Exhibit 99.1
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
doubt as to what action you should take, please consult your stockbroker, bank
manager, solicitor, accountant or other independent professional adviser duly
authorised under the Financial Services Act 1986.
If you have recently sold or transferred any of your Ordinary Shares in Dialog,
please send this document, together with the accompanying form of proxy, to the
purchaser or transferee, or to the stockbroker, bank or other agent through whom
the sale or transfer was effected, for delivery to the purchaser or
transferee.
A copy of this document, which comprises listing particulars relating to Dialog
as required by the listing rules made under section 142 of the Financial
Services Act 1986, has been delivered to the Registrar of Companies in England
and Wales for registration in accordance with section 149 of that Act.
Application has been made to the London Stock Exchange for the New Ordinary
Shares to be admitted to the Official List. It is expected that Admission will
become effective and that dealings will commence on 4 May 2000.
- -------------------------------------------------------------------------------
THE DIALOG CORPORATION PLC
PROPOSED SALE OF THE INFORMATION SERVICES DIVISION
ISSUE OF 16,335,413 NEW ORDINARY SHARES
AT 170.5 PENCE PER SHARE
CHANGE OF NAME TO BRIGHT STATION PLC
- -------------------------------------------------------------------------------
The New Ordinary Shares have not been and will not be registered under the
Securities Act of 1933, as amended (the "US Securities Act"), or any securities
laws of any state in the United States. This document is being provided to
existing shareholders who are resident in the United States or are US Persons
(as defined in Regulation S under the US Securities Act) solely for the purpose
of giving notice of the Extraordinary General Meeting and providing certain
information to shareholders in connection with voting at the Extraordinary
General Meeting. Neither this document nor any copy of it may, without the
express consent of the Company and PricewaterhouseCoopers Corporate Finance be
taken or transmitted into the United States or to any US Person for any other
purpose. Persons outside the UK into whose possession this document comes are
required to inform themselves about, and to observe, any restrictions or legal
requirements in relation to the distribution of this document. Any failure to
comply with these requirements may constitute a violation of the laws of the
relevant jurisdiction.
A notice of an Extraordinary General Meeting of Dialog to be held at The Royal
Automobile Club, 89 Pall Mall, London SW1Y 5HS on 27 April 2000 at 2.00 p.m. is
set out on page 87 of this document. Shareholders will find a form of proxy for
use at the meeting enclosed. To be valid, the form of proxy should be completed,
signed and returned in accordance with the instructions on it to the Company's
registrars at ComputerShare Services PLC, PO Box 457, Owen House, 8 Bankhead
Crossway North, Edinburgh EH11 0XG as soon as possible but, in any event, so as
to arrive not later than 2.00 p.m. on 25 April 2000.
PricewaterhouseCoopers Corporate Finance, which is authorised to carry on
investment business in the UK by The Institute of Chartered Accountants in
England and Wales, is acting for Dialog and no one else in connection with the
Proposals, and will not be responsible to anyone other than Dialog for providing
the protections afforded to customers of PricewaterhouseCoopers Corporate
Finance or for providing advice in relation to the Proposals, these Listing
Particulars or any transaction or arrangement referred to herein.
CONTENTS
Page
PART I: Letter from Chairman of Dialog 3
PART II: Financial information relating to the Information Services Division 11
PART III: Preliminary results of Dialog for the year ended 31 December 1999 13
PART IV: Other financial information on Dialog 18
PART V: Pro forma statement of net assets 65
PART VI: Additional information 67
DEFINITIONS 86
NOTICE OF EXTRAORDINARY GENERAL MEETING 87
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Latest time and date for receipt of forms of proxy 2.00 p.m. on 25 April 2000
for the Extraordinary General Meeting
Extraordinary General Meeting 2.00 p.m. on 27 April 2000
Earliest date on which the Sale Agreement and 3 May 2000
the Subscriptions can become unconditional
Commencement of dealings on the London Stock Exchange 4 May 2000
in the New Ordinary Shares
EXCHANGE RATE CONVERSION
Unless otherwise stated, a conversion rate of $1.59 : GBP1 (the symbol "GBP"
is used in this document to denote British pounds sterling), representing the
rate prevailing on 31 March 2000, has been applied in this document, for
illustrative purposes only.
ACCOUNTING STANDARDS
Unless otherwise stated, all financial information and references to the
financial prospects of the Continuing Group in this document are on the basis of
UK GAAP, which differs in a number of significant respects from US GAAP.
2
PART I
LETTER FROM CHAIRMAN OF DIALOG
DIRECTORS: REGISTERED AND HEAD OFFICE:
Allen Thomas - NON-EXECUTIVE CHAIRMAN The Communications Building
Daniel Wagner - CHIEF EXECUTIVE 48 Leicester Square
Patrick Sommers - CHIEF OPERATING OFFICER+ London WC2H 7DB
David Mattey - CHIEF FINANCIAL OFFICER
Stephen Maller - CHIEF TECHNOLOGY OFFICER*
Jason Molle - PRESIDENT OF THE AMERICAS*
Ciaran Morton - PRESIDENT EUROPE, MIDDLE EAST, AFRICA AND ASIA PACIFIC*
Ian Barton - NON-EXECUTIVE
Marmaduke Hussey - NON-EXECUTIVE
Richard Swank - NON-EXECUTIVE
* TO RESIGN ON COMPLETION
+ TO RESIGN AS AN EXECUTIVE DIRECTOR BUT CONTINUE AS A NON-EXECUTIVE
3 April 2000
TO SHAREHOLDERS, HOLDERS OF WARRANTS AND, FOR INFORMATION ONLY, TO OPTION
HOLDERS
Dear Shareholder,
PROPOSED SALE OF THE GROUP'S INFORMATION SERVICES DIVISION
ISSUE OF 16,335,413 NEW ORDINARY SHARES AT 170.5 PENCE PER SHARE
CHANGE OF NAME TO BRIGHT STATION PLC
1. INTRODUCTION
On 23 March 2000 your Board announced details of the proposed refinancing and
restructuring of Dialog through the sale of the Group's Information Services
Division (ISD), which has historically accounted for approximately 95 per cent.
of the Group's revenues, to Thomson for $275 million (approximately GBP173
million) in cash. Net proceeds of the Sale are anticipated to be of the order of
$269 million (approximately GBP169 million). On completion of the Sale, the
Company and Thomson will form a strategic alliance, involving Thomson licensing
and acting as a reseller for the technologies of the Continuing Group and the
Company acting as a reseller of Thomson's content. The proceeds of the Sale will
enable the Group to repay in full all of its outstanding senior and high yield
debt, which totals approximately $260 million (approximately GBP164 million).
Your Directors believe that the sale of ISD represents the best way forward
as a means of addressing the Group's debt burden and exiting from a business
which requires substantial capital to achieve its full potential, whilst
importantly retaining the Group's promising and fast growing knowledge
management and eCommerce interests.
Thomson will also subscribe 9,297,290 New Ordinary Shares in the Company for a
cash consideration of GBP15.9 million, giving Thomson a holding of 5.4 per cent.
of the enlarged issued share capital of the Company.
On completion of the Sale, Jiyu Holdings has also agreed to subscribe 7,038,123
New Ordinary Shares in the Company for GBP12 million in cash, giving Jiyu 4.1
per cent. of the enlarged issued share capital of the Company.
The effect of the Sale will be to reposition the Group to focus on its eCommerce
and Web Solutions Divisions. The net proceeds of the Sale and the Subscriptions
will also provide the Continuing Group, after repayment of the indebtedness
referred to above, with funds to enable the eCommerce and Web Solutions
businesses to be developed. In addition the Board is intending to create a new
Internet Ventures Division, an investment business that will focus on developing
promising Internet and eCommerce start-ups, leveraging the Company's leading
edge technologies, management experience and capital. To reflect this
repositioning of the Group, the Company will, on completion of the Proposals, be
re-named Bright Station plc.
3
In view of their size, the Sale and Subscriptions are conditional upon the
approval of Dialog's shareholders, which will be sought at an Extraordinary
General Meeting of the Company. The Sale is also conditional upon the acceptance
by approximately 95 per cent. of Noteholders of the tender offer being made
contemporaneously to them, whereby the Notes will be repaid at par.
The purpose of this document is to provide you with details of the Sale, the
Subscriptions and the proposed change of name and to explain why the Directors
believe that the Proposals are in the best interests of Shareholders as a whole.
A notice convening an Extraordinary General Meeting of the Company, at which
resolutions to approve the Proposals will be proposed, is set out at the end of
this document.
2. BACKGROUND TO AND REASONS FOR THE PROPOSALS
(a) KNIGHT-RIDDER ACQUISITION
In November 1997, the Company acquired Knight-Ridder Information (KRI),
including the Dialog and DataStar brands and its technology assets for $420m.
The acquisition was funded by a combination of equity, senior debt and high
yield notes.
Following the completion of essential restructuring and cost reduction efforts
through 1998, in February 1999 the Company took its first step in focusing on
its three principal areas of opportunity, splitting the Group into three major
divisions:
- - ISD, containing the information products and services;
- - WSD, containing technology patents and resources, the InfoSort content
indexing technology, Muscat natural language search technology and the
WebTop/WebCheck and K-Working solutions; and
- - ECD, containing the OfficeShopper business and Sparza business-to-business
eCommerce technologies.
Through 1998 and 1999, the Board focused some of the Company's limited
investment resources on the WSD and ECD businesses, enabling the launch of
K-Working solutions, the WebTop.com search engine, Sparza eCommerce software
solutions and OfficeShopper business supplies eCommerce service. Nevertheless,
the advancement of the growth opportunities across all three divisions was
severely constrained by the Company's capital structure and the requirements of
the lending banks and, as a result, servicing the debt funding has, in the
event, proved a major challenge for a growing business with other major
requirements to be met from its cashflow.
(b) STRATEGIC REVIEW
In order to consider how best to resolve these constraints and deliver growth in
shareholder value, the Group commenced a formal strategic review in 1999 in
conjunction with its advisers. The process involved a lengthy period of
discussions with various third parties with respect to various fund raising
proposals (i.e. strategic investment and asset sales, for example the Company's
Responsive Database Services and CD ROM businesses). The process has been a
significant distraction for the senior management team from running the day to
day business. During this process it was also made clear that the Board was
prepared to consider all of the strategic alternatives available.
The Board believes that both the eCommerce and Web Solutions Divisions have very
strong technology platforms capable of delivering significant shareholder value
but that this potential cannot be fully realised whilst the Group is constrained
by a capital structure that is inappropriate for investment in such businesses.
The Board firmly believes that the Proposals will allow greater transparency of
the value and opportunity of the WSD and ECD.
On completion of the Proposals, the Company will be made up of three divisions:
the existing, high growth, Web Solutions and eCommerce Divisions, and a new
Internet Ventures Division that will inject a combination of the Company's
technologies, management expertise and capital into promising new Internet and
eCommerce start-ups.
4
(C) THE SALE
As a result of the strategic review, your Board has concluded that the Sale of
the Information Services Division and the consequent application of the proceeds
to repay the outstanding debt presents the best way forward to providing
appropriate funding to the Company's technology-based operations thereby
restoring the opportunity for delivering enhanced shareholder value.
In the year ended 31 December 1999, the ISD generated profit before tax of
GBP19.2 million (1998: GBP25.5 million) on turnover of GBP165.1 million
(1998: GBP165.3 million). As at 31 December 1999, the ISD had net assets of
GBP39.4 million (1998: GBP42.1 million). Further information on ISD is set
out in Part II of this document.
Thomson is a major e-information and solutions group with significant business
interests in media and publishing which has explicitly recognised the value of
Dialog's InfoSort indexing technologies and its knowledge management solutions.
Thomson's strategic investment reflects its support for further technology
development in the delivery of content and their desire to participate in the
technological initiatives that the Group currently has planned.
Under the terms of the Sale Agreement, Dialog has agreed to sell to Thomson
the ISD, comprising the entire issued share capital of various subsidiaries
of each of The Dialog Corporation plc and Dotcom Investments BV, including
The Dialog Corporation (the Company's North American subsidiary) in its
entirety, together with the business of the ISD as carried on by The Dialog
Corporation plc comprising the business of "Dialog", "Profound" and
"Datastar", for a consideration of $115 million payable in cash and the
repayment to the Company of intra-group debt of $160 million on Completion.
The ISD will be sold cash free and the consideration is subject to a working
capital adjustment, which together allow Dialog to retain the benefits of
operating profits made by the ISD up to Completion. Net proceeds from the
Sale are expected to be of the order of $269 million (approximately GBP169
million). The Board expects to report a loss of approximately GBP100 million
relating to the Sale, subject to foreign exchange differences.
Under Thomson, the ISD will benefit from the greater capital resources that can
be devoted to the business as well as from the synergies inherent in Thomson's
existing and substantial content collection and global infrastructure. It is
expected that existing staff and management will remain in place. Consequently,
both parties envisage that the transfer of operations can be achieved with
limited disruption to customers and staff.
Dialog has also agreed on completion of the Sale to allot to Thomson the shares
being subscribed by it for a total subscription price of GBP15,851,879 payable
on Admission.
The Sale Agreement contains warranties given by Dialog in respect of the ISD and
also certain post-Completion restrictions on Dialog whereby Dialog will not
compete with the ISD within its main areas of business. A summary of the
principal terms of the Sale Agreement are set out in paragraph 10 of Part VI of
this document.
Completion of the Sale Agreement is conditional upon:
- - shareholder approval;
- - compliance with the US Hart Scott Rodino Anti-Trust Improvements Act 1976;
- - the consent of the holders of a majority of the outstanding principal
amount of the Notes and the Trustee to various amendments of the Indenture;
- - Noteholders holding at least 95 per cent. of the principal amount of the
Notes having tendered and not withdrawn their Notes for redemption;
- - each of the Banks and the Facility Agent (both as defined in the Facility
Agreement dated 17 October 1997 (as amended) and summarised in Part VI of
this document) having executed a letter providing for the waiver of certain
provisions of, and payment and satisfaction of Dialog's obligations under,
the Facility Agreement; and
- - approval from the German Federal Cartel Office on terms reasonably
satisfactory to Thomson.
all such conditions having been satisfied or waived by or on 15 June 2000.
5
The Directors do not anticipate any delay to the Sale to arise from either
compliance with the US Hart Scott Rodino Anti Trust Improvements Act 1976 or
approval from the German Federal Cartel Office.
If the Directors cease to recommend the Sale and Shareholder approval is not
obtained, Dialog will be obliged to pay $2.75 million to Thomson as compensation
for its costs and expenses in connection with the Sale.
On Completion of the Sale, Dialog will also enter into various other
agreements with Thomson, including a Reseller Agreement and a Software
Licence and Maintenance Agreement. The Reseller Agreement will give the
Company the right to sell ISD products for a period of not less than three
years from Completion of the Sale Agreement. The Software Licence and
Maintenance Agreement will give Thomson the right to use software owned by
the Company for use in the products of ISD (eg InfoSort). The Company will
also provide maintenance services in relation to the InfoSort software.
Further details of these agreements are set out in paragraph 10 of Part VI of
this document.
The Company has secured the necessary temporary waivers to ensure compliance
with the financial covenants under its senior debt facility agreement. In
anticipation of and conditional upon repayment from the proceeds of the Sale,
the senior lending banks have agreed to waive, on a temporary basis, any event
of default otherwise arising as a result of non-compliance. If the Proposals
were not to proceed, there is no certainty that the senior lending banks would
continue to agree to such waivers. In addition, the senior lending banks have
conditionally agreed to waive all exit and utilisation fees under the facility
agreement.
The Company has an obligation to repay approximately $10.9 million of senior
indebtedness on 9 May 2000 and interest on the Notes of $9.9 million falling due
on 15 May 2000. In the absence of the Sale, the Group does not have sufficient
cash or available headroom within its existing banking facilities to meet its
near term debt servicing payments, and would have to seek alternative funding
from existing or new lenders. There can be no assurance that the Company would
succeed in obtaining such alternative funding, and there would therefore be a
significant risk that the Company would have to seek protection from its
creditors through the appropriate UK and US procedures. Provided, however, that
the Proposals are approved by Shareholders and Noteholders, Completion and
refinancing would be expected to be achieved by 4 May 2000 thereby resolving the
Company's capital structure and facilitating the subscription of $44 million of
new equity.
IT IS THEREFORE IMPORTANT FOR THE FUTURE OF THE GROUP THAT THE PROPOSALS ARE
APPROVED BY SHAREHOLDERS AT THE EGM ON 27 APRIL 2000.
(d) DEBT REPAYMENT
As part of the overall refinancing proposals, the Group appointed Wasserstein
Perella & Co., Inc. ("Wasserstein Perella") to provide financial advice and
assistance to the Company in connection with the restructuring of the Company's
$180 million Notes and $87 million senior credit facility. As a consequence, the
Company has tendered for 100 per cent. of the Notes at par, conditional upon the
acceptance by holders of 95 per cent. of the issue, such level having been set
by the Board, as advised by Wasserstein Perella, bearing in mind the working
capital requirements of the Continuing Group.
In addition to the above, the senior lenders, who are supportive of the
Proposals, are being repaid at par.
(e) THOMSON'S SUBSCRIPTION
As part of the refinancing proposals, Thomson has agreed to subscribe for
9,297,290 New Ordinary Shares at 170.5 pence per share, which will represent 5.4
per cent. of the Company's enlarged issued share capital on completion of the
Proposals. The subscription price of 170.5 pence per share is based on the
closing price for an Ordinary Share on 21 March 2000 less five per cent. The
Board firmly believes that Thomson's ongoing strategic interest is a strong
validation of the Company's technology platforms and the prospects for them.
6
(f) JIYU'S SUBSCRIPTION
Following a series of discussions in recent years in relation to possible
trading relationships, Jiyu Holdings has agreed, subject to completion of the
Sale and the creation by the Company of an Internet eCommerce incubator
division, to subscribe for 7,038,123 New Ordinary Shares at 170.5 pence per
share, which will represent 4.1 per cent. of the Company's enlarged issued share
capital on completion of the Proposals. The subscription price of 170.5 pence
per share is based on the closing price for an Ordinary Share on 21 March 2000
less five per cent.
Jiyu Holdings is a private investment company, unconnected to any of Dialog's
existing shareholders or investors. Jiyu's principal shareholder already has
substantial investments in a group of high technology companies (operating in
Europe, the Far and Middle East) involved in the manufacture of digital set-top
boxes and other satellite receiving equipment.
The Board recommends the Subscriptions as being in the interests of the Company
due to the strategic value of these alliances and the obvious financial benefits
of raising additional capital. The five per cent. discount was reached following
detailed negotiations and is consistent with the ABI guidelines.
3. GROUP POST ISD SALE
(a) BACKGROUND AND MANAGEMENT'S TECHNOLOGY CREDENTIALS
After the Sale, the Board believes that the Company will be well placed to take
advantage of its growth opportunities with a strong capital position and
potentially no debt obligations. Additionally, management will be able to
concentrate its full energy on developing, marketing and selling the WSD and ECD
products and services.
The executive management team of Dialog has consistently demonstrated its
expertise in successfully anticipating and developing products and services and
technical innovations to lead into existing markets and develop new markets. In
its formative years, the Group successfully developed and introduced InfoSort as
an innovative tool for intelligent filing and searching diverse databases. The
product has been further developed and improved in subsequent applications that
have been instrumental in creating added value for Dialog's customers whether it
is through Web Solutions such as the strategic alliance with Fujitsu, or the
development of the recently launched WebCheck desktop application.
In addition, the management team were amongst the first to recognise and
anticipate the impact of the Internet's potential to deliver information to end
users and the requirements for browser-based intuitive products that could be
utilised by business users and consumers alike. The Company has also constructed
new technologies that are well positioned to take advantage of the new digital
economy. The management of the Company has also been successful in securing
contracts with a number of third parties, including the DTI, the BBC, Fujitsu
and Freeserve.
The Board believes that search, structuring and eCommerce technologies will be
the fundamental backbone of Internet and eCommerce businesses in the 21st
century.
(b) THE BUSINESSES OF THE CONTINUING GROUP
A summary of the Company's continuing businesses and their strategies is as
follows:
WEB SOLUTIONS DIVISION (WSD)
WSD is the "search and structure" technology division. It owns the intellectual
property rights for the Company's proprietary InfoSort automatic indexing and
Muscat probabilistic searching technologies. The focus of the division is to
leverage these technology assets individually or together in the form of various
commercial applications such as its WebTop.com Internet search engine, WebCheck
concept-based desktop search application, and K-Working suite of knowledge
management tools.
ECOMMERCE DIVISION (ECD)
ECD is the eCommerce technology arm of the Company. It owns the intellectual
property rights to its proprietary Sparza eCommerce software. The focus of the
division is to leverage its eCommerce
7
technology assets both in providing business-to-business eCommerce software
solutions to businesses, manufacturers, wholesalers and resellers, and
through eCommerce services such as OfficeShopper -- an award-winning
Internet-based supplier of business supplies. OfficeShopper will continue to
grow its user base through both direct sales and through alliances with
consumer-focused partners such as Freeserve.
INTERNET VENTURES DIVISION (IVD)
IVD will seek to develop in-house, and to assist externally generated, business
opportunities in the Internet and eCommerce areas. It will do this with the
application of the Company's proprietary search, structuring and eCommerce
technologies, management expertise and investment capital. The Board also has
proposed a strategic relationship with leading UK Internet incubator Oxygen
Holdings plc. Oxygen board member Matthew Freud will join the investment panel
of IVD and Dialog Chief Executive Dan Wagner will be appointed to the investment
committee of Oxygen Holdings. The Board intends to make such investments in the
coming months as and when suitable opportunities arise. The IVD will be
developed further following Completion. As at the date of this document, this
division has made no material investments.
(c) FINANCIAL INFORMATION
As shown in the preliminary results set out in Part III, in the year ended 31
December 1999, the businesses making up the Continuing Group generated operating
profit (before allocation of central overheads) of GBP1.8 million (1998: GBP0.9
million) on turnover of GBP9.3 million (1998: GBP4.1 million).
Part V of this document sets out, for illustrative purposes only, an unaudited
proforma statement of net assets of Dialog reflecting the effect of implementing
the Proposals.
4. CHANGE OF NAME
As a result of the Sale of ISD to Thomson, together with the Dialog brand name,
the Board is proposing to change the name of the Company, to reflect better the
activities of the Group going forward. Whilst the eCommerce and Web Solutions
Divisions offer immediate opportunities for growth and value creation, the Board
is also focusing on the longer term through expanding into new areas of
technology. On that basis it is proposed that the Company's name be changed to
Bright Station plc. A resolution to approve this change of name will be proposed
at the Extraordinary General Meeting.
5. CURRENT TRADING AND PROSPECTS
The preliminary results for the year ended 31 December 1999 were published on 23
March 2000. The full text of this announcement is set out in Part III of this
document.
Overall, Group revenues in 1999 rose 2 per cent. from the prior year level to
GBP174.5 million. The increase was principally driven by revenues from Dialog's
strategic partnership with leading technology conglomerate Fujitsu, which
favourably benefited the WSD. Operating profit amounted to GBP15.1 million,
against GBP20.7 million in 1998, reflecting provisions against the value of the
Company's investments in 4th Network and Frost and Sullivan, together with
seasonally weak trading in the final quarter of the year.
The businesses which comprise the Continuing Group showed strong revenue growth
in the year with WSD revenues increasing 97.5 per cent. to GBP7.9 million and
ECD revenues reaching GBP1.4 million in that division's first full year of
trading.
The Continuing Group as a whole has not yet achieved the level of revenues
necessary to provide the Group with operating results which are positive at the
earnings level. The Continuing Group will look to invest significantly in
building the profile and sales pipeline for its Web and eCommerce technologies
and assets. Although management anticipates strong revenue growth, this
increased investment will have a consequential impact on earnings for the year.
There can be no assurance that the Continuing Group will achieve overall
profitability in the near term.
8
The Board expects to manage actively the Continuing Group's net expenditure, and
will, in particular, review carefully the pattern of revenues and overall
expenditure in the coming months in order to ensure that the Continuing Group's
working capital requirements do not exceed its available sources of capital. In
due course, additional sources of equity are likely to be identified for some of
the individual businesses, to ensure they achieve their potential.
It is the intention of the Board to continue to report its results on a
divisional basis every quarter and to maintain its listings on the London Stock
Exchange and NASDAQ. Pending approval of the resolutions at the Extraordinary
General Meeting to be held on 27 April 2000, the trading symbol for the
Continuing Group will become BSN on the London Stock Exchange and BSTN on
NASDAQ.
6. BOARD COMPOSITION
The impact of the Proposals will be to alter radically the Group's operational
structure and, in particular, to reduce significantly the current head count, as
employees of the ISD will be transferred to Thomson. Accordingly it is intended
that all the executive Directors, apart from Dan Wagner and David Mattey, will
resign from the Board and move with the ISD to Thomson. Pat Sommers will,
however, remain a non-executive director of the Company.
7. EXTRAORDINARY GENERAL MEETING
You will find set out at the end of this document a notice convening an
Extraordinary General Meeting to be held at The Royal Automobile Club, 89 Pall
Mall, London SW1Y 5HS on Thursday, 27 April 2000 at 2.00 p.m. at which
resolutions will be proposed to:
(a) approve the Sale;
(b) increase the Company's authorised share capital from GBP1,998,270 to
GBP2,500,000 by the creation of 50,173,000 new Ordinary Shares (an
increase of 25 per cent.) for the purposes of the Subscription;
(c) give the Directors the power to allot ordinary shares up to GBP163,355
in connection with the Subscriptions being approximately 9.5 per cent.
of the enlarged issued share capital (such authority to expire on
31 July 2000) and to disapply pre-emption rights in connection with the
Subscriptions;
(d) give the Directors the power to allot securities generally up to
GBP572,123 being 33 per cent. of the enlarged issued share capital
following Admission, such authority to expire on 27 April 2005;
(e) disapply pre-emption rights in relation to rights and other pre-emptive
issues to shareholders and otherwise in respect of up to 8,581,838
Ordinary Shares (representing approximately 5% of the enlarged issued
share capital of the Company following Admission), such authority to
expire on 27 April 2005; and
(f) approve the Company's change of name to Bright Station plc.
8. FURTHER INFORMATION
Your attention is drawn to Parts II to VI of this document which provide
additional information on the matters discussed above.
9. ACTION TO BE TAKEN
A form of proxy for use at the Extraordinary General Meeting by Shareholders is
enclosed. If you are a Shareholder, you are requested to complete, sign and
return the form of proxy, whether or not you intend to be present at the
meeting, and return it to the Company's Registrars at ComputerShare Services
PLC, PO Box 457, Owen House, 8 Bankhead Crossway North, Edinburgh EH11 0XG as
soon as possible and in any event so as to arrive not later than 2.00 p.m. on 25
April 2000. The completion and return of a form of proxy will not prevent you
from attending the meeting and voting in person should you subsequently wish to
do so.
9
10. RECOMMENDATION
In summary, the Directors believe that the Proposals address the two key
objectives identified in the strategic review of eliminating the debt burden and
repositioning the Group on two core divisions, which have exhibited significant
growth and will now have secure cash resources to support their future
development. The Directors draw Shareholders' attention to the fact that if
Shareholder approval is not obtained, the Company will be obliged to pay $2.75
million to Thomson as compensation for its costs and expenses in connection with
the Sale.
After completion of the Sale, the Company will be well placed to take advantage
of its growth opportunities without the challenges inherent in servicing a large
debt position. Management will be able to concentrate their full energies on
developing the WSD and ECD products and will be in possession of the funds to
aid that expansion.
YOUR DIRECTORS CONSIDER THE PROPOSALS TO BE IN THE BEST INTERESTS OF THE COMPANY
AND SHAREHOLDERS AS A WHOLE. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
SHAREHOLDERS TO VOTE IN FAVOUR OF THE RESOLUTIONS TO BE PROPOSED AT THE
EXTRAORDINARY GENERAL MEETING AS THEY INTEND TO DO IN RESPECT OF THEIR OWN
ENTIRE BENEFICIAL AND NON-BENEFICIAL INTERESTS OF 21,034,287 SHARES REPRESENTING
13.55 PER CENT. OF THE CURRENT ISSUED SHARE CAPITAL.
Yours faithfully
Allen Thomas
Chairman
10
PART II
FINANCIAL INFORMATION RELATING TO THE INFORMATION SERVICES DIVISION
1. PREPARATION OF THE FINANCIAL INFORMATION
The financial information presented below in respect of ISD is extracted without
material adjustment from consolidation returns used for preparing the
consolidated financial statements of Dialog for the three years ended 31
December 1998 and from the consolidation returns used for preparing the
unaudited preliminary results of Dialog for the year ended 31 December 1999.
The financial information comprises a combined profit and loss account for the
four years ended 31 December 1999 and balance sheets as at 31 December 1998 and
31 December 1999, excluding the effects of certain funding balances used to
finance the Group as this debt is not transferred as part of the Sale and has
not been used to fund the operating activities of the ISD over the four years
ended 31 December 1999. The financial information has been prepared in
accordance with the accounting policies of Dialog in place as at 31 December
1998.
The statutory accounts of Dialog for the three years ended 31 December 1998 have
been delivered to the Registrar of Companies. The statutory accounts contain
unqualified auditor's reports under section 235 of the Act and did not contain
statements under section 237(2) or (3) of the Act.
Consolidated accounts were not prepared for ISD for the three years ended 31
December 1998 as there is no legal requirement to do so. The financial
information presented below does not represent statutory accounts as defined by
section 240 of the Act.
2. PROFIT AND LOSS ACCOUNTS
The unaudited combined profit and loss accounts of ISD for the four years ended
31 December 1999 are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
1996 1997 1998 1999
GBP'000 GBP'000 GBP'000 GBP'000
-------- ------- ------- -------
TURNOVER 21,413 43,856 165,311 165,133
Cost of sales (7,237) (17,155) (69,901) (66,224)
-------- -------- -------- --------
GROSS PROFIT 14,176 26,701 95,410 98,909
Distribution costs - exceptional -- (1,313) 45 --
- other (9,933) (15,623) (20,707) (20,961)
Administrative expenses - exceptional -- (9,247) (2,628) --
- other (7,975) (10,063) (38,822) (48,064)
Amortisation/write off
of development costs - exceptional -- (7,990) -- --
- other (2,170) (3,558) (7,761) (9,142)
Amounts written off investments -- -- -- (1,423)
Operating profit/(loss) - exceptional -- (18,550) (2,583) --
- other (5,902) (2,543) 28,119 19,319
OPERATING PROFIT/(LOSS) (5,902) (21,093) 25,536 19,319
Interest payable and similar charges (189) (112) (45) (106)
-------- -------- -------- --------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION (6,091) (21,204) 25,491 19,213
Taxation on profit/(loss) on
ordinary activities (164) (323) (769) (989)
-------- -------- -------- --------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER
TAXATION (6,255) (21,527) 24,722 18,224
Minority equity interests (28) 11 (391) (188)
-------- -------- -------- --------
PROFIT FOR THE FINANCIAL YEAR (6,283) (21,516) 24,331 18,036
======== ======== ======== ========
NOTES:
1. The exceptional items relate to the integration of Knight-Ridder
Information into the existing Dialog business.
11
3. BALANCE SHEETS
The unaudited balance sheets of ISD as at 31 December 1998 and 1999 were as
follows:
31 DECEMBER 31 DECEMBER
1998 1999
GBP'000 GBP'000
------- -------
FIXED ASSETS
Intangible assets 22,367 26,154
Goodwill 1,679 1,638
Tangible assets 17,365 13,466
Investments 7,026 6,504
------- -------
48,437 47,762
------- -------
CURRENT ASSETS
Stocks 221 60
Debtors 41,788 30,597
------- -------
42,009 30,657
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (40,636) (33,100)
------- -------
NET CURRENT ASSETS/(LIABILITIES) 1,373 (2,443)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 49,810 45,319
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (3,043) (5,296)
PROVISIONS FOR LIABILITIES AND CHARGES (4,652) (633)
------- -------
NET ASSETS 42,115 39,390
======= =======
Funded by the Group 41,285 38,847
Minority interest 830 543
------- -------
42,115 39,390
======= =======
12
PART III
PRELIMINARY RESULTS OF DIALOG FOR THE YEAR ENDED 31 DECEMBER 1999
Set out below are the preliminary results of Dialog, which were released on 23
March 2000 (an exchange rate conversion of $1.61: GBP1, representing the rate on
31 December 1999 has been applied).
"THE DIALOG CORPORATION plc
FULL-YEAR FINANCIAL SUMMARY
- - 1999 Group revenues rose 2 per cent. to GBP174 ($281.2) million,
compared to 1998 levels;
- - The increase was driven by revenues from Dialog's strategic partnership
with leading technology conglomerate Fujitsu, which favourably benefited
the Company's Web Solutions Division (WSD);
- - Operating profit amounted to GBP15.1 ($24.3) million against GBP20.7
($33.4) million for 1998, reflecting provisions against investments (as
described below) and seasonally weak trading in the Final Quarter;
- - ISD revenues decreased marginally from GBP165.3 ($266.4) million in 1998
to GBP165.1 ($266.1) million in 1999;
- - WSD revenues increased 97.5 per cent. to GBP7.9 ($12.7) million in 1999,
compared to 1998; and
- - ECD revenues reached GBP1.4 ($2.3) million in the division's first full
year of trading.
OPERATIONAL HIGHLIGHTS
- - WebTop.com, a new concept-based search engine, revolutionising the way
in which people can search the Internet, was previewed by Dialog in
December 1999 and launched in March 2000;
- - WebCheck, a concept-based searching tool featuring "drag and drop"
technology for searching an entire sentence, paragraph, document or
email, was recently introduced as a complementary, desktop application
of WebTop;
- - Dialog launched a new suite of global knowledge management software
products under the "K-Working" brand name, in the latter part of 1999;
- - End-user Internet portals, which accept credit card payments for usage
were introduced, in conjunction with a corporate alliance with Netscape
Communications;
- - Fujitsu unveiled its first Japanese product incorporating Dialog's
proprietary InfoSort indexing technology;
- - Dialog raised its strategic investment stake in natural language
searching tool company, Muscat Ltd., from 70 per cent. to 100 per cent.;
and
- - The world's first Web-based trade statistics resource -- TradStat Web
(www.tradstatweb.com) -- was launched by Dialog in November.
During much of the fourth quarter, management and the Board focused their
collective efforts on resolving the Company's debt situation, which has
culminated in today's announcement of the proposed sale of the Information
Services Division (ISD) to The Thomson Corporation. As discussed, this sale will
allow the Company to pay off its outstanding debt in full, and importantly,
invest needed capital in its other, fast-growing divisions as well as a new
third division focused on investment in and the nurturing of, promising Internet
and high-tech business start-ups.
Several non-recurring items impacted the Group's 1999 results, including
provisions against investments of GBP4.6 ($7.4) million relating to investments
in 4th Network (now renamed eHotel) and Frost and Sullivan. Additionally, the
Group recorded an approximate GBP1.6 ($2.6) million increase in
13
Amortisation of Development Costs, compared to 1998. Renegotiations of Dialog's
Senior Bank Facility in November 1999 also added GBP0.5 ($0.8) million one-time
costs related to legal and advisory fees.
Assuming shareholder and bondholder approval of the proposed sale of ISD to
Thomson, the Group expects to report a one-off loss relating to the transaction
in the first half of 2000. In the absence of the proposed sale, the Group faces
issues with regard to working capital and near term debt servicing payments
which it would find extremely challenging to address from any alternative
sources of funds.
Since the year end, Dialog's eCommerce division (ECD) entered into an exclusive
alliance with leading UK Internet service provider Freeserve plc (NASDAQ: FREE;
LSE:FRE), to provide a co-branded version of Dialog's OfficeShopper via the
business channel of Freeserve's Internet portal, at http://www.freeserve.net.
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998
GBP'000 GBP'000
-------- --------
TURNOVER 174,452 170,762
Cost of sales (68,174) (71,618)
-------- --------
GROSS PROFIT 106,278 99,144
Distribution costs (22,118) (21,560)
Administrative expenses - exceptional -- (2,628)
Administrative expenses - other (54,677) (44,170)
Amortisation of development costs/goodwill (9,749) (7,760)
Amounts written off investments (4,619) (2,300)
-------- --------
OPERATING PROFIT 15,115 20,726
Exceptional item - provision for closure of business (911) --
- gain on sale of fixed asset investments -- 2,069
Net interest payable (18,061) (17,231)
-------- --------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (3,857) 5,564
Taxation on (loss)/profit on ordinary activities (1,478) (769)
-------- --------
(LOSS)/PROFIT ON ORDINARY AFTER TAXATION (5,335) 4,795
Minority equity interests (50) (356)
-------- --------
RETAINED (LOSS)/PROFIT (5,385) 4,439
======== ========
(Loss)/earnings per share (pence) (3.5) 2.9
Shares used in computing (loss)/earnings per share (thousands) 151,929 150,579
14
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 31 DECEMBER 1999
1999 1998
GBP'000 GBP'000
FIXED ASSETS
Intangible assets 27,030 23,154
Goodwill 9,805 7,676
Tangible assets 14,338 17,870
Investments 9,635 12,354
-------- --------
60,808 61,054
-------- --------
CURRENT ASSETS
Stocks 60 221
Debtors 36,690 42,781
Cash at bank and in hand 10,521 4,494
Assets held for resale -- 992
-------- --------
47,271 48,488
CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR) (71,574) (58,845)
-------- --------
NET CURRENT LIABILITIES (24,303) (10,357)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 36,505 50,697
CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR) (137,370) (139,741)
PROVISIONS FOR LIABILITIES AND CHARGES (1,430) (4,697)
-------- --------
(102,295) (93,741)
======== ========
CAPITAL AND RESERVES - EQUITY
Called up share capital 1,549 1,514
Share premium account 154,949 152,128
Shares to be issued 967 967
Profit and loss account (260,303) (249,427)
-------- --------
EQUITY SHAREHOLDERS' FUNDS (102,838) (94,818)
Minority interest 543 1,077
-------- --------
TOTAL SHAREHOLDERS' FUNDS (102,295) (93,741)
======== ========
15
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998
GBP'000 GBP'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 33,583 34,151
------- -------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 303 205
Interest paid on bank loans and overdrafts (16,945) (15,251)
Interest paid on finance leases (106) (46)
------- -------
(16,748) (15,092)
------- -------
TAXATION PAID (911) (349)
------- -------
CAPITAL EXPENDITURE
Payments to develop intangible assets (12,178) (11,762)
Payments to acquire tangible fixed assets (4,536) (7,223)
Receipts from sales of tangible fixed assets 78 211
------- -------
(16,636) (18,774)
------- -------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings -- (965)
Cash impact of revisions to fair values -- (2,284)
Payments to acquire minority interest in subsidiary undertakings (428) (1,720)
Net cash acquired with subsidiary undertaking -- (33)
Purchase of share in joint venture (1,235) (1,086)
Expenses in connection with purchase of subsidiary undertakings -- (471)
Proceeds from sale of assets held for resale/investments 777 7,123
Expenses in connection with sale of asset held for resale (303) --
------- -------
(1,189) 564
------- -------
CASH (OUTFLOW)/INFLOW BEFORE THE USE OF LIQUID RESOURCES AND FINANCING (1,901) 500
------- -------
MANAGEMENT OF LIQUID RESOURCES
Net receipts from sales of investments
with original maturity date of less than one year -- 620
------- -------
FINANCING
Net proceeds on issue of ordinary share capital 142 458
Debt due within one year
- -- Increase in borrowings 13,187 --
- -- Increase in finance leases 1,549 --
- -- Repayment of loans (22,004) (9,551)
Debt due after one year
- -- New secured loan 15,593 --
- -- Increase in finance leases 1,509 --
- -- New unsecured loan -- --
Expenses on raising of debt (1,246) (29)
Repayment of capital element of finance leases (525) (549)
------- -------
8,205 (9,671)
------- -------
INCREASE/(DECREASE) IN CASH 6,304 (8,551)
======= =======
16
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
1999 1998
GBP'000 GBP'000
Increase/(decrease) in cash in the period 6,304 (8,551)
Cash used to decrease lease financing 525 549
Cash acquired from issue of debt (net of expenses) (27,533) 29
Cash used to repay loans 22,004 9,551
Cash acquired from short-term borrowings -- --
Cash acquired from new finance leases (3,058) --
Increase in liquid resources and cash deposits
with original maturity date of less than one year -- (620)
-------- --------
Change in net debt from cash flows (1,758) 958
Other non-cash changes (1,274) (946)
New finance leases (2,003) --
Effect of foreign exchange rate changes (4,894) 1,695
-------- --------
Movement in net debt in period (9,929) 1,707
Net debt at beginning of period (144,197) (145,904)
-------- --------
Net debt at end of period (154,126) (144,197)
======== ========
COMPOSITION OF TURNOVER AND OPERATING PROFIT
(UNAUDITED) FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998
OPERATING OPERATING
TURNOVER PROFIT TURNOVER PROFIT
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Information Services 165,133 19,319 165,311 25,536
Web Solutions and Internet software 7,918 3,023 4,010 1,013
eCommerce 1,401 (1,188) 77 (69)
Other -- (3,213) 1,364 (2,927)
Central overheads -- (2,826) -- (2,828)
-------- -------- -------- --------
174,452 15,115 170,762 20,726
======== ======== ======== ========
These results are unaudited and do not constitute statutory accounts within the
meaning of Section 240 of the Companies act 1985. The financial statements for
the year ended 31 December 1998 have been reported on by the company's auditors,
PricewaterhouseCoopers, and delivered to the Registrar of Companies. The audit
report was not qualified and neither did it contain any statements under Section
237 (2) or (3) of the Companies Act 1985. The unaudited results for the year
ended 31 December 1999 have been prepared in accordance with the accounting
policies stated in the 1998 Annual Report and Accounts."
17
PART IV
OTHER FINANCIAL INFORMATION ON DIALOG
A. NATURE OF FINANCIAL INFORMATION
The financial information set out in this Part IV has been extracted without
material adjustment from the audited consolidated financial statements and
report of the remuneration committee of Dialog for the three financial years
ended 31 December 1998. It represents profit and loss accounts and cash flow
statements and associated notes for the three years ended 31 December 1998,
balance sheets and associated notes as at 31 December 1997 and 1998 and the
balance sheet as at 31 December 1996.
The financial information concerning Dialog does not constitute statutory
accounts within the meaning of section 240 of the Act. Copies of the audited
accounts of Dialog for the three years ended 31 December 1998 have been
delivered to the Registrar of Companies in England. Each of the accounts
contained an auditors' report by the Dialog's auditors (PricewaterhouseCoopers
for the year ended 31 December 1998 and Price Waterhouse for the two years ended
31 December 1997) under Section 235 of the Act. Those reports were not qualified
within the meaning of Section 262 of the Act and none of those reports contained
a statement in the form referred to in Section 237(2) or (3) of the Act.
B. CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the years ended 31 December 1998, 1997 and 1996
1998
---------------------------------------------
TOTAL RESTRUCTURING TOTAL
CONTINUING COSTS CONTINUING
BUSINESS AND OTHER BUSINESS
BEFORE EXCEPTIONAL AFTER
RESTRUCTURING ITEMS RESTRUCTURING
COSTS (NOTE 5) COSTS
NOTES GBP'000 GBP'000 GBP'000
TURNOVER 2 170,762 -- 170,762
Cost of sales (71,618) -- (71,618)
-------- -------- --------
GROSS PROFIT 99,144 -- 99,144
Distribution costs (21,605) 45 (21,560)
Administrative expenses (44,170) (2,628) (46,798)
Amortisation/write-off
of development costs (7,760) -- (7,760)
Amounts written off
investments -- (2,300) (2,300)
-------- -------- --------
OPERATING
PROFIT/(LOSS) 2,4 25,609 (4,883) 20,726
Gain on sale of fixed
asset investments 5 -- 2,069 2,069
Interest receivable 205 -- 205
Interest payable and
similar charges 6 (17,436) -- (17,436)
-------- -------- --------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
BEFORE TAXATION 8,378 (2,814) 5,564
Taxation on profit/(loss)
on ordinary activities 8 (769) -- (769)
-------- -------- --------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
AFTER TAXATION 7,609 (2,814) 4,795
Minority equity interests 23 (356) -- (356)
-------- -------- --------
RETAINED PROFIT/
(DEFICIT) 21 7,253 (2,814) 4,439
======== ======== ========
Earnings/(loss) per
share (pence) 9 4.8 2.9
-------- -------- --------
Fully diluted earnings/
(loss) per share (pence) 9 4.8 2.9
-------- -------- --------
1997 1996
---------------------------------------------
TOTAL RESTRUCTURING TOTAL
CONTINUING COSTS AND CONTINUING
BUSINESS OTHER BUSINESS
BEFORE EXCEPTIONAL AFTER
RESTRUCTURING ITEMS RESTRUCTURING
COSTS (NOTE 5) COSTS
NOTES GBP'000 GBP'000 GBP'000 GBP'000
TURNOVER 2 46,082 -- 46,082 21,443
Cost of sales (17,166) -- (17,166) (7,237)
-------- -------- -------- --------
GROSS PROFIT 28,916 -- 28,916 14,206
Distribution costs (15,700) (1,313) (17,013) (9,933)
Administrative expenses (13,415) (9,247) (22,662) (9,975)
Amortisation/write-off
of development costs (3,558) (7,990) (11,548) (2,170)
Amounts written off
investments -- -- -- --
-------- -------- -------- --------
OPERATING
PROFIT/(LOSS) 2,4 (3,757) (18,550) (22,307) (7,872)
Gain on sale of fixed
asset investments 5 -- 4,035 4,035 --
Interest receivable 338 -- 338 1,027
Interest payable and
similar charges 6 (2,498) -- (2,498) (189)
-------- -------- -------- --------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
BEFORE TAXATION (5,917) (14,515) (20,432) (7,034)
Taxation on profit/(loss)
on ordinary activities 8 (323) -- (323) (164)
-------- -------- -------- --------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
AFTER TAXATION (6,240) (14,515) (20,755) (7,198)
Minority equity interests 23 11 -- 11 (28)
-------- -------- -------- --------
RETAINED PROFIT/
(DEFICIT) 21 (6,229) (14,515) (20,744) (7,226)
======== ======== ======== ========
Earnings/(loss) per
share (pence) 9 (6.2) (20.5) (7.8)
-------- -------- -------- --------
Fully diluted earnings/
(loss) per share (pence) 9 (6.1) (20.4) (7.7)
-------- -------- -------- --------
18
C. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1998 1997 1996
GBP'000 GBP'000 GBP'000
Gain/(loss) for the financial year 4,439 (20,744) (7,226)
Consolidated translation differences on
foreign currency net investments 680 (3,099) (477)
----- ------- ------
Total recognised gains and losses for the financial year 5,119 (23,843) (7,703)
===== ======= ======
The profit and loss accounts shown above have been prepared on a historical cost
basis.
D. CONSOLIDATED BALANCE SHEETS
as at 31 December 1998, 1997 and 1996
1998 1997 1996
NOTES GBP'000 GBP'000 GBP'000
FIXED ASSETS
Intangible assets 10 23,154 21,624 8,311
Goodwill 11 7,676 -- --
Tangible assets 12 17,870 19,354 6,991
Investments 13 12,354 18,374 2,135
------ ------ ------
61,054 59,352 17,437
CURRENT ASSETS
Stocks 221 232 104
Debtors: amounts due within one year 14 42,781 43,205 8,126
Debtors: amounts due after one year 14 -- 615 --
Assets held for resale 30 992 7,384 --
Cash and bank deposits 4,494 13,722 8,038
------ ------ ------
48,488 65,158 16,268
CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR) 15 (58,845) (45,201) (6,687)
------ ------ ------
NET CURRENT (LIABILITIES)/ASSETS (10,357) 19,957 9,581
TOTAL ASSETS LESS CURRENT LIABILITIES 50,697 79,309 27,018
CREDITORS (AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR) 16 (139,741) (162,681) (796)
Provisions for liabilities and charges 17 (4,697) (7,583) (142)
------ ------ ------
NET LIABILITIES (93,741) (90,955) 26,080
====== ====== ======
CAPITAL AND RESERVES - EQUITY
Called up share capital 18 1,514 1,502 926
Share premium account 19 152,128 150,341 35,672
Shares to be issued 20 967 -- --
Profit and loss account 21 (249,427) (243,524) (10,561)
------ ------ ------
Equity shareholders' funds 22 (94,818) (91,681) 26,037
Minority equity interest 23 1,077 726 43
------ ------ ------
Total shareholders' funds (93,741) (90,955) 26,080
====== ====== ======
19
E. COMPANY BALANCE SHEETS
as at 31 December 1998 and 1997
1998 1997
Notes GBP'000 GBP'000
FIXED ASSETS
Intangible assets 10 4,650 4,157
Tangible assets 12 2,842 2,030
Investments 13 284,836 282,286
------- -------
292,328 288,473
CURRENT ASSETS
Stocks 27 28
Debtors 14 40,734 29,139
Cash at bank and in hand -- 184
------- -------
40,761 29,351
CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR) 15 (55,435) (16,575)
------- -------
NET CURRENT (LIABILITIES)/ASSETS (14,674) 12,776
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 277,654 301,249
CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR) 16 (136,709) (155,806)
------- -------
NET ASSETS 140,945 145,443
======= =======
CAPITAL AND RESERVES - EQUITY
Called up share capital 18 1,514 1,502
Share premium account 19 152,128 150,341
Shares to be issued 20 967 --
Profit and loss account 21 (13,664) (6,400)
------- -------
Total shareholders' funds 22 140,945 145,443
======= =======
20
F. CONSOLIDATED CASH FLOW STATEMENT
for the years ended 31 December 1998, 1997 and 1996
1998 1997 1996
NOTES GBP'000 GBP'000 GBP'000
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES 25 34,151 3,175 (5,841)
-------- -------- --------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Dividends paid to minority shareholders in subsidiary undertakings -- (41) --
Interest received 205 353 885
Interest paid on bank loans and overdrafts (15,251) (585) (3)
Interest paid on finance leases (46) (119) (198)
-------- -------- --------
(15,092) (392) 684
-------- -------- --------
TAXATION PAID (349) (158) (20)
-------- -------- --------
CAPITAL EXPENDITURE
Payments to develop intangible assets (11,762) (2,747) (3,237)
Payments to acquire tangible fixed assets (7,223) (1,987) (3,554)
Receipts from sale of tangible fixed assets 211 178 18
-------- -------- --------
(18,774) (4,556) (6,773)
-------- -------- --------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings 11 (965) (262,623) (50)
Cash impact of revisions to fair values (2,284) -- --
Payment to acquire minority interests in a subsidiary undertaking 11 (1,720) -- --
Net cash acquired with subsidiary undertakings (33) 11,907 --
Purchase of share in joint venture (1,086) (610) --
Expenses in connection with purchase of subsidiary undertakings (471) (3,857) --
Proceeds of sale of investments 5 7,123 -- --
Payments made in connection with sale of technology -- (562) --
-------- -------- --------
564 (255,745) (50)
-------- -------- --------
CASH INFLOW/(OUTFLOW) BEFORE THE USE OF
LIQUID RESOURCES AND FINANCING 500 (257,676) (12,000)
-------- -------- --------
MANAGEMENT OF LIQUID RESOURCES
Cash withdrawn from deposit 26 620 -- --
Net receipts from sale of investments with original maturity
date of less than one year -- 5,380 15,646
-------- -------- --------
FINANCING
Net proceeds on issue of Ordinary share capital 458 111,302 --
Net proceeds on issue of Senior Credit Facility -- 52,836 --
Net proceeds on issue of Senior Subordinated Notes -- 102,844 --
Debt due within one year:
- - Repayment of loans (9,551) -- --
Expenses on issue of Ordinary share capital -- (755) (1,068)
Expenses on raising of Senior Credit Facility and Senior
Subordinated Notes (29) (1,608) --
Repayment of capital element of finance leases (549) (1,491) (1,012)
-------- -------- --------
(9,671) 263,128 (2,080)
-------- -------- --------
(DECREASE)/INCREASE IN CASH (8,551) 10,832 1,566
-------- -------- --------
RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET (DEBT)/FUNDS
(Decrease)/increase in cash in the period (8,551) 10,832 1,566
Cash used to decrease lease financing 549 1,491 1,012
Cash acquired from issue of debt (net of expenses) 29 (154,072) --
Cash used to repay loans 9,551 -- --
Decrease in liquid resources and cash deposits with original
maturity dates of more than one year (620) (5,380) (15,646)
-------- -------- --------
Change in net (debt)/funds from cash flows 958 (147,129) (13,068)
Other non-cash changes (946) (119) --
New finance leases -- (122) (464)
Effect of foreign exchange rate changes 1,695 (4,422) 85
-------- -------- --------
Movement in net (debt)/funds in period 1,707 (151,792) (13,447)
Net (debt)/funds at beginning of period (145,904) 5,888 19,335
-------- -------- --------
Net (debt)/funds at end of period 27 (144,197) (145,904) 5,888
======== ======== ========
21
G. NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost convention
and in accordance with accounting standards applicable in the United Kingdom.
There are significant differences between generally accepted accounting
principles (GAAP) in the United Kingdom (UK) and the United States (US). A
summary of these differences together with the reconciliation of net
profit/(loss) and shareholders' equity from UK GAAP to US GAAP is provided in
note 29 to these financial statements. Certain additional disclosures have been
made to aid US readers of the financial statements. The following principal
accounting policies have been applied:
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
GROUP ACCOUNTS
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries. All intercompany transactions and balances
have been eliminated. The accounts include the results of subsidiaries acquired
during the year from the relevant date of acquisition other than those
subsidiaries acquired with a view to resale.
GOODWILL
Prior to 1 January 1998, goodwill arising as the difference between the cost of
acquisition of a subsidiary and the fair value of its net assets at the date of
acquisition was written off to reserves in the year of acquisition. Goodwill
arising on acquisitions since 1 January 1998 is capitalised and subsequently
written off over its estimated useful life, which currently ranges from 10 - 20
years. Where necessary, adjustments to provisional fair values of net assets
acquired are adjusted to goodwill in the first full year following the
acquisition.
TURNOVER AND REVENUE RECOGNITION
Turnover represents database subscription sales, online and usage charges and
design and implementation fees at invoiced amounts, exclusive of value added and
other sales taxes. Subscription revenues are recognised when contractually due
and invoiced. The costs of fulfilling obligations under the terms of the
subscription contract are accrued at the time the income is recognised. Online
and usage charges are recognised as the service is provided.
Most subscriptions are due and invoiced either annually or semi-annually in
advance and recognised in full at the commencement of the subscription term.
Some of the Group's US operations bill monthly under its `modular pricing'
scheme, whereby subscriptions for access to the Group's service are raised on a
monthly basis and are accounted for accordingly.
Annual CD-ROM usage fees are deferred and amortised over the life of the
contract.
22
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided to write off the cost,
less estimated residual value, of all tangible fixed assets over their expected
useful lives and is calculated at the following rates:
Equipment including personal computers - 33% straight line
Leasehold improvements - 20% straight line
Motor vehicles - 25% straight line
Mainframe computers - 20% straight line
Fixtures and fittings - 20% straight line
Leasehold improvements relate to the cost of refurbishment of the Group's short
leasehold properties.
STOCKS
Stocks, which comprise consumable items, are stated at the lower of cost and net
realisable value.
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded at the exchange rate
prevailing at the date of the transaction. Transactions to be settled at a
contract rate are recorded at that rate. Any gains or losses from the
translation of transactions denominated in foreign currencies are included in
the results of the operation. Assets and liabilities denominated in foreign
currencies are translated at the exchange rate ruling at the year-end. Profit
and losses of overseas companies are translated at average rates of exchange for
the period. Exchange differences arising out of the translation of accounts of
foreign subsidiaries, net of associated borrowings, are taken to reserves.
FINANCIAL INSTRUMENTS
Changes in the value of forward foreign exchange contracts are recognised in the
results in the same period as changes in the values of the assets and
liabilities they are intended to hedge. Any interest receipts arising from the
interest rate cap would be matched to those arising from the underlying debt
position.
INTANGIBLE FIXED ASSETS
Intangible fixed assets comprise both system and product development costs.
System development comprises costs associated with the Group's host computer
systems and databases, and includes software licence fees and installation
costs. These costs are amortised on a straight line basis over five years in
line with the depreciation policy for the computer hardware used to host The
Dialog Corporation's services.
Product development consists of the pre-launch costs associated with the
development of new products. These include the costs of consultancy,
programmers' salaries and related overheads including depreciation and lease
interest on computer hardware wholly used for product development. These costs
are amortised on a straight line basis over three years commencing in the first
month of revenue generation from the developed product.
Product development costs are reviewed regularly for impairment and additional
depreciation is charged, if necessary, to reduce the net amount carried forward
on a product by product basis to net revenues expected to be generated from that
product.
INDEXING COSTS
The cost of indexing information on the databases is deferred and amortised on a
straight line basis over two years.
23
FIXED ASSET INVESTMENTS
Investments in subsidiaries and other fixed asset investments are stated in the
balance sheet at cost. Provision is made in full for diminution in value if
considered permanent.
DEFERRED TAXATION
Provision is made for timing differences between the treatment of certain items
for taxation and accounting purposes, to the extent that it is probable that a
liability or asset will crystallise.
LEASED ASSETS
Where assets are financed by leasing agreements that give rights approximating
to ownership ("finance leases"), the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable over the term of the lease. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account except for that
proportion relating to assets wholly used for product development.
Lease payments are analysed between capital and interest using the actuarial
method. The interest is charged to the profit and loss account except for that
proportion relating to assets wholly used for product development. The capital
part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the lease
term except where the costs are capitalised as development costs.
PENSION COSTS
The Group operates defined contribution pension schemes in the UK, US and
Switzerland. The amount of contributions payable to the pension schemes are
charged to the profit and loss account as incurred.
FINANCE COSTS
Borrowings are stated net of the associated costs of raising the finance. Such
finance costs are charged to the profit and loss account over the term of the
related borrowing, increasing the outstanding borrowing to the amount of the
debt at the maturity date.
CONTENT PROVIDER AGREEMENTS
Certain of the Group's information provider agreements contain provisions for
either fixed fees or minimum royalty payments irrespective of the usage revenues
generated by the Group. The Group recognises these fixed fees or minimum royalty
payments on a pro-rata basis in accordance with the terms of the contracts. The
Group periodically reviews the projected revenues related to these arrangements
and makes provision if fixed fees or minimum royalty commitments are not
expected to be recovered from the related revenues.
CONCENTRATION OF CREDIT RISK
The Group's policy is to place its cash, cash equivalents and investments with
high-quality -- financial institutions in order to limit the amount of credit
exposure. The Group performs ongoing evaluations of its customers' financial
condition and maintains reserves for potential credit losses, and such losses,
in the aggregate, have not exceeded management expectations. Financial
instruments which expose the Group to credit risk are cash equivalents,
investments and trade accounts receivable, which generally are not
collateralised.
24
2. SEGMENTAL ANALYSIS
On 2 February 1999, the Company announced the creation of three new operating
divisions: the Information Services Division which provides an indexed online
delivery system sourced principally in the United Kingdom and North America; the
Web Solutions and Internet Software Division which licenses the Group's search
technologies for corporate knowledge management solutions; and the eCommerce
Division. Although these new divisions are not reportable segments, the analysis
of Group turnover has been revised accordingly.
1998 includes a full year's results of Knight-Ridder Information, Inc. (KRII) as
opposed to the previous year which only shows the results of KRII from the date
of acquisition, being 14 November 1997. The composition of turnover is analysed
as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
Information Services:
- - Usage sales 136,992 28,040 9,366
- - Subscription sales 10,561 14,092 11,462
- - CD-ROM sales 8,737 1,134 --
- - Other sales 9,021 590 585
------- ------- -------
165,311 43,856 21,413
Web Solutions and Internet Software 4,010 397 30
eCommerce 77 -- --
Other 1,364 1,829 --
------- ------- -------
170,762 46,082 21,443
======= ======= =======
The "other" category relates to royalties earned from the provision of hotel
Internet access.
The composition of turnover by source is analysed as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
United Kingdom 17,243 29,013 21,443
North America 129,478 14,367 --
Continental Europe 17,231 2,244 --
Rest of the world 6,810 458 --
------- ------- -------
170,762 46,082 21,443
======= ======= =======
The composition of turnover by destination is analysed as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
United Kingdom 38,934 14,026 8,665
North America 96,952 20,377 6,991
Continental Europe 13,819 7,365 3,943
Rest of the world 21,057 4,314 1,844
------- ------- -------
170,762 46,082 21,443
======= ======= =======
25
The composition of operating profit/(loss) is analysed as follows:
1998 1997 1996
TOTAL TOTAL TOTAL TOTAL
CONTINUING RESTRUCTURING CONTINUING CONTINUING RESTRUCTURING CONTINUING
BUSINESS COSTS BUSINESS BUSINESS COSTS AND BUSINESS
BEFORE AND OTHER AFTER BEFORE OTHER AFTER
RESTRUCTURING EXCEPTIONAL RESTRUCTURING RESTRUCTURING EXCEPTIONAL RESTRUCTURING
COSTS ITEMS COSTS COSTS ITEMS COSTS
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 8,498 (2,689) 5,809 (5,599) (5,983) (11,582) (4,850)
North America 15,444 (2,781) 12,663 (375) (10,107) (10,482) (3,900)
Continental Europe 921 587 1,508 2,288 (2,429) (141) 826
Rest of the world 746 -- 746 (71) (31) (102) 52
------ ------ ------ ------ ------- ------- ------
25,609 (4,883) 20,726 (3,757) (18,550) (22,307) (7,872)
====== ====== ====== ====== ======= ======= ======
The operating profit/(loss) for the United Kingdom for the periods under review
includes the central costs associated with the Group's worldwide head office
functions.
The composition of net assets and total assets by location is presented on a
basis consistent with the segmental analysis of operating profit/(loss). The
assets in any location are not necessarily matched with the turnover in that
location. The net assets and total assets for the United Kingdom for the periods
under review include those associated with the Group's worldwide head office
functions.
The composition of net (liabilities)/assets is analysed as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
United Kingdom 13,003 20,387 15,153
North America 37,720 38,403 2,909
Continental Europe 2,481 3,293 1,395
Rest of the world 1,514 5,807 623
-------- -------- -------
Net operating assets 54,718 67,890 20,080
Unallocated net (liabilities)/assets (148,459) (158,845) 6,000
-------- -------- -------
(93,741) (90,955) 26,080
======== ======== =======
Unallocated net (liabilities)/assets comprise borrowings and cash deposits.
The composition of total assets is analysed as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
United Kingdom 28,382 28,287 21,280
North America 66,546 78,325 3,770
Continental Europe 7,771 10,376 1,937
Rest of the world 6,843 7,522 718
-------- -------- -------
Net operating assets 109,542 124,510 27,705
Unallocated assets -- -- 6,000
-------- -------- -------
109,542 124,510 33,705
======== ======== =======
Unallocated assets comprise cash deposits.
26
3. STAFF NUMBER AND COSTS
Staff costs (including Directors) consist of:
1998 1997 1996
GBP'000 GBP'000 GBP'000
Wages and salaries 32,529 14,336 10,603
Social security costs 2,997 1,440 1,204
Other pension costs 910 51 --
------ ------ ------
36,436 15,827 11,807
====== ====== ======
Included above are staff costs of GBP9,260,000 (1997: GBP1,413,000; 1996:
GBP1,871,000) which represent costs of product and systems development and have
been treated in accordance with the accounting policy for intangible fixed
assets as set out in note 1 to these financial statements.
PENSION ARRANGEMENTS
The Group operates defined contribution pension schemes in the UK, the US and
Switzerland. The pension cost charge represents contributions payable by the
Group to the funds and amounted to GBP910,000 (1997: GBP51,000; 1996: GBPnil).
The assets of all the schemes are held by independent custodians and kept
entirely separate from the assets of the Group.
The average number of full-time employees during the year was:
1998 1997 1996
United Kingdom 275 217 228
North America 573 289 147
Continental Europe 99 43 26
Rest of the world 78 43 10
------ ------ -----
1,025 592 411
====== ====== =====
4. OPERATING PROFIT/(LOSS)
This is arrived at after charging/(crediting):
1998 1997 1996
GBP'000 GBP'000 GBP'000
Hire of plant and machinery -- operating leases -- 560 38
Hire of other assets -- operating leases 5,160 1,272 1,048
Depreciation:
- -- on owned assets 7,069 4,378 1,323
- -- on leased assets 893 516 484
Amortisation/write-off:
- -- of development costs 7,699 11,548 2,170
- -- of goodwill 61 -- --
Auditors' remuneration:
- -- PricewaterhouseCoopers 229 197 75
- -- other 28 78 --
(Gain)/loss on foreign currency translations (290) (60) 26
Loss/(profit) on disposal of fixed assets 17 (15) (2)
Net costs arising on reorganisation of Group's
agency arrangements -- 267 --
Write-off of fixed asset investment (see notes 5 and 13) 2,300 -- --
The auditors' remuneration includes amounts in respect of the parent company for
the year ended 31 December 1998 of GBP100,000 (1997: GBP100,000; 1996:
GBP41,000).
27
Additional fees paid to PricewaterhouseCoopers (formerly Price Waterhouse) for
non-audit services amounted to GBP8,000 in 1998 (1997: GBP1,433,000; 1996:
GBPnil). The fees paid in 1997 were in respect of the Company's acquisition of
KRII in November 1997 and the associated financing.
Of the exceptional item of GBP267,000, which was charged against operating
profit in 1997, GBP383,000 related to the cost of purchasing the Company's South
African agency, offset by a gain of GBP116,000 on the assignment of the Group's
former Japanese agency to Fujitsu.
The (loss)/profit for the year attributable to shareholders, dealt with in the
accounts of The Dialog Corporation plc, is:
1998 1997 1996
GBP'000 GBP'000 GBP'000
(9,016) 4,120 (7,197)
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account of the company is not presented.
5. RESTRUCTURING COSTS AND OTHER EXCEPTIONAL ITEMS
Exceptional restructuring costs of GBP2.6 million have been charged as a result
of the continuing integration of KRII. These costs consist of GBP1.8 million
relating to the relocation of the US headquarters, GBP1.6 million relating to
the termination of property leases and GBP0.9 million of various other
restructuring charges, relating primarily to the integration of the sales
force and one-off customer hostings. These costs have been offset by a
write-back of GBP1.2 million relating to data centre convergence costs and
GBP0.5 million relating to the removal of the Knight-Ridder Information name.
An exceptional write-down of GBP2.3 million has been charged to the profit and
loss account relating to the Company's investment in Fourth Network
Communications, Inc. (4th Network). The write-down, equivalent to 50 per cent.
of the carrying value of the Company's investment, arose following the
postponement of an initial public offering, originally scheduled for 1998, and
the failure of 4th Network to raise significant alternative funds. The Company
continues to monitor closely the carrying value of its investment in 4th
Network.
On 6 May 1998, the Group disposed of its investment in NewsEdge Corporation, an
online service provider, for net proceeds of GBP3.9 million. This resulted in a
book profit on the disposal of GBP1.0 million.
On 13 May 1998, the Company disposed of its investment in Easynet Group plc, an
Internet and telecommunications company, for net proceeds, after associated
expenses, of GBP3.2 million. This resulted in a book profit on the disposal of
GBP1.1 million.
On 24 February 1997, the Company sold its hotel Internet access technology (and
existing hotel contracts) to 4th Network and became their agent in Europe. In
consideration the Company received 500,000 shares in 4th Network with an
aggregate value of GBP4,597,000. The costs associated with the transfer were
GBP562,000. There was no effect on the Group's tax charge as a result of this
exceptional gain.
During the year ended 31 December 1997, exceptional restructuring costs of
GBP18.6 million were charged as a result of the integration of KRII.
Distribution costs of GBP1.3 million related to the removal of the
Knight-Ridder Information name and logo from all printed materials, products
and signage. Administrative expenses of GBP9.3 million consisted of GBP5.3
million relating to data centre integration costs, GBP2.2 million relating to
the termination of property leases, GBP1.5 million relating to severance costs
and GBP0.3 million relating to various other restructuring charges.
Amortisation of GBP8.0 million related to the write-off of previously
capitalised product development costs where these products were no longer
being pursued by the enlarged Group.
28
6. INTEREST PAYABLE AND SIMILAR CHARGES
1998 1997 1996
GBP'000 GBP'000 GBP'000
Bank loans and overdrafts:
- - on Senior Subordinated Notes 12,013 1,701 --
- - on Senior Credit Facility 4,399 659 --
- - amortisation of debt fees 946 -- --
- - on bank overdrafts 33 26 3
------ ----- ------
17,391 2,386 3
Finance Lease 45 118 198
------ ----- ------
17,436 2,504 201
Less: Lease finance costs capitalised -- (6) (12)
------ ----- ------
17,436 2,498 189
====== ===== ======
7. DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES
1998 1997 1996
GBP'000 GBP'000 GBP'000
Aggregate emoluments 1,326 773 650
Amounts paid to third parties 51 38 38
Amounts paid to former Directors 50 167 57
Contributions to money purchase pension schemes 12 -- --
------ ---- ----
1,439 978 745
====== ==== ====
Details of the full cost of each Director's remuneration package for the year
ended 31 December 1998 are as follows:
PENSION 1998
FEES SALARY BENEFITS CONTRIBUTIONS BONUS TOTAL
GBP GBP GBP GBP GBP GBP
M Mander (Chairman) 51,250 -- -- -- -- 51,250
D Wagner -- 165,250 2,828 -- -- 168,078
P Sommers
(from 8 October 1998) -- 39,677 -- -- -- 39,677
D Mattey -- 141,586 2,794 -- -- 144,380
J Molle -- 125,200 -- 3,314 -- 128,514
S Maller -- 98,625 216 -- -- 98,841
C Morton -- 114,000 10,880 -- -- 124,880
A Thomas 20,000 -- -- -- -- 20,000
I Barton 20,000 -- -- -- -- 20,000
M Hussey 20,000 -- -- -- -- 20,000
D Smith* -- 125,000 14,801 3,600 -- 143,401
J Galt
(to 26 June 1998) -- 129,613 -- 3,010 110,853 243,476
M Shipley
(to 30 June 1998) -- 91,606 -- 2,131 62,130 155,867
G Burrows
(from 8 October 1998)* -- 30,894 -- -- -- 30,894
------- --------- ------- ------- ------- ---------
111,250 1,061,451 31,519 12,055 172,983 1,389,258
======= ========= ======= ======= ======= =========
* Derek Smith and Graham Burrows resigned on 2 February 1999.
Fees for non-executive Directors were set by the executive Directors following
consultation with the Company's advisors.
29
Benefits include P11D benefits (non-cash compensation) for the UK Directors, as
detailed in the Remuneration Committee Report.
Each of the executive Directors have service agreements with the Company for
continuing employment unless and until terminated by either party by giving not
less than twelve months' notice, except Patrick Sommers who was appointed in
1998 with an initial three year service agreement with notice reduced to twelve
months in the third year of the agreement.
The amounts disclosed as fees paid to the Chairman were paid to Close Brothers
Corporate Finance Ltd, his primary employer.
Thomas Teichman, who resigned as an executive Director on 24 May 1996, was paid
GBP50,000 during the year under a consultancy agreement which terminated on 31
December 1998. His fees were paid to NewMedia Investors Ltd.
Details of the full cost of each Director's remuneration package for the year
ended 31 December 1997 are as follows:
1997
FEES SALARY BENEFITS BONUS TOTAL
GBP GBP GBP GBP GBP
M Mander (Chairman) 37,500 -- -- -- 37,500
D Wagner -- 135,000 4,510 60,000 199,510
D Mattey -- 113,333 3,729 50,000 167,062
D Smith -- 100,000 11,858 50,000 161,858
J Galt (from 14 November 1997) -- 23,788 525 11,607 35,920
S Maller -- 80,000 2,236 -- 82,236
M Shipley
(from 14 November 1997) -- 14,971 353 -- 15,324
J Molle (from 24 September 1997) -- 26,408 1,097 12,283 39,788
C Morton
(from 24 September 1997) -- 24,411 3,442 10,000 37,853
I Barton 15,000 -- -- -- 15,000
M Hussey 15,000 -- -- -- 15,000
A Thomas
(from 11 September 1997) 3,750 -- -- -- 3,750
------ ------- ------ ------- -------
71,250 517,911 27,750 193,890 810,801
====== ======= ====== ======= =======
Salaries were set by the Remuneration Committee prior to the beginning of the
year.
Fees were set by the executive Directors following consultation with the
Company's advisors.
Benefits include P11D benefits (non-cash compensation) for the UK Directors, as
detailed in the Remuneration Committee Report.
J Galt, M Shipley and J Molle are all members of the Company's defined
contribution scheme in the US and D Smith is a member of the Company's defined
contribution scheme in the UK. The Company made no contributions to either
scheme on their behalf during 1997.
The amounts disclosed as fees paid to the Chairman were paid to Close Brothers
Corporate Finance Ltd, his primary employer. John Wagner, who retired as an
executive Director on 27 November 1996, was paid GBP117,500 during the year. He
received GBP100,000 in respect of a one year consultancy agreement. He also
received a GBP17,500 marketing consultancy fee relating to the Company's
acquisition of KRII.
Thomas Teichman, who resigned as an executive Director on 24 May 1996, was
paid GBP50,000 during 1997. He has a two year consultancy agreement effective
1 January 1997 with a minimum guaranteed payment of GBP50,000 per year. His
fees were paid to Newmedia Investors Ltd.
30
Details of the full cost of each Directors' remuneration package for the year
ended 31 December 1996 are as follows:
1996
FEES SALARY BENEFITS TOTAL
GBP GBP GBP GBP
M Mander (Chairman) 37,500 -- -- 37,500
D Wagner -- 135,500 3,416 138,916
D Mattey -- 113,833 2,047 115,880
D Smith (executive Director from 1 May 1996) 5,000 67,167 6,042 78,209
S Maller (from 31 January 1996) -- 61,000 7,413 68,413
I Barton 15,000 -- -- 15,000
M Hussey (from 9 May 1996) 10,000 -- -- 10,000
J Wagner (to 27 November 1996) -- 84,739 1,500 86,239
B Nash -- 95,996 1,300 97,296
T Teichman (to 24 May 1996) -- 38,889 1,714 40,603
------ ------- ------ -------
67,500 597,124 23,432 688,056
====== ======= ====== =======
Fees and salary were set by the Remuneration Committee prior to the beginning of
the year.
Benefits include P11D benefits (non-cash compensation) for the U.K. Directors,
as detailed in the Remuneration Committee Report. During the year there were no
pension arrangements in place for any Director.
Each of the executive Directors have service agreements with the Company for
continuing employment unless and until terminated by either party by giving not
less than twelve months' notice.
The amounts disclosed as fees paid to the Chairman were paid to Close Brothers
Corporate Finance Limited, his primary employer.
Thomas Teichman resigned as an executive director on 24 May 1996 but retained
his full remuneration package until 31 December 1996.
The Directors who served during 1998 and their interests in the Ordinary share
capital and options on shares of the Company were:
INTERESTS IN ORDINARY SHARES
1 JANUARY 31 DECEMBER
1998* ACQUIRED DISPOSALS 1998**
M Mander 900,327 -- -- 900,327
D Wagner 17,034,780 400,000 -- 17,434,780
P Sommers 8,000 -- -- 8,000
D Mattey 2,335,200 -- -- 2,335,200
J Molle 135,116 -- -- 135,116
S Maller 25,441 -- -- 25,441
C Morton 222,001 -- (20,000) 202,001
A Thomas 100,000 -- -- 100,000
I Barton 479,139 -- -- 479,139
M Hussey 242,610 -- -- 242,610
D Smith 550,000 -- -- 550,000
J Galt -- -- -- --
M Shipley -- 2,000 -- 2,000
G Burrows -- -- -- --
---------- --------- --------- ----------
Total 22,032,614 402,000 (20,000) 22,414,614
========== ========= ========= ==========
* or date of appointment if later
** or date of resignation if earlier
31
Patrick Sommers holds 2,000 American Depositary Shares (ADSs) and the Ordinary
share equivalent is shown above.
On 14 January 1998, Marck Shipley purchased 2,000 Ordinary shares.
On 6 August 1998, Daniel Wagner acquired a beneficial interest in a further
400,000 Ordinary shares.
On 28 September 1998, Ciaran Morton disposed of 20,000 Ordinary shares.
With respect to those Directors in office at 31 December 1998, all of their
interests in the Ordinary shares of the Company are beneficial.
OPTIONS OVER ORDINARY SHARES
AT AT DATE FROM
1 JANUARY 31 DECEMBER EXERCISE WHICH EXPIRY
SCHEME 1998* GRANTED 1998+ PRICE EXERCISABLE DATE
D Wagner Executive Scheme 163,636 -- 163,636 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
Unapproved Scheme -- 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme -- 130,000 130,000 150p 08/10/01 08/10/05
P Sommers US Stock Option Plan** -- 200,000 200,000 150p 08/10/99 08/10/08
D Mattey Executive Scheme 122,727 -- 122,727 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
Unapproved Scheme -- 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme -- 120,000 120,000 150p 08/10/01 08/10/05
J Molle Unapproved Scheme 54,545 -- 54,545 110p 24/03/97 24/03/01
Unapproved Scheme 17,500 -- 17,500 248p 04/10/98 04/10/02
Unapproved Scheme 30,000 -- 30,000 188.5p 14/03/00 14/03/04
US Stock Option Plan** -- 30,000 30,000 173p 30/04/99 30/04/08
US Stock Option Plan** -- 120,000 120,000 150p 08/10/99 08/10/08
Employee Stock
Purchase Plan*** -- 2,196 2,196 130p 31/03/99 31/03/99
S Maller Executive Scheme 62,727 -- 62,727 110p 24/03/97 24/03/04
Executive Scheme 20,000 -- 20,000 80p 25/04/98 25/04/05
Executive Scheme 17,500 -- 17,500 248p 04/10/98 04/10/05
Sharesave Scheme 7,040 -- 7,040 49p 01/12/99 31/05/00
Sharesave Scheme 2,156 -- 2,156 64p 01/06/00 30/11/00
Sharesave Scheme 308 -- 308 224p 01/12/00 31/05/01
Sharesave Scheme 766 -- 766 180p 01/06/01 30/11/01
Sharesave Scheme -- 569 569 137p 01/07/01 31/12/01
Unapproved Scheme 30,000 -- 30,000 188.5p 14/03/00 14/03/04
Unapproved Scheme -- 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme -- 120,000 120,000 150p 08/10/01 08/10/05
C Morton Executive Scheme 61,364 -- 61,364 110p 24/03/97 24/03/04
Unapproved Scheme 17,500 -- 17,500 248p 04/10/98 04/10/02
Sharesave Scheme 35,204 -- 35,204 49p 01/12/99 31/05/00
Unapproved Scheme 30,000 -- 30,000 188.5p 14/03/00 14/03/04
Unapproved Scheme -- 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme -- 120,000 120,000 150p 08/10/01 08/10/05
D Smith Executive Scheme 15,900 -- 15,900 188.5p 14/03/00 14/03/07
Unapproved Scheme 84,100 -- 84,100 188.5p 14/03/00 14/03/04
Sharesave Scheme -- 7,116 7,116 137p 01/07/01 31/12/01
Unapproved Scheme -- 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme -- 120,000 120,000 150p 08/10/01 08/10/05
M Shipley US Stock Option Plan** 100,000 -- 100,000 220p 14/11/98 14/11/07
US Stock Option Plan** -- 30,000 30,000 151p 04/06/99 04/06/08
Employee Stock
Purchase Plan*** -- 2,312 2,312 130p 31/03/99 31/03/99
G Burrows US Stock Option Plan** 50,000 -- 50,000 170p 08/09/99 08/09/08
US Stock Option Plan** -- 70,000 70,000 150p 08/10/99 08/10/08
Employee Stock
Purchase Plan*** -- 3,812 3,812 158p 30/09/00 30/09/00
J Galt US Stock Option Plan** 100,000 -- 100,000 220p 14/11/98 14/11/07
--------- --------- ---------
Total 1,062,177 1,226,005 2,288,182
========= ========= =========
32
* or date of appointment if later
+ or date of retirement if earlier
** under the terms of the US Stock Option Plan, options are granted in the
form of ADSs at an exercise price expressed in US Dollars. Options
granted under the US Stock Option Plan become exercisable in cumulative
increments as determined by the Remuneration Committee of the Board of
Directors. For the purpose of uniformity, all options detailed above are
expressed in Ordinary shares and in Pounds Sterling.
*** under the terms of the Employee Stock Purchase Plan, rights are granted
for eligible US employees to acquire beneficial ownership of Ordinary
shares of the Company by purchasing ADSs. The purchase price may not be
less than the lower of 85 per cent. of the fair market value of the ADSs
on the offering date or 85 per cent. of the fair market value of the
ADSs on the purchase date. The purchase price is accumulated by payroll
deductions over the course of the offering. There are two offerings a
year. For the purpose of uniformity, all rights to purchase ADSs under
the Employee Stock Purchase Plan detailed above are expressed in
Ordinary shares and in Pounds Sterling.
During April 1999, options were granted to the following Directors:
DATE
DATE OF EXERCISE FROM WHICH EXPIRY
SCHEME GRANT NUMBER PRICE EXERCISABLE DATE
D. Wagner Sharesave Scheme 28/04/99 17,045 99p 01/07/04 31/12/04
D. Mattey Sharesave Scheme 28/04/99 17,045 99p 01/07/04 31/12/04
S. Maller Sharesave Scheme 28/04/99 1,174 99p 01/07/02 31/12/02
The market price of the Company's Ordinary shares on 30 December 1998, the last
trading day in 1998, was 58.0p per share and the range during 1998 was 47.0p to
236.5p per share.
OPTIONS OVER ORDINARY SHARES
AT AT DATE FROM
1 JANUARY 31 DECEMBER EXERCISE WHICH EXPIRY
SCHEME 1997* GRANTED 1997 PRICE EXERCISABLE DATE
D Wagner Executive Scheme 163,636 -- 163,636 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
D Mattey Executive Scheme 122,727 -- 122,727 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
D Smith Executive Scheme -- 15,900 15,900 188.5p 14/03/00 14/03/07
Unapproved Scheme -- 84,100 84,100 188.5p 14/03/00 14/03/04
J Galt US Stock Option Plan** -- 100,000 100,000 220p 14/11/98 14/11/07
S Maller Executive Scheme 62,727 -- 62,727 110p 24/03/97 24/03/04
Executive Scheme 20,000 -- 20,000 80p 25/04/98 25/04/05
Executive Scheme 17,500 -- 17,500 248p 04/10/98 04/10/05
Sharesave Scheme 7,040 -- 7,040 49p 01/12/99 31/05/00
Sharesave Scheme 2,156 -- 2,156 64p 01/06/00 30/11/00
Sharesave Scheme 308 -- 308 224p 01/12/00 31/05/01
Sharesave Scheme 766 -- 766 180p 01/06/01 30/11/01
Unapproved Scheme -- 30,000 30,000 188.5p 14/03/00 14/03/04
M Shipley US Stock Option Plan** -- 100,000 100,000 220p 14/11/98 14/11/07
J Molle Unapproved Scheme 54,545 -- 54,545 110p 24/03/97 24/03/01
Unapproved Scheme 17,500 -- 17,500 248p 04/10/98 04/10/02
Unapproved Scheme -- 30,000 30,000 188.5p 14/03/00 14/03/04
C Morton Executive Scheme 61,364 -- 61,364 110p 24/03/97 24/03/04
Unapproved Scheme 17,500 -- 17,500 248p 04/10/98 04/10/02
Sharesave Scheme 35,204 -- 35,204 49p 01/12/99 31/05/00
Unapproved Scheme -- 30,000 30,000 188.5p 14/03/00 14/03/04
------- ------- ---------
Total 622,177 390,000 1,012,177
======= ======= =========
33
During April 1998, options were granted to the following Directors:
DATE FROM
DATE OF EXERCISE WHICH EXPIRY
SCHEME GRANT NUMBER PRICE EXERCISABLE DATE
D Smith Sharesave Scheme 28/04/98 7.116 137p 01/07/01 31/12/01
S Maller Sharesave Scheme 28/04/98 569 137p 01/07/01 31/12/01
D Wagner Unapproved Scheme 30/04/98 30,000 173p 30/04/01 30/04/08
D Mattey Unapproved Scheme 30/04/98 30,000 173p 30/04/01 30/04/08
D Smith Unapproved Scheme 30/04/98 30,000 173p 30/04/01 30/04/08
S Maller Unapproved Scheme 30/04/98 30,000 173p 30/04/01 30/04/08
C Morton Unapproved Scheme 30/04/98 30,000 173p 30/04/01 30/04/08
J Molle US Stock Option Plan** 30/04/98 30,000 173p 30/04/99 30/04/08
The market price of the Company's Ordinary shares on 31 December 1997, the last
trading day in 1997, was 150p per share and the range during 1997 was 139p to
246p per share.
* or date of appointment if later
** under the terms of the US Stock Option Plan, options are granted in the
form of ADSs at an exercise price expressed in US Dollars. Options
granted under the US Stock Option Plan become exercisable in cumulative
increments as determined by the Remuneration Committee of the Board of
Directors. For the purpose of uniformity, all options detailed above are
expressed in Ordinary shares and in Pounds Sterling.
The Directors who have served during the year and their interests in the
Ordinary share capital and options on shares of the Company were:
INTERESTS IN ORDINARY SHARES
1 JANUARY 31 DECEMBER
1996* ACQUIRED DISPOSALS 1996+
M Mander 1,200,327 -- (300,000) 900,327
D Wagner 17,414,780 20,000 (400,000) 17,034,780
D Mattey 3,036,250 200 (701,250) 2,335,200
D Smith 630,000 -- (80,000) 550,000
S Maller 31,501 -- -- 31,501
I Barton 479,139 -- -- 479,139
M Hussey 242,610 -- -- 242,610
J Wagner 7,163,960 -- (690,000) 6,473,960
B Nash 1,655,000 -- (280,000) 1,375,000
T Teichman 2,598,150 -- -- 2,598,150
---------- ---------- ---------- ----------
Total 34,451,717 20,200 (2,451,250) 32,020,667
========== ========== ========== ==========
* or date of appointment if later
+ or date of retirement/resignation if earlier
On 26 May 1996 David Mattey became beneficially entitled to 200 Ordinary shares
upon his marriage to Amanda Hurrell.
On 11 June 1996 Derek Smith sold 80,000 Ordinary shares following his relocation
to the United Kingdom from Hong Kong as a result of his appointment as an
executive Director.
On 26 June 1996, in anticipation of their marriage, Daniel Wagner gifted a total
of 400,000 Ordinary shares to his financee, Susie Newall.
On 26 November 1996 Bill Nash and Michael Mander sold 280,000 and 300,000
Ordinary shares respectively. In addition, Curzon Secretaries & Trustees Ltd, on
behalf of John Wagner, sold 670,000 Ordinary shares and at the same time,
transferred 20,000 Ordinary shares to his son, Daniel Wagner. The disposal of
shares coincided with the retirement of John Wagner from the Board of M.A.I.D
plc on 27 November 1996.
34
On 29 November 1996 David Mattey transferred his position as trustee of a bare
trust, in respect of which he held 701,250 Ordinary shares as a nominee for
members of his family (the "Mattey Family Share Trust"), to his brother Alan
Mattey, to whom he relinquished his own beneficial entitlement in the Mattey
Family Share Trust.
With respect to those Directors in office at 31 December 1996, all of their
interests in the Ordinary Shares of the Company are beneficial.
OPTIONS OVER ORDINARY SHARES
AT AT DATE FROM
1 JANUARY GRANTED/ 31 DECEMBER EXERCISE WHICH EXPIRY
SCHEME 1996* (EXERCISED) 1996+ PRICE EXERCISABLE DATE
D Wagner Executive Scheme 163,636 -- 163,636 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
D Mattey Executive Scheme 122,727 -- 122,727 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 -- 19,602 88p 01/05/99 31/10/99
S Maller Executive Scheme 62,727 -- 62,727 110p 24/03/97 24/03/04
Executive Scheme 20,000 -- 20,000 80p 25/04/98 25/04/05
Executive Scheme 17,500 -- 17,500 248p 04/10/98 04/10/05
Sharesave Scheme 7,040 -- 7,040 49p 01/12/99 31/05/00
Sharesave Scheme 2,156 -- 2,156 64p 01/06/00 30/11/00
Sharesave Scheme 308 -- 308 224p 01/12/00 31/05/01
Sharesave Scheme -- 766 766 180p 01/06/01 30/11/01
J Wagner Unapproved Scheme 136,363 -- 136,363 110p 26/11/96 24/03/98
B Nash Unapproved Scheme 168,181 -- 168,181 110p 24/03/97 24/03/01
T Teichman Executive Scheme 147,727 -- 147,727 110p 24/05/96 24/03/96
-------- ------ -------
Total 887,569 766 888,335
======== ====== =======
* or date of appointment if later
+ or date of retirement/resignation if earlier
Following the resignation and retirement of Thomas Teichman and John Wagner on
24 May 1996 and 27 November 1996 respectively, the exercise dates of their
options were amended in accordance with the terms of the Company's Scheme rules;
the two former Directors, together with Bill Nash, have consequently retained
their options over the Company's Ordinary shares.
On 14 March 1997 options were awarded to the following Directors:
DATE
EXERCISE FROM WHICH EXPIRY
SCHEME NUMBER PRICE EXERCISABLE DATE
D Smith Executive Scheme 15,900 188.5p 14/03/00 14/03/07
Unapproved Scheme 84,100 188.5p 14/03/00 14/03/04
S. Maller Unapproved Scheme 30,000 188.5p 14/03/00 14/03/04
The market price of the Company's Ordinary shares on 31 December 1996, the last
trading day in 1996, was 201.5p per share and the range during 1996 was 153.0p
to 341.0p per share.
8. TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
1998 1997 1996
GBP'000 GBP'000 GBP'000
UK corporation tax at 31% (1997: 31.5%; 1996: 33%) -- -- --
Overseas tax 776 332 102
Deferred tax (credit)/charge (7) (9) 62
------- ------ -----
Tax charge 769 323 164
======= ====== =====
35
The taxation on profit/(loss) on ordinary activities may be reconciled as
follows to the UK statutory rate:
1998 1997 1996
% % %
UK statutory rate of tax 31 (31) (33)
Disallowed expenditures 14 -- 1
Tax deduction in respect of goodwill written off to reserves (80) -- --
Unrecognised tax losses 49 32 34
---- ---- ----
Effective rate of tax provided 14 1 2
==== ==== ====
9. EARNINGS/(LOSS) PER SHARE
1998 1997 1996
TOTAL TOTAL TOTAL TOTAL
CONTINUING CONTINUING CONTINUING CONTINUING
BUSINESS BUSINESS BUSINESS BUSINESS
BEFORE AFTER BEFORE AFTER
RESTRUCTURING RESTRUCTURING RESTRUCTURING RESTRUCTURING
COSTS COSTS COSTS COSTS
Attributable profit/(loss)(GBP) 7,253,000 4,439,000 (6,229,000) (20,744,000) (7,226,000)
Weighted average number of
Ordinary shares in issue 150,579,177 150,579,177 101,077,187 101,077,187 92,363,959
----------- ----------- ----------- ----------- ----------
Earnings/(loss) per share
(pence) 4.8 2.9 (6.2) (20.5) (7.8)
----------- ----------- ----------- ----------- ----------
Attributable profit/(loss) as
above(GBP) 7,253,000 4,439,000 (6,229,000) (20,744,000) (7,226,000)
Weighted average number of
Ordinary shares in issue as
above 150,579,177 150,579,177 101,077,187 101,077,187 92,363,959
Add: shares issuable on
conversion of options 384,655 384,655 735,716 735,716 1,759,889
Add: shares issuable on
acquisition of subsidiary 1,667,241 1,667,241 -- -- --
----------- ----------- ----------- ----------- ----------
Adjusted average number of
Ordinary shares 152,631,073 152,631,073 101,812,903 101,812,903 94,123,848
=========== =========== =========== =========== ==========
Fully diluted earnings/(loss)
per share (pence) 4.8 2.9 (6.1) (20.4) (7.7)
----------- ----------- ----------- ----------- ----------
In view of the significant impact of restructuring costs and other exceptional
items on earnings per share calculated in accordance with FRS14, additional
earnings per share figures have been provided.
36
10. INTANGIBLE FIXED ASSETS
GROUP COMPANY
GBP'000 GBP'000
COST
AT 31 DECEMBER 1996 11,653 10,707
On acquisition of subsidiary undertakings 20,308 --
Amounts written off (3,312) (2,737)
Exchange adjustments 591 --
Additions 3,964 3,329
------ ------
AT 31 DECEMBER 1997 33,204 11,299
Transfer from subsidiary undertakings -- 1,153
Revisions to fair values and other adjustments (2,377) --
Exchange adjustments (231) --
Additions 11,762 2,396
------ ------
AT 31 DECEMBER 1998 42,358 14,848
====== ======
AMORTISATION
AT 31 DECEMBER 1996 3,342 2,799
Exchange adjustments 2 --
Amounts written off (599) (599)
Provision for year 8,835 4,942
------ ------
AT 31 DECEMBER 1997 11,580 7,142
Transfer from subsidiary undertakings -- 779
Exchange adjustments (75) --
Provision for year 7,699 2,277
------ ------
AT 31 DECEMBER 1998 19,204 10,198
====== ======
NET BOOK AMOUNT
AT 31 DECEMBER 1998 23,154 4,650
====== ======
At 31 December 1997 21,624 4,157
====== ======
The net book amounts are analysed as follows:
1998
GROUP COMPANY
GBP'000 GBP'000
Systems development 5,370 237
Product development 17,784 4,413
------ ------
23,154 4,650
====== ======
1997
GROUP COMPANY
GBP'000 GBP'000
Systems development 279 --
Product development 21,345 4,157
------ ------
21,624 4,157
====== ======
Additions to intangible fixed assets in 1998 for the Group principally
comprised product development costs related to Dialog Web, Dialog Select and
Open System Alerts. The product development costs include salaries and
related overhead costs of GBP10,210,000 (1997: GBP1,798,000), consultancy
costs, including attributable overheads, of GBP526,000 (1997: GBP211,000) and
hardware and software costs of GBP896,000 (1997: GBP1,955,000) (including
depreciation of GBPnil (1997: GBP1,200,000)). Additions to systems
development costs in 1998 related to various database projects.
37
11. GOODWILL
GROUP
GBP'000
COST
At 31 December 1996 and 1997 --
Additions 7,743
Exchange adjustments (6)
-----
AT 31 DECEMBER 1998 7,737
=====
AMORTISATION
At 31 December 1996 and 1997 --
Provision for year 61
-----
AT 31 DECEMBER 1998 61
=====
NET BOOK AMOUNT
AT 31 DECEMBER 1998 7,676
=====
At 31 December 1997 --
=====
RESPONSIVE DATABASE SERVICES, INC.
On 6 October 1998, the Group exercised its option to acquire all of the share
capital of Responsive Database Services, Inc. ("RDS") for total cash
consideration of $2.85 million (GBP1.72 million). The Group has historically
provided all financing for RDS and, accordingly, has consolidated its results
within the Group financial statements. No fair value adjustments were required.
The total consideration paid has been treated as goodwill arising on the
acquisition of a minority interest.
WRITE WORKS
On 18 November 1998, the Company acquired all of the share capital of Write
Works Limited ("Write Works") and Prosmart Systems Limited ("Prosmart") for
an initial consideration of GBP2.2 million. The initial consideration was
satisfied through a payment of GBP1.0 million in cash and GBP1.2 million by
the issue of 694,025 new Ordinary shares at a price of GBP1.66 per share.
Further consideration of up to a maximum of GBP3.8 million (comprised of
GBP2.8 million in cash and shares to the value of GBP1.0 million) will be
payable on the achievement of certain earnings targets over the first two
years of the agreement.
38
The following table sets out the effect of the acquisition of Write Works on the
consolidated balance sheet:
FAIR VALUES
AT THE DATE OF
ACQUISITION
GBP'000
SHARE OF NET LIABILITIES ACQUIRED:
Tangible fixed assets 18
Current assets 127
Creditors (153)
-------
Net liabilities acquired (8)
=======
CONSIDERATION:
Issue of new Ordinary shares 1,150
Cash paid 965
Expenses 100
New Ordinary shares to be issued (see note 20) 967
Cash to be paid 2,833
-------
6,015
-------
Goodwill on acquisition of Write Works 6,023
Goodwill on acquisition of RDS 1,720
-------
Total goodwill 7,743
=======
No fair value adjustments were required.
Write Works' results from the start of its financial year (1 January 1998)
through to the date of acquisition and its audited results for the period from
20 January 1997 (date of incorporation) to 31 December 1997 are as follows:
(UNAUDITED) 20 JANUARY 1997
1 JANUARY TO (DATE OF INCORPORATION)
19 NOVEMBER 1998 TO 31 DECEMBER 1997
GBP'000 GBP'000
Turnover 658 144
Cost of sales (503) (121)
------ ------
Gross profit 155 23
Net operating expenses (196) (73)
------ ------
Retained loss (41) (50)
====== ======
There were no recognised gains or losses other than the loss for the period
presented.
39
12. TANGIBLE FIXED ASSETS
LEASEHOLD FIXTURES & MOTOR
GROUP IMPROVEMENTS EQUIPMENT FITTINGS VEHICLES TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 31 December 1996 732 10,423 968 656 12,779
On acquisition of subsidiary
undertakings 1,114 12,376 1,917 -- 15,407
Exchange adjustments 34 403 73 (5) 505
Additions 301 2,086 138 207 2,732
Disposals -- (33) (1) (263) (297)
------- ------- ------- ------- -------
At 31 December 1997 2,181 25,255 3,095 595 31,126
Exchange adjustments (12) (97) (28) 3 (134)
Additions 408 5,969 150 14 6,541
Revisions to fair values -- (43) -- -- (43)
Disposals (99) (83) (449) (82) (713)
------- ------- ------- ------- -------
AT 31 DECEMBER 1998 2,478 31,001 2,768 530 36,777
======= ======= ======= ======= =======
DEPRECIATION
At 31 December 1996 168 5,018 410 192 5,788
Exchange adjustments -- 12 16 (4) 24
Provided for the year 1,216 4,058 654 166 6,094
Disposals -- (10) -- (124) (134)
At 31 December 1997 1,384 9,078 1,080 230 11,772
------- ------- ------- ------- -------
Exchange adjustments (10) (55) (12) 2 (75)
Provided for the year 436 6,855 532 139 7,962
Revisions to fair values -- (267) -- -- (267)
Disposals (33) (190) (209) (53) (485)
------- ------- ------- ------- -------
AT 31 DECEMBER 1998 1,777 15,421 1,391 318 18,907
======= ======= ======= ======= =======
NET BOOK AMOUNT
AT 31 DECEMBER 1998 701 15,580 1,377 212 17,870
======= ======= ======= ======= =======
At 31 December 1997 797 16,177 2,015 365 19,354
======= ======= ======= ======= =======
The net book amounts of assets held under finance leases at 31 December 1998
were GBP857,000 (1997: GBP1,710,000).
Equipment included assets under finance leases of GBP5,378,000 and GBP5,338,000
at 31 December 1998 and 1997 respectively. Accumulated depreciation relating to
equipment under finance leases totalled GBP4,521,000 and GBP3,628,000 at 31
December 1998 and 1997 respectively. Depreciation of equipment under finance
leases is included in the depreciation expense, unless capitalised in accordance
with the Group's system and product development cost policy (note 1).
40
LEASEHOLD FIXTURES & MOTOR
GROUP IMPROVEMENTS EQUIPMENT FITTINGS VEHICLES TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 31 December 1996 580 2,092 463 568 3,703
Additions 269 546 37 197 1,049
Disposals -- (5) -- (208) (213)
------- ------- ------- ------- -------
At 31 December 1997 849 2,633 500 557 4,539
------- ------- ------- ------- -------
Transfer from subsidiary -- 6,979 29 -- 7,008
Additions 174 653 11 -- 838
Disposals -- (25) (4) (82) (111)
------- ------- ------- ------- -------
AT 31 DECEMBER 1998 1,023 10,240 536 475 12,274
======= ======= ======= ======= =======
DEPRECIATION
At 31 December 1996 138 1,032 221 168 1,559
Provided for the year 166 665 84 143 1,058
Disposals -- (2) -- (106) (108)
At 31 December 1997 304 1,695 305 205 2,509
------- ------- ------- ------- -------
Transfer from subsidiary
undertakings -- 4,638 20 -- 4,658
Provided for the year 183 1,914 93 129 2,319
------- ------- ------- ------- -------
Disposals -- (1) -- (53) (54)
AT 31 DECEMBER 1998 487 8,246 418 281 9,432
======= ======= ======= ======= =======
NET BOOK AMOUNT
AT 31 DECEMBER 1998 536 1,994 118 194 2,842
======= ======= ======= ======= =======
At 31 December 1997 545 938 195 352 2,030
======= ======= ======= ======= =======
The net book amounts of assets held under finance leases at 31 December 1998
were GBPnil (1997: GBPnil).
13. FIXED ASSET INVESTMENTS
GROUP GBP'000
INVESTMENTS
At 31 December 1996 2,135
Additions 5,329
On acquisition of subsidiary undertakings 10,910
-------
At 31 December 1997 18,374
Amounts written off (note 5) (2,300)
Additions 1,446
Disposals (5,053)
Exchange movements (113)
-------
At 31 December 1998 12,354
=======
The amounts written off during the year ended 31 December 1998 related to the
investment in 4th Network (note 5).
The additions during the year ended 31 December 1998 related to the continued
monthly funding of Frost & Sullivan Electronic Distribution LLC, a 50:50 joint
venture with Frost & Sullivan which is registered in the US. At 31 December
1998, the investment had a book value of GBP2,178,000. The Company is committed
to provide monthly funding of $200,000 per month for a further period of six
months.
41
On 6 May 1998, the Group disposed of its investment in NewsEdge Corporation, an
online service provider, for net proceeds, after associated expenses, of GBP3.9
million. This resulted in a book profit on the disposal of GBP1.0 million.
On 13 May 1998, the Company disposed of its investment in Easynet Group plc, an
Internet and telecommunications company, for net proceeds, after associated
expenses, of GBP3.2 million. This resulted in a book profit on the disposal of
GBP1.1 million.
LONG TERM
LOANS FROM
GROUP
COMPANY INVESTMENTS COMPANIES TOTAL
GBP'000 GBP'000 GBP'000
At 31 December 1996 2,222 -- 2,222
Additions 59,340 220,724 280,064
------ ------- -------
At 31 December 1997 61,562 220,724 282,286
Amounts written off (note 5) (2,300) -- (2,300)
Additions 6,015 1,325 7,340
Disposals (2,135) -- (2,135)
Disposals to subsidiary undertakings (355) -- (355)
------ ------- -------
AT 31 DECEMBER 1998 62,787 222,049 284,836
====== ======= =======
The amounts written off during the year ended 31 December 1998 related to the
investment in 4th Network (note 5).
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ("Write Works") for a maximum of GBP6.0 million to be paid over
two years (note 11).
The disposals during the year ended 31 December 1998 related to the sale of the
investment in Easynet Group plc.
The following were principal subsidiary undertakings as at 31 December 1998 and
have all been included in the consolidated accounts except where indicated. Each
subsidiary principally does business in the country of its
incorporation/registration and all equity is in the form of Ordinary shares or
their equivalent.
42
COUNTRY OF PROPORTION
INCORPORATION/ OF NATURE OF
COMPANY NAME REGISTRATION EQUITY HELD BUSINESS
The Dialog Corporation Asia Pacific Limited Hong Kong 100% 1
InfoDynamics Limited England 100% 2
Dialog MultiMedia Limited England 100% 2
Dotcom Investments BV Netherlands 100% 3
The Dialog Corporation BV Netherlands 100% 1
The Dialog Corporation SA Belgium 100% 1
The Dialog Corporation (Ireland) Limited Ireland 100% 1
Virtual Business Information Limited England 100% 4
Muscat Limited England 70% 5
Muscat Europe BV Netherlands 70% 5
Dialog Holdings Limited England 100% 3
Dialog Information Services S.A.R.L France 100% 1
The Dialog Corporation A/S Denmark 100% 1
M.A.I.D Sweden AB Sweden 100% 1
The Dialog Corporation (Sweden) AB Sweden 100% 1
The Dialog Corporation GmbH Switzerland 100% 1
Dialog Information Services Ltd England 100% 1
The Dialog Corporation Srl Italy 100% 1
The Dialog Corporation GmbH Germany 100% 1
The Dialog Corporation 98 Sociedad Limitada Spain 100% 1
Write Works Limited England 100% 6
The Dialog Corporation* USA 100% 1
CARL Corporation** USA 100% 7
CARL Systems Data Retrieval Inc.** USA 100% 7
The UnCover Company** USA 100% 8
Responsive Database Services, Inc. USA 100% 9
Responsive Database Services Ltd England 100% 9
Infomart/DIALOG Limited Canada 50% 1
Dialog Servicios de Informacion S.A. de C.V Mexico 100% 1
The Dialog Corporation S.A. de C.V Mexico 100% 1
Dialog Nova KK Japan 100% 10
KMK DigiTex Company Ltd. Japan 52% 10
Dialog Information Services Asia Limited Hong Kong 100% 1
* Incorporated in the State of Delaware.
** These subsidiary undertakings were acquired with KRII as businesses held
for resale. Their operating results have been excluded from the Group's
consolidated profit and loss account.
KEY
1 Provision of an indexed online business 6 Provision of eCommerce procurement systems
information service 7 Provision of library systems
2 Provision of a database system 8 Sales of reference systems
3 Holding company 9 Development and provision of business
4 Preparation of publishing information 10 Document delivery services
5 Provision of indexing and search technology
43
14. DEBTORS
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
AMOUNTS DUE WITHIN ONE YEAR
Trade debtors 32,131 34,441 3,039 3,043
Other debtors 1,334 2,033 1,093 863
Prepayments and accrued income 9,316 6,731 3,807 2,046
Amounts owed by subsidiary undertakings -- -- 32,795 23,187
------ ------ ------ ------
42,781 43,205 40,734 29,139
AMOUNTS DUE AFTER ONE YEAR
Other debtors -- 615 -- --
------ ------ ------ ------
42,781 43,820 40,734 29,139
====== ====== ====== ======
Trade debtors for the Group are stated net of the allowance for doubtful trade
debtor balances, which amounted to GBP2,974,000 and GBP1,872,000 at 31 December
1998 and 1997 respectively.
Included within "Other debtors" are the deferred indexing costs for both the
Group and Company, which are deferred and amortised on a straight line basis
over two years. The deferred indexing costs for both the Group and Company
amounted to GBP541,000 and GBP853,000 at 31 December 1998 and 1997 respectively.
15. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
Bank overdrafts -- -- 161 --
Senior Credit Facility (see note 16) 13,158 3,039 13,158 3,039
Deferred consideration
- -- purchase of subsidiary (see note 20) 1,437 -- 1,437 --
Trade creditors 8,987 14,430 2,447 1,187
Obligations under finance leases 222 491 210 --
Other creditors 4,274 5,318 3,873 3,028
Taxation and social security 1,030 1,396 416 282
Corporation tax 258 161 -- --
Accruals and deferred income 29,479 20,366 4,651 1,997
Amounts owed to subsidiary undertakings -- -- 29,082 7,042
------ ------ ------ ------
58,845 45,201 55,435 16,575
====== ====== ====== ======
Included within "Other creditors" for both Group and Company are subscriber
service cost provisions, which amounted to GBP542,000 and GBP662,000 at 31
December 1998 and 1997 respectively.
Accruals and deferred income for the Group, which individually represent in
excess of 5 per cent. of current liabilities, consist of the following:
1998 1997
GBP'000 GBP'000
Information provider accruals 10,867 7,934
Deferred revenue 4,495 7,035
Other accrued expenses 14,117 5,397
------ ------
29,479 20,366
====== ======
44
16. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
$180 million 11% Senior Subordinated Notes
due 2007 104,433 105,205 104,433 105,205
Senior Credit Facility 30,868 50,601 30,868 50,601
Accruals 2,256 6,585 -- --
Other creditors 776 -- -- --
Deferred consideration -- purchase of
subsidiary (see note 20) 1,396 -- 1,396 --
Obligations under finance leases 12 290 12 --
------- ------- ------- -------
139,741 162,681 136,709 155,806
======= ======= ======= =======
The Senior Subordinated Notes are for a term of 10 years and interest is fixed
at 11 per cent. throughout the term.
The Senior Credit Facility is repayable over five years and interest is fixed
every three to six months at a rate of 2.25 percentage points over US Dollar
LIBOR. The Company has entered into an interest rate cap agreement that limits
the exposure of 75 per cent. of the balance of the Senior Credit Facility to a
maximum US Dollar LIBOR rate of 6.50 per cent.
Repayments on the Senior Subordinated Notes and Senior Credit Facility fall due
as follows:
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
Within 1 year 13,158 3,039 13,158 3,039
Within 1 - 2 years 13,158 15,193 13,158 15,193
Within 2 - 5 years 19,736 37,985 19,736 37,985
After 5 years 108,186 109,396 108,186 109,396
------- ------- ------- -------
154,238 165,613 154,238 165,613
Less: Unamortised finance costs (5,779) (6,768) (5,779) (6,768)
------- ------- ------- -------
148,459 158,845 148,459 158,845
======= ======= ======= =======
The Company's obligations with respect to the Senior Credit Facility and finance
leases are secured on the assets of the Company and certain of its subsidiaries.
The Senior Subordinated Notes are unsecured.
Obligations under finance leases are due as follows:
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
Within 1 year 222 491 210 --
Within 1 - 2 years 12 278 12 --
Within 2 - 5 years -- 12 -- --
----- ----- ----- -----
234 781 222 --
===== ===== ===== =====
45
17. PROVISION FOR LIABILITIES AND CHARGES
RESTRUCTURING COSTS
REMOVAL POST-
OF KNIGHT- ACQUISITION RELOCATION
RIDDER TERMINATION FUNDING OF
DEFERRED DATA CENTRE INFORMATION OF PROPERTY OF NON-CORE US HEAD-
TAXATION SEVERANCE INTEGRATION NAME LEASES BUSINESSES LEGAL QUARTERS TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 1996 142 -- -- -- -- -- -- -- 142
On acquisition of
subsidiary undertaking -- -- -- -- -- 761 -- -- 761
Transfer from/(to) profit
and loss account (9) 1,934 4,473 1,313 917 -- -- -- 8,628
Amounts paid -- (1,934) -- -- -- -- -- -- (1,934)
Exchange adjustments (14) -- -- -- -- -- -- -- (14)
----- ----- ----- ----- ----- ----- ----- ----- -----
At 31 December 1997 119 -- 4,473 1,313 917 761 -- -- 7,583
Reclassification from
creditors -- -- -- -- -- -- 547 -- 547
Transfer from/(to) profit
and loss account (7) -- (1,197) (524) 1,589 -- -- 1,758 1,619
Amounts paid -- -- (3,254) (418) (1,667) (1,483) (513) (947) (8,282)
Revisions to fair values -- -- -- -- 378 728 2,172 -- 3,278
Exchange adjustments 16 -- (22) (10) (10) (6) (13) (3) (48)
----- ----- ----- ----- ----- ----- ----- ----- -----
At 31 December 1998 128 -- -- 361 1,207 -- 2,193 808 4,697
===== ===== ===== ===== ===== ===== ===== ===== =====
DEFERRED TAXATION
1998 1997
POTENTIAL PROVIDED IN POTENTIAL PROVIDED IN
LIABILITY ACCOUNTS LIABILITY ACCOUNTS
GBP'000 GBP'000 GBP'000 GBP'000
Intangible fixed asset related 1,530 -- 2,389 --
Other timing differences 128 128 119 119
----- ----- ----- ----
1,658 128 2,508 119
===== ===== ===== ====
At 31 December 1998, the Group had GBP25,300,000 of tax losses carried forward
(1997: GBP17,699,000), giving rise to an unprovided potential deferred tax asset
of GBP9,090,000 (1997: GBP5,575,000).
COMPANY
DEFERRED TAXATION
1998 1997
POTENTIAL PROVIDED IN POTENTIAL PROVIDED IN
LIABILITY ACCOUNTS LIABILITY ACCOUNTS
GBP'000 GBP'000 GBP'000 GBP'000
Intangible fixed asset related 1,441 -- 2,283 --
Other timing differences -- -- -- --
----- ----- ----- -----
1,441 -- 2,283 --
===== ===== ===== =====
At 31 December 1998, the Company had GBP15,054,000 of tax losses carried forward
(1997: GBP12,829,000), giving rise to an unprovided potential deferred tax asset
of GBP4,667,000 (1997: GBP4,041,000).
46
18. SHARE CAPITAL
1998 1997
NUMBER GBP'000 NUMBER GBP'000
Authorised:
Ordinary shares of 1p each 199,827,000 1,998 199,827,000 1,998
Allotted, called up and fully paid:
Ordinary shares of 1p each 151,467,107 1,514 150,191,853 1,502
During the three years ended 31 December 1998, the following movements occurred
in the Ordinary shares of the Company:
SHARES
DATE NUMBER SHARES NOTES
GBP'000
31 December 1996 92,597,995 926
Between 17 January 1997
and 24 November 1997 Exercise of share options 674,367 7 (i)
13 August 1997 Acquisition of shares in Muscat Ltd 2,105,855 21 (ii)
14 November 1997 UK Placing 54,500,000 545 (iii)
23 December 1997 Acquisition of remaining shares in
M.A.I.D Denmark A/S 313,636 3 (iv)
----------- ------
31 December 1997 150,191,853 1,502
Between 8 February 1998
and 21 August 1998 Exercise of share options 440,837 4 (v)
Between 11 May 1998
and 17 December 1998 Allotment of shares under the 401(k)
Plan 140,392 1 (vi)
18 November 1998 Acquisition of Write Works Ltd 694,025 7 (vii)
----------- ------
31 December 1998 151,467,107 1,514
=========== ======
(i) Exercise of share options. At various dates throughout 1997, in accordance
with the Company's share option schemes, a number of full-time employees
exercised their share options. The options were exercised at prices
between GBP0.64 and GBP1.80 per share for a total consideration of
GBP698,000.
(ii) On 14 August 1997, the Company announced that it had acquired 8,863 shares
of the authorised and issued share capital of Muscat Ltd ("Muscat"), a
leading UK information retrieval technology vendor. As a result, the
Company now owns approximately 70 per cent. of the share capital in
Muscat. The total consideration for the acquisition of the shares in
Muscat was GBP5,557,101. This was satisfied by a GBP1,282,215 cash payment
and the balance of GBP4,274,886 by the issue on 13 August 1997 of
2,105,855 new Ordinary shares (equivalent to an issue price of GBP2.03
per share).
(iii) Under the terms of an agreement dated 1 October 1997, the Company agreed
to acquire all of the share capital of KRII, an online supplier of
business intelligence, for approximately GBP261 ($434) million. The
acquisition closed on 14 November 1997 and was partly financed by a
placement of 54.5 million new Ordinary shares at GBP2.20 per share.
(iv) On 23 December 1997, the Company announced that it had acquired the
remaining 23 per cent. minority interest in its Danish subsidiary from
Lars Thejl and Morten Nicholaisen, Directors of M.A.I.D Denmark A/S. As a
result, the Company now owns 100 per cent. of M.A.I.D Denmark A/S
(subsequently renamed Dialog Information Services A/S). The GBP443,795
consideration was satisfied by the issue of 313,636 new Ordinary shares at
GBP1.415 per share.
(v) Exercise of share options. At various dates throughout 1998, in accordance
with the Company's share option schemes, a number of eligible employees
exercised their share options. The options were exercised at prices
between GBP0.49 and GBP1.10 per share for a total consideration of
GBP457,729.
47
(vi) The Company operates a defined contribution pension scheme in the US (the
401(k) Investment Savings Plan). At various dates throughout 1998, the
Company matched employee contributions to this Plan, partially with the
allotment of new Ordinary shares valued at market price at the time of
issue and subsequently converted into ADSs. A total of 140,392 Ordinary
shares were issued during the year at prices between GBP0.56 and GBP1.84
per share for a combined market value of GBP179,936.
(vii) On 19 November 1998, the Company announced that it had acquired 100 per
cent. of the share capital of Write Works Ltd. The consideration for the
acquisition was an initial payment of GBP1 million in cash and
approximately GBP1.2 million by the issue of 694,025 Dialog shares,
representing a value of GBP1.66 per share. A further consideration of up
to a maximum of GBP2.8 million in cash and GBP1 million in shares will be
paid on the achievement of Write Works' targets over the next two years.
At 31 December 1998, options have been granted over the Company's Ordinary
shares as follows:
EARLIEST LATEST
ORDINARY EXERCISABLE EXERCISABLE EXERCISABLE
SCHEME SHARES PRICE DATE DATE
GBP
Executive Scheme 776,317 1.10 24 March 1997 24 March 2004
Executive Scheme 20,000 0.80 25 April 1998 25 April 2005
Executive Scheme 190,500 2.48 4 October 1998 4 October 2005
Executive Scheme 22,000 2.48 19 December 1996 4 October 1999
Executive Scheme 9,000 2.48 30 September 1997 4 October 1999
Executive Scheme 9,000 2.48 2 December 1997 4 October 1999
Executive Scheme 118,880 1.89 14 March 2000 14 March 2007
Executive Scheme 13,600 2.20 14 November 2000 14 November 2007
Executive Scheme 291,900 1.58 9 April 2001 9 April 2008
Executive Scheme 17,647 1.70 8 September 2001 8 September 2008
---------
TOTAL 1,468,844
=========
Unapproved Scheme 128,863 1.10 24 March 1997 24 March 2001
Unapproved Scheme 117,500 2.48 4 October 1998 4 October 2002
Unapproved Scheme 9,000 2.48 30 November 1997 4 October 1999
Unapproved Scheme 4,500 2.48 7 July 1997 4 October 1999
Unapproved Scheme 9,000 2.48 10 January 1997 4 October 1999
Unapproved Scheme 20,000 2.20 30 November 1997 22 December 1999
Unapproved Scheme 21,834 2.29 2 January 1999 2 January 2003
Unapproved Scheme 15,000 1.75 28 February 1999 28 February 2003
Unapproved Scheme 105,000 2.87 16 August 1999 16 August 2003
Unapproved Scheme 15,000 2.87 7 July 1997 16 August 2000
Unapproved Scheme 468,620 1.89 14 March 2000 14 March 2004
Unapproved Scheme 25,000 1.89 2 December 1997 14 March 2001
Unapproved Scheme 10,000 1.89 30 September 1997 14 March 2001
Unapproved Scheme 7,500 2.00 26 March 2000 26 March 2004
Unapproved Scheme 1,400 2.20 14 November 2000 14 November 2004
Unapproved Scheme 412,600 1.58 9 April 2001 9 April 2005
Unapproved Scheme 150,000 1.73 30 April 2001 30 April 2005
Unapproved Scheme 30,353 1.70 8 September 2001 8 September 2005
Unapproved Scheme 820,000 1.50 8 October 2001 8 October 2005
---------
TOTAL 2,371,170
=========
48
EARLIEST LATEST
ORDINARY EXERCISABLE EXERCISABLE EXERCISABLE
SCHEME SHARES PRICE DATE DATE
GBP
Sharesave Scheme 43,124 0.88 1 May 1999 31 October 1999
Sharesave Scheme 246,424 0.49 1 December 1999 31 May 2000
Sharesave Scheme 99,183 0.64 1 June 2000 30 November 2000
Sharesave Scheme 2,464 2.24 1 December 2000 31 May 2001
Sharesave Scheme 42,928 1.80 1 June 2001 30 November 2001
Sharesave Scheme 10,307 1.74 1 May 2002 31 October 2002
Sharesave Scheme 112,143 1.37 1 July 2001 31 December 2001
Sharesave Scheme 94,276 1.37 1 July 2003 31 December 2003
-------
TOTAL 650,849
=======
At 31 December 1998, options have been granted over the Company's American
Depositary Shares* as follows:
AMERICAN EARLIEST LATEST
DEPOSITARY EXERCISABLE EXERCISABLE EXERCISABLE
SCHEME SHARES PRICE DATE DATE
$
Employee Stock Purchase Plan 47,317 8.65 31 March 1999 31 March 1999
Employee Stock Purchase Plan 9,486 10.49 10 October 2000 10 October 2000
US Option Plan 190,625 11.00 9 April 1999** 9 April 2008
US Option Plan 7,500 11.88 30 April 1999** 30 April 2008
US Option Plan 42,250 11.81 8 September 1999** 8 September 2008
US Option Plan 127,500 9.90 8 October 1999** 8 October 2008
Individual US arrangement 6,250 10.63 12 December 1997*** 12 December 2007
Individual US arrangement 6,711 14.90 14 November 1998 14 November 2004
Individual US arrangement 4,232 11.81 8 September 1999 8 September 2005
---------
TOTAL 441,871
=========
TOTAL OPTIONS GRANTED OVER
ORDINARY SHARE EQUIVALENTS 6,258,347
=========
* One American Depositary Share is equivalent to four Ordinary shares.
** Options become exercisable in stages. After the first year up to one
quarter of the total number of options may be exercised. After every
subsequent month for the next three years an additional 1/48 of the
total number of options may be exercised.
*** Options become exercisable in cumulative monthly increments during the
12 month period following the date of grant.
49
1994 EXECUTIVE SHARE OPTION SCHEME (THE "EXECUTIVE SCHEME").
In March 1994, the Company adopted the 1994 Executive Share Option Scheme ("the
Executive Scheme"). Formal approval of the Executive Scheme was given by the
Inland Revenue in March 1994. Under the terms of the Executive Scheme, options
to acquire Ordinary shares may be granted at the discretion of the Remuneration
Committee of the Board of Directors to any employee, including full-time
employee Directors. The exercise price is determined at the date of grant of an
option and shall not be less than the higher of the par value of an Ordinary
share and the closing market price of an Ordinary share on the day preceding the
date of grant. Options under the Executive Scheme generally become exercisable
on the third anniversary of the date of grant and lapse on the tenth anniversary
of the date of grant. The number of options grantable under the Executive Scheme
and the aggregate exercise price of options grantable to any individual is now
limited to GBP30,000 following the passing of the Finance Act 1996. Transactions
under the Executive Scheme for the two years ended 31 December 1998 were as
follows:
OPTIONS OUTSTANDING EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
('000S) GBP GBP
At 31 December 1996 2,033 0.80 - 3.41 1.42
Granted 176 1.89 - 2.20 1.93
Cancelled (311) 0.80 - 3.41 2.12
Exercised (424) 0.81 - 1.10 1.00
----------- ----------- -----------
At 31 December 1997 1,474 0.80 - 3.41 1.45
Granted 334 1.58 - 1.70 1.59
Cancelled (139) 1.10 - 2.87 1.89
Exercised (200) 1.10 1.10
----------- ----------- -----------
AT 31 DECEMBER 1998 1,469 0.80 - 2.48 1.49
=========== =========== ===========
Exercisable at 31 December 1996 306 0.81 - 2.48 1.05
Exercisable at 31 December 1997 1,047 1.10 - 2.48 1.15
EXERCISABLE AT 31 DECEMBER 1998 1,027 0.80 - 2.48 1.40
50
1994 UNAPPROVED EXECUTIVE SHARE OPTION SCHEME (THE "UNAPPROVED SCHEME").
In March 1994, the Company adopted the 1994 Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"). Under the terms of the Unapproved Scheme,
options to subscribe for Ordinary shares may be granted at the discretion of the
Remuneration Committee of the Board of Directors to any employee, including
full-time employee Directors. The exercise price is determined at the date of
grant of an option and shall not be less than the higher of the par value of an
Ordinary share and the closing market price of an Ordinary share on the day
preceding the date of grant. Options under the Unapproved Scheme generally
become exercisable on the third anniversary of the date of grant and lapse on
the seventh anniversary of the date of grant. The number of shares over which
options may be granted under the Unapproved Scheme is consistent with
institutional investor guidelines in respect of overall limits applicable to
employee share schemes. The number grantable to any individual is also in line
with such limits. Transactions under the Unapproved Scheme for the two years
ended 31 December 1998 were as follows:
OPTIONS OUTSTANDING EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
('000S) GBP GBP
At 31 December 1996 991 1.10 - 2.87 1.74
Granted 741 1.89 - 2.20 1.93
Cancelled (150) 1.89 - 2.87 2.26
Exercised (242) 1.10 1.10
----------- ------------- -----------
At 31 December 1997 1,340 1.10 - 2.87 1.90
Granted 1,436 1.50 - 1.73 1.55
Cancelled (209) 1.58 - 2.87 2.13
Exercised (196) 1.10 1.10
----------- ------------- -----------
AT 31 DECEMBER 1998 2,371 1.10 - 2.87 1.73
=========== ============= ===========
Exercisable at 31 December 1996 136 1.10 1.10
Exercisable at 31 December 1997 418 1.10 - 2.87 1.36
EXERCISABLE AT 31 DECEMBER 1998 339 1.10 - 2.87 1.89
51
1994 SAVINGS RELATED SHARE OPTION SCHEME (THE "SHARESAVE SCHEME").
In March 1994, the Company adopted the 1994 Savings Related Share Option
Scheme (the "Sharesave Scheme") which was subsequently approved by the Inland
Revenue. Under the rules of the scheme, participation is offered to all UK
employees, including full-time employee Directors. All options are linked to
a contractual savings scheme. Participants may save between GBP5 and GBP250
per month over a three or five year period at the end of which they are
granted a tax-free bonus. Participants may withdraw from the savings contract
at any time (although their option will then lapse) and are not obliged to
exercise their options at the date of maturity. The exercise price is
determined at the date of grant of an option and shall not be less than the
higher of the par value of an Ordinary share and 85 per cent. (formerly 80
per cent. up until December 1995) of the market value of an Ordinary share at
the date of invitation. Options under the scheme become exercisable on the
bonus date and remain exercisable for a period of six months. The number of
shares over which options may be granted under the Sharesave Scheme are
consistent with institutional investor guidelines in respect of overall
limits applicable to employee share schemes. The number grantable to any
individual is also in line with such limits. Transactions under the Sharesave
Scheme for the two years ended 31 December 1998 were as follows:
OPTIONS OUTSTANDING EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
('000S) GBP GBP
At 31 December 1996 824 0.49 - 2.24 0.76
Granted 85 1.74 1.74
Cancelled (272) 0.49 - 2.24 0.79
Exercised (8) 0.64 - 1.80 0.70
----------- ------------- -----------
At 31 December 1997 629 0.49 - 2.24 0.88
Granted 224 1.37 1.37
Cancelled (157) 0.49 - 1.80 1.49
Exercised (45) 0.49 - 0.64 0.49
----------- ------------- -----------
AT 31 DECEMBER 1998 651 0.49 - 2.24 0.93
=========== ============= ===========
Exercisable at 31 December 1996 8 0.64 - 1.80 0.70
Exercisable at 31 December 1997 74 0.49 - 1.80 0.56
Exercisable at 31 December 1998 -- -- --
52
1997 US STOCK OPTION PLAN (THE "US OPTION PLAN").
In November 1997, the Company adopted the 1997 US Stock Option Plan (the "US
Option Plan") which provides for the grant of both incentive and non-statutory
stock options over the Company's American Depositary Shares (ADSs). Incentive
stock options granted under the US Option Plan are intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue code of 1986, as amended (the "Code"). Non-statutory stock options
granted under the US Option Plan are intended not to qualify as incentive stock
options under the Code. Under the terms of the US Option Plan, options to
acquire ADSs may be granted by the Remuneration Committee of the Board of
Directors to any US resident employee, including employee Directors.
The exercise price of incentive stock and non-statutory stock options under the
US Option Plan may not be less than the fair market value of the ADSs subject to
the option on the date of the option grant, and in some cases, may not be less
than 110 per cent. of such fair market value. Options granted under the US
Option Plan may become exercisable ("vest") in cumulative increments as
determined by the Remuneration Committee of the Board of Directors and lapse no
later than the tenth anniversary of the date of grant.
The number of shares over which options may be granted under the US Option Plan
is consistent with the institutional investor guidelines in respect of overall
limits applicable to employee share schemes. The number grantable to any
individual is also in line with such limits. Transactions under the US Option
Plan up to 31 December 1998 were as follows:
OPTIONS OUTSTANDING
NUMBER EXERCISE WEIGHTED
OF ADSs PRICE AVERAGE
('000S) $ $
At 31 December 1996 -- -- --
Granted 63 14.90 14.90
----------- ------------- -----------
At 31 December 1997 63 14.90 14.90
Granted 427 9.88 - 11.88 10.75
Cancelled (122) 9.88 - 14.90 12.93
----------- ------------- -----------
AT 31 DECEMBER 1998 368 9.90 - 11.88 10.73
=========== ============= ===========
Exercisable at 31 December 1997 -- -- --
EXERCISABLE AT 31 DECEMBER 1998 -- -- --
53
1998 US EMPLOYEE STOCK PURCHASE PLAN (THE "PURCHASE PLAN").
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan (the
"Purchase Plan"), which provides for the grant of rights ("Rights") to purchase
ADSs in the Company. The Rights are intended to qualify as options issued under
"employee stock purchase plans" as defined in Section 423(b) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). Participation in
the Purchase Plan is offered to all US resident employees, including full-time
employee Directors. The initial offering began on 17 June 1998 (the "Offering
Date") and will end on 31 March 1999 (the "Purchase Date"). Thereafter, two year
offerings will begin approximately every six months following the announcement
of the interim and final results. All Rights under an offering are linked to
accumulated payroll deductions over the course of the offering, and participants
may withdraw from the plan at any time during an offering (although their Rights
will then lapse). The purchase price of the ADSs is not less than the lesser of
85 per cent. of the fair market value of the ADSs on either the Offering Date or
the Purchase Date. The purchase price may include any UK stamp duty reserve tax
payable with respect to the issue of the ADSs.
Under US law an individual may not purchase more than $25,000 worth of ADSs (as
determined by the fair market value on the Offering Date). The number of shares
over which the Rights may be granted under the Purchase Plan is consistent with
institutional investor guidelines in respect of overall limits applicable to
employee share schemes. The number grantable to any individual is also in line
with such limits. Transactions under the Purchase Plan up to 31 December 1998
are as follows:
OPTIONS OUTSTANDING
NUMBER EXERCISE WEIGHTED
OF ADSs PRICE AVERAGE
('000S) $ $
At 31 December 1997 -- -- --
Granted 66 8.65 - 10.49 8.91
Cancelled (9) 8.65 8.65
----------- --------------- -----------
AT 31 DECEMBER 1998 57 8.65 - 10.49 8.96
=========== =============== ===========
Exercisable at 31 December 1997 -- -- --
EXERCISABLE AT 31 DECEMBER 1998 -- --
INDIVIDUAL US ARRANGEMENTS.
Options over American Depositary Shares were granted during the year at the
prevailing market value to certain individuals who are non-executive Directors
of The Dialog Corporation, the Company's North American subsidiary. Transactions
under these individual US schemes up to 31 December 1998 were as follows:
OPTIONS OUTSTANDING
NUMBER EXERCISE WEIGHTED
OF ADSs PRICE AVERAGE
('000S) $ $
At 31 December 1996 -- -- --
Granted 13 10.63 - 14.90 12.84
----------- ------------- -----------
At 31 December 1997 13 10.63 - 14.90 12.84
Granted 4 11.81 11.81
----------- ------------- -----------
AT 31 DECEMBER 1998 17 10.63 - 14.90 12.59
=========== ============= ===========
Exercisable at 31 December 1997 1 10.63 10.63
EXERCISABLE AT 31 DECEMBER 1998 13 10.63 - 14.90 12.84
54
19. SHARE PREMIUM
1998 1997
GBP'000 GBP'000
Balance at 1 January 150,341 35,672
Premium arising on shares issued on exercise of options 632 691
Premium arising on shares issued on placing/flotation
and acquisitions of fixed asset investments 1,155 124,038
Expenses of share issue -- (10,060)
-------- --------
BALANCE AT 31 DECEMBER 152,128 150,341
======== ========
20. SHARES TO BE ISSUED
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ("Write Works") for a maximum of GBP6,015,000 to be paid over two
years (see note 11). The consideration has been satisfied through an initial
payment of GBP965,000 and GBP1,150,000 by the issue of 694,025 new Ordinary
shares.
A further consideration of up to a maximum of GBP3,800,000 in cash and shares
will be paid on the achievement of certain earnings targets over the next two
years.
GBP'000
Total future consideration 3,800
Cash payable within one year (see note 15) (1,437)
Cash payable after more than one year (see note 16) (1,396)
------
Shares to be issued 967
======
21. PROFIT AND LOSS ACCOUNT
1998 1997
GROUP GBP'000 GBP'000
Balance at 1 January (243,524) (10,561)
Profit/(loss) for the financial year 4,439 (20,744)
Effect of exchange rate movements on net investment
in foreign subsidiaries net of associated borrowings (1,586) (2,015)
Goodwill written off (11,022) (209,120)
Effect of exchange rate movements on goodwill
written off 2,266 (1,084)
----------- ----------
BALANCE AT 31 DECEMBER (249,427) (243,524)
=========== ==========
Cumulative goodwill written off at 31 December 1998 amounted to GBP219,361,000,
comprising balances denominated in US Dollars of $355,429,000 and balances
denominated in Pounds Sterling of GBP5,737,000 (1997: GBP210,605,000, comprising
balances denominated in US Dollars of $337,091,000 and balances denominated in
Pounds Sterling of GBP5,737,000; 1996: GBP401,000 all denominated in Pounds
Sterling).
1998 1997
COMPANY GBP'000 GBP'000
Balance at 1 January (6,400) (10,520)
(Loss)/profit for the financial year (9,016) 4,120
Effect of exchange rate movements on net debt 1,752 --
------- -------
BALANCE AT 31 DECEMBER (13,664) (6,400)
======= =======
55
22. RECONCILIATION OF MOVEMENT IN ORDINARY SHAREHOLDERS' FUNDS
1998 1997
GROUP GBP'000 GBP'000
Profit/(loss) for the financial year 4,439 (20,744)
Other recognised gains and losses relating to the year (net) 680 (3,099)
New share capital subscribed for cash 637 120,586
New share capital subscribed on acquisition of
subsidiaries and other fixed asset investments 1,162 4,719
Expenses of share issue -- (10,060)
Shares to be issued 967 --
Goodwill written off (11,022) (209,120)
-------- --------
Net movement in Ordinary shareholders' funds (3,137) (117,718)
-------- --------
Ordinary shareholders' funds at 1 January (91,681) 26,037
-------- --------
ORDINARY SHAREHOLDERS' FUNDS AT 31 DECEMBER (94,818) (91,681)
======== ========
During the year ended 31 December 1998, the Company made certain revisions to
the fair value of assets and liabilities consolidated upon the acquisition of
KRII. These revisions consisted primarily of the following:
GBP'000
Decrease in estimated sales proceeds of assets held for resale (6,392)
Write-off of capitalised product development costs (2,042)
Release of provision for guaranteed funding commitments 3,133
Provision for litigation (2,172)
Additional funding of non-core business through to date of disposal (728)
Provision for onerous contracts (902)
Write-off of obsolete fixed asset (481)
Adjustment to deferred consideration (382)
Other (1,056)
-------
(11,022)
=======
1998 1997
COMPANY GBP'000 GBP'000
(Loss)/profit for the financial year (9,016) 4,120
New share capital subscribed for cash 637 120,586
New share capital subscribed on acquisition of
subsidiaries and other fixed asset investments 1,162 4,719
Expenses of share issue -- (10,060)
Effect of exchange rate movements on net debt 1,752 --
Shares to be issued 967 --
-------- --------
Net movement in Ordinary shareholders' funds (4,498) 119,365
-------- --------
Shareholders' funds at 1 January 145,443 26,078
-------- --------
SHAREHOLDERS' FUNDS AT 31 DECEMBER 140,945 145,443
======== ========
56
23. MINORITY EQUITY INTERESTS
1998 1997
GBP'000 GBP'000
Balance at 1 January 726 43
Profit/(loss) attributed to the minorities 356 (11)
Exchange adjustments (5) (32)
Arising from acquisitions during the year -- 726
------ ------
BALANCE AT 31 DECEMBER 1,077 726
====== ======
24. COMMITMENTS UNDER OPERATING LEASES AND FINANCE LEASES
As at 31 December 1998, the Group had annual commitments under non-cancellable
operating leases as set out below:
1998 1997
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
GBP'000 GBP'000 GBP'000 GBP'000
Operating leases which expire:
Within 1 year 1,138 220 360 22
In 2 - 5 years 1,548 15 3,778 22
After 5 years 1,694 -- 1,640 --
----- ----- ----- -----
4,380 235 5,778 44
===== ===== ===== =====
The Group leases offices and operating facilities and certain equipment under a
variety of operating and finance leases that expire at various dates through to
2008. Future minimum lease payments under operating and finance leases with
initial or remaining non-cancellable terms of one or more years are as follows
as at 31 December 1998:
OPERATING FINANCE
LEASES LEASES
GBP'000 GBP'000
Year ending 31 December
1999 4,615 230
2000 4,808 12
2001 4,767 --
2002 4,094 --
2003 3,976 --
2004 - 2008 6,932 --
------ ------
Total minimum lease payments 29,192 242
Less: amount representing interest -- (8)
------ ------
Net minimum lease payments 29,192 234
====== ======
Rent expense under operating leases was GBP5,160,000 (see note 4), GBP1,246,000,
GBP1,048,000 for the years ended 31 December 1998, 1997 and 1996 respectively.
57
25. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW/(OUTFLOW)
FROM OPERATING ACTIVITIES
1998 1997 1996
GBP'000 GBP'000 GBP'000
Operating profit/(loss) 23,026 (22,307) (7,872)
Add: Restructuring costs (see note 5) 2,583 18,550 --
------- ------- -------
Operating profit/(loss) before restructuring costs 25,609 (3,757) (7,872)
Depreciation charges 7,962 2,877 1,807
Amortisation of development costs 7,699 3,558 2,170
Amortisation of goodwill 61 -- --
Loss/(profit) on sale of tangible fixed assets 17 (15) (2)
Decrease/(increase) in stocks 11 1 (8)
Increase in debtors (1,077) (1,651) (3,580)
(Decrease)/increase in creditors (13) 4,156 1,618
Exchange variances 786 (60) 26
Cash costs of restructuring (6,904) (1,934) --
------- ------- -------
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 34,151 3,175 (5,841)
======= ======= =======
26. MANAGEMENT OF LIQUID RESOURCES
1998 1997 1996
GBP'000 GBP'000 GBP'000
Net withdrawals from/(payments into) short-term deposits
over three months not repayable on demand 620 6,000 (4,500)
Net (payments into)/withdrawals from short-term deposits
under three months not repayable on demand -- (620) 20,146
------- ------- -------
NET CASH INFLOW FROM MANAGEMENT OF LIQUID RESOURCES 620 5,380 15,646
======= ======= =======
Movements in all short-term deposits not repayable on demand are reported under
the heading of management of liquid resources
27. ANALYSIS OF CHANGES IN NET (DEBT)/FUNDS
CASH AND DEBT DUE DEBT DUE
BANK BANK WITHIN ONE AFTER ONE FINANCE
CASH DEPOSITS DEPOSITS YEAR YEAR LEASE TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 1996 607 21,426 22,033 -- -- (2,698) 19,335
Cash flows 1,566 (15,646) (14,080) -- -- 1,012 (13,068)
Exchange movements (135) 220 85 -- -- -- 85
Other non-cash changes -- -- -- -- -- (464) (464)
-------- -------- -------- -------- -------- -------- --------
At 1 January 1997 2,038 6,000 8,038 -- -- (2,150) 5,888
Cash flows 10,832 (5,380) 5,452 (2,831) (151,241) 1,491 (147,129)
Exchange movements 232 -- 232 (89) (4,565) -- (4,422)
Other non-cash changes -- -- -- (119) -- (122) (241)
-------- -------- -------- -------- -------- -------- --------
At 1 January 1998 13,102 620 13,722 (3,039) (155,806) (781) (145,904)
Cash flows (8,551) (620) (9,171) 2,770 6,812 547 958
Exchange movements (57) -- (57) 81 1,671 -- 1,695
Other non-cash changes -- -- -- (44) (902) -- (946)
Other movements -- -- -- (14,446) 14,446 -- --
-------- -------- -------- -------- -------- -------- --------
AT 31 DECEMBER 1998 4,494 -- 4,494 (14,678) (133,779) (234) (144,197)
======== ======== ======== ======== ======== ======== ========
Bank deposits have a maturity period of more than 24 hours but are repayable on
demand subject, in some instances, to the payment of certain expenses.
58
28. CAPITAL COMMITMENTS
Capital commitments as at 31 December 1998 were as follows:
1998 1997
GBP'000 GBP'000
Authorised and contracted for 139 --
----- -----
Authorised but not contracted for 344 --
===== =====
29. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with UK
GAAP which differs in certain significant respects from US GAAP. A description
of the relevant accounting principles which differ materially is given below.
TURNOVER
It is the Company's policy to recognise online subscriptions in full when
contractually due and invoiced and to provide in full for the cost of related
service obligations. Under US GAAP, online subscription revenues are recognised
rateably over the subscription term which is usually 12 months. No adjustment is
required under US GAAP for the "modular pricing" subscriptions since these
subscriptions are recognised rateably over the subscription term.
INTANGIBLE FIXED ASSETS
It is the Company's policy to capitalise costs associated with the development
of the host computer system and product development and amortise over a period
of five and three years, respectively. Under US GAAP, costs associated with the
host computer are expensed as incurred, as are product development costs
incurred to establish technological feasibility. Statement of Financial
Accounting Standards No. 86 requires that product development costs incurred
subsequent to establishing technological feasibility up until the product's
general release are capitalised; however in the Company's case the period
between the establishment of technical feasibility, as evidenced by a product
design and the completion and testing of a working model, and the product's
release is short and the associated costs insignificant. Consequently, under US
GAAP, no product development costs have been capitalised. Product development
costs capitalised under UK GAAP include interest (note 6) which would not be
capitalisable under US GAAP. These amounts are included in this adjustment.
INDEXING COSTS
The Company's policy is to defer database indexing costs and amortise these
costs on a straight line basis over two years. Under US GAAP, database indexing
costs are expensed as incurred.
DEFERRED TAXATION
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
temporary differences and a valuation allowance is established to reduce
deferred tax assets to the amount which "more likely than not" will be realised
in future tax returns. Deferred tax amounts also arise as a result of the other
US GAAP adjustments.
59
The UK deferred tax liability can be reconciled as follows to the US GAAP net
deferred tax asset:
1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
UK liability (128) (119)
Liabilities not provided for under UK GAAP (1,530) (2,389)
------- -------
Full potential deferred tax liability under
UK GAAP (1,658) (2,508)
Unprovided deferred tax asset on tax losses 9,090 5,575
Tax effects of US GAAP adjustments:
Acquisition accounting 17,745 4,041
Revenue recognition 1,045 1,272
System and product development costs 8,804 6,812
Deferred indexing costs 168 269
Investment in available-for-sale securities -- 215
------- -------
Gross deferred tax asset in accordance with
US GAAP 36,852 18,184
------- -------
Total net deferred tax asset under US GAAP 35,194 15,676
Deferred tax asset valuation allowance (35,194) (15,676)
------- -------
NET DEFERRED TAX ASSET IN ACCORDANCE WITH
US GAAP -- --
======= =======
Management believes that the available objective evidence creates sufficient
uncertainty regarding realisability of these items so that a full valuation
allowance has been recorded.
The US GAAP basis tax provision is comprised as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
Current:
UK corporation tax -- -- --
Non-UK tax 776 332 102
--- --- ---
776 332 102
=== === ===
The US GAAP tax provision is reconciled to the benefit derived by applying the
UK statutory rate to the US GAAP loss before tax as follows:
1998 1997 1996
GBP'000 GBP'000 GBP'000
US GAAP amounts at UK statutory rate of 31%
(1997: 31.5%, 1996: 33%) (10,223) (7,877) (3,544)
Disallowed expenditure 1,306 304 81
Revision of prior year losses -- -- (609)
Differential tax rates (3,277) -- --
Change in valuation allowance 12,897 8,006 4,288
Other 73 (101) (114)
------- ------- -------
US GAAP tax provision 776 332 102
======= ======= =======
ACQUISITION ACCOUNTING
Under UK GAAP, the Company has written off purchased goodwill, defined as the
excess of the acquisition price over the fair value of the net assets acquired,
against reserves for all acquisitions made prior to 31 December 1997. For US
GAAP purposes, the acquisition price is allocated to all tangible
60
and intangible assets acquired based on their fair value, including in-process
research and development. Amounts allocated to in-process research and
development are then immediately expensed.
Goodwill and other acquisition-related intangible assets are recognised on the
balance sheet and amortised by charges against income over its estimated useful
life, not to exceed 40 years.
Under UK GAAP, for all acquisitions made since 1 January 1998, goodwill is
capitalised and subsequently written off over its estimated useful life, which
currently ranges from 10 to 20 years.
The Group has accounted for its acquisition of KRII in accordance with FRS7,
"Fair values in acquisition accounting". This standard sets out rules for
accounting for acquisitions in consolidated financial statements and states that
the fair value balance sheet of an acquired company cannot include provisions
for integration and reorganisation costs set up by the acquiring company. Under
US GAAP, certain integration and reorganisation costs may be considered
liabilities assumed and included in the allocation of the acquisition cost.
EMPLOYEE COSTS
During 1993, certain share allocations were made to certain of the Company's
employees at par value which were below deemed market value. Under UK GAAP these
share issues were recorded at their par value, whereas under US GAAP the
difference between the par value and the deemed market value is considered to be
employee compensation and expensed in total in the year.
In addition, prior to December 1995, options were granted under the Company's
Sharesave Scheme at a 20 per cent. discount (15 per cent. with effect from
December 1995 onwards) from the fair market value of the stock at the date of
grant. Under UK GAAP, the share issues are recorded at their discounted price
when the options are exercised. Under US GAAP, the discount is considered to be
employee compensation and is expensed over the five year savings period of the
scheme.
Under US GAAP, the Company applies Accounting Principle Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its schemes. Had compensation expense for the Company's share
option schemes been determined based upon the fair value at the grant date for
awards under these schemes consistent with the methodology prescribed under SFAS
No. 123 "Accounting for Stock-Based Compensation", the Company's US GAAP net
loss and loss per share would have been increased in 1998 by GBP995,000 and 0.7p
per share (1997: GBP369,000 and 0.2p per share; 1996: GBP622,000 and 1.0p per
share).
The fair value of the options granted during 1998 has been estimated using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0 per cent. (1997 and 1996: 0 per cent.), volatility of 63 per cent.
(1997: 59 per cent.; 1996: 72 per cent.), risk-free investment rate of 5.5 per
cent. (1997: 6.5 per cent.; 1996: 6.2 per cent.), assumed forfeiture rate of 0
per cent. (1997 and 1996: 0 per cent.) and an expected life of six years (1997
and 1996: six years). The average value of the options granted during 1998 is
estimated as being 113 pence (1997: 119 pence; 1996: 170 pence) for each
Ordinary share.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Under UK GAAP, fixed asset investments are held at cost unless there is a
permanent diminution in value whereupon provision is made for such diminution
through the profit and loss account. Under US GAAP, debt and equity investments
that meet the definition of "available-for-sale securities", as defined by
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), are held at
their market value; unrealised holding gains and losses are excluded from
earnings and reported as a net amount as a component of shareholders' equity
until realised.
CONSOLIDATED STATEMENT OF CASH FLOWS
The consolidated statement of cash flows prepared in accordance with FRS 1
(revised) presents substantially the same information as that required under US
GAAP. Under US GAAP, however, there
61
are certain differences from UK GAAP with regard to the classification of items
within the cash flow statement and with regard to the definition of cash and
cash equivalents.
Under UK GAAP, cash flows are presented separately for trading activities,
returns in investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisition and disposals, equity dividends paid,
management of liquid resources and financing activities.
Under US GAAP, however, only three categories of cash flow activity are
reported, being operating activities, investing activities and financing
activities. Cash flows from taxation and returns on investments and servicing of
finance would be included under operating activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include overdrafts, but do
include investments repayable within three months of maturity when acquired.
Set out below, for illustrative purposes, is a summary consolidated statement of
cash flows under US GAAP:
YEAR ENDED 31 DECEMBER
1998 1997 1996
GBP'000 GBP'000 GBP'000
Net cash provided by/(used in) operating activities 5,240 (122) (8,413)
Net cash used in investing activities (4,120) (256,054) (3,586)
Net cash (used in)/provided by financing activities (9,671) 263,128 (2,081)
-------- -------- --------
Net (decrease)/increase in cash and cash equivalents (8,551) 6,952 (14,080)
Cash and cash equivalents at beginning of period 13,722 6,538 20,533
Effect of foreign exchange rate changes (677) 232 85
-------- -------- --------
Cash and cash equivalents at end of period 4,494 13,722 6,538
======== ======== ========
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Group's financial
instruments at 31 December 1998 and 1997 are as follows:
1998 1997
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
GBP'000 GBP'000 GBP'000 GBP'000
Publicly quoted fixed asset investments -- -- 5,043 4,362
Cash and bank deposits 4,494 4,494 13,722 13,722
Senior Credit Facility (46,052) (46,052) (56,217) (56,217)
Senior Subordinated Notes (108,186) (104,399) (109,396) (113,498)
Obligations under finance leases (234) (234) (781) (781)
Interest rate cap agreement 148 34 185 147
The amounts in the table are stated gross of unamortised finance costs.
The carrying amounts of publicly quoted fixed asset investments and Senior
Subordinated Notes were based on the quoted market prices for these instruments.
The carrying amount of cash and bank deposits is a reasonable estimate of fair
value.
The Senior Credit Facility bears interest on a floating rate basis based on the
current value of US Dollar LIBOR. Therefore the fair value of this instrument is
considered to approximate its carrying amount. In the opinion of the Directors,
the market value of the finance lease obligations approximates the carrying
amount, having regard to the interest rates available to the Group for similar
borrowings at the balance sheet date.
62
The fair value of the interest rate cap agreement has been estimated upon the
available market price for a similar instrument at 31 December 1998 and 1997.
EXCEPTIONAL ITEMS
Under UK GAAP, certain exceptional items are shown separately on the face of the
profit and loss account after operating profit and before interest. Under US
GAAP, exceptional items should be included as a normal operating item so that
operating profit/(loss) includes these costs. The adjustments to operating
(loss)/profit under US GAAP can be reconciled as follows:
YEAR ENDED 31 DECEMBER
1998 1997 1996
GBP'000 GBP'000 GBP'000
Operating profit/(loss) in accordance with UK GAAP 20,726 (22,307) (7,872)
Reclassification of exceptional item 2,069 4,035 --
------- ------- -------
Operating profit/(loss) in accordance with US GAAP 22,795 (18,272) (7,872)
======= ======= =======
The adjustments to net loss and shareholders' equity under US GAAP can be
reconciled as follows:
YEAR ENDED 31 DECEMBER
1998 1997 1996
ADJUSTMENTS TO NET LOSS GBP'000 GBP'000 GBP'000
Retained profit/(deficit) in accordance with UK GAAP 4,439 (20,744) (7,226)
US GAAP adjustments:
Acquisition accounting (36,037) (14,606) --
Fair value adjustments -- 3,029 --
System and product development costs:
- --capitalised during the year (11,762) (3,964) (4,315)
amortization 8,308 11,548 2,170
Revenue recognition 667 (405) (956)
Deferred indexing costs 312 (151) (583)
Employee costs (28) (23) (20)
Income taxes (7) (9) 62
------- ------- -------
Net loss in accordance with US GAAP (34,108) (25,325) (10,868)
------- ------- -------
Net loss per share in accordance with US GAAP (pence) (22.65) (25.06) (11.77)
======= ======= =======
YEAR ENDED 31 DECEMBER
1998 1997
ADJUSTMENTS TO SHAREHOLDERS' EQUITY GBP'000 GBP'000
Ordinary shareholders' funds in accordance with UK GAAP (94,818) (91,681)
US GAAP adjustments:
Acquisition accounting 194,242 221,540
Capitalised system and product development costs net
of amortisation (23,154) (21,624)
Revenue recognition (3,370) (4,037)
Deferred indexing costs (541) (853)
Investment in available-for-sale securities -- (681)
Income taxes 120 119
-------- --------
Shareholders' equity in accordance with US GAAP 72,479 102,783
======== ========
63
30. SUBSEQUENT EVENTS
On 2 February 1999, the Group announced the disposal of its assets held for
resale, the CARL Corporation and The UnCover Company, to Ward Shaw, the
senior member of the management team of both companies, for a consideration
of $2,250,000 (GBP1,352,000). Of the consideration, $1 million is being
satisfied in cash, with the balance payable through a loan note, repayable by
January 2001. Costs associated with the disposal are estimated to be $600,000
(GBP360,000). The businesses have been carried in the 31 December 1998 balance
sheet at their net estimated proceeds of $1,650,000 (GBP992,000). The
difference between the net estimated proceeds at 31 December 1998 and 1997 of
GBP6,392,000 has been treated as an adjustment to fair value and written off
directly to reserves.
On 17 May 1999, the Company announced that it had secured an additional facility
from The Chase Manhattan Bank ("Chase") of $25 million. The facility is
repayable in October 2002 and carries interest at a rate of 3.25 percentage
points over US Dollar LIBOR through to 1 October 1999 and 4.25 percentage points
over US Dollar LIBOR thereafter. In connection with this incremental financing,
the Company has agreed to issue Chase with warrants to purchase an initial 1.5
million new Ordinary shares (representing approximately 1 per cent. of the
current issued share capital of the Company) exercisable between 17 May 1999 and
11 October 2002, together with additional warrants to purchase up to a maximum
of a further 1.5 million new Ordinary shares between 1 August and 1 November
1999 if the term facility is still outstanding on those dates, such warrants to
be exercisable up to 14 May 2004. The warrants are exercisable at a price of
120.5 pence per Dialog Ordinary share (the closing mid-market price on 13 May
1999).
31. CONTINGENT LIABILITIES
In October 1997, immediately prior to the Company's acquisition of KRII, KRII
was sued in a class action for copyright violation. The case is currently
proceeding in a United States federal court. At issue is the article delivery
service operated by one of KRII's subsidiaries. The subsidiary would, upon
permission from publishers, provide copies of single articles from magazines and
journals. The plaintiffs, who are authors, contend that the publishers did not
have the authority to grant permission to the Company's subsidiary for such
copying. The trial court has agreed with the plaintiffs' interpretation of the
Copyright Act that the law does not grant publishers the authority to permit
copying of single articles absent other agreements with an author. This
interpretation of the Copyright Act is currently being reviewed by the United
States Court of Appeals for the Ninth Circuit. Further proceedings in the trial
court have been stayed while the appeal is pending. The Directors are confident
that the appeal will reverse the earlier decision of the trial court in favour
of the plaintiffs. Nevertheless, in the opinion of the Directors, adequate
provision has been made to cover the costs and damages that could accrue to the
Company in the eventuality of an adverse outcome.
The Company and its subsidiaries are also parties to legal proceedings that are
considered to be ordinary routine litigation incidental to their business and
not material to the Group's consolidated financial position.
64
PART V
PRO FORMA STATEMENT OF NET ASSETS
Set out below is an unaudited consolidated pro forma statement of net assets of
Dialog reflecting the Proposals. It has been derived from the unaudited
consolidated balance sheet of Dialog as at 31 December 1999 and adjusted for the
unaudited combined net assets statement of the ISD at that date compiled from
the Dialog Group consolidation returns used for preparing the 1999 preliminary
results as described in Part II of this document. The statement has been
prepared to illustrate the impact of the Proposals and the repayment of debt on
the net assets of the Group as shown in its preliminary financial statements at
31 December 1999. It is prepared for illustrative purposes only and, because of
its nature, may not give a true picture of Dialog's financial position or
results.
Adjustments
----------------------------------------
Disposal of
ISD at Pro forma
31 December 31 December Proceeds of Repayment statement of
1999 1999 transactions of debt net assets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
FIXED ASSETS
Intangible assets 27,030 (26,154) -- 876
Goodwill 9,805 (1,638) -- 8,167
Tangible assets 14,338 (13,466) -- 872
Investments 9,635 (6,504) -- 3,131
-------- -------- -------- -------- --------
60,808 (47,762) -- 13,046
-------- -------- -------- -------- --------
CURRENT ASSETS
Stocks 60 (60) --
Debtors 36,690 (30,597) -- 6,093
Cash at bank and in hand 10,521 -- 194,881(3) (167,086) 38,316
-------- -------- -------- -------- --------
47,271 (30,657) 194,881 (167,086) 44,409
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR (71,574) 33,100 -- 30,075(4) (8,399)
-------- -------- -------- -------- --------
NET CURRENT (LIABILITIES)/ASSETS (24,303) 2,443 194,881 (137,011) 36,010
-------- -------- -------- -------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 36,505 (45,319) 194,881 (137,011) 49,056
CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR (137,370) 5,296 -- 131,065(4) (1,009)
PROVISIONS FOR LIABILITIES AND CHARGES (1,430) 633 -- (797)
-------- -------- -------- -------- --------
NET ASSETS (102,295) (39,390) 194,881 (5,946)(6) 47,250
======== ======== ======== ======== ========
Notes:
1. The pro forma statement of net assets does not reflect trading since 31
December 1999 for Dialog or the ISD.
2. Net proceeds from the sale of ISD are assumed to be GBP167.0 million
($269.2 million) after costs and contractual adjustments of GBP1.4 million
($2.2 million), using the exchange rate described in note 5 below.
3. Proceeds from the Thomson subscription are assumed to be GBP15.9 million
and the Jiyu subscription is assumed to be GBP12 million. Total proceeds
are therefore assumed to be GBP194.9 million.
4. GBP131.1 million of the total proceeds will be used to repay long term
borrowings and GBP30.1 million will repay short term borrowings. The
remainder will increase the Group's cash balance.
5. Exchange rate assumed is $1.61/GBP1 being the rate at 31 December 1999.
6. The reduction in net assets as a result of the repayment of debt relates to
the write off of unamortised debt arrangement fees, amounting to GBP5.9
million.
7. No tax charge will arise on the Sale.
8. No adjustment has been made for any event save as disclosed above.
65
[LOGO]
PricewaterhouseCoopers [Letterhead]
The Directors
The Dialog Corporation plc
The Communications Building
48 Leicester Square
London WC2H 7DB
PricewaterhouseCoopers Corporate Finance
1 Embankment Place
London WC2N 6NN
3 April 2000
Dear Sirs
We report on the pro forma statement of net assets set out in Part V of the
Listing Particulars of Dialog dated 3 April 2000, which has been prepared, for
illustrative purposes only, to provide information about how the Proposals might
have affected the net assets of the Group as at 31 December 1999.
RESPONSIBILITY
It is the responsibility solely of the directors of Dialog to prepare the pro
forma statement of net assets in accordance with paragraph 12.29 of the Listing
Rules of the London Stock Exchange.
It is our responsibility to form an opinion, as required by the Listing Rules of
the London Stock Exchange, on the pro forma statement of net assets and to
report our opinion to you. We do not accept any responsibility for any reports
previously given by us on any financial information used in the compilation of
the pro forma statement of net assets beyond that owed to those to whom those
reports were addressed by us at the dates of their issue.
BASIS OF OPINION
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards and the Bulletin 1998/8 "Reporting on pro forma financial
information pursuant to the Listing Rules" issued by the Auditing Practices
Board. Our work, which involved no independent examination of any of the
underlying financial information, consisted primarily of comparing the
unadjusted financial information with the source documents, considering the
evidence supporting the adjustments and discussing the pro forma statement of
net assets with the directors of the Company.
OPINION
In our opinion:
(a) the pro forma statement of net assets has been properly compiled on the
basis stated;
(b) such basis is consistent with the accounting policies of the Company; and
(c) the adjustments are appropriate for the purposes of the pro forma statement
of net assets as disclosed pursuant to paragraph 12.29 of the Listing Rules
of the London Stock Exchange.
Yours faithfully
PricewaterhouseCoopers
Chartered Accountants
66
PART VI
ADDITIONAL INFORMATION
1. RESPONSIBILITY
The Directors of the Company, whose names appear on page 3 of this document,
accept responsibility for the information contained herein. To the best of the
knowledge and belief of the Directors (who have taken all reasonable care to
ensure that such is the case) the information contained in this document is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
2. THE COMPANY
The Company, whose registered office and principal place of business is at The
Communications Building, 48 Leicester Square, London WC2H 7DB, was incorporated
and registered in England and Wales on 27 February 1985 as a private limited
company pursuant to the Companies Acts 1948 to 1981 (registered number 1890236)
under the name Mapola Limited. On 27 March 1985 the name of the Company was
changed to M.A.I.D Systems Limited. On re-registration as a public limited
company on 10 February 1994 the Company's name was changed to M.A.I.D plc. The
Company was admitted to the Official List on 25 March 1994. On 17 November 1997,
the Company changed its name to The Dialog Corporation plc. The principal
legislation under which the Company operates is the Companies Act 1985 as
amended by the Companies Act 1989 (the "Act").
3. SHARE CAPITAL
(a) The present authorised and issued share capital of the Company is:
ORDINARY SHARES OF 1P EACH
AUTHORISED ISSUED
GBP NUMBER GBP NUMBER
1,998,270 199,827,000 1,553,013 155,301,346
(b) During the three years preceding the date of this document there have
been the following changes in the authorised and issued share capital of
the Company:
(i) On 13 August 1997, the Company issued 2,105,855 new Ordinary
Shares credited as fully paid (at an effective subscription
price of 203p per new Ordinary Share) as part of the
consideration for the acquisition of a 70 per cent. interest in
Muscat;
(ii) On 10 November 1997, the Company increased its authorised share
capital from GBP1,350,000 to GBP1,998,270 by the creation of an
additional 64,827,000 Ordinary Shares;
(iii) On 14 November 1997, 54,500,000 Ordinary Shares were issued at a
price of 220p to institutional and other investors pursuant to a
placing in connection with the acquisition of Knight-Ridder;
(iv) Pursuant to the Share Option Schemes referred to in paragraph h
below, between 27 March 1997 and 27 March 2000, 488,835 Ordinary
Shares were issued, credited as fully paid at subscription
prices between 49p and 188.5p per Ordinary Share;
(v) On 23 December 1997, the Company issued 313,636 new Ordinary
Shares credited as fully paid (at an effective subscription
price of GBP1.415 per new Ordinary Share) as consideration
for the acquisition of the remaining 23 per cent. minority
interest in its Danish subsidiary, Dialog Information Services
A/S;
(vi) On 19 November 1998, the Company issued 694,025 new Ordinary
Shares credited as fully paid (at an effective subscription
price of GBP1.66 per new Ordinary Share) as part of the
consideration for the acquisition of Write Works Limited;
(vii) The Company operates a defined contribution pension scheme in
the US (the 401(k) Investment Savings Plan). At various dates
from 11 May 1998 to 1 March 2000, the Company matched employee
contributions under the Plan partially with the allotment of new
Ordinary Shares valued at market price at the time of issue and
subsequently converted into ADSs. A total of 425,204 Ordinary
Shares have been issued, credited as fully paid at subscription
prices between 57p and 184p to date under the Plan at a combined
market value of GBP432,058.58; and
(viii) On 30 November 1999, the Company issued 3,012,936 new Ordinary
Shares, credited as fully paid (at an effective subscription
price of 83p per new Ordinary Share) as consideration for the
acquisition of the remaining 30 per cent. interest in Muscat not
already held by the Company.
67
(c) Pursuant to the second resolution set out in the notice of EGM at the
end of this document, it is proposed to:
(i) increase the authorised share capital of the Company from
GBP1,998,270 to GBP2,500,000;
(ii) give the Directors authority pursuant to section 80 of the Act
to allot the New Ordinary Shares and otherwise to allot relevant
securities up to an aggregate nominal amount of GBP572,123.00
(which, allowing in full for the New Ordinary Shares to be
issued, will represent approximately 33 per cent. of the
Company's enlarged issued share capital immediately following
Admission), such authority to expire on 26 April 2005;
(iii) empower the Directors pursuant to section 95 of the Act until 26
April 2005 to allot equity securities (as defined in section 94
of the Act) pursuant to the authority referred to in (ii) above
as if section 89(1) of the Act did not apply to such allotment,
such allotment being limited to the allotment of equity
securities in connection with the subscription of new Ordinary
Shares by Thomson and Jiyu or pursuant to the terms of warrants
or share option schemes or a rights issue or other pre-emptive
offer to Shareholders and otherwise up to an aggregate nominal
amount of GBP85,818.38 (which, allowing in full for the New
Ordinary Shares to be issued, will represent approximately 5 per
cent. of the Company's enlarged issued share capital immediately
following Admission).
(d) Save as provided in paragraph (c) above, the provisions of section 89(1)
of the Act (which, to the extent not disapplied pursuant to section 95
of the Act confer on Shareholders rights of pre-emption in respect of
the allotment of equity securities which are, or are to be paid up in
cash) apply to the authorised but unissued share capital of the Company.
(e) Immediately following Admission, the authorised share capital of the
Company will be GBP2,500,000 divided into 250,000,000 Ordinary Shares of
which 171,636,759 will be in issue. There will remain GBP783,632.41 of
authorised but unissued share capital consisting of 78,363,241 Ordinary
Shares, equal to approximately 30 per cent. of the authorised share
capital of the Company. A total of 17,801,136 Ordinary Shares will be
reserved for issue under options under the terms of the Share Option
Schemes described in paragraph (h) below and under warrants described in
paragraphs (i) and (j) below.
(f) The Ordinary Shares are and the New Ordinary Shares will be in
registered form and will be issued in certificated form.
(g) The New Ordinary Shares will, on Admission, rank pari passu with all of
the other issued Ordinary Shares in the capital of the Company.
(h) As at 31 March 2000 (being the latest practicable date prior to the
publication of this document) there were outstanding options under the
Company's Share Option Schemes over a total of 8,801,136 Ordinary
Shares. The Company has granted options to Directors and employees to
subscribe for Ordinary Shares under the Share Option Schemes as follows:
SCHEME OPTION PRICE (PENCE) NO. OF SHARES EXERCISABLE DATES
Sharesave Scheme 49.00 98,570 01/12/99-31/05/00
Sharesave Scheme 64.00 99,183 01/06/00-30/11/00
Sharesave Scheme 224.00 2,464 01/12/00-31/05/01
Sharesave Scheme 180.00 25,680 01/06/01-30/11/01
Sharesave Scheme 174.00 1,189 01/05/02-31/10/02
Sharesave Scheme 137.00 54,790 01/07/01-31/12/01
Sharesave Scheme 137.00 38,876 01/07/03-31/12/03
Sharesave Scheme 99.00 108,801 01/07/02-31/12/02
Sharesave Scheme 99.00 145,153 01/07/04-31/12/04
SHARESAVE SCHEME 129.22 574,706 01/12/99-31/12/04
Unapproved 110.00 128,863 24/03/97-24/03/01
Unapproved 248.00 98,000 04/10/98-04/10/02
Unapproved 229.00 21,834 31/07/99-31/07/00
Unapproved 175.00 15,000 28/02/99-28/02/03
Unapproved 287.00 100,000 07/07/97-16/08/03
Unapproved 188.50 441,120 30/09/97-14/03/04
Unapproved 199.50 7,500 26/03/00-26/03/04
Unapproved 158.00 374,100 09/04/01-09/04/05
Unapproved 173.00 150,000 02/02/99-30/04/05
Unapproved 170.00 10,000 08/09/01-08/09/05
Unapproved 150.00 670,000 08/10/01-08/10/05
Unapproved 121.00 256,168 01/04/02-01/04/06
Unapproved 90.50 86,550 02/07/02-02/07/06
UNAPPROVED 179.96 2,359,135 24/03/97-02/07/06
68
SCHEME OPTION PRICE (PENCE) NO. OF SHARES EXERCISABLE DATES
Executive 110.00 614,045 24/03/97-24/03/04
Executive 80.00 20,000 25/04/98-25/04/05
Executive 248.00 134,500 04/10/98-04/10/05
Executive 188.50 96,380 02/09/99-14/03/07
Executive 158.00 200,400 09/04/01-09/04/08
Executive 121.00 143,832 01/04/02-01/04/09
Executive 90.50 33,450 02/07/02-02/07/09
Executive 74.00 30,000 25/08/02-25/08/09
EXECUTIVE 110.67 1,272,607 24/03/97-25/08/09
Super Options
Unapproved 400.00 1,525,000 02/07/02-02/07/06
SUPER OPTIONS (STERLING) 400.00 1,525,000 02/07/02-02/07/06
OPTIONS OVER AMERICAN DEPOSITARY SHARES IN US DOLLARS
OPTION PRICE EQUIVALENT NO.*
SCHEME (US CENTS) OF ORDINARY US SHARES EXERCISABLE DATES
US Stock Option Plan 275.00 300,000 09/04/99-09/04/08
US Stock Option Plan 297.00 30,000 30/04/99-30/04/08
US Stock Option Plan 295.50 72,000 08/09/99-08/09/08
US Stock Option Plan 247.50 440,000 08/10/99-08/10/08
US Stock Option Plan 200.00 591,000 01/04/00-01/04/09
US Stock Option Plan 143.75 360,000 02/07/00-02/07/09
US Stock Option Plan 118.75 25,000 25/08/00-25/08/09
US STOCK OPTION PLAN 243.13 1,818,000 09/04/99-25/08/09
SUPER OPTIONS
US Stock Option Plan 643.50 400,000 02/07/02-02/07/06
SUPER OPTION 643.50 400,000 02/07/02-02/07/06
Employee Stock Purchase Plan 262.00 18,308 30/09/00
Employee Stock Purchase Plan 213.00 52,288 22/04/01
Employee Stock Purchase Plan 95.00 128,536 04/10/00
EMPLOYEE STOCK PURCHASE PLAN 190.00 199,132 30/09/00-22/04/01
INDIVIDUAL ARRANGEMENTS
Individual arrangements 373.00 26,844 14/11/98-14/11/04
Individual arrangements 295.00 16,928 08/09/99-08/09/05
Individual arrangements 266.00 25,000 12/12/97-12/12/07
Individual arrangements 200.00 25,000 01/04/99-01/04/09
INDIVIDUAL ARRANGEMENTS 283.00 93,772 12/12/97-01/04/09
*Note in US calculations options are shown in ordinary share equivalent
- actual options are over ADSs (one ADS = 4 ordinary shares)
MUSCAT EMPLOYEES (UK)
SCHEME OPTION PRICE (PENCE) NO. OF SHARES EXERCISABLE DATES
Muscat Unapproved 44.00 128,270 01/10/00-01/10/04
Muscat Unapproved 43.00 84,039 20/06/00-20/10/04
Muscat Unapproved 59.00 88,462 01/01/01-01/01/05
Muscat Unapproved 67.00 132,693 01/04/01-01/04/05
Muscat Unapproved 67.00 36,859 01/09/01-01/09/05
Muscat Unapproved 67.00 58,974 01/11/01-01/11/05
Muscat Unapproved 67.00 29,487 01/12/01-01/12/05
MUSCAT UNAPPROVED 59.14 558,784 20/06/00-01/12/05
TOTAL US PLANS 2,510,904
TOTAL NON-US PLANS 6,290,232
GRAND TOTAL 8,801,136
69
Subject to completion of the Proposals contained within this document,
options held by employees who transfer to Thomson shall be affected in
the following manner:
(1) SHARESAVE SCHEME
Relevant employees shall have six months from the date of
completion of the Sale Agreement in which to exercise options to
the value of their accumulated savings; thereafter their options
will lapse.
(2) UNAPPROVED SCHEME
Options held by relevant employees under the Unapproved Scheme
shall become (if not already) exercisable upon completion of the
Sale Agreement and shall remain so until the later of:
(i) twelve months after the date of completion; or
(ii) four years after the date of grant;
Thereafter, they lapse.
(3) EXECUTIVE SCHEME
Options held by relevant employees under the Executive Scheme
shall become (if not already) exercisable upon completion of the
Sale Agreement and shall remain so until the later of:
(i) twelve months after the date of completion; or
(ii) four years after the date of grant;
Thereafter, they lapse.
(4) US STOCK OPTION PLAN
Under the terms of the US Stock Option Plan, options held by
relevant employees shall be subject to accelerated vesting and
may be exercised on a date at or around the date of completion
of the proposed Sale Agreement. Thereafter, unexercised options
shall lapse.
The option agreements of certain individuals (including the
executive directors) contain provisions permitting an extended
period during which their options may be exercised following
completion of the Sale Agreement.
(5) EMPLOYEE STOCK PURCHASE PLAN
Rights to acquire ADS's to the value of accumulated savings
under the Employee Stock Purchase Plan accelerate and may be
exercised on a purchase date prior to the date of completion of
the Sale Agreement.
(6) MUSCAT UNAPPROVED SCHEME
Options held by relevant employees under the Muscat Unapproved
Scheme shall become (if not already) exercisable upon completion
of the Sale Agreement and shall remain so for a period of six
months. Thereafter, they lapse.
(i) In connection with a new term facility of $25 million agreed
between the Company and Chase Manhattan Bank International
Limited ("Chase") in May 1999, the Company issued to Chase
between May 1999 and November 1999 a total of 3 million warrants
to subscribe Ordinary Shares in the Company. 1.5 million of
those warrants entitle Chase to subscribe Ordinary Shares at any
time before 11 October 2002 (the "2002 Warrants"). The remaining
1.5 million warrants entitle Chase to subscribe Ordinary Shares
at any time up to 14 May 2004 (the "2004 Warrants"). The
subscription price for an Ordinary Share subscribed on exercise
of a Warrant will be as follows:
(i) if the warrant is exercised on or before 8 May 2000,
the exercise price of 90.6p per Ordinary Share; and
(ii) if the warrant is exercised on or after 9 May 2000,
the lower of 90.6p per Ordinary Share and the average
of the daily market price for Ordinary Shares for the
ten consecutive dealing days ending on and including 8
May 2000.
In relation to both the 2002 Warrants and the 2004 Warrants, the
number of warrants and/or the exercise price may be adjusted on
the occurrence of certain events including, on any capital
reorganisation of the Company or on any distribution of assets
to shareholders or on any issue of Ordinary Shares for cash at
less than "Fair Market Value". For these purposes, "Fair Market
Value" means (whilst the Ordinary Shares are
70
listed) the average of the daily market prices for an Ordinary
Share for the 30 consecutive dealing days commencing 45 dealing
days before the relevant date. The warrant instruments in
relation to the 2002 Warrants and the 2004 Warrants are being
made available for inspection in accordance with paragraph 14
below.
(j) On 12 November 1999, warrants to subscribe an aggregate of 6
million Ordinary Shares (the "2009 Warrants") were issued to the
Company's senior lenders, including to Chase Manhattan Bank, ABN
AMRO Bank, NM Rothschild & Sons, the Bank of Scotland and the
Royal Bank of Scotland (the "Banks"). The 2009 Warrants were
issued in consideration of the Banks agreeing to relax the
covenant arrangements in connection with the refinancing of the
Company's senior debt. The 2009 Warrants may be exercised, in
whole or in part, at any time, during the period commencing on
12 November 1999 and expiring at 11.59 p.m. on 12 November 2009.
The subscription price for an Ordinary Share subscribed on
exercise of a Warrant will be as follows:
(i) if the warrant is exercised on or before 8 May 2000,
the exercise price of 90.6p per Ordinary Share; and
(ii) if the warrant is exercised on or after 9 May 2000,
the lower of 90.6p per Ordinary Share and the average
of the daily market price for Ordinary Shares for the
ten consecutive dealing days ending on and including 8
May 2000.
The terms of the 2009 Warrants contain provisions to protect the
holders of those warrants and for adjusting the subscription
price and the number of shares which are the subject of the 2009
Warrants in certain circumstances to take into account
alterations to the share capital of the Company in the same way
described above in relation to the 2002 Warrants and the 2004
Warrants. The warrant instrument relating to the 2009 Warrants
is being made available for inspection in accordance with
paragraph 14 below.
4. MEMORANDUM AND ARTICLES OF ASSOCIATION
(a) MEMORANDUM OF ASSOCIATION
The Memorandum of Association of the Company provides that the Company's
principal objects are to carry on business as a holding and investment company
and to carry on the business of the provision of an indexed online delivery
system and related activities. The objects of the Company are set out in full in
clause 4 of the Memorandum of Association.
(b) ARTICLES OF ASSOCIATION
The Articles of Association of the Company which are available for inspection at
the address specified in paragraph 14 below contain, amongst other things,
provisions to the following effect:
(i) Dividends
Subject to the Act and every other statute from time to time in
force concerning companies and affecting the Company (together
the "Statutes"), the Company may by ordinary resolution declare
dividends to be paid to members of the Company according to
their rights, but not exceeding the amount recommended by the
directors. If, in the opinion of the directors, the profits of
the Company available for distribution justify such payments,
the directors may from time to time pay interim dividends and
may also pay any fixed rate dividend on the half-yearly or other
dates prescribed for payment. Subject to any special rights
attaching to shares, all dividends will be apportioned and paid
proportionately to the amounts paid up on the shares during any
portion or portions of the period in respect of which the
dividend is paid but, if any share is issued on terms providing
that it shall rank for dividend as from a particular date or be
entitled to dividends declared after a particular date, such
share shall rank for or be entitled to dividends accordingly.
All dividends unclaimed may be invested or otherwise used by the
directors for the benefit of the Company until claimed and all
dividends unclaimed after a period of 12 years from the date of
declaration of such dividend shall be forfeited and shall revert
to the Company.
(ii) Winding-up
If the Company commences to be wound up, the liquidator may,
with the sanction of an extraordinary resolution of the Company
and any other sanction required by law:
(1) divide among the members in kind the whole or any part
of the assets of the Company (whether they shall
consist of property of the same kind or not) and, for
that purpose, set such values as he deems fair upon
any property to be divided and determine how the
division shall be carried out between the members; and
(2) vest the whole or any part of the assets in trustees
upon such trusts for the benefit of members as the
liquidator shall with the like sanction think fit,
but no member shall be compelled to accept any share or other
assets upon which there is any liability.
71
(iii) Voting
Subject to any terms as to voting upon which any shares may be
issued, or may from time to time be held, and to the provisions
of the articles, every member who (being an individual) is
present in person or (being a corporation) is present by a
representative not being himself a member shall have one vote on
a show of hands and on a poll every member present in person or
by proxy shall have one vote for every share of which he is the
holder.
(iv) Restrictions on shares
If a member or any person appearing to be interested in shares
in the Company has been duly served with a notice pursuant to
Section 212 of the Act or, having been duly served with such a
notice, has in purported compliance with it made a statement
which in the opinion of the directors is false or misleading in
any material particular and has been served with a further
notice by the directors requiring him to supply the correct
information and is in default in supplying to the Company the
information thereby required within a prescribed period after
the service of such notice the directors may serve on such
member a notice (a "direction notice") in respect of the shares
in relation to which the default occurred ("default shares")
directing that the member shall not be entitled to vote at any
general meeting or class meeting of the Company in respect of
the default shares or any other shares held by him. Where the
default shares represent at least 0.25 per cent.. of the
issued shares of the same class the direction notice may in
addition direct that any dividend or other money which would
otherwise be payable on such shares shall be retained by the
Company without liability to pay interest, any election by the
member for any scrip dividend alternative in respect of the
default shares shall not be effective and no transfer of any of
the shares held by the member shall be registered unless the
member is not himself in default in supplying the information
requested and the transfer is part only of the member's holding
and is accompanied by a certificate given by the member in a
form satisfactory to the directors to the effect that after due
and careful enquiry the member is satisfied that no person in
default is interested in any shares subject to the transfer or
the transfer is an approved transfer (meaning that it is made in
acceptance of a takeover offer or to a bona fide unconnected
third party or through a designated stock exchange). The
prescribed period referred to above means 14 days from the date
of service of the notice under Section 212 or, as the case may
be, the notice from the directors requiring the correct
information to be supplied.
No member shall be entitled to vote in respect of any share held
by him if any call or other sum payable by him to the Company
remains unpaid.
(v) Alteration of Share Capital and Variation of Rights
The Company may by ordinary resolution (a) increase its share
capital, (b) consolidate and divide all or any of its share
capital into shares of a larger amount than its existing shares,
(c) subject to the Statutes, sub-divide all or any of its shares
into shares of a smaller amount and may by the resolution decide
that one or more of the shares resulting from the sub-division
may have any preference or other advantage as compared with the
others and (d) cancel shares which, at the date of the passing
of the resolution, have not been taken or agreed to be taken by
a person and diminish the amount of its share capital by the
amount of the shares so cancelled.
Subject to the Statutes, the rights attached to any class of
shares may (unless otherwise provided by the terms of the issue
of shares of that class) be varied, modified or abrogated,
whether or not the Company is being wound up, either (a) in such
manner (if any) as may be provided by such rights or (b) in the
absence of any such provision either with the consent in writing
of the holders of three-quarters in nominal value of the issued
shares of the class or with the sanction of an extraordinary
resolution passed at a separate general meeting of the holders
of the shares of the class (but not otherwise). At every such
separate general meeting the necessary quorum shall be at least
two persons holding or representing by proxy at least one-third
in nominal value of the issued shares of the class (but so that
at any adjourned meeting any holder of shares of the class
present in person or by proxy shall be a quorum).
(vi) Transfer of Shares
Any member may transfer all or any of his shares by an
instrument of transfer in any usual or common form or in any
other form which the directors may approve. Where the Statutes
and/or regulations made pursuant thereto allow, shares in the
Company may be transferred without a written instrument pursuant
to procedures adopted for the purpose by the directors. Any
instrument of transfer of a share shall be signed by or on
behalf of the transferor and, except in the case of fully-paid
shares, by or on behalf of the transferee. The directors may in
their absolute discretion and without giving any reason refuse
to register any transfer of shares (not being fully paid
shares). The directors may also refuse to register a transfer of
shares unless the instrument of transfer:
(1) is lodged (duly stamped if so required by law in order
to be registered) at the Company's registered office
or at such other place as the directors may appoint
accompanied by the relevant share certificate(s);
72
(2) is in respect of only one class of share; and
(3) is in favour of not more than four persons jointly.
A member may transfer all or part of his uncertificated shares
and the Company shall register the transfer of any
uncertificated shares in accordance with any applicable
statutory provision. The directors may, in their absolute
discretion and without giving any reason for their decision,
refuse to register any transfer of an uncertificated share where
permitted by any applicable statutory provision. If the
directors refuse to register a transfer of an uncertificated
share they shall, within two months of the date on which the
transfer instruction relating to such a transfer was received by
the Company, send to the transferee notice of the refusal.
(vii) Borrowing Powers
Subject as provided below, the directors may exercise all the
powers of the Company to raise or borrow money and to mortgage
or charge its undertaking, property and assets (including
uncalled capital) or any part thereto and, subject to the
Statutes, to issue debentures, debenture stocks and other
securities, whether outright or as collateral security, for any
debt, liability or obligation of the Company or of any third
party.
The directors must however restrict the borrowings of the
Company and, so far as they are able, of its subsidiary
undertakings, so as to secure the aggregate amount from time to
time remaining undischarged of all moneys borrowed by the
Company and its subsidiary undertakings (excluding amounts
borrowed by any of them from any other) shall not without the
previous sanction of an ordinary resolution of the Company
exceed an amount equal to three times the aggregate of the
amount paid up or credited as paid up on the issued share
capital of the Company and the amount standing to the credit of
the consolidated capital and revenue reserves (including any
share premium account and capital redemption reserve) of the
Company and its subsidiary undertakings but adjusted as set out
in the Articles.
(xiii) Directors
EMOLUMENTS AND EXPENSES OF DIRECTORS
The remuneration of the directors for their ordinary activities
as such shall not in aggregate exceed GBP250,000 per annum or
such higher amount as may from time to time be determined by
ordinary resolution of the Company. Such remuneration shall
be divisible among the directors as they may agree or,
failing agreement, equally, except that any director who
shall hold office for part only of the period in respect of
which such remuneration is payable shall be entitled only to
rank in such division for a proportion of remuneration
related to the period during which he has held office. Any
director who holds any executive office or who serves on any
committee of the directors or who otherwise performs services
in which the opinion of the directors are outside the scope
of the ordinary duties of a director, may be paid such extra
remuneration by way of salary, commission or otherwise, as
the directors may determine. The directors shall have power
to provide benefits whether by payment of gratuities,
pensions or otherwise to (or to any family members or
dependants of) any director or ex-director who holds or has
held any executive position or agreement for service with the
Company or any associated company and for the purpose of
providing any such benefits to contribute to any scheme or
fund or to pay premiums. The directors may purchase and
maintain insurance for, or for the benefit of, any persons
who are or were directors, officers, employees or auditors of
the Company or any associated company or who are or were
trustees of any pension fund or profit sharing or employees'
share scheme in which employees of the Company or any
associated company are interested.
RESTRICTIONS ON VOTING
Subject as provided below a director may not vote in respect of
any contract or arrangement or any other proposal whatsoever in
which he has any material interest otherwise than by virtue of
his interest in shares or debentures or other securities of, or
otherwise in or through, the Company. A director may not be
counted in the quorum at a meeting in relation to any resolution
on which he is not entitled to vote. Notwithstanding the
foregoing, a director shall (in the absence of some other
material interest than is indicated below) be entitled to vote
(and be counted in the quorum) in respect of any resolution
concerning any of the following matters:
(aa) any contract or arrangement for the giving of any
security, guarantee or indemnity to a third party in
respect of a debt or obligation of the Company or any
of its subsidiary undertakings for which he himself
has assumed responsibility in whole or in part under a
guarantee or indemnity or by the giving of security;
(bb) any contract or arrangement for the giving of any
security, guarantee or indemnity to him in respect of
money lent to, or obligations incurred or undertaken
by him at the request of, or for the benefit of, the
Company or any of its subsidiary undertakings;
(cc) any contract or arrangement with him to subscribe for
shares, debentures or other securities of the Company
or any of its subsidiary undertakings issued or to be
issued pursuant to any offer or
73
invitation to members or debenture holders or any
class thereof of the Company or any of such subsidiary
undertakings or to the public or any section thereof
or to underwrite or sub-underwrite any shares,
debentures or other securities of the Company or any
of such subsidiary undertakings;
(dd) any contract or arrangement concerning any other
company in which he is interested, directly or
indirectly, and whether as an officer, shareholder,
creditor or otherwise howsoever, provided that
(directly or indirectly) he is not the holder or
beneficially interested in one per cent or more of
the issued shares of any class of the equity share
capital of such company or of the voting rights
available to members of such company;
(ee) any proposal concerning the effecting or maintenance
of insurance for the benefit of directors or persons
who include directors under which he may benefit.
For the above purposes, an interest of a person who is connected
with a director shall be treated as an interest of the director
RETIREMENT OF DIRECTORS BY ROTATION
At each annual general meeting, one-third of the directors from
time to time (or, if their number is not a multiple of three,
the number nearest to but not exceeding one-third) shall retire
from office by rotation. The directors to retire by rotation
shall be those who have been longest in office since their last
appointment but as between persons who became or were last
appointed directors on the same day, those to retire shall
(unless they otherwise agree among themselves) be determined by
lot.
5. SHARE OPTION SCHEMES
(a) 1994 EXECUTIVE SHARE OPTION SCHEME
In March 1994, the Company adopted the 1994 Executive Stock Option Scheme (the
"Executive Scheme"). Formal approval of the Executive Scheme was given by the
Inland Revenue in March 1994. Under the terms of the Executive Scheme, options
to acquire Ordinary shares may be granted at the discretion of the Remuneration
Committee of the Board of Directors to any employee, including employee
Directors. The exercise price is determined at the date of grant of an option
and shall not be less than the higher of the par value of an Ordinary share and
the closing market price of an Ordinary Share on the day proceding the date of
grant. Options under the Executive Scheme generally become exercisable on the
third anniversary of the date of grant and lapse on the tenth anniversary of the
date of grant. The number of options grantable under the Executive Scheme and
the aggregate exercise price of options grantable to any individual is now
limited to GBP30,000 following the passing of the Finance Act 1996.
(b) 1994 UNAPPROVED EXECUTIVE SHARE OPTION SCHEME
In March 1994, the Company adopted the 1994 Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"). Under the terms of the Unapproved Scheme,
options to subscribe for Ordinary Shares may be granted at the discretion of the
Remuneration Committee of the Board of Directors to any employee, including
employee Directors. The exercise price is determined at the date of grant of an
option and shall not be less than the higher of the par value of an Ordinary
Share and the closing market price of an Ordinary Share on the day proceeding
the date of grant. Options under the Unapproved Scheme become exercisable on the
third anniversary of the date of grant and lapse on the seventh anniversary of
the date of grant. The number of shares over which options may be granted under
the Unapproved Scheme is consistent with institutional investor guidelines in
respect of overall limits applicable to employee share schemes. The number
grantable to any individual is also in line with such limits.
(c) 1994 SAVINGS RELATED SHARE OPTION SCHEME
In March 1994, the Company adopted the 1994 Savings Related Share Option Scheme
(the "Sharesave Scheme") which was subsequently approved by the Inland Revenue.
Under the rules of the scheme, participation is offered to all UK employees,
including employee Directors. All options are linked to a contractual savings
scheme. Participants may save between GBP5 and GBP250 per month over a three or
five year period and at the end of which they are granted a tax-free bonus.
Participants may withdraw from the savings contract at any time (although their
option will then lapse) and are not obliged to exercise their options at the
date of maturity. The exercise price is determined at the date of grant of an
option and shall not be less than the higher of the par value of an Ordinary
Share and 85% (formerly 80% up until December 1995) of the market value of an
Ordinary Share at the date of invitation. Options under the scheme become
exercisable on the bonus date and remain exercisable for a period of six months.
The number of shares over which options may be granted under the Sharesave
Scheme are consistent with institutional investor guidelines in respect of
overall limits applicable to employee share schemes. The number grantable to any
individual is also in line with such limits.
74
(d) 1997 US STOCK OPTION PLAN
In November 1997, the Company adopted the 1997 US Stock Option Plan (the "US
Option Plan") which provides for the grant of both incentive and non-statutory
stock options over the Company's American Depository Shares (ADSs). Incentive
stock options granted under the US Option Plan are intended to qualify as
incentive stock options' within the meaning of Section 422 of the Internal
Revenue code of 1986, as amended (the `Code'). Non-statutory stock options
granted under the US Option Plan are intended not to qualify as incentive stock
options under the Code. Under the terms of the US Option Plan, options to
acquire ADSs may be granted by the Remuneration Committee of the Board of
Directors to any US resident employee, including employee Directors. The
exercise price of incentive stock and non-statutory stock options under the US
Option Plan may not be less than the fair market value of the ADSs subject to
the option on the date of the option grant, and in some cases, may not be less
than 110% of such fair market value. Options granted under the US Option Plan
may become exercisable (`vest') in cumulative increments as determined by the
Remuneration Committee of the Board of Directors and lapse no later than the
tenth anniversary of the date of grant. The number of shares over which options
may be granted under the US Option Plan is consistent with the institutional
investor guidelines in respect of overall limits applicable to employee share
schemes. The number grantable to any individual is also in line with such
limits.
(e) 1998 US EMPLOYEE STOCK PURCHASE PLAN
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan (the
"Purchase Plan") which provides for the grant of rights (`Rights') to purchase
ADSs in the Company. The Rights are intended to qualify as options issued under
`employee stock purchase plans' as defined in Section 423(b) of the United
States Internal Revenue Code of 1986, as amended (the `Code'). Participation in
the Purchase Plan is offered to all US resident employees, including employee
Directors. The initial offering began on 17 June 1998 (the `Offering Date') and
will end on 31 March 1999 (the `Purchase Date'). Thereafter, two year offerings
will begin approximately every six months following the announcement of the
interim and final results. All Rights under an offering are linked to
accumulated payroll deductions over the course of the offering, and participants
may withdraw from the plan at any time during an offering (although their Rights
will then lapse). The purchase price of the ADSs is not less than the lesser of
85% of the fair market value of the ADSs on either the Offering Date or the
Purchase Date. The purchase price may include any UK stamp duty reserve tax
payable with respect to the issue of the ADSs. Under US law an individual may
not purchase more than $25,000 worth of ADSs (as determined by the fair market
value on the Offering Date). The number of shares over which the Rights may be
granted under the Purchase Plan is consistent with institutional investor
guidelines in respect of overall limits applicable to employee share schemes.
The number grantable to any individual is also in line with such limits.
(f) INDIVIDUAL US ARRANGEMENTS
Between 12 December 1997 and 1 April 1999 options over American Depositary
Shares were granted at the prevailing market price to Richard Swank and Dr Roger
Summit in their capacities as non-Executive Directors of The Dialog Corporation,
the Company's North American subsidiary.
(g) MUSCAT UNAPPROVED SCHEME
In November 1999, the Company acquired the remaining 30 per cent. of the issued
share capital of Muscat Limited. Pursuant to this transaction, various employees
holding in aggregate 436 options at exercise prices ranging from GBP627 to
GBP1,100 under the 1998 Muscat Unapproved Share Option Scheme were offered and
accepted a total of 642,822 replacement options over ordinary shares of The
Dialog Corporation plc at exercise prices ranging from 43p to 67p per share.
6. SUBSIDIARIES
The Company is the holding company of the Group and, on Admission, will have the
following principal subsidiaries:
NAME AND REGISTERED OFFICE COUNTRY OF PROPORTION OF PRINCIPAL
INCORPORATION EQUITY HELD ACTIVITY
InfoDynamics Limited England 100% 1
Dialog MultiMedia Limited England 100% 1
Dotcom Investments BV Netherlands 100% 2
Dialog Holdings Limited England 100% 2
Muscat Limited England 100% 3
Muscat Europe BV Netherlands 100% 3
Webtop.com LLC US 100% 3
Webtop.com Ltd England 100% 3
Write Works Limited England 100% 4
Office Shopper.com Ltd England 100% 4
Office Shopper Holdings Ltd England 100% 2
Office Shopper.com LLC US 100% 4
75
NAME AND REGISTERED OFFICE COUNTRY OF PROPORTION OF PRINCIPAL
INCORPORATION EQUITY HELD ACTIVITY
Prosmart Systems UK Ltd England 100% 4
Sparza Ltd England 100% 4
The Information Corporation Ltd England 100% 3
Dialog Nova KK Japan 100% 2
KMK DigiTex Company Ltd Japan 100% 5
Key:
1. Provision of a database system
2. Holding company
3. Provision of indexing and search technology
4. Provision of eCommerce procurement systems
5. Distributor of information services
7. PRINCIPAL PREMISES
Details of the principal properties of the Continuing Group are set out below:
AREA CURRENT
LOCATION AND USE TENURE (SQ. FT.) ANNUAL RENT
1st Floor Leasehold 7,957 GBP251,000
The Communications Building to 28 April 2004
48 Leicester Square
London WC2H 7DB
CORPORATE HEAD OFFICE
Part 4th Floor Leasehold 4,600 GBP57,500
Brent House to 13 December 2008
349-357 High Road rent review 14-12-03
Wembley HA9 6AP break 01-04-03
DTI EXPORT SALES OFFICE
Meridian House Leasehold 2,700 GBP27,650
Weston Business Park to 30 September 2008
Weston on the Green rent review 01-10-01
Oxon, OX6 8SY rent review 01-10-04
SPARZA AND ECOMMERCE OFFICE rent review 01-10-07
Part 2nd Floor, Block D Leasehold 5,550 GBP66,852
The Westbrook Centre to 4 January 2001
Milton Road
Cambridge
CB4 1YG
WEB SOLUTIONS OFFICE
8. DIRECTORS' AND OTHER INTERESTS
(a) DIRECTORS' INTERESTS IN THE COMPANY
(i) As at 31 March 2000 (being the latest practicable date prior to the
publication of this document) and following Admission, the interests of
each of the Directors and (so far as is known to the Directors or could
with reasonable diligence be ascertained by them) persons connected with
the Directors (within the meaning of section 346 of the Act), in the
share capital of the Company, as required to be notified to the Company
pursuant to sections 324 and 328 of the Act or as required to be shown
in the register maintained under section 325 of the Act are and will be
as follows:
76
AS AT THE DATE OF THIS DOCUMENT FOLLOWING ADMISSION
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
DIRECTOR ORDINARY SHARES SHARE CAPITAL ORDINARY SHARES SHARE CAPITAL
I Barton(1) 479,139 0.31 479,139 0.28
M Hussey(2) 242,610 0.16 242,610 0.14
S Maller 25,441 0.02 25,441 0.01
D Mattey(3) 2,335,200 1.50 2,335,200 1.36
J Molle 135,116 0.09 135,116 0.07
C Morton 202,001 0.13 202,001 0.11
P Sommers(4) 48,000 0.03 48,000 0.03
R Swank(5) 32,000 0.02 32,000 0.02
A Thomas(6) 100,000 0.06 100,000 0.06
D Wagner(7) 17,434,780 11.23 17,434,780 10.16
---------- -------- ---------- --------
21,034,287 13.55 21,034,287 12.24
========== ======== ========== ========
NOTES:
(1) Includes 20,640 Ordinary shares held by A Barton, Mr Barton's
wife.
(2) 242,610 Ordinary shares held for the benefit of Lord M Hussey by
RBSTB Nominees Limited.
(3) Includes (i) 600,000 Ordinary shares held by Barclayshare
Nominees Limited for the benefit of Mr D Mattey, (ii) 560,000
Ordinary shares held jointly by Mr D Mattey and Alan Mattey, and
(iii) 200 Ordinary shares held by A Mattey, Mr Mattey's wife.
(4) 48,000 Ordinary shares are held in the form of American
Depositary Shares.
(5) 32,000 Ordinary shares are held in the form of American
Depositary Shares.
(6) 100,000 Ordinary shares held for the benefit of Mr Thomas by
Bank of New York Nominees Limited.
(7) Includes (i) 1,334,060 Ordinary shares held jointly by Mr D
Wagner and Yaffa Wagner, (ii) 100,000 Ordinary shares held in
trust for the benefit of Mr D Wagner by the Daniel Wagner
(M.A.I.D) Trust, and (iii) 400,000 Ordinary shares held by S
Wagner, Mr Wagner's wife.
(ii) In addition to the interests of the Directors in the issued share
capital of the Company disclosed in paragraph (a) above, the following
Options remained outstanding under the Share Option Schemes as at 31
March 2000, being the latest date prior to the publication of this
document:
DATE OF NUMBER OF EXERCISE EXERCISABLE EXERCISABLE TOTAL
GRANT ORDINARY PRICE(GBP) FROM TO
SHARES
I Barton -- -- -- -- -- --
M Hussey -- -- -- -- -- --
S Maller* 10/10/94 7,040 0.490 01/12/99 31/05/00
25/04/95 2,156 0.640 01/06/00 30/11/00
10/11/95 308 2.240 01/12/00 31/05/01
01/05/96 766 1.800 01/06/01 30/11/01
28/04/98 569 1.370 01/07/01 31/12/01
28/04/99 1,174 0.990 01/07/02 31/12/02
14/03/97 30,000 1.885 14/03/00 14/03/04
30/04/98 30,000 1.730 30/04/01 30/04/05
08/10/98 120,000 1.500 08/10/01 08/10/05
24/03/94 62,727 1.100 24/03/97 24/03/04
25/04/95 20,000 0.800 25/04/98 25/04/05
04/10/95 17,500 2.480 04/10/98 04/10/05
02/07/99 250,000 4.000 02/07/02 02/07/06 542,240
D Mattey 28/04/99 17,045 0.990 01/07/04 31/12/04
30/04/98 30,000 1.730 30/04/01 30/04/05
08/10/98 120,000 1.500 08/10/01 08/10/05
24/03/97 122,727 1.100 24/03/97 24/03/04
02/07/99 325,000 4.000 02/07/02 02/07/06 614,772
J Molle* 24/03/94 54,545 1.100 24/03/97 24/03/01
04/10/95 17,500 2.480 04/10/98 04/10/02
14/03/97 30,000 1.885 14/03/00 14/03/04
30/04/98 30,000 1.730 30/04/99 30/04/08
08/10/98 120,000 1.500 08/10/99 08/10/08
05/10/99 5,276 0.590 04/10/00 04/10/00
02/07/99 250,000 4.000 02/07/02 02/07/06
02/07/99 50,000 4.000 02/07/02 02/07/06 557,321
77
DATE OF NUMBER OF EXERCISE EXERCISABLE EXERCISABLE TOTAL
GRANT ORDINARY PRICE(GBP) FROM TO
SHARES
C Morton* 10/10/94 35,204 0.490 01/12/99 31/05/00
04/10/95 17,500 2.480 04/10/98 04/10/02
14/03/97 30,000 1.885 14/03/00 14/03/04
30/04/98 30,000 1.730 30/04/01 30/04/05
08/10/98 120,000 1.500 08/10/01 08/10/05
24/03/94 61,364 1.100 24/03/97 24/03/04
02/07/99 300,000 4.000 02/07/02 02/07/06 594,068
P Sommers* 08/10/98 200,000 1.500 08/10/99 08/10/08
02/07/99 200,000 0.900 02/07/00 02/07/09
23/04/99 2,352 1.280 22/04/01 22/04/01
05/10/99 5,276 0.590 04/10/00 04/10/00
02/07/99 600,000 4.000 02/07/02 02/07/06 1,007,628
R Swank 14/11/97 26,844 2.200 14/11/98 14/11/04
08/09/98 16,928 1.850 08/09/99 08/09/05 43,772
A Thomas -- -- -- -- -- --
D Wagner 28/04/99 17,045 0.990 01/07/04 31/12/04
30/04/98 30,000 1.730 30/04/01 30/04/05
08/10/98 130,000 1.500 08/10/01 08/10/05
24/03/94 163,636 1.100 24/03/97 24/03/04 340,681
Total 3,700,482
*Subject to completion of the proposals contained within this document,
the option terms of the directors indicated will be amended in
accordance with paragraph 3(h) above.
(b) DIRECTORS' INTERESTS IN CONTRACTS
Save as for the bonus to Mr Sommers disclosed in paragraph 8(e) below, no
Director has or has had any interest in any transactions which are or were
unusual in their nature or conditions or are or were significant to the business
of the Group and which have been effected by any member of the Group during the
current or immediately preceding financial year of the Company, or, if effected
during an earlier financial year remain in any respect outstanding or
unperformed.
(c) DIRECTORS' OTHER INTERESTS
(i) The Directors currently hold the following directorships and have held
the following directorships within the five years prior to the
publication of this document (in each case other than in relation to the
Group) and are or were partners in the following firms within the five
years prior to publication of this document.
CURRENT DIRECTORSHIPS FORMER DIRECTORSHIPS
AND PARTNERSHIPS: AND PARTNERSHIPS:
Allen Lloyd Thomas(60) Prideaux & Associates Limited First Rail Leasing Limited
Ockham Holdings plc Ockham Personal Insurance
Moves Group Limited Holdings plc
Penna plc Kingsmead Underwriting
Penna Holdings plc Agency Limited
Meridian Consulting Limited
GHN Limited
Sanders & Sidney plc
Eidos plc
Penna Trustees Limited
Daniel Wagner(36) Fifteen Wedderburn Road Limited
David Gary Mattey(37) Easynet Group plc Mattey Estates Limited
Ultratown Limited Uphill Estates Limited
Ultratown Investments Limited
Patrick Charles Sommers(52) None Centrefile Limited
Medicus Systems
Corporation
Tesseract Systems Inc
Usertec Systems Inc
Mini-Data Inc
78
CURRENT DIRECTORSHIPS FORMER DIRECTORSHIPS
AND PARTNERSHIPS: AND PARTNERSHIPS:
Jason Brooks Molle(35) None None
Ciaran Gregory Morton(36) None None
Stephen Maller(41) None None
Richard Swank(68) Penton Media Inc None
Ian Joseph Barton(54) Distributed Information Octagon Information
Processing Limited Industries Limited
Central Europe Trust Company Octagon Nominees Limited
Limited Financial and Commodity
Robot (UK) Limited Computer Services
Barton Associates Limited Limited
Wincanton Security Products FE1 (1993) Limited
Limited Octagon Information
Industries (Nominees)
Limited
Octagon Group Limited
Octagon Investment
Management Limited
Lord Hussey Of
North Bradley(76) Cadweb Limited Institute of Cancer
J.G. Productions Limited Research; Royal Cancer
Wells Cathedral School Hospital (The)
Development Trust
45/47 Courtfield Road
Management Co. Limited
Ruffer Investment Management
Limited
(ii) No Director:
(1) has any unspent convictions;
(2) has become bankrupt or entered into any voluntary arrangement;
(3) has been a director with an executive function of any company or
a partner of any firm which, at that time or within 12 months
after his ceasing to be a director or a partner (as the case may
be), had a receiver appointed or went into compulsory
liquidation, or creditors voluntary liquidation or went into
administration, or entered into company or partnership voluntary
arrangements or made any composition or arrangement with its
creditors;
(4) has had any public criticism against him by any statutory or
regulatory authority (including recognised professional bodies)
or has been disqualified by a court from acting as a director or
acting in the management or conduct of the affairs of any
company.
(d) SUBSTANTIAL INTERESTS
(i) As at 31 March 2000 (being the latest practicable date prior to the
publication of this document) the Directors had been notified that the
following persons were directly or indirectly interested in three per
cent. or more of the issued share capital of the Company:
NUMBER OF PERCENTAGE OF
SHAREHOLDER ORDINARY SHARES SHARE CAPITAL
Lazard Asset Management 8,446,900 5.45%
Prudential Portfolio Managers 8,117,598 5.28%
(ii) In addition to those disclosed in paragraph 8(d)(i) above, immediately
following Admission, the following are expected to have notifiable
holdings of three per cent. or more in the issued share capital of the
Company:
NUMBER OF PERCENTAGE OF
SHAREHOLDER ORDINARY SHARES SHARE CAPITAL
Thomson Corporation 9,297,290 5.42%
Jiyu Holdings 7,038,123 4.10%
79
(e) DIRECTORS' SERVICE AGREEMENTS AND EMOLUMENTS
(i) The following are particulars of the Directors' existing service
agreements with the Company:
EXECUTIVE DIRECTORS
Messrs Wagner, Sommers, Mattey, Maller, Molle and Morton have entered
into service agreements with the Company in relation to their respective
roles in the Company. Each of the Executive Directors' service
agreements continue until the relevant director reaches retirement age,
unless earlier termination.
Mr Sommers' service agreement states that both the Company and the
Executive Director are entitled to terminate the service agreement at
any time without notice, with or without cause.
The service agreements for Messrs Wagner, Mattey, Maller, Molle and
Morton may be terminated by either the Company or the relevant Executive
Director, giving not less than 12 months' notice. The Company is
entitled to terminate these agreements without notice in certain
circumstances, including reasons of serious misconduct or failure by the
Executive Director to satisfactorily perform his duties under the
service agreement.
The annual salary for Mr Sommers' is $325,000. His service agreement
also provides that he is eligible for a bonus of up to 100% of base
salary, to be determined by reference to certain performance criteria.
Mr Sommers is entitled to participate in the Company's health insurance
schemes.
In connection with the Sale, the Company has also agreed to pay to Pat
Sommers a bonus, conditional on completion of the Sale, of $1.5 million.
The bonus will be paid as to half in cash and as to the remainder by the
issue of Ordinary Shares, credited as fully paid. The price of the
Ordinary Shares to be issued will be equal to the average mid market
closing price for the Ordinary Shares during the period from 8 March
2000 to 7 April 2000. Mr Sommers will be restricted from disposing of
the Ordinary Shares issued pursuant to the bonus for a period of 12
months from issue. The Company has also agreed to grant Mr Sommers
options to subscribe for the equivalent number of Ordinary Shares to be
issued pursuant to the bonus arrangement. The exercise period for the
options will be the period beginning 12 months after issue and ending 7
years after issue.
The current annual salaries for Messrs Wagner, Mattey, Maller, Molle and
Morton are GBP190,000, GBP160,000, GBP120,000, $264,000 and GBP150,000
respectively. Each of these service agreements also provides that the
Company may, in its sole discretion, pay to the Executive Director a
bonus of such amount as the Board of Directors of the Company may
determine. These Executive Directors are also entitled to (i)
reimbursement in respect of all reasonable expenses incurred in the
proper performance of their duties; (ii) a company car or a cash sum in
lieu of a car; and (iii) participation in any pension scheme and
permanent health insurance and medical expenses schemes operated by the
Company from time to time.
All the Executive Directors' service agreements contain certain
post-employment restrictions which would prevent the Executive Directors
from engaging in activities which compete with the business of the
Company.
NON-EXECUTIVE DIRECTORS
Messrs Thomas, Barton, Hussey and Swank have entered into engagement
letters with the Company which are terminable at the will of the
parties. The engagement letters entitle Messrs Thomas, Barton, Hussey
and Swank to be paid an annual fee of GBP65,000, GBP25,000, GBP25,000
and GBP25,000 respectively plus reasonable expenses incurred in the
proper performance of their duties.
(ii) The aggregate remuneration of the Directors (including bonuses and
compensation for loss of office) and benefits in kind during the last
completed financial year ended 31 December 1999 amounted to
GBP1,190,949.
9. LITIGATION
(a) CONTINUING GROUP
(i) The Company is involved in a class action suit claiming copyright
infringement on the part of a former subsidiary of the Company, The
UnCover Company. On 7 March 2000, an agreement was reached with the
representative plaintiffs to settle the suit. The settlement will not
have a material adverse effect on the Company. The settlement must be
submitted to class members for objection and must ultimately be approved
by the trial court. If this settlement is not approved (an event which
the Directors regard as unlikely), continued litigation could result in
a judgment that would have a material adverse effect on the Company. The
Company believes that its ultimate exposure in this matter could be
reduced as a result of indemnity and insurance claims it has against
third parties.
(ii) Save as disclosed above, no member of the Continuing Group is or has
been involved in any legal or arbitration proceedings which may have, or
have had, during the twelve months preceding the date of this document a
significant effect on the Continuing Group's financial position nor are
any such proceedings pending or threatened.
80
(b) INFORMATION SERVICES DIVISION
(i) The Company is aware of certain precedents and asserted claims in the
United States and Canada relating to the respective rights of authors
and publishers of collective works, including without limitation Tasini
v. New York Times, Ryan v. CARL Corporation, Robertson v. Thomson, and
ERDC v. Southam. If upheld, these precedents and claims could have a
material adverse effect on online information providers.
(ii) Save as disclosed above, no member of the Information Services Division
is or has been involved in any legal or arbitration proceedings which
may have, or have had, during the twelve months preceding the date of
this document a significant effect on the Information Service Division's
financial position nor are any such proceedings pending or threatened.
10. MATERIAL CONTRACTS
(a) The Continuing Group
The following contracts have been entered into by companies comprised within the
Continuing Group otherwise than in the ordinary course of business which (a)
have been entered into in the two years immediately preceding the date of this
document and which are or may be material and/or (b) contain provisions under
which any such company has any obligation or entitlement which is material to
the Continuing Group as at the date of this document:
(i) A facility agreement dated 17 October 1997 (the "Facility Agreement ")
between (1) the Company and others as borrowers and/or guarantors, (2)
Chase Manhattan as arranger, (3) ABN AMRO as joint arranger, (4)
Rothschilds as co-arranger, (5) the financial institutions named in the
Facility Agreement as banks, (6) Chase Manhattan International Limited
as Facility Agent and (7) Chase Manhattan International Limited as
Security Agent. Under the Facility Agreement the Company was granted a
term loan facility of US$92.5 million and the Company and certain other
group members were granted a revolving credit facility of US$25 million.
The term loan was used to finance the acquisition of Knight-Ridder
Information Services and associated costs. Advances under the revolving
facility are used by the Company and its subsidiaries for their general
working capital requirements. On 13 May 1999, the Facility Agreement was
amended to allow the Company to borrow a further $25 million which was
used towards satisfying the Company's obligations to repay part of the
principal of the original term loan and to meet interest costs on the
Notes. The rate of interest payable on advances under the Facility
Agreement is variable and is calculated by reference to a margin of 2.5%
over LIBOR. The Company proposes to repay all amounts outstanding under
the Facility Agreement with the proceeds of Sale arising from the Sale.
The Facility Agreement contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness or amend
other debt instruments, pay dividends, create liens on assets, enter
into leases, guarantees, investments or acquisitions, engage in mergers
or consolidations, make capital expenditures, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. In addition, under the Facility Agreement, the
Company is required to comply with specified ratios and tests, including
minimum interest coverage, minimum fixed charge coverage and maximum
leverage ratios and a limitation on capital expenditures. Pursuant to
terms of the Facility Agreement, the Company and certain of its
subsidiaries have entered into various security documents, including the
following:
(aa) a debenture between (1) the Company and certain of its
subsidiaries as charging companies and (2) Chase Manhattan
International Limited as Security Agent pursuant to which the
charging companies have granted fixed and floating charges over
all of their assets and undertakings;
(bb) a charge over accounts between (1) the charging companies and
(2) the Security Agent pursuant to which the charging companies
have granted a first fixed charge over certain of their bank
accounts; and
(cc) a deed of assignment between (1) the Company as assignor and (2)
the Security Agent assigning the Company's interest in certain
keyman life insurance policies.
(ii) an agreement dated 18 November 1998 between the Company and the holders
of shares in Write Works Ltd and Prosmart Systems Ltd ("Vendors")
pursuant to which the Company purchased the entire issued share capital
of those companies for an initial consideration of GBP2,115,000.
GBP965,000 of the initial consideration was satisfied in cash and the
balance by the allotment to the Vendors of 694,025 Ordinary Shares.
The agreement contains warranties and indemnities given by the
Vendors in favour of the Company. Further consideration of up to a
maximum of GBP3.8 million in cash and shares (cash of GBP2.8 million
and shares of GBP1 million) will be paid on the achievement of Write
Works earnings targets over the next two years. The number of shares
to be issued as part of the deferred consideration will be calculated
by reference to the closing middle market price of a Dialog share on
the five trading days preceding the issue of the shares;
81
(iii) On 24 March 2000, the Company launched a cash tender offer and consent
solicitation relating to its $180,000,000 11% Senior Subordinated Notes
due 2007 (the "Notes"). The cash tender offer consists of an offer to
purchase any or all of the outstanding Notes tendered pursuant to the
offer at a price of $1,000 per $1,000 principal amount of the Notes
together with accrued and unpaid interest thereon up to but not
including the date of payment. In conjunction with the tender offer, the
Company is also soliciting consents from the holders of the Notes to the
adoption of certain proposed amendments to the Indenture governing the
Notes. These proposed amendments if adopted, would have the effect of
eliminating or amending certain covenants and eliminating or amending
certain events of default in the Indenture. The tender offer will remain
open until 12:00 midnight (New York City time) on 20 April 2000 (the
"Expiration Date") unless extended. The tender offer is subject to a
number of conditions including:
- that at least 95 per cent. of the outstanding principal amount
of the Notes be validly tendered and not withdrawn prior to the
Expiration Date;
- receipts of consents from the holders of a majority of the
outstanding principal amount of the Notes and the execution of
the Supplemental Indenture providing for those amendments;
- the consummation of the Sale with the Thomson Corporation; and
- the repayment of all obligations of the Company, including the
payment of any unpaid and accrued interest and fees, to the
extent such fees are not waived, under and in respect of the
Company's Facility Agreement.
(iv) an agreement dated 13 October 1999 between the Company and the holders
of the shares in Muscat Limited (the "Vendors") pursuant to which the
Company purchased 30% of the issued share capital of Muscat Limited for
consideration of GBP2.5 million, giving the Company 100% ownership. The
consideration was satisfied by the issue of 3,012,936 Ordinary Shares;
(v) the instruments creating the 2002 Warrants, 2004 Warrants and 2009
Warrants summarised in paragraph 3(i) and (j) above;
(vi) an Agreement dated 23 March 2000 between the Company (1), and Thomson
(2) pursuant to which the Company has agreed to sell to Thomson and
Thomson has agreed to purchase Dialog's Information Services Division
comprising the entire issued share capitals of The Dialog Corporation
and various subsidiaries of The Dialog Corporation plc and Dotcom
Investments BV together with the business of the Information Services
Division as carried on by The Dialog Corporation plc comprising the
business of "Dialog", "Profound" and "Datastar" for a consideration of
$115 million payable in cash and the repayment to the Company of
intra-group debt totalling $160 million on Completion. The consideration
is subject to adjustment in accordance with the provisions of clause 4
of the Agreement having reference to Working Capital. The ISD will also
be sold cash free which together with the working capital adjustment
allows Dialog to retain the benefit of operating profits made by the ISD
up to Completion.
Pursuant to the terms of the Sale Agreement Dialog has also agreed on
Completion to allot to Thomson 9,297,290 Ordinary Shares (conditional on
Admission) for a total subscription price of GBP15,851,879 million
payable on Admission.
The Sale Agreement contains warranties given by Dialog to Thomson in
respect of the Companies and the Business being sold. The warranties are
given at the date of the Agreement and are to be repeated on the
Business Day prior to Completion. Dialog's liability under such
warranties is limited to $150 million. Also, no liability shall attach
to Dialog unless the aggregate amount of such liability under the
warranties shall exceed $2.5 million and $250,000 in respect of taxation
claims. Other limitations on Dialog's liability are contained in Clause
7 of the Agreement.
Under certain circumstances, and in particular if there has been a
material breach of the warranties or a claim for class action
litigation, as described in paragraph 9(b)(i) above, before Completion,
Thomson may rescind the contract. If Thomson rescinds the Agreement,
Dialog has agreed to indemnify Thomson against all costs, charges and
expenses incurred by Thomson in connection with the negotiation,
preparation and rescission of the Agreement.
Completion is conditional upon:
- the shareholders of the Company approving the Sale;
- all filings having been made and all or any appropriate waiting
periods under the US Hart Scott Rodino Anti-Trust Improvements
Act 1976 having expired, lapsed or been terminated in respect of
the Sale;
- the agreement of the London Stock Exchange to admit the shares
to be subscribed by Thomson and by Jiyu to listing on the London
Stock Exchange;
82
- Dialog having received consents from the holders of a majority
of the Notes to the adoption of various proposed amendments to
the Indenture, the Trustee having executed a supplemental
indenture in connection with such proposed amendments, and
Noteholders holding at least 95% (or such lesser percentage as
the Company may agree but not less than a majority) of the
outstanding principal of the Notes having tendered and not
withdrawn their Notes for redemption;
- each of the Banks and the Facility Agent (both as defined in the
Facility Agreement dated 17 October 1997 (as amended)
("Facility Agreement ") having executed a letter providing for
the waiver of certain provisions of, and payment and
satisfaction of Dialog's obligations under, the Facility
Agreement;
- there having been no transfer of intellectual property rights
since 1 March 2000 and the Facility Agent having confirmed this
in writing to Thomson; and
- approval from the German Federal Cartel Office in terms
reasonably satisfactory to Thomson.
all such conditions having been met or waived by or on 15 June 2000.
If the condition as to Shareholders' approval is not satisfied and the
Directors have ceased to recommend the Shareholders to approve the Sale,
Dialog has undertaken to pay forthwith the sum of US$2.75 million to
Thomson as compensation for Thomson's costs and expenses incurred in
connection with the Sale. The Sale Agreement contains certain
restrictions on Dialog including preventing it for 30 months after
Completion from engaging in or operating a business that engaging in or
operating any business which directly or indirectly aggregates, stores
and distributes for general consumption information similar to that
offered by the Seller in relation to the Business or the companies being
sold prior to Completion.
On Completion, Dialog is under an obligation to enter into the following
agreements:
- a Tax Deed which will operate to indemnify Thomson for certain
tax liabilities in connection with the Information Services
Division;
- a Distribution Agreement between the Company and The Dialog
Corporation Inc (the "Licensor") for the distribution by the
Company of the Licensed Information. Under the Distribution
Agreement, the Company will be granted a world-wide right and
non-exclusive licence to distribute all information made and
distributed by the Licensor in connection with the products and
services controlled and operated by the Company. The term of the
Distribution Agreement will be for an initial period of three
years automatically renewable for further three year periods
thereafter subject to termination by either party on not less
than 12 months' written notice immediately prior to the
expiration of the then current term. Dialog will have the right
to determine the prices at which it sells the products and
services and the licensed information contained therein. Dialog
will pay the Licensor a distribution fee equivalent to 75 per
cent. of the Licensor's list price for the licensed information
(as amended from time to time) such fee to be paid monthly
within 45 days of demand. Either party may terminate the
Agreement for an unremedied material breach by or liquidation of
the other;
(vii) a Software Licence and Maintenance Agreement between Dialog and a
Thomson Nominated Subsidiary ("Licensee") whereby Dialog will grant to
the Licensee and its present and future subsidiaries a non-exclusive,
non-transferable, non-assignable, royalty-free, perpetual and world wide
licence to use software owned by Dialog in relation to the business of
its Information Services Division carried on by Dialog immediately prior
to the date of the agreement or 1 May 2000 ("Effective Date") comprising
the business of "Dialog", "Profound", and "DataStar". The agreement will
commence on the Effective Date and will continue in force until
terminated by either party in accordance with its terms, namely, 30
days' written notice on the occurrence of an unremedied or a breach
incapable of remedy. Under the agreement, Dialog will agree to provide
to the Licensee various maintenance services in respect of the InfoSort
software used in connection with the products the subject of the
agreement. Fees are to be paid by the Licensee to Dialog within 30 days
of invoice. The agreement will contain limited warranties given by
Dialog to the licensee in respect of the software. Licensor's liability
for breach of warranty, shall for each event or series of connected
events be limited to the amount of fees paid to the Licensor under the
agreement; and
(viii) a subscription agreement dated 23 March 2000 between the Company and
Jiyu Holdings for either, at Jiyu's option, such number of ordinary
shares of 1 pence each in the capital of the Company whose value when
ascertained in accordance with the terms of the agreement shall be
nearest to but not less than GBP12,000,000 or up to 10 million ordinary
shares of 1 pence each in the capital of the Company at a price per
share calculated in accordance with the terms of the agreement but not
to exceed GBP12,000,000.
The agreement is conditional upon completion of the Sale, the provision
of evidence reasonably required by Jiyu that the bond tender was
successful, the Company's senior indebtedness has been repaid, the
creation by the Company of an internet/e-commerce incubator fund,
shareholder approval for the issue of the New Shares, admission of the
New Shares to the Official List, no breach of the warranties as
contained in the
83
subscription agreement, and Thomson having entered into an agreement
with the Company to subscribe ordinary shares in the capital of the
Company having an aggregate subscription price of not less than
$15,000,000. All such conditions are to be satisfied by 5 June 2000, or
such later date as may be agreed in writing.
The subscription agreement gives Jiyu, whilst it holds not less than 70
per cent. of the shares issued to it under the agreement, an entitlement
to nominate a representative to sit on the investment committee of the
Company's new internet/e-commerce incubator fund.
The Company gives certain warranties to Jiyu on the basis that they will
remain true and accurate from 6 March 2000 to completion of the
subscription. No liability shall attach to the Company for a claim under
the warranties unless it materially adversely affects the interests of
Jiyu in the context of the subscription. No liability under the
warranties shall arise unless a claim exceeds GBP100,000 in which case
the Company is liable for the whole amount and not just the excess. The
Company's liability under the warranties is capped at the total
subscription price, and expires on 31 August 2001.
(b) INFORMATION SERVICES DIVISION
The following contracts have been entered into by companies comprised within the
Information Services Division otherwise than in the ordinary course of business,
which (a) have been entered into in the two years immediately preceding the date
of this document and which are or may be material and/or (b) contain provisions
under which any such company has any obligation or entitlement which is material
to the Information Services Division as at the date of this document:
(i) On 10 November 1999, the Company entered into an outsourcing agreement
with ICL whereby ICL has agreed to manage the Company's data centre in
Palo Alto, California, host to the Dialog information services. Under
the terms of the agreement, Dialog received an initial payment of $4.0
million (GBP2.5 million) for the transfer of management of the data
centre and its assets to ICL. In addition, ICL will invest $3.5 million
(GBP2.2 million) to upgrade the data centre hardware and systems.
Pursuant to the agreement, Dialog continues to maintain the lease on the
property.
11. WORKING CAPITAL
The Company considers that, having regard to the net proceeds of the Sale and
the issue of the New Ordinary Shares receivable by the Company, the Continuing
Group has sufficient working capital for its present requirements, that is, for
at least the next twelve months from the date of publication of this document.
The Company has an obligation to repay approximately $10.9 million of senior
indebtedness on 9 May 2000 and interest on the Notes of $9.9 million falling due
on 15 May 2000. In the event that Shareholder approval is not obtained then the
Company will also be obliged to pay $2.75 million to Thomson as described in
Part I of this document. In the absence of the Sale, the Group does not have
sufficient cash or available headroom within its existing banking facilities to
meet its near term debt servicing payments, and would have to seek alternative
funding from existing or new lenders. There can be no assurance that the Company
would succeed in obtaining such alternative funding, and there would therefore
be a significant risk that the Company would have to seek protection from its
creditors through the appropriate UK and US procedures.
12. SIGNIFICANT CHANGES
(a) THE CONTINUING GROUP
There has been no significant change in the financial or trading position of the
Continuing Group since 31 December 1999, the date to which the results set out
in the preliminary announcement contained in Part III of this document were
prepared.
(b) INFORMATION SERVICES DIVISION
There has been no significant change in the financial or trading position of ISD
since 31 December 1999, the date to which the results set out in the preliminary
announcement contained in Part III of this document were prepared.
13. GENERAL
(a) There are no costs and expenses of, and incidental to, the Subscriptions
which are payable by the Company.
(b) PricewaterhouseCoopers, Chartered Accountants and Registered Auditors,
has given, and has not withdrawn, its written consent to the issue of
this document with the inclusion herein of its letter and the references
to such letter and to itself in the form and context in which they
appear and has authorised the contents of its letter for the purposes of
section 152(1)(e) of the Financial Services Act 1986.
84
(c) The financial information set out in this document relating to the Group
does not constitute statutory accounts of the Group within the meaning
of section 240 of the Act. PricewaterhouseCoopers of 1 Embankment Place,
London WC2N 6NN has made a report under section 235 of the Act upon the
statutory accounts of the Group in respect of the years ended 31
December 1996, 31 December 1997 and 31 December 1998. Each such report
was unqualified and did not contain a statement under section 237(2) or
(3) of the Act. The statutory accounts for the Group for each such
financial period have been delivered to the Registrar of Companies in
England and Wales in accordance with to section 242 of the Act.
14. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during normal
working hours on any weekday (Saturdays and public holidays excepted) at the
offices of Theodore Goddard, 150 Aldersgate Street, London EC1A 4EJ for the
period up to and including 26 April 2000:
(a) the Memorandum and Articles of Association of the Company;
(b) the consolidated audited statutory accounts of the Group for the two
years ended 31 December 1998 together with the preliminary results for
the year ended 31 December 1999;
(c) the material contracts referred to in paragraph 10 above;
(d) the letter of consent referred to in paragraph 13(b) above;
(e) the service agreements and letters of appointment referred to in
paragraph 8(e) above;
(f) the rules of the Share Option Schemes summarised or referred to in
paragraph 5 above;
(g) the letter from PricewaterhouseCoopers set out in Part V of this
document;
(h) the Indenture; and
(i) the warrant instruments in relation to the 2002 Warrants, the 2004
Warrants and the 2009 Warrants as referred to in paragraph 3 above.
Dated: 3 April 2000
85
DEFINITIONS
The following definitions apply throughout this document unless the context
otherwise requires:
"Act" the Companies Act 1985, as amended
"Admission" admission of the New Ordinary Shares to the
Official List of the London Stock Exchange
"Board" or "Directors" the directors of the Company
"Completion" completion of the Sale
"Continuing Group" the Group as comprised after the Sale has
taken place
"Dialog" or "Company" The Dialog Corporation plc
"Dialog Group" or "Group" the Company and its subsidiaries
"Extraordinary General Meeting" the extraordinary general meeting of Dialog
convened for 2.00 p.m. on Thursday, 27 April
2000, notice of which is set out at the end of
this document
"Indenture" has the meaning given to it in the definition
of "Notes" below
"Information Services
Division" or "ISD" the information services division of the Group
comprising the businesses relating to the
provision of information services and products
"Jiyu Holdings" or "Jiyu" Jiyu Holdings Limited
"London Stock Exchange" London Stock Exchange Limited
"NASDAQ" NASDAQ National Market
"New Ordinary Shares" the 16,335,413 new Ordinary Shares to be
subscribed by Thomson and Jiyu pursuant to the
Subscriptions or any of them
"Noteholder" a holder of one or more Notes
"Notes" 11 per cent. Senior Subordinated Notes due
2007 of the Company issued pursuant to an
indenture ("the Indenture") dated 10 November
1997 which are listed on the London Stock
Exchange
"Ordinary Shares" the ordinary shares of 1p each in the capital
of the Company
"PricewaterhouseCoopers
Corporate Finance" a division of PricewaterhouseCoopers
"Proposals" the Sale, the Subscriptions and the proposed
change of the Company's name
"Sale" the proposed Sale of the Information Services
Division, pursuant to the Sale Agreement
"Sale Agreement" the conditional agreement dated 23 March 2000
between Dialog and Thomson relating to the
Sale, the principal terms of which are
described in paragraph 10 of Part VI of this
document
"Shareholder" a holder of Ordinary Shares
"Share Option Schemes" the Dialog share option schemes as described
in paragraph 5 of Part VI of this document
"Subscriptions" the proposed subscriptions of New Ordinary
Shares by Thomson and Jiyu on the terms of
the Sale Agreement and the Subscription
Agreement
"Subscription Agreement" the conditional agreements entered into
between the Company and Jiyu, the principal
terms of which are described in paragraph 10
of Part VI of this document, pursuant to which
has agreed to subscribe for 7,038,123 New
Ordinary Shares
"Thomson" The Thomson Corporation
"Trustee" the trustee under the Identure (as defined
therein)
86
THE DIALOG CORPORATION PLC
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will
be held at The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS on 27 April
2000 at 2.00 p.m. for the purpose of considering and, if thought fit, passing
the following resolutions, the first of which will be proposed as an ordinary
resolution and the second as a special resolution:
ORDINARY RESOLUTION
1. THAT, subject to and conditionally upon the passing of resolution 2
below, the proposed Sale by the Group of its Information Services
Division on or substantially on the terms and subject to the conditions
of the Sale Agreement as defined in the document sent to shareholders of
the Company and dated 3 April 2000 (a copy of which agreement is
produced to this meeting and signed for the purpose of identification by
the Chairman) be and it is approved and the Directors be and they are
authorised to do all things that are in the opinion of the Directors (or
a duly authorised committee of them) necessary or desirable to give
effect to and complete the Sale Agreement with such modifications,
amendments, variations or waivers as they (or any such committee)
consider to be necessary or desirable and not of a material nature.
Shareholders' attention is drawn to the fact that if Shareholder
approval is not obtained, the Company will be obliged to pay $2.75
million to Thomson as compensation for its costs and expenses in
connection with the sale.
SPECIAL RESOLUTION
2. THAT, subject to and conditionally upon the passing of resolution 1
above and the admission of the new ordinary shares of 1 pence each in
the issued capital of the Company to trading on the London Stock
Exchange becoming effective ("Admission") as detailed in the document
sent to shareholders of the Company and dated 3 April 2000 (the "Listing
Particulars"):
(a) the authorised share capital of the Company be increased
from GBP1,998,270.00 to GBP2,500,000.00 by the creation of
an additional 50,173,000 ordinary shares of 1p each in the
capital of the Company;
(b) the Directors be authorised in accordance with section 80 of the
Companies Act 1985 (the "Act") to exercise all the powers of the
Company to allot relevant securities (as defined in section 80
of the Act) up to an aggregate nominal amount of GBP163,354.13
for the purpose of the Subscriptions (as defined in the Listing
Particulars) in substitution for and to the exclusion of all
previous allotment authorities granted prior to this meeting,
such authority to expire on 31 July 2000;
(c) the Directors be empowered pursuant to section 95 of the Act to
allot equity securities (as defined in section 94 of the Act)
for cash pursuant to the authority conferred by paragraph (b) of
this Resolution as if section 89(1) of the Act did not apply to
any such allotment, provided that this power shall be limited to
the allotment of equity securities pursuant to the Subscriptions
(as defined in the Listing Particulars) and shall expire at such
time as such authority expires;
(d) the directors be generally and unconditionally authorised in
accordance with section 80 of the Act (in addition and without
limitation to the authority at paragraph (b) of this Resolution
but in substitution for and to the exclusion of all previous
allotment authorities granted prior to this meeting) to exercise
all the powers of the Company to allot relevant securities up to
an aggregate nominal amount of GBP572,123.00, provided that this
authority shall expire on 27 April 2005 save that the Company
may before such expiry make any offer
87
or agreement which would or might require relevant securities
to be allotted after such expiry and the Directors may allot
relevant securities in pursuance of such an offer or agreement
as if such authority had not expired;
(e) the directors be empowered pursuant to section 95 of the Act to
allot equity securities for cash pursuant to the authority
conferred by paragraph (d) of this resolution as if section
89(1) of the Act did not apply to any such allotment, provided
that this power shall be limited to the allotment of equity
securities:
(i) in connection with any rights issue or other offering of
new equity securities in favour of the holders of equity
securities of the Company where the new equity
securities attributable to the interests of such persons
are proportionate (as nearly as may be) to the
respective numbers of the relevant equity securities
shares held by them (subject to such exclusions or other
arrangements as the Directors may deem necessary or
expedient in relation to fractions of such securities,
recor dates or the issue and/or transfer and/or holding
of any securities in uncertificated form or legal or
practical problems arising under the laws of, or the
requirements of any regulatory body or any stock
exchange in, any territory); and/or
(ii) pursuant to the acceptance of any scrip dividend offer;
and/or
(iii) pursuant to the terms of any warrants to subscribe
equity securities in the Company or any share option
scheme or plan or any plan or option scheme in respect
of American Depositary Shares for employees and
directors approved by the Company in general meeting;
and/or
(iv) (otherwise than pursuant to paragraphs (i), (ii) or
(iii) above) having in the case of relevant shares (as
defined for the purposes of Section 89 of the Act), a
nominal amount or, in the case of other equity
securities, giving the right to subscribe for or convert
into relevant shares, having a nominal amount not
exceeding in aggregate GBP85,818.38,
and shall expire at such time as the general authority
conferred on the directors by paragraph (d) of this
resolution expires save that the Company may before such
expiry make any offer or agreement which would or might
require equity securities to be allotted after such expiry
and the directors may allot equity securities in pursuance of
such an offer or agreement as if such power had not expired;
(f) the Company's name be changed to "Bright Station plc".
REGISTERED OFFICE: By Order of the Board
The Communications Building Jonathan Ball
48 Leicester Square COMPANY SECRETARY
London WC2H 7DB
3 April 2000
NOTES:
1. A member of the Company entitled to attend and vote at the meeting is
entitled to appoint a proxy to attend and, on a poll, vote in his stead.
A proxy need not be a member of the Company.
2. A proxy form for use in connection with the meeting accompanies the
circular. Additional copies may be obtained from the registered office.
The proxy form and any power of attorney under which it is signed must
be deposited at the address printed on the proxy form not less than 48
hours before the time appointed for holing the meeting.
3. A person must be registered as the holder of ordinary shares by 2.00
p.m. on 25 April 2000 in order for such person to be entitled to attend
and vote at the meeting.