowledges that any material breach of
the preceding sentence would constitute a material breach if not cured within
five days of receipt of written notice thereof, for which NexPress could
terminate this Agreement pursuant to Section 10.1(a)(ii).
(c) Without limiting Danka's obligations and covenants under
Section 11.2, Danka shall not remove, alter, conceal or destroy any nameplates,
logos or dataplates on Products, enclosures or cabinets or proprietary markings
or legends placed upon or within such Products, supporting Documentation or
other materials that are the subject of this Agreement.
Section 11.4 Software. NexPress shall not be obligated hereunder to
provide Danka with access to the source code for any Software. If Danka develops
a modification, addition or customization of any Software for one of its
customers, Danka shall be prohibited from representing to its customers that
such modification, addition or customization constitutes a Software Product of
NexPress or a NexPress Affiliate and shall instead prominently display on such
Software or the Equipment to which it relates the phrase "Independently Modified
by Danka for Danka." NexPress shall not be obligated to assure that subsequent
versions of its
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Software products are compatible with any modification, addition, or
customization that has been developed by Danka.
Section 11.5 Ownership of Intellectual Property. Notwithstanding any
other provision of this Agreement or the termination hereof, NexPress or a
NexPress Affiliate, as the case may be, shall own all its respective rights and
interests in and to all Intellectual Property (including, all patented and
unpatented technology and Inventions) developed by NexPress or a NexPress
Affiliate, as the case may be, during the terms of this Agreement. Except as
explicitly provided in Sections 3.5, 3.6, 11.1, 11.3 and 11.4, this Agreement
does not transfer, assign, lease, license or otherwise provide Danka with any
rights or interests in any Intellectual Property used, developed or owned by
NexPress or a NexPress Affiliate.
ARTICLE XII
INDEMNITY
Section 12.1 Danka's Indemnity. Danka hereby agrees that it shall
indemnify, defend and hold harmless NexPress and NexPress Affiliates, and, if
applicable, their respective directors, officers, attorneys, agents and
employees and their heirs, successors and assigns (collectively, the "NexPress
Indemnified Parties") from, against and in respect of, any damages, claims,
losses, charges, actions, suits, proceedings, costs, and expenses of any kind
whatsoever including reasonable attorneys' fees, (collectively, the "Losses")
imposed on, sustained, incurred or suffered by or asserted against any of the
NexPress Indemnified Parties, directly or indirectly, relating to or arising
from (i) Danka's storage, transportation, use, modification, sale or other means
of disposition or disposal of any Product, (ii) Danka's performance claims
regarding Products in promotional or advertising materials, (iii) any alleged
infringement arising out of or resulting from compliance with Danka's requests,
instructions or specifications, or from any modification of a Product or brand
name or tradename not authorized by NexPress, (iv) Danka's breach of this
Agreement, or (v) any representation or warranty or statement with respect to
Equipment, Accessories, Supplies or Spare Parts, made by Danka or a Danka
Affiliate prior to or after the Effective Date, other than to pass through to
end-users those representations and warranties expressly made by NexPress
herein; and not caused by NexPress' negligent acts or omissions or willful
misconduct (which shall not be deemed to exist if such action or inaction is
taken at, and in accordance with, Danka's direction or by Danka's employees).
(a) Danka's indemnification is limited to the payment of
damages awarded against any NexPress Indemnified Party and the payment of
reasonable attorneys' fees and expenses for the period prior to the time Danka
assumed exclusive control of the defense. In no event shall Danka reimburse any
NexPress Indemnified Party for attorneys' fees and expenses incurred by a
NexPress Indemnified Party after Danka assumed the defense of a claim.
Notwithstanding the foregoing, NexPress shall have the right to consult in the
defense of a claim and to employ counsel, at NexPress's expense, separate from
the counsel employed by Danka to the extent such claim involves potential
conflicts of interest between or different defenses for
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<PAGE> 21
Danka and NexPress and NexPress reasonably determines that separate
representation would be appropriate.
(b) The obligation shall arise only if
NexPress gives Danka prompt notice of the claim and grants Danka, in writing,
exclusive control over its defense and settlement; provided, however, that a
failure by NexPress to give prompt notice of a claim under this Section 12.1
shall affect the rights of NexPress hereunder only to the extent that such
failure has a prejudicial effect on the defenses or other rights available to
Danka with respect to such claim.
(c) Subsections 12.1(a) through (c) state Danka's exclusive
obligation with respect to claims by NexPress Indemnified Parties.
Section 12.2 NexPress Indemnification.
(a) Indemnification. NexPress shall indemnify, defend and hold
harmless Danka, and Danka Affiliates, and, if applicable, their respective
directors, officers, attorneys, agents, employees, and their heirs, successors
and assigns (collectively, the "Danka Indemnified Parties") from and against any
and all losses, damages, claims, charges, actions, suits, proceedings, costs,
and expenses of any kind whatsoever, including reasonable attorneys' fees
(collectively the "Losses"), imposed on, sustained, incurred or suffered by or
asserted against any of the Danka Indemnified Parties directly or indirectly,
relating to or arising from, (i) NexPress' negligence resulting in personal
injury or property damage, (ii) any representation or warranty in Sections
6.1(e) or 13.19, and (iii) any claim that a Product as delivered by NexPress
infringes, misappropriates or otherwise violates any third party's patent,
copyright, trade secret, software or other Intellectual Property right; and
which are not caused by Danka's negligent acts or omissions or willful
misconduct (which shall not be deemed to exist if such action or inaction is
taken at, and in accordance with, NexPress' direction or by NexPress'
employees).
(b) The obligation shall arise only if Danka gives NexPress
prompt notice of the claim and grants NexPress, in writing, exclusive control
over its defense and settlement; provided, however, that a failure by Danka to
give prompt notice of a claim under this Section 12.2 shall affect the rights of
Danka hereunder only to the extent that such failure has a prejudicial effect on
the defenses or other rights available to NexPress with respect to such claim.
(c) The obligation shall cover only the Product as delivered
by NexPress to Danka, and not any correction, modification or addition made by
anyone other than NexPress, without NexPress's written authorization.
(d) The obligation shall not cover (i) any claim based on the
use of any Products other than that for which the Product is normally intended,
(ii) the furnishing of any information, service, or technical support provided
by Danka, or (iii) any claim that any Product infringes any third party's rights
as used in combination with any product(s) not supplied by NexPress, if that
claim could have been avoided but for the use of the Product in combination with
other products except to the extent such combined use is authorized or approved
in writing by NexPress.
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<PAGE> 22
(e) If any infringement claim is asserted, or if NexPress
believes one likely, NexPress shall have the right at its expense, to (i)
procure a license from the Person claiming or likely to claim infringement, (ii)
modify the Product as appropriate to avoid the claim of infringement, as long as
modification for this purpose does not materially impair the operation thereof
or (iii) cease further sale of the Product subject to, or likely to be subject
to, the claim and accept return of the Products sold and refund to Danka the
purchase price paid for the returned Product(s) using a five (5) year
straight-line depreciation reflecting any quantity or other discounts granted to
Danka, plus reasonable costs of handling and shipping.
NexPress's indemnification is limited to the payment of damages awarded
against any Danka Indemnified Party and the payment of reasonable attorneys'
fees and expenses for the period prior to the time NexPress assumed exclusive
control of the defense. In no event shall NexPress reimburse any Danka
Indemnified Party for attorneys' fees and expenses incurred by a Danka
Indemnified Party after NexPress assumed the defense of a claim. Notwithstanding
the foregoing, Danka shall have the right to consult in the defense of a claim
and to employ counsel, at Danka's expense, separate from the counsel employed by
NexPress to the extent such claim involves potential conflicts of interest
between or different defenses for Danka and NexPress and Danka reasonably
determines that separate representation would be appropriate.
(f) Subsections 12.2(a) through (f) state NexPress' exclusive
obligation with respect to claims by Danka Indemnified Parties.
ARTICLE XIII
GENERAL PROVISIONS
Section 13.1 Notices.
(a) All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three Business
Days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
Business Day later, if sent by overnight delivery via a national courier
service, in each case (i) through (iv), addressed to the intended recipient at
the address set forth below. Any party may change the address to which notices
or other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
To Danka: Danka Holding Company
Attention: Chief Operating Officer
11201 Danka Circle North
St. Petersburg, Florida 33716
21
<PAGE> 23
and
Danka Group B.V.
Attention: Chief Operating Officer
Middelandsc Zee 15
Post Bus 256, 3446,
CG Woerden
The Netherlands
With a copy to: Danka Office Imaging Company
Attention: General Counsel
11201 Danka Circle North
St. Petersburg, Florida 33716
To NexPress: NexPress Solutions, LLC
901 Elmgrove Road, Building 11
Rochester, New York 14653-6053
Telephone: (716)726-3253
Telecopy: (716)726-2181
Attn: Chairman of the Board
With a copy to: NexPress Solutions, LLC
901 Elmgrove Road, Building 11
Rochester, New York 14653-6053
Attn: Chief Operating Officer,
Black and White B.U.
Section 13.2 Amendment; Waiver. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Danka and NexPress, or in the case of a
waiver, by the party against whom the waiver is to be effective.
Section 13.3 Exclusive Remedies. As herein set forth, the remedies of
the parties for breach of any obligation arising under this Agreement shall be
the sole and exclusive remedies therefore. NOTWITHSTANDING ANYTHING CONTAINED IN
THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR SUCH OTHER PARTY'S INDIRECT OR CONSEQUENTIAL DAMAGES OR LOST
PROFITS, EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
Section 13.4 Assignment.
(a) NexPress may not assign any of its rights or delegate any
of its obligations hereunder; provided, that NexPress may so assign any of its
rights and delegate any of its obligations hereunder to a NexPress Affiliate
provided that NexPress guarantees the due and punctual performance and
observance of each and every obligation so delegated.
22
<PAGE> 24
(b) Danka may not assign any of Danka's rights or delegate any
of its obligations hereunder; provided, that with the consent of NexPress, which
consent shall not be unreasonably withheld or delayed, Danka may so assign, and
may license, any of its rights and delegate any of its obligations hereunder to
a Danka Affiliate, and such assignment or license and delegation need not be to
one Danka Affiliate but rather, with respect to each country in the Territory,
may be to a Danka Affiliate organized in, or otherwise qualified to do business
in, such country; provided, that (i) each such Danka Affiliate appoints Danka
Distribution to act as its exclusive Agent with respect to any dealings with
NexPress' or NexPress Affiliate's European factories and Danka Imaging to act as
its exclusive Agent with respect to any dealings with NexPress' or NexPress
Affiliate's North American factories, (ii) Danka Distribution and Danka Imaging
shall have accepted such appointment and agreed, in all cases, to coordinate and
aggregate all matters relating to Danka Affiliates, including Purchase Orders,
notices and payments, (iii) no Danka Affiliate shall have any right or power to
act on its own rather than through the Agents and (iv) Danka unconditionally
guarantees the due and punctual performance and observance of each and every
such obligation.
Section 13.5 Entire Agreement. This Agreement, (including all Exhibits
hereto) contains the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters.
Section 13.6 Fulfillment of Obligations. Any obligation of any party to
any other party under this Agreement, which obligation is performed, satisfied
or fulfilled by an Affiliate of such party, shall be deemed to have been
performed, satisfied or fulfilled by such party.
Section 13.7 Parties in Interest; No Additional Third-Party
Beneficiaries. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, the NexPress Indemnified Parties, the Danka Indemnified
Parties and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any other Person
(except as provided in Sections 3.5, 7.3, 7.4, 8.1(b), 11.3(b), 11.4, 11.5,
12.1, and 12.2 hereof), any rights or remedies under or by reason of this
Agreement.
Section 13.8 Market Data and Access to Records of Danka.
(a) From time to time from the Effective Date, NexPress shall
at its expense conduct a marketing survey to assist each party in its effort to
increase the probability of success of Products in the marketplace and the
successful development of enhancements and follow-on offering to the Products
(the "Market Surveys"). The Market Surveys shall solicit information including
the Products' success in the marketplace, customer satisfaction, prospective
customer feedback, and such other information as NexPress shall request.
NexPress shall provide Danka with copies of the Market Surveys in a timely
manner. Notwithstanding anything contained in this Agreement to the contrary,
Danka shall at no time be required to release its customer base identification
information to NexPress or a NexPress Affiliate.
23
<PAGE> 25
(b) NexPress agrees to advertise and promote Products in the
Territory and will furnish Danka from time to time with promotional and
advertising materials. NexPress shall provide reasonable sales and marketing
support to Danka, as mutually agreed upon from time to time.
Section 13.9 Press Release and Public Announcement. Except as may be
required by law or as otherwise permitted or expressly contemplated herein, no
party hereto or its respective affiliates, employees, agents and representatives
shall disclose to any third party (other than such party's legal counsel and
financial advisers) the terms and conditions of this Agreement or the subject
matter hereof without the prior written consent of the other party hereto. No
press release or other public announcement related to this Agreement or the
transaction contemplated hereby shall be issued by any party hereto without the
prior written approval of the other party (which approval shall not be
unreasonably withheld or delayed), except that either party may make such public
disclosure that it believes in good faith to be required by the requirements of
a securities exchange.
Section 13.10 GOVERNING LAW; SUBMISSION JURISDICTION: SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH PARTY HERETO AGREES THAT
IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY
THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE
SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY (THE "CHOSEN COURTS")
AND SOLELY IN CONNECTION WITH CLAIMS ARISING UNDER THIS AGREEMENT OR THE
TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT (1) IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS (II) WAIVES ANY
OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS,
AND (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM
OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO.
Section 13.11 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
Section 13.12 Headings. The heading references herein are for
convenience purposes only, do not constitute a part of this Agreement and shall
not be deemed to limit or affect any of the provisions hereof.
Section 13.13 Confidentiality. Confidential Information provided or
exchanged pursuant to this Agreement shall be provided or exchanged under a
standard confidentiality agreement in substantially the form set forth in
Exhibit 13.13.
24
<PAGE> 26
Section 13.14 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
Section 13.15 Relationship of Parties. Each party in performing its
obligations and duties hereunder shall be conclusively deemed to be an
independent contractor and not under the control and supervision of the other
party hereto. No agency, employment, franchise, partnership or joint venture and
no trust or other fiduciary relationship is created or implied by the terms of
this Agreement, and neither of the parties is, or shall hold itself out as,
agent, legal representative, partner, subsidiary, joint venture or employee of
the other party. Neither party shall have the right or power to, or shall, bind
or obligate the other party in any way or manner, or represent that such party
has the right to do so. Neither party has the authority to make any commitment
on behalf of the other party. The sole relationship between Danka and NexPress
is a commercial, arms' length business relationship.
Section 13.16 Force Majeure.
(a) Neither party shall be held responsible for failure or
delay to comply with nonmonetary obligations under this Agreement, if such
failure is due to act of God or public enemy, war, government acts or
regulations, fire, flood, embargo, quarantine, epidemic, labor strike, inability
to acquire raw materials, inevitable accident, unusually severe weather or other
cause similar to the foregoing, beyond the control of the other party (each such
event, a "Force Majeure"). In the event of failure of or delay in delivery or
acceptance due to a Force Majeure, the quantity provided for in the Purchase
Order so affected may be reduced accordingly by written notice by either party
to the other.
(b) If the performance of any nonmonetary obligations under
this Agreement by either party is prevented, restricted or interfered with by
reason of a Force Majeure event, the party whose performance is so affected,
upon giving prompt notice to the other party, shall be excused from such
performance to the extent of such Force Majeure event; provided, however, that
the party so affected shall take all reasonable steps to avoid or remove such
causes of nonperformance and shall continue performance hereunder with dispatch
whenever such causes are removed.
Section 13.17 Conflict. To the extent that this Agreement is in
conflict with any Exhibit, this Agreement shall take precedence.
25
<PAGE> 27
Section 13.18 Compliance with Law. Each of the parties to this
Agreement and their respective Affiliates shall fully comply with all foreign,
federal, state or local laws, rules and regulations applicable to its business
and its distribution and sale of products in the jurisdiction where Products are
sold.
Section 13.19 Prior Sales. Any sales of Products by NexPress to Danka
prior to the Effective Date shall be deemed subject to the terms and conditions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers effective as of the
Effective Date.
NEXPRESS SOLUTIONS LLC
By Heidelberg Digital L.L.C., Member
By:
- ------------------------------ --------------------------------------
Witness Name: Wolfgang Pfizenmaier
Title: President
DANKA GROUP B.V.
By:
- ------------------------------ --------------------------------------
Witness Name:
Title:
26
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 74,028
<SECURITIES> 0
<RECEIVABLES> 560,276
<ALLOWANCES> 50,819
<INVENTORY> 343,755
<CURRENT-ASSETS> 1,044,868
<PP&E> 728,218
<DEPRECIATION> 388,596
<TOTAL-ASSETS> 1,800,312
<CURRENT-LIABILITIES> 605,045
<BONDS> 1,006,879
0
0
<COMMON> 4,758
<OTHER-SE> 183,630
<TOTAL-LIABILITY-AND-EQUITY> 1,800,312
<SALES> 1,265,988
<TOTAL-REVENUES> 1,265,988
<CGS> 804,676
<TOTAL-COSTS> 804,676
<OTHER-EXPENSES> 386,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,760
<INCOME-PRETAX> 26,391
<INCOME-TAX> 7,389
<INCOME-CONTINUING> 19,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,002
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.33
</TABLE>
