10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2003.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES 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 & Wales	98-0052869
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11201 Danka Circle North St. Petersburg, Florida 33716	and	Masters House 107 Hammersmith Road London, England W14 0QH
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(727) 576-6003 in the United States

011-44-207-605-0150 in the United Kingdom

Securities registered pursuant to Section 12(g) of the Act:

Ordinary Shares

1.25 p each

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

As of September 30, 2002, the registrant had 248,113,094 ordinary shares outstanding, including 53,514,957 represented by American depositary shares (“ADS”). Each ADS represents four ordinary shares. The ADSs are evidenced by American depositary receipts. The aggregate market value of voting shares held by non-affiliates of the registrant as of September 30, 2002 was $130,259,375 based on the average bid and asked prices of ADSs as quoted on the NASDAQ SmallCap Market.

DANKA BUSINESS SYSTEMS PLC

Annual Report on Form 10-K for March 31, 2003

TABLE OF CONTENTS

RISK FACTORS	3
PART I	10
ITEM 1. BUSINESS	10
ITEM 2. PROPERTIES	20
ITEM 3. LEGAL PROCEEDINGS	20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT	20
PART II	21
ITEM 5. MARKET PRICE FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS	21
ITEM 6. SELECTED FINANCIAL DATA	21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	22
PART III	23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	23
ITEM 11. EXECUTIVE COMPENSATION	27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	35
ITEM 14. CONTROLS AND PROCEDURES	35
PART IV	36
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	36
INDEPENDENT AUDITORS’ REPORT	42
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS	43
SIGNATURES	44
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained herein, or otherwise made by our officers, including statements related to our future performance and our outlook for our businesses and respective markets, projections, statements of our plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on our beliefs as well as assumptions, made by, and information currently available to us. The words “goal”, “anticipate”, “expect”, “believe” and similar expressions as they relate to us are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements reflect our current views 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, the following: (i) any inability to successfully implement our strategy; (ii) any inability to comply with the financial or other covenants in our debt instruments; (iii) any material adverse change in financial markets, the economy or in our financial position; (iv) increased competition in our industry and the discounting of products by our competitors; (v) new competition as the result of evolving technology; (vi) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute, new products, including digital products, color products, multifunction products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices; (vii) any inability to arrange financing for our customers’ purchases of equipment from us; (viii) any inability to successfully enhance and unify our management information systems; (ix) any inability to record and process key data due to ineffective implementation of business processes and policies; (x) any negative impact from the loss of a key vendor or customer; (xi) any negative impact from the loss of any of our senior or key management personnel; (xii) any change in economic conditions in domestic or international markets where we operate or have material investments which may affect demand for our products or services; (xiii) any negative impact from the international scope of our operations; (xiv) fluctuations in foreign currencies; (xv) any inability to achieve or maintain cost savings; (xvi) any incurrence of tax liabilities beyond our current expectations, which could adversely affect our liquidity; and (xvii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by past or future terrorist attacks, the related war on terrorism, the fear of additional terrorist attacks or any outbreak of the Severe Acute Respiratory Syndrome (SARS); and (xvii) other risks including those risks identified in any of our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our analysis only as of the date they are made. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a matter of policy, we do not generally make any specific projections as to future earnings nor do we endorse any projections regarding future performance which may be made by others outside our company.

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RISK FACTORS

You should carefully consider the risk factors set forth below as well as the other information contained or incorporated by reference in this filing. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or results of operations. In addition, any of the following risks could materially and adversely affect our business, financial condition or results of operations.

Risks Associated with Our Business, Financial Condition and Results of Operations

Business Strategy—We believe that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement the strategies discussed elsewhere in this offering memorandum.

In connection with the implementation of our strategies, we have launched, and expect to continue to launch, several initiatives. However, the success of any these initiatives may not be achieved if:

• they are not accepted by our customers;

• they do not generate additional revenue and cash flow, reduce operating costs or reduce our working capital investments; or

• we are unable to provide the software, hardware, solutions or services necessary to successfully implement these initiatives.

Failure to implement one or more of our strategies and related initiatives could materially and adversely affect our business, financial condition or results of operations.

Profitability—Although we generated earnings from continuing operations before extraordinary items of $9.7 million during fiscal year 2003, we have incurred losses in the past. For instance, we incurred losses from continuing operations before extraordinary items of $233.5 million during fiscal year 2001 and $9.9 million during fiscal year 2002.

We believe that our results for fiscal years 2001, 2002 and 2003 were impacted in large part by:

• the transition in our industry from analog to digital products and the resulting lower retail equipment placements and reduced MIF;

• increased competition as a result of technology convergence, such as the advent of MFPs and, an increase in the migration of copy volume from traditional stand-alone copiers to network printers resulting in lower service and supplies revenue, and manufacturers selling on a direct basis;

• our decision to reduce our sales force and the number of geographic locations and markets that we operate in;

• reduced new retail equipment and related sales revenue as a result of our focus on higher margin transactions;

• a weakening of global economic conditions which resulted in reduced or delayed capital spending by customers;

• the costs associated with the disposal of certain under-performing business units; and

• investments in our growth initiatives, such as Professional Services, Danka @ the Desktop and TechSource.

If we incur losses in the future, our growth potential and our ability to execute our business strategy may be limited. In addition, our ability to service our indebtedness may be impaired because we may not generate sufficient cash flow from operations to pay principal or interest when due.

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Economic Downturn—The profitability of our business is susceptible to downturns in the global economy. Overall demand for our products and services and their profit margins may decline as a direct result of an economic recession, inflation, interest rates or governmental fiscal policy. As a result, our customers may reduce or delay capital expenditures for our products and services.

Competition—The industry in which we operate is highly competitive. We have competitors in all markets in which we operate, and our competitors include a number of companies worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology, performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our equipment suppliers continue to establish themselves as direct competitors in many of the areas in which we do business. Besides competition from within the office imaging industry, we are also experiencing competition from other sources as a result of evolving technology, including the development of alternative means of document processing, retention, storage and printing. Our retail operations are in direct competition with local and regional equipment suppliers and dealers, manufacturers, mass merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our market share because of the high level of competition in our industry. The intense competition in our industry may result in pressure on the prices that we can obtain for our products and may affect our ability to retain customers, both of which could materially and adversely affect our business, financial condition or results of operations.

Technological Changes—The industry in which we operate is characterized by rapidly changing technology. Technological changes have contributed to declines in our revenues in the past and may continue to do so in the future. For example, the office imaging industry continues to change from analog to digital copiers, MFPs and printers. Most of our digital products replace or compete with analog products. Digital copiers and MFPs are more efficient than analog copiers, meaning that our customers may require fewer of them to provide the same level of output. Digital copiers and MFPs are also increasingly more reliable than analog copiers and require less maintenance. This has contributed, in part, to a decline in our service contract revenue, which has traditionally formed a significant portion of our revenues. Moreover, color printing and copying represents an important and growing part of our industry. We must improve our execution of color sales and meet the demand for color products if we are to maintain and improve our operating performance and our ability to compete. Another industry change that has been fueled by technological changes, such as the advent of e-mail and the Internet, is the migration of copy volume from traditional stand-alone copiers to network printers as end users print distributed documents on printers linked directly to their personal computers as opposed to receiving copies of such documents that were copied on a traditional stand-alone copier. We will need to provide comprehensive solutions to our customers, such as offering digital copiers, MFPs and printers that are directly linked to their networks, in order to remain competitive. Finally, the speed of technological changes has caused us in the past, and may cause us in the future, to accelerate the write down of our inventory, including, but not limited to, showroom, rental and other equipment and related supplies and parts, as a result of obsolescence. In order to remain competitive, we must quickly and effectively respond to changing technology. The development of technologies in our industry, including digital and color products and the further development of MFPs, may impair our business, financial condition, results of operations or competitive position if we are not able to procure or gain access to products, bring them to the marketplace, maintain connectivity or make the investments necessary to maintain a technologically competitive workforce.

Third Party Financing Arrangements—A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. With respect to our U.S. customers, we have an agreement with General Electric Capital Corporation, or GECC, under which GECC has agreed to provide financing to our U.S. customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our U.S. business. With respect to our customers outside the United States, we have country by country arrangements with various third party finance and leasing companies. If we were to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC, then such source might refuse to provide financing to our customers. For example, our agreement with GECC requires us to maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such consolidated net worth as provided under the GECC agreement may result in a

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termination event under the GECC agreement. If one or more financing source were to fail to provide financing to our customers, those customers might be unable to purchase equipment from us if we were unable to provide alternative financing arrangements on similar terms. In addition, if we were unable to provide financing, we would lose sales, which could negatively affect our operating results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Financing Arrangements—GECC Arrangement.”

Information Systems—Currently, our management information systems run on numerous disparate legacy IT systems that are outdated and incompatible. The operation and coordination of our management information systems and billing systems is thus labor-intensive and expensive. We must manually collect, compile and consolidate certain information due to systems limitations. These manual procedures are more difficult and costly than automated processes and are more prone to error. As a result, our ability to obtain, manage and access important information, such as customer and contract data, in an effective and timely manner is limited. Failure to solve our management information and billing systems problems could materially and adversely affect our business, financial position or results of operations.

We currently use three separate billing systems to bill our customers in the United States, which is comprised of two legacy systems and the Oracle ERP System. We have experienced problems with these billing systems, including delays in updating and processing customer information, which has often resulted in the inaccurate billing of our customers and the untimely crediting of their accounts. We must also obtain an accurate measure of usage on each of our customers’ machines in order to properly bill them for usage. We have been unable to establish a uniform, non-manual process for obtaining this information and must estimate usage in many cases where we cannot obtain a timely and accurate read of the usage on each of our customer’s machines. This requires us to reconcile the actual usage at a later date and often causes confusion for our customers which can, in turn, delay payment for our services. Accordingly, we have experienced delays in collecting certain of our accounts receivable on a timely basis, resulting in higher than industry-average days outstanding for our accounts receivable and increased bad debt write-offs. Although we are now in the process of implementing the Oracle ERP System that will replace the two legacy systems, we cannot guarantee that the new billing system will be successfully implemented or, even if implemented, will operate to effectively address the existing problems with our billing operations.

We are in the process of implementing the Oracle ERP System, which we expect to cost approximately $50 million, excluding ancillary expenses, to enhance and unify our U.S. management information systems. This program has proved more expensive and time-consuming than we originally anticipated, in part because of the lack of prior investment in our IT infrastructure, systems performance issues and software deficiencies. It is possible that the costs of completing the project may still exceed our current expectations. Currently, we have converted approximately 35% of our U.S. business to the Oracle ERP System and anticipate that the U.S. program will be completed in the third quarter of fiscal year 2004, although we cannot give any assurance that this will be the case. We believe that the primary risks in completing the remainder of the U.S. project may be issues encountered in connection with the rapid data conversion required from our current system to the Oracle ERP System. If there is any further delay in the completion of the program, we will incur additional costs and we will be delayed in achieving expected cost savings. Additionally, if we are not able to successfully implement our Oracle ERP System, then we will continue to incur substantial costs using manual procedures to process information, in addition to the write-off of capitalized costs associated with the program.

For the same reasons as in the United States, we are evaluating what information system investments we should make for the countries within our European and International operations. We are evaluating the costs to implement new systems and are analyzing the systems requirements of our businesses in those countries. Any implementation of new or improved information systems in such countries may take considerable time and could require a substantial investment.

Business Processes and Policies—Our rapid expansion through acquisitions, past financial difficulties and a historical lack of focus on and investment in our information systems have impeded our ability to implement internal controls and business processes consistently and enforce policies effectively. We have identified

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instances where our business processes and policies have not been properly implemented or followed in the past, which have resulted in, among other things, poor billing and credit practices, excessive and undisciplined issuances of customer credits, inaccurate customer data, inconsistent customer contract terms and conditions and inadequate document retention. If these matters worsen, they could adversely affect our ability to record, process, summarize and report key data consistent with the assertions of management. If we determine that our internal controls require additional improvements, or if the changes we are implementing are inadequate, we will need to commit additional substantial resources, including the time of our management team, to implement new systems and controls, which could materially and adversely affect our business, financial condition or results of operations.

Vendor Relationships—We primarily have relationships with Canon, Ricoh, Toshiba, Heidelberg/Nexpress and Konica. These companies manufacture equipment, parts, supplies and software for resale by us in the markets in which we operate. We also rely on our equipment suppliers for related parts and supplies. An inability to obtain equipment, parts, supplies or software in the volumes required and at competitive prices from our major vendors, or the loss of any major vendor, may seriously harm our business because we may not be able to supply those vendors’ products to our customers on a timely basis in sufficient quantities or at all. In addition, we rely on our vendors to effectively respond to changing technology and manufacture new products to meet the demands of evolving customer needs. There is no guarantee that these vendors or any of our other vendors will effectively respond to changing technology, continue to sell their products and services to us, or that they will do so at competitive prices. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors’ ability to effectively respond to changing technology or provide products in a timely manner or at competitive prices.

Senior Management and Key Personnel—Our success depends on the efforts and ability of our senior management and key personnel. These executive officers have many years of experience in the office technology and related industries. If members of our senior management team or other key personnel were to resign, our business could suffer because of the loss of their expertise and knowledge of Danka and the loss of their relationships with our major customers and suppliers. In addition, it may be difficult for us to find suitable replacements.

International Scope of Operations—Danka Business Systems PLC is incorporated under the laws of England and Wales, and we conduct a significant portion of our business outside of the United States. Approximately 46.6% of our revenue was generated outside the United States during fiscal year 2003. We market office imaging equipment, document solutions and related services and supplies directly to customers in 25 countries. We employ approximately 4,400 employees in countries other than the United States. The international scope of our operations may lead to volatile financial results and difficulties in managing our operations because of, but not limited to, the following:

• difficulties and costs of staffing, social responsibility and managing international operations;

• currency restrictions and exchange rate fluctuations;

• unexpected changes in regulatory requirements;

• potentially adverse tax and tariff consequences;

• the burden of complying with multiple and potentially conflicting laws;

• the impact of business cycles, including potentially longer payment cycles, in any particular region;

• the geographic, time zone, language and cultural differences between personnel in different areas of the world;

• greater difficulty in collecting accounts receivables in certain geographic regions; and

• political, social and economic instability in any particular region, including Latin America and South America.

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With respect to our operations in South American countries that are experiencing difficulties as described above, we continue to evaluate the viability and future prospects of these businesses. Further, should we decide to downsize or exit any of these businesses, we could incur costs in respect of severance and closure of facilities, and we may also be required to recognize cumulative translation losses that would reduce our earnings.

Any of these factors could materially and adversely affect our business, financial condition or results of operations.

Currency Fluctuations—As a multinational company, changes in currency exchange rates affect our revenues, cost of sales and operating expenses. In addition, fluctuations in exchange rates between the U.S. dollar and the currencies in each of the countries in which we operate affect the results of our operations and the value of the net assets of our non-U.S. operations when reported in U.S. dollars in our U.S. financial statements. These fluctuations may negatively impact our results of operations or financial condition or, in some circumstances, may positively impact our results of operations disproportionately to underlying levels of actual growth or improvement in our businesses.

Approximately 46.6% of our revenues were generated outside the United States during fiscal year 2003, with the majority of these revenues denominated in either the euro or United Kingdom pound. During fiscal year 2003, the euro strengthened approximately 12.3% against the U.S. dollar and the United Kingdom pound strengthened approximately 7.8% against the U.S. dollar with significant positive effects on our revenue and income.

Further, our intercompany loans are subject to fluctuations in exchanges rates between the U.S. dollar and the currencies in each of the countries in which we operate, primarily the euro and the United Kingdom pound. Based on the outstanding balance of our intercompany loans at March 31, 2003, a change of 1% in the exchange rate for the euro and United Kingdom pound, would cause an increase/decrease in our foreign exchange gain of approximately $0.1 million.

Moreover, we pay for some assets in euro countries in U.S. dollars, but we generally invoice our customers in such countries in euros. If the euro weakens against the U.S. dollar, our operating margins and cash flow may be negatively impacted when we receive payment in euros but we pay our suppliers in U.S. dollars.

We generally do not hedge our exposure to changes in foreign currency.

Tax Payments—We are either currently under audit or may be audited in the key jurisdictions in which we operate. While we believe we have adequately reserved for such liabilities, should revenue agencies require payments in excess of those we currently expect to pay, our liquidity could be adversely affected based upon the size and timing of such payments.

Indebtedness—We have a significant amount of indebtedness. At March 31, 2003 we had consolidated bank and long-term indebtedness, including current maturities of long-term debt, of approximately $232.9 million which includes $47.6 million in principal amount of zero coupon senior subordinated notes due April 1, 2004 and $64.5 million in principal amount of 10% subordinated notes due April 1, 2008. A discussion of the terms and maturity dates of our indebtedness is included in the Liquidity and Capital Resources section in this filing. Our high level of indebtedness could have important consequences for you, including the following:

• use of a large portion of our cash flow to pay principal and interest on our indebtedness will reduce the availability of our cash flow to fund working capital, capital expenditures, initiatives and other business activities, including keeping pace with the technological, competitive and other changes currently affecting our industry;

• increase our vulnerability to general adverse economic and industry conditions;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

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• restrict us from making strategic acquisitions or exploiting business opportunities;

• make it more difficult for us to satisfy our obligations with respect to the notes and our other indebtedness;

• place us at a competitive disadvantage compared to our competitors that have less indebtedness; and

• limit, along with the financial and other restrictive covenants governing our indebtedness, our operational flexibility, including our ability to borrow additional funds or dispose of assets.

The majority of our borrowings bear interest at a variable rate. Accordingly, increases in interest rates could increase our interest expense and adversely affect our cash flow, reducing the amounts available to make payments on our indebtedness.

Bank and Other Covenants—Our credit facility imposes significant operating restrictions on us, because it contains financial and non-financial covenants, which restrict our business operations. If we were to fail to comply with the financial covenants and did not obtain a waiver or amendment from our senior bank lenders, we would be in default under the credit facility and lenders owning a majority of our senior bank debt would be permitted to demand immediate repayment. If we were to fail to repay our senior bank debt when it becomes due, our lenders could proceed against certain of our assets and our subsidiaries’ assets and capital stock which we have pledged to them as security for the repayment of our senior bank debt.

Disclosure Controls and Procedures and Internal Controls—We maintain disclosure controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We also maintain internal controls that are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Further, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Share Price—The market price of our ordinary shares and American depositary shares could be subject to significant fluctuations as a result of many factors. In addition, global stock markets have from time to time experienced significant price and volume fluctuations. These fluctuations may lead to a drop in the market price of our ordinary shares and American depositary shares. Factors which may add to the volatility of the price of our ordinary shares and American depositary shares include many of the factors set out above, and may also include changes in liquidity in the market for our ordinary shares and American depositary shares, sales of our ordinary

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shares and American depositary shares, investor sentiment towards the business sector in which we operate and conditions in the capital markets generally. Many of these factors are beyond our control. These factors may decrease the market price of our ordinary shares and American depositary shares, regardless of our operating performance.

Dividends on Ordinary Shares—We have not paid any cash or other dividends on our ordinary shares since 1998 and we do not expect to do so for the foreseeable future. We are an English company and, under English law, we are allowed to pay dividends to shareholders only if, as determined by reference to our financial statements prepared in accordance with UK GAAP:

• we have accumulated, realized profits that have not been previously distributed or capitalized, in excess of our accumulated, realized losses that have not previously been written off in a reduction or reorganization of capital; and

• our net assets are not less than the aggregate of our share capital and our non-distributable reserves, either before or as a result of the dividend.

As of the date of filing of this Form 10-K we have insufficient, accumulated realized profits to pay dividends on our ordinary shares. In addition, our credit facility prohibits us from paying dividends on our ordinary shares without our lenders’ consent. We may only pay dividends on our ordinary shares if we have paid all dividends due on our 6.50% senior convertible participating shares.

ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEB-SITE

Our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports may be viewed or downloaded electronically or as paper copies from our website: http://www.danka.com. Our recent press releases are also available to be viewed or downloaded electronically at http://www.danka.com. We will also provide electronic or paper copies of our SEC filings free of charge on request. Any information on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K.

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PART I

ITEM 1.    BUSINESS

General

Based on revenue, we are the second largest independent provider of office imaging equipment, document solutions and related services and supplies in the United States and the largest independent provider of such products and services in Europe. We offer a wide range of state of the art office imaging products, services, supplies and solutions that primarily include digital and color copiers, digital and color multifunction peripherals, or MFPs, facsimile machines and software. We also provide a wide range of contract services, including professional and consulting services, maintenance, supplies, leasing arrangements, technical support and training on the installed base of equipment created primarily by our retail equipment and related sales. We operate in 25 countries and employ approximately 8,700 individuals. For fiscal year 2003, we generated total revenue and EBITDA, as defined in footnote (4) under “Summary Historical Consolidated Financial and Other Data,” of $1.4 billion and $104.0 million, respectively. We generated approximately 53%, 38% and 9% of our total revenue from the United States, Europe and other international areas, respectively, for fiscal year 2003.

Our revenue is generated from two primary sources: (1) new retail equipment and related sales and (2) service and supply contracts. We primarily sell Canon products in the United States and Ricoh products, on a retail and wholesale basis under our proprietary Infotec tradename, in Europe. We also sell other brands, including Heidelberg/Nexpress, Toshiba and Konica. A significant portion of our retail equipment and related sales are made to existing customers, and nearly all are sold with a service or supply contract. In the United States, these contracts typically have an initial term of one year and renew on an annual basis thereafter over the three to five year financing term of the equipment, whereas in Europe, these contracts typically have a term of one to five years. A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. For fiscal year 2003, retail equipment and related sales accounted for approximately 34% of our total revenue.

Our marketing and selling efforts, which are conducted by approximately 1,300 individuals worldwide, target the mid- to high-volume black and white image market, which is concentrated in machines that can produce between 31 to greater than 91 copies per minute, and the growing color image market. Within these markets, our primary products include state of the art digital and color copiers and MFPs that photocopy, print, scan and fax information. We believe our sales force and product portfolio will allow us to take advantage of the attractive opportunities for new retail equipment sales in these markets, as well as the potential to generate a sizeable level of recurring service and supply revenue per machine in these markets.

We have a world-wide installed machine base of analog and digital copiers and MFPs of approximately 299,000 units, which we refer to as machines in field, or MIF, which generate monthly recurring revenues under our service, supply and rental contracts. Our service, supply and rental revenue generated from these contracts is closely correlated to the number, type and mix of analog, digital and digitally-connected machines in our MIF. In fiscal year 2003, our service, supply and rental revenue accounted for approximately 60% of our total revenue.

Our Industry

The office imaging industry consists of the production and supply of various imaging products, as well as the provision of after-market products and services. The global printing peripherals equipment market, excluding services, is estimated to be approximately $75 billion annually, segmented approximately equally between the United States, Europe and the rest of the world.

The office imaging industry is comprised of large office equipment manufacturers, independent distributors and, as technologies continue to evolve, traditional desktop and network printer companies. Office imaging products are sold primarily through five channels of distribution: distributors, original equipment manufacturers, or OEMs, independent dealer sales, retail sales and direct manufacturer sales. Distributor and independent dealer sales result from customer calls performed by independent dealer outlets that generally sell manufacturer-branded products. Retail sales include sales of low-end products typically through national retail outlets or smaller local dealers. Direct sales by office equipment manufacturers involve the marketing of products by sales representatives working directly for the manufacturer.

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The office imaging industry within the United States is generally represented by the following six black & white “digital segments” plus the two color segments:

Segment	CPM(1)	Principal Manufacturers
1	< 20	Sharp, Xerox, Canon, Mita, Ricoh, Minolta
2	21 – 30	Canon, Ricoh, Mita, Savin*, Konica
3	31 – 44	Canon, Xerox, Sharp, Savin*, Mita
4	45 – 69	Canon, Ricoh, Konica, Xerox, Sharp
5	70 – 90	Ricoh, Canon, Savin*, Xerox, Konica
6	> 91	Ricoh, Canon, Savin*, Xerox, Heidelberg
Office color	< 24	Canon, Xerox, Ricoh, Savin*, Minolta
Production color	> 24	Canon, Xerox, Ricoh, Savin*, Minolta
(1)    Copies per minute  *    includes Gestetner Source:International Data Corporation (December 2002)

There are several trends that are prevalent in the office imaging industry, including:

Ÿ Transition to digital technology and networked machines.    The primary trend in our industry over recent years has been the transition of imaging peripherals from discrete, independent, analog copiers to network-connected, digital, copiers MFPs and printers. Digital copiers, MFPs and printers have the ability to be connected to and communicate with personal computers and other office equipment, which we refer to as connectivity. Digital MFPs offer customers the ability to print, copy, scan and fax and eliminate the distinction between traditional copiers, facsimile machines, scanners and printers and the need for multiple devices. Additionally, digital equipment is more reliable and, therefore, requires less servicing compared to analog equipment. Due to its ability to outperform analog equipment, one digital machine is often able to replace more than one analog machine.

Ÿ Evolution of office workflow process.    The process of distributing information in the workplace has evolved over recent years through technological advances in communication, most notably electronic document delivery via e-mail and the Internet. While documents have traditionally been produced on a copier and then distributed to the relevant working groups, electronic document delivery has allowed documents to first be distributed electronically and then printed by the end user on the printer linked to the end user’s personal computer or stored for later use. This evolution has led to the rapid growth of printed documents from desktop and network printers, while copier volume has remained relatively flat and increased competition from non-traditional copier companies, such as manufacturers of desktop and network printers. However, recent trends in the application and networking of computer systems throughout the entire office have begun to enable the migration of printed material to the most efficient or cost-effective device, which often includes digital copiers and MFPs.

• Shift from selling boxes to selling solutions.    The growth in the volume of documents printed from lower volume, desktop and network printers has substantially increased end users’ per image cost for printed material. The ability of digital copiers and MFPs to be connected to the information technology network has provided an opportunity for end users to reduce their per image costs while optimizing the use of their imaging equipment. As companies look to reduce costs, they are increasingly requesting comprehensive solutions from their document imaging vendors. These solutions involve both equipment and related software and service offerings that allow them to better meet their document imaging needs, and optimize the use of their installed equipment. As such, some leading document imaging vendors are moving away from the analog “box sale” mentality to one of being a provider of solutions that can satisfy their customers’ print management needs on a more efficient and cost effective basis.

Ÿ Increasing demand for color.    Customers continue to demand high-performance machines that produce presentation-quality documents, leading to an interest in and demand for color equipment. The emergence of both digital copiers and MFPs and lower-cost color-capable copiers, MFPs and printers allows companies to increase their level of in-house document production and produce presentation-

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quality copies for meetings, presentations and mailings. Although the transition to color is expected to be gradual according to industry sources, it represents an important and growing segment of the market, offering higher revenue growth for companies in the office imaging industry than the black and white market due to the higher cost of color-capable equipment and related consumable supplies.

Our Strengths

Recurring Revenue Stream.    In fiscal year 2003, approximately 60% of our total revenue was from service, supply and rental revenues on our MIF. Our service, supply and rental revenues are governed by contracts and are primarily billed monthly to our customers based largely on a set amount of minimum monthly copy volumes, plus a per image charge for additional volume usage. In the United States these contracts typically have an initial term of one year and renew on an annual basis thereafter over the three to five year financing term of the equipment, whereas in Europe, these contracts typically have a term of one to five years.

Diverse Operations.    We have a diversified customer base that consists of corporate and commercial clients, retail print shops, governments and government agencies. The size of our customers ranges from small independent companies to large multinational corporations. During fiscal year 2003, no one customer represented more than 4% of our total revenue. In addition, our operations are diversified geographically, in that during fiscal year 2003, 53% of our total revenue was derived from the United States, 38% from Europe and 9% from other international areas.

Longstanding Relationships with Market-Leading Suppliers.    We have longstanding relationships with our retail equipment suppliers, which include Canon, Ricoh, Toshiba, Heidelberg/Nexpress and Konica. Based on industry data, our primary vendors in the United States, Canon and Toshiba, collectively had a market share of approximately 27.7% in segments 3 to 6 of the U.S. digital copier placements market in 2001, which represent our primary target markets. Placements in these markets are expected to increase at a compounded annual growth rate of approximately 6.9% from 2002 through 2006. Ricoh, our primary vendor in Europe, is a market leader in the mid- to high-volume segment of the digital copier placements market in Europe. We believe our key suppliers’ market leading positions and product offerings, as well as the replacement sales opportunities created by our large analog base, will allow us to continue to capitalize on the growing U.S. digital copier market.

Sales and Service Infrastructure.    We have a worldwide marketing and sales force of approximately 1,300 individuals and a benchmark technical services organization of approximately 3,500 field engineers. We believe that the size of our sales organization provides us with the critical mass necessary to ultimately grow our MIF through new retail equipment sales in the markets in which we do business. Additionally, our service organization has a heritage of service excellence, and each of our field engineers is highly trained and capable of servicing multiple equipment brands, including Canon, Ricoh, Toshiba, Heidelberg/Nexpress, Hewlett Packard, Lexmark and others. We recently implemented a multi-vendor service solution, referred to as our TechSource offering, which is designed to leverage our service infrastructure to expand our service offerings and drive revenue growth. We enter into service contracts for a wide range of document output equipment, including copiers, MFPs, desktop and network printers, facsimile machines, scanners, PCs and other network peripherals sold to customers by us and others.

Our Background

Through the mid-1990s we grew rapidly, primarily through acquisitions of independent dealers who provided traditional office imaging equipment and related services and supplies, which had the effect of substantially increasing our indebtedness. In December 1996, in an acquisition which approximately doubled our revenues, we acquired the large analog-only office equipment base of Eastman Kodak Company, or Kodak, for approximately $588 million. This acquisition also included the sales and service organizations related to the acquired Kodak equipment base and approximately doubled the size of our workforce. Subsequently, the technological shift from analog to digital equipment commenced and accelerated rapidly thereafter. At the same time, we experienced increased challenges in integrating the businesses we had acquired. Between late 1997 and

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mid 2001, due in part to our high debt levels, we struggled through a series of financial and operating difficulties and leadership changes and, in December 1999, we sold $218.0 million of Senior Convertible Participating Shares to an investor group led by Cypress Merchant Banking Partners II, LLP, the proceeds of which were used to repay a portion of our indebtedness. In early 2001, we hired Lang Lowrey as Chief Executive Officer and commenced an effort to rationalize our operations, improve working capital, reduce indebtedness and ultimately position our business for profitable growth.

We have taken the following initiatives, among others, to strengthen our business operations and our balance sheet since the beginning of fiscal year 2001:

• sold Danka Services International, Inc., or DSI, a facilities management business, for approximately $285 million in cash, after giving effect to purchase price adjustments, and used the net proceeds for debt reduction;

• reduced selling, general and administrative expenses by approximately $157 million, or 24.4%, from fiscal year 2001 to fiscal year 2003, due in part to a worldwide program to reduce headcount by approximately 1,500 employees;

• implemented new compensation programs for our senior management and our U.S. field sales force that emphasize EBITDA, cash generation, debt reduction and improved gross profit margins for new retail equipment and related sales; and

Ÿ capitalized on a number of one-time opportunities, including the receipt of a U.S. tax refund of $18.2 million in fiscal year 2002, the realization of $16.0 million in lease and residual payments from a diminishing external lease funding program through fiscal year 2003 and the full repayment of $36.7 million of obligations under our former tax retention operating lease, or TROL, financing facility during fiscal year 2003.

Primarily as a result of the above initiatives, we:

• reduced our outstanding indebtedness, net of cash on hand and $5.5 million of restricted cash, or net debt, from $650.1 million at March 31, 2001 to $145.9 million at March 31, 2003;

Ÿ increased our EBITDA from $(47.2) million for fiscal year 2001 to $104.0 million for fiscal year 2003;

• reduced our ratio of net debt to EBITDA to 1.4x at March 31, 2003; and

• improved U.S. retail equipment and related sales gross profit margins from 15.8% for fiscal year 2001 to 37.1% for fiscal year 2003.

During fiscal year 2003, we continued to focus our strategic efforts on positioning our business for profitable growth through the following initiatives:

Ÿ introduced value-added service offerings designed to generate revenue growth, including:

— Professional Services, which provides consulting services to our customers to help them reduce print costs, optimize the use of their office imaging equipment and improve their employees’ productivity by integrating our proven software solutions to leverage their investment in their imaging equipment;

— Danka @ the Desktop, our software solution designed to optimize the use of a customer’s digital copiers, MFPs and network printers by guiding the end users’ print jobs to the most efficient printing device; and

— our TechSource business, which is our new multi-vendor services offering whereby we provide servicing for all of our customers office equipment, including traditional copiers and printers, facsimile machines, scanners, MFPs, PCs, laptops, servers and network components; and

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• continued the transition to a new enterprise resource planning system engineered by Oracle, or the Oracle ERP System. Once fully implemented, which is scheduled for the third quarter of fiscal year 2004, we expect the Oracle ERP System will allow us to improve our business and financial control systems, reduce our general and administrative expenses, more effectively track information concerning our customers and support our revenue growth initiatives.

Our retail equipment and related sales revenues have declined by a compounded annual rate of 11.1% per year from fiscal year 1999 to fiscal year 2003, due in part to (1) our decision to reduce our sales force and the number of geographic locations and markets in which we operate in, (2) our decision to align our sales force compensation in the United States with the attainment of higher gross profit margins, (3) the transition of the office imaging industry from analog to digital equipment and our reliance on analog retail equipment sales, due in large part to our 1996 Kodak acquisition, (4) a weakening of global economic conditions which resulted in reduced or delayed capital spending and (5) increased competition as a result of technology convergence. While our retail equipment and related sales revenues have declined historically, we have successfully transitioned our sales efforts to the placement of digital copiers and MFPs, which have increased as a percentage of our total retail equipment placements in the United States and Europe from 81% in fiscal year 2002 to 96% in fiscal year 2003. Additionally, gross profit margins on our retail equipment and related sales increased from 26.8% for fiscal year 2002 to 34.8% for fiscal year 2003.

Given the size of our analog MIF, the shift to digital equipment continues to negatively impact our service supply and rental revenues. Our analog MIF has declined by 21% from approximately 213,000 at fiscal year end 2002 to approximately 168,000 at fiscal year end 2003. However, our digital MIF grew by 22%, increasing from approximately 107,000 at fiscal year end 2002 to approximately 131,000 at fiscal year end 2003. As we continue to grow our digital MIF, shift our MIF to higher segment equipment and maintain levels of connectivity, we expect that, within the next twelve months, the growth in our service, supply and rental revenues derived from our digital MIF will exceed the decline in our service, supply and rental revenues associated with our analog MIF, at which time we expect growth in our total service, supply and rental revenues.

Our Strategy

Enhance Customer Relationships.    We believe that enhancing our customer relationships will enable us to grow our revenues. Our customers interact on a day to day basis with several areas of our organization, including sales, back-office and service, and we believe that we can enhance the quality of service available to our customers through these several points of contact. For example, our sales organization recently implemented several new initiatives, including a more focused geographic and segmented approach to our customer base and improved training to anticipate the needs and solutions of our customers in today’s information technology world. We developed a comprehensive framework for customer communication in the United States called Danka Touch, which is a quality control structure designed to ensure that a customer’s experience with Danka is executed flawlessly from the initial sale through installation and ongoing service and support. We are also upgrading our U.S. Customer Support Centers that were awarded the ISO 9001 quality certification in 2002 and require ongoing adherence to standards of consistent, high level customer service. We created many Customer Action Teams, which are designated teams of employees that provide unified, rapid responses to specific customer issues, and greatly improved our Digital Solutions Center, which is our in-house technology lab, that offers real-time troubleshooting by its ability to replicate virtually any customer environment. These initiatives, along with our Vision 21 reengineering initiative, are designed to significantly improve our customer relationships.

Grow Revenues by Providing Valued-Added and Cost-Driven Solutions.    We believe we can grow our business by providing our customers with high-value solutions, including Professional Services, Danka @ the Desktop and our TechSource offerings, that improve our customer’s document output operations and deliver tangible benefits such as lower costs and higher productivity. These solutions, which build on and extend our core capabilities, provide us with the opportunity to increase revenues per customer by capturing a larger share of

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our customers’ total document volume as well as give us a competitive advantage to secure new customers seeking a single source service alternative.

Reengineer Processes and Systems.    We have commenced implementation of our Vision 21 process and systems reengineering initiative, which has as its major component the deployment of the Oracle ERP System for our U.S. business and corporate headquarters. We expect this new system to significantly upgrade and replace our existing, disparate and outdated legacy systems in the third quarter of fiscal year 2004. We expect that this system, once fully implemented, will provide cost savings by way of reduced headcount in our sales and service support functions, improved collection, compilation and consolidation of certain customer and contract information, as well as provide more accurate and timely customer information, billing and credit processes and reduce our working capital investment. The Vision 21 initiative also is designed to improve our employees’ productivity in many functional areas, including sales, supply chain, logistics, billing and collection. We are redesigning our internal processes to be more cost efficient and effective for our customers and to significantly improve our internal controls. We believe that this initiative will enable our employees to become more productive, thereby allowing us to ultimately grow our revenues and reduce our operating costs.

Maximize Free Cash Flow Generation and Reduce Debt.    For the past two fiscal years, we focused on maximizing cash flow and reducing our debt and implemented initiatives to improve gross profit margins on new retail equipment and related sales, reduce selling, general and administrative expenses, improve our inventory and accounts receivable management and closely monitor capital expenditures. For example, we substantially aligned our management compensation plan to tie incentive compensation to profitable sales, positive cash generation and debt reduction. Incentives for our U.S field sales employees are also tied to achieving required levels of gross profit margin and cash generation. We reduced our total net debt from $650.1 million as of March 31, 2001 to $145.9 million as of March 31, 2003.

Develop an Efficient and Productive Organization.    We diligently sought opportunities to streamline our organization and improve the productivity of all of our employees. For example, we eliminated approximately one million square feet of rental facilities from our corporate, warehouse, sales and support operations, which represents a reduction of 32.6% from fiscal year end 2001 to fiscal year end 2003. Additionally, we believe we will improve our corporate efficiencies when we consolidate the majority of our St. Petersburg headquarters personnel into a single office facility, which we expect to complete during the second quarter of fiscal year 2004, from our current multi-building campus environment. We also exited certain foreign and domestic markets, and will continue to review non-core businesses and non-strategic foreign and domestic markets to determine if exiting such operations will provide additional benefits. Finally, we reduced employee headcount by approximately 2,900 employees since fiscal year 2001. We believe that our efforts to refocus geographical coverage of our sales force, align our management and sales compensation programs with our corporate goals, and redesign our sales and support staff training programs will allow our sales force to increase their productivity levels revenues.

Products and Services

Office Imaging Systems

We offer a large selection of the top brands of office imaging products as part of our document solutions packages. These products include state of the art digital and color copiers, digital and color MFPs and facsimile machines, as well as print management software and related parts and supplies.

In the United States, we sell high volume, segments 5 and 6 digital products, which include the Heidelberg Digimaster 9110/9150, Canon iR 105, as well as the Toshiba e-Studio series. In the mid-volume segments 3 and 4, we sell the full range of Canon iR and Toshiba e-Studio series digital copiers and MFPs. In the color segment, we sell the Canon CLC series of products as well as the Toshiba e-Studio line of color products. During fiscal year 2003, Canon products represented approximately 77% of our total copier and MFP placements in the United

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States. In addition, we sell a full complement of front end print server equipment and a portfolio of applications software which enhances the features and functions of the equipment. For example, among other things, certain of these software products:

• convert paper or film-based information to digital formats and allow the reproduction of documents in a variety of formats;

• help customers acquire, manage, store and retrieve documents in a secure manner;

• permit the scanning of paper documents and importation of electronic files and emails; and

• allow for “smart” distribution of print jobs across a range of printing devices.

In Europe, we sell the Heidelberg Digimaster 9110/9150, as well as high volume products manufactured by Ricoh under our Infotec trade brand name, and Toshiba products. In the color segment, we sell the Canon CLC series of products. During fiscal year 2003, Ricoh products represented approximately 89% of our copier and MFP placements in Europe. We also sell a full range of Ricoh/Infotec and Toshiba e-Studio products in the mid- volume range in Europe, where we also sell a full portfolio of print server equipment and software with the capabilities described above.

We sell a variety of products in our International Division, where in most countries we have regional relationships with equipment manufacturers. For example, in Canada we sell primarily Canon and Toshiba digital equipment. In Australia, we have entered into an agreement to sell the full line of Konica digital products. In Mexico, we sell new Toshiba digital products and, like some of the other Latin America countries, which have transitioned more slowly from analog to digital products, we market refurbished Kodak equipment primarily on a rental basis. We are beginning to market solutions and software in some of these countries where we have been able to establish a base of digital equipment.

Technical Services

We offer a broad range of field technical services which primarily involve the service and maintenance of our MIF. Our worldwide network of field engineers is dedicated to insuring that customers get maximum up time from their office imaging systems. Each field engineer is highly trained and capable of servicing multiple equipment brands, including Canon, Ricoh, Toshiba, Heidelberg/Nexpress, Hewlett Packard, Lexmark and others. Additionally, each field engineer has the experience and training, and is equipped with the tools and parts necessary to ensure that customers are provided with rapid response time and benchmark first-time fix capability. Field engineers have access to a computerized warehouse system that stocks thousands of parts for immediate delivery to customers, and are equipped with laptop computers which contain reference materials and diagnostic software to assist with the early resolution of customer issues.

In the large majority of our retail equipment sales, our customers also purchase a service contract which gives them access to our field technical engineers. We also receive referrals for technical services from manufacturers for products they sell. This gives our customers immediate access to the best possible response to issues pertaining to their equipment, networking platforms, applications software and operating systems. Our technical services organization consists of approximately 3,500 field engineers, which gives us broad service capabilities in the locations in which we do business and a competitive advantage as it allows us to offer our services on a multinational basis.

We generally offer our technical services pursuant to contracts. Our service and supply contracts in the United States typically have an initial term of one year and renew on an annual basis thereafter over the three to five year financing term of the equipment, whereas in Europe, these contracts typically have a term of one to five years.

Customer Services

Our broad range of customer services consists of an array of solutions and a large base of dedicated employees. Our customer services initiatives include:

• Our Danka Touch program that offers a comprehensive framework for client communications, from the very first contract to the most recent upgrade and provides for rapid, accurate processing of customer inquiries.

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• Our Customer Support Centers obtained an ISO 9001 certification in 2002 for our primary customer support centers. This certification requires an on-going adherence to rigorous standards that help to ensure a consistent, high level of customer satisfaction.

• Our Customer Action Teams, which are dedicated teams of Danka employees provide unified, rapid response to specific customer issues with the goal of enhancing customer communications, recognition of customer opportunities and internal collaboration.

Value-Added Service Offerings

We offer a portfolio of value-added service offerings that provide our customers with efficiency and cost savings opportunities, as well as provide us with supplemental revenue. These value-added service offerings include the following:

Professional Services

Our Professional Services Group provides consulting services to help customers reduce print costs, optimize the use of their office imaging equipment and improve their employees’ productivity by integrating our proven software solutions to leverage their investment in their imaging equipment. Expert guidance is provided by field-based personnel as well as our Digital Solutions Center that replicates customer environments and provides advanced testing services. The group’s services include:

• copy, print, and fax assessment, which assists customers in assessing their document production costs by recommending document management system enhancements;

• scanning and document management, which assists customers in identifying opportunities for document capture and retrieval and reduces the cost of document management and storage;

• copy and print accounting, which implements cost tracking systems for document output and integrates copy and print accounting with the customer’s financial infrastructure;

• digital workflow, which assists customers in creating scaleable output solutions and customizes and configures hardware and software;

• color management, which is advice to customers on the most effective color management tools available for graphics, production or corporate environments;

• legacy data management, which enables customers to print legacy data from a variety of mainframes on the latest digital copiers and MFPs using open architecture software and printing platforms;

• custom training solutions, which provide customers a broad portfolio of instructor-led training by manufacturer-certified trainers; and

• digital connected support, which provides customers an exclusive help desk resource that consolidates support for hardware, printing and applications, software and network issues.

Danka @ the Desktop

Our Danka @ the Desktop system is designed to optimize the use of a customer’s digital copiers, MFPs and network printers by providing the customer with the most efficient printing solution. Danka @ the Desktop enables our professional and technical services to provide customers:

• a workflow analysis by our Professional Services consulting staff;

• integrated software that enhances control and accountability;

• connectivity to local area networks;

• imaging system additions and upgrades;

• implementation services, printer network optimization and user training; and

• ongoing monitoring and technical support for multiple hardware and software components.

TechSource

Our TechSource business is our new multi-vendor services offering whereby we provide servicing for all of our customers office equipment, including traditional copiers and printers, facsimile machines, scanners, MFPs,

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PCs, laptops, servers and network components. Our TechSource offering endeavors to consolidate customer contracts and provide a single point of contact for customers to obtain services on their full range of networked

devices. Our TechSource offering leverages our benchmark Technical Services organization and our field engineers to provide many of these services, which include:

• a printer exchange program, which allows overnight replacement of desktop units on a one-for-one basis;

• a toner supply program, which reduces the cost of consumables procurement;

• help desk services, which provide economies of scale and improves responsiveness; and

• access to our Customer Support Centers.

Training

We train our employees with assistance from our major manufacturing partners so that our operating procedures are uniformly applied throughout our sales network. Upon employment, our sales representatives participate in an intensive information and skills training program at Danka University, which is our in-house training facility designed to train our sales personnel in providing value-added solutions to our customers. All Danka associates have access to Danka University, and many are trained at the corporate headquarters in St. Petersburg. The online Danka University learning site also hosts numerous training modules. After the initial training is completed, we continue to develop the skills and knowledge of our sales representatives by providing new product training, self-study computer-based courses and ongoing sales skill development.

Field engineers and service technicians who are new to Danka are immediately trained and certified. Our service personnel are continuously trained on new technology developed by our equipment manufacturers. Our service training centers are certified at authorized service facilities by many of our equipment manufacturers. In addition, each field engineer carries state of the art service tools, including a laptop computer loaded with technical information and diagnostic software.

At our Digital Support Center, our network and system support engineers receive ongoing training on industry standard certifications for office imaging equipment, as well as application software support from some of the leading technology companies, including Microsoft, Adobe Systems, Novell and Sun Microsystems.

Marketing, Customers and Sales Organization

We have a worldwide marketing and sales force of approximately 1,300 individuals.

Our retail operation targets a broad range of customer groups, including large multinational companies, professional firms, small to mid size businesses, retail print shops, governments, government agencies and educational institutions. Additionally, we market office imaging equipment on a wholesale basis to a network of authorized independent dealers in Europe.

We believe that our retail customers primarily base their purchasing decisions on quality and reliability of post-sales service and solution support, product performance and capabilities, price and the availability of financing.

We use a range of advertising and promotional activities, including: television and print media advertising campaigns, distribution of descriptive brochures and direct mail pieces and informational seminars and presentations.

Our marketing efforts are also enhanced by national advertising campaigns by the manufacturers of the equipment that we sell and co-operation arrangements between those manufacturers and us. The co-operation arrangements with our vendors are support programs provided by the manufacturers to assist us with costs associated with promoting their products. In addition, we use our website to market our products and services.

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Our compensation plan for our sales representatives is designed to provide a positive career path and to minimize sales personnel turnover. Compensation for our sales representatives consists of a base salary and a selling commission that is aligned to our strategic objectives which include, but are not limited to, increased gross margins and value-added sales solutions.

Leasing

A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. With respect to our U.S. customers, we have an agreement with GECC for a period of six years through March 2009 under which GECC has agreed to provide financing to our U.S. customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our U.S. business. Our agreement with GECC requires us to maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such consolidated net worth as provided under the GECC agreement may result in a termination event under the GECC agreement. With respect to our customers outside the United States, we have country by country arrangements with various third party finance or leasing companies. These programs allow us to offer lower lease rates and terms than are generally available to small copier dealers and allow us to utilize our capital for other business activities. If we lose one or more of our funding sources and are unable to provide our customers alternative financing arrangements on similar terms, we may lose sales, which could negatively affect our operating results.

Equipment Suppliers

Our business relies on close relationships with equipment suppliers and our ability to purchase products from these suppliers on competitive terms. We have relationships with Canon, Ricoh, Toshiba, Heidelberg/Nexpress, and Konica to manufacture equipment, parts, supplies and software for resale by us in the United States, Canada, Latin America, Europe and Australia. We also rely on our equipment suppliers for related parts and supplies.

Competition

The industry in which we operate is highly competitive. We have competitors in all markets in which we operate, and our competitors include a number of companies worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology, performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our suppliers continue to establish themselves as direct competitors in many of the areas in which we do business. Besides competition from within the office imaging industry, we are also experiencing competition from other sources as a result of evolving technology, including the development of alternative means of document processing, retention, storage and printing. Our retail operations are in direct competition with local and regional equipment suppliers and dealers, manufacturers, mass merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our market share because of the high level of competition in our industry. The intense competition in our industry may result in pressure on the prices that we can obtain for our products and may affect our ability to retain customers, both of which could materially and adversely affect our business, financial condition or results of operations.

Employees

As of March 31, 2003, we employed approximately 8,700 persons, with approximately 4,300 in our U.S. segment, approximately 3,000 in our European segment and approximately 1,400 in our International segment.

Some of our non-U.S. employees are subject to labor agreements that, among other things, establish rates of pay and working hours. We consider our employee relations to be good. We believe that we provide working conditions and wages that are comparable to those of our competitors.

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Trademarks and Service Marks

We believe that our trademarks and service marks have gained recognition in the office imaging and document management industry and are important to our marketing efforts. We have registered various trademarks and service marks. In particular, we believe that the trademarks “Danka,” “Infotec,” “TechSource” and “Danka @ the Desktop” are important to our ongoing business. Our policy is to continue to pursue registration of our marks whenever possible and to vigorously oppose any infringement of our proprietary rights. Depending on the jurisdiction, trademarks and service marks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to become generic. Registrations of trademarks and service marks in the United States can generally be renewed indefinitely as long as the trademarks and service marks are in use.

Backlog

Backlogs are not material to our business.

ITEM 2.    PROPERTIES

Our general policy is to lease, rather than own, our business locations. We lease numerous properties for administration, sales, service and distribution functions and for our retail and wholesale operations. The terms vary under the leases. Some of our leases contain a right of first refusal or an option to purchase the underlying real property and improvements. In general, our lease agreements require us to pay our proportionate share of taxes, common area expenses, insurance and related costs of the rental properties. On September 27, 2002, we entered into a 15 year long-term operating lease for facilities to house the headquarters of our U.S. and corporate operations.

We own several smaller business locations, none of which are necessary to the success of our business. In the future, we may dispose of some of the properties that we own and replace them with leased properties that we believe may be more desirable or more conveniently located.

DHC, one of our subsidiaries has been a party to a number of Tax Retention Operating Leases or TROLs. The TROL facility sold three properties during fiscal year 2003 for approximately $34.9 million. The proceeds from these sales were used to repay the entire outstanding obligation under the TROL facility.

Our management believes that the properties we occupy are, in general, suitable and adequate for the purposes for which they are used.

ITEM 3.    LEGAL PROCEEDINGS

On or about June 6, 2003, we were served with a putative class action complaint titled Stephen L. Edwards, et al., Plaintiffs vs Danka Industries, Inc., et al., including American Business Credit Corporation, Defendants, alleging claims of breach of contract, fraud/intentional misrepresentation, unjust enrichment, violation of the Florida Deception and Unfair Trade Protection Act and injunctive relief. We intend to vigorously defend all claims alleged by the plaintiff

Also, we are subject to legal proceedings and claims which arise in the ordinary course of our business. We do not expect these legal proceedings to have a material effect upon our financial position, results of operations or liquidity.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 4A.    EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding our executive officers is contained in Part III, Item 10 of this Form 10-K.

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PART II

ITEM 5.    MARKET PRICE FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The following table sets forth the high and low sale price for our ADSs, as reported by the Nasdaq SmallCap Market and the high and low middle market quotations, which represent an average of bid and offered prices in pence, for the ordinary shares as reported on the Official List of the London Stock Exchange. Each ADS represents four ordinary shares.

	U.S. Dollars per ADS				Pence per Ordinary Share
	High		Low		High	Low
Fiscal Year 2003:
Quarter ended June 30, 2002	$	5.05	$	2.96	86.00p	53.75p
Quarter ended September 30, 2002		3.62		1.77	58.50	31.25
Quarter ended December 31, 2002		4.80		1.33	74.50	26.0
Quarter ended March 31, 2003		5.27		3.05	81.00	55.50

	U.S. Dollars per ADS				Pence per Ordinary Share
	High		Low		High	Low
Fiscal Year 2002:
Quarter ended June 30, 2001	$	1.25	$	0.63	19.75p	10.50p
Quarter ended September 30, 2001		1.12		0.49	18.00	9.75
Quarter ended December 31, 2001		1.13		0.50	17.50	9.25
Quarter ended March 31, 2002		4.15		0.97	67.50	15.75

As of March 31, 2003, 49,182,916 ADSs were held of record by 2,489 registered holders and 249,531,546 ordinary shares were held of record by 3,299 registered holders. Since some of the ADSs and ordinary shares are held by nominees, the number of holders may not be representative of the number of beneficial owners. We most recently paid a dividend to shareholders on July 28, 1998. We are an English company and we currently have insufficient profits, as determined under English law, to pay dividends on our ordinary shares. In addition, we are not currently permitted to pay dividends, other than payment-in-kind dividends on our participating shares, under our senior credit facility. We do not expect to pay dividends on our ordinary shares for the foreseeable future and any decision to do so will be made by our board of directors in light of our earnings, financial position, capital requirements, credit agreements, legal requirements and other such factors as our board of directors deems relevant.

ITEM 6.    SELECTED FINANCIAL DATA

The information required by this item is incorporated herein by reference to the information under the heading “Selected Consolidated Financial Data” in our annual report to shareholders for the year ended March 31, 2003. See Exhibit 13 to this report.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this item is incorporated herein by reference to the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report to shareholders for the year ended March 31, 2003. See Exhibit 13 to this report.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated herein by reference to the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report to shareholders for the year ended March 31, 2003. See Exhibit 13 to this report.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated herein by reference to the information under the headings “Consolidated Statements of Operations”, “Condensed Consolidated Balance Sheets”, “Consolidated Statements of Cash Flows”, “Consolidated Statements of Shareholders’ Equity” and “Notes to the Consolidated Financial Statements” in our annual report to shareholders for the year ended March 31, 2003. See Exhibit 13 to this report. As is the case with any company, prior financial condition and results of operations are not necessarily indicative of future results.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The table below contains information regarding our current directors and executive officers as of March 31, 2003 and the current directors and executive officers of our primary operating subsidiaries. The executive officers serve at the pleasure of the respective boards of directors.

Name	Age	Position(s)	Nominations	Audit	Compensation	Director’s Rotation
P. Lang Lowrey, III	49	Chief Executive Officer   and Chairman	X	—	—	2004
Kevin C. Daly	59	Director	—	—	—	2005
Jaime W. Ellertson	46	Director	—	—	—	2003
Michael B. Gifford	67	Director	X	X	—	2004
Richard M. Haddrill	50	Director	—	X	—	2005
Christopher B. Harned	40	Director	—	X	—	2005
W. Andrew McKenna	57	Director	—	X	—	2005
J. Ernest Riddle	61	Director	—	X	X	2003
James L. Singleton	47	Director	X	—	X	2003
C. Anthony Wainwright	69	Director	X	—	X	2003
Michel Amblard	56	Senior Vice President of   Finance, Danka Europe   (retiring)	—	—	—	—
Paul Dumond	48	Secretary	—	—	—	—
Todd L. Mavis	41	President and Chief   Operating Officer, Danka   United States
Keith J. Nelsen	39	Senior Vice President,   General Counsel and Chief   Administrative Office	—	—	—	—
Michael D. Popielec	41	President and Chief   Operating Officer, Danka   International
Sanjay Sood	38	Senior Vice President of   Finance and Accounting	—	—	—	—
Donald W. Thurman	57	Senior Vice President   Growth and Marketing	—	—	—	—
Peter Williams	50	President and Chief   Operating Officer, Danka   Europe
F. Mark Wolfinger	48	Executive Vice President   and Chief Financial   Officer	—	—	—	—

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P. Lang Lowrey III.    Mr. Lowrey was appointed our chief executive officer and director effective March 1, 2001 and was appointed chairman of our board of directors effective January 13, 2002. From 2000 to February 2001, Mr. Lowrey served as chief executive officer of eMag Solutions, LLC, a worldwide data storage solutions and services company and as chairman of eMag since 1999. From 1995 to 1997, Mr. Lowrey served as chairman and chief executive officer of Anacomp, Inc., an imaging solutions and services company. From 1997 to 1998, Mr. Lowrey was chairman emeritus of Anacomp. Since 1997, Mr. Lowrey has been the managing partner of Buckhead Angels, an e-commerce venture capital group.

Kevin C. Daly.    Mr. Daly was appointed to our board of directors in January 2002. Since October 2001, Mr. Daly has been chief technical officer of Storage Solutions Group, a leading supplier of data protection devices for computer networks. From 1991 to 2001, Mr. Daly served as chief executive officer and president of Quantum ATL which was merged into Storage Solutions Group in 2001.

Jaime W. Ellertson.    Mr. Ellertson was appointed to our board of directors in November 2002. He has served as chief executive officer of S1, a Nasdaq National Market listed software company, since November 2000 and as a director since January 2001. Prior to joining S1, Mr. Ellertson served as executive vice president and general manager of worldwide strategic operations for BroadVision, Inc., a provider of self-service applications, from April 2000 until November 2000. From January 1997 until April 2000, Mr. Ellertson held the executive positions of chairman of the board and chief executive officer of Interleaf, Inc., a privately held provider of software tools for e-content management that was acquired by Broadvision, a Nasdaq National Market listed software company. Mr. Ellertson is a director of Trigo Technologies, Inc., a privately held software company and Apropos Technology, Inc., a Nasdaq National Market listed software company.

Michael B. Gifford.    Mr. Gifford was appointed to our board of directors in September 1999. He was chairman of our board of directors from March 1, 2001 to January 13, 2002. Mr. Gifford was our interim chief executive officer from October 2000 to February 2001. From 1983 through 1996, Mr. Gifford was group chief executive of the Rank Organization Plc, a London based leisure and entertainment conglomerate and the joint venture partner for Xerox operations outside the Americas. During that period, he served as the Rank representative on the Rank Xerox board. Mr. Gifford also served on the board of directors of English China Clays Plc from 1992 to 1999. He is currently a director of The Gillette Company, a New York Stock Exchange listed global consumer products company.

Richard M. Haddrill.    Mr. Haddrill was appointed as a director in February 2002. Since 1999, Mr. Haddrill has been president and chief executive officer of Manhattan Associates, a Nasdaq National Market listed company, which provides supply chain execution and collaborative commerce solutions. From 1994 to 1999, Mr. Haddrill served as president and chief executive officer of Powerhouse Technologies, Inc., a company that provides technology to the gaming industry. Mr. Haddrill also spent 16 years with Ernst & Young with the last 6 years as a partner. He is currently a director of Alliance Gaming Corporation, a New York Stock Exchange listed diversified gaming company and OutlookSoft, Inc. (a privately held company).

Christopher B. Harned.    Mr. Harned was appointed as a director in March 2002. Mr. Harned has been a managing director of The Cypress Group L.L.C., a private equity fund, since November 2001. From 1985 to 2001, Mr. Harned was with Lehman Brothers, most recently as head of the Global Consumer Products Merger and Acquisitions division. Mr. Harned also served as a member of Lehman Brothers’ Investment Banking Business Development Committee. Mr. Harned was designated by the owners of the participating shares as their nominee to serve on the board of directors.

W. Andrew McKenna.    Mr. McKenna was appointed as a director in February 2002. Mr. McKenna was the president and director of SciQuest.com, a Nasdaq National Market listed company, from December 1999 to December 2000. Mr. McKenna served from 1990 to 1999 in a variety of roles for Home Depot, most recently as senior vice president, strategic business development and import/logistics. Mr. McKenna also spent 16 years with Deloitte & Touche, with the last 10 years as a partner. Mr. McKenna also serves on the board of directors of Auto Zone, Inc., a New York Stock Exchange listed company.

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J. Ernest Riddle.    Mr. Riddle was appointed as a director in January 1998. From March 1997 to July 1999, Mr. Riddle was president and chief operating officer of Norrell Services, Inc., an outsourcing information technology and staffing services company based in Atlanta, Georgia. Before joining Norrell, Mr. Riddle spent four years with Ryder System, Inc., a logistics and transportation group, primarily in marketing and sales. Mr. Riddle served Xerox Corporation for 26 years in a variety of positions which included Vice President of Marketing and Vice President of Field Operations for the United States operations and Vice President of Marketing and Sales for the European operations. Mr. Riddle serves on the board of directors of AirNet Systems, Inc, a provider of time-sensitive small package delivery services. He also serves as a trustee of Brevard College and is on the board of visitors of the University of North Carolina.

James L. Singleton.    Mr. Singleton was appointed as a director in December 1999. In 1994 Mr. Singleton formed The Cypress Group LLC, a private equity fund, and currently serves as president. Previously, Mr. Singleton was a managing director in Lehman Brothers’ Merchant Banking Group. Mr. Singleton serves on the board of directors of WESCO International Inc., ClubCorp Inc., HomeRuns.Com. Inc. and L.P. Thebault Company. Mr. Singleton was designated by the owners of the participating shares as their nominee to serve on the board of directors.

C. Anthony Wainwright.    Mr. Wainwright was appointed as a director in September 1999. Since 1997, Mr. Wainwright has served as vice chairman of McKinney & Silver, a North Carolina advertising agency and wholly-owned division of Havas Advertising. From 1995 to 1997 Mr. Wainwright was the chairman of Harris Drury Cohen, a Ft. Lauderdale advertising agency. Mr. Wainwright also serves as a director of two public companies including: America Woodmark Corporation and Marketing Services Group Inc and one privately held company Galaxy National Food Company. In addition, Mr. Wainwright serves on various other private and charitable boards.

Michel Amblard.    Mr. Amblard was appointed as our senior vice president and chief financial officer for Danka Europe effective June 1, 2001. From 1998 to June 1, 2001, Mr. Amblard served as our senior vice president and corporate controller. From September 1997 to 1998, Mr. Amblard served as our senior vice president of human resources worldwide. Prior to that, Mr. Amblard served in a variety of positions for Danka. Mr. Amblard plans to retire by July 4, 2003.

Paul G. Dumond.    Mr. Dumond has been our company secretary since March 1986. He is a chartered accountant. Mr. Dumond is also the owner and director of Nautilus Management Limited, a management services company. In addition, he is a non-executive director of two publicly owned United Kingdom companies, Redbus Interhouse PLC, which provides Internet web server co-location facilities, and Mid-States PLC, a listed cash shell, which formerly distributed auto parts in the United States.

Todd L. Mavis.    Mr. Mavis joined us in 2001 and currently serves as president of our U.S. business unit. From 1997 to 2001, Mr. Mavis was executive vice president of Mitchell International, a leading information provider and software developer for insurance and related industries. From 1996 to 1997, Mr. Mavis was senior vice president—worldwide sales and marketing of Checkmate Electronics, Inc, a Nasdaq National Market listed company. For the last 16 years, Mr. Mavis has been involved in the information technology industry and has been heavily involved in the re-engineering of several companies, including Attachmate and Memorex Telex.

Keith J. Nelsen.    Mr. Nelsen was appointed as our senior vice president and general counsel in June 2000 and as Chief Administrative Officer in January 2003. From 1997 to June 2000, Mr. Nelsen served as our associate general counsel. From 1995 to 1997, Mr. Nelsen served as vice president and associate general counsel at Nordic Track, Inc., a manufacturer and distributor of fitness equipment.

Michael D. Popielec.    Mr. Popielec was appointed as the chief operating officer of our International region effective April 8, 2003. From 1985 to April 2003, Mr. Popielec served in a variety of roles with General Electric, most recently as President and chief executive officer of GE Power Controls, Industrial Systems.

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Sanjay Sood.    Mr. Sood was appointed as our senior vice president of finance and accounting effective June 1, 2001. From May 2000 to June 1, 2001, Mr. Sood served as our senior vice president planning and analysis. From 1997 to 2000, Mr. Sood served as vice president and corporate controller, senior vice president asset management of Hollywood Entertainment Corporation.

Donald W. Thurman.    Mr. Thurman joined Danka in January 2002 and currently serves as executive vice president and chief growth and marketing officer. From July 2001 to January 2002, Mr. Thurman was chief executive officer of eMag Solutions LLC, a privately-owned international data storage solutions company. Mr. Thurman also served from 1995 to 2000 in a variety of roles with Anacomp, most recently as executive vice president and chief operating officer.

Peter Williams.    Dr. Williams joined us in 2001 and currently serves as chief operating officer of our European operations. Dr. Williams served from 1986 to 2001 in a variety of roles for Anacomp, Inc., most recently as executive vice president in charge of the International Document Solutions division.

F. Mark Wolfinger.    Mr. Wolfinger joined us in August 1998 and currently serves as our executive vice president and chief financial officer. Before his appointment to chief financial officer in December 1998, Mr. Wolfinger served as the president of our specialty markets divisions, including Canada, Latin America and Omnifax. Mr. Wolfinger served as executive vice president and chief financial officer for Hollywood Entertainment Corporation from 1997 to 1998.

Our articles of association set the size of our board of directors at not less than two persons. Our board of directors currently consists of ten members who serve pursuant to our articles of association.

We adopted a code of ethics for all of our employees’ including our principal executive officers and senior financial officers. The code of ethics is posted on our website http://www.danka.com/CodeofBusinessConduct.asp. Any amendments to the code of ethics will also be posted on our website http://www.danka.com.

Two directors are elected by the owners of the participating shares: currently these are Mr. Singleton and Mr. Harned. The directors elected by the owners of the participating shares are elected by the affirmative vote of a majority of the votes cast at a class meeting of the owners of those shares. The quorum for the class meeting is two persons holding or representing by proxy at least one-third in nominal value of the participating shares in issue. Our articles of association provide that, subject to the following exception, the owners of the participating shares are entitled to appoint two directors so long as they hold, in aggregate, voting shares (including participating shares) that represent at least ten percent of the total voting rights. The owners of participating shares are entitled to appoint one participating share director if they own, in aggregate, voting shares representing less than ten percent but more than five percent of the total voting rights.

The owners of the participating shares are entitled to appoint a maximum of one participating share director if:

• the Cypress Group LLC or its affiliates transfer participating shares to a person who is not an affiliate of them without the consent of our board of directors (which consent is not to be unreasonably withheld); and

• as a result the Cypress Group LLC and its affiliates hold in aggregate less than 50.01 percent of the participating shares in issue.

Each committee of the board of directors must include at least one director appointed by the owners of the participating shares, except as prohibited by applicable law or regulation. The right of the owners of the participating shares to elect the participating share directors is in addition to their right to vote with other shareholders on the appointment of directors generally.

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Each director is required to retire from office at the third annual general meeting after his appointment or, if earlier, the annual general meeting which falls in the third calendar meeting after his appointment. In addition, directors may stand for re-election or be appointed by the board of directors. Directors appointed by the board of directors will hold office only until the next following annual general meeting of shareholders, when they are eligible for re-election. Any director must retire at the first annual general meeting which takes place after the director reaches the age of 70 and annually thereafter.

There is no understanding regarding any of our executive officers or directors or any other person pursuant to which any executive officer or director was, or is, to be elected or appointed to such position except for the directors appointed by the owners of the participating shares.

No executive officer or director is related to any other executive officer or director.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on our review of Forms 3, 4, and 5 furnished to Danka or written representations from certain persons that no Forms 5 were required for those persons, we believe that during our 2003 fiscal year, all filing requirements under Section 16(a) of the Securities Exchange Act of 1934 applicable to our directors, officers and 10% beneficial owners were timely satisfied.

ITEM 11.    EXECUTIVE COMPENSATION

Compensation of Executive Officers

The table below contains information about the annual and long-term compensation for services rendered in all capacities for the last three (3) fiscal years for our chief executive officer and our other four most highly compensated executive officers.

Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary		Bonus			Other Annual Compensation	Restricted Stock	Number Of Options/ SARs(1)	All Other Compensation
P. Lang Lowrey III(2)	2003	$	647,115	$	775,120		—	—	—	$	116,334	(3)
Chief Executive Officer	2002		500,000		1,500,000		—	—	—		102,632	(4)
	2001		32,692		250,000	(5)	—	—	1,000,000/–		—
F. Mark Wolfinger	2003		488,781		425,190		—	—	40,000/–		9,000	(6)
Executive Vice President	2002		488,781		924,239		—	—	75,000/–		8,981	(6)
And Chief Financial Officer	2001		450,000		101,875		—	—	—		7,240	(7)
Todd L. Mavis(7)	2003		375,001		334,763	(8)	—	—	40,000/–		67,759	(10)
President and Chief	2002		242,308		370,187	(9)	—	—	425,000/–		387,398	(10)
Operating Officer,	2001		—		—		—	—	—		—
Danka United States
Peter Williams(11)	2003		216,349		118,889		—	—	40,000/–		13,908	(12)
President and Chief	2002		138,968		236,510		—	—	225,000/–		5,956	(12)
Operating Officer,     Danka Europe	2001		—		—		—	—	—		—
Keith J. Nelsen(13)	2003		222,711		130,598		—	—	40,000/–		—
General Counsel and	2002		208,000		197,321		—	—	75,000/–		—
Chief Administrative Officer	2001		197,633		66,800		—	—	—		—

(1) The stock options granted are to acquire American depositary shares. Each American depositary share represents four ordinary shares. All numbers shown in the above table represent American depositary shares. All options were granted at the fair market value of the American depositary shares on the date of the grant.

(2) Mr. Lowrey began serving as our chief executive officer effective March 1, 2001 and as chairman of the board of directors effective January 13, 2002.

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(3) The amounts listed represent temporary living expenses, relocation reimbursements, expenses related to the sale of Mr. Lowrey’s principal residence and a $100,000 tax gross-up on the sale of the home for fiscal year 2003.

(4) The amounts listed represent temporary living expenses and relocation reimbursements.

(5) This amount represents payment of a signing bonus to Mr. Lowrey upon commencement of his employment.

(6) The amounts listed represent life insurance premiums pursuant to Mr. Wolfinger’s employment contract.

(7) Mr. Mavis began serving as an executive officer in August 2001.

(8) The amount listed includes a $100,000 anniversary bonus.

(9) The amounts listed include a $50,000 signing bonus.

(10) The amounts listed for fiscal year 2002 include a $75,000 relocation bonus, a $202,000 housing bonus that was grossed up to $286,322 for tax purposes, $26,076 of temporary living expenses and relocation reimbursements and $67,759 of temporary living expenses for fiscal year 2003.

(11) Dr. Williams began serving as an executive officer in fiscal year 2001.

(12) The amounts listed represent an automobile allowance.

(13) Mr. Nelsen began serving as an executive officer in fiscal year 2002.

Share Option Plans

We have options outstanding under our share option plans. The options granted are for the right to acquire ordinary shares or American depositary shares. The table below provides information concerning options issued under our share option plans to our named executive officers who received a grant of options during fiscal year 2003. We did not grant any stock appreciation rights during fiscal years 2003, 2002, and 2001.

Option Grants in Fiscal 2003—Individual Grants

Name	Number of Options Granted(1)		% of Total Options Granted to Employees in Fiscal 2003		Exercise or Base Price ($/Share)		Expiration Date	Potential Realizable Value At Assumed Annual Rates Of Share Price Appreciation For Option Term(2)
								5%		10%
F. Mark Wolfinger	40,000	(3)	1.6	%	$	3.96	11/29/2012	$	99,617	$	252,449
Todd L. Mavis	40,000	(3)	1.6	%		3.96	11/29/2012		99,617		252,449
Peter Williams	40,000	(3)	1.6	%		3.96	11/29/2012		99,617		252,449
Keith J. Nelsen	40,000	(3)	1.6	%		3.96	11/29/2012		99,617		252,449

(1) The options granted are for American depositary shares.

(2) The United States dollar amounts under these columns are the result of calculations at 5% and 10% which reflect rates of potential appreciation set by the SEC. Therefore these calculations are not intended to forecast possible future appreciation, if any, of our ordinary share or ADS price. Our stock options are granted with a pence per ordinary share or United States dollar per ADS, exercise price.

(3) Options vest in three equal annual installments beginning on the first anniversary date.

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The table below provides detailed information concerning aggregate share option/stock appreciation rights values at the end of fiscal year 2003 for unexercised share options/SARs held by each of our named executive officers. No share options/SARs were exercised by any named executive officer in fiscal year 2003.

Aggregate Options/SARs Exercised In Fiscal Year 2003

And Fiscal Year-End Option/SAR Values

Name	Number of American Depositary Shares Acquired on Exercise(1)	Value Realized	Number of Unexercised Options/SARs At Fiscal Year-End Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options/SARs At Fiscal Year-End Exercisable/ Unexercisable
P. Lang Lowrey III	—	—	666,667/333,333	$ 1,806,668/ $ 903,332
F. Mark Wolfinger	—	—	611,667/73,333	69,167/55,333
			500,000/0(2)	0/0
Todd L. Mavis	—	—	141,667/323,333	351,834/753,666
Peter Williams	—	—	91,667/173,333	218,168/353,332
Keith J. Nelsen	—	—	79,167/73,333	69,167/55,333

(1) The options granted are for American depositary shares. The options were granted at the fair market value of the American depositary shares on the date of the grant. Each American depositary shares represents four ordinary shares.

(2) These amounts represent stock appreciation rights in respect of American depositary shares granted during fiscal year 1999.

Compensation of Directors

Any director serving as an executive officer did not receive any directors’ fees.

Compensation payable to the non-employee directors is determined by the board and is reviewed annually. The compensation was changed effective at the time of the annual general meeting held in October 2002. Annual compensation beginning October 2002 consists of the following:

• An annual sum of $30,000.

• An annual grant of restricted shares pursuant to the Danka 2002 Outside Director Stock Compensation Plan with a fair market value at the date of grant of $30,000.

• If a chairman of a committee of the board of directors, an additional sum of $500 per committee meeting.

• $1,500 for each board of directors or committee meeting attended in person, together with reimbursement for expenses in connection with such attendance and $750 for attendance at telephonic board and committee meetings.

Compensation payable to the non-employee directors for the period from April 2002 to September 2002 consisted of the following:

• An annual sum of (Pounds) 25,000.

• If a chairman of a committee of the board of directors, an additional annual sum of (Pounds) 3,500.

• (Pounds) 1,200 for each board of directors or committee meeting attended and reimbursement for expenses in connection with such attendance

James L. Singleton and Mr. Christopher B. Harned, the directors appointed by holders of the participating shares, have waived their entitlements to receive emoluments.

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Human Resources Committee Interlocks and Insider Participation

None of the members of our human resources committee have at any time been an executive officer. There were no human resources committee interlocks or insider participation in compensation decisions in fiscal year 2003.

Change of Control Agreements

Each of P. Lang Lowrey, Todd L. Mavis, Keith J. Nelsen, Peter Williams and F. Mark Wolfinger, has a change of control agreement with Danka Business Systems PLC and Danka Office Imaging Company.

Under each change of control agreement, if the relevant executive’s employment is terminated without cause, other than due to death, disability, or retirement, or the executive terminates his employment for good reason, in either case within two years after a change of control, the relevant executive will be entitled to receive the severance benefits described below. “Good reason” includes an adverse change in the relevant executive’s status or position, decrease in base salary, relocation, or our failure to continue in effect any compensation or benefit plan.

The severance benefit entitlements under the change of control agreement include:

• a lump-sum cash payment, in an amount equal to two times base salary for Mr. Lowrey, Mr. Mavis, Mr. Nelsen and Mr. Wolfinger and one times for Dr. Williams. “Base salary” is the salary being earned either at the time of the change of control, or at the time of the termination of the relevant executive’s employment, whichever is greater;

• a pro rata annual bonus for the fiscal year of termination calculated as if our financial performance targets for that fiscal year were deemed to be satisfied at the level equal to the performance achieved through the date of termination or, if greater, the pro rata amount of any performance bonus that the relevant executive is guaranteed to receive for the fiscal year;

• an amount equal to two times, in the case of Mr. Lowrey, Mr. Mavis, Mr. Nelsen and Mr. Wolfinger (none for Dr. Williams), the relevant executive’s annual bonus for the fiscal year of termination, calculated as if our financial performance targets for that fiscal year were deemed to be satisfied at a level equal to the performance achieved through the date of termination or, if greater, any performance bonus that the relevant executive is guaranteed to receive for that fiscal year;

• continued coverage under our welfare plans for up to 24 months in the case of Mr. Wolfinger and 12 months in the case of Mr. Lowrey, Mr. Mavis and Mr. Nelsen (none for Dr. Williams); and

• the immediate vesting and exercisability of the respective executive’s stock options for three years following termination of the executive’s employment.

Each change of control agreement provides that the relevant executive will be reimbursed for any federal excise taxes imposed on payments that constitute excess “golden parachute payments.”

A “change of control” occurs for the purposes of the change of control agreements if:

• any person or group unaffiliated with us acquires securities representing more than 30 percent of our shareholder voting power;

• a merger or consolidation involving us is consummated and results in less than 50 percent of the outstanding voting securities of the surviving or resulting entity being owned by our then existing stockholders;

• we sell substantially all of our assets, or substantially all of the assets of Danka Holding Company, to a person or entity which is not our wholly-owned subsidiary or any of our affiliates; and

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• during any period of two consecutive years, individuals who, at the beginning of such period, constituted our board of directors cease to constitute at least a majority of our board of directors, unless the election or nomination for election for each new director was approved by the vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period.

Each change of control agreement will remain in effect until the time that the relevant executive is terminated in circumstances which do not entitle the executive to severance payments under his agreement. The change of control agreements will not expire earlier than two years after the effective date of any change of control.

Employment Agreements

P. Lang Lowrey III

Mr. Lowrey has an employment agreement with Danka Office Imaging Company, Danka Business Systems PLC and Danka Holding Company. The employment agreement, which is effective from March 1, 2001, provides for

• an annual base salary of not less than $650,000;

• an annual target bonus based on individual and corporate performance of up to 200% of base salary;

• an additional bonus based on specified corporate objectives of up to 100% of base salary;

• stock option grants consistent with Mr. Lowrey’s position;

• relocation benefits under our standard relocation plan including reimbursement for any tax liability related to the sale of the home, limited to $100,000 and

• payment of other vested benefits due to Mr. Lowrey under the terms of any deferred compensation, retirement, incentive or other benefit plan.

Mr. Lowrey’s employment is terminable by either party upon 30 days’ written notice, if without cause. In the event that Mr. Lowrey’s employment is terminated other than by reason of his death or by us for cause, we will be required to provide Mr. Lowrey with:

• a termination payment of twice Mr. Lowrey’s base salary payable in installments over a twelve month period;

• a proportionate amount of any performance bonus that would have been payable to Mr. Lowrey for the fiscal year in which termination occurs;

• medical, hospitalization, life and other insurance benefits for Mr. Lowrey and his family for up to two years after the termination date;

• immediate vesting of stock options with a two year exercise period; and

• other vested benefits payable to Mr. Lowrey under the terms of any deferred compensation, retirement, incentive or other benefit plan.

Mr. Lowrey is required to comply with worldwide non-compete and confidentiality provisions for two years following termination of employment.

Todd L. Mavis, Keith J. Nelsen, Peter Williams and F. Mark Wolfinger

Each of Mr. Mavis, Mr. Nelsen, Dr. Williams and Mr. Wolfinger have employment agreements with Danka Office Imaging Company and, in the case of Mr. Mavis, Danka Business Systems PLC and Danka Holding Company. Each agreement provides for:

• a minimum annual base salary;

31

• an annual target bonus of up to 100% of base salary (50% for Mr. Nelsen), (£100,000 pounds for Dr. Williams), ($250,000 for Mr. Mavis) based on individual and corporate performance and eligibility for additional bonuses based on our performance bonus plan;

• stock option grants consistent with the relevant executive’s position; and

• payment of other vested benefits due to the executive under the terms of any deferred compensation, retirement, incentive or other benefit plan.

Mr. Wolfinger’s employment agreement is dated August 15, 2000 and his current annual base salary is $450,000.

Mr. Nelsen’s employment agreement is dated August 15, 2000 and his current annual base salary is $240,000.

Mr. Mavis’s employment agreement is dated July 26, 2001, and was amended on March 18, 2002, and provides for an annual base salary of not less than $375,000.

Mr. Mavis’s employment agreement is terminable by either party, without cause, upon 60 days’ written notice. Mr. Wolfinger’s employment agreement expires on August 15, 2003 and is otherwise terminable by either party, without cause, on 30 days’ written notice.

Dr. Williams employment agreement’s dated July 23, 2001 and provides for an annual base salary of not less than £100,000.

In the event that any of Mr. Mavis’s, Mr. Nelsen’s and Mr. Wolfinger’s employment agreement is terminated other than by us for cause or by reason of the relevant executive’s death, we must provide the relevant executive with:

• a termination payment, in an amount equal to twice (one and a half times for Mr. Nelsen) (one times for Dr. Williams) the executive’s base salary, payable in installments over a twelve month period (in a lump sum for Mr. Nelsen);

• a proportionate amount (one and a half times of the targeted bonus for Mr. Nelsen) of any performance bonus that would have been payable to the relevant executive for the fiscal year in which termination occurs;

• medical, hospitalization, life and other insurance benefits for the relevant executive and his family for up to two years (none for Mr. Nelsen or Dr. Williams) after the termination date;

• immediate vesting of stock options with a two year exercise period (or, in the case of Mr. Wolfinger, a three year exercise period); and

• other vested benefits payable to the relevant executive under the terms of any deferred compensation, retirement, incentive or other benefit plan.

Each of Mr. Mavis’s, Mr. Nelsen’s, Dr. Williams and Mr. Wolfinger’s employment agreements require the relevant executive to comply with worldwide non-compete and confidentiality provisions for two years (one year for Dr. Williams) following termination of employment.

Employment Agreements—Former Employees

None

32

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table provides a summary of all equity compensation plans and individual compensation arrangements (whether with employees or non-employees, such as directors, consultants, advisors, vendors, customers, suppliers and lenders), in effect as of March 31, 2003.

Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)
Equity compensation plans approved by security holders	8,538,175	$	4.66	9,461,826
Equity compensation plans not approved by security holders	—		—	—
Total	8,538,175	$	4.66	9,461,826

Note: All figures for numbers of securities in the table are for American depositary shares.

Security Ownership of Management and Others

The following table sets forth, as of May 15, 2003, information as to the beneficial ownership of our ordinary shares by:

• each person known to us as having beneficial ownership of more than five percent (5%) of our equity securities;

• each director;

• each “named executive officer” as defined in Item 402(a)(3) of Regulation S-K under the Securities Exchange Act of 1934; and

• all of our directors and executive officers as a group.

	Shares Beneficially Owned as of May 15, 2003 (2)
Name of Beneficial Owner(1)	Number of Ordinary Shares(11)	ADS Equivalent	Percent
Holdings of greater than 5 percent
Cypress Associates II LLC(3)	80,144,912	20,036,228	24.3	%
FMR Corporation(4)	17,365,600	4,341,400	7.0	%
Holdings by Directors, Named Executive Officers and all Directors and Executive Officers as a Group
Kevin C. Daly	38,960	9,740	*
Jaime W. Ellertson	35,712	8,928	*
Michael B. Gifford	54,960	13,740	*
Richard M. Haddrill	38,960	9,740	*
Christopher B. Harned	—	—	*
W. Andrew McKenna	38,960	9,740	*
J. Ernest Riddle	58,960	14,740	*
James L. Singleton(5)	80,184,912	20,046,228	24.3	%
C. Anthony Wainwright	56,460	14,115	*
P. Lang Lowrey III(6)	2,736,267	684,067	1.1	%
Todd L. Mavis(7)	606,667	151,667	*
Keith J. Nelsen(8)	356,791	89,198
Peter Williams(9)	404,667	101,167	*
F. Mark Wolfinger(10)	2,507,107	626,777	1.0	%
All directors and executive officers As a group (18 persons)	87,875,525	21,968,881	26.1	%

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(*) Represents less than one percent (1%) of the share capital.

(1) Except for Messrs. Mavis, Nelsen and Wolfinger, all of the listed individuals are currently directors. Messrs. Lowrey, Mavis, Nelsen and Wolfinger are executive officers.

(2) Except as otherwise indicated, all ordinary shares and American depositary shares are held of record with sole voting and investment power.

(3) Consists of:

• 236,895 convertible participating shares which are convertible, as of May 15, 2003, into 76,171,928 ordinary shares, beneficially owned by Cypress Merchant Banking Partners II L.P.;

• 10,071 convertible participating shares which are convertible, as of May 15, 2003, into 3,238,260 ordinary shares, beneficially owned by Cypress Merchant Banking II C.V.; and

• 2,285 convertible participating shares which are convertible, as of May 15, 2003, into 734,724 ordinary shares, beneficially owned by 55th Street Partners II L.P.

Cypress Associates II LLC, as well as James A. Stern, Jeffrey P. Hughes, James L. Singleton and David P. Spalding (each a “Managing Member” of Cypress Associates II LLC), may be deemed to beneficially own these shares. However, Cypress Associates II LLC and each Managing Member disclaim beneficial ownership. The share and percentage ownership figures are calculated at the conversion rate as of May 15, 2003 of 321.543 ordinary shares for each convertible participating share. The principal business and office address of Cypress Associates II LLC and the Managing Members is 65 East 55th Street, New York, NY 10022.

(4) Consists of:

• 4,000,000 ordinary shares beneficially owned by Fidelity Investment Services Ltd.;

• 13,045,600 ordinary shares beneficially owned by Fidelity Management & Research Company.; and

• 320,000 ordinary shares beneficially owned by Fidelity Management Trust Company.

The principal address of FMR Corporation is 82 Devonshire Street, E 14B, Boston, MA 02109-3614.

(5) Includes 249,251 Convertible participating shares which are convertible, as of May 15, 2003, into 80,144,912 ordinary shares beneficially owned by affiliates of Cypress Associates II LLC. Mr. Singleton is Vice Chairman of The Cypress Group LLC. See note 3 above. Mr. Singleton disclaims beneficial ownership of such shares.

(6) Includes options held by Mr. Lowrey to purchase 666,666 American depositary shares, equivalent to 2,666,668 ordinary shares, all of which are currently exercisable.

(7) Includes options held by Mr. Mavis to purchase 141,667 American depositary shares, equivalent to 566,668 ordinary shares, all of which are currently exercisable.

(8) Includes options held by Mr. Nelsen to purchase 79,167 American depositary shares, equivalent to 316,668 ordinary shares, all of which are currently exercisable.

(9) Includes options held by Dr. Williams to purchase 91,667 American depositary shares, equivalent to 366,668 ordinary shares, all of which are currently exercisable.

(10) Includes options held by Mr. Wolfinger to purchase 611,667 American depositary shares, equivalent to 2,446,668 ordinary shares, all of which are currently exercisable.

(11) At May 15, 2003 a total of 249,557,082 ordinary shares were outstanding. Pursuant to the rules of the Securities and Exchange Commission, ordinary shares or American depositary shares that a person has a right to acquire within 60 days of the date hereof pursuant to the exercise of stock options or the conversion of our convertible participating shares are deemed to be outstanding for the purpose of computing the percentage ownership of such person but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

On May 15, 2003, The Bank of New York, as depositary for our American depositary share program, held 47,721,187 ordinary shares representing approximately 76.5% of the ordinary shares in issue.

34

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We do not have any relationships and transactions between affiliated parties and us.

Future relationships and transactions, if any, with affiliated parties will be approved by a majority of our independent outside directors and our audit committee and will be on terms no less favorable to us than those that could be obtained from unaffiliated parties.

ITEM 14.    CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

Within 90 days prior to the date of this report, we carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.

There have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

35

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1. The following financial statements of the registrant included in Part II, item 8, of this report are incorporated herein by reference as described in item 8:

Exhibit No.	Description
13
	Consolidated Statements of Operations—years ended March 31, 2003, 2002 and 2001
	Condensed Consolidated Balance Sheets—March 31, 2003 and 2002
	Consolidated Statements of Cash Flows—years ended March 31, 2003, 2002 and 2001
	Consolidated Statements of Shareholders’ Equity (Deficit)—years ended March 31, 2003, 2002 and 2001
	Notes to the Consolidated Financial Statements—years ended March 31, 2003, 2002 and 2001
	Independent Auditors’ Report

2.  The following financial statement schedules of the registrant are included in item 14(d):

Exhibit No.	Description
23
	Independent Auditors’ Report
	II—Valuation and Qualifying Accounts
	All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule, the information required is included in the financial statements and notes thereto or the schedule is not required or inapplicable under the related instructions.

3.  Exhibit index:

Exhibit Number	Description of Document
2.1*	Asset Purchase Agreement dated April 9, 2001 among Danka Business Systems PLC and Pitney Bowes, Inc. (incorporated by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K filed on May 1, 2001).
3.1*	Memorandum of Association of the Company. (Exhibit 3.1 of Company’s Registration Statement on Form 20-F, No. 0-20828, filed on November 10, 1992.)
3.2*	Articles of Association of the Company. (Exhibit 4.2 to the Company’s Form 10-Q September 30, 2000, filed on November 14, 2001.)
4.1*	Memorandum of Association of the Company, including paragraphs 5 and 6. (Exhibit 2.1 to the 1992 Registration Statement on Form 20-F, No. 0-020828, filed November 10, 1992.)
4.2*	Articles of Association of the Company, including sections relating to Shares, Variation of Rights and Votes of Members. (Exhibit 4.2 to the Company’s Form 10-Q September 30, 2001, filed on November 14, 2001.)
4.3*	Form of Ordinary Share certificate. (Exhibit 4.3 of Company’s Registration Statement on Form S-1, No. 33-68278, filed on October 8, 1993.)

36

Exhibit Number	Description of Document
4.4*	Form of American Depositary Receipt. (Exhibit 4.4 to the Registration Statement on Form S-1, No. 33-68278, filed on October 8, 1993.)
4.5*	Deposit Agreement dated June 25, 1992, Amendment No. 1 dated February 26, 1993 and Amendment No. 2 dated July 2, 1993 (Exhibit 4.9 to the Registration Statement on Form S-1, No. 33-68278, filed on October 8, 1993) and Amendment No. 3 dated August 16, 1994 between The Bank of New York, Company and Owners and Holders of American Depositary Receipts.
4.6*	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 dated December 16, 1996.)
4.7*	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 dated February 12, 1998.)
4.8*	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 dated July 28, 1998.)
4.9*	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 dated October 21, 1998.)
4.10*	Waiver dated February 26, 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 4.12 to the Company’s Form 8-K dated March 5, 1999.)
4.11*	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 dated July 15, 1999.)
4.12*	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 dated July 15, 1999.)
4.13*	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. (Exhibit 4.18 to the Company’s Form 10-Q for the quarter ended December 31, 1999 and filed February 11, 2000.)
4.14*	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 dated December 17, 1999.)
4.15*	Eighth Amendment to Credit Agreement dated March 24, 2000 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 4.22 to Company’s Form 10-K dated June 6, 2000.)

37

Exhibit Number	Description of Document
4.16*	Ninth Amendment to Credit Agreement dated October 31, 2000 among Danka Business Systems PLC, Dankalux Sarl & Co., SCA and Danka Holding Company, Bank of America, N.A., each other Bank signatory to the Credit Agreement and Bank of America, N.A., as agent. (Exhibit 4.23 to Company’s Form 10-Q for the quarter ended September 30, 2000.)
4.17*	Tenth Amendment to Credit Agreement dated December 15, 2000 among Danka Business Systems PLC, Dankalux Sarl & Co., SCA and Danka Holding Company, Bank of America, N.A., each other Bank signatory to the Credit Agreement and Bank of America, N.A., as agent. (Exhibit 4.25 to Company’s Form 8-K dated January 12, 2001.)
4.18*	Eleventh Amendment to Credit Agreement dated March 28, 2001 among Danka Business Systems PLC, Dankalux Sarl & Co., SCA and Danka Holding Company, Bank of America, N.A., each other Bank signatory to the Credit Agreement and Bank of America, N.A., as agent. (Exhibit 4.26 to Company’s Form 8-K dated April 9, 2001.)
4.19*	Twelfth Amendment to Credit Agreement dated June 6, 2001 among Danka Business Systems PLC, Dankalux Sarl & Co., SCA and Danka Holding Company, Bank of America, N.A., each other Bank signatory to the Credit Agreement and Bank of America, N.A., as agent. (Exhibit 4.25 to Company’s Form 8-K dated June 11, 2001.)
4.20*	Indenture between Danka Business Systems PLC and HSBC Bank USA for the zero coupon senior subordinated notes due April 1, 2004. (Exhibit 4.24 to Amendment No. 6 to the Company’s Registration Statement on Form S-4 filed June 27, 2001.)
4.21*	Indenture between Danka Business Systems PLC and HSBC Bank USA for the 10% subordinated notes due April 1, 2008. (Exhibit 4.25 to Amendment No. 6 to the Company’s Registration Statement on Form S-4 filed June 27, 2001.)
4.22*	Note Depositary Agreement between Danka Business Systems PLC and HSBC Bank USA regarding the zero coupon senior subordinated notes due April 1, 2004. (Exhibit 4.27 to Amendment No. 5 to the Company’s Registration Statement on Form S-4 filed June 22, 2001.)
4.23*	Note Depositary Agreement between Danka Business Systems PLC and HSBC Bank USA regarding the 10% subordinated notes due April 1, 2008. (Exhibit 4.28 to Amendment No. 5 to the Company’s Registration Statement on Form S-4 filed June 22, 2001.)
4.24*	Amended and Restated Credit Agreement dated June 29, 2001, by and among Danka Business Systems PLC, Dankalux Sarl & Co. SCA, Danka Holding Company, the secured financial institutions from time to time a party and Bank of America, N.A., as agent (Exhibit 4.26 to the Company’s Form 8-K dated July 16, 2001).
4.25*	First Amendment to Amended and Restated Credit Agreement dated March 29, 2002 by and among Danka Business Systems PLC, Dankalux Sarl & Co. SCA, Danka Holding Company, the secured financial institutions from time to time a party and Bank of America, N.A., or agent.
4.26*	Second Amended and Restated Credit Agreement dated June 14, 2002 by and among Danka Business Systems PLC, Dankalux Sarl & Co SCA, Danka Holding Company, the secured financial institutions from time to time a party and Bank of America, N.A., as agent.
4.27*	Letter Agreement dated June 14, 2002 by and among Danka Business Systems PLC, Dankalux Sarl & Co SCA, Danka Holding Company, the secured financial institutions from time to time a party and Bank of America, N.A., as agent.
4.28	Third Amended to Second Amended and Restated Credit Agreement dated November 25, 2002 by and among Danka Business Systems PLC, Dankalux Sarl & Co SCA, Danka Holding Company, the secured financial institutions from time to time a party and Bank of America, N.A., as agent.
10.1*	Office Building Lease dated May 1, 1992 between Daniel M. Doyle and Francis J. McPeak, Jr., and Gulf Coast Business Machines. (Exhibit 3.5 to the 1993 Form 20-F.)

38

Exhibit Number	Description of Document
10.2*	Office Building Lease dated April 1, 1990 between Daniel M. Doyle and Francis J. McPeak, Jr., and Danka. (Exhibit 3.6 to the 1993 Form 20-F.)
10.3*	Lease Agreement dated December 22, 1986, and Addendum Lease Agreement dated March 1, 1987, between Daniel M. Doyle and Francis J. McPeak and Danka. (Exhibit 3.7 to the 1993 Form 20-F.)
10.4*	U.K. Executive Share Option Scheme. (Exhibit 3.11 to the 1993 Form 20-F.)
10.5*	U.S. Executive Incentive Stock Option Plan. (Exhibit 3.12 to the 1993 Form 20-F.)
10.6*	Form of Stock Option Agreement. (Exhibit 3.13 to the 1993 Form 20-F.)
10.7*	Addendum to Lease Agreement dated September 1, 1992, between Mid-County Investments, Inc. and Danka. (Exhibit 3.38 to the 1993 Form 20-F.)
10.8*	Lease Agreement dated November 12, 1992 and Lease Commencement Agreement dated April 7, 1993 between PARD, Inc. and Danka. (Exhibit 10.41 to the 1993 Form 20-F.)
10.9*	Danka Business Systems PLC 1994 Executive Performance Plan. (Exhibit 10.52 to the 1994 Form 10-K.)
10.10*	The Danka 1996 Share Option Plan filed as Appendix 1 of the 1996 Annual Proxy Statement and approved by shareholders under Resolution 10.
10.11*	Amendments to the Danka 1996 Share Option Plan filed as Appendix A of the 1998 Annual Proxy Statement and approved by shareholders under Resolution 9.
10.12*	The Danka 1999 Share Option Plan filed as Appendix B of the 1999 Annual Proxy Statement and approved by shareholders under Resolution 12.
10.13*	Employment Agreement dated March 1, 2001 between Danka and P. Lang Lowrey III. (Exhibit 10.16 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed May 16, 2001.)
10.14*	Change of Control Agreement dated March 1, 2001 between Danka and P. Lang Lowrey III. (Exhibit 10.17 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed May 16, 2001.)
10.15*	Agreement dated November 20, 2000 between Danka and Michael Gifford. (Exhibit 10.18 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed April 17, 2001.)
10.16*	Employment Agreement dated March 1, 2001 between Danka and Michael Gifford. (Exhibit 10.19 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed May 16, 2001.)
10.17*	Amended and Restated Employment Agreement dated September, 1999 between Danka and Brian L. Merriman. (Exhibit 10.14 to Company’s Form 10-Q for the quarter ended September 30, 1999.)
10.18*	Amendments dated May 30, 2000 to the Amended and Restated Employment Agreement dated September 20, 1999 between Danka and Brian L. Merriman. (Exhibit 10.37 to Company’s Form 10-Q for the quarter ended June 30, 2000.)
10.19*	Change of Control Agreement dated November 6, 1998 between Danka and Brian L. Merriman. (Exhibit 10.11 to Company’s Form 10-Q for the quarter ended June 30, 1999.)
10.20*	Amended and Restated Employment Agreement dated July, 2000 between Danka and F. Mark Wolfinger. (Exhibit 4.24 to Company’s Form 10-Q for the quarter ended September 30, 2000.)
10.21*	Change of Control Agreement dated November 6, 1998 between Danka and F. Mark Wolfinger. (Exhibit 10.12 to Company’s Form 10-Q for the quarter ended June 30, 1999.)
10.22*	Amended and Restated Global Operating Agreement dated March 31, 2000 between Danka and General Electric Capital Corporation. (Exhibit 10.31 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed May 16, 2001.)

39

Exhibit Number	Description of Document
10.23*	First Amendment to Amended and Restated Global Operating Agreement dated February 1, 2001 between Danka and General Electric Capital Corporation. (Exhibit 10.32 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed April 17, 2001.)
10.24*	Purchase Agreement dated April 9, 2001 between Danka and Pitney Bowes Inc. (Exhibit 10.33 to the Company’s Form 8-K dated May 1, 2001.)
10.25*	Change of Control Agreement dated February 13, 2001 between Danka and Ernest R. Miller. (Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2001.)
10.26*	Severance Agreement dated January 14, 2000 between Danka and Ernest R. Miller. (Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2001.)
10.27*	Second Amendment to Amended and Restated Global Operating Agreement dated October 9, 2001 between Danka and General Electric Capital Corporation. (Exhibit 10.36 to the Company’s Form 10-Q September 30, 2001 dated November 14, 2001.)
10.28*	Amended and Restated Employment Agreement dated November 6, 2001 between Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Brian L. Merriman (Exhibit 10.37 to the Company’s Form 10-Q December 31, 2001 dated February 13, 2001.)
10.29*	Employment Agreement dated July 26, 2001 among Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Todd L. Mavis (Exhibit 10.38 to the Company’s Form 10-Q for the quarter ended December 31, 2001 dated February 13, 2001.)
10.30*	Employment Agreement dated July 23, 2001 among Danka Business Systems PLC and Peter Williams (Exhibit 10.39 to the Company’s Form 10-Q for the quarter ended December 31, 2001 dated February 13, 2001.)
10.31*	Employment Agreement dated July 26, 2001 among Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and David P. Berg (Exhibit 10.40 to the Company’s Form 10-Q December 31, 2001 dated February 13, 2001.)
10.32*	Amendments to the Danka 1999 Share Option Plan filed as Exhibit A to the 2001 Annual Proxy Statement.
10.33*	The Danka 2001 Long Term Incentive Plan filed as Exhibit B to the 2001 Annual Proxy Statement.
10.34*	The Danka Employee Stock Purchase Plan filed as the Exhibit to the Proxy Statement filed on February 27, 2002.
10.35*	Third Amendment to Amended and Restated Global Operating Agreement dated January 9, 2002 between Danka and General Electric Capital Corporation.
10.36*	Amendment to Employment Agreement dated March 18, 2002 between Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Todd L. Mavis.
10.37*	Change of Control Agreement dated November, 2001 between Danka and David P. Berg.
10.38*	Change of Control Agreement dated November, 2001 between Danka and Todd L. Mavis.
10.39*	Lease Agreement between DAN (FL) QRS 15-7 INC. and Danka Office Imaging Company
10.40*	Fourth Amendment to Amended and Restated Global Operating Agreement dated December 20, 2002 between Danka and General Electric Capital Corporation.
10.41	Employment Agreement dated March 28, 2003 among Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Michael Popielec.
10.42	Change of Control Agreement dated March 28, 2003 between Danka and Michael Popielec.
10.43	Employment Agreement dated August 15, 2000, among Danka Office Imaging Company and Keith J. Nelsen.

40

Exhibit Number	Description of Document
10.44	Change of Control Agreement dated November 14, 2001, between Danka and Keith J. Nelsen.
13	Annual Report to Shareholders of the Company for the year ended March 31, 2003. The portions of the Company’s Annual Report to Shareholders incorporated by reference into this Report are included herein as exhibits.
21*	List of Current Subsidiaries of the Company.
23	Consent of Independent Auditors.
99.1	Certification of P. Lang Lowrey III and F. Mark Wolfinger pursuant to 18 U.S.C. Section 1350, as adjusted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Document has heretofore been filed with the Commission and is incorporated by reference and made a part hereof.

(b)  Reports on Form 8-K:

Form 8-K filed on January 2, 2003 regarding the December 31, 2002 amendment to our senior credit facility.

Form 8-K filed on May 22, 2003 regarding the May 22, 2003 press release announcing financial and operating results for the fourth quarter and fiscal year ended March 31, 2003.

Form 8-K filed on May 28, 2003 regarding the transcript of the May 22, 2003 earnings conference call.

Form 8-K filed on June 10, 2003 regarding the 135c press release.

Form 8-K filed on June 10, 2003 regarding disclosure of the release of certain non-public information.

(c)  Exhibits:

The exhibits listed in Item 14(a)(3) to this report are filed with this report.

(d)  Financial Statement Schedules:

Independent Auditors’ Report

II—Valuation and Qualifying Accounts

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, the information required is included in the financial statements and notes thereto or the schedule is not required or inapplicable under the related instructions.

41

INDEPENDENT AUDITORS’ REPORT

To the Members of Danka Business Systems PLC

Under date of June 9, 2003, we reported on the consolidated balance sheets of Danka Business Systems PLC and subsidiaries as of March 31, 2003 and 2002 and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for each of the years in the three-year period ended March 31, 2003, which are included in the 2003 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets, effective April 1, 2002.

KPMG Audit Plc

Chartered Accountants

Registered Auditor

London, England

June 9, 2003

42

DANKA BUSINESS SYSTEMS PLC

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

Column A	Column B		Column C		Charged to Other Accounts	Column D			Column E
Description	Balance at Beginning of Period		Charged to Costs and Expenses			Deductions			Balance at End of Period
Allowance for doubtful Accounts:
Year ended March 31, 2001	$	41,599	$	9,857	—	$	(8,335	)(1)	$	43,121
Year ended March 31, 2002	$	43,121	$	17,271		$	(18,111	)(1)	$	42,281
Year ended March 31, 2003	$	42,281	$	19,753		$	(20,624	)(1)	$	41,410

(1) Represents accounts written off during the year, net of recoveries.

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: June 9, 2003	DANKA BUSINESS SYSTEMS PLC
	(Registrant)
	By:	/s/    P. LANG LOWREY III
		P. Lang Lowrey III Chief Executive Officer and Chairman (Chief Executive Officer and Chairman)

By:	/s/    F. Mark Wolfinger
	F. Mark Wolfinger Executive Vice President and Chief Financial Officer (Chief Financial Officer and the Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Company and in the capacities indicated on June 9, 2003.

Signature	Title
/s/     P. LANG LOWREY III         P. Lang Lowrey III	Chief Executive Officer, Chairman and Director (Principal Executive Officer)
/s/    KEVIN C. DALY         Kevin C. Daly	Director
/s/    JAIME ELLERTSON         Jaime Ellertson	Director
/s/    MICHAEL B. GIFFORD         Michael B. Gifford	Director
/s/    RICHARD M. HADDRILL         Richard M. Haddrill	Director
/s/    CHRISTOPHER B. HARNED         Christopher B. Harned	Director
/s/    W. ANDREW MCKENNA         W. Andrew McKenna	Director
/s/    J. ERNEST RIDDLE         J. Ernest Riddle	Director
/s/    JAMES L. SINGLETON         James L. Singleton	Director
/s/    C. ANTHONY WAINWRIGHT         C. Anthony Wainwright	Director
/s/    F. MARK WOLFINGER         F. Mark Wolfinger	Executive Vice President and Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

44

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, P. Lang Lowrey, III, Chief Executive Officer of the Company, certify that:

1.  I have reviewed this annual report on Form 10-K of Danka Business Systems PLC;

2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.  Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date:

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.  The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/    P. LANG LOWREY        

P. Lang Lowrey

Chief Executive Officer

June 9, 2003

45

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, F. Mark Wolfinger, Chief Financial Officer of the Company, certify that:

1.  I have reviewed this annual report on Form 10-K of Danka Business Systems PLC;

2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.  Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)  presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date:

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.  The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/    F. MARK WOLFINGER        

F. Mark\ Wolfinger

Chief Financial Officer

June 9, 2003

46

EX-4.28

                                                                  EXECUTION COPY

              THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
                                    AGREEMENT

     THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Third Amendment") is made and entered into as of May 28, 2003 by and
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"), each of the other direct or
indirect subsidiaries of Danka PLC party hereto (together with the Companies,
the "Danka Parties"), BANK OF AMERICA, NATIONAL ASSOCIATION, each other Bank
listed on the signature pages hereof (each individually, a "Consenting Bank" and
collectively, the "Consenting Banks"), and BANK OF AMERICA, 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 entered into a Second
Amended and Restated Credit Agreement dated as of June 14, 2002 (as amended by
that certain First Amendment, dated as of November 25, 2002, that certain Second
Amendment, dated as of May 8, 2003, and as further amended hereby and from time
to time hereafter 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, the Consenting Banks (which constitute the Majority Banks as
defined in the Credit Agreement) and the Danka Parties have agreed to amend
certain provisions of the Credit Agreement, all as hereinafter set forth.

     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 Consenting 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.   Amendments to Credit Agreement. Upon satisfaction of the terms and
conditions set forth in Section 4 of this Third Amendment, the Credit Agreement
shall be amended as follows:

               (a)  Section 8.3(b) of the Credit Agreement is hereby amended in
                    its entirety so that as amended it shall read as follows:

     "(b)      Minimum EBITDA to Interest. The ratio for any period of (a)
   Consolidated EBITDA for such period to (b) cumulative cash interest and bank
   fees payable during such period, in each case of Danka PLC and its
   Subsidiaries (i) for the



   rolling four fiscal quarter period ending on June 30, 2002 to be less than
   2.11 to 1.00, (ii) for the rolling four fiscal quarter period ending on
   September 30, 2002 to be less than 2.37 to 1.00, (iii) for the rolling four
   fiscal quarter period ending on December 31, 2002 to be less than 2.56 to
   1.00, (iv) for the rolling four fiscal quarter period ending on March 31,
   2003 and June 30, 2003 to be less than 2.30 to 1.00, (v) for the rolling four
   fiscal quarter period ending on September 30, 2003, December 31, 2003, and
   March 31, 2004 to be less than 2.74 to 1.00, (vi) for the rolling four fiscal
   quarter period ending on June 30, 2004, September 30, 2004, December 31,
   2004, and March 31, 2005, to be less than 3.00 to 1.00, and (vii) for the
   rolling four fiscal quarter period ending on June 30, 2005, September 30,
   2005 and December 31, 2005 to be less than 3.25 to 1.00; or;"

     3.   Amendment Fee. Each of the Danka Parties acknowledges and agrees that
each Bank shall have earned on the effective date of this Third Amendment an
amendment fee (the "Amendment Fee") equal to 0.10% of such Banks' Commitment;
provided that the Majority Banks shall have executed and delivered to the Agent
their signature page hereto on or prior to Wednesday, May 28, 2003, by 4:00 p.m.
Eastern Standard Time.

     4.   Effectiveness. This Third Amendment shall become effective upon (a)
receipt by the Agent of an executed copy of this Third Amendment (which may be
signed in counterparts and may be received by facsimile transmission) signed by
the Danka Parties and the Majority Banks; (b) payment by the Danka Parties of
the Amendment Fee to the Agent for the benefit of the Banks; and (c) payment of
fees and reasonable expenses of the Agent and the Steering Committee and its
members (including the reasonable fees and expenses of outside counsel and
financial advisors for the Agent) that have been invoiced and remain outstanding
prior to the effectiveness hereof, if any.

     5.   Expenses. The Danka Parties agree promptly to pay or reimburse any
reasonable expenses of the Agent and the Steering Committee and its members
(including the reasonable fees and expenses of outside counsel and financial
advisors for the Agent) incurred in connection with this Third Amendment that
were not previously paid pursuant to Section 4 hereof.

     6.   Acknowledgment; Release. The Danka Parties 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 Danka Parties hereby
release and forever discharge the Agent, 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.

     7.   Entire Agreement. This Third 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.

                                      - 2 -



     8.   Deemed Amendment of Other Loan Documents; Full Force and Effect. To
the extent necessary to give effect to the provisions hereof, the Security
Agreement and all other Loan Documents shall be deemed amended and supplemented
by the terms hereof. Except as hereby specifically amended, modified or
supplemented, the Credit Agreement and all other Loan Documents are hereby
confirmed and ratified in all respects and shall remain in full force and effect
according to their respective terms.

     9.   Counterparts. This Third Amendment may be executed in any number of
counterparts (including, without limitation, counterparts sent by facsimile
transmission), each of which shall be deemed an original as against any party
whose signature appears thereon and all of which shall together constitute one
and the same instrument.

     10.  Governing Law. This Third Amendment shall in all respects be governed
by the laws and judicial decisions of the State of New York.

     11.  Enforceability. Should any one or more of the provisions of this Third
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.

     12.  Authorization. This Third Amendment has been duly authorized, executed
and delivered by the parties hereto and constitutes a legal, valid and binding
obligation of the parties hereto, except as may be limited by general principles
of equity or by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally.

                                      - 3 -



     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: /s/ Keith J. Nelsen
                                         ---------------------------------------
                                      Name: KEITH J. NELSEN
                                           -------------------------------------
                                      Title: SVP General Counsel
                                            ------------------------------------

                                      DANKA HOLDING COMPANY

                                      By: /s/ [ILLEGIBLE]
                                         ---------------------------------------
                                      NAME:  [ILLEGIBLE]
                                           -------------------------------------
                                      Title: SVP & Corporate Treasurer
                                            ------------------------------------

                                      DANKALUX SARL & CO. SCA
                                      BY: DANKALUX SARL, COMMANDITE

                                      By: /s/ [ILLEGIBLE]
                                         ---------------------------------------
                                      Name:  [ILLEGIBLE]
                                           -------------------------------------
                                      Title: Manager
                                            ------------------------------------

                                      AMERICAN BUSINESS CREDIT CORPORATION
                                      CORPORATE CONSULTING GROUP, INC.
                                      DANKA IMAGING DISTRIBUTION, INC.
                                      DANKA MANAGEMENT COMPANY, INC.
                                      DANKA MANAGEMENT II COMPANY, INC.
                                      DANKA OFFICE IMAGING COMPANY
                                      D.I. INVESTMENT MANAGEMENT, INC.
                                      HERMAN ENTERPRISES, INC. OF SOUTH FLORIDA
                                      QUALITY BUSINESS, INC.

                                      By: /s/ Keith J. Nelsen
                                         ---------------------------------------
                                      Name:  KEITH J. NELSEN
                                           -------------------------------------
                                      Title: SVP General Counsel
                                            ------------------------------------

                                      - 4 -



                                      BANK OF AMERICA, NATIONAL ASSOCIATION, as
                                      Agent and Issuing Bank, and individually
                                      as a Bank

                                      By: /s/ Dewitt W. King, III
                                         ---------------------------------------
                                      Name: DeWitt W. King, III
                                           -------------------------------------
                                      Title: Managing Director
                                            ------------------------------------

                                      - 5 -



                                      NAME OF BANK:

                                      Banc of America Securities LLC,
                                      as Agent for Bank of America, N.A.

                                      By: /s/ [ILLEGIBLE]
                                         ---------------------------------------
                                      Name:
                                      Title:

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      NAME OF BANK:

                                        CONTINENTAL CASUALTY COMPANY

                                                                          [SEAL]

                                      By: /s/ Marilou R. McGirr
                                         ---------------------------------------
                                      Name: Marilou R. McGirr
                                      Title: Vice President

                                      By: N/A
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      GOLDMAN SACHS CREDIT PARTNERS L.P.

                                      By: /s/ Albert Dombrowski
                                         ---------------------------------------
                                      Name: Albert Dombrowski
                                      Title: Authorized Signatory

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      NAME OF BANK:

                                      Goldman Sachs Credit Partners L.P.

                                      By: /s/ Tracy McCaffrey
                                         ---------------------------------------
                                      Name:  Tracy McCaffrey
                                      Title: Authorized Signatory

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      NAME OF BANK:

                                      Halcyon Restructuring Fund, L.P.

                                      By: /s/ James W. Sykes
                                         ---------------------------------------
                                      Name: James W. Sykes
                                      Title: Managing Principal
                                      At Halcyon Management Company LLC
                                      Managing General Partner of Halcyon
                                      Restructuring Fund, L.P.

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:



                                      NAME OF BANK:


                                      ------------------------------------------

                                      By: HCM/Z Special Opportunities LLC

                                      By: /s/ Daniel B. Zwim
                                         ---------------------------------------
                                      Name: Daniel B. Zwim
                                      Title: Portfolio Manager

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      NAME OF BANK:

                                      Morgan Stanley Senior Funding, Inc

                                      By: /s/ Daniel Allen
                                         ---------------------------------------
                                      Name: Daniel Allen
                                      Title: Vice President

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      NAME OF BANK:

                                      Special Situations Investing Group, Inc.

                                      By: /s/ Tracy McCaffrey
                                         ---------------------------------------
                                      Name: Tracy McCaffrey
                                      Title: Authorized Signatory

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      VAN KAMPEN
                                      PRIME RATE INCOME TRUST
                                      By: Van Kampen Investment Advisory Corp.

                                      By: /s/ Christina Jamieson
                                         ---------------------------------------
                                      Name:  CHRISTINA JAMIESON
                                      Title: VICE PRESIDENT

                                      By:
                                         ---------------------------------------
                                      Name:  CHRISTINA JAMIESON
                                      Title: VICE PRESIDENT

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement



                                      VAN KAMPEN
                                      SENIOR INCOME TRUST
                                      By: Van Kampen Investment Advisory Corp.

                                      By: /s/ Christina Jamieson
                                         ---------------------------------------
                                      Name:  CHRISTINA JAMIESON
                                      Title: VICE PRESIDENT

                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:

  Bank Signature Page To Third Amendment to Second Amended and Restated Credit
                                    Agreement


                        [LETTERHEAD OF BANK OF AMERICA]

May 28, 2003

To: Lenders and Professionals

RE: DANKA BUSINESS SYTEMS, PLC,
    DANKALUX SARL & CO. SCA AND DANKA HOLDING COMPANY,
    SECOND AMENDED AND RESTATED CREDIT AGREEMENT
    DATED AS OF JUNE 14, 2002 (the "Credit Agreement")

Ladies and Gentlemen:

On behalf of Bank of America, N.A. as Agent, I am pleased to inform you that
all the conditions precedent to the effectiveness of the Third Amendment to the
referenced Credit Agreement have been satisfied and the Third Amendment is
effective as of today, May 28, 2003.

Very Truly Yours,
Bank of America, N.A., as Agent


/s/ Shannon Collins
- --------------------
Shannon Collins

EX-10.41

                                                                   Exhibit 10.41

                           DANKA BUSINESS SYSTEMS PLC

- --------------------------------------------------------------------------------

              Change of Control Agreement for Michael D. Popielec

- --------------------------------------------------------------------------------



                           DANKA BUSINESS SYSTEMS PLC

- --------------------------------------------------------------------------------

               Change of Control Agreement for Michael D. Popielec

- --------------------------------------------------------------------------------

                                                                            Page
                                                                            ----
1.   Definitions .............................................................1

2.   Term of Agreement .......................................................4

3.   Reimbursement of Business Expenses ......................................4

4.   Entitlement to Severance Benefit ........................................4

5.   Confidentiality and Related Covenants ...................................8

6.   Amendment or Termination ................................................9

7.   Resolution of Disputes ..................................................9

8.   Miscellaneous Provisions ...............................................10



                           CHANGE OF CONTROL AGREEMENT

AGREEMENT, made and entered into as of the 28 day of March, 2003 by and among
Danka Business Systems PLC ("Danka Business Systems"), Danka Office Imaging
Company ("Danka") (Danka Business Systems and Danka sometimes referred to herein
together with their respective successors and assigns as the "Company") and
Michael D. Popielec, an individual (the "Executive").

                                   W I T N E S S E T H:

          WHEREAS, Executive is an employee of the Company serving in an
executive capacity;

          WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company be
able to rely upon Executive to continue serving in his or her position in the
event of a pending or actual Change of Control (as defined) of the Company;

          NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is mutually acknowledged, the Company and Executive
(individually a "Party" and together the "Parties") agree as follows:

     1.   Definitions.

          (a) "Base Salary" shall mean Executive's annual base salary in effect
at the time of the Change of Control or at the time of termination of
employment, whichever is greater.

          (b) "Cause" shall mean and be limited to:

               (i)  Executive's conviction of any crime that (i) constitutes a
                    felony in the jurisdiction involved or (ii) involves
                    material loss or damage to or destruction of property of the
                    Company or (iii) results in the incarceration of Executive
                    following his conviction for such crime; or

               (ii) Executive's willful and material violation of any lawful
                    directions of the Company's Chief Executive or Board, which
                    violation has a material adverse effect on the Company,
                    after the Company has provided written notice to Executive
                    and said violation continues after Executive shall have
                    reasonable time not less than 60 days to cure said
                    violation.

For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.



          (c) A "Change of Control" shall be deemed to have occurred when:

               (i)  securities of Danka Business Systems representing more than
                    30 percent of the combined voting power of the then
                    outstanding voting securities of Danka Business Systems are
                    acquired pursuant to a general offer for the issued share
                    capital of the Company which is an offer regulated under the
                    U.K. Take-Over Code or any other tender offer or an exchange
                    offer by any person or group of persons acting in concert
                    (within the meaning of Section 14(d) of the Securities
                    Exchange Act of 1934) other than the Company, a direct or
                    indirect subsidiary or parent of the Company, an employee
                    benefit plan or similar trust established by the Company;

               (ii) a merger or consolidation is consummated in which Danka
                    Business Systems is a constituent corporation and which
                    results in less than 50 percent of the outstanding voting
                    securities of the surviving or resulting entity being owned
                    by the then existing stockholders of Danka Business Systems;

               (iii) a sale is consummated by the Company of substantially all
                    of the Company's assets (or substantially all of the assets
                    of Danka) to a person or entity which is not a wholly-owned
                    subsidiary of Danka Business Systems or any of its
                    affiliates; or

               (iv) during any period of two consecutive years, individuals who,
                    at the beginning of such period, constituted the Board of
                    Directors of Danka Business Systems (the "Board") cease, for
                    any reason, to constitute at least a majority thereof,
                    unless the election or nomination for election for each new
                    director was approved by the vote of at least two-thirds of
                    the directors then still in office who were directors at the
                    beginning of such two-year period.

For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from actions
or events in which Executive is a participant in a capacity other than solely as
an officer, employee or director of the Company.

          (d) "Code" means the Internal Revenue Code of 1986, as amended.

          (e) "Disability" shall mean a physical or mental illness which, in the
judgment of the Company after consultation with the licensed physician attending
Executive, impairs Executive's ability to substantially perform his duties as an
employee and as a result of which Executive shall have been unable to perform
his duties for the Company on a full-time basis for a period of 180 consecutive
days.

          (f) "Effective Date" shall mean the date of this Agreement, as set
forth above.

                                       -3-



                    Company to provide Executive with the benefits to which
                    Executive is entitled as an employee of the Company;
                    provided, however, that Executive continues to meet
                    substantially all eligibility requirements thereof,

               (vi) any purported termination of Executive's employment for
                    Cause which is not effected by the Company's delivering
                    written notice to Executive of the termination for Cause
                    which notice describes the specific acts or omissions
                    alleged to constitute Cause; or

               (vii) the failure of the Company to obtain a satisfactory
                    agreement from any successor or assignee of the Company to
                    fully assume and agree to perform this Agreement.

          (i) "Retirement" shall mean Executive's termination of employment with
the Company at or after attaining age 65.

          (j) "Severance Payments" shall have the meaning set forth in Section 4
below.

          (k) "Term" shall have the meaning set forth in Section 2 below.

     2.   Term of Agreement.

          The term of this Agreement shall commence on the Effective Date and,
subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the "Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement, notwithstanding any
other provision of this Section 2, the Term shall not expire earlier than two
years after the effective date of such Change of Control.

     3.   Reimbursement of Business Expenses.

          Executive is authorized to incur reasonable expenses in carrying out
Executive's duties and responsibilities on the Company's behalf, and the Company
shall promptly reimburse Executive for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.

     4.   Entitlement to Severance Benefit.

          (a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in the
event that prior to the consummation of a pending Change of Control Executive's
employment is involuntarily terminated without Cause (other than due to death or
Disability) as a condition to the consummation of the proposed transaction,
whether at the request of the acquiring firm or otherwise, Executive shall be
entitled to receive:

                                       -4-



               (i)  Base Salary through the date of termination of Executive's
                    employment, which shall be paid in a cash lump sum not later
                    than 30 days following Executive's termination of
                    employment;

               (ii) an amount equal to two (2) full years of Executive's Base
                    Salary, at the rate in effect on the date of termination of
                    Executive's employment (or in the event a reduction in Base
                    Salary is a basis for a termination by Executive for Good
                    Reason, then the Base Salary in effect immediately prior to
                    such reduction), payable in a cash lump sum not later than
                    30 days following Executive's termination of employment;

               (iii) a pro rata annual bonus for the fiscal year which includes
                    the date of termination, calculated by multiplying the
                    annual bonus Executive would have earned for the fiscal year
                    of termination, at a minimum, calculated as if the target
                    performance levels were satisfied for the fiscal year of
                    termination, or, if greater, any performance bonus Executive
                    is guaranteed to receive for the fiscal year under the terms
                    of his employment agreement, by a percentage equal to the
                    ratio of the number of days worked by Executive during the
                    fiscal year of the termination to the total number of work
                    days during such fiscal year, payable in a cash lump sum not
                    later than 30 days following Executive's termination of
                    employment;

               (iv) an amount equal to two (2) times the annual bonus Executive
                    would have earned for the fiscal year of termination, at a
                    minimum, calculated as if the target performance levels were
                    satisfied for the fiscal year of termination, or, if
                    greater, any performance bonus Executive is guaranteed to
                    receive for the fiscal year under the terms of his
                    employment agreement, payable in a cash lump sum not later
                    than 15 days following Executive's termination of
                    employment;

               (v)  immediate vesting of all outstanding stock options and the
                    right to exercise such stock options at any time during an
                    extended exercise period of not less than 36 months
                    following Executive's termination of employment, or the
                    remainder of the exercise period, if less, in each case, to
                    the extent permitted by the terms of the Company's stock
                    option schemes;

               (vi) settlement of all deferred compensation arrangements in
                    accordance with any then applicable deferred compensation
                    plan or election form;

               (vii) continued medical, hospitalization, life and other
                    insurance benefits being provided to Executive and
                    Executive's family at the date of termination, for a period
                    of up to twenty-four (24) months after the date of
                    termination; provided that the Company shall have no

                                       -5-



                    obligation to continue to provide Executive with these
                    benefits for any periods after the date Executive obtains
                    comparable benefits (with no significant pre-existing
                    condition exclusions) as a result of Executive's employment
                    in a new position; and

               (viii) other or additional benefits then due or earned in
                    accordance with applicable plans and programs of the
                    Company.

          (b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:

               (i)  For purposes of determining whether any of the Severance
                    Payments would be subject to the Excise Tax and the amount
                    of such Excise Tax:

                    (A)  Severance Payments, including any payments or benefits
                         other than those under this Section 4(b) received or to
                         be received by Executive in connection with Executive's
                         termination of employment (whether pursuant to the
                         terms of this Agreement or any other plan, arrangement
                         or agreement with the Company, any person whose actions
                         result in a Change of Control or any person affiliated
                         with the Company or such person) (which, together with
                         the Severance Payments, constitute the "Total
                         Payments"), shall be treated as "parachute payments"
                         within the meaning of Section 280G(b)(2) of the Code,
                         and all "excess parachute payments" within the meaning
                         of Section 280G(b)(1) of the Code shall be treated as
                         subject to the Excise Tax, unless in the opinion of a
                         nationally-recognized public accounting firm mutually
                         acceptable to Executive and the Company such other
                         payments or benefits (in whole or in part) do not
                         constitute parachute payments, or such excess parachute
                         payments (in whole or in part) represent reasonable
                         compensation for services actually rendered within the
                         meaning of Section 280G(b)(4) of the Code in excess of
                         the base amount within the meaning of Section
                         280G(b)(3) of the Code, or are otherwise not subject to
                         the Excise Tax;

                    (B)  the amount of the Total Payments which shall be deemed
                         to be treated as subject to the Excise Tax shall be
                         equal to the lesser of (x) the total amount of the
                         Total Payments and (y) the amount of excess parachute
                         payments within the meaning of

                                       -6-



                         Section 280G(b)(1) of the Code (after applying Section
                         4(b)(i)(A) hereof); and

                    (C)  the value of any non-cash benefits or any deferred
                         payments or benefit shall be determined by a nationally
                         recognized public accounting firm mutually acceptable
                         to Executive and the Company in accordance with the
                         principles of Sections 280G(d)(3) and (4) of the Code.

               (ii) If a reduction in the aggregate amount of Severance Payments
                    Executive otherwise would be entitled to receive by an
                    amount not exceeding 20% of such Severance Payments would
                    result in Executive receiving a greater "Net After-Tax
                    Amount," as such term is defined below, then such Severance
                    Payments shall be-reduced by the amount, not exceeding 20%
                    of such Severance Payments, as will provide to Executive the
                    greatest Net After-Tax Amount, such reduction to be made
                    from such payments under this Agreement or such other of the
                    Severance Payments not yet paid to Executive as Executive
                    shall specify. For this purpose, the term "Net After-Tax
                    Amount" shall mean the net amount of the Severance Payments
                    after deducting any federal, state and local income tax and
                    Excise Tax which would be applicable to such Severance
                    Payments. In the event that the Excise Tax is subsequently
                    determined to differ from the amount taken into account
                    hereunder at the time of termination of employment,
                    adjustments shall be made in accordance with this Section
                    4(b)(ii) in light of the revised determination.

               (iii) All determinations under this Section 4(b) shall be made at
                    the expense of the Company by a nationally recognized public
                    accounting firm mutually agreeable to Executive and the
                    Company, and such determination shall be binding upon
                    Executive and the Company.

          (c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he/she may
obtain.

          (d) Nature of Payments, Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.

          (e) Exclusivity of Severance Payments. Upon termination of Executive's
employment during the Term, he/she shall not be entitled to any severance
payments or severance benefits from the Company or any payments by the Company
on account of any claim by Executive of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 4.

                                       -7-



          (f) Release of Employment Claims. Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section 4,
that he/she will execute a release agreement, a form of which is attached hereto
as Exhibit A, releasing any and all claims arising out of Executive's
employment.

     5.   Confidentiality and Related Covenants.

          (a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information of
the Company, any constituent partner of the Company or any of their respective
parents, subsidiaries or affiliates, except to the extent necessary to conduct
the business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction. Without limiting the
generality of the foregoing, the Parties acknowledge and agree that all
information not otherwise generally known to the public relating to each of (i)
this Agreement, or (ii) the Company, any constituent partner of the Company or
any of their respective parents, subsidiaries or affiliates is confidential and
proprietary and is not to be disclosed, to any persons or entities or otherwise
used, except to the extent necessary to conduct the business of the Company, or
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction.

          (b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose the
same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right, title
and interest, in and to the same, (iii) execute all documents required by the
Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in any
suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.

          (c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 24 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.

          (d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or entity
participating in such breach or threatened breach. Nothing herein shall be
construed as prohibiting

                                       -8-



     8.   Miscellaneous Provisions.

          (a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.

          (b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive and
the Company. The Company may terminate the employment of Executive at any time,
subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.

          (c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or obligations
of the Company under this Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or transferred in
connection with the sale or transfer of all or substantially all of the assets
of the Company, provided that the assignee or transferee is the successor to all
or substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale or transfer of assets as
described in the preceding sentence, it shall use its best efforts and take
whatever action or actions it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of Executive under this Agreement
may be assigned or transferred by Executive other than his/her rights to
compensation and benefits, which may be transferred only by will or operation of
law, except as provided in Section 8(i) below.

          (d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.

          (e) Entire Agreement. This Agreement contains the entire understanding
and agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto.

          (f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provislon contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company as the case may be.

          (g) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.

                                      -10-



          (h) Survivorship. The respective rights and obligations of the Parties
hereunder shall survive any termination of Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.

          (i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death by giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of his/her incompetence,
references in this Agreement to Executive shall be deemed, where appropriate, to
refer to his/her beneficiary, estate or other legal representative.

          (j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to Sections
5(d) and 7, the Company and Executive hereby consent to the jurisdiction of any
or all of the following courts for purposes of resolving any dispute under this
Agreement: (i) the United States District Court for Florida or (ii) any of the
courts of the State of Florida. The Company and Executive further agree that any
service of process or notice requirements in any such proceeding shall be
satisfied if the rules of such court relating thereto have been substantially
satisfied. The Company and Executive hereby waive, to the fullest extent
permitted by applicable law, any objection which it or he/she may now or
hereafter have to such jurisdiction and any defense of inconvenient forum.

          (k) Notices. Any notice given to a Party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:

          If to the Company:    Danka Business Systems PLC
                                Masters House
                                107 Hammersmith Road
                                London England W 14 OQH

                                Attention: Secretary

                                Danka Office Imaging Company
                                11201 Danka Circle North
                                St. Petersburg, FL 33716

                                Attention: General Counsel

            If to Executive:    Michael D. Popielec
                                6585 Nicholas Boulevard, #1104
                                Naples, Florida 34108
                                Telephone No.: (239) 596-4176
                                Telecopy No.:  (239) 596-4205

                                      -11-



             with a copy to:    Paul M. Ritter
                                Kronish Lieb Weiner & Hellman LLP
                                1114 Avenue of the Ameritas
                                New York, N.Y. 10036
                                Telephone - (212) 479-6198
                                Facsimile - (212) 479-6275

          (1) Headings. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.

          (m) Counterparts. This Agreement may be executed in two or more

          IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

                                                DANKA BUSINESS SYSTEMS PLC


                                                By: /s/ Illegible
                                                    ----------------------------
                                                Name:
                                                Title:


                                                DANKA OFFICE IMAGING COMPANY


                                                By: /s/ Illegible
                                                    ----------------------------
                                                Name:
                                                Title:


                                                /s/ Michael D. Popielec
                                                --------------------------------
                                                Michael D. Popielec

                                      -12-



                                                                       EXHIBIT A

                                RELEASE OF CLAIMS

DEFINITIONS: I,                                        , ("Employee"), intend
                ---------------------------------------
all words used in this Release to have their plain meaning in ordinary English.
Technical legal words are not needed to describe what I mean. Specific terms I
use in this Release have the following meanings:

          I, Me, and My include both me and anyone who has or obtains any legal
          rights or claims through me.

          Employer, as used herein, shall at all times mean Danka Business
          Systems PLC (the "Company"), Danka Office Imaging Company ("Danka"),
          or any parent company, subsidiaries, affiliated companies or entities
          and their employees, officers, directors, successors and assigns, its
          attorneys, consultants and agents, whether in their individual or
          official capacities.

          My Claims means all of the rights I have to any relief of any kind
          from Employer, whether or not I now know about those rights, arising
          out of or in any way related to my employment with Employer, my
          termination of employment, or any employee benefit plan, including,
          but not limited to, common law, or equitable claims, claims for
          violation or breach of any employment agreement or understanding;
          fraud or misrepresentation; and any statutory claims including alleged
          violations of the, the federal Age Discrimination in Employment Act,
          the Americans with Disabilities Act, or any other federal, state, or
          local civil rights laws or ordinances, defamation; intentional or
          negligent infliction of emotional distress; breach of the covenant of
          good faith and fair dealing; promissory estoppel; negligence, wrongful
          termination of employment, any other claims; provided, however, that
          My Claims do not include claims for payments or benefits which are to
          continue for a specified period of time following my termination of
          employment in accordance with Section 4 of the Change of Control
          Agreement between the Company, Danka, and me dated as of
                              , 2003 or any employee benefit plan, or option or
          --------------------
          award thereunder, in effect at the time of termination, or any rights
          I may have to indemnification.

Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of My Claims.
I agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any allegation included in My Claims. The money I am receiving is a full and
fair payment for the release of all My Claims.

Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.



     I understand that I may have twenty-one (21) calendar days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had sufficient
time to decide whether to sign the Release.

     I understand that I may rescind (that is, cancel) this Release within seven
(7) calendar days of signing it to reinstate federal civil rights claims (if
any). To be effective, my rescission must be in writing and delivered to the
Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:

          Postmarked within the relevant period;

          Properly addressed to the General Counsel; and

          Sent by certified mail, return receipt requested.

     I have read this Release carefully and understand all its terms. I have had
     the opportunity to review this Release with my own attorney. In agreeing to
     sign this Release, I have not relied on any statements or explanations
     made by the Employer or its agents other than those set forth in the
     Release and Change of Control Agreement.

     I understand and agree that this Release and Change of Control Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.

Dated:
       -----------------------

- ------------------------------

Witness:
        ----------------------

                                       -2-

EX-10.42

                                                                   Exhibit 10.42

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (the "Employment Agreement") is made and entered
into as of the 28 day of March, 2003, by and among Danka Office Imaging Company
("Danka Office Imaging"), Danka Business Systems PLC ("Danka Business Systems"),
Danka Holding Company ("Danka Holding"), and Michael D. Popielec, an individual
("Executive"). Danka Office Imaging, Danka Business Systems, and Danka Holding
are collectively referred to herein as the "Company."

                                   WITNESSETH:

     WHEREAS, the Company wishes to assure itself of the services of Executive,
on the terms and conditions set forth herein; and Executive desires to be so
employed by the Company on said terms.

     NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties agree as follows:

1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment with the Company, all upon the terms and subject to the
conditions set forth in this Employment Agreement.

2. CAPACITY AND DUTIES. Executive shall be employed in the capacity of President
and Chief Operating Officer, Danka International Group reporting to the Chief
Executive Officer of the ultimate PLC Holding Company and all of its
subsidiaries. Executive shall direct and oversee the management and operations
of the Latin America, Canada and Australia business units.

3. EMPLOYMENT TERM.

     (a) Term. Employment of Executive by the Company pursuant to this
     Employment Agreement shall begin on April 8, 2003 (the "Commencement
     Date"), and continue until terminated by either party as provided herein.
     The period during which Executive is employed by the Company pursuant to
     this Employment Agreement is referred to herein as the "Term" of this
     Employment Agreement.

4. PLACE OF EMPLOYMENT. Executive's principal place of work shall be located in
the St. Petersburg, Florida metropolitan area.

5. COMPENSATION.

     (a) Salary. Beginning on the Commencement Date and continuing during the
     Term, the Company shall pay Executive a base salary at the rate of
     $375,000.00 per annum (the "Annual Base Salary"), payable in a manner
     consistent with the Company's payroll

                                       1



     procedures for U.S. salaried employees. The Human Resources Committee of
     the Board (the "H.R. Committee") shall review Executive's Annual Base
     Salary at least annually and may increase, but not decrease, the Annual
     Base Salary.

     (b) Performance Bonuses. In addition to the Annual Base Salary, Executive
     shall be entitled to receive an annual bonus under the performance bonus
     plan (the "Performance Bonus Plan") approved by the H.R. Committee at the
     beginning of each of the Company's Fiscal Years, starting with the Fiscal
     Year 2004, which begins April 1, 2003. Executive's bonus plan payments
     shall begin with the Company's first fiscal quarter. Upon the Company's
     achievement of one hundred percent (100%) of the budgeted target levels of
     the Performance Bonus Plan, the Company shall pay Executive a bonus of 50%
     of Executive's Base Salary. If the Company meets certain stretch objectives
     defined and set forth in the Performance Bonus Plan (as determined by the
     H.R. Committee), the Company will pay Executive additional bonuses in
     accordance with such Plan up to 110% of Executive's Base Salary. The
     Company shall pay any bonus earned by Executive in a lump sum cash payment,
     less applicable withholdings, as promptly after the end of the relevant
     accounting period as the H.R. Committee is able to certify the Company's
     achievement of the relevant financial goals, subject to any deferral
     election made by Executive under the terms of the Company's deferred
     compensation plan for U.S. executives.

     (c) Initial Bonuses. Executive shall receive a bonus of $200,000.00 within
     ten business (10) days of the Commencement Date, grossed up for tax
     purposes. Such bonus shall cover any and all relocation expenses, temporary
     living, and other related costs, except that Executive may receive
     reimbursement for temporary living expenses actually incurred not to exceed
     $3,000 per month for the first 3 months of employment. If Executive
     voluntarily resigns, or is terminated for cause, as defined herein,
     Executive shall reimburse Company an amount equal to the pro rata portion
     of the Bonus actually paid hereunder (using a two year period from the date
     of payment). (e.g. If Executive resigns 12 months from the date of
     execution of this Agreement, Executive shall pay Company 50% of bonuses
     received under this Section). The pro rata reimbursement hereunder shall be
     calculated using the date of payment of such bonuses as the commencement of
     the pro rata period.

6. ADDITIONAL COMPENSATION AND BENEFITS. During the Term, the Company shall pay
to or provide Executive with the following additional compensation and benefits:

     (a) Stock Options.

          (i) Executive shall be eligible to participate in the Company's stock
          option plans available to the Company's employees in accordance with
          the terms and conditions of such plans.

                                       2



          (ii) Executive shall receive from the Company a registered stock
          option grant as soon as practicable in the Company's next "open
          period" in the amount of 400,000 American Depository Shares ("ADSs")
          representing ordinary shares of Danka Business Systems PLC. Vesting of
          such options will be in accordance with the Company Stock Option Plan
          (1/3 per year for 3 years). The Company shall file a registration
          statement on Form S-8 with the Securities Exchange Commission such
          that all of the ADSs subject to the option grant shall be registered
          shares upon the exercise of the option.

          (iii) If Executive seeks to acquire by exercise of any stock option
          all or part of the shares that have become exercisable and the Company
          declines to allow him to acquire such shares, whether because the
          Company has not obtained shareholder approval for the option or
          otherwise, the Company shall pay Executive, within ten (10) days after
          his attempt to acquire such shares, (1) an amount equal to the
          difference between the number of shares Executive sought to acquire
          multiplied by the closing price for a share of the Company's common
          stock as of the date Executive sought to acquire such shares, on the
          one hand, and the option exercise price per share multiplied by the
          number of shares Executive sought to acquire, on the other hand, and
          (2) an additional payment sufficient to pay any federal, state, and
          local income tax and social security, or other employment tax on the
          amount paid under Section 6(a)(iii)(1), as well as any additional
          federal, state and local income tax and social security or other
          employment tax on any such gross-up payment, determined by using the
          top marginal rates of federal, state, and local income taxes and
          social security, or other employment taxes applicable to the
          Executive's taxable income in effect during the year of payment.

     (b) Executive Deferred Compensation Plan. Executive shall be eligible to
     participate in the Company's Executive deferred compensation plan in
     accordance with its terms and conditions.

     (c) Insurance. The Company shall provide Executive and his dependents with
     reasonable and adequate health, dental, short term disability, long term
     disability, and life insurance. Such insurance coverage shall be no less
     favorable than that from time to time made available to other senior
     executives of the Company located in the United States.

     (d) 401K Plan. Executive shall be entitled to participate in the Company's
     401K plan in accordance with its terms and conditions.

     (e) Vacation. Executive shall be entitled to at least four (4) weeks of
     paid vacation during each year during the Term, prorated for partial years.
     Such vacation shall be subject to the Company's policies and procedures for
     senior executives.

                                       3



     (f) Business Expenses. The Company shall promptly reimburse Executive for
     all reasonable, ordinary and necessary expenses he incurs in connection
     with his employment by the Company (including, but not limited to,
     automobile and other business travel, and customer entertainment expenses)
     on the same basis as other senior executives of the Company.

     (g) Indemnification. The Company will, to the fullest extent permitted by
     law, indemnify and hold Executive harmless from any and all liability
     (including, without limitation, judgments, fines, settlement payments,
     expenses, costs, and attorneys' fees) arising from his service as an
     employee, officer, or director of the Company. To the fullest extent
     permitted by law, if there is a potential or actual conflict of interest
     between the Company and Executive, the Company will advance legal fees and
     expenses to Executive for counsel selected by Executive in connection with
     any litigation, investigation, action, suit, or other proceeding related to
     Executive's employment with the Company or his performing services for the
     Company, whether as a director, officer, or employee of the Company. During
     the Term, the Company shall maintain adequate and reasonable Directors and
     Officers liability insurance naming Executive as an insured.

     (h) Other Employee Benefits. Executive shall also be entitled to any other
     fringe benefits, bonuses, and similar programs, including regular holidays,
     and shall be eligible to participate in all plans or arrangements
     maintained by the Company for the benefit of its employees, officers, or
     directors, including without limitation all compensation, welfare, bonus,
     incentive, retirement, thrift, pension, profit sharing, deferred
     compensation, employee loan, and insurance plans or arrangements. Executive
     shall at all times receive benefits no less favorable than those received
     by other senior executives.

7. TERMINATION BY THE COMPANY OR BY EXECUTIVE. This Employment Agreement may be
terminated as follows:

     (a) By the Company.

          (i) For Cause. The Company may terminate this Employment Agreement and
          Executive's employment with the Company at any time for Cause (as
          defined in Section 9) ("Cause Termination"); provided, however, that
          the Company shall give Executive written notice of Cause Termination
          specifying the reason for the termination, and Executive shall have
          the opportunity to address the Board before he is terminated for
          Cause.

          (ii) By Company Notice. The Company may terminate this Employment
          Agreement and Executive's employment with the Company upon sixty (60)
          days written notice for any reason not included in the definition of
          Cause ("Company Notice Termination").

                                       4



     (b) Death or Disability. This Employment Agreement and Executive's
     employment with the Company will terminate immediately upon Executive's
     death or Disability (as defined in Section 9) ("Death or Disability
     Termination"). If either party terminates Executive's employment due to
     Disability, the terminating party shall give the other party written notice
     to that effect.

     (c) By Executive.

          (i) For Good Reason. Executive may terminate this Employment Agreement
          and Executive's employment by the Company at any time for Good Reason
          (as defined in Section 9) ("Good Reason Termination"). In the event
          the Company disputes Executive's Good Reason Termination, the Company
          shall notify Executive in writing of such dispute within ten (10) days
          of receiving notice of such termination for Good Reason. If the
          Company does not so notify Executive within the ten (10) day period,
          the Company shall be deemed to have accepted Executive's determination
          of Good Reason.

          (ii) By Executive Notice. Executive may terminate this Employment
          Agreement and Executive's employment with the Company for any reason
          not included in the definition of Good Reason by giving the Company
          sixty (60) days written notice of such termination ("Executive Notice
          Termination").

8. PAYMENTS UPON TERMINATION.

     (a) Company Notice Termination and Good Reason Termination. If the Company
     terminates Executive's employment for any reason other than for Cause (as
     defined in Section 9) or if Executive terminates his employment for Good
     Reason (as defined in Section 9), the Company shall pay to Executive
     (subject to Executive's execution of a reasonable, mutually agreeable
     Separation Agreement and Release of Claims and withholding of applicable
     taxes) a severance of two (2) times Executive's then current base salary
     plus, if such termination is within 12 months of the Commencement Date, two
     (2) times Executive's Target Bonus. If such termination occurs after 12
     months of employment, Executive shall be paid, in addition to the above
     base salary severance, two (2) times the actual target bonus earned over
     twelve (12) months immediately preceding such termination. Such severance
     shall be paid in equal installments over twenty-four (24) months on the
     Company's standard bi-weekly Company payroll dates, beginning one (1) month
     following the date of termination. The Company shall continue to provide
     Executive and his family, for a period of twenty-four (24) months after the
     date of termination, with the same insurance benefits coverage being
     provided to Executive under Section 6(c) on the date the notice of
     termination is given. Executive shall also be entitled to a pro-rata
     portion of the performance bonus under Section 5(b) to which he would have
     been entitled in the year of termination if his employment had not
     terminated.

                                       5



     Executive shall also be entitled to any of his Annual Base Salary accrued
     through the date of termination, payments for any accrued but unused
     vacation for the year of termination any bonuses earned but not previously
     paid with respect to the accounting period of the Company most recently
     ended, and any vested benefits payable to Executive under the terms of any
     deferred compensation plan, 401K plan, stock option plan, or other benefit
     plans maintained by the Company in which Executive participated.
     Additionally, notwithstanding the terms of the Company's stock option
     plan(s), all stock options received by Executive shall become fully vested
     and immediately exercisable upon a Company Notice Termination or Good
     Reason Termination. Such stock options shall remain exercisable for a
     period of twenty-four (24) months. All of Executive's other unvested
     benefits, including, without limitation, any Company 401K contributions or
     profit sharing contributions, shall immediately vest upon a Company Notice
     Termination or Good Reason Termination.

     (b) Cause Termination and Executive Notice Termination. If Executive's
     employment is terminated by the Company for Cause (as defined in Section 9)
     or if Executive terminates his employment for any reason other than Good
     Reason (as defined in Section 9), Executive shall be entitled to receive
     any of his Annual Base Salary accrued through the date of termination, any
     accrued but unpaid vacation pay for the year of termination, any bonuses
     earned but not previously paid with respect to the accounting period of the
     Company most recently ended, and any vested benefits payable to Executive
     under the terms of any deferred compensation plan, 401K plan, stock option
     plan, or other plans maintained by the Company in which Executive
     participates. Notwithstanding the terms of the Company's stock option
     plan(s), Executive shall not forfeit any vested options upon a Cause
     Termination or Executive Notice Termination, and all such vested options
     shall remain exercisable for a period of at least twenty-four (24) months

     (c) Death or Disability Termination. If Executive's employment is
     terminated due to his death or Disability (as defined in Section 9), the
     Company will also continue to pay Executive (or his estate), as severance,
     the Annual Base Salary through the end of the month of termination.
     Executive (or his estate) shall also be entitled to receive any of his
     Annual Base Salary accrued through the date of termination, any accrued but
     unpaid vacation pay for the year of termination, any bonuses earned but not
     previously paid with respect to the accounting period of the Company most
     recently ended, and any vested benefits payable to Executive under the
     terms of any deferred compensation plan, 401K plan, stock option plan, or
     other plans maintained by the Company in which Executive participates. The
     Company shall continue to provide Executive (if Disabled) and his family,
     for a period of twenty-four (24) months after the date of termination, with
     the same insurance benefits required by Section 6(c) on the date Death or
     Disability Termination occurs. Additionally, notwithstanding the terms of
     the Company's stock option plans, all stock options received by Executive
     shall become fully vested and

                                       6



     immediately exercisable upon a Death or Disability Termination. Such stock
     options shall remain exercisable for a period of not less than twenty-four
     (24) months. All of Executive's other unvested benefits, including, without
     limitation, any Company 401K contributions or profit sharing contributions,
     shall immediately vest upon a Death or Disability Termination.

9. DEFINITIONS. In addition to the words and terms elsewhere defined in this
Employment Agreement, certain capitalized words and terms used in this
Employment Agreement shall have the meanings given to them by the definitions
and descriptions in this Section 9 unless the context or use indicates another
or different meaning or intent, and such definition shall be equally applicable
to both the singular and plural forms of any of the capitalized words and terms
herein defined. The following words and terms are defined terms under this
Employment Agreement:

     (a) Cause. For purposes of this Employment Agreement, the term "Cause"
     shall mean and be limited to:

          (i) Executive was convicted of a felony or entered a guilty or nolo
          contendere plea to such a crime;

          (ii) Executive was convicted of any lesser crime committed in
          connection with the performance of his duties hereunder involving
          dishonesty, fraud or moral turpitude; or

          (iii) Executive's persistent and willful misconduct or gross
          negligence in, performing his material duties in accordance with
          Section 2 herein (other than any such failure resulting from
          Executive's Disability, as defined herein) which gross negligence or
          willful misconduct has a material adverse effect on the Company. For
          purposes of this Agreement, an act or failure to act on Executive's
          part shall be considered "willful" if it was done or omitted to be
          done by Executive not in good faith, and shall not include any act or
          failure to act resulting from any incapacity of Executive.

     (b) Disability. For purposes of this Employment Agreement, the term
     "Disability" shall mean the inability of Executive to perform Executive's
     essential duties and responsibilities (even with reasonable accommodation)
     under this Employment Agreement for a period of one hundred and eighty
     (180) consecutive days during any twelve (12) month period by reason of
     Executive's mental or physical disability. Both the Company and Executive
     may appoint a qualified physician to determine whether Executive is
     Disabled. If those physicians cannot agree, the physicians shall mutually
     appoint a third qualified physician, whose determination of whether
     Executive has a Disability shall be final.

                                       7



     (c) Good Reason. For purposes of this Employment Agreement, the term "Good
     Reason" shall mean:

          (i) the Company materially breaches a term of this Employment
          Agreement (including, without limitation, the failure of the Company
          to pay or provide Executive any of the compensation or benefits to
          which he is entitled under this Employment Agreement), which breach
          was not corrected by the Company within thirty (30) days after
          receiving written notice of such breach from Executive;

          (ii) the relocation of Executive's principal office, without
          Executive's prior written consent, more than forty (40) miles away
          from the Company's current headquarters in St. Petersburg, Florida.;

          (iii) the Company's reduction of Executive's compensation and/or
          benefits hereunder without Executive's prior written consent;

          (iv) any removal of Executive from, or the failure to appoint, elect,
          reappoint, or reelect Executive to, the positions of President
          International Group, or a position of comparable responsibility and
          scope, or any material change in Executive's status, title,
          authorities or responsibilities (including reporting responsibilities)
          which represents a demotion from Executive's status, title, position
          or responsibilities (including reporting responsibilities).

          (v) the failure of the H.R. Committee to set reasonably attainable
          budgeted target levels and objectives in the Performance Bonus Plan.

          (vi) any removal of Executive from the reporting relationship to the
          current Chief Executive Officer (unless due to Executive's appointment
          as Chief Executive Officer) as defined in Section 2 hereof; however,
          in the event Executive terminates employment for Good Reason as
          defined in this subsection 9 (c)(vi), Executive shall, if within 30
          days and upon 90 days written notice, receive as full compensation
          (and in lieu of any severance payments provided in Section 8(a)
          hereof) therefor:

               .    a release of any pro rata reimbursement liability under
                    Section 5 (c ) of this Agreement, and
               .    the full vesting of any stock options awarded to the date of
                    termination, which options shall remain exercisable for a
                    period of 24 months following the termination date.
               .    Twenty-four (24) months of insurance benefits coverage as
                    provided in Section 6(c).

                                       8



     (d) Restricted Area. For purposes of this Employment Agreement, the term
     "Restricted Area" shall mean the entire world.

10.  NON-COMPETITION AND CONFIDENTIALITY.

     (a) Non-Competition. During the Term and for a period of twenty-four (24)
     months following the termination of Executive's employment hereunder for
     Good Cause or without Good Reason, Executive shall not, in the Restricted
     Area, directly or indirectly, enter the employ of, or render any services
     to, any person, firm or corporation engaged in any business competitive
     with the businesses engaged in by the Company, any constituent partners of
     the Company or any of their respective parents, subsidiaries or affiliates;
     further, Executive shall not engage in such business, directly or
     indirectly, as an individual, partner, shareholder, director, officer,
     principal, agent, employee, trustee, consultant, or any other relationship
     or capacity; provided, however, that nothing contained in this Section 10
     shall be deemed to prohibit Executive from acquiring, solely as an
     investment, a less than five percent (5%) interest in the equity of any
     publicly traded corporation or limited partnership. This provision shall
     specifically include but not be limited to Xerox, Ikon, Hewlett-Packard,
     Lexmark, Imagistics and Global Imaging Services. Executive may request
     Company's consent to work for a non-competing division of any other
     Company, which consent shall not be unreasonably withheld.

     (b) Non-Solicitation of Employees. During the Term and for a period of
     twenty-four (24) months following the termination of Executive's employment
     hereunder for Good Cause or without Good Reason, Executive, except within
     the course of the performance of his duties hereunder, shall not solicit
     for employment any current employee of the Company, any constituent
     partner of the Company, or any of their respective parents, subsidiaries,
     or affiliates, if Executive has had material business contact with such
     individual during the Term.

     (c) Confidentiality. Executive shall not, at any time hereafter, disclose
     to any person, firm or corporation or otherwise use any confidential
     information regarding the customers, suppliers, market arrangements, or
     methods of operations of the Company, any constituent partner of the
     Company or any of their respective parents, subsidiaries, or affiliates or
     any other information of the Company, any constituent partner of the
     Company or any of their respective parents, subsidiaries or affiliates,
     except to the extent necessary to conduct the business of the Company, or
     to comply with law or the valid order of a governmental agency or court of
     competent jurisdiction. Without limiting the generality of the foregoing,
     the Parties acknowledge and agree that all information not otherwise
     generally known to the public relating to each of (i) this Agreement, or
     (ii) the Company, any constituent partner of the Company or any of their
     respective parents, subsidiaries, or affiliates, is confidential and
     proprietary and is not to be disclosed, to any persons or entities or
     otherwise used, except to the extent necessary to conduct the business of
     the Company, or to comply with law or the valid order of a governmental
     agency or court of competent jurisdiction.

                                       9



     (d) Rights to Innovations. Any invention, improvement, design, development
     or discovery conceived, developed, invented or made by Executive, alone or
     with others, during his employment hereunder and applicable to the business
     of the Company, its parents, subsidiaries or affiliates shall become the
     sole and exclusive property of the Company. Executive shall (i) disclose
     the same completely and promptly to the Company, (ii) execute all documents
     requested by the Company in order to vest in the Company the entire right,
     title and interest, in and to the same, (iii) execute all documents
     required by the Company for the filing, and prosecuting of such
     applications for patents, copyrights and/or trademarks, which the Company,
     in its sole discretion, may desire to prosecute, and (iv) provide to the
     Company, at the Company's expense, all assistance it may reasonably require
     including, without limitation, the giving of testimony in any suit, action
     or proceeding, in order to obtain, maintain and protect the Company's
     rights therein and thereto.

     (e) Injunctive Relief. Any breach or threatened breach by Executive of any
     provision of this Section 10 shall cause the Company irreparable harm which
     cannot be remedied solely by damages. In the event of a breach or
     threatened breach by Executive of any of the provisions of this Section 10,
     the Company shall be entitled to injunctive relief restraining Executive.
     Nothing herein shall be construed as prohibiting the Company from pursuing
     any other remedies available at law or in equity in the event of such
     breach or threatened breach, including the recovery of damages.

11. SUCCESSORS. This Employment Agreement shall be binding on the Company and
any successor to its business or to a majority of its business assets and the
Company shall require any successor in interest (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to expressly assume and agree to
perform this Employment Agreement; provided, however, that no such assumption
shall relieve the Company of its obligations hereunder.

12. BINDING EFFECT. This Employment Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

13. MODIFICATION AND WAIVER. No provision of this Employment Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in a writing that specifies the specific provision affected, which
writing shall be signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Employment Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

14. AMENDMENTS. No amendments or variations of the terms and conditions of this
Employment Agreement shall be valid unless the same is in a writing that
specifies the term or

                                       10



condition affected, which writing is signed by Executive and such officer of the
Company as may be specifically designated by the Board.

15. SEVERABILITY. The invalidity or unenforceability of any provision of this
Employment Agreement, whether in whole or in part, shall not in any way affect
the validity and/or enforceability of any other provision herein contained. Any
invalid or unenforceable provision shall be deemed severable to the extent of
any such invalidity or unenforceability.

16. ENTIRE AGREEMENT. This Employment Agreement sets forth the entire agreement
and understanding of the Company and Executive in respect of the terms and
conditions of Executive's employment after the Commencement Date, and supersedes
all prior employment agreements, covenants or representations or warranties,
whether oral or written, made by the parties. or any representative of the
Company, with respect to such terms and conditions of employment; provided,
however, that this Employment Agreement does not supersede or affect the Change
of Control Agreement between Executive and the Company.

17. NOTICES. All notices, communications and deliveries hereunder shall be made
in writing signed by or on behalf of the party making the same and shall be
delivered (a) personally; (b) by telecopy transmission with a copy sent by U.S.
mail, first class, postage prepaid; (c) by registered or certified mail (return
receipt requested); or (d) by any national overnight courier service (with
postage and other fees prepaid). All such notices, communications, and delivers
shall be addressed as follows:

                                   If to the Company:

                                   Danka Office Imaging Company
                                   11201 Danka Circle North
                                   St. Petersburg, Florida 33716
                                   Attn: General Counsel
                                   Telephone No.: (727) 579-2801
                                   Telecopy No.:  (727) 579-2880

                                   and:

                                   Danka Business Systems PLC
                                   Masters House
                                   107 Hammersmith Road
                                   London, England w14 OQH
                                   Attn: Secretary

                                       11



                                   If to the Executive:

                                   Michael D. Popielec
                                   6585 Nicholas Boulevard, #1104
                                   Naples, Florida 34108
                                   Telephone No.: (239) 596-4176
                                   Telecopy No:   (239) 596-4205

                                   with a copy to:

                                   Paul M. Ritter
                                   Kronish Lieb Weiner & Hellman LLP
                                   1114 Avenue of the Americas
                                   New York, N.Y. 10036
                                   Telephone - (212) 479-6198
                                   Facsimile - (212) 479-6275

or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing. Any such notice,
communication or delivery shall be deemed given or made (a) on the date of
delivery if delivered in person (by courier service or otherwise), (b) upon
transmission by facsimile if receipt is confirmed by telephone, provided
transmission is made during regular business hours, or if not, the next business
day, or (c) on the fifth (5th) business day after it is mailed by registered or
certified mail.

18. GOVERNING LAW. This Employment Agreement shall be construed and enforced
pursuant to the laws of the State of Florida.

19. ARBITRATION. Any controversy or claim arising out of or relating to this
Employment Agreement or the breach thereof, other than a claim for injunctive
relief, shall be settled by arbitration in accordance with the Employment
Arbitration Rules of the American Arbitration Association (the "Rules") in
effect at the time demand for arbitration is made by any party. This arbitration
shall be conducted before three (3) arbitrators. One arbitrator shall be named
by the Company, a second shall be named by Executive, and the third arbitrator
shall be named by the two arbitrators so chosen. In the event that the third
arbitrator is not agreed upon, he or she shall be named by the American
Arbitration Association. The arbitration shall occur in St. Petersburg, Florida
or such other location as may be mutually agreed to by the Company and
Executive. The award made by all or a majority of the panel of arbitrators shall
be final and binding, and judgment may be entered in any court of law having
competent jurisdiction. The award is subject to confirmation, modification,
correction, or vacation only as explicitly provided in Title 9 of the United
States Code, as amended.

                                       12



20. NO MITIGATION OR OFFSET. Executive shall not be required to mitigate the
amount of any severance or termination payment provided for in this Employment
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Employment Agreement be reduced by any
compensation or income Executive may receive from any source. In addition, no
payments to Executive under this Employment Agreement may be subject to any
offset or setoff due to any claim the Company, or its parents, affiliates, or
subsidiaries, may have against Executive.

21. ATTORNEYS' FEES. The Company will promptly reimburse Executive for all
reasonable attorneys' fees (for counsel selected by Executive) and expenses
arising out of the negotiation of this Employment Agreement, as well as any
dispute under or in connection with this Employment Agreement (whether
litigation or arbitration) to the extent Executive is the prevailing party.
Executive shall in no way be responsible or liable for the Company's attorneys'
fees and expenses in any dispute arising under or in connection with this
Employment Agreement, and no award or order relating to this Employment
Agreement shall award the Company its attorneys' fees.

22. SOURCE OF PAYMENTS. All salary, bonus, severance, and all other payments to
Executive under this Employment Agreement shall be paid to Executive by the
Company through its U.S. payroll system and shall be made in cash in U.S.
dollars. If the Company should fail to make any such payment to Executive when
due, Danka Office Imaging, Danka Holding, and Danka Business Systems shall be
jointly and severally liable to Executive for such payments.

23. REPRESENTATION. The Company represents and warrants that it is fully
authorized and empowered to enter into this Employment Agreement and that the
performance of its obligations under this Employment Agreement will not violate
any agreement between it and any other person, firm, or organization.

24. COUNTERPARTS. This Employment Agreement may be executed in more than one (1)
counterpart and each counterpart shall be considered an original.

     IN WITNESS WHEREOF, this Employment Agreement has been duly executed by the
Company and Executive as of the date first above written.

                          SIGNATURES ON FOLLOWING PAGE

                                       13



                                                DANKA BUSINESS SYSTEMS PLC


                                                By: /s/ Illegible
                                                    ----------------------------
                                                Name: Illegible
                                                Title: CEO


                                                DANKA HOLDING COMPANY


                                                By: /s/ Illegible
                                                    ----------------------------
                                                Name: Illegible
                                                Title: CEO


                                                DANKA OFFICE IMAGING COMPANY


                                                By: /s/ Illegible
                                                    ----------------------------
                                                Name: Illegible
                                                Title: CEO


                                                EXECUTIVE


                                                /s/ Michael D. Popielec
                                                --------------------------------
                                                Michael D. Popielec

                                       14

EX-10.43

                                                                   Exhibit 10.43

                              EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT, dated as of August 15, 2000, between Danka Office
Imaging Company (the "Company"), and Keith J. Nelsen ("Executive").

                                   WITNESSETH:

     WHEREAS, the Company wishes to provide for the employment of Executive as
Senior Vice President, General Counsel of the Company on the terms and
conditions herein set forth; and

     WHEREAS, Executive wishes to serve in such capacity on the terms and
conditions herein set forth.

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:

1.   Employment, Powers, Duties and Acceptance.

     1.1 The Company hereby employs Executive, for the Term (as hereinafter
     defined), to render services to the Company as Senior Vice President,
     General Counsel, reporting to the Chief Executive Officer of the Company.

     1.2 Executive shall be a full-time employee of the Company, and subject to
     customary paid holidays and vacations (not less than three (3) weeks per
     year), Executive agrees to devote his full working time to the business of
     the Company.

2.   Term of Employment. The term of Executive's employment under this Agreement
     (the "Term") shall commence on the date hereof and shall end, unless such
     employment is sooner terminated as provided herein, one (1) year from the
     date of execution of this Agreement (the "Termination Date").
     Notwithstanding the foregoing, this Agreement shall automatically renew for
     additional one-year periods unless earlier terminated as provided herein,
     in which case the Termination Date shall be extended for such additional
     one year period.

3.   Compensation.

     3.1 During the Term, the Company shall pay Executive, as compensation for
     services to be rendered pursuant to this Agreement, a per annum salary,
     payable in accordance with the Company's standard payroll practices, at the
     rate established from time to time not to be less than Executive's salary
     at the time of execution of this Agreement (the "Base Compensation").
     Executive shall be eligible for annual increases in accordance with Company
     policies, and shall be eligible to receive annual stock option grants as
     are equitable and consistent with Executive's position and performance.

     3.2 Executive shall have a target bonus of fifty (50%) of his Base
     Compensation based upon achievement of established Company revenues and
     EBITDA objectives, or as otherwise developed by the Human Resources
     Committee of the Board of Directors of Danka Business

                                       1



     Systems, PLC. Said bonus shall be payable as soon as practicable following
     the end of Company's fiscal year.

4.   Termination. This Agreement may be terminated prior to the Termination Date
     in accordance with the following:

     4.1 If Executive shall die during the Term, this Agreement shall terminate,
     except that Executive's legal representatives or designated beneficiaries
     shall be entitled to receive the compensation provided for herein to the
     last day of the Term.

     4.2 The Company shall have the right (without any liability to Executive
     hereunder other than the payment of sum due through the date of
     termination) to terminate the employment of Executive, to relieve Executive
     of any and all functions as Senior Vice President, General Counsel of the
     Company, and to terminate his right to the compensation provided for herein
     for cause. As used in this Section 4.2, the term "for cause" shall mean and
     be limited to the following events:

          4.2.1 Executive's material breach of any term or condition of this
          Agreement, unless Executive cures such breach within ten days after
          the Company gives Executive notice of the breach; or

          4.2.2 Executive's conviction of any crime that (i) constitutes a
          felony in the jurisdiction involved or (ii) involves loss or damage to
          or destruction of property of the Company or (iii) results in the
          incarceration of Executive following his conviction for such crime.

     4.3 The Company shall have the right to terminate the employment of
     Executive, to relieve Executive of any or all functions as Senior Vice
     President, General Counsel and to terminate his right to Base Compensation
     at any time prior to the Termination Date upon notice to Executive. If the
     Company shall terminate the employment of Executive for any reason not
     specified in Section 4.1 or 4.2 hereof, the Company shall pay Executive an
     amount equal to the sum of (1) one and one-half times (i.e. 18 months)
     Executive's then existing base salary, and (2) one and one-half times the
     annual target bonus which would be payable in the fiscal year of Notice of
     Termination as if the Company's financial performance targets were deemed
     to be satisfied at the budgeted levels. Executive may elect the above
     payments to be made in one lump sum payable within ten (10) days of
     Executive's last day of employment with Company.

     Executive agrees that in order to receive liquidated damages described
     herein, Executive at the time of termination, agrees to execute the General
     Release and Waiver in a form similar to Exhibit A It shall be deemed a
     termination under this Section 4.3 if at any time (1) there is any change
     in Executive's status, title, authorities, or responsibilities which can
     reasonably be construed to be a demotion from the status, title,
     authorities and responsibilities of the Senior Vice President, General
     Counsel of a United Kingdom/United States publicly traded company; (2) the
     relocation or reassignment of Executive to a location more than thirty (30)
     miles from St. Petersburg, Florida; (3) a breach by Company of the
     Compensation provisions of Section 3 herein.

                                       2



5.   Notices. All notices, requests, consents and other communications, required
     or permitted to be given hereunder, shall be in writing and shall be deemed
     to have been duly given if delivered personally or sent by prepaid
     telegram, or mailed first-class, postage prepaid, by registered or
     certified mail (notices sent by telegram or mailed shall be deemed to have
     been given on the date sent), as follows (or to such other address as
     either party shall designate by notice in writing to the other in
     accordance herewith):

     5.1  If to the Company:

          Danka Office Imaging Company
          11201 Danka Circle North
          St. Petersburg, Florida 33716

          Attention: Chief Executive

     5.2  If to Executive:

          Keith J. Nelsen
          2603 Sanders Drive
          Tampa, Florida 33611

6.   General.

     6.1 The section headings contained herein are for reference purposes only
     and shall not in any way affect the meaning or interpretation of this
     Agreement.

     6.2 This Agreement sets forth the entire agreement and understanding of the
     parties relating to the subject matter hereof, and supercedes all prior
     agreements, arrangements and understandings written or oral, relating to
     the subject matter hereof with the exception of any Change of Control
     Agreement executed between the parties which shall remain in full force and
     effect. No representation, promise or inducement has been made by either
     party that is not embodied in this Agreement, and neither party shall be
     bound by or liable for any alleged representation, promise or inducement
     not so set forth.

     6.3 This Agreement, and Executive's rights and obligations hereunder, may
     not be assigned or otherwise transferred by Executive. The Company may
     assign its rights hereunder to any parent, subsidiary, or affiliate and in
     connection with any sale, transfer or other disposition of all or
     substantially all of its businesses or assets. Upon such assignment, the
     assignee thereunder shall be required to assume the obligations of
     Executive hereunder and, upon such assumption, the Company shall be
     relieved of its obligations hereunder.

     6.4 This Agreement shall be governed by, and construed in accordance with,
     the laws of the State of Florida applicable to agreements entered into and
     wholly performed therein.

     6.5 Any controversy or claim arising out of or relating to this Employment
     Agreement, other than a claim for injunctive relief, shall be settled by
     arbitration in accordance with the

                                       3



     Commercial Arbitration Rules of the American Arbitration Association (the
     "Rules") in effect at the time demand for arbitration is made by any party.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                              DANKA OFFICE IMAGING COMPANY


                                              By: /s/ Illegible
                                                  ------------------------------
                                                  Title: Chief Executive Officer


                                              Executive


                                              By: /s/ Illegible
                                                  ------------------------------


Witness:


/s/ Illegible
- ------------------------------

                                       4



                                                                       EXHIBIT A

                               RELEASE OF CLAIMS

DEFINITIONS: I,                            , ("Employee"), intend all words used
                ---------------------------
in this Release to have their plain meaning in ordinary English. Technical legal
words are not needed to describe what I mean. Specific terms I use in this
Release have the following meanings:

     A.   I, Me, and My include both me and anyone who has or obtains any legal
          rights or claims through me.

     B.   Employer, as used herein, shall at all times mean Danka or any parent
          company, affiliated companies or entities and includes Employer's
          employees, officers, directors, successors and assigns, its attorneys,
          consultants and agents, whether in their individual or official
          capacities.

     C.   My Claims means all of the rights I have to any relief of any kind
          from Employer, whether or not I now know about those rights, arising
          out of or in any way related to my employment with Employer, and my
          termination of employment, or any employee benefit plan, including,
          but not limited to, common law, or equitable claims, claims for
          violation or breach of any employment agreement or understanding;
          fraud or misrepresentation; and any statutory claims including alleged
          violations of the Florida Human Rights Act, the Federal Age
          Discrimination in Employment Act, the Americans with Disabilities Act,
          or any other federal, state, or local civil rights laws or ordinances;
          defamation; intentional or negligent infliction of emotional distress;
          breach of the covenant of good faith and fair dealing; promissory
          estoppel; negligence; wrongful termination of employment, or any other
          claims.

Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from the Employer as consideration for my release of claims.
I agree to give up all My Claims against Employer as defined above. I will not
bring any lawsuits, file any charges, complaints, or notices, or make any other
demands against the Employer or any of its employees or agents based on any
alleged claims. The money I am receiving is a full and fair payment for the
release of all My Claims.

                                       5



Additional Agreements and Understandings. Even though Employer is paying me to
release My Claims, the employer expressly denies that it is responsible or
legally obligated for My Claims or that it has engaged in any wrongdoing.

     I understand that I may have twenty-one (21) calendar days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. I further understand that Employer
recommends that I consult with an attorney before executing this Release. I
agree that if I sign this Release before the end of the twenty-one (21) day
period, it is because I have decided that I have already had sufficient time to
decide whether to sign the Release.

     I understand that I may rescind (that is, cancel) this Release within seven
(7) calendar days of signing it to reinstate federal civil rights claims and
within fifteen (15) calendar days of signing it to reinstate claims under the
Florida Human Rights Act. To be effective, my rescission must be in writing and
delivered to the Employer,                         , Danka,  11201 Danka Circle
                           -----------------------
North, St. Petersburg, Florida, 33716, either by hand or by mail within the
required period. If sent by mail, the rescission must be:

     1.   Postmarked within the relevant period;

     2.   Properly addressed to                        ; and
                               -----------------------

     3.   Sent by certified mail, return receipt requested.

     I have read this Release carefully and understand all its terms. I have had
the opportunity to review this Release with my own attorney. In agreeing to sign
this Release, I have not relied on any statements or explanations made by
Employer or its agents.

     I understand and agree that this Release and the Separation Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.


Dated:                                   Signed:
      ---------------------------------          -------------------------------


Witnesses:

                                       6

EX-10.44

                                                                   Exhibit 10.44

- --------------------------------------------------------------------------------

               Change of Control Agreement for Keith J. Nelsen

- --------------------------------------------------------------------------------



                           DANKA BUSINESS SYSTEMS PLC

- --------------------------------------------------------------------------------

                 Change of Control Agreement for Keith J. Nelsen

- --------------------------------------------------------------------------------

                                                                            Page
                                                                            ----

1.   Definitions .............................................................1

2.   Term of Agreement .......................................................4

3.   Reimbursement of Business Expenses ......................................4

4.   Entitlement to Severance Benefit ........................................4

5.   Confidentiality and Related Covenants ...................................8

6.   Amendment or Termination ................................................9

7.   Resolution of Disputes ..................................................9

8.   Miscellaneous Provisions ...............................................10



                           CHANGE OF CONTROL AGREEMENT

          AGREEMENT, made and entered into as of the 14th day of November, 2001
by and among Danka Business Systems PLC ("Danka Business Systems"), Danka Office
Imaging Company ("Danka") (Danka Business Systems and Danka sometimes referred
to herein together with their respective successors and assigns as the
"Company") and Keith J. Nelsen, an individual (the "Executive").

                              W I T N E S S E T H:

          WHEREAS, Executive is an employee of the Company serving in an
executive capacity;

          WHEREAS, the Board of Directors of each corporation included in the
Company (the "Board") believes it is necessary and desirable that the Company be
able to rely upon Executive to continue serving in his or her position in the
event of a pending or actual Change of Control (as defined) of the Company;

          NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is mutually acknowledged, the Company and Executive
(individually a "Party" and together the "Parties") agree as follows:

     1.   Definitions.

          (a) "Base Salary" shall mean Executive's annual base salary in effect
at the time of the Change of Control or at the time of termination of
employment, whichever is greater.

          (b) "Cause" shall mean and be limited to:

               (i)  Executive's commission of any crime that (i) constitutes a
                    felony in the jurisdiction involved or (ii) involves loss or
                    damage to or destruction of property of the Company or (iii)
                    results in the incarceration of Executive following his
                    conviction for such crime; or

               (ii) Executive's willful and material violation of any lawful
                    directions of the Company's Chief Executive or Board after
                    the Company has provided written notice to Executive and
                    said violation continues after Executive shall have
                    reasonable opportunity to cure said violation.

For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by Executive
not in good faith, and shall not include any act or failure to act resulting
from any incapacity of Executive.



          (c) A "Change of Control" shall be deemed to have occurred when:


               (i)  securities of Danka Business Systems representing more than
                    30 percent of the combined voting power of the then
                    outstanding voting securities of Danka Business Systems are
                    acquired pursuant to a general offer for the issued share
                    capital of the Company which is an offer regulated under the
                    U.K. Take-Over Code or any other tender offer or an exchange
                    offer by any person or group of persons acting in concert
                    (within the meaning of Section 14(d) of the Securities
                    Exchange Act of 1934) other than the Company, a direct or
                    indirect subsidiary or parent of the Company, an employee
                    benefit plan or similar trust established by the Company;

               (ii) a merger or consolidation is consummated in which Danka
                    Business Systems is a constituent corporation and which
                    results in less than 50 percent of the outstanding voting
                    securities of the surviving or resulting entity being owned
                    by the then existing stockholders of Danka Business Systems;

               (iii) a sale is consummated by the Company of substantially all
                    of the Company's assets (or substantially all of the assets
                    of Danka) to a person or entity which is not a wholly-owned
                    subsidiary of Danka Business Systems or any of its
                    affiliates; or

               (iv) during any period of two consecutive years, individuals who,
                    at the beginning of such period, constituted the Board of
                    Directors of Danka Business Systems (the "Board") cease, for
                    any reason, to constitute at least a majority thereof,
                    unless the election or nomination for election for each new
                    director was approved by the vote of at least two-thirds of
                    the directors then still in office who were directors at the
                    beginning of such two-year period.

For purposes of this Agreement, no Change of Control shall be deemed to have
occurred with respect to Executive if the Change of Control results from actions
or events in which Executive is a participant in a capacity other than solely as
an officer, employee or director of the Company.

          (d) "Code" means the Internal Revenue Code of 1986, as amended.

          (e) "Disability" shall mean a physical or mental illness which, in the
judgment of the Company after consultation with the licensed physician attending
Executive, impairs Executive's ability to substantially perform his duties as an
employee and as a result of which Executive shall have been unable to perform
his duties for the Company on a full-time basis for a period of 180 consecutive
days.

          (f) "Effective Date" shall mean the date of this Agreement, as set
forth above.

                                      -2-



          (g) "Excise Taxes" shall have the meaning set forth in Section 4
below.

          (h) "Good Reason" shall mean the occurrence of one or more of the
following events without Executive's prior written consent (except as a result
of a prior termination):

               (i)  any material change in Executive's status, title,
                    authorities or responsibilities (including reporting
                    responsibilities) which represents a demotion from
                    Executive's status, title, position or responsibilities
                    (including reporting responsibilities) prior to the Change
                    of Control; the assignment to Executive of any duties or
                    work responsibilities which are materially inconsistent with
                    Executive's status, title, position or work responsibilities
                    prior to the Change of Control, or which are materially
                    inconsistent with the status, title, position or work
                    responsibilities of a similarly situated senior officer; or
                    any removal of Executive from, or failure to appoint, elect,
                    reappoint or reelect Executive to, any of such positions,
                    except in the event of Executive's death or Disability;

               (ii) any decrease in Executive's annual Base Salary or target
                    annual incentive award opportunity;

               (iii) the reassignment of Executive to a location more than
                    thirty (30) miles from Executive's then-current work
                    location;

               (iv) the failure by the Company to continue in effect any
                    incentive, bonus or other compensation plan in which
                    Executive participates, unless an equitable arrangement
                    (embodied in an ongoing substitute or alternative plan) has
                    been made with respect to the failure to continue such plan,
                    or the failure by the Company to continue Executive's
                    participation therein, or any action by the Company which
                    would directly or indirectly materially reduce his
                    participation therein or reward opportunities thereunder;
                    provided, however, that Executive continues to meet
                    substantially all eligibility requirements thereof;

               (v)  the failure by the Company to continue in effect any
                    employee benefit plan (including any medical,
                    hospitalization, life insurance, disability or other group
                    benefit plan in which Executive participates), or any
                    material fringe benefit or perquisite enjoyed by Executive
                    unless an equitable arrangement (embodied in an ongoing
                    substitute or alternative plan) has been made with respect
                    to the failure to continue such plan, or the failure by the
                    Company to continue Executive's participation therein, or
                    any action by the Company which would directly or indirectly
                    materially reduce Executive's participation therein or
                    reward opportunities thereunder, or the failure by the
                    Company to provide Executive with the benefits to which
                    Executive is entitled as an employee of the Company;
                    provided, however, that

                                      -3-



                    Executive continues to meet substantially all eligibility
                    requirements thereof,

               (vi) any purported termination of Executive's employment for
                    Cause which is not effected by the Company's delivering
                    written notice to Executive of the termination for Cause
                    which notice describes the specific acts or omissions
                    alleged to constitute Cause; or

               (vii) the failure of the Company to obtain a satisfactory
                    agreement from any successor or assignee of the Company to
                    fully assume and agree to perform this Agreement.

          (i) "Retirement" shall mean Executive's termination of employment with
the Company at or after attaining age 65.

          (j) "Severance Payments" shall have the meaning set forth in Section 4
below.

          (k) "Term" shall have the meaning set forth in Section 2 below.

     2.   Term of Agreement.

          The term of this Agreement shall commence on the Effective Date and,
subject to any amendment or termination of the Agreement by the Parties
permitted by Section 6 below, shall remain in effect until such time as
Executive's employment may be terminated in circumstances which do not entitle
the Executive to Severance Payments under this Agreement (the "Term"). If a
Change of Control shall have occurred during the Term, including during the
one-year notice period provided for in Section 6 following the delivery by the
Company of notice of its intent to terminate the Agreement, notwithstanding any
other provision of this Section 2, the Term shall not expire earlier than two
years after the effective date of such Change of Control.

     3.   Reimbursement of Business Expenses.

          Executive is authorized to incur reasonable expenses in carrying out
Executive's duties and responsibilities on the Company's behalf, and the Company
shall promptly reimburse Executive for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.

     4.   Entitlement to Severance Benefit.

          (a) Severance Benefit. In the event Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event Executive terminates his/her employment for Good
Reason, in either case within two years following a Change of Control, or in the
event that prior to the consummation of a pending Change of Control Executive's
employment is involuntarily terminated without Cause (other than due to death or
Disability) as a condition to the consummation of the proposed transaction,
whether at the request of the acquiring firm or otherwise, Executive shall be
entitled to receive:

                                      -4-



               (i)  Base Salary through the date of termination of Executive's
                    employment, which shall be paid in a cash lump sum not later
                    than 30 days following Executive's termination of
                    employment;

               (ii) an amount equal to two (2) full years of Executive's Base
                    Salary, at the rate in effect on the date of termination of
                    Executive's employment (or in the event a reduction in Base
                    Salary is a basis for a termination by Executive for Good
                    Reason, then the Base Salary in effect immediately prior to
                    such reduction), payable in a cash lump sum not later than
                    30 days following Executive's termination of employment;

               (iii) a pro rata annual bonus for the fiscal year which includes
                    the date of termination, calculated by multiplying the
                    annual bonus Executive would have earned for the fiscal year
                    of termination, at a minimum, calculated as if the target
                    performance levels were satisfied for the fiscal year of
                    termination, or, if greater, any performance bonus Executive
                    is guaranteed to receive for the fiscal year under the terms
                    of his employment agreement, by a percentage equal to the
                    ratio of the number of days worked by Executive during the
                    fiscal year of the termination to the total number of work
                    days during such fiscal year, payable in a cash lump sum not
                    later than 30 days following Executive's termination of
                    employment;

               (iv) an amount equal to two times the annual bonus Executive
                    would have earned for the fiscal year of termination, at a
                    minimum, calculated as if the target performance levels were
                    satisfied for the fiscal year of termination, or, if
                    greater, any performance bonus Executive is guaranteed to
                    receive for the fiscal year under the terms of his
                    employment agreement, payable in a cash lump sum not later
                    than 15 days following Executive's termination of
                    employment;

               (v)  immediate vesting of all outstanding stock options and the
                    right to exercise such stock options at any time during an
                    extended exercise period of not less than 36 months
                    following Executive's termination of employment, or the
                    remainder of the exercise period, if less, in each case, to
                    the extent permitted by the terms of the Company's stock
                    option schemes;

               (vi) settlement of all deferred compensation arrangements in
                    accordance with any then applicable deferred compensation
                    plan or election form;

               (vii) continued medical, hospitalization, life and other
                    insurance benefits being provided to Executive and
                    Executive's family at the date of termination, for a period
                    of up to twelve (12) months after the date of termination;
                    provided that the Company shall have no obligation to
                    continue to provide Executive with these benefits for any
                    periods after the date Executive obtains comparable benefits
                    (with no significant

                                      -5-



                    pre-existing condition exclusions) as a result of
                    Executive's employment in a new position; and

               (viii) other or additional benefits then due or earned in
                    accordance with applicable plans and programs of the
                    Company.

          (b) Reduction in Compensation to Avoid Excise Tax. In the event
Executive would become entitled to any amounts payable in connection with a
Change of Control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance Payments"), if any of such Severance Payments would
otherwise be subject to the excise tax on excess golden parachute payments
imposed by Section 4999 of the Code (or any similar federal, state or local tax
that may hereafter be imposed) (the "Excise Tax"), as determined in accordance
with this Section 4(b), but prior to giving effect to any adjustment under this
Section 4(b), the following provisions shall apply:

               (i)  For purposes of determining whether any of the Severance
                    Payments would be subject to the Excise Tax and the amount
                    of such Excise Tax:

                    (A)  Severance Payments, including any payments or benefits
                         other than those under this Section 4(b) received or to
                         be received by Executive in connection with Executive's
                         termination of employment (whether pursuant to the
                         terms of this Agreement or any other plan, arrangement
                         or agreement with the Company, any person whose actions
                         result in a Change of Control or any person affiliated
                         with the Company or such person) (which, together with
                         the Severance Payments, constitute the "Total
                         Payments"), shall be treated as "parachute payments"
                         within the meaning of Section 280G(b)(2) of the Code,
                         and all "excess parachute payments" within the meaning
                         of Section 280G(b)(1) of the Code shall be treated as
                         subject to the Excise Tax, unless in the opinion of a
                         nationally-recognized public accounting firm mutually
                         acceptable to Executive and the Company such other
                         payments or benefits (in whole or in part) do not
                         constitute parachute payments, or such excess parachute
                         payments (in whole or in part) represent reasonable
                         compensation for services actually rendered within the
                         meaning of Section 280G(b)(4) of the Code in excess of
                         the base amount within the meaning of Section
                         280G(b)(3) of the Code, or are otherwise not subject to
                         the Excise Tax;

                    (B)  the amount of the Total Payments which shall be deemed
                         to be treated as subject to the Excise Tax shall be
                         equal to the lesser of (x) the total amount of the
                         Total Payments and (y) the amount of excess parachute
                         payments within the meaning of Section 280G(b)(1) of
                         the Code (after applying Section 4(b)(i)(A) hereof);
                         and

                                      -6-



                    (C)  the value of any non-cash benefits or any deferred
                         payments or benefit shall be determined by a nationally
                         recognized public accounting firm mutually acceptable
                         to Executive and the Company in accordance with the
                         principles of Sections 280G(d)(3) and (4) of the Code.

               (ii) If a reduction in the aggregate amount of Severance Payments
                    Executive otherwise would be entitled to receive by an
                    amount not exceeding 20% of such Severance Payments would
                    result in Executive receiving a greater "Net After-Tax
                    Amount," as such term is defined below, then such Severance
                    Payments shall be reduced by the amount, not exceeding 20%
                    of such Severance Payments, as will provide to Executive the
                    greatest Net After-Tax Amount, such reduction to be made
                    from such payments under this Agreement or such other of the
                    Severance Payments not yet paid to Executive as Executive
                    shall specify. For this purpose, the term "Net After-Tax
                    Amount" shall mean the net amount of the Severance Payments
                    after deducting any federal, state and local income tax and
                    Excise Tax which would be applicable to such Severance
                    Payments. In the event that the Excise Tax is subsequently
                    determined to differ from the amount taken into account
                    hereunder at the time of termination of employment,
                    adjustments shall be made in accordance with this Section
                    4(b)(ii) in light of the revised determination.

               (iii) All determinations under this Section 4(b) shall be made at
                    the expense of the Company by a nationally recognized public
                    accounting firm mutually agreeable to Executive and the
                    Company, and such determination shall be binding upon
                    Executive and the Company.

          (c) No Mitigation, No Offset. In the event of any termination of
employment under this Section 4, Executive shall be under no obligation to seek
other employment; amounts due Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he/she may
obtain.

          (d) Nature of Payments. Any amounts due under this Section 4 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.

          (e) Exclusivity of Severance Payments. Upon termination of Executive's
employment during the Term, he/she shall not be entitled to any severance
payments or severance benefits from the Company or any payments by the Company
on account of any claim by Executive of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 4.

                                      -7-



          (f) Release of Employment Claims. Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section 4,
that he/she will execute a release agreement, a form of which is attached hereto
as Exhibit A, releasing any and all claims arising out of Executive's
employment.

     5.   Confidentiality and Related Covenants.

          (a) Confidentiality. Executive shall not, at any time hereafter,
disclose to any person, firm or corporation or otherwise use any confidential
information regarding the customers, suppliers, market arrangements or methods
of operations of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries or affiliates or any other information of
the Company, any constituent partner of the Company or any of their respective
parents, subsidiaries or affiliates, except to the extent necessary to conduct
the business of the Company, or to comply with law or the valid order of a
governmental agency or court of competent jurisdiction. Without limiting the
generality of the foregoing, the Parties acknowledge and agree that all
information not otherwise generally known to the public relating to each of (i)
this Agreement, or (ii) the Company, any constituent partner of the Company or
any of their respective parents, subsidiaries or affiliates is confidential and
proprietary and is not to be disclosed, to any persons or entities or otherwise
used, except to the extent necessary to conduct the business of the Company, or
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction.

          (b) Rights to Innovations. Any invention, improvement, design,
development or discovery conceived, developed, invented or made by Executive,
alone or with others, during his employment hereunder and applicable to the
business of the Company, its parents, subsidiaries or affiliates shall become
the sole and exclusive property of the Company. Executive shall (i) disclose the
same completely and promptly to the Company, (ii) execute all documents
requested by the Company in order to vest in the Company the entire right, title
and interest, in and to the same, (iii) execute all documents required by the
Company for the filing, and prosecuting of such applications for patents,
copyrights and/or trademarks, which the Company, in its sole discretion, may
desire to prosecute, and (iv) provide to the Company all assistance it may
reasonably require including, without limitation, the giving of testimony in any
suit, action or proceeding, in order to obtain, maintain and protect the
Company's rights therein and thereto.

          (c) Non-Solicitation. Executive, except within the course of the
performance of his/her duties hereunder, shall not at any time while he/she is
in the employ of the Company, any constituent partner of the Company or any of
their respective parents, subsidiaries, or affiliates, and for 12 months
following the termination of such employment of Executive for any reason, (i)
employ any individual who is then employed by the Company, any constituent
partner of the Company or any of their respective parents, subsidiaries or
affiliates, or (ii) in any way cause, influence, or participate in the
employment of any individual which would be contrary to the Company's best
interests, as determined by the Company in its sole discretion.

          (d) Enforcement. Executive's services are unique and any breach or
threatened breach by Executive of any provision of this Section 5 shall cause
the Company irreparable harm which cannot be remedied solely by damages. In the
event of a breach or threatened breach by Executive of any of the provisions of
this Section 5, the Company shall be entitled to injunctive relief restraining
Executive and any business, firm, partnership, individual, corporation or entity
participating in such breach or threatened breach. Nothing herein shall be
construed as prohibiting

                                      -8-



the Company from pursuing any other remedies available at law or in equity for
such breach or threatened breach, including the recovery of damages and the
immediate termination of the employment of Executive hereunder. If any of the
provisions of or covenants contained in this Section 5 are hereafter construed
to be invalid or unenforceable in a particular jurisdiction, the same shall not
affect the remainder of the provisions or the enforceability thereof in that
jurisdiction, which shall be given full effect, without regard to the invalidity
or unenforceability thereof in a particular jurisdiction because of the duration
and/or scope of such provision or covenant in that jurisdiction and, in its
reduced form, said provision or covenant shall be enforceable. In all other
jurisdictions this Section 5 shall at all times remain in full force and effect.
The obligations under this Section 5 shall survive any termination of this
Agreement.

     6.   Amendment or Termination.

          Except as otherwise provided in this Section 6, this Agreement may be
amended or terminated only with the express mutual consent of the Company and
Executive and no amendment to the provisions of this Agreement by mutual consent
shall be effective unless such amendment is agreed to in writing and signed by
Executive and an authorized officer of the Company.

          Notwithstanding the preceding paragraph, after the first anniversary
of the Effective Date of this Agreement, the Agreement may be amended or
terminated by the Board without the consent of Executive; provided that, no such
amendment or termination of the Agreement without Executive's express consent
shall be effective unless the Company has provided Executive advance written
notice of the amendment or termination not less than one full year prior to the
proposed effective date of the amendment or termination; and further provided
that no such notice may be delivered at any time when a Change of Control is
proposed or pending (to the knowledge of the Board) or during the first year
following the Effective Date of the Agreement. If a Change of Control occurs
during the period between the time a notice of termination or amendment has been
given to Executive and the effective date described in such notice, the Term of
the Agreement shall automatically be extended until two years after the date on
which the Change of Control occurred, and any earlier termination date specified
in the notice shall automatically be revoked and not take effect.

     7.   Resolution of Disputes.

          Any controversy or claim arising out of or relating to this Employment
Agreement, other than a claim for injunctive relief pursuant to Section 5(d),
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules") in effect at the
time demand for arbitration is made by any party. One arbitrator shall be named
by the Company, a second by the Executive and the third arbitrator shall be
named by the two arbitrators so chosen. In the even that the third arbitrator is
not agreed upon, he or she shall be named by the American Arbitration
Association. Arbitration shall occur in St. Petersburg, Florida. The award made
by all or a majority of the panel of arbitrators shall be final and binding, and
judgment may be entered in any court of law having competent jurisdiction. The
prevailing party shall be entitled to an award of reasonable attorney's fees,
costs and expenses incurred in connection with the arbitration and any judicial
proceedings related thereto.

                                      -9-



     8.   Miscellaneous Provisions.

          (a) Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other plans or programs in which he/she currently
participates.

          (b) Not an Employment Agreement. This Agreement is not, and nothing
herein shall be deemed to create, a contract of employment between Executive and
the Company. The Company may terminate the employment of Executive at any time,
subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.

          (c) Assignability: Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
heirs (in the case of Executive) and permitted assigns. No rights or obligations
of the Company under this Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or transferred in
connection with the sale or transfer of all or substantially all of the assets
of the Company, provided that the assignee or transferee is the successor to all
or substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale or transfer of assets as
described in the preceding sentence, it shall use its best efforts and take
whatever action or actions it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of Executive under this Agreement
may be assigned or transferred by Executive other than his/her rights to
compensation and benefits, which may be transferred only by will or operation of
law, except as provided in Section 8(i) below.

          (d) Representation. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.

          (e) Entire Agreement. This Agreement contains the entire understanding
and agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto.

          (f) No Waiver. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by Executive or an authorized officer of the
Company, as the case may be.

          (g) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.

                                      -10-



          (h) Survivorship. The respective rights and obligations of the Parties
hereunder shall survive any termination of Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.

          (i) Beneficiaries. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death by giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of his/her incompetence,
references in this Agreement to Executive shall be deemed, where appropriate, to
refer to his/her beneficiary, estate or other legal representative.

          (j) Governing Law/Jurisdiction. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Florida without reference to principles of conflict of laws. Subject to Sections
5(d) and 7, the Company and Executive hereby consent to the jurisdiction of any
or all of the following courts for purposes of resolving any dispute under this
Agreement: (i) the United States District Court for Florida or (ii) any of the
courts of the State of Florida. The Company and Executive further agree that any
service of process or notice requirements in any such proceeding shall be
satisfied if the rules of such court relating thereto have been substantially
satisfied. The Company and Executive hereby waive, to the fullest extent
permitted by applicable law, any objection which it or he/she may now or
hereafter have to such jurisdiction and any defense of inconvenient forum.

          (k) Notices. Any notice given to a Party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:

          If to the Company:        Danka Business Systems PLC
                                    Masters House
                                    107 Hammersmith Road
                                    London England W14 OQH

                                    Attention: Secretary

                                    Danka Office Imaging Company
                                    11201 Danka Circle North
                                    St. Petersburg, FL 33716

                                    Attention: General Counsel

            If to Executive:        Keith J. Nelsen
                                    2603 Sanders Drive
                                    Tampa, FL 33611

                                      -11-



          (1) Headings. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.

          (m) Counterparts. This Agreement may be executed in two or more

          IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

                                              DANKA BUSINESS SYSTEMS PLC


                                              By: /s/ Lang Lowrey
                                                  ------------------------------
                                              Name:  Lang Lowrey
                                              Title: Chief Executive Officer


                                              DANKA OFFICE IMAGING COMPANY


                                              By: /s/ Lang Lowrey
                                                  ------------------------------
                                              Name:  Lang Lowrey
                                              Title: Chief Executive Officer


                                              /s/ KEITH J. NELSEN
                                              ----------------------------------
                                              KEITH J.NELSEN 11/14/01

                                      -12-



                                                                       EXHIBIT A

                                RELEASE OF CLAIMS

DEFINITIONS: I,                               , ("Employee"), intend all words
                ------------------------------
used in this Release to have their plain meaning in ordinary English. Technical
legal words are not needed to describe what I mean. Specific terms I use in this
Release have the following meanings:

          I, Me, and My include both me and anyone who has or obtains any legal
          rights or claims through me.

          Employer, as used herein, shall at all times mean Danka Business
          Systems PLC (the "Company"), Danka Office Imaging Company ("Danka"),
          or any parent company, subsidiaries, affiliated companies or entities
          and their employees, officers, directors, successors and assigns, its
          attorneys, consultants and agents, whether in their individual or
          official capacities.

          My Claims means all of the rights I have to any relief of any kind
          from Employer, whether or not I now know about those rights, arising
          out of or in any way related to my employment with Employer, my
          termination of employment, or any employee benefit plan, including,
          but not limited to, common law, or equitable claims, claims for
          violation or breach of any employment agreement or understanding;
          fraud or misrepresentation; and any statutory claims including alleged
          violations of the, the federal Age Discrimination in Employment Act,
          the Americans with Disabilities Act, or any other federal, state, or
          local civil rights laws or ordinances, defamation; intentional or
          negligent infliction of emotional distress; breach of the covenant of
          good faith and fair dealing; promissory estoppel; negligence, wrongful
          termination of employment, any other claims; provided, however, that
          My Claims do not include claims for payments or benefits which are to
          continue for a specified period of time following my termination of
          employment in accordance with Section 4 of the Change of Control
          Agreement between the Company, Danka, and me dated as of August
                    , 2000, or any employee benefit plan, or option or award
          ----------
          thereunder, in effect at the time of termination.

Agreement to Release My Claims. I am receiving a substantial amount of money,
among other things, from Employer as consideration for my Release of My Claims.
I agree to give up all My Claims against the Employer as defined above. I will
not bring any lawsuits, file any charges, complaints, or notices, or make any
other demands against the Employer or any of its employees or agents based on
any allegation included in My Claims. The money I am receiving is a full and
fair payment for the release of all My Claims.

Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, the Employer expressly denies that it is responsible or
legally obligated for My Claims or that is has engaged in any wrongdoing.



     I understand that I may have twenty-one (21) calendar days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. I further understand that the
Employer recommends that I consult with an attorney before executing this
Release. I agree that if I sign this Release before the end of the twenty-one
(21) day period, it is because I have decided that I have already had sufficient
time to decide whether to sign the Release.

     I understand that I may rescind (that is, cancel) this Release within seven
(7) calendar days of signing it to reinstate federal civil rights claims (if
any). To be effective, my rescission must be in writing and delivered to the
Employer, Attention General Counsel, Danka, 11201 Danka Circle North, St.
Petersburg, Florida, 33716, either by hand or by mail within the required
period. If sent by mail, the rescission must be:

          Postmarked within the relevant period;

          Properly addressed to the General Counsel; and

          Sent by certified mail, return receipt requested.

     I have read this Release carefully and understand all its terms. I have had
     the opportunity to review this Release with my own attorney. In agreeing to
     sign this Release, I have not relied on any statements or explanations made
     by the Employer or its agents other than those set forth in the Release and
     Change of Control Agreement.

     I understand and agree that this Release and Change of Control Agreement to
which it is attached contain all the agreements between the Employer and me. We
have no other written or oral agreements.

Dated:
      ------------------------------

- ------------------------------------

Witness:
        ----------------------------

                                      -2-

EX-13

EXHIBIT 13

DANKA BUSINESS SYSTEMS PLC

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our selected historical consolidated financial data for each of the fiscal years in the five-year period ended March 31, 2003 which were derived from our audited consolidated financial statements. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this offering memorandum.

		For the year ended March 31
	Footnote	2003			2002			2001			2000			1999
Revenue:		(in thousands, except per American Depositary Share (“ADS”) amounts)
Retail equipment and related sales		$	476,729		$	538,439		$	614,107		$	742,084		$	764,598
Retail service, supplies and rentals			838,709			937,790			1,062,007			1,366,475			1,646,430
Wholesale			84,536			78,947			97,128			105,469			208,130
Total revenue			1,399,974			1,555,176			1,773,242			2,214,028			2,619,158
Gross Profit:
Retail equipment and related sales			165,837			144,383			95,811			218,091			172,659
Special charges, retail equipment and related sales	1		—			—			—			—			(30,709	)
Retail service, supplies and rentals			341,218			390,909			401,840			573,183			671,619
Special charges, retail service, supplies and rentals	1		—			—			—			—			(27,144	)
Wholesale			16,107			14,590			16,206			18,654			28,992
Special charges, wholesale	1		—			—			—			—			(514	)
Total gross profit			523,162			549,882			513,857			809,928			814,903
Selling, general and administrative expenses			484,887			531,331			641,480			702,318			884,500
Special charges, selling, general and administrative expenses	1		—			—			—			—			16,805
Write-off of goodwill and other long-lived assets	2		—			—			25,577			—			109,474
Commitment to Kodak under R&D agreements			—			—			—			—			53,434
Restructuring charges (credits)	3		(555	)		(1,992	)		15,705			(4,148	)		40,010
Other (income) expense			(6,081	)		11,288			22,463			18,849			16,954
Operating earnings (loss) from continuing operations			44,911			9,255			(191,368	)		92,909			(306,274	)
Interest expense			(32,822	)		(42,298	)		(82,648	)		(104,201	)		(77,456	)
Interest income			1,249			5,768			3,172			3,958			2,254
Loss on sale of business			—			—			—			(2,061	)		—
Profit (loss) from continuing operations before income taxes			13,338			(27,275	)		(270,844	)		(9,395	)		(381,476	)
Provision (benefit) for income taxes			3,604			(17,407	)		(37,328	)		(5,860	)		(71,798	)
Earnings (loss) from continuing operations before extraordinary items			9,734			(9,868	)		(233,516	)		(3,535	)		(309,678	)
Discontinued operations, net of tax			—			119,490			12,956			13,869			14,898
Extraordinary gain on early retirement of debt, net of tax			—			27,933			—			—			—
Net earnings (loss)		$	9,734		$	137,555		$	(220,560	)	$	10,334		$	(294,780	)
Basic earnings (loss), continuing operations available to common shareholders per ADS:		$	(0.13	)	$	0.43		$	(4.13	)	$	(0.14	)	$	(5.44	)
Diluted earnings (loss), continuing operations available to common shareholders per ADS:		$	(0.13	)	$	0.43		$	(4.13	)	$	(0.14	)	$	(5.44	)
Dividends per ADS			—			—			—			—			—
Other Data:
EBITDA	4	$	103,988		$	107,370		$	(47,227	)	$	223,693		$	(172,131	)
Depreciation and amortization			57,828			92,347			140,969			128,887			131,889
Capital expenditures	5		48,550			50,577			68,881			101,782			152,411
Retail equipment and related sales gross profit margin			34.8	%		26.8	%		15.6	%		29.4	%		18.6	%
Retail service, supplies and rentals gross profit margin			40.7	%		41.7	%		37.8	%		41.9	%		39.1	%
Retail service, supplies and rentals gross profit margin			19.1	%		18.5	%		16.7	%		17.7	%		0.9	%
Total gross profit margin			37.4	%		35.4	%		29.0	%		36.6	%		31.1	%
Balance Sheet Data:
Cash, cash equivalents and restricted cash	6	$	86,993		$	59,470		$	69,085		$	64,861		$	66,095
Accounts receivable, net of allowance for doubtful accounts			257,329			292,350			346,398			478,496			523,223
Inventories			111,471			130,599			199,523			326,966			355,135
Total assets			981,620			972,823			1,314,976			1,667,696			1,905,142
Total debt	7		232,855			304,454			719,178			802,182			1,142,147
6.5% convertible participating shares—redeemable			258,376			240,520			223,713			207,878			—
Total shareholders’ equity (deficit)			65,709			48,049			(65,642	)		176,714			171,164

Note: Certain prior year amounts have been reclassified to conform with the current year presentation.

Footnotes to “SELECTED CONSOLIDATED FINANCIAL DATA”

1. For fiscal year 1999, we had write-offs related to the reduction in the Kodak branded inventory as well as additional amounts related to the termination of certain agreements between us and Kodak of $30.7 million, a write-off of terminated supply agreements between us and Kodak and the write-off of other assets of $27.1 million, the write-off of inventory related to the closure of U.S. wholesale operations of $0.5 million and a write-off of terminated Kodak agreements and other assets of $16.8 million.

2. During fiscal year 1999, we determined that based on changes in our business environment and an analysis of projected cash flows, the carrying amount of certain goodwill and other long-lived assets in the U.S. and Canada, would not be recoverable. Accordingly, the resulting analysis necessitated a write-down of $107.9 million during the third quarter of fiscal year 1999, which was comprised of $89.5 million in the U.S. and $18.4 million in Canada. We also wrote-off an additional $1.6 million of goodwill during the fourth quarter of fiscal year 1999 related to the closure of our U.S. wholesale division. During fiscal year 2001, we recorded an $18.7 million write-down of goodwill in Australia in the second quarter and a $6.9 million write-down of goodwill in the U.S. in the fourth quarter.

3. For fiscal year 1999, we had total restructuring charges of $40.0 million of which $17.6 million was for severance, $19.3 million for facilities, $3.1 million was for the write-off of leasehold improvements. For fiscal year 2000, we had a total credit of $4.1 million representing the reversal of prior year restructuring accruals. For fiscal year 2001, we had total restructuring charges of $15.7 million of which $21.8 million was for severance and $4.3 million was for facilities less the reversal of $10.4 million of a prior year restructuring accrual. For fiscal year 2002, we had a total credit of $2.0 million which represents the reversal of prior year restructuring accruals for facilities. For fiscal year 2003, we had a total credit of $0.6 million which represents the reversal of prior year restructuring accruals.

4. EBITDA is computed as earnings from continuing operations before income taxes, interest expense, depreciation and amortization. This measure is a non-GAAP financial measure, defined as a numerical measure of our financial performance that exclude or include amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in our statement of operations, balance sheet or statement of cash flows. Pursuant to the requirements of Regulation G under the Securities Act, we have provided a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.

Although EBITDA represents a non-GAAP financial measure, we consider this measure to be a key operating metric of our business. We use this measure in our planning and budgeting processes, to monitor and evaluate our financial and operating results and to measure performance of our separate divisions. We also believe that EBITDA is useful to investors because it provides an analysis of financial and operating results using the same measure as we use in evaluating the company. We expect that such measure provides investors with the means to evaluate our financial and operating results against other companies within our industry. In addition, we believe that this measure is meaningful to investors in evaluating our ability to meet our future debt service requirements, to fund our capital expenditures and working capital requirements. Our calculation of EBITDA may not be consistent with the calculation of this measure by other companies in our industry. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating income (loss), as an indicator of our operating performance or any other measures of performance derived in accordance with GAAP. See reconciliation below:

	For the year ended March 31
(in thousands)	2003		2002			2001			2000			1999
Earnings (loss) from continuing operations before income taxes	$	13,338	$	(27,275	)	$	(270,844	)(a)(b)	$	(9,395	)	$	(381,476	)(c)
Depreciation and Amortization		57,828		92,347			140,969			128,887			131,889
Interest Expense		32,822		42,298			82,648			104,201			77,456
EBITDA	$	103,988	$	107,370		$	(47,227	)	$	223,693		$	(172,131	)

(a) Includes restructuring charges of $15.7 million, a $62.6 million write-off of retail equipment inventory, a $10.1 million write-off of service and supply inventory and a $28.6 million charge related to the exit of various real estate facilities and the write-down of receivables and $14.1 million related to the write-off of certain rental assets.

(b) Includes $25.6 million for the write-off of goodwill as described in footnote (1) above.

(c) Includes restructuring charges of $40.0 million, write-off related to the reduction in the Kodak branded inventory as well as additional amounts related to the termination of certain agreements between us and Kodak of $30.7 million, write-off of terminated supply agreements between us and Kodak and the write-off of other assets of $27.1 million, the write-off of inventory related to the closure of U.S. wholesale operations of $0.5 million and a write-off of terminated Kodak agreements and other assets of $16.8 million. Additionally, it includes $53.4 million in costs associated with the commitment to Kodak under R&D agreements and $109.5 million for the write-off of goodwill and other long-lived assets.

(5) Includes $12.9 million, $13.9 million and $4.4 million in capitalized costs in connection with our vision 21 initiative for fiscal year 2003, 2002 and 2001 respectively.

(6) For fiscal year 2003, cash, cash equivalents and restricted cash includes $5.5 million of restricted cash in other assets which is generally restricted to the partial payment of the zero coupon senior subordinated notes.

(7) Total debt is computed as follows (in thousands):

	For the year ended March 31
	2003		2002		2001		2000		1999
Current maturities of long-term debt and notes payable	$	58,443	$	36,293	$	517,447	$	86,776	$	89,732
Long-term debt and notes payables, less current maturities		174,412		268,161		201,731		715,406		1,052,415
Total debt	$	232,855	$	304,454	$	719,178	$	802,182	$	1,142,147

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this filing. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those described under “Special Notice Regarding Forward-Looking Statements” and “Risk Factors,” each included elsewhere in this filing.

INTRODUCTION

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The MD&A is organized as follows:

Overview. This section provides a general description of our business, as well as recent significant transactions that have occurred during fiscal years 2003, 2002 and 2001 that we believe are important in understanding our results of operations, and anticipating trends in those operations.

Critical accounting policies and estimates. This section discusses those accounting policies that both are considered important to our financial condition and results, and require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including the critical accounting policies, are summarized in Note 1 to the accompanying audited consolidated financial statements.

Results of operations. This section provides an analysis of our results of operations for all three years presented in the accompanying consolidated statement of operations. This analysis is presented on a consolidated basis. In addition, a brief description is provided of transactions and events that impact the comparability of the results being analyzed.

Exchange rates. This section provides an analysis of where we operate and the impact foreign exchange rates have on our results.

Liquidity and capital resources. This section provides an analysis of our cash flows, as well as a discussion of our outstanding obligations and commitments, both firm and contingent, existing as of March 31, 2003. Included in the discussion of outstanding obligations is a discussion of the amount of financial capacity available to fund our future commitments, as well as a discussion of other financial arrangements.

Market risk management. This section discusses how we manage exposure to potential loss arising from adverse changes in interest rates, foreign currency exchange rates and changes in the market value of investments.

New accounting pronouncements. This section discusses the impact on our prospective financial reporting of new financial accounting policies issued by the Financial Accounting Standards Board, the SEC or the Accounting Oversight Board.

Special note regarding forward-looking statements. This section discusses how certain forward-looking statements made by us throughout the MD&A are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.

Overview

Based on revenue, we are the second largest independent provider of office imaging equipment, document solutions and related services and supplies in the United States and the largest independent provider of such products and services in Europe. We offer a wide range of state of the art office imaging products, and solutions that primarily include digital and color copiers, digital and color multi-function products or MFPs, facsimile machines and software. We also provide a wide range of contract services, including professional and consulting services, maintenance, supplies, leasing arrangements, technical support and training, on the installed base of equipment created primarily by our retail equipment and related sales. We operate in 25 countries and employ approximately 8,700 individuals.

Through the mid-1990s we grew rapidly, primarily through acquisitions of independent dealers who provided traditional office imaging equipment and related services and supplies, which had the effect of substantially increasing our indebtedness. In December 1996, in an acquisition which approximately doubled our revenues, we acquired the large analog-only office equipment base of Kodak for approximately $588 million. This acquisition also included the sales and service organizations related to the acquired Kodak equipment base and approximately doubled the size of our workforce. Subsequently, the technological shift from analog to digital equipment commenced and accelerated rapidly thereafter. At the same time, we experienced increased challenges in integrating the businesses we had acquired. Between late 1997 and mid 2001, due in part to our high debt levels, we struggled through a series of financial and operating difficulties and leadership changes and, in December 1999, we sold $218.0 million of Senior Convertible Participating Shares to an investor group led by Cypress Merchant Banking Partners II, LLP, the proceeds of which were used to repay a portion of our indebtedness. In early 2001, we hired Lang Lowrey as Chief Executive Officer and commenced an effort to rationalize our operations, improve working capital, reduce indebtedness and position our business for profitable growth.

We have taken the following initiatives, among others, to strengthen our business operations and our balance sheet since the beginning of fiscal year 2001:

• sold DSI, a facilities management business, for approximately $285 million in cash, after giving effect to purchase price adjustments, and used the net proceeds for debt reduction;

• reduced selling, general and administrative expenses by approximately $157 million, or 24.4%, from fiscal year 2001 to fiscal year 2003, due in part to a worldwide program to reduce headcount by approximately 1,500 employees;

• implemented new compensation programs for our senior management and U.S. field sales force that emphasize EBITDA, cash generation, debt reduction and improved gross profit margins for new retail equipment and related sales; and

• capitalized on a number of one-time opportunities, including the receipt of a U.S. tax refund of $18.2 million in fiscal year 2002, the realization of $16 million in lease and residual payments from a diminishing external lease funding program through fiscal year 2003 and the full repayment of $36.7 million of obligations under our former TROL financing facility during fiscal year 2003.

Primarily as a result of the above initiatives, we:

• reduced our outstanding indebtedness, net of cash on hand and $5.5 million of restricted cash or net debt from $650.1 million at March 31, 2001 to $145.9 million at March 31, 2003;

• increased our EBITDA from $(47.2) million for fiscal year 2001 to $104.0 million for fiscal year 2003; and

• improved U.S. retail equipment and related sales gross profit margins from 15.8% for fiscal year 2001 to 37.1% for fiscal year 2003.

Our reportable segments are United States, Europe and International. Our reportable segments do not include the discontinued operations of DSI. Our International segment includes operations in several South American countries that are experiencing political, social and economic upheaval. We continue to evaluate the viability and future prospects of these businesses in those countries in light of uncertain conditions. Should we decide to downsize or exit any of these businesses, we could incur costs in respect of severance and closure of facilities and we may also be required to recognize cumulative translation losses that would reduce our earnings, all or any of which may be material.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our management strives to report our financial results in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require technical terminology. We follow accounting principles generally accepted in the United States in preparing our consolidated financial statements contained elsewhere and incorporated by reference herein, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. Our management continually reviews our accounting policies, how they are applied and how they are reported and disclosed in our financial statements. Following is a summary of our critical accounting policies and how they are applied in the preparation of our financial statements.

Allowances for Accounts Receivable—We provide allowances for doubtful accounts on our accounts receivable for estimated losses. Our estimates are based upon the aging of our receivable accounts. If the financial condition of any of our customers were to deteriorate, which could result in the impairment of their ability to make payments to us, additional allowances may be required. The following table summarizes our net accounts receivable.

	At March 31,
(dollars in thousands)	2003			2002
Accounts Receivable	$	298,739		$	334,631
Bad Debt Reserve		(41,410	)		(42,281	)
Net Accounts Receivable	$	257,329		$	292,350
Bad Debt Reserve as a % of Total		13.9	%		12.6	%

During fiscal year 2002, we were advised by our independent public accountants of a “reportable condition” under standards established by the American Institute of Certified Public Accountants related to certain matters involving our internal control and operations. Such condition relates to continuing deficiencies in the design and operation of internal controls as they relate to our U.S. billing and collection functions. We acknowledge this condition, which has been reported to our audit committee, and expect the “reportable condition” will continue for fiscal year 2003 related to the same matter. Further, we are in the process of addressing this control issue concurrently with the implementation of our Oracle ERP System.

Inventories—Our inventory levels are based on our projections of future demand and market conditions. Any unexpected decline in demand and/or rapid product improvements or technological changes may cause us to have excess and/or obsolete inventories. The transition of our industry from analog to digital photocopiers has resulted in the obsolescence of some of our retail equipment, supplies and parts. Additional obsolescence could occur for some of our remaining retail equipment, supplies and parts, particularly as it relates to our Kodak installed base, which is primarily analog. We have taken reserves against these items in current and prior periods. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write-down our inventories to their estimated net realizable value based upon our forecasts of future demand and market conditions using historical trends and analysis. If actual market conditions are less favorable than our forecasts due, in part, to a greater acceleration within the industry to digital office imaging equipment, additional inventory write-downs may be required. Our estimates are influenced by a number of considerations, including but not limited to the following: sudden decline in demand due to economic downturns, rapid product improvements and technological changes and our ability to return to vendors a certain percentage of our purchases.

Revenue Recognition—Retail equipment and related sales are recognized upon acceptance of delivery by the customer and, in the case of equipment sales financed by third party finance or leasing companies, at the time of credit acceptance by the finance or leasing company, if later. However, for the sale of certain digital equipment that requires comprehensive setup by us before it can be used by a customer, such as a Heidelberg 9110/9150 or equivalent type of equipment, revenue is recognized upon acceptance of delivery by the customer and installation. Supply sales to customers are recognized at the time of shipment unless supply sales are included in a service contract, in which case supply sales are recognized upon usage by the customer.

Operating lease income is recognized as earned over the lease term. Maintenance contract service revenues are recognized ratably over the term of the underlying maintenance contracts. Deferred revenue consists of unearned maintenance contract revenue that is recognized using the straight-line method over the life of the related contract, generally three to twelve months.

Residual Values—We perform an annual review of the unguaranteed residual values of leased equipment to verify that the recorded residual values do not exceed market valuations. If the residual value is below the market value, a reserve is charged to cost of goods sold. No residual value is recorded for used equipment.

Deferred Income Taxes— As part of the process of preparing our consolidated financial statements, we have to estimate our income and corporation taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax and accounting purposes. These differences may result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

In accordance with Statement of Financial Accounting Standards No. 109, we evaluate, quarterly, the likelihood that our deferred tax assets, which include net operating loss carryforwards and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income or other tax planning strategies. If recovery is not likely, we have to provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. The provision for current and deferred tax liabilities involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities.

At March 31, 2003 and March 31, 2002, we had deferred tax assets in excess of deferred tax liabilities of $123.2 million and $127.1 million respectively. Management determined that it is more likely than not that $89.3 million and $88.3 million, respectively, of such net assets will be realized, resulting in a valuation allowance of $33.9 million and $38.8 million, respectively.

Approximately $175.0 million of future U.S. taxable income is ultimately needed to realize the net deferred tax assets at March 31, 2003. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets. Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: increased competition, a decline in sales or margins, loss of market share, delays in product availability or technological obsolescence.

In addition, the company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In management’s opinion, adequate provisions for income and corporation taxes have been made for all years.

Goodwill—As described in Note 2 to the accompanying consolidated financial statements, we review our goodwill and indefinite-lived intangible assets annually for possible impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives.

During the first quarter of fiscal year 2003, we finalized the required transitional impairment tests of goodwill and indefinite-lived intangible assets under the requirements of Statement of Financial Accounting Standards No., or SFAS 142. Based on the results of the transitional impairment tests, no adjustments for impairment were necessary. We then performed our annual impairment test as of December 31, 2002, which resulted in no adjustment for impairment.

We had goodwill of $257.0 million as of March 31, 2003. If it was determined under SFAS 142 that our goodwill was impaired, we would be required to write-down the value of such goodwill in amounts that could be material.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of total revenue represented by certain items in our Consolidated Statements of Operations:

	For the year ended March 31,
	2003		2002		2001
Revenue:
Retail equipment and related sales	34.1	%	34.6	%	34.6	%
Retail service, supplies and rentals	59.9		60.3		59.9
Wholesale	6.0		5.1		5.5
Total revenue	100.0		100.0		100.0
Cost of revenue	62.6		64.6		71.0
Gross profit	37.4		35.4		29.0
Selling, general and administrative expenses	34.6		34.2		36.2
Write-off of goodwill	—		—		1.4
Restructuring charges (credits)	—		(0.1	)	0.9
Other (income) expense	(0.4	)	0.7		1.3
Operating earnings (loss) from continuing operations	3.2		0.6		(10.8	)
Interest expense	(2.3	)	(2.7	)	(4.7	)
Interest income	0.1		0.4		0.2
Earnings (loss) from continuing operations before income taxes	1.0		(1.7	)	(15.3	)
Provision (benefit) for income taxes	0.3		(1.1	)	(2.1	)
Earnings (loss) from continuing operations before extraordinary items	0.7		(0.6	)	(13.2	)

Note: Certain prior year amounts have been reclassified to conform with the current year presentation.

The following table sets forth for the periods indicated the change in our revenue classifications from the prior year:

	For the year ended March 31,
	2003		2002		2001
Retail equipment and related sales	(11.5	)%	(12.3	)%	(17.2	)%
Retail service, supplies and rentals	(10.6	)	(11.7	)	(22.3	)
Wholesale	7.1		(18.7	)	(7.9	)
Total revenue	(10.0	)	(12.3	)	(19.9	)

The following table sets forth for the periods indicated the gross profit margin percentage for each of our revenue classifications:

	For the year ended March 31,
	2003		2002		2001
Retail equipment and related sales	34.8	%	26.8	%	15.6	%
Retail service, supplies and rentals	40.7		41.7		37.8
Wholesale	19.1		18.5		16.7
Total	37.4		35.4		29.0

The following tables set forth for the periods indicated the revenue, gross profit and operating earnings (loss) from continuing operations for each of our operating segments:

	For the year ended March 31,
(in thousands)	2003			2002			2001
Revenues:
United States	$	747,787		$	871,508		$	1,019,019
Europe		532,248			542,426			602,877
International		119,939			144,945			159,864
Other (1)		—			(3,703	)		(8,518	)
Total Revenues	$	1,399,974		$	1,555,176		$	1,773,242
Gross Profit:
United States	$	319,414		$	336,089		$	339,025
Europe		169,534			165,379			158,468
International		34,214			49,367			49,493
Other (1)		—			(953	)		(33,129	)
Total Gross Profit	$	523,162		$	549,882		$	513,857
Operating earnings (loss) from continuing operations:
United States	$	39,648		$	17,201		$	(64,010	)
Europe		26,346			11,886			(25,475	)
International		(11,434	)		4,959			(37,864	)
Other (1)		(9,649	)		(24,791	)		(64,019	)
Total operating earnings (loss) from continuing operations	$	44,911		$	9,255		$	(191,368	)

(1) Other includes the elimination of inter-segment revenues, corporate expenses, restructuring, foreign exchange gains/losses, corporate assets, deferred tax assets and assets of discontinued operations.

The following table sets forth for the periods indicated the percentage growth for each of our operating segments:

	For the year ended March 31,
	2003		2002		2001
United States	(14.2	)%	(14.5	)%	(15.9	)%
Europe	(1.9	)	(10.0	)	(21.6	)
International	(17.3	)	(9.3	)	(19.2	)
Total revenue	(10.0	)	(12.3	)	(19.9	)

The following tables set forth for the periods indicated the gross profit margin percentage and operating earnings (loss) from continuing operations margin percentages for each of our operating segments:

	For the year ended March 31,
	2003		2002		2001
Gross profit margin:
United States	42.7	%	38.6	%	33.3	%
Europe	31.9		30.5		26.3
International	28.5		34.1		31.0
Operating earnings (loss) from continuing operations margin:
United States	5.3	%	2.0	%	(6.3	)%
Europe	4.9		2.2		(4.2	)
International	(9.5	)	3.4		(23.7	)

Fiscal Year 2003 Compared to Fiscal Year 2002

Revenue

In fiscal year 2003, our revenue from continuing operations decreased by 10.0% to $1.4 billion from $1.6 billion in fiscal year 2002, with the United States segment down 14.2%, the European segment down 1.9% and the International segment down 17.3%. Approximately 53.3% of our revenue in fiscal year 2003 was generated by our United States segment, 38.1% by our European segment and 8.6% by our International segment. Our revenue for fiscal year 2003 was affected by the positive impact of foreign currency movements, which increased revenue by approximately $54.1 million. Excluding the positive foreign currency movement, our total revenues decreased 13.5% during fiscal year 2003.

Our fiscal year 2003 retail equipment and related sales declined by 11.5% to $476.7 million from $538.4 million in fiscal year 2002, with the United States segment down 12.0%, the European segment down 10.1% and the International segment down 19.9%. After excluding the positive impact of foreign currency movements of approximately $17.4 million, our fiscal year 2003 retail equipment sales decreased by 14.7%.

Our retail service, supplies and rentals revenue declined by 10.6% to $838.7 million in fiscal year 2003 from $937.8 million in fiscal year 2002 with the United States segment down 15.4%, the European segment up 0.8% and the International segment down 15.6%. After excluding the positive impact of foreign currency movements of approximately $27.5 million, our fiscal year 2003 retail service, supplies and rentals revenue declined by 13.5%.

The decline in our revenue was primarily due to the following factors:

• the transition in our industry from analog to digital products and the resulting lower retail equipment placements and reduced machines in field or MIFs;

• increased competition as a result of technology convergence, such as the advent of MFPs, and an increase in the migration of copy volume from traditional stand alone copiers to network printers, which resulted in lower service and supplies revenue and manufacturers selling on a direct basis;

• our decision to reduce our sales force and the number of geographic locations and markets in which we operate;

• reduced retail equipment and related sales revenue as a result of our focus on higher margin transactions; and

• a weakening of global economic conditions which resulted in reduced or delayed capital spending by customers.

Our fiscal year 2003 wholesale revenue increased 7.1% to $84.5 million from $78.9 million in fiscal year 2002. This was primarily due to the positive impact of foreign currency movements which increased fiscal year 2003 wholesale revenue by approximately $9.2 million offset by declines in revenue due to the competitive market and the worldwide economic downturn.

Gross Profit

For fiscal year 2003, our consolidated gross profit decreased 4.9% to $523.2 million from $549.9 million in fiscal year 2002. Our consolidated gross profit margin increased to 37.4% in fiscal year 2003 from 35.4% in fiscal year 2002. The gross profit margin for the United States segment increased to 42.7% from 38.6%, the European segment increased to 31.9% from 30.5%

while the International segment decreased to 28.5% from 34.1%. The primary reasons for the increase in our consolidated gross profit margin were higher margins in the United States, positive effect of foreign currency movements in Europe and an increase in equipment leasing income of approximately $11.9 million related to higher lease and residual payments from a diminishing external lease funding program. This increase was partially offset by a $3.9 million charge that consisted primarily of write-downs of inventory and residual values in Canada.

Retail equipment margins increased to 34.8% for fiscal year 2003 from 26.8% for fiscal year 2002, due to an emphasis on higher margin transactions in the United States and Europe and higher lease and residual payments. Retail service, supplies and rental margins decreased to 40.7% in fiscal year 2003 from 41.7% in fiscal year 2002, due to higher costs in Europe and a $1.5 million write-down of inventory and residual values in Canada. Wholesale margins increased to 19.1% in fiscal year 2003 from 18.5% in fiscal year 2002 primarily due to higher margin transactions in the current year.

SG&A

Our selling, general and administrative expenses, or SG&A, declined 8.7% to $484.9 million in fiscal year 2003 from $531.3 million in fiscal year 2002. As a percentage of total revenue, SG&A expenses increased to 34.6% from 34.2% primarily due to lower revenues and approximately $10.9 million of expenses associated with the implementation of our Vision 21 reengineering initiative, which includes our U.S. management information system, offset in part, by a $3.5 million reversal of a prior year facilities reserve related to our TROL facilities.

Restructuring Charges (Credits)

We reversed $0.6 million of restructuring charges in fiscal year 2003 that were incurred in previous years due to a re-evaluation of those amounts.

Other (Income) Expense

Other (income) expense increased to ($6.1) million in fiscal year 2003 from $11.3 million in fiscal year 2002. This change was primarily due to the discontinuance of goodwill amortization and a $7.1 million foreign exchange gain in fiscal year 2003 versus a $3.0 million foreign exchange gain in fiscal year 2002 and $3.1 million of country exit costs and impairment costs incurred in fiscal year 2002.

Operating Earnings (Loss) from Continuing Operations

Operating earnings from continuing operations increased to $44.9 million in fiscal year 2003 compared to operating earnings from continuing operations of $9.3 million in fiscal year 2002. Earnings for the comparable prior year included a $8.0 million charge associated with the consolidation and exiting of certain facilities and a $2.0 million net credit for restructuring reserves.

Interest Expense and Interest Income

Our interest expense decreased to $32.8 million in fiscal year 2003 compared to $42.3 million in fiscal year 2002. This decrease was the result of reduced outstanding debt over the past twelve months offset in part by increased interest rates. Interest income decreased by $4.5 million to $1.2 million in fiscal year 2003 due to lower cash balances and interest income on a United States income tax refund received in fiscal year 2002.

Income Taxes

Our income tax expense of $3.6 million for fiscal year 2003 compared to a tax benefit of $17.4 million for fiscal year 2002. The effective income tax rate was 27.0% for fiscal year 2003 compared to a income tax benefit rate of 63.8% for fiscal year 2002. The change in the effective tax rate is primarily due to the generation of net earnings rather than losses and the recognition of loss carryforwards in various tax jurisdictions.

Net Earnings (Loss) from Continuing Operations, Before Extraordinary Items

Our net income from continuing operations before extraordinary items of $9.7 million in fiscal year 2003, compared to a net loss from continuing operations before extraordinary items of $9.9 million in fiscal year 2002. After allowing for the dilutive effect of dividends on our participating shares, we incurred a net loss from continuing operations before extraordinary items available to common shareholders of $0.13 per American depositary share, or ADS, in fiscal year 2003 compared to a net loss from continuing operations before extraordinary items available to common shareholders of $0.43 per ADS in fiscal year 2002.

Net Earnings (Loss)

Our net earnings of $9.7 million in fiscal year 2003 compared to net earnings of $137.6 million in fiscal year 2002 for the reasons discussed above. After allowing for the dilutive effect of dividends on our participating shares, we had a net loss available to common shareholders of $0.13 per ADS in fiscal year 2003 compared to net earnings available to common shareholders of $1.95 per ADS in fiscal year 2002.

Fiscal Year 2002 compared to Fiscal Year 2001

Revenue

In fiscal year 2002, our revenue from continuing operations decreased by 12.3% to $1.6 billion from $1.8 billion in fiscal year 2001, with the United States segment down 14.5%, the European segment down 10.0% and the International segment down 9.3%. Approximately 55.8% of our revenue in fiscal year 2002 was generated by our United States segment, 34.9% by our European segment and 9.3% by our International segment. Our revenue for fiscal year 2002 was affected by the negative impact of foreign currency movements, which reduced revenue by approximately $21.7 million. Excluding that impact, our total revenue decreased 11% during fiscal year 2002.

Our fiscal year 2002 retail equipment and related sales declined by 12.3% to $538.4 million from $614.1 million in fiscal year 2001 with the United States segment down 16.2%, the European segment down 10.9% and the International segment down 3.9%. After excluding the negative impact of foreign currency movements of approximately $7.6 million, our fiscal year 2002 retail equipment sales decreased by 11.1%.

Our retail service, supplies and rentals revenue declined by 11.7% to $937.8 million in fiscal year 2002 from $1,062.0 million in fiscal year 2001 with the United States segment down 13.5%, the European segment down 6.7% and the International segment down 12.4%. After excluding the negative impact of foreign currency movements of approximately $12.2 million, our fiscal year 2002 retail service, supplies and rentals revenue declined by 10.5%.

The decline in our revenue was primarily due to the following factors:

• the transition in our industry from analog to digital products and the resulting lower retail equipment placements and reduced MIF;

• increased competition as a result of technology convergence, such as the advent of MFPs and an increase in the migration of copy volume from traditional stand alone copiers to network printers, which resulted in lower service and supplies revenue and manufacturers selling on a direct basis;

• our decision to reduce our sales force and the number of geographic locations and markets in which we operate;

• reduced new retail equipment and related sales revenue as a result of our focus on higher margin transactions and

• a weakening of global economic conditions which resulted in reduced or delayed capital spending by customers.

Our fiscal year 2002 wholesale revenue declined 18.7% to $78.9 million from $97.1 million in fiscal year 2001. This was primarily due to the competitive market, the worldwide economic downturn and the negative impact of foreign currency movements which reduced fiscal year 2002 wholesale revenue by approximately $1.9 million.

Gross Profit

For fiscal year 2002, our consolidated gross profit increased 7.0% to $549.9 million from $513.9 million in fiscal year 2001. Our consolidated gross profit as a percentage of total revenue increased to 35.4% in fiscal year 2002 from 29.0% in fiscal year 2001. The gross profit margin for the United States segment increased to 38.6% from 33.3%, while the European

segment increased to 30.5% from 26.3% and the International segment increased to 34.1% from 31.0%. The primary reason for the increase in our consolidated gross profit margin was an $86.8 million write-off of excess, obsolete and non-recoverable equipment, parts and accessories in fiscal year 2001, which was a result of the office imaging industry’s rapid transition to digital products. The write-off was included in fiscal year 2001’s cost of retail equipment sales ($62.6 million) and retail service, supplies and rental costs ($24.2 million).

Retail equipment margins increased to 26.8% for fiscal year 2002 from 25.8% for fiscal year 2001, excluding the $62.6 million charge discussed above or 15.6% including such charge. Retail service, supplies and rental margins increased to 41.7% in fiscal year 2002 from 40.1% in fiscal year 2001, excluding the $24.2 million charge discussed above or 37.8% including such charge. Wholesale margins increased to 18.5% in fiscal year 2002 from 16.7% in fiscal year 2001.

SG&A

Our SG&A expenses declined 17.2% to $531.3 million in fiscal year 2002 from $641.5 million in fiscal year 2001, while as a percentage of total revenue, SG&A expenses decreased to 34.2% from 36.2%. Excluding a charge of $8.0 million related to the exit of certain facilities in the current year and $28.6 million relating to charges for the exit of real estate facilities and receivables in the prior year, SG&A declined to 33.6% from 34.6% of total revenue, respectively. The reduction was primarily attributable to lower selling expenses resulting from reduced sales and a decrease in our work force partially offset by an increase in our bad debt expense, software write-offs and executive contract termination charges.

Restructuring Charges (Credits)

Our pre-tax restructuring charge of $11.0 million in fiscal year 2002, which included a $4.9 million charge for severance and a $6.1 million charge for the exit of facilities. The hiring of a new Chief Executive Officer in March of 2001 was the first in a series of changes to our senior management team. Upon completion of the financial restructuring plan at the end of the first quarter of fiscal year 2002, we made additional significant changes to our senior management team, including the hiring of new Chief Operating Officers for Danka Europe, Danka International and Danka United States. Our new management team reviewed the existing restructuring plan and as a result of changing business conditions in the United States and Europe and revisions to our business strategies, we decided to modify our fiscal year 2001 and fiscal year 2002 restructuring plans. Additionally, higher than anticipated employee attrition reduced cash outlay requirements for severance. As a result of these actions and evaluations, we reversed $13.0 million of fiscal year 2001 severance and facility restructuring reserves in fiscal year 2002

We had a $27.5 million pre-tax restructuring charge during the third quarter of fiscal year 2001, which related principally to our plan to bring our cost structure into line with our revenue and margin expectations. The fiscal year 2001 restructuring charge was reduced by $11.8 million in reversals of restructuring charges incurred in prior periods, resulting in a net charge of $15.7 million. Of the total amount reversed, $10.4 million related to our fiscal year 1999 restructuring plan and $1.4 million related to our fiscal year 2001 restructuring plan. The reversals resulted from favorable lease settlements and revised estimates of amounts required to settle remaining lease obligations.

Goodwill Write-offs

In the third quarter of fiscal year 2001, we wrote off $18.7 million of goodwill attributable to our Australian subsidiary. In the fourth quarter of fiscal year 2001, we wrote off $6.9 million of goodwill related to one of our United States subsidiaries. These write-offs of goodwill in those years were necessary since our forecasted future cash flows from these subsidiaries’ operations were insufficient to recover the amount of goodwill recorded.

Other (Income) Expense

Other expense decreased to $11.3 million in fiscal year 2002 from $22.5 million in fiscal year 2001. This change is primarily due to a $3.0 million foreign exchange gain in fiscal year 2002 versus a $9.6 million foreign exchange loss in fiscal year 2001, a $2.4 million charge in the fiscal year 2002 year associated with our decision to exit from certain non-strategic businesses and $0.7 million of charges for the impairment of certain assets.

Operating Earnings (Loss) from Continuing Operations

Operating earnings from continuing operations increased to $9.3 million in fiscal year 2002 compared to an operating loss from continuing operations of $191.4 million in fiscal year 2001. Earnings in the current year included a $8.0 million charge associated with the consolidation and exiting of certain facilities and a $2.0 million net credit for restructuring reserves.

Earnings for the comparable prior year included a $15.7 million restructuring charge, a $86.8 million write-down for analog inventory and rental equipment and a $25.6 million write-off of goodwill.

Interest Expense and Interest Income

Our interest expense decreased to $42.3 million in fiscal year 2002 compared to $82.6 million in fiscal year 2001. This decrease was the result of reduced outstanding debt, lower interest rates and reduced bank waiver fees. Interest income increased by $2.6 million due to $3.6 million of interest received as the result of a United States income tax refund.

Income Taxes

Our income tax benefit was $17.4 million for fiscal year 2002 compared to a tax benefit of $37.3 million for fiscal year 2001. The effective income tax benefit rate was 63.8% for fiscal year 2002 compared to 13.8% for fiscal year 2001. The increase in the effective tax rate was primarily due to the recognition of loss carryforwards in the United Kingdom.

Net Earnings (Loss) from Continuing Operations, Before Extraordinary Items

We reported a net loss from continuing operations before extraordinary items of $9.9 million in fiscal year 2002, compared to a net loss from continuing operations before extraordinary items of $233.5 million in fiscal year 2001. After allowing for the dilutive effect of dividends on our participating shares, we incurred a net loss from continuing operations before extraordinary items available to common shareholders of $0.43 per ADS in fiscal year 2002 compared to a net loss from continuing operations before extraordinary items available to common shareholders of $4.13 per ADS in fiscal year 2001.

Discontinued Operations, Net of Tax

Discontinued operations, net of tax, include the operations of DSI that were sold on June 29, 2001. For fiscal year 2002, earnings from discontinued operations were $119.5 million, which included a $115.9 million gain on the sale of DSI and $3.6 million for net earnings from discontinued operations. For fiscal year 2001 net earnings from discontinued operations were $13.0 million. Net earnings from discontinued operations were $1.93 per ADS in fiscal year 2002 and $0.22 per ADS in fiscal year 2001.

Extraordinary Gain, net of Tax

The $27.9 million extraordinary gain on the early retirement of debt, net of tax, in fiscal year 2002 was the result of the debt forgiveness arising from the exchange offer for our 6.75% convertible subordinated notes due in 2002. Net earnings from extraordinary items were $0.45 per ADS in fiscal year 2002.

Net Earnings (Loss)

Our net earnings was $137.6 million in fiscal year 2002 compared to a net loss of $220.6 million in fiscal year 2001 for the reasons discussed above. After allowing for the dilutive effect of dividends on our participating shares, we had net earnings available to common shareholders of $1.95 per ADS in fiscal year 2002 compared to a net loss available to common shareholders of $3.91 per ADS in fiscal year 2001.

EXCHANGE RATES

We operate in 25 countries worldwide. Fluctuations in exchange rates between the dollar and the currencies in each of the countries in which we operate affect:

• the results of our international operations reported in United States dollars; and

• the value of the net assets of our international operations reported in United States dollars.

Our results of operations are affected by the relative strength of currencies in the countries where our products are sold. Approximately 46.6%, 44.2% and 43.0% of our revenue in fiscal year 2003, 2002 and 2001, respectively, was generated outside the United States. In fiscal year 2003, approximately 30.4% of our revenue was generated in Euro countries, 7.7% in the United Kingdom, and 8.5% in other foreign locations. In fiscal year 2002, approximately 27.7% of our revenue was generated in Euro countries, 7.2% in the United Kingdom, and 9.3% in other foreign locations. In fiscal year 2001,

approximately 26.5% of our revenue was generated in Euro countries, 7.5% in the United Kingdom, and 9.0% in other foreign locations.

During fiscal year 2003, the Euro and the United Kingdom pound strengthened against the dollar by approximately 12.3% and 7.8%, respectively. This positively impacted revenue by approximately $54.2 million and was also the primary reason for the $24.5 million decrease in cumulative currency translation losses in shareholders’ equity for fiscal year 2003. During fiscal year 2002, the Euro and the United Kingdom pound weakened against the dollar by approximately 2.5% and 3.1%, respectively. This negatively impacted revenue by approximately $21.7 million and was also the primary reason for the $7.5 million increase in cumulative currency translation losses in shareholders’ equity for fiscal year 2002.

Our inter-company loans are subject to fluctuations in exchanges rates between the U.S. dollar and the currencies in each of the countries in which we operate, primarily the euro and the United Kingdom pound. Based on the outstanding balance of our inter-company loans at March 31, 2003, a change of 1% in the exchange rate for the euro and United Kingdom pound, would cause an increase/decrease in our foreign exchange gain of approximately $0.1 million.

Our results of operations and financial condition have been, and in the future may be, adversely affected by the fluctuations in foreign currencies and by translation of the financial statements of our non-United States subsidiaries, including our European, South American and Latin American subsidiaries, from local currencies to the dollar. Generally, we do not hedge our exposure to changes in foreign currency. Gains and losses included in the consolidated statements of operations from foreign currency transactions included a $7.1 million gain in fiscal 2003, a $3.0 million gain in fiscal 2002 and a $9.6 million loss in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

The following summarizes our cash flows for fiscal years 2003, 2002 and 2001 as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:

	For the year ended March 31,
(In Thousands)	2003			2002			2001
Net cash provided by operating activities	$	155,018		$	155,566		$	126,941
Net cash provided by (used in) investing activities		(41,977	)		224,345			(62,773	)
Net cash used in financing activities		(92,749	)		(392,923	)		(67,640	)
Effect of exchange rates		1,731			3,397			7,696
Net increase/(decrease) in cash		22,023			(9,615	)		4,224
Cash and cash equivalents, beginning of period		59,470			69,085			64,861
Cash and cash equivalents, end of period	$	81,493		$	59,470		$	69,085

Cash flows

Our net cash flow provided by operating activities was $155.0 million, $155.6 million, and $126.9 million in fiscal years 2003, 2002 and 2001, respectively. The slight decrease in net cash provided by operating activities for fiscal year 2003 was primarily due to reduced proceeds from the sale of equipment that was partially offset by increased profitability from continuing operations from our United States and European segments and continuing improvements in cash provided by working capital. The increase in net cash provided by operating activities for fiscal year 2002 was primarily due to a significant improvement in earnings, net of extraordinary items, combined with the receipt of a $18.2 million U.S. income tax refund (which included $3.6 million of associated interest income) that was partially offset by a decline in other balance sheet accounts.

Our net cash flow provided by, used (in) investing activities was $(42.0) million, $224.3 million and ($62.8) million for fiscal years 2003, 2002 and 2001, respectively. The decrease in fiscal year 2003 cash provided by investing activities was primarily due to the non-recurrence of the sale of DSI to Pitney Bowes which occurred in fiscal year 2002 along with reduced capital spending.

Our net cash flow used in financing activities was $92.7 million, $392.9 million and $67.6 million for fiscal years 2003, 2002 and 2001, respectively. The decrease in net cash used in financing activities for fiscal year 2003 was due primarily to lower debt repayments. The increase in net cash used in financing activities for fiscal year 2002 was due to the repayment of debt primarily from proceeds from the sale of DSI and from the cash flow from operations discussed above.

Outstanding Obligations and Commitments

The following tables set forth information concerning our obligations and commitments to make future payments under contracts, such as our debt and lease agreements, and under contingent commitments.

			Payments due in
Contractual Obligations	Total		Less than 1 year		1 – 3 years		4 – 5 years		After 5 years
(in 000’s)
Credit facility	$	112,889	$	53,176	$	59,713	$	—	$	—
Notes payable		112,114		—		47,594		—		64,520
Capital leases		4,305		2,410		1,026		869		—
Other long-term obligations		3,547		2,857		257		162		271
Total contractual obligations	$	232,855	$	58,443	$	108,590	$	1,031	$	64,791

			Amount of commitment expiration per period
Other Commercial commitments	Total		Less than 1 year		1 – 3 years		4 – 5 years		After 5 years
(in 000’s)
Lease commitments	$	161,639	$	48,752	$	50,423	$	26,694	$	35,770
Letters of credit		30,000		—		30,000		—		—
Total commercial commitments	$	191,639	$	48,752	$	80,423	$	26,694	$	35,770

Existing credit facility

Our existing credit facility is with a consortium of international lenders and matures on March 31, 2006. At March 31, 2003, we had an outstanding balance of $112.9 million under our existing credit facility in the form of term loans, with no amount due under the $65.0 million revolving portion of our existing credit facility. Availability of the revolver commitment is based on the amount of our receivables and inventory. As of March 31, 2003, the available commitment under the revolving portion of our existing credit facility was $65.0 million.

During fiscal year 2003 we paid fees in the amount of $6.9 million to extend our existing credit facility for an additional two years through March 31, 2006, and fees of $4.3 million in order to amend certain terms of our existing credit facility effective December 31, 2002. On July 1, 2002, December 31, 2002 and March 31, 2003, we paid the lenders under our existing credit facility a fee equal to 1% of the total commitment under the existing credit facility. In addition, we will be required to pay fees of 1% of total commitments at June 30, 2003, December 31, 2003, March 31, 2004, December 31, 2004, March 31, 2005 and June 30, 2005, and a fee of 2% of the total commitments at June 30, 2004.

We paid $11.2 million in bank fees and $6.6 million in third party fees in our 2002 fiscal year relating to the credit facility. We have paid $20.4 million in bank fees related to the credit facility during fiscal 2003. These fees are being amortized over the term of the facility and at March 31, 2003, we had $22.4 million of unamortized debt issuance costs, anniversary fees and amendment fees.

Our credit facility requires that we maintain minimum levels of adjusted consolidated net worth and cumulative consolidated EBITDA and a minimum ratio of consolidated EBITDA to cash interest expense and bank fees paid and contains limitations on the amounts of our annual capital expenditures, each as defined in the credit facility. The credit agreement reached with the lenders on June 29, 2001 contained certain covenants which escalated for each rolling four quarter period and which, in addition to the cost of the facility, have encouraged us to seek an early refinancing of the debt under the credit facility. On December 31, 2002 we modified the credit agreement which, among other things, included an amendment which fixed the required amount of consolidated cumulative EBITDA for the trailing four fiscal quarter periods for periods ending on or after December 31, 2002 at $91.5 Million. Our EBITDA for the first, second third and fourth quarters of fiscal 2003 was $29.8 million, $23.9 million, $27.2 million and $23.1 million respectively, for a total of $104.0 million.

Our results of operations continue to be adversely impacted by the shift from analog to digital equipment, technology convergence and the difficult global economic and market conditions. In addition, certain of our non U.S. operations have traditionally experienced lower revenues in the second quarter of our fiscal year. In order to satisfy the minimum EBITDA covenant through the first two quarters of fiscal 2004 we must have EBITDA totaling $41.2 million. We currently expect to exceed this level and we currently expect substantial improvement in our EBITDA levels in the second half of fiscal 2004 but there can be no assurance we will do so.

We must also maintain a minimum level of EBITDA to cash interest expense (which includes bank fees paid). This ratio escalates over time, and was originally set at 2.74 to 1.00 for our fourth quarter. By agreements with our lenders, this ratio was waived and amended to 2.30 to 1.00 for our fourth quarter of fiscal 2003 and our first quarter of fiscal 2004. This was due to the adverse impact on this ratio of the substantial fees paid in the first half of fiscal year 2003; in particular the $7.1 million paid for the extension of the credit facility through fiscal year 2006. The ratio will escalate to 2.74 to 1.00 beginning in the second quarter of fiscal 2004. We expect to achieve EBITDA levels sufficient to cover the interest and bank fees we expect to incur during fiscal 2004 and, hence, satisfy this covenant; however, there can be no assurance we will do so.

If we were to fail to satisfy the minimum EBITDA or minimum EBITDA to interest covenants, we would require an amendment or waiver of the covenant. Although we have been successful in concluding many amendments and waivers with our lenders, we cannot assure you that our lenders would agree to an amendment or waiver. In the absence of an amendment or waiver to the credit agreement, after a failure to satisfy the covenant, our lenders would be entitled to exercise all of their rights under the credit agreement. These rights include the right of lenders owning a majority of our outstanding indebtedness under the credit agreement to decide to declare all amounts outstanding under the credit agreement immediately due. As previously discussed, the proceeds of our contemplated refinancing would be used to refinance our indebtedness under our credit facility and our zero coupon notes. No assurances can be given as to our ability to consummate any such refinancing or the terms of such refinancing.

We incurred interest on our indebtedness under the existing credit facility during fiscal year 2003 and 2002 at a weighted average rate of approximately 8.0% and 7.61% per annum, respectively. The interest rate under our existing credit facility for each interest period, as defined in the existing credit facility, commencing on or after November 30, 2002 is LIBOR plus 8.25%, subject to a downward adjustment to 7.5% if we receive a credit rating from Moody’s for our indebtedness under the credit facility of at least B2 during any such interest period.

Our indebtedness under our existing credit facility is secured by substantially all of our assets in the United States, Canada, the United Kingdom, the Netherlands and Germany.

Our existing credit facility contains negative and affirmative covenants which restrict, among other things, our ability to incur additional indebtedness and create liens beyond certain agreed limits, prohibit the payment of dividends, other than payment-in-kind dividends on our participating shares, and require us to maintain certain financial ratios. We were in compliance with such covenants as of March 31, 2003.

Zero coupon notes and subordinated notes

In June 2001, we issued approximately $47.6 million of zero coupon senior subordinated notes due April 1, 2004 and approximately $64.5 million of 10% subordinated notes due April 1, 2008 in exchange for 92% of our 6.75% convertible subordinated notes due April 1, 2002. The zero coupon notes are guaranteed by Danka Holding Company and Danka Office Imaging Company, which are both 100% owned U.S. subsidiaries. The zero coupon notes and the subordinated notes include covenants which restrict our ability to dispose of assets or merge. The zero coupon notes also include covenants which restrict us from incurring additional indebtedness or creating liens and limit the payment of dividends, other than payment-in-kind dividends on our participating shares. We have $5.5 million of cash that is categorized within “Other Assets” since it is in an escrow account that will be used for partial payment of our zero coupon notes.

In order to reduce future cash interest payments and future amounts due at maturity or on redemption, we or our affiliates may from time to time purchase our subordinated indebtedness for cash, in exchange for our ordinary shares and/or ADSs, or for a combination of debt and equity, in open market purchases and/or privately negotiated transactions. The amounts involved may be material. However, such repurchases and/or exchanges, if any, will depend upon prevailing market conditions, the price at which the subordinated indebtedness is available for purchase and/or exchange, our liquidity requirements and prospects for future access to capital, contractual restrictions, bank group approval and other factors, and

may, in certain cases, require the prior approval of our shareholders. We can give no assurances as to our, or to our affiliates’ ability to consummate any such purchase or exchange or the terms of any such purchase or exchange.

Operating Lease

On September 27, 2002, we entered into a 15 year operating lease for facilities to house the headquarters of our United States and corporate operations and our national supply center. Payments due under this lease are approximately $3.1 million each year.

OTHER FINANCING ARRANGEMENTS

Tax Retention Operating Lease (“TROL”)

Danka Holding Company (“DHC”), one of our subsidiaries, has been a party to a number of TROLs. The TROL facility sold three properties during fiscal year 2003 for approximately $34.9 million. The proceeds from these sales were used to repay the entire outstanding obligation under the TROL facility.

Senior Convertible Participating Shares

On December 17, 1999, we issued 218,000 6.50% senior convertible participating shares for $218.0 million. The participating shares are entitled to dividends equal to the greater of 6.50% per annum or ordinary share dividends on an as converted basis. Dividends are cumulative and are paid in the form of additional participating shares through December 2004. At that time, we will be obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind dividends following December 17, 2004 if our then existing principal indebtedness prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves under English law to pay cash dividends the amount of any unpaid dividend will be added to the “liquidation return” of each participating share.

The participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating shareholders. As of March 31, 2003, the participating shares have voting rights, on an as converted basis, currently corresponding to approximately 25.8% of the total voting power of our capital stock which includes an additional 49,339 participating shares in respect of payment-in-kind dividends.

If, by December 17, 2010, we have not converted or otherwise redeemed the participating shares, we are 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. If the price set out in (b) above is applicable, we are permitted to convert the participating shares into the number of ordinary shares into which they are convertible instead of making the cash payment.

In the event of liquidation of Danka, participating shareholders will 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 us) 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 the market value of those shares exceed the liquidation value of the participating shares.

We are not permitted to pay dividends, other than payment-in-kind dividends on our participating shares, under our credit facility and we do not anticipate the payment of a dividend on our ordinary shares in the foreseeable future.

We are an English company and, under English law, we are allowed to pay dividends to shareholders only if as determined by reference to our financial statements prepared in accordance with U.K. GAAP:

• we have accumulated, realized profits that have not been previously distributed or capitalized, in excess of our accumulated, realized losses that have not previously been written off in a reduction or reorganization of capital; and

• our net assets are not less than the aggregate of our share capital and our non-distributable reserves, either before, or as a result of, dividends or other distributions.

At this time, we have insufficient, accumulated realized profits to pay dividends to shareholders. Since December 2000, we have satisfied our obligation to make payment-in-kind dividends on our participating shares by capitalizing part of our share premium account, which is a reserve required by English company law and which consists of premiums paid to us on the issuance of our shares.

GECC

We have an agreement with General Electric Capital Corporation (“GECC”) under which GECC agrees to provide financing to our United States customers to purchase equipment. The agreement expires March 31, 2009. In connection with this agreement, we are obligated to provide a minimum level of customer leases to GECC. The minimum level of customer leases is equal to a specified percentage of U.S. retail equipment and related sales revenues. If we fail to provide a minimum level of customer leases under the agreement, we are obligated to pay penalty payments to GECC. For the years ended March 31, 2002 and 2001, we were obligated for penalty payments of approximately $0.2 million and $1.9 million, respectively. We were not required to make any penalty payments for the year ended March 31, 2003.

Our agreement with GECC requires us to maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such consolidated networth as provided under the GECC agreement may result in a termination event under the GECC agreement. Under the terms of the GECC agreement and GECC election, any financial covenant contained in any credit agreement entered into by us in connection with the refinancing of our existing credit facility that relates to or measures our net worth will be incorporated into the GECC agreement.

MARKET RISK MANAGEMENT

Interest Rate Risk

Our exposure to interest rate risk primarily relates to our variable rate bank debt. At March 31, 2003 we had an outstanding balance of $112.9 million under our credit facility. We incurred interest on our credit facility at a weighted average rate of 9.5% and 8.0% per annum during the three and twelve months ended March 31, 2003. Our weighted average interest rate for all of our borrowings were 17.1% and 13.7% per annum during the three and twelve months ended March 31, 2003, which includes amortization of debt issuance costs, amendment fees and anniversary fees.

Based on the outstanding balance under our credit facility, a change of 100 basis points in the average interest rate, with all other variables remaining constant, would cause an increase/decrease in our interest expense of approximately $1.1 million on an annual basis, subject to the interest rate cap discussed above.

Currency exchange risk

We are a multinational corporation. Therefore, foreign exchange risk arises as a normal part of our business. We strive to reduce this risk by transacting our international business in local currencies. In this manner, assets and liabilities are matched in the local currency, which reduces the need for dollar conversion. Any foreign currency impact on translating assets and liabilities into dollars is included as a component of shareholders’ equity. Our results for fiscal year 2003 were positively impacted by a $54.1 million foreign currency movement, in particular the strengthening of the euro and the United Kingdom pound against the dollar.

Generally, we do not enter into forward and option contracts to manage our exposure to foreign currency fluctuations. At March 31, 2003, we had no outstanding forward contracts or option contracts to buy or sell foreign currency. For the three year period ended March 31, 2003, there were no gains or losses included in our consolidated statements of operations on forward contracts and option contracts.

Seasonality

We have experienced some seasonality in our business. Our European and Canadian operations have historically experienced lower revenue for the second quarter of our fiscal year, which is the three month period ended September 30. This is primarily 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 that period.

NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”) which is effective for fiscal years beginning after May 15, 2002. This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, as well as SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. As a result, the gains or losses from debt extinguishments will no longer be classified as extraordinary items unless they meet the requirements in APB 30 of being unusual and infrequently occurring. Additionally, this Statement amends SFAS No. 13, “Accounting for Leases”, to eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. We will adopt the provisions of Statement 145 no later than the first quarter of our fiscal year 2004. Upon adoption, the prior year’s gains from debt extinguishment will be reclassified to continuing operations.

SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement 146 is to be applied prospectively to exit or disposal activities initiated after March 31, 2003.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” requires mandatorily redeemable instruments to be classified as liabilities if they embody an obligation outside the control of the issuer and the holder to redeem the instrument by transferring cash or other assets and if the obligation is required to be redeemed at a specified or determinable date or upon an event certain to occur. We will adopt the provisions of Statement 150 no later than the second quarter of our fiscal year 2004. Since the holders of our 6.5% convertible participating shares have the option to convert the instrument into ordinary shares, it will be not be classified as a liability.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained herein, or otherwise made by our officers, including statements related to our future performance and our outlook for our 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 us that is based on the beliefs of our management as well as assumptions, made by, and information currently available to, our management. The words “goal”, “anticipate”, “expect”, “believe” and similar expressions as they relate to us or our management are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements reflect our current views 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, the following: (i) any material adverse change in financial markets or in our financial position; (ii) any inability to successfully implement our strategy; (iii) any inability to achieve or maintain cost savings; (iv) increased competition in our industry and the discounting of products by our competitors; (v) new competition as a result of evolving technology; (vi) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute, new products, including digital products, color products, multifunction products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices; (vii) any negative impact from the loss of any of our key senior management personnel; (viii) any negative impact from the loss of a key vendor; (ix) fluctuations in foreign currencies; (x) any change in economic conditions in domestic or international markets where we operate or have material investments which may affect demand for our services; (xi) any inability to achieve minimum equipment leasing commitments under our customer financing arrangements; (xii) any inability to comply with the financial or other covenants in our debt instruments; (xiii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by past or future terrorist attacks, the related war on terrorism, the fear of additional terrorist attacks or the war in Iraq; and (xiv) other risks including those risks identified in any of our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our analysis only as of the date they are made. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a matter of policy, we do not generally make any specific projections as to future earnings nor do we endorse any projections regarding future performance which may be made by others outside our company.

DANKA BUSINESS SYSTEMS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per American Depositary Share (“ADS”) amounts)

		For the year ended March 31,
	Note	2003			2002			2001
Revenue:
Retail equipment and related sales		$	476,729		$	538,439		$	614,107
Retail service, supplies and rentals			838,709			937,790			1,062,007
Wholesale			84,536			78,947			97,128
Total revenue			1,399,974			1,555,176			1,773,242
Costs and operating expenses:
Cost of retail equipment sales			310,892			394,056			518,296
Retail service, supplies and rental costs			497,491			546,881			660,167
Wholesale costs of revenue			68,429			64,357			80,922
Selling, general and administrative expenses			484,887			531,331			641,480
Write-off of goodwill	3		—			—			25,577
Restructuring charges (credits)	3		(555	)		(1,992	)		15,705
Other (income) expense	3,4		(6,081	)		11,288			22,463
Total costs and operating expenses			1,355,063			1,545,921			1,964,610
Operating earnings (loss) from continuing operations			44,911			9,255			(191,368	)
Interest expense	12		(32,822	)		(42,298	)		(82,648	)
Interest income			1,249			5,768			3,172
Earnings (loss) from continuing operations before income taxes			13,338			(27,275	)		(270,844	)
Provision (benefit) for income taxes	6		3,604			(17,407	)		(37,328	)
Earnings (loss) from continuing operations before extraordinary items			9,734			(9,868	)		(233,516	)
Discontinued operations, net of tax			—			119,490			12,956
Extraordinary gain on early retirement of debt, net of tax			—			27,933			—
Net earnings (loss)		$	9,734		$	137,555		$	(220,560	)
Basic earnings (loss) available to common shareholders per ADS:	7
Net loss per ADS, continuing operations		$	(0.13	)	$	(0.43	)	$	(4.13	)
Net earnings per ADS, discontinued operations			—			1.93			0.22
Net earnings per ADS, extraordinary item			—			0.45			—
Net earnings (loss) per ADS		$	(0.13	)	$	1.95		$	(3.91	)
Weighted average ADSs			62,141			61,967			60,438
Diluted earnings (loss) available to common shareholders per ADS:	7
Net (loss) per ADS, continuing operations		$	(0.13	)	$	(0.43	)	$	(4.13	)
Net earnings per ADS, discontinued operations			—			1.93			0.22
Net earnings per ADS, extraordinary item			—			0.45			—
Net earnings (loss) per ADS		$	(0.13	)	$	1.95		$	(3.91	)
Weighted average ADSs			62,141			61,967			60,438

The accompanying notes are an integral part of these consolidated financial statements.

DANKA BUSINESS SYSTEMS PLC

CONSOLIDATED BALANCE SHEETS

(In thousands)

		At March 31,
	Note	2003			2002
Assets
Current assets:
Cash and cash equivalents		$	81,493		$	59,470
Accounts receivable, net of allowance for doubtful accounts of:
$41,410 (2002 - $42,281)			257,329			292,350
Inventories			111,471			130,599
Prepaid expenses, deferred income taxes and other current assets			45,879			35,935
Total current assets			496,172			518,354
Equipment on operating leases, net	10		39,829			57,432
Property and equipment, net	11		67,782			60,549
Intangible assets:
Goodwill, net of accumulated amortization of:
$87,646 (2002 - $71,795)	2		256,990			231,908
Noncompete agreements, net of accumulated amortization of:
$1,432 (2002 - $3,084)			799			1,078
Deferred income taxes	6		78,480			67,583
Other assets			41,568			35,919
Total assets		$	981,620		$	972,823
Liabilities and shareholders’ equity
Current liabilities:
Current maturities of long-term debt and notes payable	12	$	58,443		$	36,293
Accounts payable			140,207			110,586
Accrued expenses and other current liabilities			101,749			109,219
Taxes payable			112,311			94,237
Deferred revenue			40,628			42,343
Total current liabilities			453,338			392,678
Long-term debt and notes payables, less current maturities	12		174,412			268,161
Deferred income taxes and other long-term liabilities			29,785			23,415
Total liabilities			657,535			684,254
6.5% convertible participating shares—redeemable:
$1.00 stated value; 500,000 authorized; 267,339 issued and outstanding (2002 – 250,644)	13		258,376			240,520
Shareholders’ equity:
Ordinary shares, 1.25 pence stated value 500,000,000 authorized; 249,531,546 issued and outstanding (2002 – 248,084,622)	7		5,167			5,139
Additional paid-in capital			327,173			325,880
Accumulated deficit			(189,995	)		(181,872	)
Accumulated other comprehensive loss			(76,636	)		(101,098	)
Total shareholders’ equity			65,709			48,049
Commitments and contingencies	16
Total liabilities & shareholders’ equity		$	981,620		$	972,823

The accompanying notes are an integral part of these consolidated financial statements.

DANKA BUSINESS SYSTEMS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the year ended March 31,
	2003			2002			2001
Operating activities:
Net earnings (loss)	$	9,734		$	137,555		$	(220,560	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities of continuing operations:
Extraordinary gain on debt retirement		—			(27,933	)		—
Net earnings and gain from sale of discontinued operations		—			(119,490	)		(12,956	)
Depreciation and amortization		57,828			92,347			140,969
Deferred income taxes		(966	)		(12,440	)		(32,801	)
Amortization of debt issuance costs		10,944			5,187			1,912
Loss on sale of property and equipment and equipment on operating leases		5,933			14,075			13,700
Proceeds from sale of equipment on operating leases		1,986			5,483			5,845
Restructuring and other special charges (credits)		(555	)		(1,992	)		15,705
Loss on sale of business		462			—			—
Changes in assets and liabilities, net of effects from the purchase of subsidiaries and the assets and liabilities of business held for sale
Changes in net assets of discontinued operations		—			—			28,062
Accounts receivable		35,021			54,048			106,624
Inventories		19,128			68,924			124,201
Prepaid expenses and other current assets		(6,658	)		7,520			(5,168	)
Other non-current assets		(18,597	)		(14,002	)		30,670
Accounts payable		29,621			(26,018	)		(24,233	)
Accrued expenses and other current liabilities		10,490			(29,054	)		(47,519	)
Deferred revenue		(1,715	)		7,374			(3,863	)
Other long-term liabilities		2,362			(6,018	)		6,353
Net cash provided by operating activities		155,018			155,566			126,941
Investing activities:
Capital expenditures		(48,550	)		(50,577	)		(68,881	)
Proceeds from the sale of property and equipment		633			928			6,108
Net proceeds from the sale of business		5,940			273,994			—
Net cash (used in) provided by investing activities		(41,977	)		224,345			(62,773	)
Financing activities:
Net payments under line of credit agreements		(54,013	)		(341,845	)		(67,810	)
Principal borrowings (payments) on other long-term debt		(18,301	)		(25,281	)		170
Payment of debt issue costs		(20,435	)		(25,797	)		—
Net cash used in financing activities		(92,749	)		(392,923	)		(67,640	)
Effect of exchange rates		1,731			3,397			7,696
Net increase (decrease) in cash and cash equivalents		22,023			(9,615	)		4,224
Cash and cash equivalents, beginning of period		59,470			69,085			64,861
Cash and cash equivalents, end of period	$	81,493		$	59,470		$	69,085
Supplemental disclosures—cash flow information:
Interest paid:	$	42,795		$	38,972		$	83,283
Income taxes paid:		2,676			2,420			10,586

The accompanying notes are an integral part of these consolidated financial statements.

DANKA BUSINESS SYSTEMS PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except per American Depositary Share (“ADS”) amounts)

	Number of ordinary shares (4 ordinary shares equal 1 ADS)	Ordinary shares		Additional paid-in capital		Accumulated deficit			Accumulated other compre- hensive (loss) income			Total
Balances at March 31, 2000	234,574	$	4,892	$	317,056	$	(66,226	)	$	(79,009	)	$	176,713
Net loss	—		—		—		(220,560	)		—			(220,560	)
Currency translation adjustment	—		—		—		—			(14,543	)		(14,543	)
Comprehensive loss													(235,103	)
Dividends and accretion on participating shares	—		—		—		(15,833	)		—			(15,833	)
Shares issued under employee stock plans	12,997		238		8,343		—			—			8,581
Balances at March 31, 2001	247,571	$	5,130	$	325,399	$	(302,619	)	$	(93,552	)	$	(65,642	)
Net earnings	—		—		—		137,555			—			137,555
Currency translation adjustment	—		—		—		—			(7,546	)		(7,546	)
Comprehensive income													130,009
Dividends and accretion on participating shares	—		—		—		(16,808	)		—			(16,808	)
Shares issued under employee stock plans	514		9		481		—			—			490
Balances at March 31, 2002	248,085	$	5,139	$	325,880	$	(181,872	)	$	(101,098	)	$	48,049
Net earnings	—		—		—		9,734			—			9,734
Currency translation adjustment	—		—		—		—			24,462			24,462
Comprehensive income													34,196
Dividends and accretion on participating shares	—		—		—		(17,857	)		—			(17,857	)
Shares issued under:
director stock plan	269		2		134		—			—			136
employee stock plans	1,178		26		1,159		—			—			1,185
Balances at March 31, 2003	249,532	$	5,167	$	327,173	$	(189,995	)	$	(76,636	)	$	65,709

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of preparation: The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The principal accounting policies are set forth below.

Basis of consolidation: The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. Our principal operating subsidiaries are located in North America, Europe, Australia, and Latin America, and are principally engaged in the distribution and service of photocopiers and related office imaging equipment. All inter-company balances and transactions have been eliminated in consolidation. References herein to “we” or “our” refer to Danka Business Systems PLC and consolidated subsidiaries unless the context specifically requires otherwise.

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at year end and the reported amounts of revenues and expenses during the reporting period. Certain significant estimates are disclosed throughout this report. Our actual results could differ from these estimates.

Cash and cash equivalents: Cash and cash equivalents consist of cash on hand and all highly liquid investments or deposits with original maturities of three months or less. We have $5.5 million of cash that is categorized within “Other Assets” that can be used for payment of our zero coupon senior subordinated notes which are due April 1, 2004.

Allowances for Accounts Receivable—We provide allowances for doubtful accounts on our accounts receivable for estimated losses. Our estimates are based upon the aging of our accounts receivable. Our estimates are influenced by a number of considerations, including but not limited to the following: our large number of customers and their dispersion across wide geographic areas, the fact that no single customer accounts for 2% or more of our net sales, our continuing credit evaluation of our customers’ financial conditions and credit insurance coverage in certain circumstances.

Inventories: Inventories consist of photocopiers, facsimile equipment and other automated office equipment which are stated at the lower of specific cost or market of $56.6 million for fiscal 2003 and $62.2 million for fiscal 2002. The related parts and supplies are valued at the lower of average cost or market of $54.9 million for fiscal 2003 and $68.4 million for fiscal 2002.

Property and equipment: Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the assets’ estimated economic lives. Expenditures for additions, major renewals or betterments are capitalized and expenditures for repairs and maintenance are charged to earnings as incurred. When property and equipment are retired or otherwise disposed of, the cost and the applicable accumulated depreciation are removed from the respective accounts and the resulting gain or loss is reflected in operations. We expense software costs incurred in preliminary project stages. We capitalize any costs incurred in the developing or obtaining of internal use software. Capitalized costs are amortized over a period of three to five years. Costs related to maintenance and training are expensed as incurred.

Goodwill: We adopted SFAS 142 “Goodwill and Other Intangible Assets” effective April 1, 2002. See note 2 to the consolidated financial statements. Prior to April 1, 2002, goodwill and other intangible assets were evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments were recognized if future discounted cash flows and earnings from operations were not expected to be sufficient to recover goodwill and other long-lived assets. The carrying amounts were then reduced by the estimated shortfall of the discounted cash flows. For the year ended March 31, 2001, we wrote-off $25.6 million of goodwill (See Note 3).

Long-lived assets: The carrying value of long-lived assets to be held and used, including other intangible assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments are recognized if future discounted cash flows and earnings from operations are not expected to be sufficient to recover other long-lived assets. The carrying amounts are then reduced by the estimated shortfall of the discounted cash flows. Noncompete agreements are amortized over the lives of the agreements, generally three to seven years, on a straight-line basis.

Deferred financing costs are charged ratably to interest expense over the term of the related debt, and are included in “Other Current Assets” and in “Other Noncurrent Assets.”

Income taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

Notes to Consolidated Financial Statements

differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Revenue recognition: Retail equipment and related sales are recognized upon acceptance of delivery by the customer and, in the case of equipment sales financed by third party finance or leasing companies, at the time of credit acceptance by the finance or leasing company, if later. However, for the sale of equipment that requires setup by us before it can be used by a customer, such as a Heidelberg 9110/9150 or equivalent type of equipment, revenue is recognized upon acceptance of delivery by the customer and installation. Supply sales to customers are recognized at the time of shipment unless supply sales are included in a service contract, in which case supply sales are recognized upon usage by the customer. For the year ended March 31, 2001, our retail service, supplies, and rentals revenue was reduced because of a change in our estimate of unbilled variable service revenue. After a detailed review of assumptions used to determine the amount of unbilled revenue, we determined that the estimate of variable usage used to calculate the revenue accrual for fiscal year 2001 should be reduced by $11.3 million.

Operating lease income is recognized as earned over the lease term. Maintenance contract service revenues are recognized ratably over the term of the underlying maintenance contracts. Deferred revenue consists of unearned maintenance contract revenue that is recognized using the straight-line method over the life of the related contract, generally three to twelve months.

Shipping and handling costs: Shipping and handling costs billed to our customers are included in the same category as the related sale. The cost of shipping and handling is included in cost of sales.

Advertising costs: We expense advertising costs as incurred, except production costs which are expensed the first time the advertising takes place.

Earnings per share: Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise of stock options or the conversion of securities into stock. Income available to common shareholders is determined by reducing net earnings or (loss) by the dividends for the relevant fiscal year paid on the 6.5% senior convertible participating shares. Earnings per American depositary share are based on the current ratio of four ordinary shares to one ADS.

Foreign currencies: The functional currency for most foreign operations is the local currency. Foreign currency transactions are converted at the rate of exchange on the date of the transaction or translated at the year end rate in the case of transactions not then finalized. Gains and losses resulting from foreign currency transactions are included in other income or other expense on the accompanying statements of operation.

Assets and liabilities in currencies other than dollars are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average rate of exchange for the period. The resulting translation adjustments are recorded as a separate component of shareholders’ equity (deficit).

Concentrations of risk: Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and cash equivalents and trade receivables. Our cash and cash equivalents are placed with high credit quality financial institutions, and are invested in short-term maturity, highly rated securities. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base and their dispersion across many different industries and geographical areas. As of March 31, 2003, we had no significant concentrations of credit risk. Our business is dependent upon close relationships with our vendors and our ability to purchase photocopiers and related office imaging equipment from these vendors on competitive terms. We primarily purchase products from several key vendors including Canon, Ricoh and Toshiba, each of which represented more than 10% of equipment purchases for the years ended March 31, 2003 and 2002.

Financial instruments: From time to time, we may use interest rate swap agreements to manage interest costs and the risks associated with changing interest rates. The interest differential to be paid or received is included in interest expense for the period. We do not hold derivative financial instruments for trading purposes.

Stock Based Compensation: We have employee stock benefit plans, which are described more fully in “Note 15: Share Option Plans.” Our stock option plans are accounted for under the instrinsic value recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. As the exercise price of all options granted under these plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in net income. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to employee stock benefits, including shares issued under the stock option plans.

Notes to Consolidated Financial Statements

For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be amortized to expense over the options’ vesting periods.

	For the year ended March 31,
(in $000 except per ADS data)	2003			2002		2001
Net earnings (loss), as reported	$	9,734		$	137,555	$	(220,560	)
Less: total stock-based employee compensation expense determined under the fair value for all awards, net of tax		2,293			1,113		5,539
Pro forma net earnings (loss)	$	7,441		$	136,442	$	(226,099	)
Basic (loss) earnings available to common shareholders per ADS
As reported	$	(0.13	)	$	1.95	$	(3.91	)
Pro forma		(0.17	)		1.93		(4.00	)
Diluted (loss) earnings available to common shareholders per ADS
As reported	$	(0.13	)	$	1.95	$	(3.91	)
Pro forma		(0.17	)		1.93		(4.00	)

SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the option’s expected life and price volatility of the underlying stock. Because our stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the option of management, the existing model does not necessarily provide a reliable single measure of the fair value of employee stock options. See “Note 15: Share Option Plans” for a discussion of the assumptions used in the option pricing model and estimated fair value of employee stock options.

Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.

New accounting standards:

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”) which is generally effective for fiscal years beginning after May 15, 2002. This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, as well as SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. As a result, the gains or losses from debt extinguishments will no longer be classified as extraordinary items unless they meet the requirements in APB 30 of being unusual and infrequently occurring. Additionally, this Statement amends SFAS No. 13, “Accounting for Leases”, to eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. We will adopt the provisions of Statement 145 no later than the first quarter of our fiscal year 2004. Upon adoption, the prior year’s gains from early retirement of debt will be reclassified to continuing operations.

SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity” requires mandatorily redeemable instruments to be classified as liabilities if they embody an obligation outside the control of the issuer and the holder to redeem the instrument by transferring cash or other assets and if the obligation is required to be redeemed at a specified or determinable date or upon an event certain to occur. We will adopt the provisions of Statement 150 no later than the second quarter of our fiscal year 2004. Since the holder of our 6.5% convertible participating shares has the option to convert the instrument into ordinary shares, it will be not be classified as a liability.

United Kingdom Companies Act 1985: The financial statements for the years ended March 31, 2003, 2002 and 2001 do not comprise statutory accounts within the meaning of section 240 of the United Kingdom Companies Act 1985. Statutory accounts for the year ended March 31, 2003 will be delivered to the Registrar of Companies for England and Wales following our 2003 annual general meeting. The auditors’ reports on those statutory accounts was unqualified.

Notes to Consolidated Financial Statements

Note 2. Intangible Assets

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets by replacing the regular amortization of these assets with the requirement that they be reviewed annually for possible impairment or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives. We adopted SFAS 142 effective April 1, 2002. During the first quarter of the fiscal year ending March 31, 2003, we finalized the required transitional impairment tests of goodwill and indefinite-lived intangible assets under the requirements of SFAS 142. Based on the results of the transitional impairment tests, no adjustments for impairment were necessary. We performed another impairment test for goodwill in the fourth quarter of fiscal year 2003. Based on the results of that test, no adjustment for impairment was necessary.

The following table reflects unaudited pro forma results of operations giving effect to the discontinuance of goodwill amortization as if it were adopted on April 1, 2000:

	For the year ended March 31,
(in 000’s, except per ADS amounts)	2003			2002			2001
Earnings (loss) from continuing operations before extraordinary items	$	9,734		$	(9,868	)	$	(233,516	)
Add-back goodwill amortization, net of taxes		—			5,244			10,530
Adjusted earnings (loss) from continuing operations before extraordinary items		9,734			(4,624	)		(222,986	)
Discontinued operations, net of tax		—			119,490			12,956
Extraordinary gain on early retirement of debt, net of tax		—			27,933			—
Adjusted net earnings (loss)	$	9,734		$	142,799		$	(210,030	)
Basic (loss) earnings available to common shareholders per ADS:
Net loss per ADS, continuing operations	$	(0.13	)	$	(0.43	)	$	(4.13	)
Add-back goodwill amortization, net of taxes		—			0.08			0.17
Adjusted net loss per ADS, continuing operations		(0.13	)		(0.35	)		(3.96	)
Net earnings per ADS, discontinued operations		—			1.93			0.22
Net earnings per ADS, extraordinary item		—			0.45			—
Adjusted net earnings (loss) per ADS	$	(0.13	)	$	2.03		$	(3.74	)
Weighted average ADSs		62,141			61,967			60,438
Diluted operating (loss) earnings available to common shareholders per ADS:
Net loss per ADS, continuing operations	$	(0.13	)	$	(0.43	)	$	(4.13	)
Add-back goodwill amortization, net of taxes		—			0.08			0.17
Adjusted net loss per ADS, continuing operations		(0.13	)		(0.35	)		(3.96	)
Net earnings per ADS, discontinued operations		—			1.93			0.22
Net earnings per ADS, extraordinary item		—			0.45			—
Adjusted reported net earnings (loss) per ADS	$	(0.13	)	$	2.03		$	(3.74	)
Weighted average ADSs		62,141			61,967			60,438

As of March 31, 2003, goodwill amounted to $257.0 million. Changes to goodwill for fiscal year ended March 31, 2003 resulted primarily from fluctuations in foreign currency exchange rates and an adjustment related to a prior year acquisition. Non-compete agreements, net amounted to $0.8 million, which included $1.4 million of accumulated amortization.

Notes to Consolidated Financial Statements

Aggregate amortization expense of non-compete agreements for fiscal 2003 amounted to $0.3 million. Estimated amortization expense for the current fiscal year is $0.2 million and the succeeding five fiscal years is between $0.1 million and $0.2 million per year.

Goodwill by operating segment as of March 31, 2003:

(in 000’s)	Goodwill
United States	$	76,685
Europe		174,855
International		5,450
Total	$	256,990

3. Restructuring and Other Special Charges

Fiscal Year 2002 Charge: Our fiscal year 2002 restructuring charge included $4.9 million related to severance for 355 employees in the U.S., Canada and Europe. Cash outlays for the reductions during fiscal year 2003 totaled $0.8 million. Substantially all of these reductions were completed by March 31, 2003 but with payments being made over the next two years. The restructuring charge also included $6.1 million for future lease obligations on 39 facilities that were vacated by March 31, 2002. Cash outlays for the facilities during fiscal year 2003 totaled $2.9 million. The 2002 restructuring charge is categorized within “Accrued expense and other current liabilities.” The following table summarizes the fiscal year 2002 restructuring charge:

2002 Restructuring Charge:

(in 000’s)	Fiscal 2002 Expense		Reserve at March 31, 2002		Cash Outlays			Other Non-Cash Changes			Reserve at March 31, 2003
Severance	$	4,967	$	1,210	$	(785	)	$	(80	)	$	345
Future lease obligations on facility closures		6,074		3,426		(2,898	)		67			595
Total	$	11,041	$	4,636	$	(3,683	)	$	(13	)	$	940

Fiscal Year 2001 Charge: Our fiscal year 2001 restructuring charge included $21.8 million related to severance, which represented the anticipated reduction of approximately 1,100 positions worldwide. Cash outlays related to these reductions during fiscal year 2003 totaled $0.2 million. Substantially all of these reductions were completed by March 31, 2003 but with payments being made over the next two years.

The fiscal year 2001 restructuring charge also included $4.3 million for future lease obligations on facility closures and exit costs. Cash outlays for facilities during fiscal year 2003 totaled $0.02 million. We reversed $0.3 million of fiscal year 2001 facility charges during fiscal year 2003 due to favorable lease settlements and revised estimates of amounts required to settle remaining lease obligations . The 2001 restructuring charge is categorized within “Accrued expense and other current liabilities.” The following table summarizes the fiscal year 2001 restructuring charge:

2001 Restructuring Charge:

(in 000’s)	Fiscal 2001 Expense		Reserve at March 31, 2002		Cash Outlays			Other Non-Cash Changes			Reserve at March 31, 2003
Severance	$	21,766	$	414	$	(200	)	$	—		$	214
Future lease obligations on facility closures and other exit costs		4,295		475		(28	)		(316	)		131
Total	$	26,061	$	889	$	(228	)	$	(316	)	$	345

Goodwill Write-off—Fiscal 2001: We recorded other non-cash charges during fiscal year 2001. Non-cash special charges resulted from a $18.7 million write-down of goodwill in Australia in the second quarter and a $6.9 million write-down of goodwill in the U.S. in the fourth quarter. Goodwill write-downs were determined based on changes in the business environment for certain of our operations and an analysis of projected cash flows related to those operations.

Notes to Consolidated Financial Statements

4. Other Income and Expense

Other income and other expense include the following:

	For the year ended March 31,
(in 000’s)	2003			2002			2001
Other (income) expense:
Foreign exchange gains	$	(7,108	)	$	(3,000	)	$	—
Foreign exchange losses		—			—			9,621
Disposal of business		576			—			—
Amortization of goodwill and non-compete covenants		451			11,207			12,842
Country exit costs and asset impairment costs		—			3,081			—
Total	$	(6,081	)	$	11,288		$	22,463

5. Sale of Danka Services International

On June 29, 2001, we completed the sale of Danka Services International, Inc. (“DSI”) to Pitney Bowes Inc. for $285 million in cash, after giving effect to purchase price adjustments, pursuant to an asset purchase agreement dated April 9, 2001. DSI was our facilities management and outsourcing business. Our shareholders approved the sale at an extraordinary general meeting on June 29, 2001. We also entered into agreements to provide services and supplies to Pitney Bowes, Inc. on a worldwide basis for an initial term of two years.

The sale of DSI resulted in a gain in fiscal year 2002 of $119.5 million after income taxes of $57.9 million. A summary of the operating results of discontinued operations are as follows:

	For the year ended March 31,
(in 000’s)	2002		2001
Revenue	$	74,234	$	290,018
Earnings before income taxes	$	5,425	$	22,185
Provision for income taxes		1,848		9,229
Net earnings from discontinued operations		3,577		12,956
Gain from sale of discontinued operations after income taxes of $57.9 million		115,913		—
Discontinued operations, net of tax	$	119,490	$	12,956

6. Income Taxes

The provision (benefit) for income taxes attributable to continuing operations was as follows:

	For the year ended March 31,
(in 000’s)	2003			2002			2001
U.S. income tax
Current	$	(1,888	)	$	(42	)	$	760
Deferred		(4,979	)		(5,010	)		(35,134	)
Total U.S. tax provision (benefit)		(6,867	)		(5,052	)		(34,374	)
U.K. income tax
Current		—			—			—
Deferred		169			(19,513	)		(8,044	)
Total U.K. tax provision (benefit)		169			(19,513	)		(8,044	)
Other international income tax
Current		6,458			1,091			3,973
Deferred		3,843			6,067			1,117
Total other international tax provision (benefit)		10,301			7,158			5,090
Total provision (benefit) for income taxes	$	3,604		$	(17,407	)	$	(37,328	)

Notes to Consolidated Financial Statements

A reconciliation of the United Kingdom statutory corporation tax rate to the effective rate is as follows:

	For the year ended March 31,
(in 000’s)	2003			2002			2001
Tax (benefit) charge at standard United Kingdom rate	$	4,001		$	(8,183	)	$	(81,254	)
Profits (losses) taxed at other than standard United Kingdom rate		1,694			21,331			14,129
Changes in valuation allowances		(4,880	)		(1,715	)		(146	)
State tax provision, net of federal income tax provision		(1,465	)		(28	)		(5,888	)
United Kingdom tax on intra-group profits		—			(29,241	)		29,241
Permanent differences		4,254			429			6,590
Provision (benefit) for income taxes	$	3,604		$	(17,407	)	$	(37,328	)

The United Kingdom statutory corporation tax rate was 30% in fiscal years 2003, 2002 and 2001.

The tax effects of temporary differences that comprise the elements of deferred tax are as follows:

	At March 31,
(in 000’s)	2003			2002
Deferred tax assets:
Accrued expenses not deducted for tax purposes	$	7,163		$	5,962
Reserves for inventory and accounts receivables not deducted for tax purposes		14,026			14,215
Tax loss carryforwards		102,521			101,084
Tax credit carryforwards		3,200			4,493
Depreciation and other		564			1,624
Total gross deferred tax assets		127,474			127,378
Valuation allowance		(33,884	)		(38,764	)
Net deferred tax assets		93,590			88,614
Deferred tax liabilities:
Leases and depreciation		(4,271	)		(261	)
Total gross deferred tax liabilities		(4,271	)		(261	)
Net deferred tax asset	$	89,319		$	88,353

Net deferred tax assets was classified on the Consolidated Balance Sheets as follows:

	At March 31,
(in 000’s)	2003			2002
Deferred tax assets—current	$	15,110		$	21,031
Deferred tax assets—non-current		78,480			67,583
Deferred tax liabilities—non-current		(4,271	)		(261	)
Net deferred tax asset		89,319			88,353

At March 31, 2003, we had net operating losses and other carryforwards relating to our U.S. operations of approximately $175.0 million of which $91.3 million will expire if not used by March 31, 2019 and $53.3 million if not used by March 31, 2021 and $30.4 million if not used by March 31, 2023. We have an alternative minimum tax credit carryforward of $3.2 million relating to U.S. operations, which is available indefinitely. We have foreign net operating loss carryforwards of approximately $95.3 million with varying expiration dates. Significant amounts of these loss carryforwards are offset by valuation allowances reflecting the lack of certainty as to realization.

The valuation allowance for deferred tax assets as of March 31, 2003 and 2002 was $33.9 and $38.8 million, respectively. The net change in the total valuation allowance for the years ended March 31, 2003 and 2002 was a decrease of $4.9 million and $72.4 million, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax

Notes to Consolidated Financial Statements

planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2003. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.

The repatriation of the undistributed earnings of our non United Kingdom foreign subsidiaries at March 31, 2003 would not result in an additional material amount of tax.

7. Earnings per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings (loss) from continuing operations before extraordinary items per ADS computations follows:

	March 31, 2003							March 31, 2002							March 31, 2001
(in 000’s except per share amounts)	Earnings (loss) from continuing operations (numerator)			Shares (denominator)	Per-share amount			Earnings (loss) from continuing operations (numerator)			Shares (denominator)	Per-share amount			Earnings (loss) from continuing operations (numerator)			Shares (denominator)	Per-share amount
Basic loss available to common shareholders per ADS:
Net earnings (loss) from continuing operations before extraordinary Items	$	9,734						$	(9,868	)					$	(233,516	)
Dividends and accretion on participating shares		(17,981	)						(16,930	)						(15,953	)
Loss		(8,247	)	62,141	$	(0.13	)		(26,798	)	61,967	$	(0.43	)		(249,469	)	60,438	$	(4.13	)
Effect of dilutive securities:
Stock options		—		—					—		—					—		—
Diluted loss available to common shareholders per ADS:
Loss	$	(8,247	)	62,141	$	(0.13	)	$	(26,798	)	61,967	$	(0.43	)	$	(249,469	)	60,438	$	(4.13	)

The effect of our convertible subordinated notes is not included in the computation of diluted earnings per ADS for the two years ended March 31, 2002 because they are anti-dilutive. In addition, 1,942,000, 548,000 and 1,531,000 of stock options for the years ended March 31, 2003, 2002 and 2001, respectively, and the effect of the convertible participating shares on the computation of diluted earnings per ADS for the three years ended March 31, 2003 are not included because they are anti-dilutive. For the three years ended March 31, 2003, basic and diluted per share amounts were equal because of the losses available to common shareholders incurred in those years.

8. Segment Reporting

We manage our business geographically and our primary areas of management and decision making are the United States, Europe and International. Our reportable segments do not include the discontinued operations of DSI. Our United States, Europe and International segments provide office imaging equipment, document solutions and related service and supplies on a direct basis to retail customers. The geographical areas covered by our International segment include Canada, Latin America and Australia. Our European segment also provides office imaging equipment and supplies on a wholesale basis to independent dealers. Our management relies on an internal management reporting process that provides segment revenue and earnings from operations, which is defined as earnings before interest expense, interest income and income taxes as shown on our consolidated statements of operations less restructuring charges and foreign exchange gains and losses. Management believes that this is an appropriate measure of evaluating the operating performance of our segments. The following tables present information about our segments.

Notes to Consolidated Financial Statements

	For the year ended March 31,
(in 000’s)	2003			2002			2001
Revenues
United States	$	747,787		$	871,508		$	1,019,019
Europe		532,248			542,426			602,877
International		119,939			144,945			159,864
Other (1)		—			(3,703	)		(8,518	)
Total Revenues	$	1,399,974		$	1,555,176		$	1,773,242
Gross Profit
United States	$	319,414		$	336,089		$	339,025
Europe		169,534			165,379			158,468
International		34,214			49,367			49,493
Other (1)		—			(953	)		(33,129	)
Total Gross Profit	$	523,162		$	549,882		$	513,857
Operating earnings (loss) from continuing operations
United States	$	39,648		$	17,201		$	(64,010	)
Europe		26,346			11,886			(25,475	)
International		(11,434	)		4,959			(37,864	)
Other (1)		(9,649	)		(24,791	)		(64,019	)
Total operating earnings (loss) from continuing operations	$	44,911		$	9,255		$	(191,368	)
Assets
United States	$	305,284		$	334,067		$	429,612
Europe		429,685			434,687			501,481
International		57,495			78,131			91,358
Other (1)		189,156			125,938			292,525
Total Assets	$	981,620		$	972,823		$	1,314,976
Capital Expenditures
United States	$	29,782		$	32,721		$	32,761
Europe		11,036			11,900			24,671
International		5,384			5,236			10,069
Other (1)		2,348			720			1,380
Total Capital Expenditures	$	48,550		$	50,577		$	68,881
Depreciation and Amortization
United States	$	35,397		$	53,666		$	69,014
Europe		13,344			28,152			33,482
International		8,845			9,615			32,561
Other (1)		242			914			5,912
Total Depreciation and Amortization	$	57,828		$	92,347		$	140,969
Long-lived Assets (2)
United States	$	151,364		$	136,961		$	160,064
Europe		192,224			155,920			177,962
International		18,066			20,768			27,499
Other (1)		3,746			37,318			39,201
Total Long-lived Assets (2)	$	365,400		$	350,967		$	404,726

Notes to Consolidated Financial Statements

(1) Other includes the elimination of inter-segment revenues, corporate expenses, restructuring, foreign exchange gains/losses, corporate assets, deferred tax assets and assets of discontinued operations.

(2) Long-lived assets are defined as equipment on operating leases, property and equipment, goodwill and noncompete agreements, all of which are net of their related depreciation and amortization. For fiscal year 2003, goodwill has been allocated pursuant to footnote 2.

9. Quarterly Financial Data (unaudited)

The following table presents selected quarterly financial data for the periods indicated:

	June 30			Sept. 30			Dec. 31			March 31			Total Year
(in 000’s), except per ADS data
Fiscal 2003
Total Revenue	$	347,061		$	343,750		$	353,115		$	356,048		$	1,399,974
Gross profit		134,000			123,831			131,253			134,080			523,162
Earnings (loss) from continuing operations before income taxes		7,879			2,400			4,503			(1,443	)		13,338
Net earnings (loss)		5,752			1,756			3,284			(1,057	)		9,734
Per ADS—diluted:
Net earnings (loss)		0.02			(0.04	)		(0.02	)		(0.09	)		(0.13	)
Stock prices (high/low) per ADS	$	5.05 – $2.96		$	3.62 – $1.77		$	4.80 – $1.33		$	5.27 – $3.05		$	5.27 – $1.33
Fiscal 2002
Revenue	$	401,668		$	381,310		$	400,554		$	371,643		$	1,555,176
Gross profit		139,871			129,550			140,809			139,642			549,882
Earnings (loss) from continuing operations before income taxes		(16,360	)		(6,382	)		1,429			(5,966	)		(27,275	)
Earnings (loss) from continuing operations		(13,156	)		(1,876	)		560			4,601			(9,868	)
Discontinued operations, net of tax		113,052			(1,291	)		(2,901	)		10,630			119,490
Extraordinary gain (loss) on early retirement of debt, net of tax		26,762			(241	)		1,415			—			27,933
Net earnings (loss)		126,658			(3,408	)		(926	)		15,231			137,555
Per ADS—diluted:
Earnings (loss) from continuing operations		(0.28	)		(0.10	)		(0.06	)		—			(0.43	)
Discontinued operations		1.83			(0.02	)		(0.04	)		0.17			1.93
Extraordinary gain		0.43			—			0.02			—			0.45
Net earnings (loss)		1.98			(0.12	)		(0.08	)		0.17			1.95
Stock prices (high/low) per ADS	$	1.25 – $0.63		$	1.12 – $0.49		$	1.13 – $0.50		$	4.15 – $0.97		$	4.15 – $0.49

10. Equipment on Operating Leases, net

Included in equipment on operating leases is equipment used to generate rental revenue in our core office imaging business. Substantially all of our governmental operating leases are cancelable. Equipment on operating leases is depreciated over three to five years assuming a salvage value ranging from zero to ten percent and consists of the following:

	At March 31,
(in 000’s)	2003			2002
Equipment on operating leases	$	183,862		$	230,098
Less accumulated depreciation		(144,033	)		(172,666	)
Equipment on operating leases, net	$	39,829		$	57,432

Depreciation expense for the years ended March 31, 2003, 2002 and 2001 approximated $36,139,000, $44,199,000 and $67,463,000, respectively.

Notes to Consolidated Financial Statements

11. Property and Equipment, net

Property and equipment, along with their useful lives, consists of the following:

	At March 31,						Average Useful life In years
(in 000’s)	2003			2002
Buildings	$	1,447		$	1,438		31
Office furniture, equipment		142,057			136,040		3 – 10
Leasehold improvements		22,927			20,307		3 – 15
Software		45,664			27,556		3 – 5
Transportation equipment		2,667			1,751		5 – 15
Land		420			418		—
Total Cost		215,182			187,510
Less accumulated depreciation and amortization		(147,400	)		(126,961	)
Property and equipment, net	$	67,782		$	60,549

Depreciation expense for the years ended March 31, 2003, 2002 and 2001 approximated $21,237,000, $36,836,000 and $35,092,000, respectively.

12. Debt

Debt consists of the following:

	At March 31,
(in 000’s)	2003		2002
Credit facility (limited to $202.9 million) interest at LIBOR plus an applicable margin (7.98% average interest rate for 2003) due March 2006—see below	$	112,889	$	170,000
10% subordinated notes due April 2008		64,520		64,520
Zero coupon senior subordinated notes due April 2004		47,594		47,594
Various notes payable bearing interest from prime to 12.0% maturing principally over the next 5 years		7,852		6,352
Total long-term debt and notes payable		232,855		304,454
Less current maturities of long-term debt and notes payable		58,443		36,293
Long-term debt and notes payable, less current maturities	$	174,412	$	268,161

We entered into an amended and restated credit facility on June 14, 2002 with our existing senior bank lenders to provide us with financing through March 31, 2006. At March 31, 2003, we had an outstanding balance of $112.9 million under the credit facility, with no amount due under the revolver.

During fiscal year 2003, we paid fees in the amount of $6.9 million to our senior bank lenders to extend the credit facility for an additional two years through March 31, 2006 and fees of $4.3 million to modify the credit facility, among other things, to allow for the early repurchase of up to $20 million in principal amount of our zero coupon senior subordinated notes (subject to certain purchase price discount requirements) and to allow us to apply up to 75% of the proceeds of any equity offering to the early repurchase of our zero coupon senior subordinated notes.

The term loan component of the facility, as extended, requires principal repayments in installments of $32 million in fiscal years 2004 and 2005 ($8 million at the end of each quarter), and $24 million in fiscal year 2006 ($8 million at the end of the first three quarters), with the balance due March 31, 2006. In addition, we are required to make additional repayments of our indebtedness under the credit facility in amounts equal to 50% of our excess cash flow (as defined in the credit facility) for each of our fiscal years, which will be $21.2 million for fiscal year 2003 to be paid in the first quarter of fiscal year 2004.

The interest rate on the revolver and term loan components of the credit facility effective September 30, 2002 was LIBOR plus 7.5% through November 30, 2002. The interest rate for each interest period, as defined in the credit facility, commencing on or after November 30, 2002 is LIBOR plus 8.25%, subject to a downward reduction to 7.5% if we receive a credit rating from Moody’s for our indebtedness under the credit facility of at least B2 during any such interest period.

Notes to Consolidated Financial Statements

Our indebtedness under the credit facility is secured by substantially all of our assets in the United States, Canada, United Kingdom, Netherlands, and Germany. The credit facility contains negative and affirmative covenants which place restrictions on us regarding, among other things, the disposition of assets, capital expenditures, additional indebtedness and permitted liens, and prohibits the payment of dividends (other than payment-in-kind dividends on our participating shares). The credit facility requires that we maintain minimum levels of adjusted consolidated net worth and cumulative consolidated EBITDA, a minimum ratio of consolidated EBITDA to interest expense and contains limitations on the amounts of our annual capital expenditures, each as defined in the credit facility. The December 31, 2002 modification to the credit agreement included a reduction in the level of consolidated cumulative EBITDA required for periods ending on or after December 31, 2002 and decreased the amount of permitted annual capital expenditures. The consolidated cumulative EBITDA requirement for the twelve months ending March 31, 2003 was $91.5 million. We were in compliance with the covenants at March 31, 2003 as amended.

We paid $11.2 million in bank fees and $6.6 million in third party fees in our 2002 fiscal year relating to the credit facility. We have paid $20.4 million in bank fees related to the credit facility during fiscal year 2003. These fees are being amortized over the term of the facility and at March 31, 2003, we had $22.4 million of unamortized debt issuance costs, anniversary fees and amendment fees. We are also required to pay fees of 1% of total commitments at June 30, 2003, December 31, 2003, March 31, 2004, December 31, 2004, March 31, 2005 and June 30, 2005, and a fee of 2% of the total commitments at June 30, 2004.

We have $47.6 million in principal amount of zero coupon senior subordinated notes due April 1, 2004 and $64.5 million in principal amount of 10% subordinated notes due April 1, 2008. The zero coupon senior subordinated notes are guaranteed by Danka Holding Company and Danka Office Imaging Company, which are both our 100% owned U.S. subsidiaries. The 6.75% convertible subordinated notes were due April 2002 and were fully repaid at that time.

Aggregate annual maturities of debt at March 31, 2003, are as follows:

	(in 000’s)
Year Ending March 31,
2004	$	58,443
2005		80,177
2006		49,589
2007		517
2008		514
Thereafter		43,615
	$	232,855

13. 6.50% Senior Convertible Participating Shares

On December 17, 1999, we issued 218,000 new 6.50% senior convertible participating shares of Danka Business Systems PLC for $218.0 million. The net proceeds of the share subscription totaled approximately $204.6 million, after deducting 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 our existing bank indebtedness and the remainder was used for general corporate purposes.

The participating shares are entitled to dividends equal to the greater of 6.50% per annum or ordinary share dividends on an as converted basis. Dividends are cumulative and are paid in the form of additional participating shares through December 2004. At that time we will be obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind dividends following December 17, 2004 if our then existing principal indebtedness prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves under English law to pay cash dividends the amount of any unpaid dividend will be added to the “liquidation return” of each participating share.

The participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating shareholders. As of March 31, 2003 the participating shares have voting rights on an as converted basis, currently corresponding to approximately 25.8% of the total voting power of our capital stock, which includes an additional 49,339 participating shares in satisfaction of the payment-in-kind dividends.

On or after December 17, 2003, and prior to December 17, 2010, we have 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) or (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, we may decide to convert the participating shares into the number of ordinary shares into which they are convertible if the market value of those shares exceed the redemption price set out below.

Notes to Consolidated Financial Statements

Year	Percentage of liquidation return
2003 –2004	103.250%
2004 – 2005	102.167%
2005 – 2006	101.083%
2006 and thereafter	100.000%

If by December 17, 2010, we have not converted or otherwise redeemed the participating shares, we are required, subject to compliance with applicable laws, to redeem the participating shares for cash at the greater of (a) the then liquidation value or (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. If the price set out in (b) above is applicable, we are permitted to convert the participating shares into the number of ordinary shares into which they are convertible instead of making the cash payment.

In the event of liquidation of Danka, participating shareholders will 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 us) plus any accumulated and unpaid dividends accumulating from the most recent dividend date or b) the amount that would have been payable on each participating share if it had been converted into ordinary shares if the market value of those shares exceed the liquidation value of the participating shares.

14. Employee Benefit Plans

Substantially all of our U.S. employees are entitled to participate in our profit sharing plan established under Section 401(k) of the U.S. Internal Revenue Code. Employees are eligible to contribute voluntarily to the plan after 90 days of employment. At our discretion, we may also contribute to the plan. Employees are always vested in their contributed balance and become fully vested in our contributions after four years of service. Effective February 1, 1999, we began matching employee contributions with our ADSs in an action to conserve cash. In November 2000, we discontinued the match of employee contributions with shares of our ADSs because we had issued substantially all of the ADSs that we were authorized to issue for the matching contributions. For the period April 1, 2000 through October 31, 2000, we issued approximately 2.7 million ADSs to match employee contributions made to the plan. We re-instated the employee cash match beginning April 1, 2001 for the years ended March 31, 2003 and 2002. The expenses related to contributions to the plan for the years ended March 31, 2003, 2002 and 2001 were approximately $1.5 million, $2.5 million and $4.8 million, respectively.

Most non-U.S. employees participate in defined benefit and contribution plans with varying vesting and contribution provisions. The expenses related to these contributions for the years ended March 31, 2003, 2002 and 2001 were approximately $2.5 million, $4.7 million and $4.3 million, respectively.

In connection with our acquisition of Kodak’s office imaging and outsourcing businesses, we acquired certain pension obligations of non-U.S. employees from Kodak. At March 31, 2003 and 2002 the liability for these pension obligations was $7.7 and $7.9 million, respectively.

We have a supplemental executive retirement plan, which provides additional income for certain of our U.S. executives upon retirement. There were no contributions to the plan for the years ended March 31, 2003, 2002 and 2001.

Under the Danka Section 423 Employee Stock Purchase Plan approved on March 28, 2002, we are authorized to issue up to 8,000,000 ordinary shares (2,000,000 ADS equivalents) to eligible employees in Danka Office Imaging Company, our principal U.S. operating subsidiary. Under the terms of the plan, employees can choose to have a fixed dollar amount deducted from their biweekly compensation to purchase our ADS. The purchase price of the ADS is 85% of the market value of the stock on the first day of the purchase period or the purchase date, whichever is lower. Employees are limited to a maximum purchase under the plan of stock with a fair market value of $25,000 during each calendar year. The plan is effective as of April 1, 2002. All stock purchased under this plan must be retained for a period of six months. As of March 31, 2003, we had issued 149,340 ordinary shares under this plan.

15. Share Option and Stock Compensation Plans

We have four stock option and stock compensation plans, the 1996 Share Option Plan, the 1999 Share Option Plan, the 2001 Long-Term Incentive Plan and the 2002 Outside Director Stock Compensation Plan. Awards may be made under all three plans to our officers and key employees. The awards for the 1996 Share Option Plan and the 1999 Share Option Plan allow for the purchase of shares of our authorized but unissued ordinary shares. Under all of the stock option plans, the option exercise price is

Notes to Consolidated Financial Statements

equal to the fair market value of our ordinary shares or ADS stock at the date of grant. Options granted by us currently expire no later than 10 years from the date of grant and generally vest within 3 – 5 years. During fiscal 2003, the shareholders approved a reduction in the number of shares available for issuance under the Danka 2001 Long-Term Incentive Plan by 2,000,000 ordinary shares or 500,000 ADRs to 18,000,000 ordinary shares or 4,500,000 ADRs.

1996 Share Option Plan

Our 1996 share option plan authorizes the granting of both incentive and non-incentive share options over an aggregate of 22,000,000 ordinary shares (5,500,000 ADS equivalents). The option balance outstanding at March 31, 2003 also includes options issued pursuant to a plan that preceded the 1996 share option plan. There are no shares available for issue under the earlier plan. Under both plans, options are and were granted at prices not less than market value on the date of grant and the maximum term of an option may not exceed ten years. Share options granted under the 1996 share option plan generally vest ratably in equal tranches over three years beginning on the first anniversary of the date of grant.

We established The Danka Employees’ Trust Fund for use in conjunction with our 1996 share option plan. The employees’ trust may subscribe for new ordinary shares which we have granted in the form of share options, or it may purchase our ordinary shares on the open market. The employees’ trust will transfer shares to employees upon exercise of their options. No shares were acquired by the employees’ trust for the years ended March 31, 2003, 2002, and 2001.

1999 Share Option Plan

In October 1999, shareholders approved a share option plan authorizing the granting of both incentive and non-incentive share options for an aggregate of 12,000,000 ordinary shares (3,000,000 ADS equivalents). In October 2001, shareholders approved the issuance of an additional 20,000,000 ordinary shares (5,000,000 ADS equivalents) pursuant to the 1999 plan. Share options granted under the 1999 share option plan have the same terms as those granted under the 1996 share option plan.

2001 Long Term Incentive Plan

In October 2001, shareholders approved the Danka 2001 Long Term Incentive Plan, under which we may make awards of a variety of equity-related incentives to our executive directors, officers and employees. Awards under the 2001 plan may take the form of restricted stock unit awards, stock appreciation rights and other share-based awards. The 2001 plan is administered by our human resources committee, which determines the persons to whom awards may be made, the form of the awards, the terms and conditions of the awards, the number of shares subject to each award and the dates of grant. The total number of ordinary shares in respect of which awards may be made under the 2001 plan is 18,000,000 ordinary shares (4,500,000 ADS equivalents). Awards may be made over ordinary shares or ADSs. As of March 31, 2003, no awards had been made under the 2001 plan.

2002 Outside Director Stock Compensation Plan

In October 2002, we approved the 2002 Outside Director Stock Compensation Plan which allows us to pay part of our outside (non-executive) directors’ compensation in shares. The total number of shares in respect of which awards may be made under the 2002 Plan are 2,000,000 ordinary shares or 500,000 ADS. As of March 31, 2003, 269,472 ordinary shares or 67,368 ADS had been issued under the 2002 Plan.

In July 2000, shareholders approved a restricted stock award for the issuance of 1,542,168 ordinary shares (385,542 ADS equivalent) to be issued in three equal installments in 2001, 2002 and 2003 to our former president.

As of March 31, 2003, there were 39,847,302 ordinary shares (9,785,090 ADS equivalents) available to grant under all of our existing equity compensation plans.

Additional information with respect to stock option plan activity for the 1996 and 1999 share option plans during the three years ended March 31, 2003 was as follows:

Notes to Consolidated Financial Statements

	For the year ended March 31,
	2003			2002			2001
	Options (000’s)		Weighted- average exercise price in pence	Options (000’s)		Weighted- average exercise price in pence	Options (000’s)		Weighted- average exercise price in pence
Options outstanding at April 1	27,893		90.40	21,831		126.47	20,145		162.64
Granted	9,973		58.13	8,260		25.00	4,453		17.87
Exercised	—		—	—		—	—		—
Cancelled	(3,713	)	166.47	(2,198	)	187.40	(2,767	)	176.59
Options outstanding at March 31	34,153		72.81	27,893		90.40	21,831		126.47
Options exercisable at March 31	18,488		97.53	16,415		133.25	11,877		176.71
Shares available for issuance at March 31	19,847			26,107			12,169

The range of option exercise prices for options outstanding at March 31, 2003 was 9.25 pence to 730.0 pence. This range reflects the fluctuating price of our ordinary shares.

The following table summarizes information about options outstanding at March 31, 2003.

	Outstanding Options			Exercisable Options
Price range in pence	Number of shares (In Thousands)	Weighted average remaining contractual life (In Years)	Weighted average exercise price in pence	Number of shares (In Thousands)	Weighted average remaining contractual life (In Years)	Weighted average exercise price in pence
9.25 – 42.00	11,830	8.5	21.16	5,013	8.3	17.82
43.17 – 113.85	19,496	7.5	72.17	10,648	5.9	82.28
127.00 – 215.66	1,184	6.4	143.10	1,184	6.4	143.10
246.00 – 378.67	875	4.2	268.95	875	4.2	268.95
445.00 – 730.00	768	2.8	563.90	768	2.8	563.90
	34,153			18,488

SFAS No. 123 Assumptions and Fair Value

The fair value of options granted in 2003, 2002 and 2001 reported above in “Note 2: Accounting Policies” was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	For the year ended March 31,
	2003		2002		2001
Dividend yield	0	%	0	%	0	%
Expected volatility	197.41	%	310.70	%	234.00	%
Risk-free interest rate	3.43	%	4.43	%	4.82	%
Expected life	5 years		5 years		5 years

The weighted average fair value of ordinary shares at grant date, in pence, as of March 31, 2003, 2002 and 2001 was 57.64, 24.96 and 17.48, respectively.

16. Commitments, Contingencies and Related Party Transactions

Leases: We are obligated under various noncancelable operating leases for our office facilities, office equipment and vehicles. Future noncancelable lease commitments as of March 31, 2003, are as follows:

Notes to Consolidated Financial Statements

	(in 000’s)
Year Ending March 31,
2004	$	48,752
2005		30,266
2006		20,157
2007		14,374
2008		12,320
Thereafter		35,771

Rental expense for fiscal years ended March 31, 2003, 2002 and 2001 was approximately $61,627,000, $70,385,000 and $93,273,000, respectively.

Equipment Leasing Commitment: We have an agreement with General Electric Capital Corporation (“GECC”) under which GECC agrees to provide financing to our United States customers to purchase equipment. The agreement expires March 31, 2009. In connection with this agreement, we are obligated to provide a minimum level of customer leases to GECC. The minimum level of customer leases is equal to a specified percentage of U.S. retail equipment and related sales revenues. If we fail to provide a minimum level of customer leases under the agreement, we are obligated to pay penalty payments to GECC. For the years ended March 31, 2002 and 2001, we were obligated for penalty payments of approximately $0.2 million and $1.9 million, respectively. We were not required to make any penalty payments for the year ended March 31, 2003.

Facility Lease Commitments: Danka Holding Company (“DHC”), one of our subsidiaries, has been a party to a number of tax retention operating lease (“TROLs”). Three properties subject to the TROL financing were sold during fiscal year 2003 for approximately $34.9 million.

Related Party Transactions: We remain contingently liable for the repayment of $318,000 of Industrial Revenue Bonds used to finance the construction of our corporate office in St. Petersburg, Florida. The obligation was assumed by a company controlled by our former chief executive officer, when it acquired the corporate office building. We lease our corporate office and three other offices owned by companies in which our former chief executive officer has a significant interest. The leases expire at various dates through December 2003.

Litigation: On or about June 6, 2003, we were served with a putative class action complaint titled Stephen L. Edwards, et al., Plaintiffs vs Danka Industries, Inc., et al., including American Business Credit Corporation, Defendants, alleging claims of breach of contract, fraud/intentional misrepresentation, unjust enrichment, violation of the Florida Deception and Unfair Trade Protection Act and injunctive relief. We intend to vigorously defend all claims alleged by the plaintiff.

Also, we are subject to legal proceedings and claims which arise in the ordinary course of our business. We do not expect these legal proceedings to have a material effect upon our financial position, results of operations or liquidity.

17. Financial Instruments

Fair Value of Financial Instruments: At March 31, 2003, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other notes payable approximated fair value due to the short-term maturities of these assets and liabilities. There are no quoted market prices for our 6.50% senior convertible participating shares. The participating shares currently are convertible into ordinary shares at a current conversion price of $12.44 per ADS. Assuming all participating shares were converted to ADSs at March 31, 2003, the resulting shares would have a market value of $70.3 million at that date. There are no quoted market prices for the $47.6 million of zero coupon senior subordinated notes and the $64.5 million in 10% subordinated notes. Therefore, their market value at March 31, 2003 are assumed to be their par values. The estimated fair market value at March 31, 2003 of our credit agreement of our senior bank debt approximated the carrying amount of the debt.

Foreign Currency Hedging: Generally, we do not enter into forward and option contracts to manage our exposure to foreign currency fluctuations. Foreign exchange forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date. The fair value of foreign exchange forward contracts is estimated by obtaining quotes for futures contracts with similar terms, adjusted where necessary for maturity differences. We did not enter into any material forward contracts or option contracts to buy or sell foreign currency for fiscal years 2003, 2002 and 2001.

Interest Rate Hedging: Under our credit agreement for our senior bank debt, we are 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. To fulfill this obligation, we utilized interest rate swap agreements to eliminate the impact of interest rate changes on certain variable rate principal balances outstanding under the credit agreement. Pursuant to our credit agreement, we entered into a $80 million notional interest rate cap agreement with Bank of America. The interest rate cap would have paid Danka the difference between the quarterly LIBOR rate and 3.99% for the period March 18, 2002 to March 18, 2003. We have not entered into any new interest rate swap agreements since March 18, 2003.

Our financial instruments involve, to varying degrees, elements of exchange risk in excess of the amounts, which would be recognized in the consolidated balance sheet. Exposure to foreign currency contracts results from fluctuations in currency rates

Notes to Consolidated Financial Statements

during the periods in which the contracts are outstanding. Additionally, these contracts contain an element of credit risk to the extent of nonperformance by the counterparties. We minimize such risk by limiting the counterparties to a group of major international banks, and do not expect to record any losses as a result of nonperformance by these counterparties.

18. Supplemental Consolidating Financial Data for Subsidiary Guarantors

On June 29, 2001, we issued approximately $47.6 million in principal amount of zero coupon senior subordinated notes due April 1, 2004. The zero coupon senior subordinated notes are fully and unconditionally guaranteed on a joint and several basis by our 100% owned subsidiaries, Danka Holding Company and Danka Office Imaging company (collectively, the “Subsidiary Guarantors”). The Subsidiary Guarantors represent substantially all of our operations conducted in the United States of America.

The following supplemental consolidating financial data includes the combined Subsidiary Guarantors. Management believes separate complete financial statements of the respective Subsidiary Guarantors would not provide additional material information that would be useful in assessing the financial composition of the Subsidiary Guarantors. No single Subsidiary Guarantor has any significant legal restriction on the ability of investors or creditors to obtain access to its assets in the event of default on the guarantee other than subordination of the guarantee to our senior indebtedness. The zero coupon senior subordinated notes and the guarantees are subordinated to all our existing and future senior indebtedness. The indenture governing the zero coupon senior subordinated notes contains limitations on the amount of additional indebtedness, including senior indebtedness, that we may incur.

We account for investment in subsidiaries on the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are therefore reflected in Danka Business Systems PLC’s (“Parent Company”) investment in subsidiaries. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

Notes to Consolidated Financial Statements

Supplemental Consolidating Statement of Operations

For the year ended March 31, 2003

(in 000’s)	Parent Company(1)			Subsidiary Guarantors(2)			Subsidiary Non- Guarantors(3)			Eliminations			Consolidated Total
Revenue:
Retail equipment and related sales	$	—		$	273,021		$	203,708		$	—		$	476,729
Retail service, supplies and rentals		—			474,766			363,943			—			838,709
Wholesale		—			—			84,536			—			84,536
Total revenue		—			747,787			652,187			—			1,399,974
Costs and operating expenses:
Cost of retail equipment sales		—			171,786			139,106			—			310,892
Retail service, supplies and rental costs		—			256,813			240,678			—			497,491
Wholesale costs of revenue		—			—			68,429			—			68,429
Selling, general and administrative expenses		5,172			292,844			186,871			—			484,887
Restructuring charges (credits)		—			(555	)		—			—			(555	)
Equity (income) loss		19,590			—			—			(19,590	)		—
Other (income) expense		(17,935	)		(644	)		12,499			(0	)		(6,081	)
Total costs and operating expenses		6,827			720,244			647,583			(19,590	)		1,355,063
Operating earnings (loss) from continuing operations		(6,827	)		27,543			4,604			19,590			44,911
Interest expense		(30,020	)		(31,936	)		(63,471	)		92,605			(32,822	)
Interest income		57,438			578			35,838			(92,605	)		1,249
Earnings (loss) from continuing operations before income taxes		20,591			(3,815	)		(23,029	)		19,590			13,338
Provision (benefit) for income taxes		10,857			(1,031	)		(6,222	)		—			3,604
Net (loss) earnings	$	9,734		$	(2,784	)	$	(16,807	)	$	19,590		$	9,734

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financial Statements

Supplemental Consolidating Statement of Operations

For the year ended March 31, 2002

	Parent Company(1)			Subsidiary Guarantors(2)			Subsidiary Non- Guarantors(3)			Eliminations			Consolidated Total
(in 000’s)
Revenue:
Retail equipment and related sales	$	—		$	304,546		$	233,893		$	—		$	538,439
Retail service, supplies and rentals		—			560,745			377,045			—			937,790
Wholesale		—			—			78,947			—			78,947
Total revenue		—			865,291			689,885			—			1,555,176
Costs and operating expenses
Cost of retail equipment sales		—			232,724			161,332			—			394,056
Retail service, supplies and rental costs		—			297,798			249,083			—			546,881
Wholesale costs of revenue		—			—			64,357			—			64,357
Selling, general and administrative expenses		4,245			335,174			191,912			—			531,331
Restructuring charges (credits)		—			(1,991	)		(1	)		—			(1,992	)
Equity (income) loss		(106,570	)		—			—			106,570			—
Other (income) expense		2,057			3,778			5,486			(33	)		11,288
Total costs and operating expenses		(100,268	)		867,483			672,169			106,537			1,545,921
Operating earnings (loss) from continuing operations		100,268			(2,192	)		17,716			(106,537	)		9,255
Interest expense		(36,783	)		(68,429	)		(66,618	)		129,532			(42,298	)
Interest income		52,417			5,198			77,685			(129,532	)		5,768
Earnings (loss) from continuing operations before income taxes		115,902			(65,423	)		28,783			(106,537	)		(27,275	)
Provision (benefit) for income taxes		5,956			(41,754	)		18,370			21			(17,407	)
Earnings (loss) from continuing operations before extraordinary items		109,946			(23,669	)		10,413			(106,558	)		(9,868	)
Discontinued operations, net of tax		(324	)		54,004			65,810			—			119,490
Extraordinary gain early retirement of debt, net of tax		27,933			—			—			—			27,933
Net (loss) earnings	$	137,555		$	30,335		$	76,223		$	(106,558	)	$	137,555

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financial Statements

Supplemental Consolidating Statement of Operations

For the year ended March 31, 2001

	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non- Guarantors (3)			Eliminations			Consolidated Total
(in 000’s)
Revenue:
Retail equipment and related sales	$	—		$	351,917		$	262,190		$	—		$	614,107
Retail service, supplies and rentals		—			648,613			413,394			—			1,062,007
Wholesale		—			—			97,128			—			97,128
Total revenue		—			1,000,530			772,712			—			1,773,242
Costs and operating expenses
Cost of retail equipment sales		—			319,911			198,385			—			518,296
Retail service, supplies and rental costs		—			378,721			281,446			—			660,167
Wholesale costs of revenue		—			—			80,922			—			80,922
Selling, general and administrative expenses		8,402			400,336			232,742			—			641,480
Write-off of goodwill		—			—			25,577			—			25,577
Restructuring charges (credits)		—			4,661			11,044			—			15,705
Equity (income) loss		211,674			—			—			(211,674	)		—
Other (income) expense		(5,585	)		4,075			23,973			—			22,463
Total costs and operating expenses		214,491			1,107,704			854,089			(211,674	)		1,964,610
Operating earnings (loss) from continuing operations		(214,491	)		(107,174	)		(81,377	)		211,674			(191,368	)
Interest expense		(91,824	)		(83,344	)		(89,904	)		182,424			(82,648	)
Interest income		84,335			2,049			99,212			(182,424	)		3,172
Earnings (loss) from continuing operations before income taxes		(221,980	)		(188,469	)		(72,069	)		211,674			(270,844	)
Provision (benefit) for income taxes		(1,420	)		(25,975	)		(9,933	)		—			(37,328	)
Earnings (loss) from continuing operations before extraordinary items		(220,560	)		(162,494	)		(62,136	)		211,674			(233,516	)
Discontinued operations, net of tax		—			11,004			1,952			—			12,956
Extraordinary gain early retirement of debt, net of tax		—			—			—			—			—
Net (loss) earnings	$	(220,560	)	$	(151,490	)	$	(60,184	)	$	211,674		$	(220,560	)

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financial Statements

Supplemental Consolidating Balance Sheet Information

March 31, 2003

	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non- Guarantors (3)			Eliminations			Consolidated Total
(in 000’s)
Assets
Current assets:
Cash and cash equivalents	$	42,709		$	9,020		$	29,764		$	—		$	81,493
Accounts receivable, net		—			114,563			142,766			—			257,329
Inventories		—			51,770			59,701			—			111,471
Prepaid expenses, deferred income taxes and other current assets		19,262			21,802			4,815			—			45,879
Total current assets		61,971			197,155			237,046			—			496,172
Equipment on operating leases, net		—			21,363			18,466			—			39,829
Property and equipment, net		—			55,279			12,503			—			67,782
Goodwill, net		—			93,541			163,449			—			256,990
Non-compete agreements, net		—			799			—			—			799
Investment in subsidiaries		611,982			282			1			(612,265	)		—
Deferred income tax		—			78,458			22			—			78,480
Other assets		8,784			13,583			19,201			—			41,568
Total assets	$	682,737		$	460,460		$	450,688		$	(612,265	)	$	981,620
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Current maturities of long-term debt and notes payable	$	13,719		$	23,548		$	21,176		$	—		$	58,443
Accounts payable		253			81,728			58,226			—			140,207
Accrued expenses and other current liabilities		(3,908	)		53,392			52,266			(1	)		101,749
Taxes Payable		—			35,296			77,015			—			112,311
Deferred revenue		—			14,010			26,618			—			40,628
Due to/(from) affiliate		137,304			138,792			(272,051	)		(4,045	)		—
Total current liabilities		147,368			346,766			(36,750	)		(4,046	)		453,338
Due to/(from) affiliates—long-term					200,000			(200,000	)		—			—
Long-term debt and notes payables, less current maturities		211,284			(20,485	)		(16,387	)		—			174,412
Deferred income taxes and other long-term liabilities		—			7,865			21,920			—			29,785
Total liabilities		358,652			534,146			(231,217	)		(4,046	)		657,535
6.5% convertible participating shares		258,376			—			—			—			258,376
Shareholders’ equity (deficit):
Ordinary shares, 1.25 pence stated value		5,167			258			608,999			(609,257	)		5,167
Additional paid-in capital		327,173			306,644			(97,145	)		(209,499	)		327,173
Retained earnings (accumulated deficit)		(189,995	)		(380,588	)		438,180			(57,592	)		(189,995	)
Accumulated other comprehensive (loss) income		(76,636	)		—			(268,129	)		268,129			(76,636	)
Total shareholders’ equity (deficit)		65,709			(73,686	)		681,905			(608,219	)		65,709
Total liabilities & shareholders’ equity (deficit)	$	682,737		$	460,460		$	450,688		$	(612,265	)	$	981,620

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financila Statements

Supplemental Consolidating Balance Sheet Information

March 31, 2002

	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non- Guarantors (3)			Eliminations			Consolidated Total
(in 000’s)
Current assets:
Cash and cash equivalents	$	8,420		$	10,453		$	40,597		$	—		$	59,470
Accounts receivable, net		—			143,685			148,665			—			292,350
Inventories		—			46,584			84,015			—			130,599
Prepaid expenses, deferred income taxes and other current assets		5,060			21,470			9,405			—			35,935
Total current assets		13,480			222,192			282,682			—			518,354
Equipment on operating leases, net		—			29,408			28,024			—			57,432
Property and equipment, net		—			49,250			11,299			—			60,549
Goodwill, net		—			93,541			138,367			—			231,908
Non-compete agreements, net		—			1,078			—			—			1,078
Investment in subsidiaries		631,572			1,014			—			(632,586	)		—
Deferred income taxes		—			67,583			—			—			67,583
Other assets		13,183			20,745			1,991			—			35,919
Total assets	$	658,235		$	484,811		$	462,363		$	(632,586	)	$	972,823
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Current maturities of long-term debt and notes payable	$	31,988		$	161		$	4,144		$	—		$	36,293
Accounts payable		5,822			69,535			35,229			—			110,586
Accrued expenses and other current liabilities		6,155			52,375			46,645			4,044			109,219
Taxes Payable		—			65,259			28,978			—			94,237
Deferred revenue		—			19,951			22,392			—			42,343
Due to/(from) affiliate		59,591			140,033			(195,579	)		(4,045	)		—
Total current liabilities		103,556			347,314			(58,191	)		(1	)		392,678
Due to/(from) affiliates—long-term					200,000			(200,000	)		—			—
Long-term debt and notes payables, less current maturities		266,114			817			1,230			—			268,161
Deferred income taxes and other long-term liabilities		—			7,621			15,794			—			23,415
Total liabilities		369,670			555,752			(241,167	)		(1	)		684,254
6.5% convertible participating shares		240,520			—			—			—			240,520
Shareholders’ equity (deficit):
Ordinary shares, 1.25 pence stated value		5,139			259			608,998			(609,257	)		5,139
Additional paid-in capital		325,880			306,644			(96,703	)		(209,941	)		325,880
Retained earnings (accumulated deficit)		(181,876	)		(377,805	)		454,991			(77,182	)		(181,872	)
Accumulated other comprehensive (loss) income		(101,098	)		(39	)		(263,756	)		263,795			(101,098	)
Total shareholders’ equity (deficit)		48,045			(70,941	)		703,530			(632,585	)		48,049
Total liabilities & shareholders’ equity (deficit)	$	658,235		$	484,811		$	462,363		$	(632,586	)	$	972,823

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financial Statements

Supplemental Consolidating Statement of Cash Flows

For the year ended March 31, 2003

	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non- Guarantors (3)			Eliminations		Consolidated Total
(in 000’s)
Net cash provided by (used in) operating activities	$	126,807		$	18,281		$	9,930		$	—	$	155,018
Investing activities
Capital expenditures		—			(21,826	)		(26,724	)		—		(48,550	)
Proceeds from sale of property and equipment		—			27			606			—		633
Proceeds from sale of business		—			—			5,940			—		5,940
Net cash provided by (used in) investing activities		—			(21,799	)		(20,178	)		—		(41,977	)
Financing activities
Net (payment) borrowing of debt		(73,814	)		2,085			(585	)		—		(72,314	)
Payment of debt issue costs		(20,435	)		—			—			—		(20,435	)
Net cash provided by (used in) financing activities		(94,249	)		2,085			(585	)		—		(92,749	)
Effect of exchange rates		1,731			—			—			—		1,731
Net increase (decrease) in cash		34,289			(1,433	)		(10,833	)		—		22,023
Cash and cash equivalents, beginning of period		8,420			10,453			40,597			—		59,470
Cash and cash equivalents, end of period	$	42,709		$	9,020		$	29,764		$	—	$	81,493

Supplemental Consolidating Statement of Cash Flows

For the year ended March 31, 2002

	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non- Guarantors (3)			Eliminations		Consolidated Total
(in 000’s)
Net cash provided by (used in) operating activities	$	347,997		$	(119,338	)	$	(73,093	)	$	—	$	155,566
Investing activities
Capital expenditures		—			(33,441	)		(17,136	)		—		(50,577	)
Proceeds from sale of property and equipment		—			411			517			—		928
Proceeds from sale of business		—			179,099			94,895			—		273,994
Net cash provided by (used in) investing activities		—			146,069			78,276			—		224,345
Financing activities
Net (payment) borrowing of debt		(319,267	)		(44,001	)		(3,858	)		—		(367,126	)
Payment of debt issue costs		(25,797	)		—			—			—		(25,797	)
Net cash provided by (used in) financing activities		(345,064	)		(44,001	)		(3,858	)		—		(392,923	)
Effect of exchange rates		16			—			3,381			—		3,397
Net increase (decrease) in cash		2,949			(17,270	)		4,706			—		(9,615	)
Cash and cash equivalents, beginning of period		5,471			27,723			35,891			—		69,085
Cash and cash equivalents, end of period	$	8,420		$	10,453		$	40,597		$	—	$	59,470

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

Notes to Consolidated Financial Statements

Supplemental Consolidating Statement of Cash Flows

For the year ended March 31, 2001

(in 000’s)	Parent Company (1)			Subsidiary Guarantors (2)			Subsidiary Non-   Guarantors (3)			Eliminations		Consolidated Total
Net cash provided by (used in) operating activities	$	84,629		$	34,282		$	8,030		$	—	$	126,941
Investing activities
Capital expenditures		—			(38,813	)		(30,068	)		—		(68,881	)
Proceeds from sale of property and equipment		—			164			5,944			—		6,108
Proceeds from sale of business		—			—			—			—		—
Net cash provided by (used in) investing activities		—			(38,649	)		(24,124	)		—		(62,773	)
Financing activities
Net (payment) borrowing of debt		(81,722	)		518			13,564			—		(67,640	)
Net cash provided by (used in) financing activities		(81,722	)		518			13,564			—		(67,640	)
Effect of exchange rates		(195	)		—			7,891			—		7,696
Net increase (decrease) in cash		2,712			(3,849	)		5,361			—		4,224
Cash and cash equivalents, beginning of period		2,759			31,572			30,530			—		64,861
Cash and cash equivalents, end of period	$	5,471		$	27,723		$	35,891		$	—	$	69,085

(1) Danka Business Systems PLC

(2) Danka Holding Company and Danka Office Imaging Company

(3) Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company

INDEPENDENT AUDITORS’ REPORT

To the Members of Danka Business Systems PLC:

We have audited the consolidated balance sheets of Danka Business Systems PLC and subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for each of the years in the three-year period ended March 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Danka Business Systems PLC and subsidiaries as of March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets, effective April 1, 2002.

KPMG Audit Plc

Chartered Accountants

Registered Auditor London,

England

June 9, 2003

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

To the Members of Danka Business Systems PLC

We consent to the incorporation by reference in the registration statements (Nos. 33-75468, 33-75474, 333-18615, 333-89837, 333-83936, 333-83938, 333-87042, 333-100933) on Form S-8, and (Nos. 33-95898, 33-94596 and 333-08455) on Form S-3 of Danka Business Systems PLC of our report dated June 9, 2003, with respect to the consolidated balance sheets of Danka Business Systems PLC and subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the years in the three-year period ended March 31, 2003, and related financial statement schedule, which report appears in the March 31, 2003 annual report on Form 10-K of Danka Business Systems PLC.

Our report refers to a change in accounting for goodwill and other intangible assets effective April 1, 2002.

KPMG Audit Plc

Chartered Accountants

Registered Auditor

London, England

June 9, 2003

EX-99.1

Exhibit 99.1

SECTION 906 CERTIFICATION

Each of the undersigned, in connection with the Annual Report of Danka Business Systems PLC (the “Company”) on Form 10-K for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    P. LANG LOWREY       

P. Lang Lowrey

Chief Executive Officer

June 9, 2003

/s/    F. MARK WOLFINGER      

F. Mark Wolfinger

Chief Financial Officer

June 9, 2003