-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HSMQ/PaCAbvOaMw1fNSFNGqrNoEV0wMqyjE5fY/zuMbxyNwJYJEAjzEr/wVWCFT3 ds7ocIyAzA1OOjRxmjrm9Q== 0001016843-00-000115.txt : 20000215 0001016843-00-000115.hdr.sgml : 20000215 ACCESSION NUMBER: 0001016843-00-000115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANKA BUSINESS SYSTEMS PLC CENTRAL INDEX KEY: 0000894010 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 980052869 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20828 FILM NUMBER: 539137 BUSINESS ADDRESS: STREET 1: 11201 DANKA CIRCLE N CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 7275766003 MAIL ADDRESS: STREET 1: 11201 DANKA CIRCLE NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33716 10-Q 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 DECEMBER 31, 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 (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 11201 DANKA CIRCLE NORTH ST. PETERSBURG, FLORIDA 33716 - ---------------------------------------- ------------------------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 727-576-6003 NOT APPLICABLE ------------------------------------------------------------ (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The registrant had 233,714,838 Ordinary shares outstanding as of December 31, 1999. INDEX PAGE ---- PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Consolidated Statements of Operations for the three months ended December 31, 1999 and 1998 (Unaudited) 3 Consolidated Statements of Operations for the nine months ended December 31, 1999 and 1998 (Unaudited) 4 Condensed Consolidated Balance Sheets as of December 31, 1999 (Unaudited) and March 31, 1999 (Audited) 5 Consolidated Statements of Cash Flows for the nine months ended December 31, 1999 and 1998 (Unaudited) 6 Consolidated Statements of Shareholders' Equity for the nine months ended December 31, 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 17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 34 Item 2 - Changes in Securities and Use of Proceeds 34 Item 3 - Defaults upon Senior Securities 35 Item 4 - Submission of Matters to a Vote of Security Holders 36 Item 5 - Other Information 36 Item 6 - Exhibits and Reports on Form 8-K 37 Signature 41 2 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)
FOR THE THREE MONTHS ENDED ------------------------------ DECEMBER 31, DECEMBER 31, 1999 1998 - ------------------------------------------------------------ ----------- ----------- (UNAUDITED) (UNAUDITED) REVENUE: Retail equipment sales $ 180,416 $ 188,426 Retail service, supplies and rentals 399,144 479,960 Wholesale 34,925 55,488 - ---------------------------------------------------------- ----------- ----------- Total revenue 614,485 723,874 - ---------------------------------------------------------- ----------- ----------- COSTS AND OPERATING EXPENSES: Cost of retail equipment sales 122,834 171,942 Special charges, cost of retail equipment sales -- 47,191 Retail service, supplies and rental costs 246,170 302,192 Special charges, retail service, supplies and rental costs -- 25,991 Wholesale costs of revenue 28,232 47,993 Selling, general and administrative expenses 172,018 246,837 Special charges, general and administrative expenses -- 17,000 Amortization of intangible assets 3,621 5,131 Write-off of goodwill and other long-lived assets -- 107,858 Commitment to Kodak under R&D agreements -- 12,500 Restructuring charges -- 38,174 - ---------------------------------------------------------- ----------- ----------- Total costs and operating expenses 572,875 1,022,809 - ---------------------------------------------------------- ----------- ----------- EARNINGS (LOSS) FROM OPERATIONS 41,610 (298,935) Interest expense and other, net 27,878 21,923 - ---------------------------------------------------------- ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES 13,732 (320,858) Provision (benefit) for income taxes 3,845 (46,849) - ---------------------------------------------------------- ----------- ----------- NET EARNINGS (LOSS) $ 9,887 $ (274,009) ========================================================== =========== =========== BASIC EARNINGS (LOSS) PER ADS: Net earnings (loss) per ADS $ 0.17 $ (4.82) Weighted average ADSs 57,936 56,896 DILUTED EARNINGS (LOSS) PER ADS: Net earnings (loss) per ADS $ 0.16 $ (4.82) Weighted average ADSs 62,114 56,896
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 3
DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS) FOR THE NINE MONTHS ENDED ----------------------------- DECEMBER 31, DECEMBER 31, 1999 1998 - ------------------------------------------------------------ ------------ ------------- (UNAUDITED) (UNAUDITED) REVENUE: Retail equipment sales $ 526,897 $ 587,091 Retail service, supplies and rentals 1,264,793 1,458,825 Wholesale 88,783 177,201 - ------------------------------------------------------------ ---------- ---------- Total revenue 1,880,473 2,223,117 - ------------------------------------------------------------ ---------- ---------- COSTS AND OPERATING EXPENSES: Cost of retail equipment sales 369,387 462,193 Special charges, cost of retail equipment sales -- 47,191 Retail service, supplies and rental costs 761,853 908,915 Special charges, retail service, supplies and rental costs -- 25,991 Wholesale costs of revenue 70,672 149,662 Selling, general and administrative expenses 551,095 691,402 Special charges, general and administrative expenses -- 17,000 Amortization of intangible assets 10,705 15,510 Write-off of goodwill and other long-lived assets -- 107,858 Commitment to Kodak under R&D agreements -- 37,500 Restructuring charges -- 38,174 - ------------------------------------------------------------ ---------- ---------- Total costs and operating expenses 1,763,712 2,501,396 - ------------------------------------------------------------ ---------- ---------- EARNINGS (LOSS) FROM OPERATIONS 116,761 (278,279) Interest expense and other, net 76,638 55,867 - ------------------------------------------------------------ ---------- ---------- EARNINGS (LOSS) BEFORE INCOME TAXES 40,123 (334,146) Provision (benefit) for income taxes 11,234 (51,793) - ------------------------------------------------------------ ---------- ---------- NET EARNINGS (LOSS) $ 28,889 $(282,353) ============================================================ ========== ========== BASIC EARNINGS (LOSS) PER ADS: Net earnings (loss) per ADS $ 0.50 $ (4.96) Weighted average ADSs 57,324 56,881 DILUTED EARNINGS (LOSS) PER ADS: Net earnings (loss) per ADS $ 0.49 (4.96) Weighted average ADSs 59,137 56,881
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 4 DANKA BUSINESS SYSTEMS PLC CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, MARCH 31, 1999 1999 - --------------------------------------------------------------------- ------------- ------------ (UNAUDITED) (AUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 78,758 $ 66,095 Accounts receivable, net 551,889 571,470 Inventories 343,338 356,139 Prepaid expenses, deferred income taxes and other current assets 60,552 56,951 Assets of business held for sale -- 62,791 - --------------------------------------------------------------------- ----------- ----------- TOTAL CURRENT ASSETS 1,034,537 1,113,446 Equipment on operating leases, net 228,396 264,625 Property and equipment, net 94,612 92,963 Intangible assets, net 317,936 337,441 Deferred income taxes and other assets 82,326 96,667 - --------------------------------------------------------------------- ----------- ----------- TOTAL ASSETS $ 1,757,807 $ 1,905,142 ===================================================================== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt and notes payable $ 93,138 $ 89,732 Accounts payable 174,768 162,294 Accrued expenses and other current liabilities 236,319 333,446 Deferred revenue 46,225 51,818 Liabilities of business held for sale -- 17,240 - --------------------------------------------------------------------- ----------- ----------- TOTAL CURRENT LIABILITIES 550,450 654,530 6.75% convertible subordinated notes 200,000 200,000 Long-term debt and notes payable, less current maturities 572,735 852,415 Other long-term liabilities 27,369 27,033 - --------------------------------------------------------------------- ----------- ----------- TOTAL LIABILITIES 1,350,554 1,733,978 - --------------------------------------------------------------------- ----------- ----------- 6.50% CONVERTIBLE PARTICIPATING SHARES - REDEEMABLE: $1.00 stated value; 500,000 authorized; 218,000 issued and outstanding 204,630 -- ----------- ----------- SHAREHOLDERS' EQUITY: Ordinary shares, 1.25 pence stated value; 500,000,000 authorized; 233,714,838 issued and outstanding 4,875 4,758 Additional paid-in capital 314,808 304,436 Retained earnings (deficit) (45,015) (72,815) Accumulated other comprehensive income (loss) (72,045) (65,215) - --------------------------------------------------------------------- ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 202,623 171,164 - --------------------------------------------------------------------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,757,807 $ 1,905,142 ===================================================================== =========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED ---------------------------- DECEMBER 31, DECEMBER 31, 1999 1998 - ------------------------------------------------------------------------ ------------ ----------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net earnings (loss) $ 28,889 $(282,353) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 119,790 129,130 Loss on sale of property and equipment and equipment on operating leases 8,383 4,776 Proceeds from sale of rental equipment 11,208 26,162 Restructuring and other special charges -- 236,214 Loss on sale of Omnifax business 2,061 -- Changes in assets and liabilities: Accounts receivable 10,237 38,476 Inventories 14,319 47,470 Prepaid expenses, deferred income taxes and other current assets (8,299) 8,984 Other noncurrent assets 12,650 19,958 Accounts payable 35,695 (120,796) Accrued expenses (110,481) (56,441) Deferred revenue (5,604) (4,599) Other long-term liabilities (1,007) (73,239) - ------------------------------------------------------------------------- --------- --------- NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES 117,841 (26,258) - ------------------------------------------------------------------------- --------- --------- INVESTING ACTIVITIES Capital expenditures (95,114) (156,635) Proceeds from sale of property and equipment 1,377 2,955 Proceeds from sale of Omnifax business 45,000 -- Payment for purchase of subsidiaries (809) (1,534) - ------------------------------------------------------------------------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (49,546) (155,214) - ------------------------------------------------------------------------- --------- --------- FINANCING ACTIVITIES Net (payments) borrowings under line of credit agreements (251,771) 201,415 Principal payments on other long-term debt (4,035) (2,726) Proceeds from stock options exercised 87 251 Capital contributions 204,630 -- Dividends -- (5,952) - ------------------------------------------------------------------------- --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (51,089) 192,988 - ------------------------------------------------------------------------- --------- --------- EFFECT OF EXCHANGE RATES (4,543) 485 - ------------------------------------------------------------------------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 12,663 12,001 Cash and cash equivalents, beginning of period 66,095 34,653 - ------------------------------------------------------------------------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 78,758 $ 46,654 ========================================================================= ========= =========
6 SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. DANKA BUSINESS SYSTEMS PLC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (IN THOUSANDS) (UNAUDITED)
ADDITIONAL CURRENCY ORDINARY PAID-IN RETAINED TRANSLATION SHARES CAPITAL EARNINGS ADJUSTMENT TOTAL - ------------------------------- ------------ ----------- ------------ ------------ ------------ BALANCES AT MARCH 31, 1999 $ 4,758 $ 304,436 $ (72,815) $ (65,215) $ 171,164 Net earnings 28,889 28,889 Currency translation adjustment (6,830) (6,830) --------- Comprehensive income 22,059 Shares issued under employee stock and options plans 117 9,283 9,400 Beneficial conversion of participating shares 1,089 (1,089) -- - ------------------------------- --------- --------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1999 $ 4,875 $ 314,808 $ (45,015) $ (72,045) $ 202,623 =============================== ========= ========= ============ =========== =============
ADDITIONAL CURRENCY ORDINARY PAID-IN RETAINED TRANSLATION SHARES CAPITAL EARNINGS ADJUSTMENT TOTAL - ------------------------------- ------------ ----------- -------------- -------------- ------------- BALANCES AT MARCH 31, 1998 $ 4,746 $ 304,197 $ 227,917 $ (56,553) $ 480,307 Net loss (282,353) (282,353) Currency translation adjustment 818 818 ---------- Comprehensive loss (281,535) Dividends (5,952) (5,952) Shares issued under employee stock and options plans 12 239 251 - ------------------------------- --------- --------- --------- --------- --------- BALANCES AT DECEMBER 31, 1998 $ 4,758 $ 304,436 $ (60,388) $ (55,735) $ 193,071 =============================== ========= ========= ========= ========= =========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 7 DANKA BUSINESS SYSTEMS PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying condensed consolidated balance sheet as of December 31, 1999, consolidated statements of operations for the three months and nine months ended December 31, 1999 and 1998, the consolidated statements of shareholders' equity for the nine months ended December 31, 1999 and 1998, and the consolidated statements of cash flows for the nine months ended December 31, 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 9 for fiscal 1999 quarterly statements of operations which reflect such reclassifications). NOTE 2. 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 has substantially completed the planned reduction of 1,400 positions. Generally, severance is paid out to individuals over a period of time rather than one lump sum payment. The lease obligations relating to the closure of 60 facilities are expected to continue beyond the year 2001. Unutilized accruals of $1.9 million relating to fiscal 1998 and 1997 restructuring charges were adjusted during the third quarter of fiscal 1999, resulting in a net charge of $40.8 million for the twelve months ended March 31, 1999. The following table summarizes the restructuring charge and related cash outlays: 1999 RESTRUCTURING CHARGE:
--------------------------------------------------------------- TOTAL THIRD QTR. FISCAL RESERVE AT THIRD QTR. OTHER RESERVE AT 1999 SEPT. 30, CASH NON-CASH DECEMBER 31, (in 000's) EXPENSE 1999 OUTLAYS CHANGES 1999 ---------------------------------------------------------------- Severance $ 19,820 $ 4,903 ($ 2,230) -- $ 2,673 Future lease obligations on facility Closures 19,790 13,960 (1,426) -- 12,534 Write-off of leasehold improvements on facility closures 3,084 -- -- -- -- -------- -------- -------- ------ -------- Total restructuring charge $ 42,694 $ 18,863 ($ 3,656) -- $ 15,207 -------- -------- -------- ------ --------
8 FISCAL 1997 RESTRUCTURING CHARGE: In December 1996, the Company recorded a $35.0 million pre-tax restructuring charge, related to the integration of the Office Imaging division acquired from Kodak and the related transition to the Company's Market Based Approach in North America. As of December 31, 1999, approximately $3.8 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 December 31, 1999 totaled $0.4 million. NOTE 3. 6.50% SENIOR CONVERTIBLE PARTICIPATING SHARES On December 17, 1999, the Company completed $218.0 million in investments for an aggregate 218,000 new 6.50% senior convertible participating shares of Danka Business Systems PLC. Equity funds managed by affiliates of The Cypress Group LLC ("Cypress") invested $200.0 million in 200,000 new convertible participating shares of Danka. In addition, The Prudential Assurance Company Limited ("Prudential"), a subsidiary of Prudential Corporation plc, invested $18.0 million for an additional 18,000 new shares of the same issue. The net proceeds to the Company for the share subscription by Cypress and Prudential totaled approximately $204.6 million, after deducting estimated transaction expenses. Eighty-five percent (85%) of the net proceeds, or approximately $174.0 million, of the share subscription was used to make a required repayment of Danka's existing bank indebtedness and the remainder will be used for general corporate purposes. The new participating shares are entitled to dividends equal to the greater of 6.50% per annum and ordinary share dividends on an as converted basis. Dividends will be paid in the form of additional participating shares for the first five years. The participating shares are convertible into ordinary shares at a conversion price of $3.125 per Ordinary Share (equal to $12.50 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating shareholders. The new issued participating shares (218,000) have voting rights on an as converted basis, initially corresponding to approximately 23% of the total voting power of the Company's capital stock. The terms of the participating shares are set out in full in the articles of association of the Company, which were adopted at the extraordinary general meeting of its shareholders on December 17, 1999. Details of the terms of the shares are also included in the circular sent to Danka's shareholders and the proxy statement sent to Danka's U.S. shareholders and American Depositary shareholders on November 24, 1999. On or after December 17, 2003, and prior to December 17, 2010, the Company has the option to redeem the participating shares, in whole but not in part and subject to compliance with applicable laws, for cash at the greater of (a) the redemption price per share as set out in the table below (based on the liquidation return per participating share described below) and (b) the then market value of the ordinary shares into which the participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. Instead of redemption in cash at the price set out in (b) above, the Company may decide to convert the participating shares into the number of Ordinary Shares into which they are convertible. PERCENTAGE OF YEAR LIQUIDATION RETURN ------------------------------------------------------ 2003-2004 103.250% 2004-2005 102.167% 2005-2006 101.083% 2006 and thereafter 100.000% 9 In the event of liquidation of the Company, participating shareholders shall be entitled to receive a distribution equal to the greater of (a) the liquidation return per share (initially $1,000 and subject to upward adjustment on certain default events by the Company) plus any accumulated and unpaid dividends accumulating from the most recent dividend date, and (b) the amount that would have been payable on each participating share if it had been converted into Ordinary Shares. If by December 17, 2010, the participating shares have not been converted or otherwise redeemed by the Company, the Company is required, subject to compliance with applicable laws, to redeem the participating shares for cash at the greater of (a) the then liquidation value and (b) the then market value of the Ordinary Shares into which the participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. Instead of redemption in cash at the price set out in (b) above, the Company may decide to convert the participating shares into the number of Ordinary Shares into which they are convertible. 10 NOTE 4. 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 nine months ended December 31, 1999 and 1998:
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 --------------------------------------- ----------------------------------------- (In 000's except per share amounts) INCOME SHARES PER-SHARE INCOME (LOSS) SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ----------- ----------------------------------------- Net earnings (loss) $9,887 ($274,009) BASIC EARNINGS (LOSS) PER ADS: Income available to shareholders 9,887 57,936 $ 0.17 (274,009) 56,896 ($4.82) ======== ======= EFFECT OF DILUTIVE SECURITIES: 6.5% convertible participating 2,843 -- shares Stock options 1,335 -- --------- ------- DILUTED EARNINGS (LOSS) PER ADS: Income available to shareholders Plus assumed conversion $ 9,887 62,114 $ 0.16 ($274,009) 56,896 ($4.82) ======== ========= ======== ======== ======= =====
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 --------------------------------------- ----------------------------------------- (In 000's except per share amounts) INCOME SHARES PER-SHARE INCOME (LOSS) SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ----------- ----------------------------------------- Net earnings (loss) $28,889 ($282,353) BASIC EARNINGS (LOSS) PER ADS: Income available to shareholders 28,889 57,324 $ 0.50 (282,353) 56,881 ($4.96) ======== ======= EFFECT OF DILUTIVE SECURITIES: 6.5% convertible participating 951 -- shares Stock options 862 -- --------- ------- DILUTED EARNINGS (LOSS) PER ADS: Income available to shareholders Plus assumed conversion $ 28,889 59,137 $ 0.49 ($282,353) 56,881 ($4.96) ======== ========= ======== ======== ======== =====
The effect of the Company's $200.0 million of 6.75% Convertible Subordinated Notes are not included in the computation of diluted earnings per share for the three and nine months ended December 31, 1999 and 1998 because they are not dilutive. 11 NOTE 5. 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, 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 nine months ended December 31, 1999 and 1998:
DANKA DANKA DANKA SERVICES CONSOLIDATED THREE MONTHS ENDED DECEMBER 31 AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL - ----------------------------------------------------------------------------------------------------------------- (in 000's) 1999 Total revenue $333,707 $209,340 $71,438 -- $614,485 Earnings (loss) from operations 30,230 6,236 6,964 ($1,820) 41,610 Interest expense & other, net 27,878 27,878 Provision for income taxes 3,845 3,845 Net earnings 9,887 - ----------------------------------------------------------------------------------------------------------------- 1998 Total revenue $404,647 $247,357 $71,870 -- $723,874 Earnings (loss) from operations before restructuring and other special charges (53,934) 5,018 8,192 ($21,997) (298,935) Restructuring and other special charges 236,214 236,214 Interest expense & other, net 21,923 21,923 Provision (benefit) for income taxes (46,849) (46,849) Net loss (274,009)
12
DANKA DANKA DANKA SERVICES CONSOLIDATED NINE MONTHS ENDED DECEMBER 31 AMERICAS INTERNATIONAL INTERNATIONAL OTHER TOTAL - ----------------------------------------------------------------------------------------------------------------- (in 000's) 1999 Total revenue $1,042,918 $626,863 $210,692 -- $1,880,473 Earnings (loss) from operations 89,933 19,759 19,276 ($12,207) 116,761 Interest expense & other, net 76,638 76,638 Provision for income taxes 11,234 11,234 Net earnings 28,889 - ----------------------------------------------------------------------------------------------------------------- 1998 Total revenue $1,300,550 $714,500 $208,067 -- $2,223,117 Earnings (loss) from operations before Restructuring and other special charges (39,516) 22,209 21,470 ($46,228) (42,065) Restructuring and other special charges 236,214 236,214 Interest expense & other, net 55,867 55,867 Provision (benefit) for income taxes (51,793) (51,793) Net loss (282,353)
NOTE 6. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the three months ended December 31, 1999 and 1998 was $4.8 million and ($278.0) million, respectively. NOTE 7. 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 8. 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 13 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 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 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. 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. 14 NOTE 9. 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:
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 - ------------------------------------------------------------------------------------------------ ------------- 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) ==============================================================================================================
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:
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 - ------------------------------------------------------------------------------------------------------------------ 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) % ==================================================================================================================
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: 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 - --------------------------------------------------------------------------------------------
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 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. 17 THE COMPARISON ANALYSIS IS BASED ON THE COMPANY'S RESULTS BEFORE THE EFFECT OF RESTRUCTURING AND OTHER SPECIAL CHARGES, WHICH OCCURRED DURING THE QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998. BELOW IS A SUMMARY OF THE SPECIAL CHARGES. REFER TO NOTE 2 ON PAGE 8 FOR DETAILS ON THE RESTRUCTURING CHARGE. TO REVIEW THE EFFECTS OF SUCH CHARGES ON THE COMPANY'S OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998, REFER TO THE TABLES ON PAGES 19-21 . SPECIAL CHARGES (PRE-TAX):
------------------- THREE AND NINE (in thousands) MONTHS ENDED DECEMBER 31, 1998 ------------------- Special charges to cost of retail equipment (1): Kodak equipment valuations $ 46,059 Write-off of other assets 1,132 ----------- Total 47,191 Special charges to cost of retail service, supplies and rentals (2): Write-off of terminated Kodak agreements 23,991 Write-off of other assets 2,000 ----------- Total 25,991 Special charges to selling, general and administrative expenses (3): Write-off of terminated Kodak agreements 15,000 Write-off of other assets 2,000 ----------- Total 17,000 FAS 121 impairment of long-lived assets (4) 107,858 ----------- Total special charges $ 198,040 ===========
(1) Special charges to the cost of retail equipment sales primarily consisted of $46.1 million for a decline in the estimated market value of the Company's Kodak branded inventory as well as additional amounts related to the termination of certain agreements between the Company and Kodak. See (2) below for the note on termination of agreements. (2) Special charges to the cost of retail service, supplies and rentals primarily consisted of $24.0 million for the write-off of terminated Supply Agreements between the Company and Kodak. On December 17, 1998, the Company announced the termination of its Research and Development Agreement with Kodak, as well as the termination of certain supply and other agreements that required the Company to make minimum purchases of equipment from Kodak (3) Special charges to selling, general and administrative expenses primarily consisted of $15.0 million for the write-off of certain terminated agreements between the Company and Kodak. See (2) above for the note on termination of agreements. (4) In connection with the Company's restructuring plan implemented in December 1998, the Company reviewed its investment in goodwill and other long-lived assets for impairment. The Company determined that based on changes in the business environment and an analysis of projected cash flows, the carrying amount of goodwill and other long-lived assets, primarily in the U.S. and Canada, would not be recoverable. The resulting impairment necessitated a write-down of $107.9 million, which is comprised of $89.5 million in the U.S. and $18.4 million in Canada. 18 The following tables set forth for the periods indicated the dollar amounts and percentage of total revenue represented by certain items in the Company's Consolidated Statements of Operations before and after restructuring and other special charges which occurred during the three and nine months ended December 31, 1998: AFTER RESTRUCTURING AND OTHER SPECIAL CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DOLLAR AMOUNTS IN MILLIONS 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Retail equipment sales.......................... $ 180.4 $ 188.4 $ 526.9 $ 587.1 Retail service, supplies and rentals............ 399.2 480.0 1,264.8 1,458.8 Wholesale....................................... 34.9 55.5 88.8 177.2 -------- -------- ---------- ---------- Total revenue.............................. 614.5 723.9 1,880.5 2,223.1 Cost of revenue................................. 397.3 595.3 1,201.9 1,593.9 -------- -------- ---------- ---------- Gross profit.................................... 217.2 128.6 678.6 629.2 Selling, general and administrative expenses.... 172.0 263.8 551.1 708.4 Amortization of intangible assets............... 3.6 5.1 10.7 15.5 Write-off of goodwill and long-lived assets..... -- 107.9 -- 107.9 Commitment to Kodak under R&D agreements........ -- 12.5 -- 37.5 Restructuring charges........................... -- 38.2 -- 38.2 -------- -------- ---------- ---------- Earnings (loss) from operations............ 41.6 (298.9) 116.8 (278.3) Interest expense and other, net................. 27.9 21.9 76.6 55.8 -------- -------- ---------- ---------- Earnings (loss) before income taxes........ 13.7 (320.8) 40.1 (334.1) Provision (benefit) for income taxes............ 3.8 (46.8) 11.2 (51.8) -------- -------- ---------- ---------- Net earnings (loss)........................ $ 9.9 ($ 274.0) $ 28.9 ($ 282.3) ======== ======== ========== ==========
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, PERCENTAGE OF TOTAL REVENUE 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Retail equipment sales........................ 29.4 % 26.0 % 28.0 % 26.4 % Retail service, supplies and rentals.......... 65.0 66.3 67.3 65.6 Wholesale..................................... 5.6 7.7 4.7 8.0 ------ ------ ------ ------ Total revenue............................. 100.0 100.0 100.0 100.0 Cost of revenue................................. 64.6 82.2 63.9 71.7 ------ ------ ------ ------ Gross profit.................................... 35.4 17.8 36.1 28.3 Selling, general and administrative expenses.... 28.0 36.4 29.3 31.9 Amortization of intangible assets............... 0.6 0.7 0.6 0.7 Write-off of goodwill and long-lived assets..... -- 14.9 -- 4.9 Commitment to Kodak under R&D agreements........ -- 1.7 -- 1.7 Restructuring charges........................... -- 5.3 -- 1.6 ------ ------- ------ ------ Earnings (loss) from operations........... 6.8 (41.3) 6.2 (12.5) Interest expense and other, net................. 4.6 3.0 4.1 2.5 ------ ------ ------ ------ Earnings (loss) before income taxes....... 2.2 (44.3) 2.1 (15.0) Provision (benefit) for income taxes............ 0.6 (6.4) 0.6 (2.3) ------ ------ ------ ------ Net earnings (loss)....................... 1.6 % (37.9) % 1.5 % (12.7) % ====== ====== ====== ======
19 BEFORE RESTRUCTURING AND OTHER SPECIAL CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DOLLAR AMOUNTS IN MILLIONS 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Retail equipment sales.................................... $ 180.4 $ 188.4 $ 526.9 $ 587.1 Retail service, supplies and rentals...................... 399.2 480.0 1,264.8 1,458.8 Wholesale................................................. 34.9 55.5 88.8 177.2 -------- -------- ---------- ---------- Total revenue......................................... 614.5 723.9 1,880.5 2,223.1 Cost of revenue............................................. 397.3 522.2 1,201.9 1,520.8 -------- -------- ---------- ---------- Gross profit................................................ 217.2 201.7 678.6 702.3 Selling, general and administrative expenses................ 172.0 246.8 551.1 691.4 Amortization of intangible assets........................... 3.6 5.1 10.7 15.5 Commitment to Kodak under R&D agreements.................... -- 12.5 -- 37.5 Restructuring charges....................................... -- -- -- -- -------- -------- ---------- ---------- Earnings (loss) from operations....................... 41.6 (62.7) 116.8 (42.1) Interest expense and other, net............................. 27.9 21.9 76.6 55.8 -------- -------- ---------- ---------- Earnings (loss) before income taxes................... 13.7 (84.6) 40.1 (97.9) Provision (benefit) for income taxes........................ 3.8 (4.7) 11.2 (9.7) -------- -------- ---------- ---------- Net earnings (loss)................................... $ 9.9 ($ 79.9) $ 28.9 ($ 88.2) ======== ======== ========== ==========
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, PERCENTAGE OF TOTAL REVENUE 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Retail equipment sales........................................ 29.4 % 26.0 % 28.0 % 26.4 % Retail service, supplies and rentals.......................... 65.0 66.3 67.3 65.6 Wholesale..................................................... 5.6 7.7 4.7 8.0 ----- ----- ----- ----- Total revenue............................................. 100.0 100.0 100.0 100.0 Cost of revenue................................................. 64.6 72.1 63.9 68.4 ----- ----- ----- ----- Gross profit.................................................... 35.4 27.9 36.1 31.6 Selling, general and administrative expenses.................... 28.0 34.2 29.3 31.1 Amortization of intangible assets............................... 0.6 0.7 0.6 0.7 Commitment to Kodak under R&D agreements........................ -- 1.7 -- 1.7 Restructuring charges........................................... -- -- -- -- ----- ----- ----- ----- Earnings (loss) from operations........................... 6.8 (8.7) 6.2 (1.9) Interest expense and other, net................................. 4.6 3.0 4.1 2.5 ----- ----- ----- ----- Earnings (loss) before income taxes....................... 2.2 (11.7) 2.1 (4.4) Provision (benefit) for income taxes............................ 0.6 (0.7) 0.6 (0.4) ----- ----- ----- ----- Net earnings (loss)....................................... 1.6 % (11.0) % 1.5 % (4.0) % ===== ===== ===== =====
20 The following tables set forth for the periods indicated the dollar gross profit margin and the percentage for each of the Company's revenue classifications before and after restructuring and other special charges which occurred during the three and nine months ended December 31, 1998: AFTER RESTRUCTURING AND OTHER SPECIAL CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DOLLAR AMOUNTS IN MILLIONS 1999 1998 1999 1998 ------ ------ ------ ------ Retail equipment sales........................... $ 57.6 ($ 30.7) $ 157.5 $ 77.7 Retail service, supplies and rentals............. 152.9 151.8 503.0 524.0 Wholesale........................................ 6.7 7.5 18.1 27.5
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, AS PERCENTAGE OF EACH REVENUE CLASSIFICATION 1999 1998 1999 1998 ------ ------ ------ ------ Retail equipment sales........................... 31.9 % (16.3) % 29.9 % 13.2 % Retail service, supplies and rentals............. 38.3 31.6 39.8 35.9 Wholesale........................................ 19.2 13.5 20.4 15.5
BEFORE RESTRUCTURING AND OTHER SPECIAL CHARGES:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DOLLAR AMOUNTS IN MILLIONS 1999 1998 1999 1998 ------ ------ ------ ------ Retail equipment sales......................... $ 57.6 $ 16.5 $ 157.5 $ 124.9 Retail service, supplies and rentals........... 152.9 177.7 503.0 549.9 Wholesale...................................... 6.7 7.5 18.1 27.5
THREE MONTHS ENDED NINE MONTHS ENDED AS PERCENTAGE OF EACH REVENUE CLASSIFICATION DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------ ------ ------ ------ Retail equipment sales......................... 31.9 % 8.7 % 29.9 % 21.3 % Retail service, supplies and rentals........... 38.3 37.0 39.8 37.7 Wholesale...................................... 19.2 13.5 20.4 15.5
21 QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998: REVENUE Revenue declined 15% to $614.5 million for the three months ended December 31, 1999 ("third quarter of fiscal 2000") compared to $723.9 million for the three months ended December 31, 1998 ("third quarter of fiscal 1999"). Total revenue for the third quarter of fiscal 2000 was affected by the sale of the Company's Omnifax business effective July 30, 1999 and the closure of the Company's U.S. wholesale division effective March 31, 1999. The Omnifax business reported total revenue of $27.5 million for the third quarter of fiscal 1999. In addition, the Company's U.S. wholesale division reported revenue of $19.2 million for the third quarter of fiscal 1999. The Company's retail equipment sales declined 4% to $180.4 million for the third quarter of fiscal 2000 compared to $188.4 million for the third 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. The Company's retail service, supplies and rentals revenue declined 17% to $399.1 million in the third quarter of fiscal 2000 from $480.0 million in the third 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-volume analog machine base due to shifts in the industry and product mix to mid- and high-volume digital and color equipment. Wholesale revenue declined 37% to $34.9 million in the third quarter of fiscal 2000 from $55.5 million in the third quarter of fiscal 1999 primarily due to the closure of the Company's U.S. wholesale operations effective March 31, 1999. As mentioned above, the U.S. wholesale division reported revenue of $19.2 million for the third quarter of fiscal 1999. 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 third quarter of fiscal 2000 would have been approximately $24.0 million higher. GROSS PROFIT Gross profit increased 8% to $217.2 million for the third quarter of fiscal 2000 from $201.7 million for the third quarter of fiscal 1999. The gross profit margin as a percentage of total revenue increased to 35.4% for the third quarter of fiscal 2000 from 27.9% for the third quarter of fiscal 1999. The increase in the combined gross profit margin was due to improvements in the gross profit margin for each of the Company's revenue segments. Including the effect of special charges to cost of retail equipment sales and cost of retail service, supplies and rentals, gross profit was $128.6 million, or 17.8% of revenue, for the third quarter of fiscal 1999. Gross profit as a percentage of retail equipment sales increased to 31.9% for the third quarter of fiscal 2000 from 8.7% for the third quarter of fiscal 1999. Changes in the current product mix resulting from new, higher margin products in color, digital and high-volume positively affected the retail equipment margin for the third quarter of fiscal 2000. The margin for the third quarter of fiscal 1999 was 22 negatively affected by the write-down of certain of the Company's non-Kodak branded inventory to estimated market value and continued efforts to reduce out-of-box inventories. The net impact of these factors was approximately $25.0 million. Negative press regarding the Company's financial situation led to price discounting to customers, which also impacted the margin last year. Including the effect of special charges, the Company reported a loss of 16.3% on its retail equipment sales margin for the third quarter of fiscal 1999. As a percentage of revenue, the gross profit margin on retail service, supplies and rentals increased to 38.3% for the third quarter of fiscal 2000 from 37.0% for the third quarter of fiscal 1999, primarily attributable to improvements in U.S. service productivity. Including the special charges to retail service, supplies and rental costs, the Company reported a gross profit margin of 31.6% for the third quarter of fiscal 1999. As a percentage of revenue, the gross profit margin on wholesale sales increased to 19.2% for the third quarter of fiscal 2000 from 13.5% for the third 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 the Company's international wholesale business. The Company's wholesale margin for the third quarter of fiscal 1999 was also affected by the write-down of its U.S. wholesale inventory to estimated market value. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") decreased 30% to $172.0 million for the third quarter of fiscal 2000 from $246.8 million for the third quarter of fiscal 1999. The decrease was due to cost savings achieved through the Company's restructuring initiatives and worldwide cost reduction program implemented in December 1998 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, SG&A expenses decreased to 28.0% for the third quarter of fiscal 2000 from 34.2% for the third quarter of fiscal 1999. Including the effect of special charges, the Company reported total SG&A expenses of $263.8 million for the third quarter of fiscal 1999. AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets decreased to $3.6 million for the third quarter of fiscal 2000 from $5.1 million for the third quarter of fiscal 1999. During the third quarter of fiscal 1999, the Company wrote-off a total of $107.9 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 R&D 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 23 fiscal 1999 under which Kodak was required to finish the development of the DigiSource 9110 and the Company paid Kodak $23.0 million. The Company has no further commitments to Kodak for research and development. In the comparable third quarter of fiscal 1999, the Company recorded research and development commitments totaling $12.5 million. RESTRUCTURING CHARGES The Company recorded a $40.1 million pre-tax restructuring charge during the third quarter of fiscal 1999 related to the Company's worldwide cost reduction program with the goal of reducing selling, general and administrative expenses. The fiscal 1999 restructuring charge was reduced by $1.9 million for remaining liabilities unused from prior restructuring charges in fiscal 1998 and 1997. EARNINGS (LOSS) FROM OPERATIONS The Company reported earnings from operations of $41.6 million for the third quarter of fiscal 2000 compared to an operating loss of $62.7 million for the third quarter of fiscal 1999. The increase was attributable to gross profit improvements, reductions in SG&A expenses, lower amortization expense and the elimination of research and development commitments to Kodak. Including restructuring and other special charges, the Company reported an operating loss of $298.9 million for the third quarter of fiscal 1999. INTEREST EXPENSE AND OTHER, NET Interest expense and other, net increased to $27.9 million for the third quarter of fiscal 2000 compared to $21.9 million for the third quarter of fiscal 1999. Excluding foreign exchange losses of 0.3 million, interest expense totaled $27.6 million. The interest expense increase was attributable 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, July 9 and December 1, 1999. See - "Liquidity and Capital Resources." INCOME TAXES Income taxes increased to $3.8 million for the third quarter of fiscal 2000 compared to a tax benefit of $4.7 million for the third quarter of fiscal 1999. The increase was primarily due to higher levels of earnings. The combined effective income tax rate was 28.0% for the third quarter of fiscal 2000 as compared to a 5.6% tax benefit for the third 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. The effective tax rate for the third quarter of fiscal 1999 was impacted by non-tax deductible items, primarily the write-off of goodwill and other long-lived assets, valuation allowances established as a result of uncertainties about the ability to utilize net operating loss carry-forwards in certain jurisdictions, principally the UK and Canada, and the magnitude of the loss. Including the effect of restructuring and other special charges during the third quarter of fiscal 1999, the Company's effective tax rate increased to 14.6%. 24 NET (LOSS) EARNINGS As a result of the above factors, net earnings increased to $9.9 million for the third quarter of fiscal 2000 compared to a net loss of $79.9 million for the third quarter of fiscal 1999. As a percentage of revenue, net earnings rose to 1.6% for the third quarter of fiscal 2000 compared to a net loss for the same period last year. With effect of restructuring and other special charges, the Company reported a net loss of $274.0 million for the third quarter of fiscal 1999. NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998: REVENUE Revenue declined 15% to $1.9 billion for the nine months ended December 31, 1999 compared to $2.2 billion for the nine months ended December 31, 1998. Total revenue for the nine months ended December 31, 1999 was affected by the sale of the Company's Omnifax business effective July 30, 1999 and the closure of its U.S. Wholesale division effective March 31, 1999. Results for the nine months ended December 31, 1999 include $35.7 million in revenue from the Omnifax business compared to $85.0 million for the nine months ended December 31, 1998. In addition, the U.S. wholesale operations reported total revenue of $82.0 million for the nine months ended December 31, 1998. The Company's retail equipment sales declined 10% to $526.9 million for the nine months ended December 31, 1999 compared to $587.1 million for the nine months ended December 31, 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 nine months ended December 31, 1999 by the sale of the Omnifax business. The Company's retail service, supplies and rentals revenue declined 13% to $1.3 billion for the nine months ended December 31, 1999 from $1.5 billion for the nine months ended December 31, 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-volume analog machine base due to shifts in the industry and product mix to mid- and high-volume digital and color equipment. Wholesale revenue for the nine months ended December 31, 1999 declined 50% to $88.8 million from $177.2 million for the nine months ended December 31, 1998 primarily due to the sale of the Company's U.S. wholesale division effective March 31, 1999. As mentioned above, the U.S. wholesale division reported revenue of $82.0 million for the nine months ended December 31, 1998. 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 nine months ended December 31, 1999 would have been approximately $45.0 million higher. 25 GROSS PROFIT Gross profit declined 3% to $678.6 million for the nine months ended December 31, 1999 from $702.3 million for the nine months ended December 31, 1998. The gross profit margin as a percentage of total revenue increased to 36.1% for the nine months ended December 31, 1999 from 31.6% for the nine months ended December 31, 1998. The increase in the Company's combined gross profit margin was due to improvements in the gross margin for each of the Company's revenue segments. Including the effect of special charges to cost of retail equipment sales and cost of retail service, supplies and rentals, gross profit was $629.2 million, or 28.3% of revenue, for the nine months ended December 31, 1999. Gross profit as a percentage of retail equipment sales increased to 29.9% for the nine months ended December 31, 1999 from 21.3% for the nine months ended December 31, 1998. Changes in the current product mix resulting from new, higher margin products in color, digital and high-volume, positively affected the retail equipment margin for the nine months ended December 31, 1999. The retail equipment margin for the nine months ended December 31, 1998 was affected by the write-down of certain of the Company's non-Kodak branded inventory to estimated market value during the third quarter of fiscal 1999 and continued efforts to reduce out-of-box inventories. The net impact of these factors was approximately $25.0 million. Negative press regarding the Company's financial situation led to price discounting to customers, which also affected the margin last year. Including the effect of special charges, gross profit as a percentage of retail equipment sales was 13.2% for the nine months ended December 31, 1999. As a percentage of revenue, the gross profit margin on retail service, supplies and rentals, increased to 39.8% for the nine months ended December 31, 1999 from 37.7% for the nine months ended December 31, 1998 primarily attributable to improvements in U.S. service productivity. Including special charges to retail service, supplies and rental costs, the Company reported a gross profit margin of 35.9% for the nine months ended December 31, 1998. As a percentage of revenue, the gross profit margin on wholesale sales increased to 20.4% for the nine months ended December 31, 1999 from 15.5% for the nine months ended December 31, 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. The Company's wholesale margin for the nine months ended December 31, 1998 was also affected by the write-down of its U.S. wholesale inventory to estimated market value. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses declined 20% to $551.1 million for the nine months ended December 31, 1999 from $691.4 million for the nine months ended December 31, 1998. The decrease was due to cost savings achieved through the Company's restructuring initiatives and worldwide cost reduction program implemented in December 1998 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, SG&A expenses decreased to 29.3% for the nine months ended December 31, 1999 from 31.1% for the nine months ended December 31, 1998. Including the effect of special charges, the Company reported total SG&A expenses of $708.4 million for the nine months ended December 31, 1998. 26 AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets decreased to $10.7 million for the nine months ended December 31, 1999 from $15.5 million for the nine months ended December 31, 1998. During the third quarter of fiscal 1999, the Company wrote-off a total of $107.9 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 R&D 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 paid Kodak $23.0 million. The Company has no further commitments to Kodak for research and development. In the comparable nine months ended December 31, 1998, the Company recorded research and development commitments totaling $37.5 million. RESTRUCTURING CHARGES The Company recorded a $40.1 million pre-tax restructuring charge during the third quarter of fiscal 1999 related to the Company's worldwide cost reduction program with the goal of reducing selling, general and administrative expenses. The fiscal 1999 restructuring charge was reduced by $1.9 million for remaining liabilities unused from prior restructuring charges in fiscal 1998 and 1997. EARNINGS (LOSS) FROM OPERATIONS Earnings from operations increase to $116.8 million for the nine months ended December 31, 1999 from an operating loss of $42.1 million for the nine months ended December 31, 1998. Earnings from operations were positively impacted by the higher combined gross profit, lower SG&A expenses, lower amortization expense and the elimination of research and development commitments to Kodak. Including restructuring and other special charges, the Company reported an operating loss of $278.3 million for the nine months ended December 31, 1998. INTEREST EXPENSE AND OTHER, NET Interest expense and other, net increased to $76.6 million for the nine months ended December 31, 1999 compared to $55.8 million for the nine months ended December 31, 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 $1.0 million. Excluding these losses, the interest expense totaled $73.5 million for the nine months ended December 31, 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, July 9 and December 1, 1999. See "Liquidity and Capital Resources". 27 INCOME TAXES Income taxes increased to $11.2 million for the nine months ended December 31, 1999 compared to a tax benefit of $9.7 million for the nine months ended December 31, 1998. The increase was primarily due to a higher level of earnings. The combined effective income tax rate was 28.0% for the nine months ended December 31, 1999 compared to a 9.9% tax benefit for the nine months ended December 31, 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. The effective tax rate for the nine months ended December 31, 1998 was impacted by non-tax deductible items, primarily the write-off of goodwill and other long-lived assets, valuation allowances established as a result of uncertainties about the ability to utilize net operating loss carry-forwards in certain jurisdictions, principally the UK and Canada, and the magnitude of the loss. Including the effect of restructuring and other special charges, the Company's effective tax rate for the nine months ended December 31, 1998 increased to 15.5%. NET (LOSS) EARNINGS As a result of the above factors, the Company reported net earnings of $28.9 million for the nine months ended December 31, 1999 compared to a net loss of $88.2 million for the nine months ended December 31, 1998. As a percent of revenue, net earnings rose to 1.5% for the nine months ended December 31, 1999 compared to a net loss for the same period a year ago. Including the effect of restructuring and other special charges, the Company reported a net loss of $282.3 million for the nine months ended December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company has a credit agreement with a consortium of international bank lenders (the "Credit Agreement"). As amended on December 1, 1999, 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 amendment include an aggregate commitment by the lenders of $730.0 million. The amendment required the Company to use approximately 85% of the net proceeds of the new issue by the Company of the participating shares to repay indebtedness outstanding under the Credit Agreement. As described below, approximately $174.0 million (85%) of the net proceeds of subscriptions for new participating shares was used to pay outstanding indebtedness under the Credit Agreement on December 17, 1999. The amendment to the Credit Agreement also amends the minimum net worth covenant contained in the Credit Agreement, among other things, to make the covenant less restrictive during the period from July 31, 2000 to June 30, 2001 and provides that the indebtedness under the Credit Agreement matures on March 31, 2002. The amendment also removed any obligation of the Company to use its best efforts to sell the Company's outsourcing division, Danka Services 28 International, and provided that the $10.0 million payment, which would have been due upon such sale, became due upon the completion of the new issue of participating shares to equity funds managed by affiliates of The Cypress Group LLC. The $10.0 million payment was made on December 17, 1999. The Company paid a fee of $2.4 million related to amounts outstanding under the Credit Agreement on October 31, 1999 and $3.7 million on December 31, 1999. A payment of approximately $7.3 million becomes due on March 31, 2000, if any amounts remain outstanding under the Credit Agreement on that date. With respect to the period from October 1, 1999 through December 31, 1999, the Company was required to pay a fee of $1.6 million (equating to 0.75% annual interest on the average outstanding loans under the Credit Agreement). During the period from January 1, 2000 through March 31, 2000 this fee will be increased to equate to 1.25% if the average outstanding loans in that period exceed $650.0 million and decreased to equate to 0.50% if they do not. Those rates increase 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 (other than payment-in-kind dividends on the Company's participating shares) 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 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 90% of any net proceeds received for any asset dispositions after October 31, 1999 to repay outstanding indebtedness under the Credit Agreement. As of December 31, 1999, the Credit Agreement had an outstanding balance of $504.4 million under the revolving component and $146.8 million under the term loan, incurring interest at a weighted average rate of 8.9% and 6.2% per annum, respectively, including additional leverage fees as outlined above. 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. On January 18, 2000, the Company announced that it entered into a commitment with Bank of America, N.A. and Banc of America Securities LLC, as agents, who will fully underwrite a new five-year $800.0 million senior credit facility. The loan will be syndicated to a group of financial institutions. Proceeds of the facility will be used to refinance the Company's existing bank indebtedness under the current Credit Agreement and for general corporate purposes. The Company expects closing to occur on the new credit agreement by the end of March 2000, subject to customary contingencies. On December 17, 1999, the Company completed $218.0 million in investments for an aggregate 218,000 new 6.50% senior convertible participating shares of Danka Business Systems PLC. Equity funds managed by affiliates of The Cypress Group LLC ("Cypress") invested $200.0 million in 200,000 new convertible participating shares of the Company. In addition, The Prudential Assurance Company 29 Limited ("Prudential"), a subsidiary of Prudential Corporation plc, invested $18.0 million for an additional 18,000 new shares of the same issue. The net proceeds to the Company for the share subscriptions by Cypress and Prudential totaled approximately $204.6 million, after deducting estimated transaction expenses. Eighty-five percent (85%) of the net proceeds, or approximately $174.0 million, of the share subscription was used to make a required repayment of Danka's existing bank indebtedness under the current Credit Agreement and the remainder will be used for general corporate purposes. The new participating shares are entitled to dividends equal to the greater of 6.50% per annum and Ordinary Share dividends on an as converted basis. Dividends will be paid in the form of additional participating shares for the first five years. The participating shares are convertible into Ordinary Shares at a conversion price of $3.125 per Ordinary Share (equal to $12.50 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating shareholders. The new issued participating shares (218,000) have voting rights, on an as converted basis, initially corresponding to approximately 23% of the total voting power of the Company's capital stock. The terms of the participating shares are set out in full in the articles of association of the Company, which were adopted at the extraordinary general meeting of its shareholders on December 17, 1999. Details of the terms of the shares are also included in the circular sent to Danka's shareholders and the proxy statement sent to Danka's U.S. shareholders and American Depositary shareholders on November 24, 1999. The Company's cash flow provided by (used in) operating activities was $117.8 million and ($26.3) million for the nine months ended December 31, 1999 and 1998, respectively. The increase in operating cash flow for the nine months ended December 31, 1999 was favorably impacted by an increase in net earnings as well as increases in accounts payable which were partially offset by decreases in accrued expenses. Accounts payable increased primarily due to the availability of better credit terms with the Company's vendors as compared to the same period last year. Cash flow used in investing activities was $49.5 million and $155.2 million for the nine months ended December 31, 1999 and 1998, respectively. The decrease in investing activities 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 during the second quarter. Cash (used in) provided by financing activities was ($51.1) million and $193.0 million for the nine months ended December 31, 1999 and 1998, respectively. The decline in cash provided by financing activities was primarily attributable to changes in the level of borrowings. As a result of the Company's recent amendments to its Credit Agreement, which increases the Company's tiered margin spread and requires fee payments as discussed above, the Company's interest expense has increased. The Company's last dividend to shareholders was paid on July 28, 1998. The Company is not permitted to pay dividends (other than payment-in-kind dividends on its participating shares) under the Credit Agreement and does not anticipate that the payment of a dividend on an Ordinary Share 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 net proceeds received for the share subscription by Cypress and Prudential, will be sufficient to support its operations during the next twelve months. The Internal Revenue Service has completed an examination of the Company's federal income tax returns for the fiscal years ended March 31, 1996 and 1995. The Company received a notice of proposed deficiency in November 1999. The principal adjustments relate to the timing of certain deductions associated with leased equipment financing. The Company disagrees with these adjustments and will be filing a protest and requesting a conference with the Appellate Division of the Internal 30 Revenue Service. If the Internal Revenue Service were to prevail, net operating losses available for carryback to these years would increase by corresponding amounts. The Company believes, however, that it will prevail on this issue on the merits. The Company believes the resolution will not have a material adverse impact upon the Company's consolidated results of operations, liquidity or financial position. 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. 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 needed to be modified prior to the Year 2000 in order to remain functional. The Company has a Year 2000 Worldwide Program office that 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 managers. Through the date of this report, the Company has not experienced any significant problems arising from the effects of the Year 2000 issue. MARKET RISK MANAGEMENT INTEREST RATE RISK The Company has a Credit Agreement with a consortium of international banks, which matures on March 31, 2002. As of December 31, 1999, the Credit Agreement had an outstanding balance of $504.4 million under the revolving component and $146.8 million under the term loan, incurring interest at a weighted average rate of 8.9% and 6.2% per annum, respectively, including additional leverage fees as outlined above in "Liquidity and Capital Resources." Interest rates on these borrowings are at the option of the Company, 2.0% per annum plus either (i) the applicable Interbank Rate 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 31 Funds rate plus 0.5%. Additionally, the Company has various notes payable bearing interest from prime to 12.0%, maturing principally over the next five years, with an outstanding balance of $14.7 million as of December 31, 1999. Based on the outstanding balance under the current Credit Agreement, a change of 1% in the average interest rate, with all other variables remaining constant, would cause a change in interest expense of approximately $6.5 million on an annual basis not considering the offset of the interest rate swap agreements discussed below. Approximately 46% of the Company's total long-term debt is fixed rate. The Company offsets its interest rate risk by holding both fixed and variable debt as well as interest rate swap agreements. Under its current Credit Agreement, the Company is required to enter into arrangements that provide protection from the volatility of variable interest rates for a portion of the outstanding principal balance on the Credit Agreement. At December 31, 1999, the Company had interest rate swap agreements with four financial institutions, effectively converting variable rate principal balances to fixed rates for periods of two to three years. At December 31, 1999, the company maintained interest rate swaps on notional amounts of DEM65.1 million ($33.4 million), NLG93.6 million ($42.6 million), FRF166.9 million ($25.5 million), and U.S.$100.0 million, with weighted average fixed rates of approximately 5.3%. Based on the U.S. dollar balances maintained on the swap agreements, a 1% change in the interest rate, with all other variables remaining constant, would result in gains/losses on these derivatives of approximately $2.0 million. In March 1995, the Company issued $200.0 million of fixed rate 6.75% Convertible Subordinated Notes at par, due April 2002. The estimated fair value of the Notes at December 31, 1999 was approximately $150.0 million, based on the quoted market price of the Notes. CURRENCY EXCHANGE RISK Foreign exchange risk arises as a normal course of conducting business as a multinational corporation. The Company minimizes this risk by transacting its international business in local currencies. In this manner, assets and liabilities are matched in the local currency, thereby reducing the need for U.S. dollar conversion. Additionally, at December 31, 1999, approximately 31% of the Company's long-term debt is non-U.S. dollar denominated. Any foreign currency impact on translating assets and liabilities into U.S. dollars is included as a component of shareholders' equity. The Company occasionally enters into forward and option contracts with major banks to manage its exposure to foreign currency fluctuations. At December 31, 1999, there were no outstanding forward contracts or option contracts to buy or sell foreign currency. For the three years ended March 31, 1999 and the nine months ended December 31, 1999, gains and losses included in Consolidated Statements of Operations on forward contracts and option contract were not material. 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. 32 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. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Act of 1995. 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. Factors that might cause such actual results to differ materially from those reflected in any forward looking statements include, but are not limited to (i) any inability to finalize the proposed $800 million senior credit facility, (ii) any material adverse change in financial markets or Danka, (iii) any inability to maintain achieved cost savings, (iv) increased competition resulting from other high-volume and digital copier distributors and the discounting of such copiers by competitors, (v) 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, (vi) the ultimate outcome and impact of the pending class action lawsuit or any other lawsuit, (vii) any negative impact from the loss of any key upper management personnel, (viii) any significant assessment, pursuant to the review by the Internal Revenue Service (ix) fluctuations in foreign currencies and (x) 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. 33 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Reference is made to the report on legal proceedings made in the Form 10-Q filed by the Company in respect of the quarter ended September 30, 1999. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The rights of the holders of the Company's Ordinary Shares and American depositary shares representing Ordinary Shares were modified by the creation and issue on December 17, 1999 of a new class of 6.50% senior convertible participating shares of $1.00 stated value in the capital of the Company (the "Participating Shares"). The rights attaching to the Participating Shares are set out in the new articles of association of the Company adopted at an extraordinary general meeting of the Company's shareholders held on December 17, 1999. The following is a summary of certain of the principal rights attaching to the Participating Shares and the principal effects of the creation and issue of the Participating Shares on the rights attaching to the Company's ordinary shares. The Participating Shares are entitled to a preferential dividend payable quarterly and equivalent to a rate of 6.50% per annum of the liquidation preference of the Participating Shares of an initial amount of $1,000 (subject to upward adjustment on certain default events by the Company). The dividend shall be paid in the form of additional participating shares until the fifth anniversary of the initial issue date of the Participating Shares and cash thereafter (unless prohibited by the terms of the Company's then existing principal indebtedness). The Participating Shares are entitled to participate in any Ordinary Share dividend to the extent that the deemed per annum amount of the Ordinary Share dividend declared in any quarter exceeds the amount of the dividend that would otherwise be payable for such quarter on the Participating Shares. The Participating Shares are entitled to a preferential return of assets of the Company on its liquidation equal to the liquidation preference plus accumulated and unpaid dividends from the most recent dividend payment date. Each Participating Share is convertible at any time at the option of the holder into Ordinary Shares (or American depositary receipts representing ordinary shares) at a conversion price of $3.125 per ordinary share (equal to 320 Ordinary Shares, or 80 American depositary receipts, per Participating Share). The conversion price is subject to adjustment in certain circumstances to avoid dilution of the interests of holders of the Participating Shares. The Company has the right to redeem the Participating Shares at any time following the fourth anniversary of their initial issue date and, subject to compliance with applicable laws, must redeem the Participating Shares on the eleventh anniversary of their initial issue date. In certain circumstances, the Company may require conversion of the Participating Shares into Ordinary Shares instead of redemption. Special provisions apply which entitle the holders of Participating Shares to exercise redemption and conversion rights and, in certain instances, to the payment by the Company of a premium, in the event of certain change of control events affecting the Company. Holders of Participating Shares are entitled to vote at general meetings of the Company's shareholders. Each Participating Share carries so many votes as the number of Ordinary Shares in to 34 which it may convert, except that the total voting rights of the Participating Shares held by The Cypress Group LLC and its affiliates may not exceed more than 29.99% of the total voting rights of shareholders from time to time. In addition, holders of Participating Shares are entitled to vote at separate class meetings on matters which affect the rights attaching to the Participating Shares. Subject to certain limitations, the holders of the Participating Shares are entitled to appoint two directors to the board of the Company, and may appoint an additional two directors when the Company is in default of certain of its obligations in relation to the Participating Shares. The entitlement of holders of the Company's Ordinary Shares to dividends and distributions on a liquidation of the Company are subordinated to the rights of the holders of Participating Shares. Dividends may not be paid on Ordinary Shares unless the dividends payable on the Participating Shares have been paid in full and the Company is not in default of its obligations to redeem any Participating Shares. The Company may not make purchases of any of its Ordinary Shares while any Participating Shares are outstanding and may not reduce its issued share capital without approval by extraordinary resolution of a separate class meeting of the holders of the Participating Shares. The amounts payable by the Company on redemption, or in certain cases, conversion, of Participating Shares may reduce the amount of the profits of the Company otherwise available for distribution to holders of Ordinary Shares. The voting rights attaching to the Ordinary Shares are diluted by the voting rights attaching to the Participating Shares. Holders of ordinary shares are not entitled to vote on the appointment of the directors appointed by the holders of the Participating Shares, but the holders of the Participating Shares are entitled to vote on the appointment and removal of other members of the board of directors. The Company issued and sold 218,000 new Participating Shares for cash at a price of $1,000 per share in private placements on December 17, 1999. Of these shares, 200,000 new Participating Shares were issued and sold in a private placement to equity funds managed by affiliates of The Cypress Group LLC for an aggregate subscription price of $200,000,000. The Company paid a commission of $4,000,000 to affiliates of The Cypress Group LLC in respect of the subscription. The remaining 18,000 new Participating Shares were issued and sold in a private placement to The Prudential Assurance Company Limited for an aggregate subscription price of $18,000,000. The Company paid a commission of $320,000 to affiliates of The Prudential Assurance Company Limited in respect of the subscription. The transactions were exempt from registration under of the safe harbor provided by Rule 506 of Regulation D under section 4(2) of the Securities Act of 1933, as amended, as the placement of the securities involved no public offering or public solicitation to the purchasers who were accredited investors as defined in Rule 501 of Regulation D. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. 35 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual General Meeting of shareholders of the Company was held on October 19, 1999. The actions taken by the shareholders at that meeting and details of the relevant shareholder votes are set out in the Form 10-Q filed by the Company in respect of the quarter ended September 30, 1999. An Extraordinary General Meeting of shareholders of the Company was held on December 17, 1999. At the meeting, the following actions were taken by the shareholders: 1. Approval of new Articles of Association of the Company. The voting on the resolution was as follows: FOR 115,669,605 AGAINST 2,998,204 ABSTAINED 33,159 2. Approval to increase the authorized share capital of the Company to(pound)6,250,000 and U.S.$500,000 by the creation of 500,000 6.50% senior convertible participating shares of U.S. $1.00 each. FOR 117,698,431 AGAINST 969,378 ABSTAINED 33,159 3. The Board of Directors of the Company was granted the authority to allot securities up to an aggregate nominal amount of (pound)1,400,000 and U.S.$350,000. The voting on the resolution was as follows: FOR 117,341,725 AGAINST 1,326,084 ABSTAINED 33,159 4. The Board of Directors of the Company was granted the authority to allot equity securities for cash up to an aggregate nominal amount of U.S.$350,000 without providing certain pre-emptive rights. The voting on the resolution was as follows: FOR 117,369,669 AGAINST 1,298,140 ABSTAINED 33,159 ITEM 5. OTHER INFORMATION. Not applicable. 36 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. EXHIBIT NUMBER EXHIBIT - ------- ------- 2.1* Asset Purchase Agreement between Eastman Kodak Company and Danka Business Systems PLC dated as of September 6, 1996, including Exhibit 5.19 (a) which is the form of Amended and Restated Supply Agreement by and between Eastman Kodak Company and _______________________ dated as of ____________________, 1996. (Exhibit 2.1 to the Company's Form 8-K dated November 14, 1996.) 2.2* Amendment No. 1 to Asset Purchase Agreement between Eastman Kodak Company and Danka Business Systems PLC dated December 20, 1996 (Excluding schedules and similar attachments). (Exhibit 2.2 to the Company's Form 8-K dated January 15, 1997). 4.1* Memorandum of Association of the Company, including paragraphs 5 and 6. (Exhibit 2.1 of the Company's Registration Statement on Form 20-F, No. 0-20828, filed on November 10, 1992 (the "1992 Registration Statement"). 4.2 Articles of Association of the Company, including sections relating to Shares, Variation of Rights and Votes of Members. 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). 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). 37 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). 4.18 Seventh Amendment to Credit Agreement dated December 1, 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. 4.19* Subscription Agreement dated November 2, 1999 among Danka Business Systems PLC, Cypress Merchant Banking Partners II L.P., a Delaware limited partnership, Cypress Merchant Banking II C.V., a limited partnership organized and existing under the laws of The Netherlands, and 55th Street Partners II L.P., a Delaware limited partnership. (Exhibit 99.1 to the Company's Form 8-K November 2, 1999). 4.20* Amendment, dated December 16, 1999, to Subscription Agreement dated November 2, 1999 among Danka Business Systems PLC, Cypress Merchant Banking Partners II L.P., a Delaware limited partnership, Cypress Merchant Banking II C.V., a limited partnership organized and existing under the laws of The Netherlands, and 55th Street Partners II L.P., a Delaware limited partnership. (Exhibit 99.2 to the Company's Form 8-K December 17, 1999). 38 4.21* Registration Rights Agreement dated December 17, 1999, among Danka Business Systems PLC, Cypress Merchant Banking Partners II L.P., a Delaware limited partnership, Cypress Merchant Banking II C.V., a limited partnership organized and existing under the laws of The Netherlands, and 55th Street Partners II L.P., a Delaware limited partnership. (Exhibit 99.3 to the Company's Form 8-K December 17, 1999). 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. (Exhibit 10.7 to the Company's Form 10-Q June 30, 1999). 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). (Exhibit 10.8 to the Company's Form 10-Q June 30, 1999). 10.9* Change of Control Agreement dated November 6, 1998 among the Company, Danka Business Systems PLC and David P. Berg. (Exhibit 10.9 to the Company's Form 10-Q June 30, 1999). 10.10* Change of Control Agreement dated November 6, 1998 among the Company, Danka Business Systems PLC and Larry K. Switzer. (Exhibit 10.10 to the Company's Form 10-Q June 30, 1999). 10.11* Change of Control Agreement dated November 6, 1998 among the Company, Danka Business Systems PLC and Brian L. Merriman. (Exhibit 10.11 to the Company's Form 10-Q June 30, 1999). 10.12* Change of Control Agreement dated November 6, 1998 among the Company, Danka Business Systems PLC and F. Mark Wolfinger. (Exhibit 10.12 to the Company's Form 10-Q June 30, 1999). 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). (Exhibit 10.13 to the Company's Form 10-Q September 30, 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). (Exhibit 10.14 to the Company's Form 10-Q September 30, 1999). 10.15* Distribution Agreement by and between Nexpress Solutions and Danka Holding Company dated October 6, 1999. (Exhibit 10.15 to the Company's Form 10-Q September 30, 1999). 39 10.16* Distribution Agreement by and between Nexpress Solutions and Danka Group B.V. dated October 6, 1999. (Exhibit 10.16 to the Company's Form 10-Q September 30, 1999). 27.1 Financial Data Schedule (for SEC purposes only) (b) Reports on Form 8-K: The Company filed a report on Form 8-K, the earliest event occurring on November 2, 1999, announcing a definitive agreement between the Company and The Cypress Group LLC whereby equity investment funds managed by Cypress agreed to invest $200 million in 200,000 of convertible participating shares of Danka. The Company filed a report on Form 8-K, the earliest event occurring on December 17, 1999, announcing the completion of a $200 million investment by equity funds managed by affiliates of The Cypress Group LLC for 200,000 in new convertible participating shares of Danka and completion of a $18 million investment by The Prudential Assurance Company Limited for 18,000 new shares of the same class. 40 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: FEBRUARY 11, 2000 /s/ F. MARK WOLFINGER ----------------------- --------------------------- F. Mark Wolfinger, Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 41 EX-4.18 2 EXHIBIT 4.18 EXECUTION COPY SEVENTH AMENDMENT TO CREDIT AGREEMENT THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Seventh Amendment") is made and entered into as of December 1, 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., HERMAN ENTERPRISES, INC. OF SOUTH FLORIDA, 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"), BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as 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 BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as 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 as of December 5, 1997, a Second Amendment dated as of July 28, 1998, a Third Amendment dated as of December 31, 1998, a Fourth Amendment dated as of March 29, 1999 (the "Fourth Amendment"), a Fifth Amendment dated as of June 15, 1999 (the "Fifth Amendment"), a Sixth Amendment dated as of July 9, 1999 (the "Sixth Amendment"), a Waiver Letter Agreement dated as of October 20, 1998 (the "October Waiver Letter Agreement") and a Waiver Letter Agreement dated as of 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 a certain Subscription Agreement dated as of November 2, 1999 (the "Subscription Agreement"), between Danka PLC and Cypress Merchant Banking Partners III UP., a Delaware limited partnership, Cypress Merchant Banking II C.V., a limited partnership organized and existing under the laws of The Netherlands, and 55th Street Partners II L.P., a Delaware limited partnership, Danka PLC has agreed to issue 6.50% Senior Convertible Participating Shares (together with any other reasonably similar equity interests issued by Danka PLC from time to time, the "Participating Shares") which are convertible into ordinary shares of Danka PLC. 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. 2. AMENDMENT OF CREDIT AGREEMENT. Subject to the terms and conditions set forth herein, the Credit Agreement is amended as follows: (a) The definition of "Consolidated Fixed Charge Coverage Ratio" in Section 1.1 of the Credit Agreement is hereby amended by adding the following parenthetical after the phrase "dividends for such period": "(but excluding any dividends on Participating Shares paid in the form of additional Participating Shares)." (b) A new definition of "Participating Shares" is hereby added to Section 1.1 of the Credit Agreement immediately following the definition of "Participant", which new definition shall read as follows: "Participating Shares" means the 6.50% Senior Convertible Participating Shares of Danka PLC, which are convertible into ordinary shares, nominal value 1.25 pence per share, of Danka PLC and are issued pursuant to the Subscription Agreement and any other reasonably similar equity interests issued by Danka PLC from time to time. -2- (c) A new definition of "Subscription Agreement" is hereby added to Section 1.1 of the Credit Agreement immediately following the definition of "Spot Rate"), which new definition shall read as follows: "Subscription Agreement" means the Subscription Agreement, dated as of November 2, 1999, between Danka PLC and Cypress Merchant Banking Partners II L.P., a Delaware limited partnership, Cypress Merchant Banking Partners II C.V., a limited partnership organized and existing under the laws of The Netherlands, and 55th Street Partners II L.P., a Delaware limited partnership. (d) The definition of "Termination Date" in Section 1.1 of the Credit Agreement is hereby amended by replacing the date "December 5, 2002" with the date "March 31, 2002." (e) Clause (ii) of Section 8.3 is hereby amended to read in its entirety as follows: "(1) At any time (a) on and after September 30, 1999 and on or prior to December 30, 1999, the Adjusted Consolidated Net Worth (which term, as used in this Section 8.3(ii), shall exclude the impact of the $10,000,000 waiver extension fee provided for in the first sentence of Section 9 of the Sixth Amendment and Section 4(b) of the Seventh Amendment to Credit Agreement dated as of December 1, 1999 (the "Seventh Amendment")) of Danka PLC and its Subsidiaries to be less than $158,000,000; (b) on and after December 31, 1999 and on or prior to March 30, 2000 the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less then $206,962,000; (c) on and after March 31, 2000 and on or prior to June 29, 2000, the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than $218,286,000, (d) on and after June 30, 2000 and on or prior to September 29, 2000, the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than $237,103,000, (e) on and after September 30, 2000 and on or prior to December 30, 2000 the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than $254,289,000, (f) on and after December 31, 2000 and on -3- or prior to March 30, 2001 the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than $272,988,000, (g) on and after March 31, 2001 and on or prior to June 30, 2001 the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than $295,144,000, and (h) on and after July 1, 2001 the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries to be less than the sum of (A) an amount equal to the Adjusted Consolidated Net Worth of Danka PLC and its Subsidiaries on June 30, 2001 plus (B) an amount equal to 75% of the consolidated net income of Danka PLC and its Subsidiaries (if positive) for each calendar quarter commencing on or after July 1, 2001 (on a cumulative basis); provided, that if any time after September 30, 1999, Danka PLC issues an equity interest (including, without limitation, any Participating Shares, but expressly excluding any equity interests issued in connection with contributions to employee pension or profit sharing plans), each of the minimum requirements set forth above for each day on or after such date of issuance will be increased by an amount equal to 75% of the cash proceeds, less the actual, reasonable direct out-of-pocket expenses of such issuance (or the Net Subscription Proceeds (as defined in the Seventh Amendment) with respect to the Participating Shares), of the equity interest issued by Danka PLC after September 30, 1999." (f) The first paragraph of Section 8.5 is hereby amended to read in its entirety as follows: "RESTRICTED PAYMENTS, ETC. On and at all times after the date hereof Danka PLC will not, and will not permit any of its Subsidiaries to, declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock or share capital (now or hereafter outstanding) of Danka PLC or on any warrants, options or other rights with respect to any shares of any class of capital stock or share capital (now or hereafter outstanding) of Danka PLC (other than FIP Holder Payments and dividends or distributions payable -4- in shares of any class of its capital stock or share capital or warrants to purchase its capital stock or share capital or splitups or reclassifications of its capital stock or share capital into additional or other shares of any class of its capital stock or share capital), or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of capital stock or share capital (now or hereafter outstanding) of Danka PLC, or warrants, options or other rights with respect to any shares of any class of capital stock or share capital (now or hereafter outstanding) of Danka PLC, other than FIP Holder Payments." (g) Schedule 2.1 to the Credit Agreement is hereby amended by reducing the aggregate amount of all "Term Loan Commitments" for all of the Banks to $363,800,000 and by reducing the "Term Loan Commitment" of each Bank proportionately. 3. CHARACTERIZATION OF PARTICIPATING SHARES. It is agreed that for purposes of the Credit Agreement, any Participating Shares sold by Danka PLC pursuant to the Subscription Agreement, and any Participating Shares sold by Danka PLC from time to time which are substantially identical to the Participating Shares sold by Danka PLC pursuant to the Subscription Agreement, shall be deemed to constitute shareholders' equity and shall not be deemed to constitute Indebtedness (notwithstanding any other treatment of the Participating Shares that may be required under GAAP). 4. AMENDMENT OF THE SIXTH AMENDMENT. Subject to the terms and conditions set forth herein, (a) Section 6 of the Sixth Amendment is hereby amended by deleting the text therein in its entirety and replacing it with "Intentionally Omitted." (b) The first sentence of Section 9 of the Sixth Amendment is hereby amended by deleting the "and" before "(c)" and adding the following after the phrase "DSI Sale": "and (d) the date of original issuance of any Participating Shares." For the avoidance of doubt, no other fee shall be payable as a condition to the effectiveness of this Seventh Amendment other than reimbursement of the -5- Banks' and Agent's expenses as provided in Section 7 of this Seventh Amendment, but the foregoing shall not affect any other fee payable pursuant to the Sixth Amendment. (c) The last sentence of Section 10 of the Sixth Amendment is hereby amended by adding the following clause immediately before the period: "; provided, that Danka PLC may pay dividends or make distributions on the Participating Shares in the form of additional Participating Shares. Except as amended hereby, the Sixth Amendment shall remain in full force and effect in accordance with its terms. 5. NET SUBSCRIPTION PROCEEDS. Notwithstanding any provisions to the contrary in the Credit Agreement, 85% of the Net Subscription Proceeds (as defined herein) received by Danka PLC or any of its Subsidiaries from the issuance of all Participating Shares shall be paid to the Agent on behalf of the Banks within one Business Day after such receipt of such proceeds to repay or otherwise permanently reduce Term Loan Outstandings in inverse order of maturity, or if there are no Term Loan Outstandings, Revolving Loan Outstandings (with a simultaneous reduction in Revolving Commitments). The term "Net Subscription Proceeds" shall mean the cash proceeds from the issuance and sale of any Participating Shares, less the actual, reasonable direct out-of-pocket expenses of such issuance and sale (including, without limitation, the commission to be paid pursuant to the Subscription Agreement). 6. ADDITIONAL INDEBTEDNESS; ACQUISITIONS; INVESTMENTS. Notwithstanding any provision to the contrary in the Loan Documents, including, without limitation, Section 8.13 of the Credit Agreement and Section 14 of the February Waiver Letter, the Companies may incur additional unsecured Indebtedness (in addition to Indebtedness permitted under Section 7 of the Sixth Amendment) in an aggregate principal amount not in excess of $10,000,000 at any time outstanding; provided, that the Companies shall be in compliance with Section 8.3(iii) of the Credit Agreement after giving effect to such additional Indebtedness. Neither the Companies nor any of their Subsidiaries shall make any Acquisitions. Neither the Companies nor any of their Subsidiaries will make any Investments, except as permitted by the Fourth Amendment. 7. INTEREST RATE; EXCESS LEVERAGE FEE; EXPENSES. During the Waiver Term (as defined in the Sixth Amendment), the interest rates and Leverage Fees applicable to the Credit Agreement shall be those provided for pursuant to Section 3(a) of the Sixth Amendment. After the Waiver Term and until the -6- Termination Date, (i) the "Applicable Margin" for all Base Rate Loans and Offshore Rate Loans shall be 2.75% and (ii) the Companies shall pay to the Agent for distribution to the Banks, promptly upon calculation by the Agent of the actual Average Outstanding Balance for any period (or portion thereof in existence prior to the repayment in full of all Obligations) of three months commencing on or after August 1, 2000 (a "Subject Period") during which the Average Outstanding Balance equals or exceeds $650,000,000 (where the term "Average Outstanding Balance" shall mean the sum of the average daily outstanding principal amounts of all Term Loan Outstandings, Revolving Loan Outstandings and International Swing Line Outstandings during the Subject Period), a fee (the "Excess Leverage Fee") equal to (A) the actual Average Outstanding Balance for the Subject Period, TIMES (B) a fraction, the numerator of which is the number of days in the Subject Period and the denominator of which is 360, TIMES (C) seventy-five (75) basis points. The Danka Parties 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. 8. EFFECTIVENESS. This Seventh Amendment shall become effective as of December 1, 1999 upon (a) receipt by the Agent of an executed copy of this Seventh 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) receipt by the Danka Parties (with a copy to the Agent) of a duly executed waiver or amendment effective for the period after the Waiver Term (as defined in the Sixth Amendment) and until the Termination Date (i) of all violations and reasonably expected violations of the financial covenants incorporated into the tax retention operating lease documents to which certain of the Danka Parties are party, and (ii) waiving any required principal payments under such lease documents during such period (other than certain cash collateralization payments required by such lease documents upon any sale of assets by the Danka Parties (including, without limitation, any sale of collateral securing obligations under such lease documents), and other than any payments required by such lease documents on or after the date on which the Companies shall have paid all Obligations in full and shall have terminated all Revolving Loan Commitments and Term Loan Commitments of the Banks and all International Swing Line Commitments of the International Swing Line Banks). Notwithstanding the foregoing or anything to the contrary contained herein, in the event that prior to July 31, 2000 Danka PLC or any of its Subsidiaries shall not have received (and paid to the Agent on behalf of the Banks to the extent required by Section 5 above) the Net Subscription Proceeds from the issuance of the -7- Participating Shares pursuant to the Subscription Agreement, all of the provisions of this Seventh Amendment shall be null and void and of no further force and effect. 9. 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. 10. ENTIRE AGREEMENT. This Seventh 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. 11. 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 -8- 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. 12. COUNTERPARTS. This Seventh 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. 13. GOVERNING. This Seventh Amendment shall in all respects be governed by the laws and judicial decisions of the State of Florida. 14. ENFORCEABILITY. Should any one or more of the provisions of this Seventh Amendment be determined to be illegal or unenforceable as to one of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 15. AUTHORIZATION. This Seventh Amendment has been duly authorized, executed and delivered by the parties hereto and constitutes a legal, valid and binding obligations 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:___________________________________ -9- 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.J. INVESTMENT MANAGEMENT, INC. DANKA IMAGING DISTRIBUTION, INC. DANKA MANAGEMENT COMPANY, INC. DANKA OFFICE IMAGING COMPANY DYNAMIC BUSINESS SYSTEMS, INC. HERMAN ENTERPRISES, INC. OF SOUTH FLORIDA By:______________________________________ Name:____________________________________ Title:___________________________________ QUALITY BUSINESS, INC. By:______________________________________ Name:____________________________________ Title:___________________________________ -10- INTERNATIONAL SWINGLINE BORROWERS DANKA CHILE COMERCIAL LTDA DANKA DO BRASIL LIMITADA DANKA MEXICANA S DE RL DE CV DANKA DE PANAMA S.A. DANKA DE COLOMBIA PUERTO RICO DANKA INC. DANKA DE VENEZUELA S.A. DANKA AUSTRALIA PTY LIMITED & DANKA NEW ZEALAND LIMITED DANKA OFFICE IMAGING (JAPAN) DANKA PHILIPPINES INC. DANKA FRANCE S.A.R.L. DANKA FRANCE S.A. DANKA 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 BY), INFOTEC NEDERLAND BV, DANKA GROUP BV, DANKA SERVICES INTERNATIONAL BV, DANKA OFFICE PRODUCTS BV, INFOTEC PARTICIPATIE BV, AND DANKA NEDERLAND BV DANKA PRODUCTS BV DANKA BUSINESS SYSTEMS PLC, DANKALUX SARL & CO. SCA & DANKA HOLDING COMPANY By:_____________________________________ Name: F. Mark Wolfinger Title: Director -11- BANK OF AMERICA, NATIONAL ASSOCIATION. (formerly known as NationsBank, N.A.), as Agent and Issuing Bank By:_____________________________________ Name:___________________________________ Title:__________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as NationsBank, N.A,), as a Bank (Trade) By:_____________________________________ Name:___________________________________ Title:__________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as 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:__________________________________ - 12- 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:__________________________________ -13- 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:__________________________________ -14- 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:__________________________________ SAN PAOLO IMI SPA By:_____________________________________ Name:___________________________________ Title:__________________________________ By:_____________________________________ Name:___________________________________ Title:__________________________________ -15- LLOYDS BANK PLC By:_____________________________________ Name:___________________________________ Title:__________________________________ By:_____________________________________ Name:___________________________________ Title:__________________________________ THE SUMITOMO BANC LIMITED By:_____________________________________ Name:___________________________________ Title:__________________________________ BANCA COMMERCIALE ITALIANA New York Branch By:_____________________________________ Name:___________________________________ Title:__________________________________ By:_____________________________________ Name:___________________________________ Title:__________________________________ AMSOUTH BANK OF FLORIDA By:_____________________________________ Name:___________________________________ Title:__________________________________ -16- THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH 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:__________________________________ -17- 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:__________________________________ -18- STATE STREET BANK AND TRUST COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ THE CHASE MANHATTAN BANK By:_____________________________________ Name:___________________________________ Title:__________________________________ LAZARD BROTHERS & CO., LIMITED By:_____________________________________ Name:___________________________________ Title:__________________________________ SOUTHTRUST BANK, N.A. By:_____________________________________ Name:___________________________________ Title:__________________________________ -19- EX-4.2 3 EXHIBIT 4.2 No. 1101386 THE COMPANIES ACTS 1948 TO 1989 COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF DANKA BUSINESS SYSTEMS PLC THE COMPANIES ACTS 1948 TO 1989 COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF DANKA BUSINESS SYSTEMS PLC (ADOPTED PURSUANT TO A SPECIAL RESOLUTION PASSED ON 17 DECEMBER 1999) PRELIMINARY 1. The regulations contained in Table A in the First Schedule to the Companies Act 1948, in Table A in the Schedule to the Companies (Tables A to F) Regulations 1985 and in any Table A applicable to the Company under any former enactment relating to companies shall not apply to the Company except insofar as they are repeated or contained in these Articles. 2. In these Articles, unless the context otherwise requires: "these Articles" means these Articles of Association or other the articles of association of the Company from time to time in force; "the Auditors" means the Auditors for the time being of the Company; "clear days" in relation to the period of a notice means that period excluding the day when notice is given or deemed to be given and the day for which it is given or on which it is to take effect; "the Combined Code" means the principles of good governance and code of best practice derived by the Committee on Corporate Governance chaired by Sir Ronald Hampel and appended to the Listing Rules of the London Stock Exchange; "the Directors" means the Directors for the time being of the Company or, as the case may be, the Board of Directors for the time being of the Company or the Directors present at a duly convened meeting of the Directors or any duly authorised committee at which a quorum is present; "dividend" includes bonus; "holder" in relation to shares means the Member whose name is entered in the Register as the holder of the shares; "month" means calendar month; "the Office" means the registered office for the time being of the Company; "paid up" includes credited as paid up; 1 "the Register" means the Register of Members required to be kept by the Statutes; "the Seal" means the common seal of the Company; "Secretary" includes a deputy of assistant secretary, and any person appointed by the Directors to perform the duties of the Secretary; "the Statutes" means the Companies Act 1985 (as amended by the Companies Act 1989), the Companies Act 1989 and every statutory modification or re-enactment thereof for the time being in force; "the United Kingdom" means Great Britain and Northern Ireland; "in writing" and "written" includes printing, lithography, typewriting, photography, telex, facsimile transmission and other modes of representing or reproducing words in visible form or partly one and partly another; "year" means calendar year; Words importing the singular number only shall include the plural, and vice versa; Words importing the masculine gender only shall include the feminine gender; Words importing individuals and words importing persons shall include bodies corporate and unincorporated associations; The expressions "debenture" and "debenture holder" shall respectively include "debenture stock" and "debenture stockholder"; The expressions "recognised clearing house" and "recognised investment exchange" shall mean any clearing house or investment exchange (as the case may be) granted recognition under the Financial Services Act 1986. A Special or Extraordinary Resolution shall be effective for any purpose for which an Ordinary Resolution is expressed to be required under any provision of these Articles. Any reference herein to the provisions of any Act shall extend to and include any amendment or re-enactment of or substitution for the same effected by any subsequent statute. Subject as aforesaid, and unless the context otherwise requires, words and expressions defined in the Statutes shall bear the same meanings in these Articles. Headings are inserted for convenience only and shall not affect the construction of these Articles. SHARES 3. The authorised capital of the Company as at the date of the adoption of these Articles as the Articles of Association of the Company is (pound)6,250,000 and US$500,000 divided into: 3.1 500,000,000 ordinary shares of 1.25 pence each (the"ORDINARY SHARES"); and 3.2 500,000 6.50% senior convertible participating shares of US$1.00 each (the "PARTICIPATING SHARES"). 2 4. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the Company may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Company may from time to time by Ordinary Resolution determine (or, in the absence of any such determination, as the Directors may determine). If requisite, the Company shall in accordance with the Statutes within one month from allotting shares deliver a statement in the prescribed form containing particulars of special rights. 5. Subject to the provisions of the Statutes: (1) any shares may be issued on the terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the shareholder on such terms and in such manner as may be provided by these Articles; and (2) subject to Article 10A(C)(xiii) the Company may purchase its own shares (including any redeemable shares) provided that the Company shall not purchase its own shares if at the time of such purchase there are outstanding any convertible shares of the Company which remain capable of being converted, unless such purchase has been sanctioned by an Extraordinary Resolution passed at a separate Meeting of the holders of each class of such convertible shares in accordance with Articles 16 and 17. 6. The Company shall not give any financial assistance for the acquisition of shares in the Company except and in so far as permitted by the Statutes. 7. The shares of the Company shall not be allotted at a discount and save as permitted by the Statutes shall not be allotted except as paid up at least as to one-quarter of their nominal value and the whole of any premium thereon. 8. The Company may exercise the powers of paying commissions conferred by the Statutes to the full extent thereby permitted. The Company may also on any issue of shares pay such brokerage as may be lawful. 9.(A) Save as otherwise provided in the Statutes or in these Articles, all unissued shares (whether forming part of the original or any increased capital) shall be at the disposal of the Directors who may (subject to the provisions of the Statutes) allot (with or without conferring a right of renunciation), grant options over, offer or otherwise deal with or dispose of them to such persons at such times and generally on such terms and conditions as they may determine. The Directors may at any time after the allotment of any share but before any person has been entered in the Register as the holder recognise a renunciation thereof by the allottee in favour of some other person and may accord to any allottee of a share a right to effect such renunciation upon and subject to such terms and conditions as the Directors may think fit to impose. (B)(i) Pursuant to and in accordance with Section 80 of the Companies Act 1985 (as amended) the Directors shall be generally and unconditionally authorised to exercise for each Section 80 prescribed period all the powers of the Company to allot relevant securities up to an aggregate nominal amount equal to the Section 80 Amount; and (ii) Pursuant to and within the terms of the said authority the Directors shall be empowered during each Section 89 prescribed period to allot equity securities wholly for cash (a) pursuant to a Scrip Dividend Offer; (b) in connection with a rights issue; and (c) otherwise than in connection with a Scrip Dividend Offer or a rights issue up to an aggregate nominal amount equal to the Section 89 Amount as if Section 89(1) of the Companies Act 1985 did not apply to such allotment; and (iii) During each Section 80 prescribed period and each Section 89 prescribed period the Company and its Directors by such authority and power may make offers or agreements which would or might require equity securities or other relevant securities to be allotted after the expiry of such period; and (iv) For the purposes of this Article 9(B): 3 (a) "rights issue" means an offer of equity securities open for acceptance for a period fixed by the Directors to holders of equity securities on the register on a fixed record date in proportion to their respective holdings of such securities or in accordance with the rights attached thereto (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements, record dates or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory or as regards shares held by any approved depositary or otherwise howsoever); (b) "Scrip Dividend Offer" has the meaning as ascribed in Article 137 below; (c) "Section 80 prescribed period" means any period not exceeding 5 years for which the authority conferred under sub-paragraph (1) is renewed by Ordinary or Special Resolution stating the Section 80 Amount; (d) "Section 89 prescribed period" means any period (not exceeding 5 years on any occasion) for which the power conferred under sub-paragraph (ii) is renewed by Special Resolution stating the Section 89 Amount; (e) "the Section 80 Amount" shall for any Section 80 prescribed period be that stated in the relevant Ordinary or Special Resolution; (f) "the Section 89 Amount" shall for any Section 89 prescribed period be that stated in the relevant Special Resolution; (g) the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or to convert any securities into shares of the Company, the nominal amount of such shares which may be allotted pursuant to such rights; and (h) words and expressions defined in or for the purposes of Part IV of the Companies Act 1985 (as amended) shall bear the same meanings herein. 10A 6.50% SENIOR CONVERTIBLE PARTICIPATING SHARES (A) ENCUMBRANCES All Participating Shares (including any Participating Shares issued as a dividend or by way of bonus issue pursuant to Article 10A(C)) shall, when issued, be free from any option, charge, lien, equity, encumbrance, right of pre-emption or any other third party rights and free from any taxes and charges with respect to the issue thereof. (B) RANKING The Participating Shares shall, with respect to dividend rights and rights on a return of capital (whether on a liquidation, winding-up, dissolution or otherwise), on the terms set out in the following provisions of this Article 10A, rank in priority to the Ordinary Shares and each other class of Share Capital of the Company created after the date of adoption of these Articles which does not expressly provide that it ranks in priority to or on a par with the Participating Shares as to dividend rights and rights on a return of capital (collectively, the "JUNIOR SECURITIES"). The Participating Shares shall, with respect to dividend rights and rights on a return of capital, rank on a par with each other class of shares of the Company hereafter created which expressly provides that it ranks on a par with the Participating Shares as to dividend rights and rights on a return of capital (collectively, the "PARITY SECURITIES"); PROVIDED, that any such securities not issued in accordance with Article 10A(D)(iv) hereof shall be deemed to be Junior Securities. The Participating Shares shall, with respect to dividend rights and rights on a return of capital, rank junior to each class of shares of the Company hereafter created which expressly provides that it ranks in priority to the Participating 4 Shares as to dividend rights and rights on a return of capital (collectively, the "SENIOR SECURITIES"); PROVIDED, that any such securities not issued in accordance with Article 10A(D)(iv) hereof shall be deemed to be Junior Securities. 5 (C) DIVIDENDS (i) For each Dividend Period (as defined below), the holders of Participating Shares shall be entitled to receive with respect to their holdings of Participating Shares, in priority to the transfer of any sum to reserves or any rights of holders of Junior Securities, out of the distributable profits of the Company legally available therefor, cumulative preferential dividends calculated based on the then effective Liquidation Return per Participating Share at a rate per annum equal to the greater of (i) the Stated Dividend Rate and (ii) the Ordinary Share Equivalent Rate with respect to such Dividend Period. (ii) In the period prior to the fifth anniversary of the Issue Date (as defined below) the Company's obligations to pay dividends on the Participating Shares pursuant to Article 10A(C)(i) above (including in respect of all accumulated and unpaid dividends) shall be satisfied solely by the issue to the holders of the Participating Shares of additional Participating Shares, credited as fully paid up for cash, as provided below. In the period commencing on the fifth anniversary of the Issue Date, dividends in respect of the Participating Shares (including all accumulated and unpaid dividends in respect of prior Dividend Periods which are payable in such period) shall be payable in cash; PROVIDED, that the Company's obligations to pay dividends on the Participating Shares pursuant to Article 10A(C)(i) above in such period shall be satisfied by the issue to the holders of the Participating Shares of additional Participating Shares, credited as fully paid up for cash, to the extent that the terms of the Company's then existing principal indebtedness (whether under its principal bank credit facilities or pursuant to debt securities issued in an aggregate principal amount in excess of U.S.$50 million in a bona fide underwritten public or bona fide private offering) prohibits the payments of such dividends in cash. The number of Participating Shares to be issued to the holders of Participating Shares when dividends are to be satisfied by the issue of Participating Shares shall equal the amount of the dividend expressed in cash divided by the then effective Liquidation Return per Participating Share, rounded down to the nearest full share after taking into account all Participating Shares owned by the holder thereof. If dividends are to be satisfied by the issue of Participating Shares in accordance with this Article 10A(C)(ii), the holders of the Participating Shares shall be deemed to have irrevocably authorised and instructed the Directors to apply the dividend payable to such holders in subscribing in cash for such Participating Shares and the Company irrevocably undertakes to apply the same in accordance with such instructions. (iii) Dividends shall be payable in arrears on each February 15, May 15, August 15 and November 15, unless such day is not a Business Day, in which event dividends shall be payable on the next succeeding Business Day (each such date being hereinafter referred to as a "DIVIDEND PAYMENT DATE"), commencing on the first Dividend Payment Date in respect of Participating Shares which is at least seven days after the issuance thereof. For Participating Shares issued on the original issue date of the Participating Shares in accordance with these Articles (the "ISSUE DATE"), the first dividend payment shall be for the period from and including the Issue Date up to but excluding the date of the first Dividend Payment Date, and each dividend payment thereafter shall be for the period from and including the most recent Dividend Payment Date to but excluding the first Dividend Payment Date thereafter. For Participating Shares issued subsequent to the Issue Date, the first dividend payment shall be for the period from and including the date of issuance thereof to but excluding the date of the first Dividend Payment Date thereafter, and each dividend payment thereafter shall be for the period from and including the most recent Dividend Payment Date to but excluding the first Dividend Payment Date thereafter. Each quarterly period beginning on February 16, May 16, August 16 and November 16 in each year and ending on and including the day next preceding the first day of the next such quarterly period shall be a "DIVIDEND PERIOD". The amount of dividends payable for each full Dividend Period shall be computed by dividing the applicable dividend rate per annum by four. Dividends (or amounts equal to accumulated and unpaid dividends) payable on Participating Shares for any period less than a full quarterly Dividend Period will be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. The record date for determination of holders of Participating Shares entitled to receive payment of a dividend or distribution thereon shall be, with respect to the dividend payable on February 15, May 15, August 15 and November 15 of each year, the preceding January 15, April 15, July 15 and October 15, respectively, or such other record date as may be fixed by the Directors from time to time, which other record date shall be no less than 30 and no more than 60 calendar days prior to the relevant Dividend Payment Date. Dividends and distributions shall be payable to holders of record as they shall appear on the records of the Company on the applicable record date. 6 (iv) When the Company's dividend obligations are to be satisfied by the issue of Participating Shares in accordance with Article 10A(C)(ii) above (whether prior to the fifth anniversary of the Issue Date or thereafter), then to the extent that the Company has insufficient distributable profits legally available in accordance with the Statutes for the payment of such dividends on any Dividend Payment Date, the Company shall (to the extent that it has reserves or sums in its share premium account legally available therefor in accordance with the Statutes) issue to the holders of the Participating Shares, by way of bonus issue, additional Participating Shares, except to the extent prohibited by the Company's then existing indebtedness (whether under its principal bank credit facilities or pursuant to debt securities issued in an aggregate principal amount in excess of US$50 million in a bona fide underwritten public or bona fide private offering). The number of additional Participating Shares to be so issued and the rights and obligations attaching thereto shall be the same as if the Company had issued such Participating Shares as a dividend in accordance with Article 10A(C)(ii). Any Participating Shares issued by way of a bonus issue under this Article 10A(C)(iv) shall be in lieu of dividends and the provisions of this Article 10A shall apply as if such Participating Shares had been issued as dividends. The rights to receive Participating Shares by way of bonus issue pursuant to this Article 10A(C)(iv) shall accrue to the holders of the Participating Shares and not to any other holder of Share Capital. (v) The cash equivalent of dividends on account of arrears in respect of each Participating Share for any particular Dividend Period in which dividends were not paid or a bonus issue was not made on the applicable Dividend Payment Date (including, without limitation, as a result of the Company not having available sufficient distributable profits, reserves or sums in its share premium account available for a bonus issue, or as a result of the rounding down of the number of Participating Shares issuable in the payment of dividends as provided above in Article 10A(C)(ii)) shall be automatically added to the then effective Liquidation Return on the relevant Dividend Payment Date. Any amounts so added to the then effective Liquidation Return in respect of such Participating Share shall be subject to reduction as provided below in Article 10A(C)(vi). (vi) To the extent the Company has profits or reserves legally available for distribution, an amount equal to accumulated and unpaid dividends for any past Dividend Period may be declared by the Directors and paid as a dividend (in Participating Shares or cash, as the case may be, as provided above in Article 10A(C)(ii)) or by way of a bonus issue in lieu of such dividend in accordance with Article 10A(C)(iv) on any subsequent Dividend Payment Date to all holders of Participating Shares of record on the record date for such subsequent Dividend Payment Date (including, without limitation, holders of Participating Shares issued after the record date for the Dividend Payment Date for such past Dividend Period). Each such payment shall automatically reduce the then effective Liquidation Return by an amount equal to the aggregate amount of such payment divided by the total number of Participating Shares outstanding on such record date for such subsequent Dividend Payment Date; PROVIDED, HOWEVER, that the Liquidation Return shall not be reduced below U.S.$1,000 per share. (vii) Dividends on the Participating Shares shall accumulate on a daily basis. Dividends shall cease to accumulate in respect of Participating Shares on the date of actual conversion or redemption thereof. The amount of the dividend due on each Dividend Payment Date shall, subject to Article 10A(C)(iv), be paid out of the profits of the Company available for distribution in accordance with the Statutes, without the need for any resolution of the Directors or of the Members in General Meeting. (viii) To the extent that the Company is legally permitted to do so but save where a majority of the Directors decides bona fide that to do so would be materially prejudicial to the business of any subsidiary undertaking, the Company shall use its best efforts to procure the distribution to the Company by its subsidiary undertakings in respect of each financial year by way of dividend or otherwise (except by the reduction of capital or own-share purchase) of sufficient of the profits, if any, of its subsidiary undertakings to enable the Company to pay the dividends on the Participating Shares. (ix) Dividends paid on the Participating Shares in an amount less than the total amount of such dividends at the time accumulated and payable on such shares shall be allocated pro rata on a share-by-share basis among all such 7 shares at the time outstanding, and any remainder not paid as provided above in respect of each Participating Share shall be added to the Liquidation Return as provided above in Article 10A(C)(v) hereof. (x) As long as any Participating Shares are outstanding, no dividends or other distributions (other than dividends or other distributions payable in shares of, or warrants, rights or options exercisable for or convertible into shares of, Junior Securities and cash in lieu of fractional shares of such Junior Securities in connection with any such dividends) will be paid on any Junior Securities unless: (a) full cumulative dividends on all outstanding Participating Shares and any outstanding Parity Securities have been paid, or declared and set aside for payment, for all Dividend Periods terminating on or prior to the payment date of such dividend or distribution and for the current Dividend Period; (b) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all redemption reserves, if any, for any outstanding Participating Shares or Parity Securities; and (c) the Company is not in default of any of its obligations to redeem any outstanding Participating Shares or Parity Securities. (xi) As long as any Participating Shares are outstanding, no Junior Securities may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries (except in connection with a reclassification or exchange of any Junior Securities through the issuance of shares of, or warrants, rights or options exercisable for or convertible into shares of, other Junior Securities (and cash in lieu of fractional shares of such Junior Securities in connection therewith) or the purchase, redemption or other acquisition of any Junior Securities with any shares of, or warrants, rights or options exercisable for or convertible into shares of, other Junior Securities (and cash in lieu of fractional shares of such Junior Securities in connection therewith)), nor may any funds be set aside or made available for any redemption reserve for the purchase or redemption of any Junior Securities. (xii) As long as any Participating Shares are outstanding, no dividends or other distributions (other than dividends or other distributions payable in shares of, or warrants, rights or options exercisable for or convertible into shares of, Junior Securities and cash in lieu of fractional shares of such Junior Securities in connection with any such dividends) will be paid on any Parity Securities unless such dividends or other distributions are declared and paid pro rata so that the amounts of any such dividends or other distributions declared and paid per share on outstanding Participating Shares and each other share of such Parity Securities will in all cases bear to each other the same ratio that the then effective Liquidation Return per share of outstanding Participating Shares and the amount payable per share of such other outstanding shares of Parity Securities on a solvent winding up of the Company bear to each other. (xiii) As long as any Participating Shares are outstanding, no Parity Securities may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries (except with shares of, or warrants, rights or options exercisable for or convertible into shares of, Junior Securities and cash in lieu of fractional shares of such Junior Securities in connection therewith) unless the Participating Shares and such Parity Securities are purchased, redeemed or otherwise acquired pro rata so that the Fair Market Value of the consideration applied to the purchase, redemption or other acquisition of each Participating Share and each share of such Parity Securities will in all cases bear to each other the same ratio that the then effective Liquidation Return per outstanding Participating Share and the amount payable per share of such other outstanding Parity Securities on a solvent winding up of the Company bear to each other. (xiv) As long as any Participating Shares are outstanding, no resolution to reduce the Company's issued share capital or any uncalled liability thereon shall be effective unless such resolution is sanctioned by an extraordinary resolution of the holders of the Participating Shares held at a separate meeting of such holders. (xv) Subject to the provisions described above in this Article 10A(C), such dividends or other distributions (payable in cash, property or Junior Securities) as may be determined from time to time by the Directors may be declared and paid on the shares of any Junior Securities and/or Parity Securities and from time to time Junior Securities 8 and/or Parity Securities may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries. In the event of the declaration and payment of any such dividends or other distributions, the holders of such Junior Securities and/or Parity Securities, as the case may be, will be entitled, to the exclusion of holders of any outstanding Participating Shares, to share therein according to their respective interests. 9 (D) VOTING RIGHTS (i) The holders of the Participating Shares (in addition to their rights set forth in this Article 10A(D) and otherwise provided by applicable law) shall be entitled from time to time to such number of votes for each Participating Share held as equals the number of Ordinary Shares into which such Participating Share is convertible on the record date set for determining the persons entitled to vote on any matter and shall, if they shall exercise such entitlement, vote together with the holders of the Ordinary Shares (and any other class or series of Share Capital, if any, similarly entitled to vote), as a single class, on all matters to be voted on by holders of the Ordinary Shares. Notwithstanding the preceding sentence, the aggregate voting rights attaching to the Participating Shares held by Cypress and Affiliates of Cypress shall in no circumstances exceed 29.99% of all voting rights from time to time exercisable by the Members of the Company in General Meeting. If the voting rights attaching to the Participating Shares held by Cypress and Affiliates of Cypress when calculated in accordance with this Article 10A(D)(i) exceed 29.99%, then the aggregate voting rights of the Participating Shares held by Cypress and Affiliates of Cypress shall be deemed to be 29.99%, and such voting rights shall be exercisable by Cypress (if it is a holder of Participating Shares) and Affiliates of Cypress that are holders of Participating Shares on a pro rata basis according to the number of issued Participating Shares held by each such holder. (ii) In addition to the voting rights set forth in Article 10A(D)(i), holders of the Participating Shares shall be entitled to vote as a separate class on matters which require (under these Articles or applicable law) a separate class vote of the Participating Shares and shall have such other voting rights as are set forth in this Article 10A(D). (iii) If at any time: (a) the Company shall have failed to redeem any outstanding Participating Shares in accordance with these Articles; or (b) dividends payable in cash on Participating Shares as provided in Article 10A(C)(ii) hereof (i.e., dividends payable in the period commencing on the fifth anniversary of the Issue Date) have not been paid in full in cash for six consecutive Dividend Periods regardless of whether or not the Company shall have paid dividends in additional Participating Shares pursuant to the proviso in the second sentence of Article 10A(C)(ii) hereof, or by way of bonus issue pursuant to Article 10A(C)(iv) hereof, thereafter and until, in the case of Article 10A(D)(iii)(a) above, the date that the Company shall have fulfilled its redemption obligations or, in the case of Article 10A(D)(iii)(b) above, until the date that all accumulated and unpaid dividends payable as provided in Article 10A(C)(ii) hereof (i.e., dividends payable on and after the fifth anniversary of the Issue Date), whether or not declared, on the outstanding Participating Shares shall have been paid in full and the Company shall have paid dividends in full in cash for four additional consecutive fiscal quarters thereafter, the number of Directors then constituting the Board of Directors of the Company shall be increased by two and the holders of Participating Shares, acting as a class, shall be entitled to elect the two additional Directors to serve on the Board of Directors by majority vote at a class meeting of the holders of the Participating Shares to be held immediately prior to any annual meeting of shareholders or extraordinary meeting held in place thereof, or by majority vote at an extraordinary meeting of the holders of the Participating Shares called as hereinafter provided, or by majority vote of the holders of the Participating Shares as set forth in a written document signed by all such holders. The remaining Directors of the Company shall be elected by the classes of Share Capital, including the Participating Shares, entitled to vote therefor, voting together, at each meeting of shareholders held for the purpose of electing Directors, all in accordance with the terms and procedures set forth in these Articles. As soon as, in the case of Article 10A(D)(iii)(a) above, the Company shall have fulfilled its redemption obligation and, in the case of Article 10A(D)(iii)(b) above, all accumulated and unpaid dividends payable as provided in Article 10A(C)(ii) hereof, whether or not declared, on the outstanding Participating Shares shall have been paid in full and the Company shall have paid dividends in full in cash for four additional consecutive fiscal quarters thereafter, then the right of the holders of the Participating Shares to elect such additional Directors pursuant to this Article 10A(D)(iii) shall 10 immediately cease, the term of office of any person elected as Director by the holders of the Participating Shares shall forthwith terminate (and the holders of the Participating Shareholders shall take all steps necessary to procure the resignation of such Directors) and the number of Directors comprising the board of Directors shall be reduced accordingly. At any time after voting power to elect a Director shall have become vested and be continuing in the holders of Participating Shares pursuant to this Article 10A(D)(iii) or if a vacancy shall exist in the office of a Director elected by the holders of Participating Shares, the Directors may, and upon the written request of the holders of record of at least 25% of the Participating Shares then outstanding addressed to the Secretary of the Company shall, call an extraordinary meeting of the holders of Participating Shares, for the purpose of electing the Directors which such holders are entitled to elect. If such meeting shall not be called by the Directors within 20 days after personal service of written request upon the Secretary of the Company, or within 20 days after mailing the same by a reputable overnight air courier service, addressed to the Secretary of the Company at its principal executive offices, then the holders of at least 25% of the outstanding Participating Shares may designate in writing one of their number to call such meeting at the expense of the Company. Such meeting may be called by the person so designated, or the Directors (as the case may be) upon the notice required for the Annual General Meeting of shareholders of the Company and shall be held at the place for holding the Annual General Meeting of shareholders. Any holder of Participating Shares so designated shall have, and the Company shall provide, access to the lists of shareholders to be called pursuant to the provisions hereof. The rights of the holders of the Participating Shares to elect two additional Directors pursuant to this Article 10A(D)(iii) shall be in addition to the right to appoint Directors set forth in Article 10A(H) hereof. (iv) As long as any Participating Shares are outstanding, subject to applicable law, the Company shall not, without consent of the holders of at least a majority of the number of Participating Shares at the time outstanding, voting as a single class, given in person or by proxy, either in writing or by vote at an extraordinary meeting of that class called for the purpose: (a) increase the number of authorized Participating Shares or issue any additional Participating Shares, other than as contemplated by the terms of the Participating Shares; (b) amend or modify the relative rights, powers, preferences or limitations of the Participating Shares or amend, alter or repeal any of the provisions of the Company's Memorandum of Association or these Articles so as to eliminate the Participating Shares or otherwise affect adversely the relative rights, powers, preferences or limitations of the holders of Participating Shares; or (c) other than Participating Shares, create, authorize, issue or permit to exist any class of Share Capital or series of preferred shares that ranks as Senior Securities or Parity Securities with respect to the Participating Shares, or reclassify any class or series of any Junior Securities into Senior Securities or Parity Securities or reclassify any class or series of any Parity Securities into Senior Securities, or authorize any securities exchangeable for, convertible into or evidencing the right to purchase any such class or series of Senior Securities or Parity Securities. (v) The holders of the Participating Shares shall be entitled to relinquish their rights to the tax gross-up provided for in Article 10A(I) at an extraordinary meeting of the holders of the Participating Shares duly convened on 14 days notice. If the holders of the Participating Shares present in person or by proxy at such meeting resolve by majority vote to relinquish such tax gross-up rights, the Participating Shares shall thereafter have no such rights and the Company shall not have the right to redeem the Participating Shares in accordance with Article 10A(E)(iv). (E) REDEMPTION (i) Subject to the provisions of the Statutes and these Articles, the Company may redeem the Participating Shares and make payment in respect of the Participating Shares in accordance with the Statutes whether out of its distributable profits or out of the proceeds of a fresh issue of shares made for the purposes of such redemption or 11 otherwise. For the purposes of any redemption under Articles 10A(E)(v) or 10A(E)(vii), the Company shall use its best efforts to complete a fresh issue of shares (taking into account then prevailing market conditions and other factors deemed reasonable by a majority of the Directors) if and to the extent that the Company does not have sufficient distributable profits to make such redemption without such a fresh share issue, but save to the extent that such fresh issue is prohibited by the Company's then existing indebtedness (whether under its principal bank credit facilities or pursuant to debt securities issued in an aggregate principal amount in excess of U.S.$50 million in a bona fide underwritten public offering or bona fide private offering). (ii) The Company shall not have the right to redeem the Participating Shares prior to the fourth anniversary of the Issue Date, except in the limited circumstances set forth in Articles 10A(E)(iv). (iii) On and after the fourth anniversary of the Issue Date and prior to the eleventh anniversary of the Issue Date, the Company shall have the right to redeem the Participating Shares, in whole but not in part, at a redemption price per share in cash equal to the greater of: (a) the amount set forth below (expressed as a percentage of the then effective Liquidation Return), if redeemed during the twelve-month period beginning on the anniversary of the Issue Date in the years indicated below: PERCENTAGE OF THEN EFFECTIVE YEAR LIQUIDATION RETURN - ---- ------------------ 2003 ............................................... 103.250% 2004 ............................................... 102.167 2005 ............................................... 101.083 2006 and thereafter ................................ 100.000; and (b) the aggregate Market Value of the Ordinary Shares into which such Participating Shares are convertible (in accordance with Article 10A(F)) on the date of redemption, in each case plus accumulated and unpaid dividends for the period from and including the most recent Dividend Payment Date through and including the date of redemption. Notwithstanding the preceding sentence, the Company may, at its option (exercisable by resolution of the Directors), elect to cause the Participating Shares to be converted (in lieu of redemption in cash at the price referred to in Article 10A(E)(iii)(b)) into such number of Ordinary Shares as are issuable upon conversion of the relevant Participating Shares on the date fixed for redemption (the number of Ordinary Shares issuable on conversion being calculated in accordance with Article 10A(F)(ii)). (iv) Prior to the fourth anniversary of the Issue Date, the Company shall have the right to redeem the Participating Shares, in whole but not in part, at the same redemption price applicable for redemptions during the twelve-month period beginning on the anniversary of the Issue Date in 2003 (as set forth in Article 10A(E)(iii)), but only in the event that the Company has or will become obliged to pay Additional Amounts in respect of the Participating Shares under the provisions of Article 10A(I) at a rate of withholding or deduction in excess of 7.5% of the amounts otherwise payable but for such Article 10A(I) as a result of any change in, or amendment to, the laws (or any rules, regulations or ruling promulgated thereunder) of the United Kingdom, which change or amendment becomes effective after the Issue Date. Prior to the giving of any notice of redemption of the Participating Shares under this Article 10A(E)(iv), the Company will deliver to the holders of the Participating Shares (a) a certificate, executed by the Company's chief financial officer, stating that the Company is entitled to effect such redemption pursuant to this Article 10A(E)(iv) and setting forth in reasonable detail a statement of facts showing that the conditions precedent to the right of the Company so to redeem have occurred; and (b) a written opinion of independent English legal advisors, of recognised standing, to the effect that the Company has or will become obliged to pay such Additional Amounts as a result of such change or amendment. Notwithstanding the preceding sentences of this Article 10A(E)(iv), the Company shall not have any rights to redeem the Participating Shares pursuant to this Article 10A(E)(iv) in the event that the 12 holders of the Participating Shares vote pursuant to Article 10A(D)(v) to relinquish their rights to the tax gross-up provided for in Article 10A(I). (v) Subject to the Statutes, on the eleventh anniversary of the Issue Date (or as soon thereafter as the Company is permitted by the Statutes), the Company shall redeem all outstanding Participating Shares or, failing which, the maximum number of outstanding Participating Shares that can lawfully be so redeemed in accordance with the Statutes on such date, if any, at a redemption price per share in cash equal to the greater of (a) the then effective per share Liquidation Return and (b) the aggregate Market Value of the Ordinary Shares into which such Participating Shares are convertible (in accordance with Article 10A(F)) on the date of redemption, in each case plus accumulated and unpaid dividends for the period from and including the most recent Dividend Payment Date through and including the date of redemption. Notwithstanding the previous sentence, the Company may, at its option (exercisable by resolution of the Directors), elect to cause the Participating Shares to be converted (in lieu of redemption in cash at the price referred to in Article 10A(E)(v)(b)) into such number of Ordinary Shares as are issuable upon conversion of the relevant Participating Shares on the date fixed for redemption (the number of Ordinary Shares issuable on conversion being calculated in accordance with Article 10A(F)(ii)). In case the Company is unable to so redeem all outstanding Participating Shares on the eleventh anniversary of the Issue Date, it shall do so pro rata on a share-by-share basis among the holders of all such Participating Shares. (vi) A notice to redeem the Participating Shares pursuant to Article 10A(E)(iii), 10A(E)(iv) or 10A(E)(v) hereof (the "REDEMPTION NOTICE") shall be sent by or on behalf of the Company, by a reputable overnight air courier service, to holders of record of Participating Shares at their respective addresses as they shall appear on the records of the Company, not less than 30 days nor more than 60 days prior to the date fixed for redemption: (a) notifying such holders of the election of the Company to redeem such shares, the number of shares to be redeemed, and of the date fixed for redemption; (b) stating that the Participating Shares may be converted in accordance with Article 10A(F) hereof, until the close of business (London time) on the Business Day prior to the date of redemption by surrendering to the Company or the registrar (who shall act as transfer agent for the Participating Shares) the certificate or certificates for the shares to be converted, accompanied by written notice specifying the number of shares to be converted, and stating the name and address of the registrar; (c) stating the place or places at which the shares called for redemption shall, upon presentation and surrender of the certificates evidencing such shares, be redeemed, and the redemption price to be paid therefor; and (d) stating that dividends shall cease to accumulate on the date of redemption unless the Company defaults in the payment of the redemption price. (vii)(a) Subject to the provisions of the Statutes, in the event of any Change of Control, each holder of the Participating Shares shall have the right, at such holder's option, subject to the terms and conditions hereof, to require the Company to redeem its Participating Shares, in whole or in part, on a Business Day that is no earlier than 30 days nor later than 60 days after the occurrence of such Change of Control (the "CHANGE OF CONTROL REPURCHASE DATE") at a redemption price per Participating Share in cash equal to the greater of (1) 101% of the then effective per share Liquidation Return and (2) the aggregate Market Value of the Ordinary Shares into which such Participating Shares are convertible (in accordance with Article 10A(F)) on the date of redemption, in each case plus accumulated and unpaid dividends in respect of each Participating Share being redeemed for the period from the most recent Dividend Payment Date through and including the date of redemption, plus the sum of any remaining dividend payments that would have otherwise been payable on such Participating Shares (assuming that the Stated Dividend Rate would have been the applicable rate throughout such period) up to and including the date which is three and one-half years after the Issue Date (the "CHANGE OF CONTROL REPURCHASE PRICE"). Notwithstanding the preceding sentence, the Company may, at its option (exercisable by resolution of the Directors), elect to cause the Participating Shares to be converted (in lieu of 13 redemption in cash at the price referred to in Article 10A(E)(vii)(a) (2)) into such number of Ordinary Shares as are issuable upon conversion of the relevant Participating Shares on the date fixed for redemption (the number of Ordinary Shares issuable on conversion being calculated in accordance with Article 10A(F)(ii)), except that the Company shall pay in cash such sum of any remaining dividend payments referred to in the preceding sentence. (b) In the event of any Change of Control, each holder of Participating Shares may, alternatively, convert its Participating Shares, in whole or in part, into Ordinary Shares in accordance with Article 10A(F) and, if converted after such Change of Control but prior to or at the close of business on the 60th day after the Change of Control Notice, subject to the provisions of the Statutes, such holder shall receive on the date of conversion an additional cash payment equal to the sum of any remaining dividend payments that would have otherwise been payable on such converted Participating Shares (assuming that the Stated Dividend Rate would have been the applicable rate throughout such period) through and including the date which is three and one-half years after the Issue Date (the "ADDITIONAL CHANGE OF CONTROL PAYMENT"). (c) If the Company is unable lawfully to redeem in accordance with the Statutes all Participating Shares as to which holders have, at their option, required the Company to redeem in accordance with Article 10A(E)(vii)(a), then it shall do so pro rata on a share-by-share basis among all such shares of the relevant holders. Similarly, if the Company is unable lawfully to pay any Additional Change of Control Payment set forth in Article 10A(E)(vii)(b), then it shall do so pro rata on a share-by-share basis among all such shares of the relevant holders. For purposes of the preceding two sentences, the redemption of Participating Shares pursuant to Article 10(E)(vii)(a) shall have priority over the payment of any Additional Change of Control Payment pursuant to Article 10A(E)(vii)(b). (d) Notwithstanding Articles 10A(E)(vii)(a) or 10A(E)(vii)(b), to the extent that the Company is prohibited by the Statutes from paying the Change of Control Repurchase Price set forth in Article 10A(E)(vii)(a) and/or any Additional Change of Control Payment set forth in Article 10A(E)(vii)(b) to the relevant holder of any Participating Share, respectively, then the Change of Control Adjustment Amount, if applicable, shall be added to the Liquidation Return of each such Participating Share that will not be redeemed or converted in accordance with such Articles and each such Participating Share not so redeemed or converted shall remain outstanding after any corresponding Change of Control Repurchase Date and/or the 60th day after the corresponding Change of Control Notice, as the case may be. (e) The Company shall comply with the requirements of Rule 14e-1 under the U.S. Securities Exchange Act of 1934 and any other securities laws and regulations to the extent such Rule and such laws and regulations are applicable in connection with the redemption of Participating Shares as a result of a Change of Control in accordance with Article 10A(E)(vii)(a). (f) The Company shall not be required to redeem Participating Shares in the event of the occurrence of a Change of Control in accordance with Article 10A(E)(vii)(a) if any other Person acquires all Participating Shares in respect of which a Change of Control Repurchase Notice has been validly tendered and not withdrawn in the manner and at the times required by, and otherwise in compliance with, Article 10A(E)(ix) and Article 10A(E)(x). (viii) A notice of a Change of Control (the "CHANGE OF CONTROL NOTICE") shall be sent by or on behalf of the Company, by a reputable overnight air courier service, to each holder of Participating Shares of record at its respective address as it appears on the records of the Company not more than 10 days after the Change of Control: (a) describing the transaction that constitutes the Change of Control; (b) stating the date by which any Change of Control Repurchase Notice (as defined below) must be received by the Company or the registrar from such holder and any Change of Control Repurchase Date; 14 (c) stating the procedures for withdrawing any Change of Control Repurchase Notice; (d) stating that the Participating Shares may be converted in accordance with Article 10A(F) until the close of business on the Business Day prior to any Change of Control Repurchase Date by surrendering to the Company or its registrar the certificate or certificates for the Participating Shares to be converted, accompanied by written notice specifying the number of shares to be converted, and stating the name and address of the transfer agent for the Participating Shares, if any; (e) stating any Additional Change of Control Payment; (f) stating the place or places at which the shares called for redemption shall, upon presentation and surrender of the certificates evidencing such shares, be redeemed, and any Change of Control Repurchase Price to be paid therefor; and (g) stating that dividends shall cease to accumulate on any Change of Control Repurchase Date unless the Company defaults in payment of any Change of Control Repurchase Price. (ix) To exercise its rights, if any, pursuant to Article 10A(E)(vii)(a), a holder of Participating Shares must deliver written notice (a "CHANGE OF CONTROL REPURCHASE NOTICE") to the Company, of the exercise of such right prior to the close of business on the Business Day immediately prior to the Change of Control Repurchase Date. The Change of Control Repurchase Notice must state (a) the number of Participating Shares to be redeemed and (b) that such Participating Shares will be submitted for redemption by the Company on the Change of Control Repurchase Date. (x) Any Change of Control Repurchase Notice may be withdrawn by a holder of Participating Shares by a written notice of withdrawal received by the Company prior to or at the close of business (London time) on the Business Day immediately prior to the Change of Control Repurchase Date. The notice of withdrawal must state the number of Participating Shares as to which the withdrawal notice relates and the number of Participating Shares, if any, which remains subject to the original Change of Control Repurchase Notice. (xi) Neither failure to mail any Redemption Notice or Change of Control Notice, as the case may be, nor any defect in any Redemption Notice or Change of Control Notice, as the case may be, to one or more holders of Participating Shares shall affect the sufficiency of the proceedings for redemption as to other holders. Subject to compliance with the provisions of this Article 10A(E), the Company shall forthwith upon the date fixed for redemption pay the redemption monies to the appropriate holders of the Participating Shares. (xii) On redemption the Company shall cancel the share certificate of the applicable holder of Participating Shares and, in the case of a redemption of part of the Participating Shares included in such certificate, without charge issue a new certificate to such holder for the balance of Participating Shares not redeemed. (xiii) To the extent the Company is legally permitted to do so and save where a majority of the Directors decides bona fide that to do so would be materially prejudicial to the business of any subsidiary undertaking, the Company shall use its best efforts to procure the distribution to the Company by its subsidiary undertaking in respect of each financial year by way of dividend or otherwise (except by the reduction of capital or own-share purchases) of sufficient of the profits, if any, of its subsidiary undertakings to enable the company to redeem the Participating Shares in accordance with this Article 10A(E). (xiv) If a Redemption Notice or a Change of Control Notice shall have been given as hereinbefore provided, then each holder of Participating Shares shall be entitled to all relative rights, powers, preferences and limitations accorded to holders of the Participating Shares until and including the date of redemption. Provided that the Company shall have complied with its obligations pursuant to this Article 10A(E), from and after the date of redemption, the Participating Shares the subject of such redemption shall no longer be deemed to be outstanding, and all rights of the 15 holders of such shares shall cease and terminate, except the right of the holders of such shares, upon surrender of certificates therefor, to receive the monies to be paid under this Article 10A(E). (xv) Any redemption monies unclaimed by the holders of the Participating Shares entitled thereto for a period of 30 days following the requisite payment date shall promptly be deposited by the Company in a third party bank account to be held in trust for such holders. (xvi) If a holder whose Participating Shares are to be redeemed under this Article 10A(E) fails to deliver the certificate (or certificates) for those shares to the Company, the Company may retain the redemption monies payable to such holder pending delivery of such certificate(s). No person shall, prior to delivery of such certificate(s), have any claim against the Company for redemption monies retained under this Article 10A(E)(xvi), and the Company shall not be liable for interest in respect thereof. (xvii) The Directors may, pursuant to the authority given by the adoption of this Article 10A(E), consolidate and sub-divide the share capital available for issue as a consequence of a redemption of Participating Shares into Ordinary Shares or any other class of shares into which the authorised share capital of the Company is then divided, each of a like nominal amount as the shares of that class then in issue, or into unclassified shares of the same nominal amount as the Participating Shares. The Directors may issue shares in anticipation of redemption to the extent permitted by the Statutes and these Articles. (F) CONVERSION RIGHTS (i) Subject to and upon compliance with the provisions of this Article 10A(F), the holder of any Participating Shares shall have the right, at any time and from time to time, at such holder's option, to convert all or part (having an aggregate Liquidation Return of at least U.S.$1 million) of such holder's Participating Shares into Ordinary Shares, and the Company shall have the limited ability in accordance with Article 10A(E)(iii), Article 10A(E)(v) and Article 10A(E)(vii) to elect to cause the Participating Shares to be converted into Ordinary Shares. If a Redemption Notice or a Change of Control Repurchase Notice has been given as hereinbefore provided, such right of conversion shall terminate at the close of business on the Business Day prior to the date fixed for redemption. (ii) Each Participating Share as a whole (and not a fraction thereof) shall be converted into the number of Ordinary Shares as is equal to the number determined by dividing (i) the sum of the Liquidation Return on the date of conversion plus accumulated and unpaid dividends for the period from and including the most recent Dividend Payment Date up to and including the date of conversion (in respect of such Participating Share) by (ii) the Conversion Price in effect on the date of conversion. (iii) Conversion of such Participating Shares as are due to be converted ("RELEVANT SHARES") shall be effected in such manner as may be authorised by applicable law and, without prejudice to the rights of the holders of the Participating Shares under this Article 10A(F), as the Directors may in their absolute discretion from time to time determine for effecting the exercise of the conversion rights attaching to the relevant Participating Shares (unless the holders of the Participating Shares pass an extraordinary resolution at a class meeting of the holders of the Participating Shares electing a particular manner of conversion (which extraordinary resolution is in effect prior to or at the time of delivery of the Conversion Notice relating to the Shares to be converted) in which case conversion shall be effected in such manner, provided that such manner complies with these Articles and the Statutes). Without limiting the foregoing, the conversion of the Participating Shares may be effected by any of the methods set out below (and the Directors shall be authorised for all relevant purposes pursuant to the authority given by the resolution adopting these Articles to so convert the Participating Shares): (a) Conversion may be effected by the redemption of the Relevant Shares (or any of them) on the relevant conversion date for a sum equal to the Liquidation Return on the date of conversion plus accumulated and unpaid dividends for the period from and including the most recent Dividend Payment Date up to and including the conversion date, out of distributable profits of the Company. In that event, the Relevant Shares 16 confer upon the holders thereof the right and obligation to subscribe for the appropriate number of Ordinary Shares to which such holder is entitled in accordance with Article 10A(F)(ii), at such aggregate premium, if any, as represents the amount by which the redemption monies payable in respect of the Relevant Shares exceeds the nominal amount of such number of Ordinary Shares. If redemption is to be made in accordance with this Article 10A(F)(iii)(a), the Conversion Notice given by or relating to a holder of Relevant Shares shall be deemed irrevocably to authorise and instruct the Directors to apply the redemption monies payable to such holder in subscribing in such holder's name for such Ordinary Shares at such premium. (b) Conversion may be effected by the redemption of the Relevant Shares (or any of them) on the relevant conversion date, for a sum equal to the Liquidation Return on the conversion date plus accumulated and unpaid dividends for the period from and including the most recent Dividend Payment Date up to and including the conversion date, out of the proceeds of a fresh issue of shares made for the purposes of redemption or in any other manner allowed by the Statutes and these Articles. In that event, the Relevant Shares confer on the holders thereof the right and obligation to subscribe for the appropriate number of Ordinary Shares to which that holder is entitled in accordance with Article 10A(F)(ii), at such aggregate premium, if any, as represents the amount by which the redemption monies payable in respect of the Relevant Shares exceeds the nominal amount of such number of Ordinary Shares. If redemption is to be made out of the proceeds of a fresh issue of shares made for the purposes of the redemption the Conversion Notice given by or relating to a holder of Relevant Shares shall be deemed irrevocably: (1) to have appointed any Person selected by the Directors as such holder's agent with authority to apply an amount equal to the redemption monies in respect of that holder's Relevant Shares in subscribing and paying on that holder's behalf for the number of Ordinary Shares to which such holder is entitled in accordance with Article 10A(F)(ii); and (2) to have authorised and instructed the Directors to pay following the allotment of such Ordinary Shares such redemption monies to such agent who shall be entitled to retain the same for the agent's own benefit without being accountable therefor to such holder. (c) Conversion may be effected by means of consolidation and sub-division to the extent that such consolidation and sub-division can lawfully be effected in accordance with the provisions of the Statutes (or other applicable laws) and these Articles. In such case, the requisite consolidation and sub-division shall be effected pursuant to the authority given by the resolution adopting these Articles as follows. All the Relevant Shares held by any holder or joint holders in respect of which a Conversion Notice shall have been delivered shall be consolidated into one share having a nominal value equal to the aggregate nominal value of the Relevant Shares. Such consolidated share shall be sub-divided and redesignated into such number of Ordinary Shares of 1.25p each (or such other nominal value as may be appropriate as a result of any consolidation or sub-division of the Ordinary Shares), as is equal to the number of Ordinary Shares to which such holder is entitled pursuant to such Conversion Notice (fractional entitlements to an Ordinary Share being disregarded) and such number of special deferred shares of 0.001p each, if any, as have an aggregate nominal value equal to the amount, if any, by which the aggregate nominal value of such Ordinary Shares issued on conversion is less than the aggregate nominal value of such consolidated share. Any such special deferred shares will have the rights set out in Article 10A(F)(iv). The Directors shall be authorised for all relevant purposes pursuant to the authority given by the resolution adopting these Articles to make such arrangements for the attribution of value to reflect the redesignation of a U.S. dollar denominated share as a sterling denominated share. (d) Provided it is lawful to do so in accordance with the Statutes (or other applicable laws) and the Articles, conversion may be effected by means of the issue of Ordinary Shares to the holders of the Relevant Shares credited as paid up in full out of distributable profits or reserves, sums in the Company's share premium account or otherwise legally available therefor. In such case, the number of Ordinary Shares to be issued shall be the number of Ordinary Shares to which such holder is entitled in accordance with Article 10A(F)(ii). In such event, upon the issue of such Ordinary Shares the Relevant Shares shall be subdivided and redesignated 17 by the Directors pursuant to the authority given by the resolution adopting these Articles into special deferred shares of U.S. 0.001 cents each having the rights set out in Article 10A(F)(iv) below. (e) If and to the extent that conversion in accordance with the above means (or any other means) would result in an illegal reduction of capital or the issue of shares at a discount then the Company shall take such action as may be lawful to issue such number of Ordinary Shares to the holders of the Relevant Shares as may be required by the foregoing provisions of this Article 10A(F)(iii) including by way of the issue of bonus shares to the holders of the Relevant Shares or otherwise (but in no event shall the holders of the Relevant Shares receive a number of Ordinary Shares exceeding their entitlement under Article 10A(F)(ii)). (iv) In the case of a conversion effected pursuant to either Article 10A(F)(iii)(c) or (d) the special deferred shares arising as a result thereof shall on a return of capital in a winding-up or otherwise entitle the holder only to the repayment of the amounts paid up on such shares after repayment of the capital paid up on the Ordinary Shares plus the payment of an additional (pound)50,000 on each Ordinary Share and shall not entitle the holder to the payment of any dividend nor to receive notice of or to attend or vote at any General Meeting of the Company and such conversion shall be deemed to confer irrevocable authority on the Company at any time thereafter to appoint any person to execute on behalf of the holders of such shares an instrument of transfer thereof and/or an agreement to transfer the same, without making any payment to the holders thereof, to such person as the Directors may determine as custodian thereof and to agree to the cancellation and/or purchase by the Company of the same (in accordance with the provisions of the Statutes) for a price of 1p for all the special deferred shares without obtaining the sanction of the holder thereof and pending such transfer and/or agreement to transfer and/or cancel and/or purchase to retain the certificate for such shares (if any certificate has been issued in respect thereof). The Company may at its option (exercisable by resolution of the Directors) at any time after the creation of any special deferred shares redeem all or any of the special deferred shares then in issue for 1p for all the special deferred shares redeemed, at any time upon giving the registered holders of such share or shares not less than 28 days' previous notice in writing of its intention so to do, such notice fixing a time and place for redemption of such shares. (v) The holder of any Participating Shares may exercise the conversion right specified in Article 10A(F)(i) by surrendering to the Company at its registered office or its registrar the certificate or certificates for the Participating Shares to be converted, accompanied by written notice specifying the number of shares to be converted with any evidence the Directors may reasonably require to prove title of the person exercising the right to convert (the "CONVERSION NOTICE"). If the Company has exercised its limited ability in accordance with Article 10A(E)(iii), Article 10A(E)(v) or Article 10A(E)(vii) to elect to cause the Participating Shares to be converted into Ordinary Shares then a Conversion Notice shall be deemed to have been given upon such exercise. (vi) Allotments of Ordinary Shares arising from conversion shall be made within 10 Business Days of the delivery of the Conversion Notice to the Company. Subject to the provisions of Article 10A(F)(ix)(h) hereof, as promptly as practicable thereafter, the Company shall issue and deliver to or upon the written order of each holder of Relevant Shares a new certificate or certificates for the number of Ordinary Shares to which such holder is entitled, a new certificate for any unconverted Participating Shares comprised in any certificate(s) surrendered by such holder, and a cheque or cash with respect to any fractional interest in an Ordinary Share, as provided in Article 10A(F)(viii) hereof. In the meantime, transfers of new Ordinary Shares shall be certified against the register. (vii) Subject to the provisions of Article 10A(F)(ix)(h) hereof, the person in whose name the certificate or certificates for Ordinary Shares are to be issued shall be entered into the Company's register of Members as a holder of record of such Ordinary Shares immediately prior to the close of business on the date of conversion. A Conversion Notice may only be withdrawn by notice by the holder(s) of the Relevant Shares delivered to the Company not less than two Business Days prior to the date of conversion. (viii) No fractions of Ordinary Shares shall be issued upon conversion of Participating Shares. If more than one Participating Share shall be surrendered for conversion at any one time by the same holder, the number of full 18 Ordinary Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Participating Shares so surrendered. If as a result of conversion holders become entitled to fractions of an Ordinary Share, the Directors may on behalf of the holders deal with the fractions as they reasonably deem to be appropriate. Without limiting the generality of the preceding sentence, the Directors may aggregate and sell the fractions to a person (including, subject to the provisions of the Statutes, the Company) for the best price reasonably obtainable and distribute the net proceeds of sale in due proportions amongst the holders. (ix) The Conversion Price shall be subject to adjustment from time to time as follows, provided that in the event that the holders of Participating Shares carrying more than 50% of the voting rights of that class exercise their preemptive rights in a transaction to which Section 89 of the Companies Act 1985 applies, then the adjustment in the Conversion Price provided for in Article 10A(F)(ix)(a) only shall not be given effect. (a) ORDINARY SHARES ISSUED AT LESS THAN MARKET VALUE. If the Company shall issue any Ordinary Shares, other than Excluded Shares or Ordinary Shares issued in an Excluded Transaction, without consideration or for a consideration per share less than the Market Value immediately prior to such issuance, the Conversion Price in effect immediately prior to each such issuance shall immediately (except as provided below) be reduced to the price determined by multiplying the Conversion Price in effect immediately prior to such issuance by a fraction (A) the numerator of which is the sum of (1) the number of Ordinary Shares outstanding immediately prior to such issuance and (2) the number of Ordinary Shares that the aggregate consideration, if any, received by the Company upon such issuance, would purchase at such Market Value and (B) the denominator of which is the total number of Ordinary Shares outstanding immediately after such issuance. For the purposes of any adjustment of the Conversion Price pursuant to this Article 10A(F)(ix)(a), the following provisions shall be applicable. (1) CASH. In the case of the issuance of Ordinary Shares for cash, the amount of the consideration received by the Company shall be deemed to be the amount of the cash proceeds received by the Company for such Ordinary Shares before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (2) CONSIDERATION OTHER THAN CASH. In the case of the issuance of Ordinary Shares (otherwise than upon the conversion of shares of Share Capital or other securities of the Company) for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be either: (A) the amount determined by an independent valuation undertaken in accordance with Section 108 of the Companies Act 1985; and (B) in the absence of such valuation, the Fair Market Value thereof, irrespective of any accounting treatment. (3) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the issuance of (x) options, warrants or other rights to purchase or acquire Ordinary Shares (whether or not at the time exercisable) (but any adjustment pursuant to this provision shall be made only to the extent any adjustment shall have not been made pursuant to Article 10A(F)(ix)(d)(4) hereof), (y) securities by their terms convertible into or exchangeable for Ordinary Shares (whether or not at the time so convertible or exchangeable) or (z) options, warrants or rights to purchase such convertible or exchangeable securities (whether or not at the time exercisable): (A) the aggregate maximum number of Ordinary Shares deliverable upon exercise of such options, warrants or other rights to purchase or acquire Ordinary Shares shall be deemed to have been 19 issued at the time such options, warrants or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subclauses (1) and (2) above), if any, received by the Company upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Ordinary Shares covered thereby; (B) the aggregate maximum number of Ordinary Shares deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such convertible or exchangeable securities were issued or such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such convertible or exchangeable securities or options, warrants or rights (excluding any cash received on account of accumulated interest or accumulated dividends), plus the additional consideration (determined in the manner provided in subclauses (1) and (2) above), if any, to be received by the Company upon the conversion or exchange of such securities, or upon the exercise of any related options, warrants or rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof; (C) on any change in the number of Ordinary Shares deliverable upon exercise of any such options, warrants or rights or conversion or exchange of such convertible or exchangeable securities or any change in the consideration to be received by the Company upon such exercise, conversion or exchange (but excluding any change resulting solely from the operation of the anti-dilution provisions thereof if, and only if, such anti-dilution provisions would not require an adjustment to the exercise price or conversion price thereof in the event of any change to the Conversion Price pursuant to the provisions of this Article 10A(F)), the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants or rights not exercised prior to such change, or of such convertible or exchangeable securities not converted or exchanged prior to such change, upon the basis of such change; (D) on the expiration or cancellation of any such options, warrants or rights that are unexercised, or the cancellation or redemption of, or the termination of the right to convert or exchange such convertible or exchangeable securities, if the Conversion Price shall have been adjusted upon the issuance thereof, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants, rights or such convertible or exchangeable securities on the basis of the issuance of only the number of Ordinary Shares actually issued upon the exercise of such options, warrants or rights, or upon the conversion or exchange of such convertible or exchangeable securities; and (E) if the Conversion Price shall have been adjusted upon the issuance of any such options, warrants, rights or convertible or exchangeable securities no further adjustment of the Conversion Price shall be made for the actual issuance of Ordinary Shares upon the exercise, conversion or exchange thereof. (b) EXCLUDED SHARES. All Excluded Shares shall be deemed to be issued and outstanding for all purposes of computations under Article 10A(F)(ix)(a). (c) SHARE DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR COMBINATIONS. If the Company shall (1) declare a dividend or make a distribution on its Ordinary Shares in additional Ordinary Shares which is not paid or made on an equal and ratable basis to all holders of Participating Shares, (2) subdivide, split or reclassify (by merger, consolidation or otherwise) the outstanding Ordinary Shares into a greater number of 20 shares, (3) combine or reclassify (by merger, consolidation or otherwise) the outstanding Ordinary Shares into a smaller number of shares or (4) issue any Ordinary Shares in a reclassification (by merger, consolidation or otherwise), the Conversion Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination, reclassification or issuance shall be proportionately adjusted so that the holder of any Participating Shares surrendered for conversion after such date shall be entitled to receive the number of Ordinary Shares which such holder would have owned or been entitled to receive had such Participating Shares been converted immediately prior to such date. Successive adjustments in the Conversion Price shall be made whenever any event specified above shall occur. (d) OTHER DISTRIBUTIONS. In case the Company shall fix a record date for the making of a distribution to all holders of Ordinary Shares which is not paid or made on an equal and ratable basis to all holders of Participating Shares, (1) of shares of any class other than its Ordinary Shares or (2) of evidence of indebtedness of the Company or any subsidiary or (3) of assets or other property, including, without limitation, securities issued by subsidiaries or others (excluding regular cash dividends, and dividends or distributions referred to in Article 10A(F)(ix)(c) above), or (4) of options, warrants or other rights, in each such case the Conversion Price in effect immediately prior thereto shall be reduced immediately thereafter to the price determined by dividing (A) an amount equal to the difference resulting from (1) the number of Ordinary Shares outstanding on such record date multiplied by the Conversion Price per Ordinary Share on such record date less (2) the Fair Market Value of such shares or evidences of indebtedness or assets or rights or warrants to be so distributed, by (B) the number of Ordinary Shares outstanding on such record date. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Conversion Price then in effect shall be readjusted, effective as of the date when the Directors determine not to distribute such shares, evidences of indebtedness, assets, property, options, rights or warrants, as the case may be, to the Conversion Price which would then be in effect if such record date had not been fixed. (e) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of any consolidation, amalgamation, or merger of the Company with or into another corporation or entity, or in case of any sale, lease or conveyance to another corporation or entity of the assets of the Company as an entirety or substantially as an entirety, each Participating Share shall after the date of such consolidation, amalgamation, merger, sale, lease or conveyance be convertible into the number of shares of stock or other securities or property (including cash) to which the Ordinary Shares issuable (immediately prior to the time of such consolidation, merger, sale, lease or conveyance) upon conversion of each such Participating Shares would have been entitled upon such consolidation, amalgamation, merger, sale, lease or conveyance, and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holders of the Participating Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be possible, to any shares of stock or other securities or property thereafter deliverable on the conversion of the Participating Shares. (f) ROUNDING OF CALCULATIONS. All calculations under this Article 10A(F)(ix) shall be made to the nearest U.S. cent or to the nearest one ten thousandth of a share, as the case may be. (g) ADJUSTMENTS FOR AMERICAN DEPOSITARY SHARES. All computations and calculations under this Article 10A(F)(ix) shall, at the time of determination, give effect to the then applicable ratio of Ordinary Shares to American depositary shares representing such Ordinary Shares at the time of determination and shall be adjusted accordingly (it being recognized that such ratio is four Ordinary Shares per American depositary share on the Issue Date). Without limiting the generality of the preceding sentence, the computations and calculations relating to Market Value in Article 10A(F)(ix)(a) shall be based on the Market Value for American depositary shares representing Ordinary Shares of the Company as adjusted by then applicable ratio of Ordinary Shares to American depositary shares (it being recognized that Market Value initially is to be divided by 4 to reflect the ratio of four Ordinary Shares per American depositary share on the Issue Date). 21 (h) TIMING OF ISSUANCE OF ADDITIONAL ORDINARY SHARES UPON CERTAIN ADJUSTMENTS. In any case in which the provisions of this Article 10A(F)(ix) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (1) issuing to the holder of any Participating Shares converted after such record date and before the occurrence of such event the additional Ordinary Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Ordinary Shares issuable upon such conversion before giving effect to such adjustment and (2) paying to such holder any amount of cash in lieu of any fractional Ordinary Shares, PROVIDED, that the Company, upon request, shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Ordinary Shares, and such cash, upon the occurrence of the event requiring such adjustment. (x) Whenever the Conversion Price shall be adjusted, the Company shall forthwith file, at the office of the registrar, at the registered office of the Company, and at the principal office of the Company in the United States, a statement showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment, and the Company shall also cause a copy of such statement to be sent by reputable overnight air courier service, to each holder of Participating Shares at its address appearing on the Company's records. (xi) In the event the Directors have, or the Company has, agreed or otherwise formally determined to take any action of the type described in clause (a) (but only if the action of the type described in clause (a) would result in an adjustment in the Conversion Price), (c), (d) or (e) of Article 10A(F)(ix) hereof, the Company shall give notice to each holder of Participating Shares, in the manner set forth in Article 10A(F)(ix) hereof, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon conversion of Participating Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least ten days prior to the date so fixed, and in case of all other action, such notice shall be given at least ten days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. (xii) The Company shall pay all U.K. documentary, stamp, transfer or similar taxes, plus any fees of the depositary for American depositary shares, attributable to the issuance or delivery of Ordinary Shares or American depositary shares representing Ordinary Shares upon conversion of any Participating Shares, PROVIDED that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the Participating Shares in respect of which such shares are being issued. (xiii) The Company shall at all times so long as any Participating Shares remain outstanding, have sufficient authorised Share Capital available for allotment and issue (i) to permit the issuance of additional Participating Shares as dividends or by way of bonus issue on the Participating Shares and (ii) to permit the conversion of all Participating Shares in issue from time to time into Ordinary Shares in accordance with these Articles. (xiv) If any Ordinary Shares to be issued for the purpose of conversion of Participating Shares require registration with or approval of any governmental authority under any U.S. federal or state, English or other non-U.S. law before such shares may be validly issued or delivered upon conversion, then the Company will in good faith and as expeditiously as possible endeavour to secure such registration or approval, as the case may be. If, and so long as, any Ordinary Shares into which the Participating Shares are then convertible are listed or quoted on any U.S., U.K. or other securities exchange or market, the Company will, if permitted by the rules of such securities exchange or market, list and keep listed or quoted on such securities exchange or market, upon official notice of issuance, all such shares issuable upon conversion. 22 (xv) All Ordinary Shares that may be issued upon conversion of the Participating Shares will upon issuance by the Company be duly and validly issued, fully paid and non-assessable, not issued in violation of any preemptive rights arising under law or contract, and free from all taxes, liens and charges with respect to the issuance thereof, and the Company shall take no action which will cause a contrary result (including without limitation, any action which would cause the Conversion Price to be less than the nominal value, if any, of the Ordinary Shares). (xvi) Notwithstanding the foregoing provisions of this Article 10A(F) (and subject to the terms of the relevant American depositary receipt agreement), if the holder of any Participating Shares so specifies in the Conversion Notice, the Company shall cause to be delivered to the holder of the said Participating Shares, upon conversion of the specified Participating Shares, American depositary receipts evidencing the number of American depositary shares representing the Ordinary Shares into which such Participating Shares have been converted. Any American depositary shares that may be issued upon such conversion shall upon issuance be duly and validly issued and entitled to the benefits specified therein and in the deposit agreement relating to such American depositary shares, and the Company shall take no action which will cause a contrary result. For the purposes of this Article 10A(F) (including without limitation, Articles 10A(F)(vii), 10A(F)(ix) and 10A(F)(xv)) all references to Ordinary Shares shall be deemed, to the fullest extent possible, to apply to the American depositary shares representing such Ordinary Shares and all references to share certificates to the American depositary receipts representing such American depositary shares. (G) LIQUIDATION RETURN (i) In the event of the liquidation, winding-up or dissolution of the Company, whether voluntary or involuntary, the holders of Participating Shares then outstanding, after payment or provision for payment of the debts and other liabilities of the Company, and before any distribution to holders of any Junior Securities of the Company, shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders an amount per Participating Share in cash equal to the greater of (a) the then effective Liquidation Return per share plus accumulated and unpaid dividends from and including the most recent Dividend Payment Date through and including the date of liquidation, winding-up or dissolution and (b) the amount that would be payable to the holders of the Participating Shares if the Participating Shares had been converted into Ordinary Shares immediately prior to such liquidation, winding-up or dissolution. In the event the assets of the Company available for distribution to the holders of the Participating Shares upon any dissolution, winding-up or liquidation of the Company shall be insufficient to pay in full the liquidation payments payable to the holders of outstanding Participating Shares and of all other Parity Securities, the holders of Participating Shares and all other Parity Securities shall share in such distribution of assets on a pro rata basis in proportion to the amount which would be payable on such distribution if the amounts to which the holders of outstanding Participating Shares and the holders of outstanding shares of such Parity Securities were paid in full. (ii) For the purposes of this Article 10A(G), none of the following transactions shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Company (provided that the same shall be effected by way of a bona fide transaction on arm's length terms): (a) the sale, lease, transfer or exchange of all or substantially all of the assets of the Company; or (b) the consolidation, amalgamation, or merger of the Company with or into one or more other corporations or other Persons (whether or not the Company is the corporation surviving such consolidation or merger). (H) SPECIAL RIGHT TO APPOINT DIRECTORS (i) Beginning on the Issue Date and continuing as long as the holders of the Participating Shares own Voting Shares of the Company and debt securities or Share Capital convertible into or exercisable for Voting Shares of the Company where all such Voting Shares represent at least 10% of the Company's total voting power, such holders shall be entitled pursuant to this Article 10A(H) to appoint two Directors to serve on the board of Directors of the Company. 23 In the event that such holders own, on such a basis, Voting Shares representing less than 10%, but more than 5%, of the Company's total voting power, such holders shall be entitled pursuant to this Article 10A(H) to designate one Director. (ii) In the event that Cypress and/or Affiliates of Cypress shall transfer some or all of their Participating Shares to another Person (other than an Affiliate of Cypress or its Affiliates) without the written consent of the Directors of the Company (which consent shall not be unreasonably withheld), and as a result of such transfer Cypress and Affiliates of Cypress hold in the aggregate less than 50.01% of the total number of Participating Shares outstanding at that time, then the holders of the Participating Shares shall, notwithstanding Article 10A(H)(i), be entitled thereafter to appoint only a maximum of one Director (it being recognised that Cypress and its Affiliates and any other holders of the Participating Shares shall not be subject to any restriction hereunder on their ability to transfer all or part of their Participating Shares to any other Person and that this Article 10A(H)(ii) relates solely to the power to appoint Directors). (iii) Each committee of the Directors shall include at least one Director designated by such holders as provided above; PROVIDED, that this requirement shall not apply with respect to the appointment of any particular designee to a committee in the event that the rules or regulations of any securities exchange or market on which the Ordinary Shares or American depositary shares representing such Ordinary Shares are then listed, quoted or traded (including, in the case of the London Stock Exchange, the Combined Code or any successor thereto), or applicable law, prohibits the appointment of such Director to such committee. (iv) The Company and the Directors shall take all actions necessary to effect such designation to the board of Directors (including, without limitation, increasing the size of the board of Directors and/or removing Directors) and to each committee thereof. (v) The Directors to be designated by the holders of the Participating Shares shall be elected by such holders by majority vote at a class meeting of the holders of the Participating Shares to be held immediately prior to any annual meeting of shareholders or extraordinary meeting held in place thereof, or by majority vote at a duly convened extraordinary meeting of the holders of the Participating Shares. (vi) The special right to appoint Directors set forth in this Article 10A(H) shall be in addition to the rights of the holders of the Participating Shares to exercise voting rights pursuant to Article 10A(D) hereof (including, without limitation, with respect to the election of Directors of the Company generally). (vii) If any Director appointed by the holders of the Participating Shares pursuant to this Article 10A(H) resigns, retires or is removed by the Company while the holders of the Participating Shares continue to have the right to appoint such Director, then, notwithstanding anything contained in these Articles, such holders shall be entitled to appoint a replacement Director in the same manner as appointment of the predecessor Director. (I) TAX GROSS-UP Subject as provided in Article 10A(D)(v), all payments by the Company in respect of the Participating Shares shall be made without withholding or deduction for or on account of any present or future taxes, duties, assessments or other governmental charges of whatsoever nature imposed or levied by or on behalf of the United Kingdom or any political subdivision or authority thereof or therein having power to tax, unless the Company is required by law to withhold such taxes, duties, assessments or other governmental charges. In such event, the Company shall make the required withholding or deduction, make payment of the amount so withheld or deducted to the appropriate government authority and pay such additional amounts ("ADDITIONAL AMOUNTS") as may be necessary to ensure that the net amounts received by the holders of the Participating Shares (taking into account any tax credits received by such holders from the United Kingdom) after such withholding or deduction shall equal the respective amounts of dividends and other amounts which would have been received in respect of the Participating Shares in the absence of such withholding or deduction; PROVIDED, HOWEVER, that no such Additional Amounts shall be payable: 24 (i) to any holder who is subject to such taxes, duties, assessments or other governmental charges in respect of the Participating Shares by reason of such holder being a resident of the United Kingdom and otherwise than solely by the holding of such Participating Shares or by the receipt of dividends and other amounts in respect thereof; or (ii) to the extent that the taxes, duties, assessments or other governmental charges would not have been imposed but for the failure of such holder to comply with any certification, identification or other reporting requirements concerning the nationality, residence, identity or connection with the United Kingdom of such holder if (a) such compliance is required or imposed by law as a precondition to exemption from all or a part of such tax, duty, assessment or other governmental charge and (b) at least 30 days prior to the first Dividend Payment Date with respect to which the Company will apply this clause (ii), the Company shall have notified all holders of the Participating Shares that such holders will be required to comply with such requirement. (J) DEFINITIONS For the purposes of this Article 10A only, the following definitions shall apply: "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person. The term "control" shall have the meaning for such term as used in Rule 12b-2 under the U.S. Securities Exchange Act of 1934. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or London are authorized or required by law to close. "Change of Control" means the occurrence at any time of any of the following: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the U.S. Securities Exchange Act of 1934) (excluding for purposes of this clause (i), Cypress and any of its Affiliates, individually and in the aggregate), in a single transaction or through a series of related transactions, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the U.S. Securities Exchange Act of 1934, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 29.9% of the total Voting Shares of the Company; (ii) the Company consolidates or merges with or into another corporation or petitions the court for any scheme of compromise or arrangement within the meaning of section 425 of the Companies Act 1985 or conveys, transfers or leases all or substantially all of its assets to any Person, or any corporation consolidates or mergers with or into the Company, in any such event pursuant to a transaction in which the issued Voting Shares of the Company are changed into or exchanged for cash, securities not issued in violation of Article 10A(D)(iv) or other property, other than (a) any such transaction in which (1) the issued Voting Shares of the Company are changed into or exchanged for Voting Shares of the surviving corporation or its parent corporation and (2) the holders of the Voting Shares of the Company immediately prior to such transaction own, directly or indirectly, not less than 50.01% of the Voting Shares of the surviving corporation or its parent corporation immediately after such transaction or (b) any such transaction with, into or to any Affiliate of Cypress; (iii) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the board of Directors of the Company (together with any new Directors whose election by such board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of at least 66 2/3% (sixty-six and two thirds percent) of the Directors then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors of the Company then in office (but any 25 additional Directors elected by the holders of the Participating Shares pursuant to Article 10A(D)(iii) shall be excluded from the calculations for the purposes of this definition); or (iv) the Company is voluntarily or involuntarily wound up or dissolved or adopts a plan of liquidation, other than a voluntary winding up pursuant to which the whole of the Company's business is proposed to be transferred or sold to another company and the issued Voting Shares of the Company are changed into or exchanged for Voting Shares of that other company or its parent company, such Voting Shares having rights equal to or greater than the rights attached to the Voting Shares in the Company. "Change of Control Adjustment Amount" means an amount (if a positive number only) equal to (i) the difference between (a) 101% of the then effective Liquidation Return per share and (b) the aggregate Market Value of the Ordinary Shares into which each Participating Share was convertible on the date immediately preceding first public announcement of the transaction giving rise to the Change of Control, multiplied by (ii) a fraction the numerator of which is the deficiency in monies lawfully available for redemption and the denominator of which is the total amount of monies necessary to pay the redemption price in full upon a Change of Control as set forth in Article 10A(E)(vii)(a), in the case of this paragraph (ii) assuming that all holders of Participating Shares determined to require the Company to redeem their Participating Shares in accordance with Article 10A(E)(vii)(a). "Conversion Price" means an amount in U.S. dollars per Ordinary Share, determined by the Directors on the Issue Date, being not more than US$3.125 per Ordinary Share, subject to adjustment in accordance with the provisions of Article 10A(F) hereof. "Cypress" means The Cypress Group LLC or any successor entity. "Excluded Shares" means Ordinary Shares issued or issuable by the Company or American depositary shares representing such Ordinary Shares (i) upon conversion of the Participating Shares, (ii) upon conversion of the outstanding U.S.$200 million aggregate principal amount of the Company's 6.25% Convertible Subordinated Notes due 2002, or (iii) pursuant to bona fide stock option or other employee or officer benefit plans, PROVIDED, that such shares are issued at an exercise price or for consideration equal to or greater than the Fair Market Value thereof on the date of grant or award (and, in each case, including any American depositary shares representing such Ordinary Shares). "Excluded Transaction" means (i) an underwritten public offering of Ordinary Shares or American depositary shares representing Ordinary Shares or (ii) the issuance of Ordinary Shares or American depositary shares representing Ordinary Shares solely in exchange for assets or all of the shares of another Person (whether by merger, exchange or otherwise) in a transaction in which an independent internationally recognized investment banking firm has advised the Company that the transaction is fair and reasonable to the Company from a financial point of view. "Fair Market Value" means, with respect to any securities, the Market Value thereof and of any consideration other than cash or securities shall mean the amount which a willing buyer would pay to a willing seller in an arm's length transaction as determined by an independent internationally recognized investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Directors. "in cash" shall mean in U.S. dollars, unless otherwise specified. "Liquidation Return" means, on any date, the sum of U.S.$1,000 per Participating Share, plus (i) accumulated and unpaid dividends added to the Liquidation Return in respect of such Participating Share in accordance with Article 10A(C)(v) hereof and (ii) the amount, if any, added to the Liquidation Return in respect of such Participating Share in accordance with Article 10A(E)(vii)(d) hereof. "Market Value," with respect to any security, means the average of the daily closing prices of such security for the 20 trading day period ending on the relevant date of determination. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported 26 closing bid and asked prices regular way, in either case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the American Stock Exchange, or, if such security is not listed or admitted to trading on the American Stock Exchange, the average of the closing bid and asked prices of such security in the over-the-counter market as reported on the NASDAQ National Market System of the National Association of Securities Dealers, Inc. or if such security is not so quoted, the average of the closing bid and asked price of such security in the over-the-counter market as furnished by any U.S. nationally recognized New York Stock Exchange member firm selected by the Company for such purpose (it being recognized that on the Issue Date American depositary shares representing Ordinary Shares of the Company are quoted on the NASDAQ National Market System). If such security is not so listed, quoted or traded, the closing price shall be the last reported closing price for such security on the London Stock Exchange or, if not so listed, any other non-U.S. securities exchange or market on which such security is listed, quoted or traded (translated to U.S. dollars using the then prevailing exchange rate on such date of determination). If such security is not so listed, quoted or traded on any non-U.S. securities exchange or market, the closing price shall mean the amount which a willing buyer would pay to a willing seller in an arm's length transaction as determined by an independent internationally recognized investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the board of directors of the issuer of such security. Notwithstanding the foregoing (and subject to Article 10A(F)(ix)(g)), the Market Value of the Ordinary Shares shall be determined by reference to closing prices for the American depositary shares representing such Ordinary Shares so long as such American depositary shares are listed, quoted or traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System (adjusted to take into account the then prevailing ratio of Ordinary Shares per one American depositary share). "Ordinary Share Equivalent Rate" means, with respect to any Dividend Period, the quotient of (a) the product of (i) all dividends declared during such Dividend Period with respect to one Ordinary Share, (ii) the Applicable Period Adjustment Factor and (iii) the number of Ordinary Shares issuable upon conversion of one Participating Share on the last day of such Dividend Period, divided by (b) the Liquidation Return of one Participating Share on the first day of such Dividend Period. For purposes of the preceding sentence, "Applicable Period Adjustment Factor" means two (if such dividends are declared and paid on a semi-annual basis), four (if such dividends are declared and paid on a quarterly basis) or such other number as reflects the fiscal periods as to which such dividends are declared and paid, as the case may be. "Ordinary Shares" means the Ordinary Shares referred to in Article 3, and shall also include (i) Share Capital of the Company of any other class (regardless of how denominated) issued to the holders of Ordinary Shares upon any reclassification thereof in which the Ordinary Shares are converted into a new class of Share Capital and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Ordinary Shares. "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Share Capital" means any and all shares, interests, participations, rights in or other equivalents (however designated and whether voting or non-voting), and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such shares, interests, participations, rights in or other equivalents, including, to the fullest extent applicable, American Depository Receipts or similar instruments representing any such share capital. "Stated Dividend Rate" means 6.50% per annum; PROVIDED, that if at any time the Company shall be in default of its obligation to redeem any shares of the Participating Shares, the then effective Stated Dividend Rate shall increase by 2.00% per annum. "Voting Shares" means shares of the class or classes of Share Capital (including, in the case of the Company, the Ordinary Shares and the Participating Shares) pursuant to which the holders thereof have the general voting power to vote at meetings of shareholders (irrespective of whether or not at the time shares of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 27 (K) In the event of any conflict between the provisions of this Article 10A and any other provision of these Articles, this Article 10A shall prevail except where such construction would result in manifest error. 10B (A) The Directors may refuse to register an allotment of shares (whether fully paid or not) in favour of more than four persons jointly. If the Directors refuse to register an allotment they shall within two months after the date on which the letter of allotment was lodged with the Company send to the allottee notice of the refusal. (B) Except as required by law or pursuant to the provisions of these Articles, no person shall be recognised by the Company as holding any share upon any trust, and (except only as by these Articles or by law otherwise provided or under an order of a court of competent jurisdiction) the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any shares or any interest in any fractional part of a share or any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. 28 SHARE CERTIFICATES 11. Every share certificate shall be issued in accordance with Article 126 and shall specify the number and class and the distinguishing number (if any) of the shares to which it relates and the amount paid up thereon. No certificate shall be issued relating to shares of more than one class. 12. Every person (other than a recognised clearing house or a nominee of a recognised clearing house or of a recognised investment exchange in respect of whom the Company is not by law required to complete and have ready for delivery a certificate) whose name is entered as a Member on the Register shall be entitled without payment to receive within one month after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) one certificate for all the shares registered in his name or, in the case of shares of more than one class being registered in his name, a separate certificate for each class of shares so registered, and where a Member transfers part of the shares of any class registered in his name he shall be entitled without payment to one certificate for the balance of shares of that class retained by him. If a Member shall require additional certificates he shall pay for each additional certificate such reasonable sum (if any) as the Directors may determine. 13. In respect of shares of one class held jointly by more than one person the Company shall not be bound to issue more than one certificate, and delivery of a certificate for such shares to the person first named on the Register in respect of such shares shall be sufficient delivery to all such holders. 14. If any certificate be worn out or defaced then upon delivery thereof to the Directors they may order the same to be cancelled, and may issue a new certificate in lieu thereof; and if any certificate be lost or destroyed, then upon proof thereof to the satisfaction of the Directors and on such indemnity as the Directors deem adequate being given, a new certificate in lieu thereof shall be given to the party entitled to such lost or destroyed certificate. 15. Every certificate issued under the last preceding Article shall be issued without payment, but there shall be paid to the Company any exceptional out-of-pocket expenses of the Company in connection with the request as the Directors think fit and a sum equal to the costs incurred by the Company of any such indemnity and security as is referred to in that Article. VARIATION OF RIGHTS 16. If at any time the share capital is divided into different classes of shares, the rights attached to any class or any of such rights may, subject to the provisions of the Statutes, whether or not the Company is being or is to be wound up, be modified, abrogated or varied (i) in such manner (if any) as may be provided by such rights or (ii) in the absence of any such provision either with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of an Extraordinary Resolution passed at a separate General Meeting of the holders of the shares of the class. 17. To every such separate General Meeting the provisions of Sections 369, 370, 376 and 377 of the Companies Act 1985 and the provisions of these Articles relating to General Meetings shall, mutatis mutandis, so far as applicable apply, subject to the following provisions, namely: (a) the necessary quorum at any such meeting other then an adjourned meeting shall be two persons holding or representing by proxy at least one-third in nominal value the issued shares of the class in question and at an adjourned meeting two persons holding shares of the class in question or his proxy; and (b) any holder of shares of the class in question present in person or by proxy may demand a poll. 18. The rights attached to any class of shares shall, unless otherwise expressly provided by the terms of issue of the shares of that class or by the terms upon which such shares are for the time being held, be deemed to be varied or abrogated by the reduction of the capital paid up on such shares or by the allotment of further 29 shares ranking in priority thereto for payment of a dividend or repayment of capital but be deemed not to be modified, abrogated or varied by the creation or issue of further shares ranking PARI PASSU in all respects (save as to the date from which such new shares shall rank for dividend) with or subsequent to those already issued. CALLS ON SHARES 19. The Directors may, subject to the terms of allotment thereof, from time to time make such calls upon the Members as they think fit in respect of any moneys unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and each Member shall (subject to receiving at least 21 days' notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed, in whole or in part, as the Directors may determine. 20. A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed and may be required to be paid by instalments. 21. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 22. If a sum payable in respect of any call or instrument is not paid on or before the day appointed for payment thereof, the holder for the time being of the share in respect of which the call shall have been made, or the instrument be due, shall pay interest on the sum at such reasonable rate as the Directors' shall determine, or failing such determination at the rate of 14% per annum from the day appointed for the payment thereof until the actual payment thereof, and all expenses that may have been incurred by the Company by reason of such non-payment; but the Directors may, if they shall think fit, waive the payment of such interest and expenses or any part thereof. 23. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for the purposes of these Articles be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable, and in case of non-payment all the relevant provisions of these Articles as to payment of interest and expenses forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 24. The Directors may, on the issue of shares, make arrangements for a difference between the holders of such shares in the amounts of calls to be paid and in the times of payment of such calls. 25. The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the moneys, whether on account of the nominal value of the shares or by way of premium, uncalled and unpaid upon any shares held by him; and upon all or any of the moneys so paid in advance the Directors may (until the same would, but for such advance, become presently payable) pay interest at such rate not exceeding (unless the Company in General Meeting shall otherwise direct) 10 per cent. per annum, as may be agreed upon between the Directors and the Member paying such moneys in advance. FORFEITURE AND LIEN 26. If any Member fails to pay any call or instalment in full on or before the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring him to pay so much of the call or instalment as is unpaid together with any interest which may have accrued and any expenses incurred by the Company by reason of such non-payment. 27. The notice shall name a further day (not earlier than the expiration of seven days from the date of service of the notice) on or before which and the place where such call or instalment and such interest and expenses as aforesaid are to be paid. The notice shall also state that in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call or instalment is payable will be liable to be forfeited. 28. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution 30 of the Directors to that effect. Such forfeiture shall extend to all dividends declared in respect of the shares so forfeited and not actually paid before such forfeiture. Forfeiture shall be deemed to occur at the time of the passing of the said resolution of the Directors. The Directors may accept a surrender of any share liable to be forfeited hereunder upon such terms and conditions as may be agreed. 29. When any share has been forfeited notice of the forfeiture shall be served upon the person who was before forfeiture the holder of the share, or the person entitled to the share by transmission, and an entry of the forfeiture or surrender, with the date thereof, shall forthwith be made in the Register, but no forfeiture shall be invalidated by any failure to give such notice or make such entry as aforesaid. 30. A share so forfeited or surrendered shall be deemed to be the property of the Company, and may be sold, re-allotted or otherwise disposed of in such manner, either subject to or discharged from all calls made or instalments due prior to the forfeiture or surrender, as the Directors think fit: Provided that the Company shall not exercise any voting rights in respect of such share and any such share not disposed of in accordance with the foregoing within a period of three years from the date of its forfeiture or surrender shall thereupon be cancelled in accordance with the provisions of the Statutes. For the purpose of giving effect to any such sale or other disposition the Directors may authorise some person to transfer the share so sold or otherwise disposed of to the purchaser thereof or other person becoming entitled thereto. 31. The Directors may, at any time before any share so forfeited or surrendered shall have been cancelled or sold, re-allotted or otherwise disposed of, annul the forfeiture or surrender upon such terms as they think fit. 32. Any person whose shares have been forfeited or surrendered shall cease to be a Member in respect of those shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which, at the date of the forfeiture or surrender, were presently payable by him to the Company in respect of the shares, together with interest thereon at such rate, not exceeding 15 per cent. per annum, as the Directors may determine from the time of forfeiture or surrender until the time of payment, but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares, together with interest as aforesaid. The Directors may enforce payment without any allowance for the value of the shares at the time of forfeiture or surrender or for any consideration received on their disposal or waive payment in whole or in part. 33. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of such share; but the Directors may at any time waive any lien which has arisen and may declare any share to be wholly or in part exempt from the provisions of this Article. The Company's lien, if any, on a share shall extend to all dividends payable thereon. 34. The Company may sell, in such manner as the Directors think fit, any share on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of seven days after a notice in writing, (i) stating, and demanding payment of, the sum presently payable, and (ii) giving notice of intention to sell in default of such payment, has been given to the registered holder for the time being of the share, or the person entitled thereto by reason of his death or bankruptcy. 35. The net proceeds of such sale, after payment of the costs thereof, shall be received by the Company and applied in or towards satisfaction of such part of the amount in respect of which the lien exists as is presently payable. The residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of sale. For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser. 36. A statutory declaration in writing that the declarant is a Director or the Secretary of the Company and that a share has been duly forfeited or surrendered or sold to satisfy a lien of the Company on a date stated in the declaration shall be conclusive evidence of the facts stated therein against all persons claiming to be entitled to the share. Such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allotment or disposal thereof together with the share certificate delivered to a purchaser or allottee thereof shall (subject to the execution of a transfer if the same be required) constitute a good title to the share and the person to whom the share is sold, re-allotted or disposed of shall be 31 registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share. 32 TRANSFER OF SHARES 37. The instrument of transfer of any share in the Company shall be signed by or on behalf of the transferor (and, in the case of a share which is not fully paid, shall be signed by or on behalf of the transferee) and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. 38. All transfers of shares shall be effected by instrument in writing in any usual or common form or any other form which the Directors may approve. 39. Subject to Article 76 and the requirements of the London Stock Exchange, the Directors may, in their absolute discretion and without assigning any reason therefor, refuse to register any transfer of any share which is not a fully paid share or the transfer of a share on which the Company has a lien. If that share has been admitted to the Official List of the London Stock Exchange, the Directors may not refuse to register the transfer if this would prevent dealings in the share from taking place on an open and proper basis. The Directors may likewise refuse to register any transfer of a share, whether fully paid or not, in favour of more than four persons jointly. 40. The Directors may decline to recognise any instrument of transfer unless: (a) the instrument of transfer is left duly stamped at the Office, or at such other place as the Directors may from time to time determine, to be registered, accompanied by the certificate(s) of the shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and (b) the instrument of transfer is in respect of only one class of share provided that, in the case of a transfer by a recognised clearing house or a nominee of a recognised clearing house or of a recognised investment exchange, the lodgement of share certificates will only be necessary if and to the extent that certificates have been issued in respect of the shares in question. 41. If the Directors refuse to register a transfer they shall within two months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal and (except in the case of fraud) return to him the instrument of transfer. All instruments of transfer which are registered may be retained by the Company. 42. No fee shall be charged by the Company on the registration of any instrument of transfer, probate, letters of administration, certificate of death or marriage, power of attorney, stop notice or other document relating to or affecting the title to any shares or otherwise for making any entry in the Register affecting the title to any shares. 43. The registration of transfers may be suspended at such times and for such periods as the Directors may from time to time determine and either generally or in respect of any class of shares: Provided always that such registration shall not be suspended, either generally or otherwise, for more than thirty days in any year. 44. The Company shall be entitled to destroy: (i) any instrument of transfer which has been registered, at any time after the expiration of six years from the date of registration thereof; (ii) any dividend mandate or any variation or cancellation thereof or may any notification of change of address, at any time after the expiration of two years from the date of recording thereof; (iii) any share certificate which has been cancelled, at any time after the expiration of one year from the date of such cancellation; and 33 (iv) any other document on the basis of which entry in the Register is made, at any time after the expiration of six years from the date an entry in the Register is first made in respect thereof; and it shall conclusively be presumed in favour of the Company that every entry in the Register purporting to have been made on the basis of an instrument of transfer or other document so destroyed was duly and properly made, that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered, that every share certificate so destroyed was a valid certificate duly and properly cancelled and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company: Provided always that: (a) the provisions aforesaid shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to any claim (regardless of the parties thereto); (b) nothing contained in this Article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (a) above are not fulfilled; and (c) references in this Article to the destruction of any document include references to its disposal in any manner. TRANSMISSION OF SHARES 45. In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole or only surviving holder, shall be the only persons recognised by the Company as having any title to his interest in the shares; but nothing herein contained shall release the estate of a deceased Member from any liability in respect of any share which had been held by him (whether solely or jointly with other persons). 46. Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member may, upon such evidence being produced as may from time to time properly be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to have some person nominated by him registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that Member before his death or bankruptcy, as the case may be. 47. If the person so becoming entitled shall elect to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have another person registered he shall testify his election by executing to that person a transfer of the share. All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy of the Member had not occurred and the notice or transfer were a transfer signed by that Member. 48. Save as otherwise provided by or in accordance with these Articles, a person becoming entitled to a share by reason of the death or bankruptcy of the holder shall, upon supplying to the Company such evidence as the Directors may reasonably require to show his title to the share, be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company: Provided always that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within 90 days the Directors may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the share until the requirements of the notice have been complied with. 34 CONVERSION OF SHARES INTO STOCK 49. The Company may by Ordinary Resolution convert any of its fully paid up shares into stock of the same class as the shares so converted, and reconvert such stock into fully paid up shares of the same class and of any denomination. 50. The several holders of stock may transfer the same, or any part thereof, in the same manner, and subject to the same regulations, as and subject to which the shares from which the stock arose might previously to conversion have been transferred, or as near thereto as circumstances admit; and the Directors may from time to time fix the minimum amount of stock transferable but so that such minimum shall not exceed the nominal amount of the shares from which the stock arose. 51. The several holders of such stock shall, according to the amount of stock held by them and the class thereof, have the same rights, privileges and advantages as regards dividends, voting at meetings of the Company and other matters as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in the dividend and profits of the Company and in the assets on winding up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred that privilege or advantage. 52. Such of the provisions of these Articles as are applicable to fully paid up shares shall apply to stock and the words "share" and "shareholder" therein shall include "stock" and "stockholder". ALTERATION OF CAPITAL 53. The Company may from time to time by Ordinary Resolution increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe. All new shares shall be subject to the provisions of these Articles with reference to allotment, payment of calls, forfeiture, lien, transfer and transmission and otherwise. 54. The Company may by Ordinary Resolution: (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) sub-divide its existing shares, or any of them, into shares of smaller amount than is fixed by the Memorandum of Association, provided that; (i) in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; and (ii) the resolution whereby any share is sub-divided may determine that as between the resulting shares one or more of such shares may be given any preference or advantage as regards dividend, capital, voting or otherwise over the others or any other of such shares; (c) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. 55. Subject to any direction by the Company in General Meeting, whenever as the result of any consolidation and division or sub-division of shares Members of the Company are entitled to any issued shares of the Company in fractions, the Directors may deal with such fractions as they shall determine and in particular may sell the shares to which Members are so entitled in fractions to any person for the best price reasonably obtainable and pay and distribute to and amongst the Members entitled to such shares in due proportions the net proceeds of the sale thereof. For the purpose of giving effect to any such sale the Directors may nominate some person to execute a transfer of the shares sold on behalf of the Members so entitled to the purchaser thereof and may cause the name of the purchaser to be entered in the Register as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 35 56. Subject to any consent required by law, the Company may by Special Resolution reduce its share capital, any capital redemption reserve and any share premium account in any manner and with, and subject to, any incident authorized, and consent required, by law. 36 GENERAL MEETINGS 57. The Company shall in each year hold a General Meeting as its Annual General Meeting in addition to any other meetings in that year, and not more than fifteen months shall elapse between the date of one Annual General Meeting of the Company and that of the next. The Annual General Meeting shall be held at such time and place as the Directors shall appoint. 58. All General Meetings other than Annual General Meetings shall be called Extraordinary General Meetings. 59. The Directors may, whenever they think fit, convene an Extraordinary General Meeting, and Extraordinary General Meetings shall also be convened on such requisition, or, in default, may be convened by such requisitionists, as provided by the Statutes. If at any time there are not within the United Kingdom sufficient Directors capable of acting to form a quorum the Directors in the United Kingdom capable of acting, or if there are no Directors capable and willing so to act, any two Members of the Company, may convene an Extraordinary General Meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors. NOTICE OF GENERAL MEETING 60. An Annual General Meeting and a meeting called for the passing of a Special Resolution shall be called by not less than twenty-one days' notice in writing, and a meeting of the Company other than an Annual General Meeting or a meeting for the passing of a Special Resolution shall be called by not less than fourteen days' notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, the day and the hour of meeting and, in case of special business, the general nature of that business. It shall be given, in manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company in General Meeting, to such persons as are, under these Articles, entitled to receive such notices from the Company and shall comply with the provisions of the Statutes as to informing Members of their right to appoint proxies. A notice calling an Annual General Meeting shall specify the meeting as such and a notice convening a meeting to pass an Extraordinary Resolution or a Special Resolution as the case may be shall specify the intention to propose the resolution as such. 61. A meeting of the Company shall, notwithstanding that it is called by shorter notice than that specified in the last preceding Article, be deemed to have been duly called if it is so agreed: (a) in the case of a meeting called as the Annual General Meeting, by all the Members entitled to attend and vote thereat; and (b) in the case of any other meeting, by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent. in nominal value of the shares giving that right. 62. The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting. In cases where instruments of proxy are sent out with notices, the accidental omission to send such instrument of proxy to or non-receipt of such instrument of proxy by any person entitled to receive notice shall not invalidate the proceedings at the meeting. PROCEEDINGS AT GENERAL MEETINGS 63. All business shall be deemed special that is transacted at an Extraordinary General Meeting, and also all that is transacted at an Annual General Meeting, with the exception of: (a) declaring dividends: (b) receiving and/or adopting the accounts, balance sheets, reports of the Directors and Auditors and any other documents required by law to be attached or annexed to the balance sheets; 37 (c) appointing or re-appointing Directors to fill vacancies arising at the meeting on retirement whether by rotation or otherwise; (d) re-appointing the retiring Auditors(unless they were last appointed otherwise than by the Company in General Meeting); (e) fixing of the remuneration of the Auditors or determining the manner in which such remuneration is to be fixed. 64. No business shall be transacted at any General Meeting unless a quorum of Members is present at the time when the meeting proceeds to business; save as herein otherwise provided, three Members present in person or by proxy shall be a quorum. The appointment of a Chairman in accordance with the provisions of these Articles shall not be treated as part of the business of the meeting. If within thirty minutes from the time appointed for the meeting a quorum be not present, the meeting, if convened by or upon the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to such other day and such time and place as may have been specified for the purpose in the notice convening the meeting or (if not so specified) as the Chairman of the meeting may determine and in the latter case not less than seven days' notice of the adjourned meeting shall be given in like manner as in the case of the original meeting. If at such adjourned meeting a quorum be not present within fifteen minutes from the time appointed therefor, the Member or Members present in person or by proxy and entitled to vote shall be a quorum and shall have power to decide upon all matters which could properly have been disposed of at the meeting from which the adjournment took place. 65. The Chairman of the Board of Directors, failing whom the Deputy Chairman, shall preside as Chairman at every General Meeting of the Company. If there be no such Chairman or Deputy Chairman, or if at any General Meeting neither shall be present within ten minutes after the time appointed for holding the meeting and willing to act as Chairman, the Directors present shall select one of their number to be Chairman; or if no Director be present and willing to take the chair the Members present and entitled to vote shall choose one of their number to be Chairman of the meeting. 66. The Chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place; but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for fourteen days or more, not less than seven clear days' notice in writing of the adjourned meeting shall be given specifying the day, the place and the time of the meeting as in the case of an original meeting, but it shall not be necessary to specify in such notice the nature of the business to be transacted at the adjourned meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment. 67. If at any General Meeting an amendment shall be proposed to any resolution under consideration but shall in good faith be ruled out of order by the Chairman of the meeting, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling. In the case of a resolution duly proposed as a Special or Extraordinary Resolution no amendment thereto (other than an amendment to correct a patent error) may in any event be considered or voted upon and in the case of a resolution proposed as an Ordinary Resolution no amendment thereto (other than an amendment to correct a patent error) may be considered or voted upon unless at least forty-eight hours prior to the time appointed for holding the meeting or adjourned meeting at which such resolution is to be proposed notice in writing of the terms of the amendment and intention to move the same has been lodged at the Office. 68. At any General Meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded: (a) by the Chairman of the meeting; or (b) by at least three Members present in person or by proxy and entitled to vote; or 38 (c) by any Member or Members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the Members having the right to vote at the meeting; or (d) by a Member or Members holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right. Unless a poll be so demanded a declaration by the Chairman of the meeting that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 69. Except as provided in Article 71, if a poll is duly demanded it shall be taken in such manner (including the use of ballot or voting papers or tickets) as the Chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The Chairman of the meeting may (and if so directed by the meeting shall) appoint scrutineers and may adjourn the meeting to some place and time fixed by him for the purpose of declaring the result of a poll. 70. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. 71. A poll demanded on the election of a Chairman of the meeting or on the question of an adjournment shall be taken forthwith. A poll demanded on any other question shall be taken either immediately or at such subsequent time (not being more than thirty days after the date of the meeting or adjourned meeting at which the poll is demanded) and place as the Chairman of the meeting may direct. No notice need be given of a poll not taken immediately. Any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll. The demand for a poll may be withdrawn at any time before the conclusion of the meeting; but, if a demand is withdrawn, the Chairman of the meeting or other Members entitled may himself or themselves demand a poll. VOTES OF MEMBERS 72. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every Member present in person shall have one vote, and on a poll every Member shall have one vote for each share of which he is the holder. 73. In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the share. 74. A Member in respect of whom an order has been made by any court having jurisdiction (in the United Kingdom or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by his receiver curator bonis or other person authorised in that behalf appointed by that court, and such receiver curator bonis or other person may, on a poll, vote by proxy: Provided that such evidence as the Directors may require of the authority of the person claiming to vote shall have been deposited at the Office not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting or for taking the poll at which it is desired to vote. 75. No Member shall, unless the Directors otherwise determine, be entitled, in respect of any share in the capital of the Company held by him, to be present or to vote on any question, either in person or by proxy, at any General Meeting or meeting of the holders of any class of shares of the Company, or upon any poll, or to be reckoned in a quorum, or to exercise any other right or privilege conferred by membership in relation to General Meetings of the Company or meetings of the holders of any class of shares of the Company if any call or other sum presently payable by him to the Company in respect of such share remains unpaid. 39 76. (A) If any Member, or any other person appearing to be interested in shares held by such Member, has been duly served with a notice under Section 212 of the Companies Act 1985 (as amended by the Companies Act 1989) and is in default for the prescribed period in supplying to the Company the information thereby required, then, subject to the requirements of the London Stock Exchange, the Directors may in their absolute discretion at any time thereafter by a notice (a "direction notice") to such Member direct that, in respect of the shares in relation to which the default occurred (the "default shares" which expression shall include any further shares which are issued in respect of such shares), the Member shall not be entitled to be present or to vote either personally or by proxy at a General Meeting of the Company or a meeting of the holders of any class of shares of the Company or to exercise any other right conferred by membership in relation to General Meetings of the Company or meetings of the holders of any class of shares of the Company. (B) Where the default shares represent at least 0.25 per cent of the issued shares of that class, then the direction notice may additionally direct: (i) that any dividend or part thereof or other money which would otherwise be payable in respect of the default shares shall be retained by the Company without any liability to pay interest thereon when such money is finally paid to the Member; and/or (ii) that no transfer of any of the shares held by such Member shall be registered unless: (a) the Member is not himself in default as regards supplying the information required and the transfer is of part only of the Member's holding which, when presented for registration, is accompanied by a certificate by the Member in a form satisfactory to the Directors to the effect that after due and careful inquiry the Member is satisfied that none of the shares the subject of the transfer are default shares; or (b) the transfer is an approved transfer. (C) The Company shall send to each other person appearing to be interested in the shares the subject of any direction notice a copy of the notice, but the failure or omission by the Company to do so shall not invalidate such notice. (D) The sanctions under this Article 76 shall cease to apply seven days after the earlier of: (i) receipt by the Company of notice of an approved transfer, but only in relation to the shares transferred; and (ii) receipt by the Company, in a form satisfactory to the Directors, of all the information required by the direction notice. (E) For the purposes of this Article: (i) a person shall be treated as appearing to be interested in any shares if the Member holding such shares has given to the Company a notification under the said Section 212 which either (a) names such person as being so interested or (b) fails to establish the identities of those interested in the shares and (after taking into account the said notification and any other relevant Section 212 notification) the Company knows or has reasonable cause to believe that the person in question is or may be interested in the shares; (ii) the prescribed period is 28 days from the date of service of the notice under the said Section 212 except where the default shares represent at least 0.25 per cent. of the issued shares of that class in which case the prescribed period is 14 days from such date; and 40 (iii) a transfer of shares is an approved transfer if: (a) it is a transfer of shares to an offeror by way or in pursuance of acceptance of a takeover offer for a company (as defined in Section 428(1) of the Companies Act 1985); or (b) the Directors are satisfied that the transfer is made pursuant to a sale of the whole of the beneficial ownership of the shares to a party unconnected with the transferring Member and/or with any other person appearing to be interested in such shares; or (c) the transfer results from a sale made through a recognized investment exchange or any stock exchange outside the United Kingdom on which the Company's shares are normally traded. 77. No objection shall be raised to the qualification of any voter or as to whether any votes have been counted which ought not to have been counted or which might have been rejected, or as to whether any votes have not been counted which ought to have been counted, except at the meeting or adjourned meeting at which the vote objected to is given or tendered or at which the vote which might have been counted is not counted, or (in the case of a poll) on or within 24 hours of the declaration of the result of the poll, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the meeting, whose decision shall be final and conclusive. 78. On a poll votes may be given personally or by proxy and a Member entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way. 79. The instrument appointing a proxy shall be in writing in any usual or common form, or any other form which the Directors may approve, under the hand of the appointor or of his attorney duly authorized in writing, or if the appointor is a corporation, either under seal, or under the hand of an officer or attorney duly authorized. The Directors may, but shall not be bound to, require evidence of the authority of any such attorney or officer. The signature on such instrument need not be witnessed. A proxy need not be a Member of the Company. A Member may appoint more than one proxy to attend on the same occasion. Deposit of an instrument of proxy shall not preclude a Member from attending and voting in person at the meeting or any adjournment thereof. 80. An instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 of that power or authority shall be deposited at the Office or at such other place (if any) within the United Kingdom as is specified for that purpose in or by way of note to the notice convening the meeting, not less than forty-eight hours before the time for holding the meeting or adjourned meeting, at which the person named in the instrument proposes to vote, or, in the case of a poll taken otherwise than at or on the same day as the meeting or adjourned meeting, not less than twenty-four hours before the time appointed for the taking of the poll at which it is to be used, and in default the instrument of proxy shall not be treated as valid. 81. An instrument appointing a proxy shall, unless the contrary is stated thereon, be valid as well for any adjournment of the meeting to which it relates. An instrument of proxy may relate to more than one meeting (including any adjournment thereof) and having once been so delivered for the purpose of any meeting shall not require to be delivered in relation to any subsequent meeting to which it relates. No instrument of proxy shall be valid after the expiration of twelve months from the date of its execution except at an adjourned meeting or on a poll demanded at a meeting or adjourned meeting in cases where the meeting was originally held within twelve months from that date. 82. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. 83. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer shall have been received by the Company at the Office or such other place (if any) as is specified for 41 depositing the instrument of proxy before the commencement of the meeting or adjourned meeting or the holding of a poll subsequently thereto at which such vote is given. 84. Subject to the provisions of the Statutes, a resolution in writing signed by all the Members for the time being entitled to receive notice of and to attend and vote at General Meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a General Meeting of the Company duly convened and held, and may consist of two or more documents in like form each signed by one or more of the Members. 85. Any corporation which is a Member of the Company may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company. DIRECTORS 86. Unless and until the Company in General Meeting shall otherwise determine, the number of Directors shall be not fewer than two. 87. A Director shall not be required to hold any shares in the capital of the Company. A Director who is not a Member shall nevertheless be entitled to receive notice of and attend and speak at all General Meetings of the Company and all separate General Meetings of the holders of any class of shares in the capital of the Company. 88. Any provisions of the Statutes which, subject to the provisions of these Articles, would have the effect of rendering any person ineligible for appointment as a Director or liable to vacate office as Director on account of his having reached any specified age or of requiring special notice or any other special formality in connection with the appointment of any Director over a specified age, shall not apply to the Company. 89. A Director of the Company may be or continue as or become a director or other officer servant or member of, or otherwise interested in, any company promoted by the Company or in which the Company may be interested as shareholder or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received or receivable by him as a director or other officer servant or member of, or from his interest in, such other company. 90. (1) The Directors (other than any Director who shall for the time being hold an executive office or employment under the Company or a subsidiary of the Company) shall be paid out of the funds of the Company by way of fees for their services as Directors such sums (if any) as the Directors may from time to time determine (not exceeding in the aggregate an annual sum of (pound)150,000 or such larger amount as the Company may by Ordinary Resolution determine). Such remuneration shall be deemed to accrue from day to day. (2) The Directors may also be paid all reasonable travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the Directors or any committee of the Directors or General Meetings or otherwise in connection with the business of the Company. 91. Any Director who is appointed to any executive office or who serves on any committee or who devotes special attention to the business of the Company, or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may be paid such remuneration or extra remuneration by way of salary, percentage of profits or otherwise as the Directors may determine. 92. The Company shall in accordance with the provisions of the Statutes duly keep a register showing, as respects each Director, interests of his in shares in, or debentures of, the Company or associated companies. 42 ALTERNATE DIRECTORS 93. (A) Each Director shall have the power at any time to appoint as an alternate Director either (i) another Director or (ii) any other person approved for that purpose by a resolution of the Directors, and, at any time, to terminate such appointment. Every appointment and removal of an alternate Director shall be in writing signed by the appointor and (subject to any approval required) shall (unless the Directors agree otherwise) only take effect upon receipt of such written appointment or removal at the Office or at a meeting of the Directors. An alternate Director shall not be required to hold any shares in the capital of the Company and shall not be counted in reckoning the maximum and minimum number of Directors allowed or required by Article 86. (B) An alternate Director so appointed shall not be entitled as such to receive any remuneration from the Company except only such part (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct, but shall otherwise be subject to the provisions of these Articles with respect to Directors. An alternate Director shall during his appointment be an officer of the Company and shall not be deemed to be an agent of his appointor. (C) An alternate Director shall (subject to his giving to the Company an address within the United Kingdom at which notices may be served upon him) be entitled to receive notices of all meetings of the Directors and of any committee of the Directors of which his appointor is a member and to attend and vote as a Director at any such meeting at which his appointor is not personally present and generally in the absence of his appointor to perform and exercise all functions, rights, powers and duties as Director of his appointor, and to receive notice of all General Meetings. (D) The appointment of an alternate Director shall automatically determine on the happening of any event which if he were a Director would cause him to vacate such office or if his appointor shall cease for any reason to be a Director otherwise than by retiring and being re-appointed at the same meeting. (E) A Director or any other person may act as alternate Director to represent more than one Director and an alternate Director shall be entitled at meetings of the Directors or any committee of the Directors to one vote for every Director whom he represents in addition to his own vote (if any) as a Director, but shall count as only one for the purpose of determining whether a quorum be present. BORROWING POWERS 94. (A) Subject as hereinafter provided, the Directors may exercise all the powers of the Company to borrow money, and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures, debenture stock and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. (B) The Directors shall restrict the borrowings of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiary companies (if any) so as to ensure (so far, as regards subsidiary companies as by such exercise they can secure), that the aggregate amount for the time being remaining undischarged of all moneys borrowed by the Company and any of its subsidiary companies (exclusive of moneys for the time being owing by any subsidiary to the Company or to another subsidiary or by the Company to any subsidiary) shall not without the previous sanction of an Ordinary Resolution of the Company exceed an amount equal to four times the Adjusted Total of Capital and Reserves. For the purpose of the said limit, the issue of debentures shall be deemed to constitute a borrowing notwithstanding that the same may be issued in whole or in part for a consideration other than cash. (C) The expression "Adjusted Total of Capital and Reserves" means the aggregate of: (i) the amount paid up or credited as paid up on the issued share capital of the Company; and 43 (ii) the amounts standing to the credit of the capital, special and revenue reserves (including any share premium account, capital redemption reserve fund and profit and loss account) of the Company; all as shown in the latest audited Balance Sheet of the Company after: (i) deducting an amount equivalent to any distribution by the Company, or by any of its subsidiaries otherwise than in favour of the Company out of profits down to the date of such Balance Sheet of the Company which may have been declared, recommended or made since that date except in so far as such distribution is provided for in such Balance Sheet of the Company; (ii) making such adjustments as may be appropriate to reflect any variation in the paid up share capital of the Company or in the said capital reserves which has taken place since the date of such Balance Sheet of the Company or which would result from any transaction contemplated at the time when the Adjusted Total of Capital and Reserves is being calculated or from any transaction connected therewith. (D) A certificate in writing by the Auditors for the time being of the Company as to the amount of the Adjusted Total of Capital and Reserves or as to the amount deemed to be outstanding as borrowed moneys at any date shall be conclusive for all purposes as to the matters thereby certified. (E) No lender or other person dealing with the Company or any of its subsidiary companies shall be concerned to see or inquire whether the limit imposed by this Article is observed, and no debt incurred or security given in excess of such limit shall be invalid or ineffectual unless the lender or the recipient of the security had at the time when the debt was incurred or security given express notice that the said limit had been or would thereby be exceeded. POWERS AND DUTIES OF DIRECTORS 95. The business of the Company shall be managed by the Directors, who may exercise all such powers of the Company as are not, by the Statutes or by these Articles, required to be exercised by the Company in General Meeting, subject, nevertheless, to the provisions of these Articles and of the Statutes, and to such directions, being not inconsistent with any provisions of these Articles and of the Statutes, as may be given by the Company in General Meeting: Provided that no direction given by the Company in General Meeting shall invalidate any prior act of the Directors which would have been valid if such direction had not been given. The general powers conferred upon the Directors by this Article shall not be deemed to be abridged or restricted by any specific authority or power conferred upon the Directors by any other Article. 96. (A) The Directors may procure the establishment and maintenance of or participate in, or contribute to any non-contributory or contributory pension or superannuation fund, scheme or arrangement or life assurance scheme or arrangement for the benefit of, and pay, provide for or procure the grant of donations, gratuities, pensions, allowances, benefits or emoluments to, any persons who are or shall have been at any time Directors of the Company or in the employment or service of the Company or of any company which is or was a subsidiary of or allied to or associated with the Company or of the predecessors in business of the Company or any such subsidiary or associated company or the wives, widows, families, relatives or dependants of any such persons and so that any Director shall be entitled to receive and retain for his own benefit any such pension, annuity, gratuity, allowance or other benefit (whether under any such fund or scheme or otherwise). (B) The Directors may also procure the establishment and subsidy of or subscription to and support of any institutions, associations, clubs, funds or trusts calculated to be for the benefit of any such persons as aforesaid or otherwise to advance the interests and well-being of the Company or of any such other company as aforesaid, or its members, and may take or procure payments for or towards the insurance of any such persons as aforesaid and subscriptions or guarantees for charitable or benevolent objects or for any exhibition or for any public, general or useful object. 44 (C) Without prejudice to the provisions of Article 154 the Directors shall have power to purchase and maintain insurance for or for the benefit of any persons who are or were at any time Directors, officers or employees or auditors of the Company, or of any other company which is its holding company or in which the Company or such holding company or any of the predecessors of the Company or of such holding company has any interest whether direct or indirect or which is in any way allied to or associated with the Company, or of any subsidiary undertaking of the Company or of any such other company, or who are or were at any time trustees of any pension fund in which any employees of the Company or of any such other company or subsidiary undertaking are interested, including (without prejudice to the generality of the foregoing) insurance against any liability incurred by such persons in respect of any act or omission in the actual or purported execution and/or discharge of their duties and/or in the exercise or purported exercise of their powers and/or otherwise in relation to their duties, powers or offices in relation to the Company or any such other company, subsidiary undertaking or pension fund. For the purposes of this Regulation "holding company" and "subsidiary undertaking" shall have the same meanings as in the Companies Act 1989. (D) Without prejudice to the generality of the foregoing paragraphs of this Article, the Directors may exercise any of the powers conferred by the Statutes to make provision for the benefit of any such persons as aforesaid in connection with the cessation or the transfer to any person of the whole or part of the undertaking of the Company or any of its subsidiaries. (E) The Directors may procure any of the matters aforesaid to be done by the Company either alone or in conjunction with any other company. 97. The Directors may make such arrangements as they think fit for the management and transaction of the Company's affairs in the United Kingdom and elsewhere and may from time to time and at any time establish any local boards or agencies for managing any of the affairs of the Company in any specified locality, and may appoint any persons to be members of such local board, or any managers or agents, and may fix their remuneration. And the Directors from time to time, and at any time, may delegate to any person so appointed any of the powers, authorities, and discretions for the time being vested in the Directors (other than the powers of borrowing and of making calls), with power to sub-delegate, and may authorise the members for the time being of any such local board, or any of them, to fill up any vacancies therein, and to act notwithstanding vacancies; and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit, and the Directors may at any time remove any person so appointed, and may annul or vary any such delegation. 98. The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. 99. The Company may exercise the powers conferred by the Statutes with regard to having an official seal for use abroad and the powers conferred by Section 40 of the Companies Act 1985 with regard to having an official seal for sealing and evidencing securities, and such powers shall be vested in the Directors. 100. The Company may exercise the powers conferred upon the Company by the Statutes with regard to the keeping of an overseas branch register, and the Directors may (subject to the provisions of the Statutes) make and vary such regulations as they may think fit respecting the keeping of any such register. 101.(A) Subject to the provisions of the Statutes, a Director may hold any other office or place of profit under the Company, except that of Auditor, in conjunction with the office of Director and may act by himself or through his firm in a professional capacity for the Company, and in any such case on such terms as to remuneration and otherwise as the Directors may arrange. Any such remuneration shall be in addition to any remuneration provided for by any other Article. No Director or intending Director shall be disqualified by his office from entering into any contract, 45 arrangement, transaction or proposal with the Company either with regard to his tenure of any such other office or place of profit or any such acting in a professional capacity or as a vendor, purchaser or otherwise. Subject to the provisions of the Statutes and save as therein provided no such contract, arrangement, transaction or proposal entered into by or on behalf of the Company in which any Director or person connected with him is in any way interested, whether directly or indirectly, shall be liable to be avoided, nor shall any Director who enters into any such contract, arrangement, transaction or proposal or who is so interested be liable to account to the Company for any profit realised by any such contract, arrangement, transaction or proposal by reason of such Director holding that office or of the fiduciary relation thereby established, but he shall declare the nature of his interest in accordance with the Statutes. (B) Save as herein provided, a Director shall not vote in respect of any contract, arrangement, transaction or any other proposal whatsoever in which he has any material interest otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company. A Director shall not be counted in the quorum at a meeting in relation to any resolution on which he is debarred from voting. (C) A Director shall (in the absence of some other material interest than is indicated below) be entitled to vote (and be counted in the quorum) in respect of any resolution concerning any of the following matters, namely: (i) the giving of any security or indemnity to him in respect of money lent or obligations incurred by him at the request of or for the benefit of the Company or any of its subsidiaries; (ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security; (iii) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any of its subsidiaries for subscription or purchase in which offer he is or is to be interested as a participant in the underwriting or sub-underwriting thereof; (iv) any contract, arrangement, transaction or other proposal concerning any other body corporate in which he is interested, directly or indirectly and whether as an officer or shareholder or otherwise howsoever, provided that he is not the holder of or beneficially interested in one per cent. or more of any class of the equity share capital of such body corporate (or of a third body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate (any such interest being deemed for the purposes of this Article to be a material interest in all circumstances); (v) any contract, arrangement, transaction or other proposal concerning the adoption, modification or operation of a superannuation fund or retirements death or disability benefits scheme under which he may benefit and which relates to both employees and Directors of the Company and which does not accord to any Director as such any privilege or advantage not generally accorded to the employees to whom such scheme or fund relates; (vi) any contract, arrangement, transaction or other proposal concerning the adoption, modification or operation of any scheme for enabling employees including full-time Executive Directors of the Company and/or any subsidiary to acquire shares of the Company or any arrangement for the benefit of employees of the Company or any of its subsidiaries under which the Director benefits in a similar manner to employees and which does not accord to any Director as such any privilege or advantage not generally accorded to the employees to whom the scheme relates; and (vii) any proposal concerning any insurance which the Company is empowered to purchase and/or maintain for or for the benefit of any Directors of the Company or for persons who include Directors of the Company. 46 (D) A Director shall not vote or be counted in the quorum on any resolution concerning his own appointment as the holder of any office or place of profit with the Company or any company in which the Company is interested including fixing or varying the terms of his appointment or the termination thereof. (E) Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment) of two or more Directors to offices or employments with the Company or any company in which the Company is interested, such proposals may be divided and considered in relation to each Director separately and in such cases each of the Directors concerned (if not debarred from voting under paragraph (C)(iv) of this Article) shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment. (F) If any question shall arise at any meeting as to the materiality of a Director's interest or as to the entitlement of any Director to vote and such question is not resolved by his voluntarily agreeing to abstain from voting, such question shall be referred to the Chairman of the meeting and his ruling in relation to any other Director shall be final and conclusive except in a case where the nature or extent of the interests of the Director concerned have not been fairly disclosed. (G) Subject to the provisions of the Statutes the Company may by Ordinary Resolution suspend or relax the provisions of this Article to any extent or ratify any transaction not duly authorised by reason of a contravention of this Article. 102. The Directors may exercise or procure the exercise of the voting rights conferred by the shares in any other company held or owned by the Company, and may exercise any voting rights to which they are entitled as Directors of such other company, in such manner as they shall in their absolute discretion think fit, including the exercise thereof in favour of any resolution appointing themselves or any of them as directors, officers or servants of such other company, and fixing their remuneration as such, and may vote as Directors of this Company in connection with any of the matters aforesaid. 103. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time determine. 104.(A) The Directors shall cause minutes to be made in books provided for the purpose: (a) of all appointments of officers made by the Directors; (b) of the names of the Directors present at each meeting of the Directors and of any committee of the Directors; (c) of all resolutions and proceedings at all meetings of the Company, and of the Directors, and of committees of Directors. It shall not be necessary for Directors present at any meeting of Directors or committee of Directors to sign their names in the Minute Book or other book kept for recording attendance. Any such minute as aforesaid, if purporting to be signed by the Chairman of the meeting at which the proceedings were had, or by the Chairman of the next succeeding meeting, shall be receivable as prima facie evidence of the matters stated in such minutes without any further proof. (B) Any Director or the Secretary or any person appointed by the Directors for the purpose shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors or any committee, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies or extracts; and where any books, records, documents or accounts are elsewhere than at the Office the local manager or other officer of the Company having the custody thereof shall be deemed to be a person appointed by the Directors as aforesaid. A document purporting to be a 47 copy of a resolution, or an extract from the minutes of a meeting, of the Company or of the Directors or any committee which is certified as aforesaid shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that any minute so extracted is a true and accurate record of proceedings at a duly constituted meeting. 48 DISQUALIFICATION OF DIRECTORS 105. The office of a Director shall be vacated in any of the following events, namely: (a) if he becomes bankrupt or a receiving order is made against him or he makes any arrangement or composition with his creditors generally; (b) if he becomes prohibited by law from acting as a Director; (c) if in England or elsewhere an Order is made by any Court claiming jurisdiction in that behalf on the ground (however formulated) of mental disorder for his detention or for the appointment of a guardian or receiver or other person to exercise powers with respect to his property or affairs; (d) if he resigns his office by notice in writing under his hand to the Company or offers in writing under his hand to resign and the Directors resolve to accept such offer; (e) if not having leave of absence from the Directors, he and his alternate (if any) fail to attend the meetings of the Directors for six successive months, unless prevented by illness, unavoidable accident or other cause which may seem to the Directors to be sufficient, and the Directors resolve that his office be vacated; (f) if all the other Directors unanimously resolve that he be removed as a Director. ROTATION OF DIRECTORS 106. At each Annual General Meeting of the Company one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to but (except when less than three directors are subject to retirement) not exceeding one-third, shall retire from office. A Director retiring at a meeting shall retain office until the dissolution of such meeting. 107. The Directors to retire by rotation shall include (so far as necessary to obtain the number required) any Director who wishes to retire and not to offer himself for re-election. Any further Directors so to retire, shall be those who have been longest in office since their last election, but as between persons who became Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director shall be eligible for re-election. 108. The Company at the meeting at which a Director retires under any provision of these Articles may by Ordinary Resolution fill up the vacated office by electing thereto the retiring Director or some other person eligible for appointment. In default the retiring Director shall be deemed to have been re-elected except in any of the following cases, namely if: (a) at such meeting it is expressly resolved not to fill up such vacated office or a resolution for the re-election of such Director is put to the meeting and lost; or (b) such Director has given notice in writing to the Company that he is unwilling to be re-elected; or (c) the default is due to the moving of a resolution in contravention of the next following Article. 109. A single resolution for the appointment of two or more persons as Directors shall not be put at any General Meeting, unless a resolution that it shall be so put has first been agreed to by the meeting without any vote being given against it. 110. No person other than a Director retiring at the meeting shall, unless recommended by the Directors, be eligible for election or re-election to the office of Director at any General Meeting unless not less than seven nor more than twenty-one days before the date appointed for the meeting there shall have been left at the Office notice in writing, signed by a Member (other 49 than the person proposed) duly qualified to attend and vote at such meeting, of his intention to propose such person for election, and also notice in writing signed by that person of his willingness to be elected or re-elected. 111. The Company may from time to time by Ordinary Resolution increase or reduce the number of Directors then in office, and may also determine in what rotation the increased or reduced number is to go out of office. 112. The Directors shall have power at any time, and from time to time, to appoint any person to be a Director of the Company, either to fill a casual vacancy or as an addition to the existing Directors, but so that the total number of Directors shall not at any time exceed the maximum number, if any, fixed by or pursuant to these Articles. Any Director so appointed shall hold office only until the next following Annual General Meeting, and shall then be eligible for re-election but shall not be taken into account in determining the Directors who are to retire by rotation at such meeting. 113. The Company may by Ordinary Resolution, of which special notice has been given in accordance with the provisions of the Statutes, remove any Director before the expiration of his period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director. Such removal shall be without prejudice to any claim such Director may have for damages for breach of any contract of service between him and the Company. 114. The Company may by Ordinary Resolution appoint another person in place of a Director removed from office under the immediately preceding Article, and without prejudice to the powers of the Directors under Article 112 the Company in General Meeting may appoint any person to be a Director either to fill a casual vacancy or as an additional Director. A person appointed in place of a Director so removed or to fill such a vacancy shall be subject to retirement at the same time as if he had become a Director on the day on which the Director in whose place he is appointed was last elected a Director. PROCEEDINGS OF DIRECTORS 115.(A) The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings, as they think fit, and determine the quorum necessary for the transaction of business. Until otherwise determined two Directors shall constitute a quorum. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, the Chairman shall have a second or casting vote. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. Any Director may waive notice of any meeting and any such waiver may be retroactive. (B) All or any of the Directors or any committee thereof may participate in a meeting of the Directors or that committee by means of a conference telephone or any communication equipment which allows all persons participating in the meeting to hear each other. Any person so participating shall be deemed to be present in person at the meeting and shall be entitled to vote or be counted in a quorum accordingly. Such a meeting shall be deemed to take place where the largest group of those participating is assembled, or, if there is no such group, where the Chairman of the meeting is then present. 116. Notice of a meeting of the Directors shall be deemed to be duly given to a Director if it is given to him personally or by word of mouth or sent in writing to him at his last known address or any other address given by him to the Company for this purpose. It shall not be necessary to give notice of a meeting of the Directors to (a) any Director for the time being absent or intending to be absent from the United Kingdom unless such Director has requested the Company that notice of meetings of the Directors shall during his absence be sent in writing to him at his last known address or any other address given by him to the Company for this purpose, whether or not out of the United Kingdom or (b) to any alternate Director who has not given to the Company an address within the United Kingdom at which notice may be served upon him. 117. The continuing Directors or sole continuing Director may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a General Meeting of the Company, but for no other purpose. If there be no Directors or Director able or willing to act, then any two Members may summon a General Meeting for the purpose of appointing Directors. 50 118. The Directors may elect from their number a Chairman and a Deputy Chairman of their meetings and determine the period for which each is to hold office; but if no such Chairman or Deputy Chairman be elected, or if at any meeting no Chairman or Deputy Chairman shall be present within five minutes after the time appointed for holding the same, the Directors present shall choose one of their number to be Chairman of such meeting. 119. The Directors may from time to time and always in compliance with Article 10A(H)(iii) appoint committees consisting of one or more members of their body as they think fit and may co-opt one or more other persons as hereinafter provided. The Directors may delegate any of their powers or discretions to any such committee and from time to time revoke any such delegation and discharge any such committee wholly or in part. Insofar as any such power or discretion is so delegated any reference in these Articles to the exercise of discretion by the Directors of such power or discretion shall be read and construed as if it were a reference to such committee. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed by the Directors in default of which proceedings of a committee consisting of more than one member shall be regulated mutatis mutandis like the proceedings of the Directors. Any such regulations may provide for or authorise the co-option to the committee of persons other than Directors and for such co-opted members to have voting rights as members of the committee but so that (a) the number of co-opted members shall be less than one-half of the total number of members of the committee and (b) no resolution of the committee shall be effective unless a majority of the members of the committee present throughout the meeting are Directors. 120. All acts done by any meeting of the Directors or of a committee of the Directors or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment or continuance in office of any of the persons acting as aforesaid, or that any of such persons were or was disqualified from holding office or not entitled to vote, or had in any way vacated office, be as valid as if every such person had been duly appointed or had duly continued in office and was qualified and had continued to be a Director or member of the committee and was entitled to vote. 121. A resolution in writing, signed by all the Directors for the time being entitled to receive notice of a meeting of the Directors, shall be as valid and effective for all purposes as a resolution of the Directors passed at a meeting duly convened and held, and may consist of two or more documents in like form each signed by one or more of the Directors: Provided that such a resolution need not be signed by an alternate Director if it is signed by the Director who appointed him. MANAGING AND EXECUTIVE DIRECTORS 122. Subject to the provisions of the Statutes the Directors may from time to time appoint one or more of their body to be the holder of any executive office (including, where considered appropriate, the office of Chairman or Deputy Chairman), for such period and on such terms as they think fit, and, subject to the terms of any service contract entered into in any particular case and without prejudice to any claim for damages such Director may have for breach of any such service contract, may revoke or vary the terms of such appointment. The appointment of a Director to such office shall, without prejudice, to any claim for damages such Director may have for breach of any service contract between him and the Company, be automatically determined if he ceases from any cause to be a Director. 123. The salary or remuneration of any Director holding any executive office shall, subject as provided in any contract, be such as the Directors may from time to time determine, and may either be a fixed sum of money, or may altogether or in part be governed by the business done or profits made, and may include the making of provisions for the payment to him, his widow or other dependants, of a pension on retirement from the office or employment to which he is appointed and for the participation in pension and life assurance benefits, or may be upon such other terms as the Directors determine. 124. The Directors may entrust to and confer upon any Director holding any executive office any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. 51 SECRETARY 125.(A) Subject to the provisions of the Statutes the Secretary shall be appointed by the Directors for such term, at such remuneration and upon such conditions as they think fit; and any Secretary so appointed may (without prejudice to any claim for breach of damages for breach of any contract between him and the Company) be removed by them. (B) A provision of the Statutes or these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in place of, the Secretary. (C) The Directors may, at any time and from time to time, appoint any person to be Assistant or Deputy Secretary and anything required or authorised to be done by or to the Secretary may be done by or to any Assistant or Deputy Secretary so appointed; and any Assistant or Deputy Secretary may (without prejudice to any claim for damages for breach of any contract between him and the Company) be removed by the Directors. THE SEAL 126. (A) The Directors shall provide for the safe custody of the Seal and any official seal under Section 40 of the Companies Act 1985, and the Company may exercise the powers conferred by the Statutes with regard to having an official seal for use in any territory outside the United Kingdom, and such powers shall be vested in the Directors. Whenever in these Articles reference is made to the Seal, the reference shall, when and so far as may be applicable, be deemed to include any such official seal as aforesaid. (B) Where the Statutes so permit, any instrument signed by one Director and the Secretary or by two Directors and expressed to be executed by the Company shall have the same effect as if executed under the Seal. (C) The Seal shall not be affixed to any instrument and no instrument shall be executed having the same effect as if executed under the Seal except by the general or special authority of a resolution of the Directors, or of a committee of the Directors authorised in that behalf. The Directors may from time to time make such regulations as they think fit (subject to the provisions of these Articles) determining the persons and the number of such persons who shall sign every instrument to which the Seal is affixed. Until otherwise so determined, every such instrument shall be signed by a Director and countersigned by the Secretary or another Director, and in favour of any purchaser or person bona fide dealing with the Company, the signatures of such persons shall be conclusive evidence of the fact that the Seal has been properly affixed. (D) Every certificate of shares, debentures, debenture stock or representing any other form of security of the Company (other than letters of allotment, receipts for securities or certificates of deposit) shall be issued under the Seal or under any official seal kept by the Company pursuant to Section 40 of the Act or in such other manner having the same effect as if issued under the Seal. (E) Each certificate to which the Seal shall be affixed shall bear the autographic signatures of at least one Director and the Secretary or other person acting in the place of the Secretary, provided that the Directors may by resolution determine (either generally or in any particular case or cases) that such signatures shall be dispensed with, or shall be affixed by means of some method of system of mechanical signature. (F) Each certificate to which such official seal as is referred to in paragraph (D) of this Article shall be affixed need not bear any signatures. RESERVE 127. Subject to Article 10A(C)(i), the Directors may, before recommending any dividend, set aside out of the profits of the Company such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for any purpose to which the profits of the Company may be properly applied, and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments as the Directors think fit. The 52 Directors may divide the reserve into such special funds as they think fit, and may consolidate into one fund any special funds or any parts of any special funds into which the reserve may have been divided as they think fit. The Directors may also without placing the same to reserve carry forward any profits which they may think prudent not to divide. 53 DIVIDENDS 128. The profits of the Company available for dividend and resolved to be distributed shall be applied in the payment of dividends to the Members in accordance with their respective rights and priorities. The Company in General Meeting may declare dividends, but no dividend shall exceed the amount recommended by the Directors. Dividends regarding the Participating Shares shall be paid only in accordance with Article 10A(C). 129. The Directors may if they think fit from time to time pay to the Members such interim dividends as appear to the Directors to be justified by the profits of the Company. If at any time the share capital of the Company is divided into different classes the Directors may pay such interim dividends in respect of those shares in the capital of the Company which confer on the holders thereof deferred or non-preferred rights as well as in respect of those shares which confer on the holders thereof preferential rights with regard to dividend and provided that the Directors act bona fide they shall not incur any responsibility to the holders of shares conferring a preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferred rights. The Directors may also pay the fixed dividend payable on any shares of the Company half-yearly or otherwise on fixed dates, whenever such profits, in the opinion of the Directors, justify that course. 130. No dividend or interim dividend shall be paid otherwise than in accordance with the provisions of the Statutes which apply to the Company. 131. Subject to the rights of persons, if any, entitled to shares with any priority, preference or special rights as to dividend, all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for the purpose of this Article as paid up on the share. All dividends shall be apportioned and paid proportionately to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as if paid up in full or in part from a particular date, whether past or future, such share shall rank for dividend accordingly. 132. (1) The Directors may deduct from any dividend or other moneys payable to any Member on or in respect of a share all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in relation to shares of the Company. (2) The waiver in whole or in part of any dividend on any share by any document (whether or not under seal) shall be effective only if such document is signed by the shareholder (or the person entitled to the share in consequence of death or bankruptcy of the holder or otherwise by operation of law) and delivered to the Company and if or to the extent that the same is accepted as such or acted upon by the Company. 133. Any General Meeting declaring a dividend may, upon the recommendation of the Directors, by Ordinary Resolution direct payment of such dividend wholly or in part by the distribution of specific assets and in particular of paid up shares or debentures of any other company, and the Directors shall give effect to such direction. Where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient, and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors. 134. (A) All dividends and interest shall belong and be paid (subject to any lien of the Company) to those Members whose names shall be on the Register at the date at which such dividend shall be declared or at the date on which such interest shall be payable respectively, or at such other date as the Company by Ordinary Resolution or the Directors may determine notwithstanding any subsequent transfer or transmission of shares. The Company may pay any dividend, interest or other moneys payable in cash in respect of shares, by direct debit, bank transfer, cheque, dividend warrant or money order and may remit the same by post directed to the registered address of the holder or, in the case of joint holders, to the registered address of the joint holder whose name stands first in the Register, or to such person 54 and to such address as the holder or joint holders may in writing direct, and the Company shall not be responsible for any loss of any such cheque, warrant or order. Every such cheque, warrant or order shall be made payable to the order of the person to whom it is sent, or to such person as the holder or joint holders may in writing direct, and the payment of such cheque, warrant or order shall be a good discharge to the Company. If any such cheque, warrant or order has or shall be alleged to have been lost, stolen or destroyed, the Directors may, on request of the person entitled thereto, issue a replacement cheque, warrant or order subject to compliance with such conditions as to evidence and indemnity and the payment of out of pocket expenses of the Company in connection with the request as the Directors may think fit. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable in respect of the share held by him as joint holder. (B) If on two consecutive occasions (or following one such occasion, where reasonable enquiries have failed to establish another address or account of the person entitled to the payment) cheques warrants or orders in payment of dividends or other moneys payable in respect of any share have been sent through the post in accordance with the provisions of this Article but have been returned undelivered or left un-cashed during the periods for which the same are valid, the Company need not thereafter despatch further cheques or warrants in payment of dividends or other moneys payable in respect of the share in question until the Member or other person entitled thereto shall have communicated with the Company and supplied in writing to the Office an address for the purpose. The Company shall not be responsible for any cheque or warrant lost in transmission. 135. No dividend or other moneys payable on or in respect of a share shall bear interest against the Company. 136. All dividends, interest or other sums payable unclaimed may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed and so that the Company shall not thereby be constituted a trustee in respect thereof. All dividends, interest or other sums unclaimed for a period of twelve years (or such shorter period as may be approved under any regulations from time to time made by The Stock Exchange and to which the Company is subject) after their date of payment shall be forfeited and shall revert to the Company. The payment of any unclaimed dividend, interest or other sum payable by the Company on or in respect of any share into a separate account shall not constitute the Company a trustee thereof. CAPITALISATION OF PROFITS AND SCRIP DIVIDENDS 137. Subject to the provisions of Article 138, the Directors may capitalise any part of the amount for the time being standing to the credit of any of the Company's reserve accounts (including any share premium account and capital redemption reserve) or to the credit of the profit and loss account (in each case, whether or not such amounts are available for distribution), and appropriate the sum resolved to be capitalised either: (i) to the holders of Ordinary Shares who would have been entitled thereto if distributed by way of dividend and in the same proportions; and the Directors shall apply such sum on their behalf either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by such holders of Ordinary Shares respectively or in paying up in full at par unissued shares or debentures of the Company to be allotted credited as fully paid up to such holders of Ordinary Shares in the proportion aforesaid, or partly in the one way and partly in the other; (ii) to such holders of Ordinary Shares who may, in relation to any dividend or dividends, validly accept an offer or offers on such terms and conditions as the Directors may determine (and subject to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with legal or practical problems in respect of overseas shareholders) to receive new Ordinary Shares, credited as fully paid up, in lieu of the whole or any part of any such dividend or dividends (any such offer being called a "Scrip Dividend Offer"); and the Directors shall apply such sum on their behalf in paying up in full at par unissued shares (in accordance with the terms, conditions and exclusions or other arrangements of the Scrip Dividend Offer) to be allotted credited as fully paid up to such holders respectively; (iii) to the holders of the Participating Shares for the issue of bonus shares in accordance with Article 10A(C)(iv), 10A(F)(iii)(d) or 10A(F)(iii)(e). 55 138. (1) The authority of the Company in General Meeting shall be required before the Directors implement any Scrip Dividend Offer (which authority may extend to one or more offers), but for the avoidance of doubt shall not be required in relation to the issue of bonus shares to the holders of the Participating Shares in accordance with Article 10A(C)(iv). (2) The authority of the Company in General Meeting shall be required for any capitalisation pursuant to paragraph (i) of Article 137 above. (3) A share premium account and a capital redemption reserve and any other amounts which are not available for distribution may only be applied in the paying up of unissued shares to be allotted to holders of Ordinary Shares of the Company credited as fully paid up, or for the issue of bonus shares to the holders of the Participating Shares in accordance with Article 10A(C)(iv), 10A(F)(iii)(d) or 10A(F)(iii)(e). (4) The Directors may in their discretion suspend or terminate any Scrip Dividend Offer which is in operation, but for the avoidance of doubt may not suspend or terminate the issue of bonus shares to the holders of the Participating Shares in accordance with Article 10A(C)(iv), 10A(F)(iii)(d) or 10A(F)(iii)(e). 139. Whenever a capitalisation requires to be effected, the Directors may do all acts and things which they may consider necessary or expedient to give effect thereto, with full power to the Directors to make such provision as they think fit for the case of shares or debentures becoming distributable in fractions (including provisions whereby fractional entitlements are disregarded or the benefit thereof accrues to the Company rather than to the Members concerned) and also to authorise any person to enter on behalf of all Members concerned into an agreement with the Company providing for any such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. ACCOUNTS 140. The Directors shall cause accounting records to be kept in accordance with the provisions of the Statutes. 141. The accounting records shall be kept at the Office or, subject to the provisions of the Statutes, at such other place or places as the Directors think fit, and shall always be open to the inspection of the officers of the Company. 142. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounting records of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by statute or authorised by the Directors or by the Company in General Meeting. 143. The Directors shall from time to time in accordance with the provisions of the Statutes, cause to be prepared and to be laid before the Company in General Meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are referred to in the Statutes. 144. A printed copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in General Meeting, together with a copy of the Auditors' report and Directors' report, shall not less than twenty-one days before the date of the meeting be sent to every Member (whether or not he is entitled to receive notices of General Meetings of the Company) and every holder of debentures of the Company (whether or not he is so entitled) and to every other person who is entitled to receive notices of meetings from the Company under the provisions of the Statutes or these Articles, provided that this Article shall not require a copy of those documents to be sent to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures and provided further that if the Statutes so permit the company need not send copies of such documents to members who do not wish to receive them but may send them such summary financial statement or other documents as may be authorised by the Statutes. 56 AUDIT 145. Auditors shall be appointed and their duties regulated in accordance with the provisions of the Statutes. 57 NOTICES 146. Any notice or document (including a stock or share certificate) may be given by the Company to any Member either personally or by sending it by post to him or to his registered address, or (if he has no registered address within the United Kingdom) to the address, if any, within the United Kingdom supplied by him to the Company for the giving of notice to him. A Member who has no registered address within the United Kingdom, and has not supplied an address within the United Kingdom as aforesaid, shall not be entitled to receive any notice from the Company. 147. (A) If at any time by reason of the suspension or any curtailment of postal services in the United Kingdom the Company is unable effectively to convene a General Meeting by notices sent through the post, a General Meeting may be convened by a notice advertised on the same date in at least two daily newspapers with national circulation and such notice shall be deemed to have been duly served on all members entitled thereto on the day when the advertisement appears. In any such case the Company shall send confirmatory copies of the notice by post if at least seven days prior to the date of the Meeting the posting of notices to addresses throughout the United Kingdom again becomes practicable. (B) Any notice to the bearer of a warrant or to any other person who holds or is interested in shares in the Company in bearer form or any related coupons or talons shall be sufficiently given if advertised in at least two daily newspapers with a national circulation in the United Kingdom and any such notice shall be deemed given on the day when the advertisement appears. (C) Any notice required to be given by the Company to the Members or any of them, and not provided for by or pursuant to these Articles shall be sufficiently given if given by advertisement which shall be inserted once in at least one daily newspaper with a national circulation in the United Kingdom. Such a notice given by advertisement shall be deemed to have been served on the day on which the advertisement appears. 148. Where a notice or other document is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying, and posting a letter containing the notice, and to have been effected at the latest on the day following that on which the letter containing the same is posted (by whatever class); and in proving such service it shall be sufficient to prove that the letter containing the same was properly addressed, stamped and posted. 149. A notice may be given by the Company to the joint holders of a share by giving the notice to the joint holder first named in the Register in respect of the share. 150. A notice may be given by the Company to the persons entitled to a share in consequence of the death or bankruptcy of a Member by sending it through the post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description, at the address, if any, within the United Kingdom supplied for the purpose by the persons claiming to be so entitled, or (until such an address has been so supplied) by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. 151. Subject to such restrictions affecting the right to receive notice as are for the time being applicable to the holders of any class of shares, notice of every General Meeting shall be given in any manner hereinbefore authorised to: (a) every Member except those Members who (having no registered address within the United Kingdom) have not supplied to the Company an address within the United Kingdom for the giving of notices to them; (b) the Auditor for the time being of the Company; (c) the Directors and (if any) alternate Directors. No other person shall be entitled to receive notices of General Meetings. 58 152. Every person who becomes entitled to a share shall be bound by a notice in respect of that share which, before his name is entered in the Register, has been duly given to a person from whom he derives his title provided that no person who becomes entitled to a share shall be subject to the provisions of Article 76 by reason of any notice served under Section 212 of the Companies Act 1985 on the person from whom he derives his title before his name is entered in the Register. WINDING UP 153. If the Company shall be wound up the Liquidator may, with the sanction of an Extraordinary Resolution of the Company and any other sanction required by the Statutes, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The Liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the Liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability. INDEMNITY 154. Subject to the provisions of the Statutes, every Director or other officer or Auditor for the time being of the Company shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses or liabilities which he may sustain or incur in or about the actual or purported execution of the duties of his office or otherwise in relation thereto, including (without prejudice to the generality of the foregoing) any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application in which relief is granted to him by the Court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company. UNTRACED SHAREHOLDERS 155.(A) The Company shall be entitled to sell at the best price reasonably obtainable at the time of sale shares of a Member or shares to which a person is entitled by transmission if and provided that: (i) during the period of twelve years prior to the date of the publication of the advertisements referred to in paragraph (ii) below (or, if published on different dates, the first thereof) no cheque or warrant sent by the Company through the post in a prepaid letter addressed to the Member or to the person entitled by transmission to the shares at his address on the Register or other the last known address given by the Member or the person entitled by transmission to which cheques and warrants are to be sent has been cashed and no communication has been received by the Company from the Member or the person entitled by transmission and at least three dividends whether interim or final on or in respect of the shares in question have become payable and no such dividend has been claimed; and (ii) the Company shall on expiry of the said period of twelve years have inserted advertisements in both a leading national daily newspaper and in a newspaper circulating in the area in which the address referred to in paragraph (i) above is located giving notice of its intention to sell the said shares; and (iii) during the said period of twelve years and the period of three months following publication of the advertisements the Company shall have received no communication from such Member or person; and (iv) notice shall have been given to the Quotations Department of The Stock Exchange in London of its intention to make such sale. (B) To give effect to any such sale the Company may appoint any person to execute as transferor an instrument of transfer of the said shares and such instrument of transfer shall be as effective as if it had been executed by the registered holder of or person entitled by transmission to such shares and the title of the transferee shall not be affected 59 by any irregularity or invalidity in the proceedings relating thereto. The net proceeds of sale shall belong to the Company which shall be obliged to account to the former member or other person previously entitled as aforesaid for an amount equal to such proceeds and shall enter the name of such former member or other person in the books of the Company as a creditor for such amount which shall be a permanent debt of the Company. No trust shall be created in respect of the debt, no interest shall be payable in respect of the same and the Company shall not be required to account for any money earned on the net proceeds, which may be employed in the business of the Company or invested in such investments (other than shares of the Company or its holding company if any) as the Directors may from time to time think fit. 60 EX-27 4
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. 9-MOS MAR-31-2000 DEC-31-1999 78,758 0 551,889 49,123 343,755 1,044,868 703,922 380,914 1,757,807 550,450 800,104 204,630 0 4,875 197,748 1,757,807 1,880,473 1,880,473 1,201,912 1,201,912 561,800 0 746,638 40,123 11,234 28,889 0 0 0 28,889 0.50 0.49
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