FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth
Amendment") is made and entered into as of June 15, 1999 among
DANKA BUSINESS SYSTEMS PLC, a limited liability company
incorporated in England and Wales (Registered Number 1101386)
("Danka PLC"), DANKALUX SARL & CO. SCA, a Luxembourg company
("Dankalux"), and DANKA HOLDING COMPANY, a Delaware corporation
("Danka Holding") (Danka PLC, Dankalux and Danka Holding are
herein each a "Company" and collectively the "Companies"),
AMERICAN BUSINESS CREDIT CORPORATION, AMERITREND CORPORATION,
CORPORATE CONSULTING GROUP, INC., D.I. INVESTMENT MANAGEMENT,
INC., DANKA IMAGING DISTRIBUTION, INC., DANKA MANAGEMENT COMPANY,
INC., DANKA OFFICE IMAGING COMPANY, DYNAMIC BUSINESS SYSTEMS,
INC., XXXXXX ENTERPRISES, INC. OF SOUTH FLORIDA, XXXX FUNDING
COMPANY, QUALITY BUSINESS, INC. (collectively with Danka Holding,
the "Grantors"), the entities listed on the signature pages
hereof as International Swing Line Borrowers (collectively the
"International Borrowers" and together with the Grantors and the
Companies, the "Danka Parties"), NATIONSBANK, NATIONAL
ASSOCIATION, a national banking association formerly known as
NationsBank, National Association (Carolinas), each other Bank
listed on the signature pages hereof (each individually, a "Bank"
and collectively, the "Banks"), and NATIONSBANK, NATIONAL
ASSOCIATION, in its capacity as agent for the Banks (in such
capacity, the "Agent");
W I T N E S S E T H:
WHEREAS, the Companies, the Banks and the Agent have
entered into a Credit Agreement as of December 5, 1996, as
amended and supplemented by a First Amendment dated December 5,
1997, a Second Amendment dated July 28, 1998, a Third Amendment
dated as of December 31, 1998, a Fourth Amendment dated March 29,
1999, a Waiver Letter Agreement (the "October Waiver Letter
Agreement") dated as of October 20, 1998 and a Waiver Letter
Agreement dated February 18, 1999 (the "February Waiver Letter
Agreement" and, together with the October Waiver Letter
Agreement, the "Waiver Letter Agreements") (as further amended
hereby and as from time to time further amended, supplemented or
modified, the "Credit Agreement"), pursuant to which the Banks
agreed to make certain revolving credit, term loan and letter of
credit facilities available to the Companies; and
WHEREAS, pursuant to the October Waiver Letter
Agreement (i) the Agent and the Grantors entered into a Security
Agreement dated as of October 20, 1998 (the "Security
Agreement"), (ii) the Grantors executed and delivered a Guaranty
Agreement dated as of October 20, 1998 (the "Guaranty"), and
(iii) Danka Holding executed and delivered a Stock Pledge
Agreement Supplement dated as of October 20, 1998 (the "Stock
Pledge Agreement Supplement");
NOW, THEREFORE, in consideration of the mutual
covenants set forth herein and other good and sufficient
consideration, receipt of which is hereby acknowledged, the Danka
Parties and the Banks do hereby agree as follows:
1. Definitions. Any capitalized terms used herein
without definition shall have the meaning set forth in the Credit
Agreement. The term "Waiver Term" is defined in Section 6
hereof.
2. Amendment. Subject to the terms and conditions
set forth herein, the Credit Agreement is amended as follows:
(a) Section 1.1 is hereby amended by adding the
following clause before the period at the end
of the definition of "Applicable Margin":
"; provided, however, that (1)
notwithstanding the foregoing, during the Waiver
Term (as defined in the Fifth Amendment to Credit
Agreement dated as of June 15, 1999 (the "Fifth
Amendment')), the Applicable Margin for all Base
Rate Loans and Offshore Rate Loans shall be 2.00%,
and (2) the Companies shall pay to the Agent for
distribution to the Banks, promptly upon
calculation by the Agent of the actual Average
Outstandings for any period (or portion thereof in
existence prior to the repayment in full of all
Obligations) referred to on Schedule I attached to
the Fifth Amendment (an "Applicable Period")
(where the term "Average Outstandings" shall mean
the sum of the average daily outstanding principal
amounts of all Term Loan Outstandings and of all
Revolving Loan Outstandings during the Applicable
Period), a fee (the "Leverage Fee") equal to (A)
the actual Average Outstandings for the Applicable
Period, times (B) a fraction, the numerator of
which is the number of days in the Applicable
Period and the denominator of which is 360, times
(C) the number of basis points constituting the
Leverage Fee as determined by reference to such
Schedule I, using the applicable column thereof
based on the level of Average Outstandings for the
Applicable Period.
(b) Section 2.9(f) is hereby amended as follows:
(i) Clause (i) of Section 2.9(f) is
amended by deleting the "and" at the
end thereof;
(ii) Clause (ii) of Section 2.9 (f) is
amended by deleting the period at the
end thereof and replacing it with
";and"; and
(iii) A new clause (iii) is added after
clause (ii) of Section 2.9(f) as
follows:
"(iii) Notwithstanding the provisions of
clauses (i) and (ii) hereof, the Net Proceeds of
any sale, transfer or disposition of all or any
portion of Omnifax, DSI or International (as each
of such terms is defined in the February Waiver
Letter Agreement (as defined in the Fifth
Amendment)) shall be applied as provided in the
February Waiver Letter Agreement, except that any
such Net Proceeds shall be applied to reduce the
Term Loans Outstanding in inverse order of
maturity. In calculating the Net Proceeds of the
sale, transfer or disposition of DSI, any estimate
of taxes payable or other deductions in respect
thereof used in determining such Net Proceeds
shall be promptly recalculated when such estimated
amounts become actually determinable, and in the
event that the Net Proceeds of such transaction as
so actually calculated are higher than the
estimated amount thereof, the Companies shall
promptly pay to the Agent for distribution to the
Banks the portion of such Net Proceeds that would
have been additionally payable if such actual
amounts had initially been used instead of such
estimated amounts. The Companies shall fully
cooperate with PricewaterhouseCoopers, as advisors
to the Agent, and provide to them all requested
information to enable the prompt determination of
the actual amount of all such taxes payable or
other deductions."
(c) Clause (ii) of Section 8.3 is hereby amended
to delete the phrase "At any time on or after the
Effective Date," at the beginning thereof and replace
it with the following:
"At any time during the Waiver Term, the
Adjusted Consolidated Net Worth of Danka PLC and its
Subsidiaries to be less than $275,000,000, and
thereafter at any time,".
(d) Section 8.3 is hereby amended to add new
clauses (iv) and (v) after clause (iii) thereof to read
as follows:
"(iv) (A) The cumulative Consolidated
EBITDA of Danka PLC and it Subsidiaries (a) for
the two fiscal quarters ending September 30, 1999,
to be less than $85,520,000, (b) for the three
fiscal quarters ending December 31, 1999, to be
less than $139,680,000 and (c) for the four fiscal
quarters ending March 31, 2000 and each four
fiscal quarters ending thereafter, to be less than
$196,800,000 and (B) the portion of the cumulative
Consolidated EBITDA that is attributable to the
division(s) or business unit(s) of the Companies
commonly referred to as of the date of the Fifth
Amendment as "International" (a) for the two
fiscal quarters ending September 30, 1999, to be
less than $8,552,000, (b) for the three fiscal
quarters ending December 31, 1999, to be less than
$13,968,000 and (c) for the four fiscal quarters
ending March 31, 2000 and each four fiscal
quarters ending thereafter, to be less than
$19,680,000; provided, however, that in making the
calculation of Consolidated EBITDA for the fiscal
quarter ending June 30, 1999, the Consolidated
EBITDA attributable to the division(s) or business
unit(s) of the Companies commonly referred to as
of the date of the Fifth Amendment as "DSI" shall
be included.
(v) The ratio for any period of (A)
Consolidated EBITDA for such period, to (b)
interest expense for such period, in each case of
Danka PLC and its Subsidiaries (a) as at September
30, 1999 for the two fiscal quarters then ending
to be less than 2.00 to 1.00, (b) as at December
31, 1999 for the three fiscal quarters then ending
to be less than 2.00 to 1.00, (c) as at March 31,
2000 for the four fiscal quarters then ending to
be less than 2.00 to 1.00, (d) as at June 30, 2000
for the four fiscal quarters then ending to be
less than 2.00 to 1.00 and (e) as at the end of
any fiscal quarter ending on or after September
30, 2000 for the four fiscal quarters then ending
to be less than 2.00 to 1.00; provided, however,
that in making the calculation of Consolidated
EBITDA for the fiscal quarter ending June 30,
1999, the Consolidated EBITDA attributable to the
division(s) or business unit(s) of the Companies
commonly referred to as of the date of the Fifth
Amendment as "DSI" shall be included."
(e) Section 8.8 is hereby amended as follows:
(i) Clause (b) of Section 8.8 is amended
by deleting the word "or" at the end
thereof;
(ii) Clause (c) of Section 8.8 is amended
by deleting the period at the end
thereof and replacing it with ";or";
and
(iii) A new clause (d) is added after clause
(c) of Section 8.8 as follows:
"(d) Such sale, transfer or disposition is
the sale, transfer or disposition of the
division(s) or business unit(s) of the Companies
commonly referred to as of the date of the Fifth
Amendment as "DSI" substantially in accordance
with the terms and conditions described on Exhibit
A attached to the Fifth Amendment."
3. Limitation on Aggregate Amount of Revolving Loans
Outstanding and Term Loan Outstandings.
Notwithstanding any other provision of the
Credit Agreement, (i) prior to the earlier of July 15, 1999 and
the closing of any sale, transfer or disposition of the
division(s) of business unit(s) of the Companies commonly
referred to as of the date hereof as "DSI" ("DSI Sale"), the
outstanding principal amount of all Revolving Loan Outstandings,
Term Loan Outstandings and International Swing Line Loans shall
not exceed the amount thereof permitted by the Credit Agreement
(prior to the amendment thereof pursuant to this Fifth
Amendment), and (ii) thereafter, the outstanding principal amount
(including, without limitation, the face amount of all
outstanding Letters of Credit) of all Revolving Loan
Outstandings, Term Loan Outstandings and International Swing Line
Loans shall not exceed $750,000,000.
4. Acknowledgment; Release.
(a) The Companies and the Grantors acknowledge
that they have no existing defense, counterclaim, offset, cross-
complaint, claim or demand of any kind or nature whatsoever that
can be asserted to reduce or eliminate all or any part of any of
their respective liability to pay the full indebtedness
outstanding under the terms of the Credit Agreement and any other
documents which evidence, guaranty or secure the Obligations.
The Companies and the Grantors hereby release and forever
discharge the Agent, the International Swing Line Banks, the
Banks and all of their officers, directors, employees, attorneys,
consultants and agents from any and all actions, causes of
action, debts, dues, claims, demands, liabilities and obligations
of every kind and nature, both in law and in equity, known or
unknown, whether matured or unmatured, absolute or contingent.
(b) The International Swing Line Borrowers
acknowledge that they have no existing defense, counterclaim,
offset, cross-complaint, claim or demand or any kind or nature
whatsoever that can be asserted to reduce or eliminate all or any
part of their respective liability to pay the full indebtedness
owed by any of them under the terms of the International Swing
Line Agreement or any separate facility which has been made
available to any of them by any International Swing Line Bank or
a Designated Local Lender (as defined in the International Swing
Line Agreement) and any agreements related thereto. The
International Swing Line Borrowers hereby release and forever
discharge the Agent, the International Swing Line Banks and the
Designated Local Lenders (as defined in the International Swing
Line Agreement) and all of their officers, directors, employees,
attorneys, consultants and agents from any and all actions,
causes of action, debts, dues, claims, demands, liabilities and
obligations of every kind and nature, both in law and in equity,
known or unknown, whether matured or unmatured, absolute or
contingent.
5. Waiver Extension Fees; Expenses. Promptly upon the
execution of this Fifth Amendment by the Majority Banks, the
Danka Entities shall pay to the Agent for distribution to the
Banks a waiver extension fee equal to 1/4% of the Banks'
aggregate Commitments then in effect (after reduction for the
actual (or expected) Net Proceeds of the DSI Sale and the
$18,750,000 principal payment of the Term Loan Outstandings due
July 1, 1999). In the event that at any of the following dates
the Companies shall not have paid all Obligations in full and
terminated all Revolving Loan Commitments and Term Loan
Commitments of the Banks, the Danka Entities shall pay to the
Agent for distribution to the Banks a waiver extension fee
calculated as follows: (i) on October 31, 1999, equal to 1/4% of
the Banks' aggregate Commitments then in effect, (ii) on
December 31, 1999, equal to 1/2% of the Banks' aggregate
Commitments then in effect and (iii) on March 31, 2000, equal to
1% of the Banks' aggregate Commitments then in effect. The Danka
Entities agree promptly to pay or reimburse the members of the
Steering Committee of Banks for such members' reasonable expenses
(including the reasonable fees and expenses of outside counsel
for each member of the Steering Committee) incurred in connection
with the Credit Agreement and the other Loan Documents.
6. Effectiveness; Extension of Waiver. This
Fifth Amendment shall become effective as of the date hereof upon
(a) receipt by the Agent of an executed copy of this Fifth
Amendment (which may be signed in counterparts and may be
received by facsimile transmission) signed by the Danka Parties
and the Majority Banks and (b) payment by the Danka Entities of
the waiver extension fee provided for in the first sentence of
Section 5 hereof. The waiver of the enforcement of the financial
covenants contained in Section 8.3 of the Credit Agreement, as
provided in the Waiver Letter Agreements, shall continue in
effect throughout the Waiver Term; provided, however, that,
notwithstanding the foregoing (i) such waiver shall not impair
the effectiveness of the provisions of this Fifth Amendment,
including, without limitation, Section 2(c) and (d) hereof, and
the provisions of Section 8.3 of the Credit Agreement modified or
added hereby shall, as so modified or added, be in full force and
effect during the Waiver Term (and the provisions of Section
7.1(c) of the Credit Agreement shall be applicable thereto) and
(ii) such waiver shall terminate and be of no further force or
effect in the event that the closing of the DSI Sale shall not
occur on or before July 15, 1999 (it being agreed that any fees
paid pursuant to Section 5 hereof shall be non-refundable in all
circumstances once paid, including, without limitation, upon any
termination of the waiver as aforesaid). The "Waiver Term" shall
be the period commencing upon the effectiveness of this Fifth
Amendment and ending on July 15, 2000. The provisions of
Sections 8 and 12 of the February Waiver Letter Agreement shall
continue in effect during the Waiver Term as if the phrase
"Waiver Period" used therein was replaced with the phrase "Waiver
Term" as defined herein.
7. Entire Agreement. This Fifth Amendment sets forth
the entire understanding and agreement of the parties hereto in
relation to the subject matter hereof and supersedes any prior
negotiations and agreements among the parties relative to such
subject matter.
8. Deemed Amendment of Other Loan Documents; Full
Force and Effect. To the extent necessary to give effect to the
provisions hereof, the International Swing Line Agreement and
Security Agreement shall be deemed amended and supplemented by
the terms hereof. Except as hereby specifically amended,
modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and
shall remain in full force and effect according to their
respective terms.
9. Counterparts. This Fifth Amendment may be
executed in any number of counterparts (including, without
limitation, counterparts sent by facsimile transmission), each of
which shall be deemed an original as against any party whose
signature appears thereon, and all of which shall together
constitute one and the same instrument.
10. Governing Law. This Fifth Amendment shall in all
respects be governed by the laws and judicial decisions of the
State of Florida.
11. Enforceability. Should any one or more of the
provisions of this Fifth Amendment be determined to be illegal or
unenforceable as to one or more of the parties hereto, all other
provisions nevertheless shall remain effective and binding on the
parties hereto.
12. Authorization. This Fifth Amendment (including
the provisions of Exhibit A and Schedule I hereto) has been duly
authorized, executed and delivered by the parties hereto and
constitutes a legal, valid and binding obligation of the parties
hereto, except as may be limited by general principles of equity
or by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors'
rights generally.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
WITNESS: DANKA BUSINESS SYSTEMS PLC
By:_____________________________________
Name:___________________________________
Title:__________________________________
DANKA HOLDING COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
DANKALUX SARL & CO. SCA
BY: DANKALUX SARL, COMMANDITE
By:_____________________________________
Name:___________________________________
Title:__________________________________
AMERICAN BUSINESS CREDIT CORPORATION
AMERITREND CORPORATION
CORPORATE CONSULTING GROUP, INC.
D.I. INVESTMENT MANAGEMENT, INC.
DANKA IMAGING DISTRIBUTION, INC.
DANKA MANAGEMENT COMPANY, INC.
DANKA OFFICE IMAGING COMPANY
DYNAMIC BUSINESS SYSTEMS, INC.
XXXXXX ENTERPRISES, INC. OF SOUTH FLORIDA
XXXX FUNDING COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
INTERNATIONAL SWINGLINE BORROWERS
DANKA CHILE COMERCIAL LTDA
DANKA DO BRASIL LIMITADA
DANKA MEXICANA S DE RL DE CV
DANKA DE PANAMA X.X.
XXXXX DE COLOMBIA
PUERTO RICO DANKA INC.
DANKA DE VENEZUELA X.X.
XXXXX AUSTRALIA PTY LIMITED &
DANKA NEW ZEALAND LIMITED
DANKA OFFICE IMAGING (JAPAN)
DANKA PHILIPPINES INC.
DANKA FRANCE S.A.R.L.
DANKA FRANCE XX
XXXXX OFFICE PRODUCTS B.V.
DANKA OFFICE IMAGING GMBH,
DANKA DEUTSCHLAND GMBH,
DANKA DISTRIBUTION GMBH,
DANKA DEUTSCHLAND HOLDING GMBH
DANKA OFFICE PRODUCTS B.V.
DANKA ITALIA S.P.A., BASSILLICHI INFOTEC
S.P.A., DANKA S.P.A. & DANKA OFFICE
IMAGING S.P.A.
DANKA HOLDINGS BV, DANKA EUROPE BV,
DANKA DISTRIBUTION BV (FKA INFOTEC
EUROPE BV), INFOTEC NEDERLAND BV,
DANKA GROUP BV, DANKA SERVICES
INTERNATIONAL BV, DANKA OFFICE
PRODUCTS BV, INFOTEC PARTICIPATIE BV,
AND DANKA NEDERLAND BV
DANKA OFFICE PRODUCTS BV
DANKA BUSINESS SYSTEMS PLC,
DANKALUX SARL & CO. SCA &
DANKA HOLDING COMPANY
By:______________________________________
Name: F. Xxxx Xxxxxxxxx
Title: Director
QUALITY BUSINESS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
NATIONSBANK, N.A., as Agent and Issuing
Bank
By:_____________________________________
Name:___________________________________
Title:__________________________________
NATIONSBANK, N.A., as a Bank (Trade)
By:_____________________________________
Name:___________________________________
Title:__________________________________
NATIONSBANK, N.A., as a Bank
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
International Swing Line Bank
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE BANK OF NOVA SCOTIA
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE BANK OF NEW YORK
By:_____________________________________
Name:___________________________________
Title:__________________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:_____________________________________
Name:___________________________________
Title:__________________________________
CIBC INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
PNC BANK, KENTUCKY, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
FIRST UNION NATIONAL BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
SUN TRUST BANK, TAMPA BAY
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE FUJI BANK AND TRUST COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
ABN AMRO BANK N.V.
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
PARIBAS
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
DEUTSCHE BANK AG
New York Branch and/or Cayman Island
Branch
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
HIBERNIA NATIONAL BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
ISTITUTO BANCARIO SAN PAOLO
DI TORINO - ISTITUTO MOBILIARE
ITALIANO SPA
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
LLOYDS BANK PLC
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE SUMITOMO BANK, LIMITED
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANCA COMMERCIALE ITALIANA
New York Branch
By:_____________________________________
Name:___________________________________
Title:__________________________________
AMSOUTH BANK OF FLORIDA
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK OF TOKYO-MITSUBISHI, LTD.,
ATLANTA AGENCY
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANKERS TRUST COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE DAI-ICHI KANGYO BANK, LIMITED
By:_____________________________________
Name:___________________________________
Title:__________________________________
NATIONAL AUSTRALIA BANK LIMITED
ACN 004044937
By:_____________________________________
Name:___________________________________
Title:__________________________________
SANWA BANK LIMITED
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE TOKAI BANK LIMITED, NEW YORK BRANCH
By:_____________________________________
Name:___________________________________
Title:__________________________________
WACHOVIA BANK OF GEORGIA, N.A.
By:_____________________________________
Name:___________________________________
Title:__________________________________
NATIONAL WESTMINSTER BANK PLC
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANCA NAZIONALE DEL LAVORO S.p.A. -
LONDON BRANCH
By:_____________________________________
Name:___________________________________
Title:__________________________________
CREDIT AGRICOLE INDOSUEZ
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
STATE STREET BANK AND TRUST COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
THE CHASE MANHATTAN BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
LAZARD BROTHERS & CO., LIMITED
By:_____________________________________
Name:___________________________________
Title:__________________________________
EXHIBIT A
SUMMARY OF TERMS OF TRANSACTION AGREEMENT
Summary: The transaction values the DSI business at an
enterprise value of $330 million, for which Danka
will receive $301.5 million in cash and will
retain $27.3 million in preferred equity and $1.2
million in common equity in DSI. Specifically,
Danka will sell to an entity controlled by
Xxxxxxxx Ventures ("Holdings") 90% of the common
equity and 80% of the preferred equity of a
current Danka subsidiary (the "Company") which, at
the closing, will own, through its own
subsidiaries (the "New Subsidiaries"), the DSI
business. Danka Office Imaging Company will
retain preferred equity and common equity of the
Company, as described above. The form of the
transaction is complicated, and has been designed
to accomplish (a) Schroder's objective to use
recapitalization accounting and (b) Danka's desire
to have the transaction treated for tax purposes
as a sale of assets.
Proceeds: Proceeds will be distributable to Danka's banks as
follows:
-- Net cash proceeds: $330 million enterprise
value, less (a) $27.3 million for the
retained preferred equity (the retained
common equity being treated as current
proceeds); (b) $3.0 million in retained
obligations (employee bonuses); (c) the
amount of the Kodak receivable at closing
(see below; estimated to be $8 million); (d)
fees and expenses estimated at $8.0 million;
and (e) direct taxes of $10.0 million =
$273.7 million.
-- Banks receive 60% of the first $197.3 million
($200 million less the $2.7 million in
proceeds from the Xxxxxxx sale, already
applied), or $118.4 million, plus 80% of the
$76.4 million excess over $197.3 million, or
$61.1 million, for total estimated
distributable proceeds of $179.5 million.
-- In addition, if and when any payments are
received in connection with the retained
preferred units or the Kodak receivable (as
described below), such payments will be
treated as sale proceeds for purposes of
determining further distributions to the
banks.
Anticipated
Closing Date: June 18, 1999, but in no event later than July 1,
1999.
Assets and
Liabilities: The New Subsidiaries will be transferred all
assets used primarily in the DSI business, other
than certain enumerated excluded assets, and will
assume certain enumerated liabilities relating
primarily to the DSI business.
Adjustments: There will be a two-way post-closing adjustment to
the purchase price, based on the difference
between the net working capital at closing and
projected levels of working capital; provided that
no adjustment will be made if the difference is
less than $500,000. Danka management believes
that little or no adjustment will be made.
There will be a purchase price credit (estimated
to be $8 million) for the receivable due to the
Business from Kodak. Danka will retain this
receivable and, if and when payment is received
such payment will be treated as sale proceeds for
purposes of determining distributions to the
banks.
Pre-Closing
Covenants: Danka's covenants include:
-- delivery of audited financial statements for
the business for 1998 and 1999 (which is
anticipated to occur within one week);
-- obtaining of specified material consents (a
short list of customers, which DSI management
expects to receive shortly, and the bank
consent); and
-- operation of the business in the ordinary
course (with a number of specific
prohibitions).
Closing
Conditions: Conditions to the closing include:
-- Continued accuracy of representations and
warranties, subject to materiality; and
compliance with all material covenants.
-- Receipt of the Bank Consent, other material
consents and clearance from Irish and German
competition authorities.
-- No suit having been commenced to prevent the
transactions.
-- Minimum EBIT on the 1998 and 1999 audited
financial statements of $23.4 million and
$25.4 million, respectively (Danka's CFO
anticipates that these thresholds will be
met).
-- No material adverse change in the business.
-- Receipt of the debt financing in accordance
with the commitment letters.
-- Bank Agent shall have delivered (i) UCC
termination statements and any other
appropriate lien satisfaction instruments to
release any liens arising in connection with
the Credit Agreement on the Transferred
Assets and on the equity of the Company and
the New Subsidiaries; and (ii) an
acknowledgment that each security interest
and lien granted pursuant to the Credit
Agreement and related documentation on the
Transferred Assets and on the equity of the
Company and the New Subsidiaries has been
terminated and released.
Noncompete: -- For 18 months post-closing, Parent and its
affiliates will not enter into any contract
with a DSI customer to perform services of
the Business at a current DSI location
(including through sales of equipment
intended to substitute for the DSI services).
-- For 12 months post-closing, Parent and its
affiliates will not engage in the facilities
management business.
-- For 12 months post-closing, neither side will
solicit the employment of officers or
employees of the other.
Post-Closing
Relationship: Four agreements govern the post-closing
relationship:
-- Supply Agreement for sale of Danka equipment
to DSI -- three year term; Danka to be
preferred supplier, with right of first
refusal.
-- Transitional Support Services Agreement --
Danka will provide certain services and allow
use of shared facilities.
-- Preferred Outsourcing Agreement -- DSI will
continue to provide services at Danka's
headquarters, and DSI will be Danka's
preferred source of such services.
-- Services and Supplies Agreement -- Governs
the provision of services and supplies with
respect to new DSI contracts.
Indemnifi-
cation: Danka indemnifies DSI for (a) inaccuracies in
representations or warranties; (b) breaches of
covenants; (c) failure to discharge excluded
liabilities; (d) bulk sales issues; and (e)
consolidated group tax liability. The following
limitations apply:
-- $9,000,000 deductible basket;
-- expiration of September 30, 2000;
-- no consequential damages;
-- no recovery if Holdings had actual knowledge;
-- cap of 10% of the purchase price.
Danka will pledge to Holdings for 2 years its
retained interest in the Company to secure Danka's
indemnification obligations in the event of a
bankruptcy filing by Danka. Danka's banks will
have a second lien on this interest, which will
become a first lien on the second anniversary of
the closing date.
Holdings and DSI indemnify Danka for (a)
inaccuracies in representations or warranties; (b)
breaches of covenants; (c) failure to discharge
transferred liabilities; (d) WARN Act issues and
other post-closing actions; and (e) increased tax
liability based on the leveraged recapitalization
structure.
Termination: Drop dead date is July 1, 1999. If the
transaction is not closed due to failure to obtain
the banks' consent by July 1, 1999, Danka will
reimburse Holdings for its costs up to $2 million.
Other
Provisions: -- Each party pays half of all transfer taxes,
other than VAT.
-- Mutual nondisparagement covenant.
SCHEDULE I
LEVERAGE FEE
Period
(Dates Inclusive) LEVERAGE FEE (in bps)
Average Outstandings Average Outstandings
>=$650MM < $650MM
07/01/99 through 09/30/99 4 0
10/01/99 through 12/31/99 75 25
01/01/00 through 03/31/00 125 50
04/01/00 through July 15, 2000 150 75
