UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(E)
OF THE SECURITIES EXCHANGE ACT OF 1934
QXL ricardo plc
(Name Of The Issuer)
QXL ricardo plc
(Names Of Persons Filing Statement)
Ordinary Shares, nominal value of 0.1p each
American Depositary Shares, evidenced by
American Depositary Receipts,
each representing 250 ordinary shares
(Title Of Class Of Securities)
US74912W408
(Cusip Number Of Class Of Securities)
Robert S. Dighero Thomas J. Plotz
Chief Financial Officer Shaw Pittman LLP
Landmark House 2300 N Street, N.W.
Hammersmith Bridge Road Washington, DC 20037
London W6 9EJ 202.663.8000
(011) (44) (20) 8962 7100
(Name, Address and Telephone Numbers of Persons Authorized to Receive Notices
and Communications on Behalf of the Persons Filing Statement)
This statement is filed in connection with (check the appropriate box):
A. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A Section 240.14a-1 through 240.14b-2), Regulation
14C (Section 240.14c-1 through 240.14c-101) or Rule 13e-3(c) (Section
240.13e-3(c)) under the Securities Exchange Act of 1934 ("the Act").
B. [ ] The filing of a registration statement under the Securities Act of
1933.
C. [ ] A tender offer.
D. [ X ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: []
Check the following box if the filing is a final amendment reporting the
results of the transaction: []
Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee **
$70,000 $5.66
* Calculated solely for purposes of determining the filing fee, pursuant
to Rule 0-11(a)(4). Represents the U.S. dollar equivalent of the
estimated aggregate cash consideration in British pounds sterling to
be paid by the filing person to U.S. holders for fractional interests
in its ordinary shares, calculated using the noon buying exchange rate
published by the Federal Reserve Bank of New York on February 25, 2003
of Pounds 1.5727 to US $1.00 plus the estimated aggregate dollar
amount of cash consideration to be paid for fractional interests in
American Depositary Shares.
** The amount of the filing fee was calculated based on a rate of $80.90
per $1,000,000 of the aggregate value of the transaction.
[] Check the box if any part of the fee is offset as provided by Section
240.0-11(a)(2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
SCHEDULE 13E-3
This Rule 13e-3 Transaction Statement (the "Statement") filed by QXL ricardo
plc (referred to herein as "QXL" or "Company" or "subject company" or "filing
person") with the Securities and Exchange Commission (the "Commission") is
accompanied by an Information Statement for U.S. Holders of Ordinary Shares
and American Depositary Shares (the "Information Statement") to be
distributed to U.S. holders of ordinary shares and American Depositary
Shares, each representing 250 of QXL's existing ordinary shares (each, an
"ADS"), in connection with the Extraordinary General Meeting of the
shareholders of QXL currently scheduled to be held on March 28, 2003.
At such meeting, the shareholders of QXL will vote upon a special resolution,
which, if adopted, will result in a l-for-1,000 share consolidation of QXL's
ordinary shares and the payment of cash for fractional shares to those
shareholders who would, as a result of the share consolidation, hold less
than one share of QXL's post-share consolidation ordinary shares, subject to
retention by the Company of small amounts the cost of distribution of which
would be disproportionate to the amounts involved. Holders of ADSs will
receive one new ADS for each one thousand existing ADSs. Holders who would
otherwise hold less than one new ADS will receive cash instead of such
fractional interest.
Item 1. Summary Term Sheet.
The information set forth in the Information Statement in the section titled
"Summary Term Sheet" is incorporated by reference.
Item 2. Subject Company Information.
(a) Name and Address.
The name of the subject company is QXL ricardo plc. The Company's principal
place of business is located at Landmark House, Hammersmith Bridge Road,
London W6 9EJ, England. The Company's telephone number is (011) (44) (20)
8962 7100.
(b) Subject Securities.
As of February 19, 2003, the Company had 915,263,039 ordinary shares, nominal
value 0.1p each, outstanding. As of that date there were 229,036 ADSs, each
representing 250 existing ordinary shares, outstanding.
(c) Trading Market and Prices.
The section of the Information Statement titled "Price Range of Ordinary
Shares and ADSs; Dividends" is incorporated by reference.
(d) Dividends.
The section of the Information Statement titled "Price Range of Ordinary
Shares and ADSs; Dividends" is incorporated by reference.
(e) Prior Public Offerings.
The Company has not made any underwritten public offering of its ordinary
shares or ADSs during the past three years.
(f) Prior Stock Purchases.
The section of the Information Statement titled "Price Range of Ordinary
Shares and ADSs; Dividends" is incorporated by reference.
Item 3. Identity and Background of Filing Person.
(a) Name and Address.
The filing person, QXL, is also the subject company, with its address and
telephone number provided in Item 2 above. The name of each director and
executive officer of the Company is incorporated by reference to the section
of the Information Statement under the heading "Additional Information -
Directors and Executive Officers." The address of each director and executive
officer of the Company is c/o QXL ricardo plc, Landmark House, Hammersmith
Bridge Road, London W6 9EJ, England.
(b) Filing Entities. None.
(c) Business and Background of Natural Persons.
The information regarding the background of the Company's directors and
executive officers pursuant to General Instruction C to the schedule is set
forth under the heading "Additional Information - Directors and Executive
Officers" in the Information Statement and is incorporated by reference.
To the filing person's knowledge, none of the persons required to be listed
under General Instruction C to Schedule 13E-3 has been convicted in a
criminal proceeding during the past five years (excluding traffic violations
or similar misdemeanors) or has been a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws. Each of the
persons required to be listed under General Instruction C of Schedule 13E-3
is a citizen of the United Kingdom, except for Messrs. Bulkeley, Rose and
Gesmar-Larsen who are citizens of the USA, the USA, and Denmark, respectively.
Item 4. Terms of the Transaction.
(a) Material Terms.
The sections titled "Purpose of the Share Consolidation", "Summary and
Structure of the Share Consolidation", "Reduction in Number of Shareholders
and Holders of ADSs and Termination of Registration under the 1934 Act",
"Effect of the Share Consolidation on Ordinary Shares and ADSs Currently
Outstanding", "Effect of the Share Consolidation on QXL", "The Anticipated
Effects of the Share Consolidation", "Potential Detriments of the Share
Consolidation to Shareholders and Holders of ADSs; Accretion in Ownership and
Control of Certain Shareholders", and "Financial Effect of the Share
Consolidation", set forth in the Information Statement are incorporated by
reference.
(c) Different Terms.
The section titled "Summary and Structure of the Share Consolidation" set
forth in the Information Statement is incorporated by reference. The section
titled "Effect of the Share Consolidation on Ordinary Shares and ADSs
Currently Outstanding" set forth in the Information Statement is also
incorporated by reference.
(d) Dissenters' Rights.
No appraisal rights are available to dissenting shareholders.
(e) Provisions for Unaffiliated Security Holders.
The Company has not made any special provisions to make corporate records
available or grant unaffiliated security holders counsel or appraisal
services at the expense of the filing person.
(f) Eligibility for Listing or Trading.
The section titled "The Anticipated Effects of the Share Consolidation --
Effect on Market for Shares and ADSs" set forth in the Information Statement
is incorporated by reference.
Item 5. Past Contacts, Transactions, and Negotiations and Agreements.
(a) Transactions. None.
(b) Significant Corporate Events. None.
(c) Negotiations or Contracts. None.
(e) Agreements Involving QXL's Securities. None
Item 6. Purposes of the Transaction and Plans or Proposals.
(b) Use of Securities Acquired.
The sections titled "The Anticipated Effects of the Share Consolidation" and
"Stock Certificates and American Depositary Receipts" set forth in the
Information Statement are incorporated by reference.
(c) Plans.
A discussion of the deregistration of the Company's ordinary shares and ADSs
and resulting cessation of trading of ADSs on Nasdaq Stock Market is set
forth in the Information Statement under the section titled "The Anticipated
Effects of the Share Consolidation" and the section titled "Reduction in
Number of Shareholders and Holders of ADSs and Termination of Registration
under the 1934 Act" which are incorporated by reference.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) Purposes.
The sections titled "Purpose of the Share Consolidation", "Background of the
Share Consolidation Proposal", and "Reduction in Number of Shareholders and
Holders of ADSs and Termination of Registration under the 1934 Act" set forth
in the Information Statement are incorporated by reference.
(b) Alternatives.
The section titled "Background of the Share Consolidation Proposal" set forth
in the Information Statement is incorporated by reference.
(c) Reasons.
The sections titled "Purpose of the Share Consolidation", "Background of the
Share Consolidation Proposal", and "The Anticipated Effects of the Share
Consolidation--Reduction in the Number of Shareholders and Holders of ADSs
and the Number of Outstanding Shares and ADSs" set forth in the Information
Statement are incorporated by reference.
(d) Effects.
The sections titled "The Anticipated Effects of the Share Consolidation",
"Potential Detriments of the Share Consolidation to Shareholders and Holders
of ADSs; Accretion in Ownership and Control of Certain Shareholders",
"Financial Effect of the Share Consolidation", and "Material Federal Income
Tax Consequences" set forth in the Information Statement are incorporated by
reference.
Item 8. Fairness of the Transaction.
(a) Fairness.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
(b) Factors Considered in Determining Fairness.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
(c) Approval of Security Holders.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
(d) Unaffiliated Representative.
The section titled "Potential Detriments of the Share Consolidation to
Shareholders and Holders of ADSs; Accretion in Ownership and Control of
Certain Shareholders" set forth in the Information Statement is incorporated
by reference. The section titled "Recommendation of the Board of Directors;
Fairness of the Share Consolidation" set forth in the Information Statement
is also incorporated by reference.
(e) Approval of Directors.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
(f) Other Offers. None.
Item 9. Reports, Opinions, Appraisals and Negotiations.
(a) Report, Opinion or Appraisal.
The information set forth under the caption "Recommendation of the Board of
Directors; Fairness of the Share Consolidation Proposal" set forth in the
Information Statement is incorporated by reference.
(b) Preparer and Summary of Report, Opinion or Appraisal. None.
(c) Availability of Documents. None.
Item 10. Source and Amounts of Funds or Other Consideration.
(a) Source of Funds.
The section titled "Additional Information--Cost of Proxy Solicitation and
the Share Consolidation" set forth in the Information Statement is
incorporated by reference.
(b) Conditions. Not applicable.
(c) Expenses.
The section titled "Additional Information - Cost of Proxy Solicitation and
the Share Consolidation" set forth in the Information Statement is
incorporated by reference. The section titled "Financial Effect of the Share
Consolidation" set forth in the Information Statement is incorporated by
reference. The section titled "Purpose of the Share Consolidation" set forth
in the Information Statement is also incorporated by reference.
(d) Borrowed Funds.
None.
Item 11. Interest in Securities of QXL.
(a) Securities Ownership.
The section titled "Additional Information - Affiliated Shareholders" set
forth in the Information Statement is incorporated by reference. The address
of Apax UK VI LP is 15 Portland Place London W1B 1PT, England.
(b) Securities Transactions. None.
Item 12. Solicitation or Recommendation.
(d) Intent to Tender Vote in Going Private Transaction.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
(e) Recommendations of Others.
The section titled "Recommendation of the Board of Directors; Fairness of the
Share Consolidation" set forth in the Information Statement is incorporated
by reference.
Item 13. Financial Statements.
(a) Financial Information.
The Company's audited financial statements for the fiscal years ended March
31, 2002 and March 31, 2001 were previously filed as part of the Company's
Annual Report on Form 20-F for the period ended March 31, 2002 filed with the
Commission. Such financial statements are included as Exhibit A3 to this
Statement and are incorporated herein by reference. The Company's unaudited
financial information for the nine months ended December 31, 2002 previously
submitted to the Commission on Form 6-K is incorporated herein by reference.
(b) Pro Forma Information.
The section titled "Financial Effect of the Share Consolidation" set forth in
the Information Statement is incorporated by reference.
(c) Summary Information.
The sections titled "Additional Information - Financial and Other
Information" and "Financial Effect of the Share Consolidation" in the
Information Statement are incorporated by reference.
Item 14. Persons/Assets, Retained, Employed, Compensated or Used.
(a) Solicitations of Recommendations.
The section titled "Additional Information --Cost of Proxy Solicitation and
the Share Consolidation" in the Information Statement is incorporated by
reference.
(b) Employees and Corporate Assets.
The section titled "Additional Information --Cost of Proxy Solicitation and
the Share Consolidation" in the Information Statement is incorporated by
reference.
Item 15. Additional Information.
All of the information set forth in the Information Statement is incorporated
by reference.
Item 16. Exhibits.
Exhibit A1 - Information Statement for U.S. Holders of Ordinary Shares and
American Depositary Shares (filed herewith).
Exhibit A2 - Investors Circular relating to Extraordinary General Meeting
(filed herewith).
Exhibit A3 - Audited Consolidated Financial Statements of the Company,
previously included in the Company's Annual Report on Form 20-K for the
period ended March 31, 2002 (filed herewith).
Copies of these documents may be inspected without charge at the Public
Reference Room maintained by the Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of
these documents may be obtained from the Securities and Exchange Commission
upon payment of the prescribed fee. Information regarding the operation of
the Public Reference Room may be obtained by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
SEC. The address of the site is www.sec.gov. The Company will also make
copies of these documents available upon written request to the Company's
headquarters. The Company's headquarters are located at Landmark House,
Hammersmith Bridge Road, London W6 9EJ, England.
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: February 26, 2003 /s/ Robert Simon Dighero
Name: Robert Simon Dighero
Title: Chief Financial Officer
QXL ricardo plc
Landmark House
Hammersmith Bridge Road
London W6 9EJ, England
INFORMATION STATEMENT
FOR U.S. HOLDERS OF ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES
GENERAL INFORMATION
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS: APPROVED OR DISAPPROVED OF THE TRANSACTIONS DISCUSSED IN THIS
DOCUMENT; PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS; OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We are delivering this Information Statement to U.S. Holders of Ordinary
Shares and American Depositary Shares in connection with our solicitation of
proxies on behalf of the Board of Directors of QXL ricardo plc (which we
refer to as "QXL," the "Company," "we," or "us"), for the Extraordinary
General Meeting of Shareholders, including any adjournment or postponement
(the "Extraordinary General Meeting"). The meeting is scheduled to be held on
March 28, 2003 at 10.00 a.m. local time, at the Express by Holiday Inn -
London Hammersmith, 124 King Street, Hammersmith, London W6 0QU, England.
At the Extraordinary General Meeting, shareholders will consider and, if
thought fit, pass a special resolution to effect the "Share Consolidation",
as defined in the summary term sheet below, which is intended to enable, and,
if approved will enable, the Company to end its obligations to file annual
reports and make other filings with the Securities and Exchange Commission
(the "SEC"). The summary term sheet below describes several effects of the
Share Consolidation.
We are mailing this Information Statement, together with a form of proxy and
proxy materials relating to the Extraordinary General Meeting, to U.S.
holders of our ordinary shares entitled to vote at the Extraordinary General
Meeting and, through The Bank of New York, to U.S. holders of American
Depositary Shares representing our ordinary shares (each, an "ADS").
SUMMARY TERM SHEET
As used throughout this Information Statement, the term "Share Consolidation"
refers to a transaction consisting of the following steps:
* Contingent upon receiving permission from the London Stock Exchange for new
ordinary shares to be admitted to the Official List and traded on the London
Stock Exchange's market for listed companies, QXL will undertake a
l-for-1,000 Share Consolidation of its ordinary shares (the "1-for-1,000
Share Consolidation"), such that a holder of 1,000 ordinary shares
immediately prior to the 1-for-1,000 Share Consolidation will hold one new
ordinary share immediately after the 1-for-1,000 Share Consolidation. Each
holder of 1,000 or more existing ordinary shares in a discrete account will
continue to be a shareholder of the Company.
* Under the terms of QXL's Articles of Association, the Company will not
issue fractional interests in new ordinary shares. Pursuant to a special
resolution, in the case of holders of ordinary shares that would otherwise be
entitled to receive fractional new ordinary shares, QXL will aggregate such
fractions into whole new ordinary shares and sell such shares for the best
price reasonably obtainable, for the benefit of such shareholders. A due
proportion of the proceeds (net of all costs and expenses) will be paid to
each shareholder concerned, subject to retention by the Company of amounts
under 3 Pounds. Shareholders who hold fewer than 1,000 existing ordinary
shares in a discrete account will cease to be shareholders of QXL.
* Each ADS currently represents 250 of QXL's ordinary shares and it is not
proposed to change this ratio following the 1-for-1,000 Share Consolidation.
Holders of existing ADSs will receive one new ADS for each 1,000 existing
ADSs. Accordingly, although each new ADS will represent 250
post-consolidation ordinary shares, each new ADS will represent 1,000
existing ADSs, i.e., 250,000 pre-consolidation ordinary shares. The Bank of
New York will call for surrender of outstanding American Depositary Receipts
(which evidence ADSs) and will issue new receipts evidencing whole new ADSs.
Where an ADS holder currently holds less than 1,000 ADSs , the Bank of New
York will, in lieu of delivering fractional receipts, sell the ADSs or the
amount of ordinary shares represented by the aggregate of such fractions,
convert the net sales proceeds into U.S. dollars, and distribute the net
proceeds to holders entitled thereto in proportion to the number of
fractional interests to which the holder would otherwise be entitled. Holders
of more than 1,000 existing ADSs will continue to hold ADSs while holders of
fewer than 1,000 existing ADSs will cease to hold ADSs.
* Following consummation of the Share Consolidation, the Company will
withdraw its ADSs from quotation on the Nasdaq Stock Market.
* As a result of this Share Consolidation, the Company anticipates that it
will terminate its status as a reporting company under the provisions of the
Securities Exchange Act of 1934 and the SEC's rules adopted thereunder (the
"1934 Act").
A more detailed discussion of the transaction can be found in the section
titled "Summary and Structure of the Share Consolidation" set forth in this
Information Statement.
SPECIAL FACTORS RELATING TO THE GOING-PRIVATE TRANSACTION
Purpose of the Share Consolidation
The primary purpose of the Share Consolidation is to eliminate the equity
interests in the Company of U.S. beneficial holders of ordinary shares and
ADSs, that, prior to the Share Consolidation, own fewer than 1,000 ordinary
shares or 1,000 ADSs in any discrete account.
By eliminating the interests of holders of fewer than 1,000 existing ordinary
shares or 1,000 existing ADSs the Company will:
* reduce the cost of maintaining small shareholder accounts; and
* reduce the number of U.S. beneficial owners of ordinary shares and ADSs to
fewer than 300 persons in order to permit the Company to deregister its
ordinary shares and ADSs under the 1934 Act.
Deregistering under the 1934 Act will significantly reduce the Company's
insurance costs and will relieve the Company of the administrative burden
and cost associated with filing reports and otherwise complying with the
requirements of registration under the 1934 Act. See "Background of the
Share Consolidation Proposal" and "The Anticipated Effects of the Share
Consolidation" for a discussion regarding the burden of continued
registration of the ordinary shares and ADSs and the intended benefits to
the Company of the Share Consolidation.
The Company's Board of Directors believes that the disadvantages of having
the Company continue to be a U.S. reporting company outweigh any advantages.
The Board of Directors has no present intention to raise capital through
sales of securities in a public offering in the United States in the future
or to acquire other business entities in the United States using stock as the
consideration for any such acquisition. Accordingly, the Company is not
likely to make use of any advantage (for raising capital, effecting
acquisitions or other purposes) that the Company's status as a U.S. reporting
company may offer.
The Company incurs direct and indirect costs associated with compliance with
the Securities and Exchange Commission's filing and reporting requirements
imposed on public companies. In addition, the Company pays substantially
higher premiums for its directors' and officers' insurance policies as a U.S.
reporting company than it would if it were not registered under the 1934 Act.
The Company incurs the expense of having its independent auditors reconcile
its financial statements, which are prepared according to U.K. generally
accepted accounting principles, known as U.K. GAAP, to U.S. generally
accepted accounting principles, known as U.S. GAAP. The Company also incurs
substantial indirect costs as a result of, among other things, the executive
time expended to prepare and review its public filings. Since the Company has
relatively few executive personnel, these indirect costs can be substantial.
Based on its experience in prior years, the Company's direct costs of
remaining a U.S. reporting company and continuing to have its ADSs quoted on
the Nasdaq Stock Market are estimated to approximate $585,000 annually as
follows:
Independent Auditors $ 35,000
SEC Counsel $ 35,000
Nasdaq Fees $ 10,000
Printing and Mailing n/a
Directors' and Officers' Insurance $500,000
Miscellaneous Costs $ 5,000
Total $585,000
Estimates of the annual savings to be realized if the Share Consolidation is
approved and implemented are based upon (i) the actual costs to the Company
of the services and disbursements in each of the above categories that were
reflected in its recent historical financial statements and (ii) the
allocation to each category of its management's estimates of the portion of
the expenses and disbursements in such category believed to be solely or
primarily attributable to the Company's reporting company status.
The actual cost savings of no longer being a U.S. reporting company are
expected to be much greater than simply eliminating the estimated historical
costs. As a result of recent corporate governance scandals and the
legislative and litigation environment resulting from those scandals, the
costs of being a U.S. reporting company in general, and the costs of the
Company remaining a U.S. reporting company in particular, are expected to
increase dramatically in the near future. For example, our directors' and
officers' liability insurance broker has informed us that premiums are likely
to increase by approximately 40% upon the next renewal of our policy in April
2003. Moreover, new legislation, such as the recently enacted Sarbanes-Oxley
Act of 2002, will have the effect of increasing the burdens and potential
liabilities of being a public reporting company. This and other proposed
legislation will likely increase audit fees and other costs of compliance
such as SEC counsel fees and, by increasing potential liability of officers
and directors, likely result in further increases in insurance premiums.
The actual costs of the services and disbursements in each category as
reflected in the Company's financial statements for the fiscal years ended
March 31, 2001 and 2002, respectively, were as follows: independent auditors,
$35,000 and $35,000; SEC counsel, $30,000 and $35,000; Nasdaq fees $10,000
and $10,000; printing and mailing expense, $20,000 and nil; directors' and
officers' insurance, $397,000 and $389,000; and miscellaneous costs, $19,500
and $46,500.
In some instances management's estimates were based on information provided
or upon verifiable assumptions. For example, the Company's directors' and
officers' liability insurance broker has informed the Company informally that
the premiums paid by the Company will be reduced by approximately $500,000 if
the Company ceases to be a U.S. reporting company. In addition, the costs
associated with retaining legal counsel to assist with complying with the
Securities and Exchange Commission reporting requirements will be eliminated
if the Company no longer files reports with the Securities and Exchange
Commission and is otherwise not required to comply with the laws and
regulations that apply to U.S. reporting companies. Similarly, the Company
will no longer incur the expense of reconciliation of its financial
statements to U.S. GAAP. Likewise, Nasdaq fees will be eliminated if the ADSs
are no longer quoted on the Nasdaq Stock Market. Other estimated cost savings
are more subjective, e.g., the lower printing and mailing costs attributable
to the reduction in number of accounts holding ordinary shares and ADSs and
the lower risk of liability that attends non-reporting (as distinguished from
reporting) company status; and the reduction in direct miscellaneous clerical
and other expenses (e.g., the word processing, conversion to EDGAR, telephone
and fax charges associated with Securities and Exchange Commission filings)
and elimination of the charges of brokers and banks in forwarding materials
to beneficial holders.
The estimates set forth above are just that - estimates. The actual savings
to be realized from going private in the U.S. may be higher or lower than
such estimates.
In light of the company's size and resources and, particularly, the small
percentage of the Company's unaffiliated share ownership represented by the
ADSs, the Board of Directors does not believe the costs associated with
maintaining its status as a 1934 Act reporting Company are justified. The
Board of Directors believes that it is in the best interests of the Company
and its shareholders as a whole to eliminate the administrative burden and
costs associated with maintaining its status as a 1934 Act reporting company.
In addition to the above purposes, the Board of Directors believes that
having an issued share capital of some 915,263,039 existing ordinary shares
that have an aggregate market capitalization of under 5 million Pounds
confuses investors and limits the liquidity and marketability of such shares
on the London Stock Exchange. In addition, the Board of Directors believes
that the Company's shares should trade within parameters that are generally
acceptable to the market and the listing authorities.
The Board of Directors has determined that the Share Consolidation is the
most expeditious and economical way of liquidating the holdings of small
shareholders and holders of ADSs and changing the Company's status from that
of a 1934 Act reporting company to that of a non-reporting company. The Board
of Directors has determined in consultation with management that the Share
Consolidation ratio will be 1,000 to 1. The Board of Directors believes that
it would be in the best interests of the shareholders to maximize the number
of ordinary shareholders and holders of ADSs that will cease to hold ordinary
shares or ADSs following the Share Consolidation. Numerous factors were
considered in reaching its determination. See "Recommendation of the Board of
Directors; Fairness of the Share Consolidation."
Background of the Share Consolidation Proposal
QXL is a pan-European online auction community. The Company aims to
facilitate consumer-to-consumer and business-to-consumer auctions 24 hours a
day, 7 days a week. A wide selection of new and second-hand merchandise is
available for purchase in these auctions, including computer hardware, DVDs
and videos, cars, real estate, holidays and other travel items, collectibles,
and sports equipment.
QXL was incorporated in England and Wales in 1997 and became subject to the
registration and reporting requirements of the 1934 Act in 1999 in connection
with a public offering of ADSs. Its ordinary shares have been listed on the
London Stock Exchange since 1999 (under the symbol "QXL") and the ADSs have
been quoted on the Nasdaq Stock Market under the symbol "QXLC" since 1999.
Since 1999, the Company has incurred the expense and loss of management and
personnel time associated with 1934 Act reporting. Direct costs of complying
with 1934 Act registration and reporting requirements currently are
approximately $585,000 per annum. Although certain costs for auditing and
insurance may be reduced but not eliminated, management estimates that this
$585,000 can be saved by deregistering under the 1934 Act. In addition,
should the Company remain a U.S. reporting company it is anticipated that
cost for audits and maintaining the same level of insurance cover will
significantly increase in future fiscal years due to changing corporate
governance standards and insurance costs. There also exist indirect costs of
being a U.S. reporting company. Preparing public disclosure documents
requires significant time from senior management and other personnel, which
could otherwise be directed towards profit generating activities.
The Company estimates, based on inquiries of brokers, that approximately
8,250,960 ordinary shares are beneficially owned by U.S. holders. These
shares, added to the ordinary shares represented by ADSs constitute 7.16% of
QXL's outstanding share capital.
The Board of Directors and the Company's management are of the view that the
recurring costs associated with maintaining registration of the Company's
ordinary shares under the 1934 Act is not cost efficient in light of the
relatively small percentage of ordinary shares the Company estimates to be
held by U.S. holders or through ADSs.
In the fall of 2002, management began to consider ways in which the Company
could reduce the costs associated with being a U.S. reporting Company and
proposed the Share Consolidation, which was approved by the Board of
Directors on February 19, 2003. The Board of Directors has come to believe
that the Company derives little benefit from the continued registration of
its ordinary shares and ADSs under the 1934 Act. Accordingly, the Board of
Directors has decided to present the Share Consolidation to its shareholders
as a means to deregister the Company's ordinary shares under the 1934 Act and
reduce the recurring expenses resulting from the Company's U.S. reporting
status.
Before making this decision the Board of Directors considered termination of
the ADS program as an alternative method to the Share Consolidation for
achieving the result of ceasing to be a reporting company under the 1934 Act.
Under the terms of the Deposit Agreement with The Bank of New York, which
sets forth the terms of the ADSs, QXL may terminate the ADS program, provided
certain notice provisions are met. Upon termination of the program, for a
period of time specified in the Deposit Agreement with The Bank of New York,
holders of ADSs would have the option to exchange their ADSs for ordinary
shares. Upon conclusion of the exchange period, The Bank of New York is
required to sell the shares underlying the remaining ADSs, convert the
proceeds to U.S. dollars, and distribute net sales proceeds to holders of
ADSs in return for such ADSs. Given the uncertain regulatory treatment of
such a procedure and the length of time required for such a process to be
completed, the Board of Directors has determined that this procedure will not
meet the Company's goal of ceasing to be a U.S. reporting company by its
financial year end. In addition, because it is unpredictable as to how many
holders of ADSs would elect to exchange their ADSs for ordinary shares, it is
possible that, at the end of such a procedure, the Company may have too many
U.S. holders of ordinary shares to deregister as a U.S. reporting company.
Consequently the Board of Directors rejected this alternative because the
Board of Directors believed that the Share Consolidation is the least costly
and most expeditious means to cause the Company cease to be a reporting
company. However, the Board of Directors may elect to terminate the ADS
program at some future time.
The Share Consolidation is being made at this time because the sooner the
proposal can be implemented, the sooner the Company will cease to incur the
expenses and burdens of 1934 Act registration. Moreover, the Company wishes
to cease to be a reporting company prior to the April 2003 renewal date of
its directors' and officers' liability insurance policy.
After significant consideration of its alternatives the Board of Directors
determined to proceed with the transaction and to submit the Share
Consolidation to the Company's shareholders for approval.
Recommendation of the Board of Directors; Fairness of the Share Consolidation
The Board of Directors believes that the Share Consolidation, taken as a
whole, is fair to, and in the best interests of, the Company's unaffiliated
shareholders (meaning those shareholders other than our directors, officers
or their associates) and holders of ADSs.
The Share Consolidation has not been structured to require the separate
approval of directors or security holders unaffiliated with the Company. The
Company has not appointed a special committee or obtained a fairness opinion,
appraisal or other independent assessment of the fairness of the terms of the
Share Consolidation or the value of the ordinary shares or ADSs.
The Board of Directors believes its familiarity with the Company, the
Company's financial condition, and the Company's prospects make the expense
of a fairness opinion unwarranted. In addition, a fairness opinion is not
required under the laws of England. The Board of Directors did not establish
an independent committee or representative to represent the interests of the
unaffiliated shareholders and holders of ADSs because it believes there is
sufficient representation in the decision making at the board level to
protect the interests of the unaffiliated shareholders and holders of ADSs
(four of the six directors are "non-executive" directors for U.K. purposes,
of which two are independent "non-executive" directors).
Notwithstanding the lack of certain procedural safeguards, the Board of
Directors believes that it has acted in the best interest of the unaffiliated
shareholders of the Company and holders of ADSs, and that the Board of
Directors' fairness determination and approval of the transaction has been
procedurally fair.
The Board of Directors considered the factors below in reaching its
conclusion as to the substantive fairness of the Share Consolidation to the
Company's unaffiliated shareholders and holders of ADSs. The Board of
Directors did not assign any specific weights to the factors.
Factors in Support of the Share Consolidation:
(1) A large proportion of unaffiliated shareholders will be unaffected by the
deregistration of the ordinary shares and ADSs. Based on the Company's
estimates, only approximately 7.16% of the beneficial owners of ordinary
shares (including those represented by ADSs) are U.S. persons. This means
that a considerable majority of the Company's unaffiliated shareholders will
not be adversely affected by the termination of the Company's status as a
1934 Act reporting company. These holders will, however, like all
shareholders and holders of ADSs that will remain as shareholders or holders
of ADSs after the Share Consolidation, benefit from the elimination of the
expenses relating to the Company's status as a 1934 Act reporting company.
The Board of Directors believes that these expenses, given the Company's
resources, are disproportionate to the percentage of unaffiliated
shareholders that benefits from the Company's status as a reporting company.
(2) Ability to control decision to remain a shareholder or ADS holder or
liquidate ordinary shares or ADSs. Another factor considered by the Board of
Directors in determining the fairness of the transaction to unaffiliated
shareholders is that current holders of fewer than 1,000 ordinary shares or
1,000 ADSs may elect to remain shareholders or holders of ADSs following the
Share Consolidation simply by acquiring sufficient shares or ADSs so that
they hold at least 1,000 shares or 1,000 ADSs in their account immediately
prior to the Share Consolidation. Conversely, shareholders who desire to
liquidate their ordinary shares or ADSs at the price to be paid may reduce
their holdings to less than 1,000 shares or 1,000 ADSs prior to the Share
Consolidation. In addition, holders of ADSs may convert their ADSs to
ordinary shares by surrendering such ADSs to The Bank of New York in exchange
for ordinary shares. Because each ADS represents 250 ordinary shares, a
holder would have to surrender 4 ADSs to receive 1,000 ordinary shares. The
Board of Directors considers the structure of the going private transaction
to be fair to unaffiliated shareholders and holders of ADSs because it allows
them to control the decision as to whether to remain shareholders or ADS
holders after the Share Consolidation or to receive the cash consideration
offered in connection with the Share Consolidation.
(3) No material change in percentage ownership of officers and directors. The
percentage ownership of unaffiliated shareholders that remain after the Share
Consolidation will be almost exactly the same as it was prior to the Share
Consolidation. The Company's officers and directors currently own
approximately 0.41% of the Company's ordinary shares outstanding and will own
approximately the same percentage following completion of the Share
Consolidation. The fact that the transaction has been structured in a manner
that preserves the same approximate percentage ownership of the shareholders,
whether affiliated or unaffiliated, who remain after the Share Consolidation,
supports the fairness of the transaction to the unaffiliated shareholders.
Factors not in Support of the Share Consolidation:
(1) Termination of Public Sale Opportunities of ADSs. In connection with the
Share Consolidation, the ADSs will cease to be quoted on the Nasdaq Stock
Market. Accordingly, following the Share Consolidation and the deregistration
of the ordinary shares and ADSs, it is anticipated that the public market for
ADSs will be substantially reduced or eliminated altogether. Holders of ADSs
will no longer have the option of selling their ADSs on the Nasdaq Stock
Market. However, because outstanding ADSs represent less than 6.26% of the
outstanding ordinary shares, this change will directly affect shares
representing only a small portion of the Company's unaffiliated share
ownership. The Company believes that the savings resulting from ceasing to be
a U.S. reporting company will benefit a far greater number of unaffiliated
holders of ordinary shares and effectively outweigh the loss of liquidity for
holders of ADSs. The Company's ordinary shares will continue to be traded on
the London Stock Exchange following the Share Consolidation.
(2) Termination of Publicly Available Information in the United States. Upon
terminating the registration of the ordinary shares and ADSs, the Company
will no longer file, among other things, periodic reports with the Securities
and Exchange Commission. Information regarding the Company's operations and
results that is currently available to the U.S. general public and the
Company's investors in the United States will be less easy to access and will
no longer be in the form (including reconciliation of the Company's financial
statements to U.S. GAAP) prescribed by U.S. regulators. Because the ordinary
shares will continue to be traded on the London Stock Exchange, the Company
will continue to make such filings as are required by the London Stock
Exchange and will continue to post important filings, like its annual report,
on its web site. The Board of Directors does not believe this factor makes
the transaction unfair to unaffiliated shareholders because any detriment to
unaffiliated shareholders that may result from the termination of the
Company's U.S. public filings will be offset by the benefits to the Company
of no longer being a U.S. reporting company. Moreover, as long as the
Company's ordinary shares are traded on the London Stock Exchange, the
Company will continue to file and distribute reports as required by the rules
of the London Stock Exchange and will post certain of those filings on its
web site, meaning U.S. investors will continue to have access to information
about the Company's operations and results.
(3) Inability to participate in future increase in value of Company's
ordinary shares or ADSs. Holders who cease to own ordinary shares or ADSs as
a result of the Share Consolidation will have no further interest in the
Company and thus will not have the opportunity to participate in the
potential upside of any increase in the value of the shares or ADSs they
owned prior to the Share Consolidation. The Board of Directors determined
that this factor does not make the transaction unfair to unaffiliated
shareholders because those unaffiliated shareholders or holders of ADSs who
desire to hold ordinary shares or ADSs after the Share Consolidation can do
so by simply acquiring sufficient shares or ADSs so that they hold at least
1,000 ordinary shares or 1,000 ADSs in their account immediately prior to the
Share Consolidation.
In summary, the Company believes the above mentioned factors, when viewed
together, support a conclusion that the Share Consolidation is fair to the
unaffiliated shareholders and holders of ADSs. Unaffiliated shareholders and
holders of ADSs can control whether they remain shareholders or holders of
ADSs after the Share Consolidation by simply acquiring sufficient shares or
ADSs so that they hold at least 1,000 shares or 1,000 ADSs in their account
immediately prior to the Share Consolidation. Those unaffiliated shareholders
or holders of ADSs who continue as shareholders or holders of ADSs following
the Share Consolidation will maintain approximately the same percentage
ownership that they had prior to the Share Consolidation. The potential loss
of liquidity in ADSs does not appear to be a significant loss given the small
proportion of the Company's ordinary shares represented by ADSs. Furthermore,
the Board of Directors believes that any detriment associated with the
reduction in U.S. public information available regarding the operations and
results of the Company will be offset by the savings in costs and management
time expected to result from termination of the Company's U.S. public
reporting obligations and mitigated by the Company's continuing U.K.
reporting obligations.
The Board has not considered whether the consideration, if any, to be
provided to holders for fractional shares or ADSs is fair, based on current
market prices, historical market prices, net book value, going concern value
or liquidation value. In the case of holders of ordinary shares that would
otherwise be entitled to receive fractional new ordinary shares, QXL will
aggregate such fractions into whole new ordinary shares and sell such shares
for the best price reasonably obtainable, for the benefit of such
shareholders. A due proportion of the proceeds (net of all costs and
expenses) will be paid to each shareholder concerned, subject to retention by
the Company of amounts under 3 Pounds. Likewise, in lieu of delivering
fractional receipts, The Bank of New York will sell the ADSs or the amount of
ordinary shares represented by the aggregate of fractional ADSs, convert the
net sales proceeds into U.S. dollars, and distribute the net proceeds to
holders entitled thereto in proportion to the number of fractional interests
to which the holder would otherwise be entitled. The Company cannot assure
shareholders that the price that the Company will be able to obtain for the
aggregated fractional ordinary shares or that The Bank of New York will
obtain for aggregated ADSs or ordinary shares underlying fractional ADSs will
equal or exceed current or historical trading prices of the ordinary shares
or will bear any relation to the Company's net book value, going concern
value or liquidation value.
After studying the Share Consolidation and its effects on the Company's
shareholders and holders of ADSs, the transaction was unanimously approved
and deemed fair to the unaffiliated shareholders by all of the members of the
Board of Directors. Each member of the Board of Directors and each officer of
the Company who owns ordinary shares has advised the Company that he intends
to vote his shares in favor of the Share Consolidation.
Based on all of the forgoing reasons, the Board of Directors believes that
the Share Consolidation and the process by which the transaction is to be
approved is fair to the unaffiliated shareholders. As a result, the Board of
Directors recommends that the shareholders vote for approval and adoption of
the Share Consolidation as described herein.
The Share Consolidation is proposed as a special resolution for shareholder
approval at the Extraordinary General Meeting and must be approved by a vote
of a majority of not less than three-fourths of the shares entitled to vote
in person or by proxy at the Extraordinary General Meeting.
Summary and Structure of the Share Consolidation
The Board of Directors has authorized, and recommends for your approval the
Share Consolidation, which is the proposed special resolution to effect a 1
for 1,000 Share Consolidation. The Share Consolidation is contingent upon
receiving permission from the London Stock Exchange for new ordinary shares
to be admitted to the Official List and traded on the London Stock Exchange's
market for listed companies and such permission not being withdrawn. Under
the terms of QXL's Articles of Association, the Company will not issue
fractional interests in new ordinary shares. In the case of holders of
ordinary shares that would otherwise be entitled to receive fractional new
ordinary shares, QXL will aggregate such fractions into whole new ordinary
shares and sell such shares for the best price reasonably obtainable, for the
benefit of such shareholders. A due proportion of the proceeds (net of all
costs and expenses) will be paid to each shareholder concerned, subject to
retention by the Company of amounts under 3 Pounds. Shareholders who hold
fewer than 1,000 existing ordinary shares in a discrete account will cease to
be shareholders of QXL. Shareholders holding 1,000 shares or more existing
ordinary shares in a discrete account immediately prior to the 1-for-1,000
Share Consolidation will receive 1 new ordinary share for every 1,000 shares
so held and will continue to be shareholders of the Company.
Each ADS currently represents 250 of QXL's ordinary shares and it is not
proposed to change this ratio following the 1-for-1,000 Share Consolidation.
Holders of existing ADSs will receive one new ADS for each 1,000 existing
ADSs. Accordingly, although each new ADS will represent 250
post-consolidation ordinary shares, each new ADS will represent 1,000
existing ADSs, i.e., 250,000 pre-consolidation ordinary shares. The Bank of
New York will call for surrender of outstanding American Depositary Receipts
(which evidence ADSs) and will issue new receipts evidencing whole new ADSs.
Where an ADS holder currently holds less than 1,000 ADSs , the Bank of New
York will, in lieu of delivering fractional receipts, sell the ADSs or the
amount of ordinary shares represented by the aggregate of such fractions,
convert the net sales proceeds into U.S. dollars, and distribute the net
proceeds to holders entitled thereto in proportion to the number of
fractional interests to which the holder would otherwise be entitled. Holders
of more than 1,000 existing ADSs will continue to hold the Company's ADSs
while holders of fewer than 1,000 existing ADSs will cease to hold the
Company's ADSs.
In order to complete the Share Consolidation, a majority of not less than
three-fourths of the shares as being entitled to vote in person or by proxy
at the Extraordinary General Meeting must approve the special resolution to
effect the Share Consolidation. In addition, it is a condition to the Share
Consolidation that permission be granted for the new ordinary shares to be
admitted to the Official List and to be traded on the London Stock Exchange's
market for listed securities and such permission not having been withdrawn
prior to the creation of the new ordinary shares. The Share Consolidation is
structured to be a "going private" transaction as defined in Rule 13e-3
promulgated under the 1934 Act because it is intended to and, if completed,
will likely terminate the Company's reporting requirements under Section
12(g) of the 1934 Act. In connection with the Share Consolidation, the
Company has filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 with
the Securities and Exchange Commission.
The highlights of the Share Consolidation are as follows.
Reduction in Number of Shareholders and Holders of ADSs and Termination of
Registration under the 1934 Act
The purpose of the Share Consolidation is to eliminate the equity interests
in the Company of U.S. beneficial owners of ordinary shares and ADSs, that,
as of March 28, 2003, the record date for the Share Consolidation (the
"Record Date"), own fewer than 1,000 shares of ordinary shares or 1,000 ADSs
in any discrete account. The Share Consolidation will also have the effect of
reducing the number of ordinary shares and ADSs outstanding.
By eliminating the equity interests of holders of fewer than 1,000 existing
ordinary shares or 1,000 existing ADSs the Company will:
* reduce the cost of maintaining small shareholder accounts, and
* reduce the number of U.S. beneficial owners of ordinary shares and ADSs to
fewer than 300 persons in order to permit the Company to deregister its
ordinary shares and ADSs under the 1934 Act.
The Company's ordinary shares and ADSs are currently registered under the 1934
Act and the Company is a reporting company under the 1934 Act. The Share
Consolidation is intended to reduce the number of U.S. beneficial owners of
ordinary shares and ADSs to fewer than 300, which would permit the Company to
terminate its registration under the 1934 Act and cease to be a U.S. reporting
company. The Company intends to apply for termination of its 1934 Act
registration as soon as practicable after the Share Consolidation is effective.
See "Purpose of the Share Consolidation" and "Anticipated Effects of the Share
Consolidation--Reduction in the Number of Shareholders and Holders of ADSs
and the Number of Outstanding Shares and ADSs."
Effect of the Share Consolidation on Ordinary Shares and ADSs Currently
Outstanding
Shareholders with Fewer than 1,000 Ordinary Shares in a Discrete Account and
Holders of ADSs with Fewer than1,000 ADSs in a Discrete Account
If the Share Consolidation is implemented and you are a shareholder with
fewer than 1,000 ordinary shares in a single discrete account or you are a
holder of ADSs with fewer than 1,000 ADSs in a single discrete account
immediately prior to the Record Date:
* You will not receive a fractional new ordinary share or ADS as a result of
the Share Consolidation.
If you are a shareholder, instead of receiving a fractional new ordinary share,
you will receive your due portion of the net sales proceeds of the aggregated
fractional new ordinary shares, which the Company will sell for the best price
reasonably obtainable, subject to retention by the Company of amounts under 3
Pounds.
If you hold ADSs, instead of receiving a fractional new ADS, you will receive
your due portion of the net sales proceeds of the ordinary shares
representing the aggregate of fractional new ADSs.
After the Share Consolidation, you will have no further interest in the
Company with respect to fractional shares or ADSs, and you will no longer be
entitled to vote as a shareholder or share in the Company's assets, earnings,
or profits with respect to such shares. Your only right will be to receive
cash for these shares or ADSs, subject to the Company's retention of small
amounts in connection with fractional shares, as discussed above.
* Shareholders or holders of ADSs receiving cash in lieu of fractional
interests will receive such payment net of all costs and expenses, meaning
that shareholders or holders of ADSs indirectly pay brokers' commissions and
other expenses relating to the sale of shares out of which the cash payments
are made.
* As soon as practicable after the Share Consolidation, you will receive cash
for the ordinary shares or ADSs you held immediately prior to the Share
Consolidation, except to the extent that the Company has the right to retain
such amounts with regard to fractional shares, in accordance with the
procedures described in this Information Statement.
* All amounts owed to you will be subject to applicable federal and state
income taxes and state abandoned property laws.
* If you hold ordinary shares, any cash payment you receive will be
denominated in British Pounds Sterling, which you are responsible for
converting into U.S. dollars. Fluctuations in exchange rates may affect the
value of the cash payment between the time the payment is made and the time
you convert the payment into U.S. dollars. Financial institutions typically
charge a fee for currency conversion.
* You will not receive any interest on cash payments owed to you as a result
of the Share Consolidation.
NOTE: If you will cease to be a shareholder or holder of ADSs as a result of the
Share Consolidation and you want to continue to hold QXL ordinary shares or ADSs
after the Share Consolidation, you may do so by taking either of the following
actions far enough in advance so that it is complete by the Record Date:
1. purchase a sufficient number of ordinary shares or ADSs on the open
market and have them registered in your name and consolidated with your
current record account, if you are a record holder, or have them entered in
your account with a nominee (such as your broker or bank) in which you hold
your current QXL shares or ADSs so that you hold at least 1,000 ordinary
shares or 1,000 ADSs in your account immediately prior to the Record Date; or
2. if you hold ADSs, convert at least 4 ADSs into 1,000 or more ordinary
shares by surrender of such ADSs to The Bank of New York in exchange for
ordinary shares; or
3. if applicable, consolidate your record accounts or accounts with
nominees so that you hold at least 1,000 ordinary shares or 1,000 ADSs in one
account immediately prior to the Record Date.
You will have to act far enough in advance so that the purchase of ordinary
shares or ADSs, conversion of ADSs and/or consolidation of your accounts
containing ordinary shares or ADSs is complete by the close of business
(London time) on the Record Date.
Shareholders With 1,000 or More Ordinary Shares or 1,000 or More ADSs in a
Discrete Account
If the Share Consolidation is implemented and you are a shareholder with
1,000 or more ordinary shares or a holder of ADSs with 1,000 or more ADSs in
a single discrete account immediately prior to the Record Date:
* Your ordinary shares or ADSs will be converted into new ordinary shares or
ADSs and you will receive one new ordinary share for each 1,000 existing
ordinary shares in your account or one new ADS for each 1,000 existing ADSs
in your account.
* If the number of ordinary shares you hold is not evenly divisible by 1,000,
you will receive new ordinary shares for each 1,000 existing ordinary shares.
Likewise, if the number of ADSs you hold is not evenly divisible by 1,000,
you will receive new ADSs for each 1,000 existing ADSs. You will not receive
fractional shares or ADSs. Instead, if you are a shareholder, you will
receive your due portion of the net sales proceeds of the aggregated
fractional new ordinary shares, which the Company will sell for the best
price reasonably obtainable, subject to retention by the Company of amounts
under 3 Pounds. If you hold ADSs, you will receive your due portion of the
net sales proceeds of the ordinary shares representing the aggregate of
fractional new ADSs.
Effect of the Share Consolidation on QXL
If approved by the Company's shareholders, the Share Consolidation will
affect the public registration of QXL's ordinary shares and the ADSs with the
Securities and Exchange Commission under the 1934 Act, as the Company intends
to apply for termination of such registration as soon as practicable after
approval by shareholders.
The Share Consolidation should reduce significantly the number of QXL
shareholders and the number of outstanding shares and ADSs . See "The
Anticipated Effects of the Share Consolidation--Reduction in the Number of
Shareholders and Holders of ADSs and the Number of Outstanding Shares and
ADSs." The Company believes that completion of the Share Consolidation and
the deregistration of the Company's ordinary shares and ADSs under the 1934
Act will cause the public market for ADSs to be eliminated or substantially
reduced. The public market will for the ordinary shares will continue to be
the London Stock Exchange.
The Company has no current plans to make a public offering in the United
States, but the Company reserves the right to do so at any time and from time
to time at such prices and on such terms as the Company's Board of Directors
determines to be in the best interests of the Company and its then
shareholders. Persons who continue as shareholders following implementation
of the Share Consolidation will not have any preemptive or other preferential
rights to purchase any of QXL's stock that may be issued by the Company in
the future, unless such rights are specifically granted to the shareholders.
The Anticipated Effects of the Share Consolidation
(1) Reduction in the Number of Shareholders and Holders of ADSs and the
Number of Outstanding Shares and ADSs. The Company believes that the Share
Consolidation will reduce the number of record holders of ordinary shares and
ADSs from approximately 12,983 and 40 to approximately 7,446 and 5,
respectively. The Company also believes that the number of beneficial holders
of ordinary shares and ADSs will be reduced significantly, though a precise
estimate cannot be determined. Based on information provided by various
brokers, the Company believes that approximately 8,950 beneficial holders of
ADSs will have their equity interests liquidated as a result of the Share
Consolidation. The Company believes that the Share Consolidation will reduce
the number of ordinary shares and ADSs outstanding of record from
approximately 915,263,039 and 229,036 to approximately 915,263 and 229,
respectively, assuming 914,347,776 existing ordinary shares and 228,807 ADSs
are eliminated. The Company also believes that completion of the Share
Consolidation and the withdrawal of the ADSs from the Nasdaq Stock Market
will cause the public market for ADSs to be substantially reduced or possibly
eliminated. See "Effect on the Market for Shares and ADSs" below.
At December 31, 2002, aggregate shareholders' equity in the Company was
approximated at (3.74) million Pounds, or (0.4)p per ordinary share. It is
expected that, as a result of the Share Consolidation and the elimination of
fractional interests
* aggregate shareholders' equity in the Company will remain at approximately
(3.74) million Pounds (at December 31, 2002);
* the book value per ordinary share will be decreased from approximately
(0.4)p (at December 31, 2002) to (3.85) Pounds assuming the pro forma
adjustments set out in the section below headed "Financial Effect of the
Share Consolidation" are taken into account; and
* net annual loss per ordinary share will be increased from (5.3)p to (52.75)
Pounds assuming the pro-forma adjustments set out in section below headed
"Financial Effects of the Share Consolidation" are taken intoaccount and also
that the Company's future annual net income (including non-recurring income)
will be the same as in fiscal 2002.
See "Financial Effect of the Share Consolidation."
(2) Termination of Exchange Act Registration. The Company's ordinary shares
and ADSs are currently registered under the 1934 Act. Such registration may
be terminated by the Company if the ordinary shares and ADSs are no longer
beneficially owned by 300 or more U.S. persons. Termination of registration
of the ordinary shares and ADSs under the 1934 Act would substantially reduce
the information required to be furnished by the Company to its U.S.
shareholders and holders of ADSs and to the Securities and Exchange
Commission and would make certain provisions of the 1934 Act, such as many
provisions relating to tender offers, no longer applicable to the Company.
Accordingly, for a total expenditure by the Company of approximately 65,000
Pounds (excluding amounts payable to holders of fractional interests, which
will be paid out of net sales proceeds) the Company estimates it will
eliminate costs and expenses associated with continuance of the 1934 Act
registration, which the Company estimates are approximately $585,000 on an
annual basis. These amounts are expected to increase substantially in the
future. The Company intends to apply for such termination as soon as
practicable following effectiveness of the Share Consolidation.
(3) Effect on Market for Shares and ADSs. The Company's ordinary shares are
currently traded on the London Stock Exchange and, pending permission being
granted for listing of the new ordinary shares, will continue to be traded on
the London Stock Exchange. The ADSs trade on the Nasdaq Stock Market. In the
event the registration of the ordinary shares and ADSs is terminated under
the 1934 Act, the ADSs will cease to be eligible to be traded on the Nasdaq
Stock Market and this source of liquidity will no longer be available. As
part of the Share Consolidation, the Company plans to withdraw the ADSs from
quotation on the Nasdaq Stock Market.
Following consummation of the Share Consolidation, the Company will seek to
have the ADSs quoted on the Pink Sheets(R). Pink Sheets is a centralized
quotation service that collects and publishes market maker quotes for
over-the-counter or OTC securities. The Pink Sheets is not a stock exchange
or a regulated entity. Price quotations are provided by OTC market makers and
company information is provided by the OTC companies. In order for the ADSs
to be quoted on the Pink Sheets, it is necessary that one or more
broker-dealers act as market makers and sponsor the ADSs on the Pink Sheets.
There can be no assurance that any broker-dealer will be willing to act as a
market maker in the ADSs after the Share Consolidation and the subsequent
termination of the registration of the Company's ordinary shares and the ADSs.
Upon termination of the registration of the ordinary shares and ADSs under
the 1934 Act, the reduction in public information in the U.S. concerning the
Company and the termination of the Company's status as a reporting company
will likely adversely affect the liquidity of the ADSs which in turn will
likely have an adverse effect on the market value of the ADSs. If the ADSs
are quoted on the Pink Sheets there may remain some liquidity in the ADSs
following the Share Consolidation, but this liquidity is likely to be
substantially less than that available through quotation on the Nasdaq Stock
Market. If the ADSs are not quoted on the Pink Sheets, liquidity will be even
further reduced. In addition, the increase in the per share price of the ADSs
and the decrease in the number of ADSs outstanding as a result of the Share
Consolidation may also adversely affect the liquidity and market value of the
ADSs.
(4) Change in Nominal Value. The ordinary shares currently have a nominal
value of 0.1p each. Following consummation of the Share Consolidation, the
ordinary shares will have a nominal value of 1 Pound.
(5) Adjustment of Employee and Director Stock Options. Under the rules of the
Company's share option schemes appropriate adjustments will be made to any
outstanding employee or director stock options to reflect the Share
Consolidation.
(6) Adjustment of Convertible Bonds and Warrants. Under the terms of the
Convertible Bonds and Warrants, appropriate adjustments will also be made to
the terms of outstanding Convertible Bonds and Warrants to reflect the Share
Consolidation.
Potential Detriments of the Share Consolidation to Shareholders and Holders
of ADSs; Accretion in Ownership and Control of Certain Shareholders
As described in numbers (2) and (3) in the preceding section, potential
detriments to the Company, its affiliates, and shareholders and holders of
ADSs who remain as shareholders or holders of ADSs if the Share Consolidation
is effected include decreased access to information in the U.S. and decreased
liquidity for the ADSs. If the Share Consolidation is effected, the Company
intends to terminate the registration of its ordinary shares and the ADSs
under the 1934 Act. As a result of such termination, the Company will no
longer be subject to the periodic reporting requirements of the 1934 Act. The
liquidity and market value of the ADSs will likely be adversely affected by
the Share Consolidation and by termination of the registration of the
ordinary shares under the 1934 Act. See "The Anticipated Effects of the Share
Consolidation -- Termination of Exchange Act Registration" and "Effect on
Market for Shares and ADSs".
Termination of the registration of the ordinary shares and ADSs under the
1934 Act, the reduction in public information in the U.S. concerning the
Company, the termination of the Company's status as a reporting company, and
withdrawal of the ADSs from Nasdaq Stock Market will likely adversely affect
the liquidity of the ADSs which in turn will likely have an adverse effect on
the market value of the ADSs. If the ADSs are quoted on the Pink Sheets there
may remain some liquidity in the ADSs following the Share Consolidation, but
this liquidity may be substantially less than that available through
quotation on Nasdaq Stock Market. If the ADSs are not quoted on the Pink
Sheets, liquidity will be even further reduced. In addition, the increase in
the per share price of the ADSs and the decrease in the number of ADSs
outstanding as a result of the Share Consolidation may also adversely affect
the liquidity and market value of the ADSs.
If the Share Consolidation is implemented, the officers and directors of the
Company (and other holders of more than 1,000 existing ordinary shares) will
not benefit by an increase in their percentage ownership of the Company's
ordinary shares and in the net book value of their holdings. See "The
Anticipated Effects of the Share Consolidation" and "Recommendation of the
Board of Directors; Fairness of the Share Consolidation".
It is expected that upon the completion of the Share Consolidation, the
directors and executive officers of QXL will own approximately 3,754 new
ordinary, or approximately 0.41% of the then issued and outstanding new
ordinary shares, as compared to 3,754,080 shares and approximately 0.41%,
respectively, prior to the Share Consolidation. The Company's ordinary
shares' book value will be (0.4) p prior to the Share Consolidation and
(4.26) Pounds after the Share Consolidation (ignoring pro forma adjustments).
The collective book value of the ordinary shares held by officers and
directors as a group will be (15,992) Pounds prior to the Share Consolidation
and (15,992) Pounds after the Share Consolidation.
The Board of Directors did not retain either an investment bank or other
financial adviser to render a report or opinion with respect to the fairness
of the Share Consolidation to the Company or its shareholders and holders of
ADSs or an unaffiliated representative to represent the unaffiliated
shareholders of the Company and holders of ADSs in negotiating the terms of
the Share Consolidation.
Financial Effect of the Share Consolidation
The Share Consolidation is not expected to have any material adverse effect
on the Company's capitalization, liquidity, results of operations or cash
flow, but the Company anticipates realizing cost savings due to reduction in
expenses related to being a U.S. reporting company.
The Company expects to be able to finance the expense of effecting the Share
Consolidation with cash on hand. Cash paid for fractional interests will be
paid from the net sales proceeds of aggregate fractional interests by the
Company (in the case of ordinary shares) or by The Bank of New York (in the
case of ADSs).
The following pro forma financial information presents the effect on the
Company's historical financial position of the Share Consolidation, including
expenses of the transactions described herein and taking into account the
anticipated direct annual savings arising from the Share Consolidation
described above. The unaudited pro forma balance sheets reflect the
transaction as if it occurred on the balance sheet date. The unaudited pro
forma statements of operations reflect the transaction as if it had occurred
at the beginning of the period presented.
The unaudited pro forma balance sheets are not necessarily indicative of what
the Company's financial position would have been if the Share Consolidation
had been effected on the dates indicated, or will be in the future. The
information shown on the unaudited pro forma statements of operations is not
necessarily indicative of the results of future operations.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and accompanying footnotes of the
Company, which are incorporated by reference into this Information Statement.
See "Additional Information - Financial and Other Information."
UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE TWELVE MONTH PERIOD ENDED MARCH 31, 2002 AND THE NINE MONTH PERIOD
ENDED DECEMBER 31, 2002
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
9 months to Adjustments Year to March Adjustments
December 31, 31, 2002
2002
Consolidated Profit
and Loss Data:
U.K. GAAP (in thousands of pounds)
Revenue
Operations before 4,048 - 4,048 5,415 - 5,415
acquisitions
Acquisitions 180 - 180 - - -
Continuing 4,228 - 4,228 5,415 - 5,415
operations
Cost of sales (30) - (30) (540) - (540)
Gross profit 4,198 - 4,198 4,875 - 4,875
Distribution (13,169) - (13,169) (31,830) - (31,830)
costs
Administrative (5,373) 302 (5,071) (13,691) 302 (13,389)
expenses
Net operating (18,542) 302 (18,240) (45,521) 302 (45,219)
expenses
Operating loss
Operations before (13,948) 302 (13,646) (40,646) 302 (40,3446)
acquisitions
Acquisitions (396) - (396) - -
Continuing (14,344) 302 (14,042) (40,646) 302 (40,344)
operations
Net interest 98 - 98 716 - 716
receivable
Loss on ordinary
activities before (14,246) 302 (13,944) (39,930) 302 (39,628)
taxation
Tax on loss on - - - - - -
ordinary
activities
Loss on ordinary
activities after (14,246) 302 (13,944) (39,930) 302 (39,628)
taxation
Equity minority 52 - 52 2,000 - 2,000
interests
Loss for the (14,194) 302 (13,892) (37,930) 302 (37,628)
financial year
Historical 9 Pro Forma Pro Forma Historical Pro Forma Pro Forma
months to Adjustments Year to March Adjustments
December 31, 31, 2002
2002
Consolidated
Profit and Loss
Data (continued):
U.K. GAAP (in thousands of pounds except for per share data)
Retained loss for (14,194) 302 (13,892) (37,930) 302 (37,628)
the period
Loss per equity
share
- basic and (1.6)p (1,599)p (5.3)p (5,275)p
diluted
U.S. GAAP
Loss for the N/A N/A (58,509) 302 (58,207)
period
Loss per equity
share
- basic and N/A N/A (8.2)p (8,159)p
diluted
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2002
Consolidated Balance Sheet Data:
Historical
December 31, Pro Forma
2002 Adjustments (1) Pro Forma
U.K. GAAP (in thousands of pounds except for per share data)
Total assets 13,373 302 13,675
Net assets / capital employed (4,365) 302 (4,063)
Equity minority interest 627 - 627
Total equity shareholders' funds (3,738) 302 (3,436)
Book value per share at December 31, (0.4)p (385)p
2002
Note:
(1) Represents the estimated annual direct cost savings of complying
with Securities and Exchange Commission reporting requirements (see "Purpose
of the Share Consolidation" for further detail) less the estimated cash costs
of completing the Share Consolidation (which includes professional fees).
Stock Certificates and American Depositary Receipts
If you hold a stock certificate representing your shares, your certificates
will no longer be valid from the time that the new ordinary shares are
admitted to trading on the London Stock Exchange. You will be mailed new
certificates evidencing new ordinary shares shortly after consummation of the
Share Consolidation. Upon receipt of the new certificate, you should destroy
any old certificates. Pending dispatch of the new certificates, transfers of
certificated new ordinary shares will be certified against the Company's
share register.
In connection with the Share Consolidation, the ADSs and QXL's ordinary
shares will each be identified by a new Committee On Uniform Security
Identification Procedures ("CUSIP") number. These new CUSIP numbers will
appear on any ADRs and any stock certificates representing shares of QXL
ordinary shares after the Share Consolidation.
For holders of ADSs, The Bank of New York, will be responsible for the
exchange of existing ADRs evidencing existing ADSs for new ADRs evidencing
new ordinary shares and/or cash. In connection with the Share Consolidation,
The Bank of New York will call for surrender of ADRs evidencing existing ADSs
and will issue new ADRs specifically describing new ordinary shares. The Bank
of New York will furnish such materials as are necessary to effect such
surrender and instructions with regard to payment of cash for fractional
interests. Do not send your ADRs to The Bank of New York until you have
received a written request for surrender and followed the instructions
therein.
FOREIGN CURRENCY INFORMATION
QXL's financial statements, and many of the other figures in this Information
Statement, are presented in British Pounds Sterling. The following table sets
forth, for the periods and dates indicated, information concerning the Noon
Buying Rates for British Pounds Sterling expressed in U.S. dollars per
British Pound Sterling. The average is computed using the Noon Buying Rate on
the last business day of each month (or shorter applicable period) during the
period indicated.
Average exchange rates of U.S. dollars per British Pound Sterling
Average
Year Ended March 31, 2001 1.4737
Year Ended March 31, 2002 1.4320
The Noon Buying Rate for British Pound Sterling on February 19, 2003 was 1.00
Pound = $1.5957.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Summarized below are the material federal income tax consequences to the
Company and holders of ordinary shares and ADSs resulting from the Share
Consolidation. The following discussion is without regard to the particular
facts and circumstances of each holder. This summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Department Regulations issued pursuant to the Code and published
rulings and court decisions in effect as of the date hereof, all of which are
subject to change, possibly with retroactive effect. This summary does not
discuss all aspects of U.S. federal income taxation which may be important to
particular holders in light of their individual circumstances, such as
holders who acquired their ordinary shares or ADSs through the exercise of
options or otherwise as compensation. Many shareholders (such as financial
institutions, insurance companies, broker-dealers, tax-exempt organizations,
persons who hold shares or ADSs as part of a larger integrated financial
transaction or straddle, corporate holders that own, directly or by
attribution, 10.0% or more of QXL's outstanding share capital, and foreign
persons) may be subject to special tax rules. In addition, this summary does
not discuss any state, local, foreign, or other tax considerations.
This summary assumes that you are one of the following: (1) an individual
citizen or resident of the United States; (2) a corporation or other entity
that is taxable as a corporation that is created or organized under the laws
of the United States or any state thereof or the District of Columbia; (3) an
estate, the income is subject to taxation in the United States regardless of
its source; (4) a trust if a U.S. court is able to exercise primary
supervision over administration of the trust and one or more U.S. persons
have authority to control all substantial decisions of the trust; or (5) a
partnership, to the extent the interest therein is owned by any of the
persons in the preceding clauses and are not resident in United Kingdom for
U.K. tax purposes. Persons in one of the preceding categories are sometimes
referred to, for purposes of this summary, as "U.S. holders." Persons who do
not fall into one of the above categories are referred to as "Non-U.S.
holders." This summary also assumes that you have held and will continue to
hold your ordinary shares or ADSs as capital assets for investment purposes
under the Code.
You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences, in light of your specific
circumstances.
We believe that the Share Consolidation will be treated as a tax-free
"recapitalization" for federal income tax purposes. This will result in no
material federal income tax consequences to the Company.
Federal Income Tax Consequences to Holders Who Hold Ordinary Shares or ADSs
in Multiples of 1,000 on the Record Date
If you (1) continue to hold ordinary shares or ADSs immediately after the
Share Consolidation, and (2) you would not otherwise be entitled to receive a
fractional ordinary share or ADS as a result of the Share Consolidation, you
will not recognize any gain or loss in the Share Consolidation. Your
aggregate adjusted tax basis in your ordinary shares or ADSs held immediately
after the Share Consolidation will be equal to your aggregate adjusted tax
basis in your ordinary shares or ADSs held immediately prior to the Share
Consolidation, and you will have the same holding period in your ordinary
shares or ADSs as you had in such ordinary shares or ADSs immediately prior
to the Share Consolidation.
Federal Income Tax Consequences to Holders Who Do Not Hold Ordinary Shares or
ADSs in Multiples of 1,000 on the Record Date
If you would otherwise be entitled to receive a fractional share or ADS as a
result of the Share Consolidation, your tax consequences will depend on
whether you or a person or entity related to you continues to hold ordinary
shares or ADSs immediately after the Share Consolidation, as explained below.
The following discussion is subject to the discussion under the subheading
"Private Foreign Investment Company Considerations."
Holders Who Cease to Hold Ordinary Shares or ADSs as a Result of the Share
Consolidation
If you (1) would otherwise be entitled to receive a fractional ordinary share
or ADS as a result of the Share Consolidation, (2) you do not continue to
hold any ordinary shares or ADSs immediately after the Share Consolidation,
and (3) you are not related to any person or entity which holds ordinary
shares or ADSs immediately after the Share Consolidation, you will recognize
capital gain or loss. If you receive cash in lieu of fractional interests,
the amount of capital gain or loss you recognize will equal the difference
between the cash you receive for the fractional interest and your aggregate
adjusted tax basis in such ordinary shares or ADSs. If you do not receive
cash, you will recognize a capital loss equal to your aggregate adjusted tax
basis in such ordinary shares or ADSs.
If you are related to a person or entity who continues to hold ordinary
shares or ADSs immediately after the Share Consolidation, you will recognize
gain or loss in the same manner as set forth in the previous paragraph,
provided that your receipt of cash either (1) is "not essentially equivalent
to a dividend" or (2) is a "substantially disproportionate redemption of
stock," as described below.
* "Not Essentially Equivalent to a Dividend." You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in the Company resulting from the Share Consolidation
is considered a "meaningful reduction" given your particular facts and
circumstances. The Internal Revenue Service has ruled that a small reduction
by a minority shareholder whose relative stock interest is minimal and who
exercises no control over the affairs of the corporation will meet this test.
* "Substantially Disproportionate Redemption of Stock." The receipt of cash
in the Share Consolidation will be a "substantially disproportionate
redemption of stock" for you if the percentage of the outstanding ordinary
shares or ADSs owned by you immediately after the Share Consolidation is less
than 80% of the percentage of ordinary shares or ADSs owned by you
immediately before the Share Consolidation.
In applying these tests, you will be treated as owning shares or ADSs actually
or constructively owned by certain individuals and entities related to you. If
your receipt of cash in exchange for ordinary shares or ADSs does not give rise
to capital gain or loss under any of the tests, it will be treated first as
ordinary dividend income to the extent of your ratable share of QXL's
undistributed earnings and profits, then as a tax-free return of capital to the
extent of your aggregate adjusted tax basis in your shares, and any remaining
amount will be treated as capital gain. See "Capital Gain and Loss" below.
Any cash payment you receive for ordinary shares will be paid in British
Pounds Sterling. You should determine the U.S. dollar amount includible in
your income by reference to the exchange rate in effect on the day you
receive the payment. If you convert the payment into dollars on the day you
receive it, you should not be required to recognize foreign currency gain or
loss.
Holders Who Both Would Otherwise Be Entitled to Receive Fractional Ordinary
Shares or ADSs and Continue to Hold Ordinary Shares or ADSs Immediately After
the Share Consolidation.
If you both would otherwise be entitled to receive a fractional ordinary
share or ADS as a result of the Share Consolidation and continue to hold
ordinary shares or ADSs immediately after the Share Consolidation, you
generally will recognize gain, but not loss, in an amount equal to the lesser
of (1) the excess of the sum of aggregate fair market value of your ordinary
shares or ADSs plus the cash received over your adjusted tax basis in the
shares or ADSs, or (2) the amount of cash received in the Share
Consolidation. Your aggregate adjusted tax basis in your ordinary shares or
ADSs held immediately after the Share Consolidation will be equal to your
aggregate adjusted tax basis in your ordinary shares or ADSs held immediately
prior to the Share Consolidation, increased by any gain recognized in the
Share Consolidation, and decreased by the amount of cash received in the
Share Consolidation.
Any gain recognized in the Share Consolidation will be treated, for federal
income tax purposes, as capital gain, provided that your receipt of cash
either (1) is "not essentially equivalent to a dividend" with respect to you,
or (2) is a "substantially disproportionate redemption of stock" with respect
to you. (Each of the terms in quotation marks in the previous sentence is
discussed above under the heading "--Holders Who Cease to Hold Ordinary
Shares or ADSs as a Result of the Share Consolidation."). In applying these
tests, you will be treated as owning ordinary shares or ADSs held by certain
individuals and entities related to you, and you may possibly take into
account sales of ordinary shares or ADSs that occur substantially
contemporaneously with the Share Consolidation. If your gain is not treated
as capital gain under any of these tests, the gain will be treated as
ordinary dividend income to you to the extent of your ratable share of QXL's
undistributed earnings and profits, then as a tax-free return of capital to
the extent of your aggregate adjusted tax basis in your shares, and any
remaining gain will be treated as a capital gain. See "Capital Gain and Loss"
below.
Please see the final paragraph of "--Holders Who Cease to Hold Ordinary
Shares or ADSs as a Result of the Share Consolidation" with regard to
conversion of payments received in lieu of fractional ordinary shares from
British Pounds Sterling into dollars.
Capital Gain and Loss
For individuals, net capital gain (defined generally as your total capital
gains in excess of capital losses for the year) recognized upon the sale of
capital assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 20%. Net capital gain recognized from
the sale of capital assets that have been held for 12 months or less will
continue to be subject to tax at ordinary income tax rates. In addition,
capital gain recognized by a corporate taxpayer will continue to be subject
to tax at the ordinary income tax rates applicable to corporations. There are
limitations on the deductibility of capital losses.
Passive Foreign Investment Company Considerations
In its Form 20-F for the fiscal year ended March 31, 2002, the Company stated
that is was likely to be treated as a passive foreign investment company (a
"PFIC") for U.S. federal income tax purposes for the fiscal year ended March
31, 2002. However, an actual determination of PFIC status is factual in
nature and will depend on, among other things, a valuation of our assets,
including goodwill and other intangible assets.
A company will be classified as a PFIC in a particular taxable year if either:
* 75.0% or more of its gross income for the taxable year is passive income; or
* on average for the taxable year the percentage of the value of its assets
that produce or are held for the production of passive income is at least
50.0%. The U.S. Internal Revenue Service has indicated that cash balances,
even if held as working capital, are considered to be assets that produce
passive income.
If the Company is a PFIC with respect to any U.S. holder, generally any gain
recognized by a U.S. holder upon the disposition of ADSs or shares is not
entitled to capital gain treatment upon such disposition and a non-deductible
interest charge is imposed to reflect the holder's deferral of tax on such
income allocated to prior taxable years. As a result, any gain upon such
disposition would be treated as ordinary income.
This special PFIC rule generally would not apply to the receipt of cash
pursuant to the Share Consolidation, however, if, in the first year of such
holder's ownership of ordinary shares or ADSs QXL was a PFIC ("Initial
Year"), the holder either (x) made an election to treat QXL as a qualified
electing fund to include in income on a current basis such holder's share of
the income or gain of QXL ("QEF Election") or (y) made an election ("Mark-to-
Market Election") to recognize on a current basis increases or decreases in
the value of the holder's Securities. If the holder did not make a QEF
Election in the Initial Year but did make a QEF Election in a subsequent
year, the special PFIC rule also generally would not apply if such holder had
made an additional election ("Purging Election") to include certain amounts
in income with respect to its Securities in the year the Purging Election was
made.
Any U.S. Holder who believes that QXL is or may be a PFIC with respect such
holder is urged to consult its tax advisors.
Non-U.S. Holders
A Non-U.S. Holder will generally not be subject to U.S. federal income tax on
gain recognized upon the receipt of cash in lieu of fractional ordinary
shares or ADSs pursuant to the Share Consolidation unless (i) the gain is
effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Holder or (ii) in the case of a non-US Holder
who is a non-resident alien individual, such holder is present in the United
States for 183 days or more and either (A) such gain or income is
attributable to an office or other fixed place of business maintained in the
United States by such holder or (B) such holder has a tax home in the United
States. Non-US Holders should also consult applicable treaties, if any, which
may exempt them from US taxation on any such gain.
Backup Withholding
Holders of ADSs will be required to provide their social security or other
taxpayer identification numbers (or, in some instances, additional
information) to The Bank of New York in connection with the Share
Consolidation to avoid backup withholding requirements that might otherwise
apply. The letter of transmittal will require each shareholder to deliver
such information when ADRs are surrendered following the Record Date. Failure
to provide such information may result in backup withholding at a rate of 30%
on the gross amount of any payments. Backup withholding is not generally
applicable to payments in lieu of fractional interests of less than $20.
As explained above, the amounts paid to you as a result of the Share
Consolidation may result in dividend income, capital gain income, or some
combination of dividend and capital gain income to you depending on your
individual circumstances. You should consult your tax advisor as to the
particular federal, state, local, foreign, and other tax consequences of the
transaction, in light of your specific circumstances.
PRICE RANGE OF ORDINARY SHARES AND ADSs; DIVIDENDS
Price Range
General
QXL's shares have been quoted on the Official List of the United Kingdom
Listing Authority and traded on the London Stock Exchange, which is QXL's
principal trading market, under the symbol "QXL" since October 7, 1999. ADSs
are listed on the Nasdaq Stock Market and have traded under the symbol "QXLC"
since October 7, 1999.
Trading History
The table below sets forth the high and low bid prices of our ordinary shares
on the London Stock Exchange and of our ADSs as reported by the Nasdaq Stock
Market for the periods indicated. All information gives effect to an increase
in the amount of ordinary shares per ADS from 25 to 250, effective December
31, 2001.
London Stock Exchange Nasdaq Stock Market
Price per ordinary share Price per ADS
(pence) ($)
High Low High Low
Quarter ended
March 31, 2001 17.50 4.00 75.47 16.25
June 30, 2001 9.75 4.25 44.20 15.00
Sept. 30, 2001 6.50 2.00 24.90 7.50
Dec. 31, 2001 3.75 2.00 15.50 8.00
March 31, 2002 3.00 0.90 11.55 3.25
June 30, 2002 1.00 0.35 4.15 1.00
Sept. 30, 2002 0.55 0.30 2.25 1.10
Dec. 31, 2002 0.70 0.29 3.25 1.16
Stock Repurchases by Company
The Company made no purchases of its ordinary shares or ADSs during each
quarter of the fiscal years ended March 31, 2002 and 2001 and the first three
quarters of the fiscal year ending March 31, 2003.
Dividends
The Company has not paid dividends since inception.
ADDITIONAL INFORMATION
Financial and Other Information
The following selected consolidated profit and loss account data for the nine
months ended December 31, 2002 and 2001 and the years ended March 31, 2002
and 2001 and the consolidated balance sheet data as at December 31, 2002 and
March 31, 2002 and 2001 are derived from our audited consolidated financial
statements and the related notes appearing in the Company's 2002 and 2001
Annual Reports on Form 20-F filed with the Securities and Exchange Commission
(and filed as an exhibit to the Schedule 13E-3 filed with the Securities and
Exchange Commission relating to this transaction) and, for the nine months
ended December 31, 2002 and 2001, on the Company's unaudited financial
statements submitted to the Securities and Exchange Commission on the
Company's periodic report on Form 6-K dated February 14, 2003. The Schedule
13E-3 and Form 6-K are available on the Securities and Exchange Commission's
web site at http://www.sec.gov. These figures have been prepared in
conformity with U.K. GAAP, which differs from U.S. GAAP.
Nine months ended December 31, Year ended March 31,
Consolidated Profit and Loss
Data: (Unaudited) (Unaudited)
U.K. GAAP 2002 2001 2002 2001
(in thousands of pounds)
Revenue
Operations before 4,048 4,171 5,415 15,055
acquisitions
Acquisitions 180 - - -
Continuing operations 4,228 4,171 5,415 15,055
Cost of sales (30) (547) (540) (12,402)
Gross profit 4,198 3,624 4,875 2,653
Distribution costs (13,169) (20,408) (31,830) (116,332)
Administrative expenses (5,373) (9,362) (13,691) (28,590)
Net operating expenses (18,542) (29,770) (45,521) (144,922)
Operating loss
Operations before (13,948) (26,146) (40,646) (142,269)
acquisitions
Acquisitions (396) - - -
Continuing operations (14,344) (26,146) (40,646) (142,269)
Share of loss of joint - - - (3,417)
venture
Loss on ordinary activities
before interest (14,344) (26,146) (40,646) (145,686)
Net interest receivable 98 441 716 2,541
Loss on ordinary activities
before taxation (14,246) (27,705) (39,930) (143,145)
Tax on loss on ordinary - - - -
activities
Loss on ordinary activities after
taxation (14,246) (27,705) (39,930) (143,145)
Equity minority interests 52 1,313 2,000 4,105
Loss for the financial year (14,194) (24,392) (37,930) (139,040)
Nine months ended December 31, Year ended March 31,
Consolidated Profit and Loss
Data (continued): 2002 2001
U.K. GAAP (Unaudited) (Unaudited) 2002 2001
(in thousands of pounds except for per share data)
Retained loss for the financial (14,194) (24,392) (37,930) (139,040)
year
Loss per equity share
- basic and diluted (1.6)p (3.3)p (5.3)p (30.0)p
U.S. GAAP
Loss for the financial year N/A N/A (58,509) (608,739)
Loss per equity share
- basic and diluted N/A N/A (8.2)p (131.6)p
As at December 31, As at March 31,
Consolidated Balance Sheet Data: 2002
(Unaudited) 2002 2001
U.K. GAAP (in thousands of pounds except for per share data)
Total assets 13,373 29,585 63,005
Net assets / capital employed (4,365) 9,662 44,200
Equity minority interest 627 733 (2,625)
Total equity shareholders' funds (3,738) 10,395 41,575
Book value per share at December 31, 2002 (0.4)p - -
U.S. GAAP
Equity shareholders' funds under U.S. N/A 16,800 52,681
GAAP
Summary of differences between U.K. GAAP and U.S. GAAP
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("U.K. GAAP").
Losses for the years ended March 31, 2002 and 2001 were 37.9 million Pounds
and 139.0 million Pounds respectively. Net losses under U.S. GAAP for the
years ended March 31, 2002 and 2001 were 58.5 million Pounds and 608.7
million Pounds respectively.
The following are the material differences between U.K. GAAP and U.S. GAAP
with respect to net loss in the year ended March 31, 2002 and the nine months
ended 31 December 2002, none of which affected our gross margin:
* Under U.K. GAAP the value of the shares used as consideration in an
acquisition is set at the date that the relevant share-for-share exchange is
completed, whereas under U.S. GAAP the value of the shares used as
consideration is set at the date of the announcement of agreement. As the
announcement of the acquisitions in the year ended March 31, 2002 was
concurrent with the consummation of the acquisitions, there is no difference
between U.S. and U.K. GAAP in the year ended March 31, 2002.
* Under U.K. GAAP, a significant amount of the goodwill arising out of
acquisitions was written off in the year to March 31, 2002 as an exceptional
impairment provision. Under U.S. GAAP an additional impairment charge of 0.6
million Pounds was made in the year ended March 31, 2002 to revalue the
goodwill based on the anticipated future cash flows of the businesses
acquired. As a result of this impairment, the valuation of goodwill being
shown under both U.K. and U.S. GAAP for that period is comparable, however
the charge to net loss under U.S. GAAP is higher than that under U.K. GAAP
due to the higher value of goodwill arising under U.S. GAAP.
* Under U.K. GAAP, capitalized goodwill is amortised on a straight-line basis
over its expected useful economic life. The expected useful economic life is
up to 39 months from the date of acquisition based on future expected
earnings. In the nine months to December 31, 2002, 5,363,000 Pounds of
goodwill was therefore amortised. Under U.S. GAAP, SFAS 142 (see "Recently
Issued Accounting Pronouncements" below) would prohibit the amortisation of
goodwill and indefinite lived intangible assets.
* Under U.K. GAAP, the proceeds allocated to warrants issued were based on
the market price of our ordinary shares at the time of issue taking into
account the exercise price of the warrants. Under U.S. GAAP, the proceeds
from the issuance of debt instruments with detachable warrants must be
allocated based on the relative fair values of the debt and warrant
instruments. The proceeds allocated to the warrants are recorded in Equity
Shareholders' Funds. The proceeds allocated to the 2% Convertible Bonds
represent the initial carrying value of the debt with the difference between
carrying value and the respective face value representing a debt discount.
This discount is amortised to interest expense over the term of the related
2% Convertible Bonds using the effective interest method.
* The conversion price per share of the 2% Convertible Bonds "resets" upon
certain events. Such resetting has resulted in a beneficial conversion
feature to the holders. Under U.K. GAAP, there is no accounting recognition
of the beneficial conversion feature as a result of these resets. Under U.S.
GAAP, the beneficial conversion feature is measured and recorded as a debt
discount and amortised over the period until the debt is convertible. As the
2% Convertible Bonds are immediately convertible at the holder's discretion,
the beneficial conversion feature has been charged to interest expense at the
time of reset and a corresponding amount recorded in Equity Shareholders'
Funds.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB or the "Board")
issued Statement of Financial Accounting Standards No. 141 (SFAS 141),
Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, collectively referred to as the "Standards". SFAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16, Business Combination. The
provisions of SFAS 141 (1) require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, (2) provide
specific criteria for the initial recognition and measurement of intangible
assets apart from goodwill, and (3) require that unamortised negative
goodwill be written off immediately as an extraordinary gain instead of being
deferred and amortised. SFAS 141 also requires that upon adoption of SFAS 142
we reclassify the carrying amounts of certain intangible assets into or out
of goodwill, based on certain criteria. SFAS 142 supersedes APB 17,
Intangible Assets, and is effective for fiscal years beginning after December
15, 2001. SFAS 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their initial recognition. The provisions of
SFAS 142 (1) prohibit the amortisation of goodwill and indefinite-lived
intangible assets, (2) require that goodwill and indefinite-lived intangibles
assets be tested annually for impairment (and in interim periods if certain
events occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired), (3) require that
reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and (4) remove the forty-year limitation on the
amortisation period of intangible assets that have finite lives.
If the Share Consoldiation is not implemented and the Company is still
required to report under US GAAP, we will adopt the provisions of SFAS 142
for the year ending March 31, 2003. SFAS 142 requires that goodwill be tested
annually for impairment using a two-step process. The first step is to
identify a potential impairment and, in transition, this step must be
measured as of the beginning of the fiscal year. However, a company has six
months from the date of adoption to complete the first step. The second step
of the goodwill impairment test measures the amount of the impairment loss
(measured as of the beginning of the year of adoption), if any, and must be
completed by the end of our fiscal year. Intangible assets deemed to have an
indefinite life will be tested for impairment using a one-step process which
compares the fair value to the carrying amount of the asset as of the
beginning of the fiscal year. Any impairment loss resulting from the
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle in the first quarter of the year ending March
31, 2003, if the Company is still required to report under US GAAP. We have
not yet determined what effect these impairment tests will have on our
earnings and financial position. At March 31, 2002, we had unamortised
goodwill of approximately 10.7 million Pounds under US GAAP. Total goodwill
amortisation was approximately 13.4 million Pounds for the year ended March
31, 2002 which will not be incurred in the year ending March 31, 2003 under
US GAAP.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets. This standard will be effective for our fiscal year ending March 31,
2004, however early adoption is permitted. This standard provides the
accounting requirements for retirement obligations associated with tangible
long-lived assets. This standard requires that the obligation associated with
the retirement of the tangible long-lived assets is capitalised into the
asset cost at the time of initial recognition. The liability is then
discounted to its fair value at the time of recognition using the guidance
provided by the standard. We are currently assessing the impact that the
future adoption of this standard will have on our financial position and
results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets. This standard addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This standard supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. The provisions of SFAS 144 are
effective for fiscal years beginning after December 15, 2001. We do not
expect the adoption of this standard to have a material effect on our
financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). This standard will require gains and losses from
extinguishment of debt to be classified as extraordinary items only if they
meet the criteria of unusual and infrequent in Opinion 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Any gain or loss on extinguishment will be recorded in the
most appropriate line item to which it relates within net income before
extraordinary items. SFAS 145 is effective for fiscal years beginning after
May 15, 2002; however, certain sections are effective for transactions
occurring after May 15, 2002. We do not expect the adoption of this standard
to have a material effect on our financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146). This standard will require
companies to recognise costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. The standard replaces the existing guidance provided by EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." The provisions of this statement are effective
for exit or disposal activities that are initiated after December 31, 2002.
We are assessing the requirements of SFAS 146 and the effects, if any, on our
financial statements.
Book Value Per Share
891,324,743 ordinary shares were deemed outstanding for purposes of the
calculation of book value per ordinary share at December 31, 2002.
Directors and Executive Officers
The following table sets forth the name, age, and position of each of
our directors and executive officers as at February 19, 2003:
Name Age Term Expires Position
Jonathan Brereton 42 2003 Chairman of the Board
Bulkeley(1)(2)(3)
James Malcolm Rose(3) 41 2004 Deputy Chairman of the
Board
Jan Gesmar-Larsen (1)(2) 42 2004 Non-executive Director
Thomas Peter Power(2)(3) 39 2004 Non-executive Director
Mark Xavier Zaleski(4) 40 -- Chief Executive
Officer and Director
Robert Simon Dighero(4) 36 -- Chief Financial
Officer and Director
(1) Member of the Audit Committee
(2) Member of the Remuneration Committee
(3) Member of the Nomination Committee
(4) Directors that also serve as executive officers must be re-elected as
directors by shareholders at least once every three years.
The business address of each of our directors and executive officers is
Landmark House, Hammersmith Bridge Road, London W6 9EJ, England.
Jonathan Brereton Bulkeley has served as our Chairman of the Board since
February 1998. He is the Chairman and Chief Executive Officer of Lifeminders,
Inc. and was Chief Executive Officer of barnesandnoble.com, Inc. from January
1999 to January 2000. From July 1995 to December 1998, he was Managing
Director of America Online Inc.'s joint venture with Bertelsmann AG Online to
provide interactive on-line services in the United Kingdom. From March 1993
to June 1995, Mr. Bulkeley was Vice President of Business Development at
America Online in the United States. He was also General Manager of Media,
responsible for the development and production of all America Online media
partnerships. Before joining America Online, Mr. Bulkeley was Director of
Marketing and Development for Money Magazine and held sales and marketing
positions at Time and Discover Magazines. Mr. Bulkeley is a director of
Rocket Networks, Inc., Lifeminders.com, Inc., Readers Digest Association,
Instant DX, Global Commerce Zone, Milliken & Company and Cross Media
Marketing. Mr. Bulkeley received a B.A. from Yale University.
James Malcolm Rose has served as our non-executive Deputy Chairman since
November 2001 and from May 1999 to November 2001 served as our Chief
Executive Officer. He has served as a director since May 1999. In May 2002
Mr. Rose was appointed Chief Executive Officer of Media Planning Group U.S.,
a division of Havas. From August 1998 to May 1999, he served as Chief
Executive Officer of United Information Group, the marketing information
subsidiary of United Business Media. From November 1996 to August 1998, Mr.
Rose was Chief Executive Officer of Blackwell Information Services, a global
provider of academic and professional information. From December 1993 to
November 1996, he was Managing Director in the United Kingdom, Ireland and
South Africa for Dun & Bradstreet/ACNielsen. He was previously with Deloitte
& Touche as a management consultant. He received an M.B.A. from the Kellogg
School of Management at Northwestern University, Chicago. Mr. Rose is
currently a director of MORI (Market & Opinion Research International Ltd)
and Articulate Online Holdings.
Jan Gesmar-Larsen joined the board as a non-executive director in May 2002.
Mr. Gesmar-Larsen was head of the European operations of Dell Computer
Corporation between 1997 and 1999 and European President of Apple Computer,
Inc. from 1996 to 1997. Prior to working with Apple, he held senior positions
at Compaq Computer Corporation International and Olivetti. He currently
serves as a non-executive director of Bang & Olufsen A/S, Capital One Inc.
Europe, and Danske Venture Partners and on the advisory board of Apax
Partners Holding Limited.
Thomas Peter Power was appointed a non-executive director in February 2002.
He is the Chairman and founder of The Ecademy, the E-business network, which
has over 10,000 members globally. Prior to founding The Ecademy in 1998, Mr.
Power was managing director of the TDS Group, Inc. In addition to his
responsibilities with The Ecademy, Mr. Power is self-employed as a strategic
consultant and has published four books on the topic of e-business. Mr. Power
is a director of The Ecademy Limited, Easi Solutions plc and Routecause
Limited.
Mark Xavier Zaleski was appointed Chief Executive Officer in November 2001
after joining QXL as Chief Operating Officer in October 2000 from Webvan
Group, Inc., where he was the President of Webvan Operations, Inc. and Senior
Vice President of Area Operations for the Webvan Group. Prior to joining
Webvan in December 1998, Mr. Zaleski served as Senior Vice President/Group
Managing Director for Central Europe, and earlier for Western Europe, for
ACNielsen Corporation. From September 1985 to July 1994, he held a variety of
senior management positions in the European operations of the Federal Express
Corporation. Mr. Zaleski holds a Masters in Business degree from the European
University, Belgium.
Robert Simon Dighero has served as our Chief Financial Officer since June
1998 and as a Director since August 1999. From October 1995 to June 1998, Mr.
Dighero was the Chief Financial Officer of AOL UK. From January 1995 to
October 1995, Mr. Dighero worked for Bertelsmann, focusing on acquisition
strategies in the new media sector. He also previously had worked as a
management consultant at Bain and Company. Mr. Dighero received an M.A.
(Hons.) and an M.Eng. (Hons.) from Cambridge University and received an
M.B.A. with Dean's List honors from INSEAD in France.
Affiliated Shareholders
The following table sets forth information with respect to the ownership of
ordinary shares by:
* our directors and executive officers; and
* associates of our directors and executive officers.
Shares subject to options currently exercisable, or exercisable within 60
days of the date thereof, are deemed beneficially owned for purposes of
computing the percentage of shares owned by the person holding such options,
but are not deemed beneficially owned for purposes of computing the
percentage of shares owned by any other person. Unless otherwise indicated in
the footnotes to the following table, the following persons have sole vesting
and sole investment control with respect to our ordinary shares they
beneficially own.
The percentage of ownership for each shareholder at February 19, 2003 is
based on 915,263,039 ordinary shares outstanding as at February 19,2003. None
of our ordinary shareholders have different voting rights from one another or
taken together as a group.
Ordinary Shares Percentage of
Name Beneficially Owned Ordinary Shares
Beneficially Owned
Directors:
Jonathan Bulkeley (1) 8,879,080 0.96%
James Rose (2) 3,000,000 0.33%
Mark Zaleski(3) 5,500,000 0.60%
Robert Dighero (4) 8,324,026 0.90%
Jan Gesmar-Larsen(5) 2,000,000 0.22%
Thomas Power(6) 2,000,000 0.22%
All directors and executive
officers as a group (six
persons at February 19, 29,703,106 3.16%
2003)
Associates of the
Above-Referenced Persons:
Apax UK VI LP (7) 60,997,440 6.66%
(1) As at February 19, 2003, included options to acquire 5,125,000
ordinary shares exercisable within 60 days of that date.
(2) As at February 19, 2003, included options to acquire 3,000,000
ordinary shares exercisable within 60 days of that date.
(3) As at February 19, 2003, included options to acquire 5,500,000
ordinary shares exercisable within 60 days of that date.
(4) As at February 19, 2003, included options to acquire 8,324,026 ordinary
shares exercisable within 60 days of that date.
(5) As at February 19, 2003, included options to acquire 2,000,000
ordinary shares exercisable within 60 days of that date.
(6) As at February 19, 2003, included options to acquire 2,000,000
ordinary shares exercisable within 60 days of that date.
(7) All the shares are owned by Apax U.K. VI LP. The shares disclosed
above relate to the total holding of Apax U.K. VI LP, of which Apax Partners
Limited is the manager. Mr. Gesmar-Larsen is a member of the advisory board
of Apax Partners Holding Limited, which is the parent company of Apax
Partners Limited. Mr. Gesmar-Larsen disclaims beneficial ownership of the
shares held on record by Apax U.K. VI LP.
Cost of Proxy Solicitation and the Share Consolidation
The cost of preparing, assembling and mailing this information statement will
be paid by the Company. Solicitation by mail, telephone, facsimile, or
personal solicitation may also be done by directors, executive officers, or
regular employees of the Company and its subsidiaries, for which they will
receive no additional compensation. Brokerage houses and other nominees,
fiduciaries, and custodians nominally holding the Company's ordinary shares
will be given the opportunity to forward proxy soliciting material to the
beneficial owners of such shares. The Bank of New York will be reimbursed for
its expenses in forwarding these materials to holders of ADSs.
Payment for fractional ordinary shares, if not subject to retention by the
Company, will be made out of the net proceeds received for the sale of
aggregated fractional interests. Payment for fractional ADSs will be made out
of the sale of the ordinary shares underlying the aggregated fractional ADSs
by The Bank of New York. The following is an estimate of the costs incurred
or expected to be incurred by the Company in connection with the Share
Consolidation. Final costs of the transaction may be greater than the
estimates shown below.
Professional fees, disbursements and other charges 65,000 Pounds
Total 65,000 Pounds
The Company intends to finance the expenses of the Share Consolidation, other
than payment for fractional interests, as discussed above, by using cash on
hand. See also "The Anticipated Effects of the Share Consolidation-
- -Financial Effect of the Share Consolidation."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act and
in accordance therewith files reports and other information with the
Securities and Exchange Commission. Such reports and other information can be
inspected and copied at the public reference facilities of the Securities and
Exchange Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Securities and
Exchange Commission located at 233 Broadway New York, New York 10279 and
Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. In addition, such reports and other information are available
from the EDGAR filings obtained through the Securities and Exchange
Commission Internet Website (http://www.sec.gov.)
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are
in any doubt as to the action you should take, you are recommended to seek
your own personal financial advice immediately from your stockbroker, bank
manager, solicitor, accountant or other independent professional adviser who,
in the United Kingdom, should be authorised under the Financial Services and
Markets Act 2000.
If you have sold or transferred all of your Existing Ordinary Shares in the
Company, please forward this document and the accompanying Form of Proxy
immediately to the purchaser or transferee, or to the stockbroker, bank or
other agent through whom the sale or transfer was effected, for transmission
to the purchaser or transferee.
Application will be made to the UKLA for the New Ordinary Shares arising from
the Consolidation to be admitted to the Official List, and to the London
Stock Exchange for such shares to be admitted to trading. It is expected that
admission of the New Ordinary Shares to the Official List will become
effective, and that dealings therein (for normal settlement) will commence,
on 31 March 2003.
QXL ricardo
QXL ricardo plc
(incorporated and registered in England and Wales under the Companies Act
1985 with registered no. 3430894)
Circular to shareholders relating to proposed consolidation of share capital
Notice of an Extraordinary General Meeting of the Company at which a
resolution regarding the Consolidation will be considered is set out at the
end of this document. The meeting is to be held at 10.00 am on Friday 28
March 2003 at the Express by Holiday Inn (London-Hammersmith), 124 King
Street, Hammersmith, London W6 0QU.
A Form of Proxy for use in connection with the EGM is enclosed with this
document. To be valid, the Form of Proxy must be returned, duly completed and
signed, in accordance with the instructions printed thereon, so as to be
received by the Company's registrars, Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex BN99 6ZL, no later than 10.00 am on Wednesday 26 March
2003.
Contents
Definitions 1
Part I Letter from the Chairman of QXL ricardo plc 2
Part II Further details of the Consolidation 4
Notice of Extraordinary General Meeting 8
Form of Proxy 9
Expected timetable of principal events 2003
Circular despatched 27 February
Latest time and date for receipt of Forms of Proxy 10.00 am on Wednesday 26 March
Extraordinary General Meeting 10.00 am on Friday 28 March
Record date for the Consolidation Close of business on Friday 28 March
Dealings commence in New Ordinary Shares 31 March
CREST member accounts credited with New Ordinary Shares 31 March
Despatch of definitive share certificates in respect of
New Ordinary Shares and cheques in respect of fractional
entitlements arising from the Consolidation 7 April
Definitions
In this document the following definitions shall apply:
"Act"
the Companies Act 1985, as amended
"Admission"
admission of the New Ordinary Shares to the Official List of the UKLA and to
trading on the London Stock Exchange's market for listed securities becoming
effective
"ADR"
a receipt evidencing an ADS
"ADS"
an American Depositary Share representing an interest in ordinary shares in
the capital of the Company deposited with The Bank of New York
"Articles"
the Company's Articles of Association
"Convertible Bonds"
the 2 per cent. convertible bonds due 2004 of the Company (Series A, B and C)
"Consolidation"
the proposed consolidation of every 1,000 Existing Ordinary Shares into 1 New
Ordinary Share
"CREST"
the relevant system for the paperless settlement of trades and the holding of
uncertified securities operated by CRESTCo in accordance with the
Uncertificated Securities Regulations 2001
"CRESTCo"
CRESTCo Limited, the operator of CREST
"Directors" or "Board"
the directors of the Company
"Existing Ordinary Shares"
ordinary shares of 0.1p nominal value each in the capital of the Company
"Extraordinary General Meeting"
the extraordinary general meeting of the Company to or "EGM"
be held at 10.00 am on Friday 28 March 2003 (or any adjournment of such
meeting), notice of which is set out at the end of this document
"London Stock Exchange"
London Stock Exchange plc
"New Ordinary Shares" ordinary shares of GBP1 nominal value each in the
capital of the Company resulting from the Consolidation
"Official List"
the Official List of the UKLA
"Optionholders"
holders of options under the Option Schemes
"Option Schemes"
the Company's 1999 Approved Executive Share Option Scheme and the Company's
1999 Unapproved Executive Share Option Scheme
"QXL" or "Company"
QXL ricardo plc
"Record Date"
close of business on Friday 28 March 2003
"Resolution"
the resolution to be proposed at the Extraordinary General Meeting, as set
out in the notice of EGM at the end of this document
"Shareholder"
a holder of Existing Ordinary Shares and, following the Consolidation, a
holder of New Ordinary Shares
"UK"
the United Kingdom of Great Britain and Northern Ireland
"UKLA"
the United Kingdom Listing Authority, being the Financial Services Authority
acting in its capacity as the competent authority for the purposes of Part VI
of the Financial Services and Markets Act 2000
"Warrants" the warrants to subscribe for ordinary shares in the Company that
may be exercised in respect of each series of the Convertible Bonds
Part I
Letter from the Chairman
QXL ricardo plc
(incorporated and registered in England and Wales under the Companies Act
1985 with registered no. 3430894)
Directors:
Jonathan Brereton Bulkeley, Chairman
James Malcolm Rose, Deputy Chairman
Mark Xavier Zaleski, Chief Executive Officer
Robert Simon Dighero, Chief Financial Officer
Jan Gesmar-Larsen
Thomas Peter Power
Registered Office:
Landmark House
Hammersmith Bridge Road
London W6 9EJ
United Kingdom
27 February 2003
To: Shareholders and, for information only, Optionholders and holders of the
Convertible Bonds and Warrants.
Dear Shareholder
Proposed consolidation of the Company's share capital
Your Board has decided to seek shareholder approval for a consolidation of
the Company's
share capital.
You will find enclosed with this letter a notice of an Extraordinary General
Meeting of the Company to be held at 10.00 am on Friday 28 March 2003 at
which a resolution regarding the Consolidation is to be put to Shareholders.
The purpose of this document is to explain the background to and the reasons
for the Consolidation and to explain the Resolution.
Reasons for the Consolidation
As you are aware, the Company has been aggressively reducing its cost base
over the past two years. As part of this process, the Board has been
reviewing our listing arrangements and other corporate costs in the light of
changing market conditions. The decision to delist from the Frankfurt Stock
Exchange on 30 November 2002 was one consequence of this ongoing review.
The Directors believe that the Company no longer derives material benefits
from its Nasdaq listing or from its status as a US reporting company. We also
believe that the costs of compliance with these regulations have become
disproportionate for the Company and will increase further following the
enactment of the Sarbanes-Oxley Act in August 2002. In particular, the cost
of maintaining appropriate liability insurance on this basis is likely to be
prohibitive. The Board therefore intends that the Company will delist from
Nasdaq as part of the Consolidation process. The Consolidation is also
expected to reduce the number of US Shareholders and ADS holders, providing
the most cost-effective way of enabling the Company to avoid US reporting
requirements in the future and to reduce its insurance premiums and other
corporate costs.
The Board also believes that having an issued share capital of some
915,263,039 Existing Ordinary Shares that have an aggregate current market
capitalisation of under GBP5 million confuses investors and limits the
liquidity and marketability of such shares. In addition, the Directors
believe that the Company's shares should trade within parameters that are
generally acceptable to the market and the listing authorities.
The Board therefore proposes to consolidate the Company's share capital as at
the Record Date by converting every 1,000 Existing Ordinary Shares into one
New Ordinary Share. The aggregate nominal value of the Company's issued share
capital will remain the same. This proposal requires the approval of
Shareholders and accordingly the Resolution will be put to Shareholders at
the EGM.
As a result of the Consolidation each Shareholder will hold fewer ordinary
shares than he or she currently holds. However, ignoring fractions (which are
dealt with below) each Shareholder will retain the same percentage interest
in the Company's issued share capital and therefore his or her ownership of
the Company will remain the same. The Board believes that the Consolidation
will have the effect of increasing the price at which the Company's shares
are traded to correspond with the decrease in the number of ordinary shares
in issue.
The Directors propose that, conditional upon the passing of the Resolution,
entitlements to fractions of New Ordinary Shares arising from the
Consolidation will be aggregated and sold for the best price reasonably
obtainable. A due proportion of the proceeds of sale (net of all costs and
expenses) will be paid to each Shareholder who would otherwise have been
entitled to a fraction, unless such net proceeds are less than GBP3 per
entitled Shareholder, in which case the net proceeds of such sale shall be
retained for the benefit of the Company.
The Consolidation is conditional on permission being granted for the New
Ordinary Shares to be admitted to the Official List and to be traded on the
London Stock Exchange's market for listed securities and such permission not
having been withdrawn prior to the creation of the New Ordinary Shares. The
necessary applications will be made to the UKLA and the London Stock Exchange
and it is expected that Admission of the New Ordinary Shares to the Official
List will become effective, and that dealings therein for normal settlement
will commence, on Monday 31 March 2003.
Further details of the Consolidation are contained in Part II of this
document.
Taxation
A guide to the general tax position of UK Shareholders in relation to the
Consolidation is set out in Part II of this document.
In summary, the Consolidation will not normally give rise to a disposal for
the purposes of UK taxation of chargeable gains. Any Shareholder who is in
any doubt as to his or her own tax position should consult an appropriate
professional adviser without delay.
EGM and action to be taken
You are entitled to attend and vote on the Resolution at the Extraordinary
General Meeting and implementation of the Consolidation is conditional upon,
and requires the passing of, the Resolution.
You will also find enclosed a Form of Proxy for use at the Extraordinary
General Meeting.
Whether or not you propose to attend the Extraordinary General Meeting, you
are requested to complete and return the Form of Proxy in accordance with the
instructions printed on it as soon as possible. The completion and return of
a Form of Proxy will not prevent you from attending and voting in person at
the EGM if you wish to do so. The Form of Proxy should be returned to Lloyds
TSB Registrars, The Causeway, Worthing, West Sussex BN99 6ZL so as to arrive
as soon as possible and in any event before
10.00 am on Wednesday 26 March 2003.
In view of the voting and quorum requirements for the Extraordinary General
Meeting, Shareholders are particularly requested to complete and return their
Form of Proxy whether or not they intend to be present at the meeting.
Recommendation and voting intentions
Your Directors consider that the Consolidation is in the best interests of
the Company and Shareholders as a whole. Accordingly the Directors
unanimously recommend all Shareholders to vote in favour of the Resolution as
they intend to do in respect of their own beneficial holdings of Existing
Ordinary Shares, amounting in aggregate to 3,754,080 Existing Ordinary Shares
(representing approximately 0.41 per cent. of the issued share capital of the
Company).
Yours faithfully
Jonathan Bulkeley
Chairman
Part II
Further details of the Consolidation
1. Consolidation
The Consolidation will be effected by means of the Resolution set out in the
notice of EGM. If the Resolution is passed, in respect of each holding of
Existing Ordinary Shares as shown in the register of members of the Company
as at the Record Date, every 1,000 Existing Ordinary Shares will be
consolidated into one New Ordinary Share.
In accordance with regulation 5.2 of the Articles, no Shareholder will be
entitled to a fraction of a New Ordinary Share arising from the
Consolidation. Fractional entitlements will be aggregated and sold for the
best price reasonably obtainable as soon as practicable following Admission,
for the benefit of those Shareholders who would otherwise have been entitled
to them. Notwithstanding the Articles, part i) of the Resolution provides
that a due proportion of the proceeds (net of all costs and expenses) will be
paid to each Shareholder concerned, unless such net proceeds are less than GBP3
per entitled Shareholder, in which case the net proceeds of such sale shall
be retained for the benefit of the Company.
Any monies payable to Shareholders in respect of fractional entitlements
arising from the Consolidation are expected to be sent to the Shareholders
entitled thereto by Monday 7 April 2003.
Any issue as to what constitutes a "holding" for these purposes will be
determined by the Directors in their absolute discretion. It is intended that
holdings in a CREST account and a non-CREST account in the same name or
holdings where the name and address of the person concerned are not identical
in all respects in the register of members of the Company will be treated as
separate holdings. It is likely that if you receive more than one copy of
this document you will be treated as having more than one holding for these
purposes.
The Consolidation will not adversely affect the rights of Shareholders in any
way. The New Ordinary Shares will have the same rights as the Existing
Ordinary Shares, including proportionate dividend, voting and other rights.
In order to reflect the Consolidation of the Company's issued share capital,
every 1,000 unissued Existing Ordinary Shares as at the Record Date will be
consolidated into one New Ordinary Share. Fractions of New Ordinary Shares
will not be created and the capital of the Company will be diminished by the
cancellation of such fractions.
The rights of Optionholders and holders of Convertible Bonds and/or Warrants
will be adjusted in accordance with the existing terms of the Option Schemes,
Convertible Bonds and Warrants (respectively) to take account of the
Consolidation.
2. Listing, settlement and dealings
The Consolidation is conditional on permission being granted for the New
Ordinary Shares to be admitted to the Official List and to be traded on the
London Stock Exchange's market for listed securities and such permission not
having been withdrawn prior to the creation of the New Ordinary Shares.
It is expected that dealings in and settlement in CREST of the Existing
Ordinary Shares will continue until the close of business on the Record Date,
when, in the case of shares held in certificated form, the register of
members will be closed for transfers. The registration of uncertificated
holdings in respect of Existing Ordinary Shares will be disabled on
Admission.
It is expected that Admission of the New Ordinary Shares to the Official List
will become effective and that dealings in the New Ordinary Shares on the
London Stock Exchange will commence on Monday 31 March 2003.
Shareholders who hold their Existing Ordinary Shares in uncertificated form
are expected to have their CREST accounts credited with the New Ordinary
Shares on Monday 31 March 2003 or as soon as practicable after Admission.
Certificates for the New Ordinary Shares will be despatched to Shareholders
who hold their Existing Ordinary Shares in certificated form on Monday 7
April 2003.
Temporary documents of title will not be issued. Certificates in respect of
Existing Ordinary Shares will no longer be valid from Admission and should be
destroyed upon receipt of certificates in respect of the New Ordinary Shares.
Pending despatch of definitive share certificates, transfers of New Ordinary
Shares held in certificated form will be certified against the register.
All documents and remittances will be sent by pre-paid first class post to
Shareholders at their registered addresses (or, in the case of joint
Shareholders, to the registered address of the holder whose name appears
first in the register in respect of such joint holding) at their risk.
3. UK taxation
The following paragraphs are intended as a general guide only and are based
on current legislation and current Inland Revenue practice. They summarise
advice received by the Directors as to the position of Shareholders who are
resident and ordinarily resident in the UK for tax purposes and who hold
their Existing Ordinary Shares as an investment.
The Consolidation will be treated as a reorganisation of the share capital of
the Company for the purposes of the taxation of chargeable gains.
Accordingly, New Ordinary Shares held by a Shareholder will be treated as the
same asset as the Existing Ordinary Shares previously held by the
Shareholder, so that the aggregate base cost and any accrued indexation
allowance will be unchanged. For Shareholders who are not companies,
indexation allowance has been replaced by taper relief which reduces the
proportion of chargeable gains realised on the disposal of a holding
according to how long the shares have been held.
The sale, on behalf of relevant Shareholders, of fractional entitlements to
New Ordinary Shares resulting from the Consolidation will, strictly,
constitute a part disposal of each relevant Shareholder's Existing Ordinary
Shares for a consideration equal to the proceeds received. However, the
Company has been advised that, because the amounts involved are so small, the
current Inland Revenue practice is not to treat the sale as a part disposal
but, instead, to deduct the proceeds of sale from the base cost, for capital
gains tax purposes, of the relevant Shareholder's New Ordinary Shares.
The above description of taxation is general in character. If you are in any
doubt as to your tax position, you should consult an appropriate professional
adviser without delay.
4. Overseas Shareholders
Shareholders who are citizens, residents or nationals of jurisdictions
outside the UK should inform themselves about and observe any applicable
legal requirements. It is the responsibility of any such Shareholder to
satisfy himself/herself as to the full observance of the laws of the relevant
jurisdiction in connection with the Consolidation, including the obtaining of
any governmental or other consents which may be required, the compliance with
other necessary formalities and the payment of any issue, transfer or other
taxes due in such jurisdiction.
Any such Shareholder will be responsible for any such issue, transfer or
other taxes by whomsoever payable and the Company and any person acting on
its behalf shall be entitled to be fully indemnified and held harmless by
such Shareholder for any such issue, transfer or other taxes which such
person may be required to pay.
Under the terms of the deposit agreement with The Bank of New York and the
terms of the ADSs, New Ordinary Shares will replace Existing Ordinary Shares
as the securities held in deposit by The Bank of New York. Each existing ADS
currently represents 250 Existing Ordinary Shares and it is intended that
this same ratio will apply after the Consolidation, so that effectively one
new ADS will represent 250,000 Existing Ordinary Shares. The Bank of New York
will call for surrender of outstanding ADSs and will issue new ADSs
evidencing whole new ADSs and describing the New Ordinary Shares. In lieu of
delivering fractional ADSs, the Bank of New York will sell the amount of
ordinary shares represented by the aggregate of such fractions, convert the
net sales proceeds to US dollars, and distribute the net proceeds to holders
entitled thereto in proportion to the number of fractional ADSs that would
otherwise be delivered to such holders.
Notice of Extraordinary General Meeting
Notice is hereby given that an Extraordinary General Meeting of QXL ricardo
plc (the "Company") will be held at the Express by Holiday Inn
(London-Hammersmith), 124 King Street, Hammersmith, London W6 0QU at 10.00 am
on Friday 28 March 2003 to consider and, if thought fit, to pass the
following resolution as a special resolution of the Company:
Special Business
That, conditional upon permission being granted for the New Ordinary Shares
(as defined below) to be admitted to the Official List of the United Kingdom
Listing Authority and to be traded on the London Stock Exchange's market for
listed securities ("Admission"), and such permission not having been
withdrawn prior to the creation of the New Ordinary Shares:
i) in respect of each holding of ordinary shares of 0.1p nominal value
("Existing Ordinary Shares") in the capital of the Company in issue as shown
in the register of members of the Company as at the close of business on
Friday 28 March 2003 (the "Record Date") (any issue as to what constitutes a
"holding" for these purposes being determined by the Directors in their
absolute discretion), every 1,000 Existing Ordinary Shares shall be
consolidated into one new ordinary share of GBP1 nominal value (each a "New
Ordinary Share"), provided that no shareholder in the Company (a
"Shareholder") shall be entitled to a fraction of a New Ordinary Share and
all fractional entitlements to New Ordinary Shares arising from such
consolidation (the "Consolidation") shall, so far as possible, be aggregated
into New Ordinary Shares and, as soon as practicable following Admission,
sold for the best price reasonably obtainable and the aggregate proceeds (net
of costs and expenses) shall be paid to the Shareholders who would otherwise
have been entitled to such fractional entitlements in the proportion which
their fractional entitlements bears to the number of New Ordinary Shares
sold, unless such net proceeds are less than GBP3 per entitled Shareholder, in
which case the net proceeds of such sale shall be retained for the benefit of
the Company; and
ii) every 1,000 authorised but unissued Existing Ordinary Shares in the
capital of the Company as at the Record Date be and is hereby consolidated
into one New Ordinary Share, provided that any fractions arising from such
consolidation shall be cancelled.
By order of the Board
Tom Parkinson
Company Secretary
Registered Office
Landmark House
Hammersmith Bridge Road
London W6 9EJ
27 February 2003
Notes
1. As provided by Regulation 41 of the Uncertificated Securities Regulations
2001, only those Shareholders registered in the register of members of the
Company as at 6.00 pm on 26 March 2003 shall be entitled to attend and vote
at the Extraordinary General Meeting in respect of the number of shares
registered in their name at that time. Changes to entries on the relevant
register of securities after 6.00 pm on 26 March 2003 shall be disregarded in
determining the rights of any person to attend or vote at the Extraordinary
General Meeting.
2. A Form of Proxy is enclosed for use in connection with the Extraordinary
General Meeting to which this notice relates and any adjournment thereof. A
Shareholder entitled to attend and vote at the Extraordinary General Meeting
may appoint one or more proxies to attend and, on a poll, to vote instead of
him. A proxy need not be a Shareholder of the Company. The appointment of a
proxy will not prevent a Shareholder from subsequently attending and voting
at the Extraordinary General Meeting in person.
3. To be effective the Form of Proxy, and any power of attorney or other
authority under which it is executed (or a duly certified copy of any such
power of authority), must be received at the offices of the Company's
registrars, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99
6ZL, 48 hours before the time for holding the meeting or any adjournment
thereof or (in the case of a poll taken otherwise than at the Extraordinary
General Meeting or any adjournment thereof) for the taking of the poll at
which it is to be used.
Form of Proxy
For use at the Extraordinary General Meeting of QXL ricardo plc to be held at
the Express by Holiday Inn (London-Hammersmith), 124 King Street,
Hammersmith, London W6 0QU at 10.00 am on Friday 28 March 2003 (or at any
adjournment thereof)
I/We (Block capitals please) .................................................
Of ...........................................................................
being (a) Shareholder(s) of the Company entitled to vote at general meetings
of the Company hereby appoint the Chairman of the Meeting or
(see note 1 below) ...........................................................
to act as my/our proxy and to vote as directed (or in the event that no
direction is given, to vote at his or her discretion) on my/our behalf at the
Extraordinary General Meeting to be held at the Express by Holiday Inn
(London-Hammersmith), 124 King Street, Hammersmith, London W6 0QU at 10.00 am on
Friday 28 March 2003 or at any adjournment thereof.
In the event of a poll I/we direct my/our proxy to vote on the resolution set
out in the notice of Extraordinary General Meeting as follows:
Special resolution For Against
To consolidate the Company's share capital
Please indicate with an "X" in the appropriate space how you wish your vote
to be cast. If you do not indicate how you wish your proxy to vote, the proxy
will vote, or abstain from voting, as he/she thinks fit.
Please return this Form of Proxy, duly completed and signed, to Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex BN99 6ZL, so as to be
received not less than 48 hours before the time of the Extraordinary General
Meeting, or any adjournment thereof.
Dated.................................. 2003
Signed......................................
(or Common Seal)
Notes
1. A shareholder of the Company entitled to attend and vote at the
Extraordinary General Meeting may appoint one or more proxies to attend and,
upon a poll, to vote on his/her behalf. A Shareholder has the right to strike
out the words "the Chairman of the Meeting or" and to insert, in block
capitals, the full name of a person of his/her own choice in the space
provided to act as his/her proxy, initialling the alteration. A proxy need
not be a Shareholder of the Company. The completion and return of the Form of
Proxy will not preclude a Shareholder from attending the Extraordinary
General Meeting, or at any adjournment thereof, and voting in person if they
so wish.
2. In the case of joint holders, the signature of any one of them on the Form
of Proxy will suffice, but the names of all should be shown. If more than one
of the joint holders is present at the Extraordinary General Meeting, whether
in person or by proxy, that one of the joint holders whose name stands first
in the register of members shall alone be entitled to vote.
3. In the case of a corporation, the Form of Proxy must be given under its
common seal or under the hand of a duly authorised officer or attorney.
4.To be valid, the Form of Proxy, duly completed and signed, together with
the power of attorney or other authority (if any) under which it is signed
(or a notarially certified copy of such power or authority) and must be
deposited at Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99
6ZL, not less than 48 hours before the time of the Extraordinary General
Meeting, or any adjournment thereof.
5. Any alterations made to the Form of Proxy must be initialled.
Business Reply Service
Licence No. SEA 10846
LLOYDS TSB REGISTRARS
THE CAUSEWAY
WORTHING
WEST SUSSEX
BN99 6ZL
QXL RICARDO PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-1
Consolidated Profit and Loss Account for the periods ended F-2
March 31, 2002, 2001 and 2000
Consolidated Statement of Total Recognised Gains and Losses for the F-3
periods ended
March 31, 2002, 2001 and 2000
Consolidated Balance Sheets for periods ended March 31, 2002 and F-4
2001
Consolidated Cash Flow Statement for the periods ended F-5
March 31, 2002, 2001 and 2000
Principal Accounting Policies for the periods ended March 31, 2002, F-6
2001 and 2000
Notes to the Financial Statements for the periods ended March 31, F-9
2002, 2001 and 2000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of QXL ricardo plc:
We have audited the accompanying consolidated balance sheets of QXL
ricardo plc and its subsidiaries as of March 31, 2002 and 2001, and the
related consolidated profit and loss accounts, cash flow statements and
statements of total recognised gains and losses for the three years ended
March 31, 2002 which, as described in the principal accounting policies, have
been prepared on the basis of accounting principles generally accepted in the
United Kingdom. These financial statements are the responsibility of QXL
ricardo plc's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of QXL
ricardo plc and its subsidiaries at March 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 2002, in conformity with accounting principles
generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. The application of the latter would have
affected the determination of loss for the financial year expressed in pounds
sterling for each of the three years in the period ended March 31, 2002, and
the determination of equity shareholders' funds at March 31, 2002 and 2001 to
the extent summarized in Note 33 to the consolidated financial statements.
/s/ PricewaterhouseCoopers
London, England
May 30, 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Notes Year ended Year ended Year Year ended Year ended Year Year
March 31, March 31, ended March 31, March 31, ended ended
2002 2002 March 2001 2001 March 31, March
Excluding Exceptional 31, 2002 Excluding Exceptional 2001 Total 31, 2000
Exceptional Items Total Exceptional Items Total
Items Items
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Turnover 1 5,415 - 5,415 15,055 - 15,055 6,892
Cost of sales 2 (540) - (540) (12,402) - (12,402) (6,151)
Gross profit 4,875 - 4,875 2,653 - 2,653 741
Distribution costs 2,3 (27,322) (4,508) (31,830) (43,384) (72,948) (116,332) (44,128)
Administrative 2,3 (10,627) (3,064) (13,691) (25,051) (3,539) (28,590) (25,044)
expenses
Net operating (37,949) (7,572) (45,521) (68,435) (76,487) (144,922) (69,172)
expenses
Operating loss 2,4 (33,074) (7,572) (40,646) (65,782) (76,487) (142,269) (68,431)
Share of operating loss of joint venture - (3,417) -
Loss on ordinary activities before (40,646) (145,686) (68,431)
interest
Interest receivable 7 989 2,874 1,777
and similar income
Interest payable and 8 (273) (333) (13)
similar charges
Loss on ordinary activities before (39,930) (143,145) (66,667)
taxation
Tax on loss on ordinary 9 - - -
activities
Loss on ordinary activities after (39,930) (143,145) (66,667)
taxation
Equity minority interests 2,000 4,105 -
Loss for the (37,930) (139,040) (66,667)
financial year
Dividend and 10 - - (2,112)
appropriations -
non-equity
Retained loss for the financial year (37,930) (139,040) (68,779)
Loss per ordinary share
- basic and diluted 12 (5.3)p (30.0)p (23.8)p
There is no differences between the loss on ordinary activities before
taxation and the retained loss for the period stated above and their historic
cost equivalents.
All activities are continuing operations.
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Year ended March 31, 2002 Year ended March 31, 2001 Year ended March 31, 2000
GBP'000 GBP'000 GBP'000
Loss attributable to (37,930) (139,040) (68,779)
shareholders
Exchange adjustments offset to (233) 170 341
reserves
Total recognised loss for the (38,163) (138,870) (68,438)
year
Prior year adjustment* - 9,125 0
Total recognised losses since (38,163) (129,745) (68,438)
last annual report
*The prior year adjustment related to an adjustment in respect of National
Insurance on share option following the publication of UITF 25. This resulted
in the loss for the year ended 31 March 2000 being reduced by GBP 9,125,000:
the year ended 31 March 2001 was affected by the same amount.
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 and 2001
Notes March 31, 2002 March 31, 2001
GBP'000 GBP'000
Fixed assets
Intangible assets 13 10,727 23,955
Tangible assets 14 1,050 6,337
Investments 15 25 232
11,802 30,524
Current assets
Stock 17 34 295
Debtors - due after more than 18 321 321
one year
Debtors - due within one year 18 3,335 7,580
Cash at bank and in hand 19 14,093 24,285
17,783 32,481
Creditors: amounts due within 20 (5,200) (13,381)
one year
Net current assets 12,583 19,100
Total assets less current 24,385 49,624
liabilities
Creditors: amounts falling due 21 (91) (413)
after one year
2% Convertible Bonds due 2004 22 (14,632) (5,011)
Provisions for liabilities and 23 - -
charges
Net assets 9,662 44,200
Capital and reserves
Called up share capital 24 837 635
Share premium account 26 225,637 218,856
Merger reserve 26 9,137 9,137
Profit & loss account 26 (225,216) (187,053)
Total equity shareholders' funds 27 10,395 41,575
Equity minority interests (733) 2,625
Capital employed 9,662 44,200
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Notes 31 March 2002 31 March 2001 31 March 2000
GBP'000 GBP'000 GBP'000
Net cash outflow from operating activities 30 (24,468) (56,004) (28,954)
Returns on investments and servicing of finance
Interest received 1,005 2,715 1,590
Interest paid (3) (25) (7)
Issue costs of non-equity shares - - (1,283)
Issue costs of 2% Convertible Bond - (241) -
Net cash inflow from returns on investment and servicing 1,002 2,449 300
of finance
Capital expenditure and financial investment
Purchase of tangible fixed assets (301) (2,417) (7,718)
Sale of tangible fixed assets 92 - -
Net cash outflow for capital expenditure and financial (209) (2,417) (7,718)
investment
Acquisitions
Net cash balances acquired with subsidiaries - 11,214 -
Payments to acquire trades or businesses - (12,261) (1,027)
Net cash outflow for acquisitions - (1,047) (1,027)
Cash outflow before management of liquid resources* and (23,675) (57,019) (37,399)
financing
Management of liquid resources
Reduction/(increase) in short-term deposits with banks 13,042 56,125 (69,167)
Financing
Gross receipts from issuing shares and warrants 4,341 603 116,535
Issue costs of equity shares and warrants (570) (1,667) (7,832)
Capital element of finance lease repaid (253) (294) (199)
Gross receipts from issue of 2% Convertible Bonds 10,000 5,000 -
Net cash inflow from financing 13,518 3,642 108,504
Increase in cash in the year 30 2,885 2,748 1,938
* Liquid resources comprise short-term deposits with banks, which mature
within 12 months from the date of inception.
The accompanying notes are an integral part of these consolidated financial
statements.
PRINCIPAL ACCOUNTING POLICIES
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies is set out below.
Basis of accounting
The financial statements have been prepared under the historical cost
convention and on a going concern basis.
Basis of consolidation
The consolidated profit and loss account and balance sheet include the
financial statements of the Company and its subsidiary undertakings made up
to the year end. The results of subsidiaries acquired are included in the
consolidated profit and loss account from the date control passes.
Intra-group sales and profits are eliminated fully on consolidation.
On the acquisition of a subsidiary, all of the subsidiary's assets and
liabilities that exist at the date of acquisition are recorded at their fair
values reflecting their condition at that date. All changes to those assets
and liabilities and the resulting gains and losses that arise after the Group
has gained control of the subsidiary are charged to the post acquisition
profit and loss account or statement of total recognised gains and losses.
The Company has complied with the merger relief provisions of Section 131 of
the Companies Act 1985 and accordingly has credited the premium arising on
the issue of shares in the year ended March 31, 2001 to the former owners of
Idefi SA to the merger reserve.
FRS 18 - Accounting policies
FRS 18 "Accounting Policies" has been adopted in the year to March 31, 2002;
this did not require any change in accounting policies. FRS18 requires the
Company to adopt the accounting policies most appropriate to its particular
circumstances for the purpose of giving a true and fair view. It also
requires sufficient information to be disclosed in the financial information
to enable users to understand the accounting policies adopted and how they
have been implemented. The board have undertaken a review of the accounting
policies and are satisfied that the most appropriate accounting policies have
been adhered to.
Turnover
Turnover represent amounts receivable for merchandise, advertising revenue
and services net of VAT, returns and refunds.
Agency-based auctions
When the Group acts as agent, it recognises listing and related fees on
listing of an item for auction and success fees and any other relevant
commission on the completion of the auction.
Principal-based auctions
When the Group acts as principal, it recognises income once payment is
received or authorised and merchandise has been despatched.
Intangible fixed assets
Intangible fixed assets are included at cost or fair value on acquisition.
Amortisation is calculated to write off the cost of intangible assets on a
straight line basis over their expected useful economic life. The useful
economic life is estimated with reference to the period over which each asset
is estimated to be capable of earning revenue. The carrying value of
intangible assets is assessed annually and any impairment value is charged to
the profit and loss account.
Goodwill
Goodwill arising on consolidation represents the excess of the fair value of
the consideration paid over the fair value of the identifiable assets
acquired. Goodwill arising on each acquisition is annually reviewed
separately for impairment, and where appropriate, charged to the profit and
loss account.
Capitalised goodwill is amortised on a straight-line basis over its expected
useful economic life. The expected useful economic life is up to 39 months
from the date of acquisition based on future expected earnings.
PRINCIPAL ACCOUNTING POLICIES
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Tangible fixed assets
Tangible fixed assets are stated at cost or fair value on acquisition less
depreciation. Depreciation is provided at rates calculated to write off the
cost less the estimated residual value of each asset over its expected useful
economic life. The residual value is estimated taking into account
obsolescence, technological developments and expected proceeds on disposal.
The principle annual rates for this purpose are:
* Furniture and Office Equipment at 33% per annum on a straight-line basis.
* Computer Systems and Equipment (including computer servers) at 25% or 33%
per annum on a straight-line basis.
* Internal and External Computer Software at 33% or 50% per annum on a
straight-line basis.
The Group selects its depreciation rates carefully and reviews them regularly
to take into account any changes in circumstances. When setting useful
economic lives, the principle factors the Group takes into account are the
expected rate of technological developments, expected markets requirements
for the equipment and the intensity at which the assets are to be used. The
carrying value of tangible fixed assets is assessed annually and any
impairment is charged to the profit and loss account.
The Group also capitalises directly identifiable bought in services and own
staff costs incurred in establishing its websites and other internal software
development costs incurred up to the date that the asset is brought into use.
Capitalised projects must have a measurable economic viability in their own
right. Amounts capitalised are written down over their expected useful
economic lives on a straight-line basis at rates between 6.25% and 12.5% per
month.
Development expenditure
Development expenditure includes expenses incurred by the Group to develop
and improve the current functionality of the Group's websites. Development
costs are expensed through administrative costs as incurred except where, as
described above, separately identifiable expenditure has been incurred on
bringing specific projects into use.
Finance leases
Where assets are financed by leasing agreements that give rights and
obligations approximating to ownership, the assets are treated as if they had
been purchased outright. The amount capitalised is the present value of the
minimum lease payments during the lease term. The corresponding lease
commitments are shown as obligations to the lessor. Lease payments are split
between capital and interest elements using the annuity method. Depreciation
on the relevant assets and interest are charged to the profit and loss
account.
Operating leases
Amounts payable under operating leases are charged to profit and loss on a
straight-line basis over the lease term.
Stock
Stock is valued on a first-in-first-out basis and is stated at the lower of
cost and net realisable value.
Convertible Bonds
Convertible Bonds, which are convertible at the option of the holder, are
stated at net proceeds after deducting issue costs. The interest due on the
bonds is charged to the profit and loss account on a monthly basis over the
expected life of the bond on the assumption that the bonds will not be
converted. The initial carrying value of the bonds is determined by reference
to the initial proceeds and the market value of the associated warrants.
Warrants issued in association with the Convertible Bonds
The warrants are stated separately from the bonds and are included as part of
shareholders' funds. The warrants are valued based on the market price of the
Company's ordinary shares at the time of issue taking into account the
exercise price of the warrants.
Issue and finance costs
Issue costs relating to debt are recognised in the profit and loss account on
a systematic basis taking into account the terms of the outstanding
obligations.
PRINCIPAL ACCOUNTING POLICIES
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Foreign currency transactions
Assets and liabilities denominated in foreign currencies are translated into
sterling at rates of exchange ruling at the balance sheet date. Transactions
in foreign currencies are translated into sterling at the rate of exchange
ruling at the date of the transaction.
Assets and liabilities of subsidiaries in foreign currencies are translated
into sterling at rates of exchange ruling at the end of the year, and results
of foreign subsidiaries are translated at the average rate of exchange ruling
throughout the year. Differences on exchange arising from the retranslation
of the opening net investment in subsidiary companies are taken to reserves
and reported in the statement of total recognised gains and losses.
All other exchange differences are taken to the profit and loss account as
they arise.
Related party transactions
Financial Reporting Standard 8, 'Related Party Transactions', requires the
disclosure of the details of material transactions between the reporting
entity and related parties. The Company has taken advantage of exemptions
under Financial Reporting Standard 8 not to disclose transactions between
Group companies.
Stock compensation
The Company charges the difference between the fair value of the Company's
ordinary shares at grant date and the exercise price of the options to the
profit and loss account on a straight-line basis over their vesting period.
National Insurance
Employers' National Insurance Contributions become payable on exercise of
unapproved share options issued after 5 April 1999 on the difference between
the market value of the Company's ordinary shares at the date of exercise and
the exercise price of the underlying options. Provision for this liability is
made based upon the market value of options at the balance sheet date and
spread over the vesting period of the options.
With effect from 1 January 2001, all options granted to UK employees under
the Unapproved Employee Share Option Scheme have been granted on the basis
that the employee is liable for the employer's National Insurance
Contributions.
Pension costs
The Group pays defined contributions to personal money purchase pension
schemes for some employees. The charge in the financial statements represents
contributions payable in the year.
Deferred tax
The Group has adopted FRS19 in these financial statements. Deferred taxation
arises as a liability or asset if transactions have occurred at the balance
sheet date that give rise to an obligation to pay more, or a right to pay
less taxation in future. The deferred tax liability that is the result of
timing differences is recognised in full. Deferred tax assets are only
recognised to the extent that, on the basis of all available evidence, they
are recoverable. Deferred tax assets and liabilities recognised have not been
discounted.
Financial instruments
The Group's financial assets and liabilities are recorded at historical cost,
other than the net assets and liabilities of subsidiaries, which are
translated into sterling at rates of exchange at the balance sheet date.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
1 Segmental reporting
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Turnover
United Kingdom 1,498 6,242 6,892
Europe 3,917 8,813
5,415 15,055 6,892
(Loss) before tax before exceptional items
United Kingdom (13,622) (37,388) (31,023)
Europe (18,736) (29,270)
(32,358) (66,658) (31,023)
(Loss) before tax after exceptional items
United Kingdom (16,148) (35,010) (66,667)
Europe (23,782) (108,135)
(39,930) (143,145) (66,667)
Net assets
United Kingdom (3,781) 14,636 79,605
Europe 13,443 29,564
9,662 44,200 79,605
In the period under review materially all turnover and loss by origin and
destination was generated from the single activity of providing online
auctions. There are no material difference between turnover by origin and
turnover by destination.
2 Net operating expenses analysis
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Sales and marketing 17,655 29,117 21,709
Exceptional goodwill impairment 4,508 72,948 -
Goodwill amortisation - sales and 9,667 14,267 22,419
marketing
Distribution costs 31,830 116,332 44,128
General and administrative 5,500 9,977 4,871
Exceptional development expenditure - - 10,794
Goodwill amortisation - technology and (1,817) 2,037 -
development (see note 16)
Exceptional fixed asset impairment 2,526 - -
Exceptional goodwill impairment - - 4,993 -
technology and development
Technology and development 7,041 13,060 6,816
National insurance on options - (2,378) 2,432
Provision for irrecoverable VAT 538 - -
Restructuring costs - 924 -
Share based compensation (97) (23) 131
Administrative expenses 13,691 28,590 25,044
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
3 Exceptional items
Note March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Distribution costs
Goodwill impairment provision (i) 4,508 72,948 22,418
Administration expenses
Goodwill impairment provision - 4,993 -
Development of 'World of - - 10,794
Antiques'
Provision for irrecoverable VAT (ii) 538 - -
National Insurance provision (iii) - (2,378) 2,432
Fixed asset impairment (iv) 2,526 - -
Restructuring costs - 924 -
3,064 3,539 13,226
(i) Goodwill impairment provision
Note 16 details the goodwill that has arisen on the investment in subsidiary
undertakings during the year.
UK GAAP prescribes that the carrying value of goodwill should be no more than
the higher of its value in use and its net realisable value.
Most of the goodwill on the consolidated balance sheet has been attributable
to the market value of the Company's shares when they were issued as
consideration for acquisitions in previous years. The net realisable value of
goodwill, which arose on acquisition, has therefore been reviewed in light of
significant decreases in the prices of the Company's shares and of shares for
companies in the internet sector in general. Value in use has been calculated
using the present value of discounted projected cash flows. A discount rate
of 22% was used which was the risk free discount rate adjusted for
uncertainties of future earnings.
Having considered these tests, the carrying value of goodwill has been
impaired primarily based on its value in use.
The carrying value of goodwill on the consolidated balance sheet is being
amortised over periods of up to 39 months from the date of acquisition.
(ii) Provision for irrecoverable VAT
During the year ended March 31, 2002, the Company incurred an exceptional
provision for irrecoverable VAT of GBP 538,000 relating to a dispute with the
VAT authorities in France.
(iii) National Insurance provision
In the year ended March 31, 2001, the provision for potential National
Insurance liabilities made in previous years was reversed as a result of the
decrease in the Company's share price. Due to the further decrease in the
Company's share price and changes made to the Company's share option schemes,
no provision was necessary in the year ended March 31, 2002.
(iv) Fixed asset impairment
UK GAAP prescribes that if the Directors consider that their assets are
impaired that they should be carried at their recoverable amount, being the
higher of net realisable value and value in use. A review of the Group's
fixed assets has resulted in an exceptional fixed asset impairment of GBP 2.5
million. This related to a review of the realisable value of computing assets
and a write down of certain software including a purchased billing system
which had caused problems with the timeliness of invoicing during the year in
some countries and which has since been replaced.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
4 Operating loss
March 31, 2002 March 31, March 31,
2001 2000
GBP'000 GBP'000 GBP'000
The operating loss is stated
after charging
Exchange gains (599) (67) 478
Amortisation of intangible 8,340 16,304 152
fixed assets
Exceptional write off of 4,508 77,941 22,418
goodwill
Depreciation of tangible fixed 2,147 5,814 1,475
assets - owned assets
Depreciation of tangible fixed 521 198 64
assets - under finance leases
Fixed asset impairment 2,526 - -
Loss on disposal of fixed assets 265 - 17
Operating lease rentals - land 1,272 384 241
& buildings
Auditors' remuneration - audit 196 102 50
(Company: GBP78,000)
Auditors' remuneration - other 343 141 341
services*
Development expenditure 2,521 5,530 2,840
(excluding exceptional item in
note 3)
* In addition to these amounts, fees of GBP291,000 were also charged by
PricewaterhouseCoopers in connection with the Company's obligations to report
in accordance with raising additional funding and has been capitalised as
share issue costs.
5 Directors and employees
The average monthly number of persons (including directors) employed by the
Group during the year was
March 31, 2002 March 31, 2001 March 31, 2000
Number Number Number
Sales and marketing 208 211 59
Technical 25 87 17
General and 24 85 32
administration
257 383 108
Staff costs for the March 31, 2002 March 31, 2001 March 31, 2000
above persons GBP'000 GBP'000 GBP'000
Wages and salaries 10,810 9,363 2,647
Charge for share awards 0 0 175
Social security costs 1,063 1,442 273
National Insurance on 0 0 2,432
share options
Pension costs* 308 243 9
12,182 11,048 5,536
* The Group contributes to a defined contribution personal pension scheme for
certain of its employees.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
6 Directors' emoluments
Total Total Total
remuneration remuneration remuneration
excluding excluding excluding
pensions pensions pensions
Basic March 31, March 31, March 31,
salary Bonus Benefits(1) Fees 2002 2001 2000
Directors' remuneration GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
<c>
J B Bulkeley (Chairman) - - - 15 15 15 7
J M Rose (2) 230 15 2 6 253 211 175
M X Zaleski 98 - 1 - 99 - -
R S Dighero 163 - 1 - 164 112 61
S M A Laurent (3) 115 - 1 - 116 111 61
P D Englander - - - 15 15 15 7
T P Power - - - 2 2 - -
P U Sederowsky (4) - - - 25 25 18 -
A N Singer (5) - - - - - - -
Mr T D A Jackson (6) - - - - - - 20
Mr F Tison (7) - - - - - - 2
Total 606 15 5 63 689 482 333
(1) Directors' benefits comprise permanent health insurance and life assurance.
(2) Mr Rose resigned from his position as Chief Executive Officer on
November 9, 2001 but has remained on the Board as a non-executive director.
He has continued (and will continue) to receive cash and non-cash benefits
under the terms of his contract of employment for the period to June 13,
2002. The figures above include the estimated money value of these benefits
to Mr Rose for the period up to March 31, 2002 but not the period since that
date which total approximately GBP 71,000. All these payments have been
fully provided for in the Company's accounts for the period to March 31,
2002 on the basis that the company has received substantially all of the
benefits provided by Mr Rose's executive contract by that date.
(3) Mr Laurent resigned as a director on December 31, 2001 but has continued
(and will continue) to receive cash and non-cash benefits under the terms of
his contract of employment for the period to December 12, 2002. The figures
above do not include the estimated money value of these benefits to Mr
Laurent for the period since the date of his resignation, which total
approximately GBP 149,000 (and of which approximately GBP 113,000 relates to
the financial year ending March 31, 2003). All these payments have been
fully provided for in the Company's accounts for the period to March 31,
2002 on the basis that the company has received substantially all of the
benefits provided by Mr Laurent's executive contract by that date.
(4) Mr Sederowsky resigned as a director on February 5, 2002 but is entitled
to receive an amount equivalent to the fees payable under his letter of
appointment for the six-month period following his date of resignation. The
figures above do not include the amounts payable to Mr Sederowsky for this
period, which total GBP 15,000 (of which approximately GBP 10,000 relates to
the financial year ending March 31, 2003.
(5) Mr Singer resigned as director on February 5, 2002.
(6) Mr Jackson resigned as director on March 26, 2000.
(7) Mr Tison resigned as director on November 25, 1999. NOTES TO THE
FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Payments made Payments made Payments made
into a money into a money into a money
purchase scheme purchase scheme purchase scheme
March 31, 2002 March 31, 2001 March 31, 2000
Directors' pension GBP 000's GBP 000's GBP 000's
entitlements
J M Rose (1) 10 4 -
M X Zaleski 4 - -
R S Dighero 8 4 1
S M A Laurent (2) 5 2 -
T D A Jackson - - 12
27 10 13
(1) Payments into a money purchase scheme have continued (and will continue)
to be made on behalf of Mr Rose since his resignation as Chief Executive
Officer under the terms of his contract of employment for the period to 13
June 2002. The figures above include the value of these benefits to Mr Rose
for the period up to March 31, 2002 but not the period since that date which
total approximately GBP 2,000. All these payments have been fully provided
for in the Company's accounts for the period to March 31, 2002.
(2) Payments into a money purchase scheme have continued (and will continue)
to be made on behalf of Mr Laurent under the terms of his contract of
employment for the period up to 12 December 2002. The figures above do not
include the value of these benefits to Mr Laurent for the period since the
date of his resignation which total approximately GBP 7,000 (and of which
approximately GBP 5,000 relates to the financial year ending March 31,
2003).
All these payments have been fully provided for in the Company's accounts
for the period to March 31, 2002.
7 Interest receivable and similar income
All interest receivable and similar income consisted of interest earned on
bank and money market deposits.
8 Interest payable and similar charges
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Finance leases 21 52 -
Interest and issue 252 253 7
costs on 2%
Convertible Bonds
Bank loans and - 28 -
overdrafts
273 333 7
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
9 Taxation
No taxation charge has arisen for the year. The Group has accumulated
estimated tax losses of at least GBP 120 million, (2001: GBP 100 million;
2000: 43.7 million) available to carry forward and offset against future
trading profits. This represents an unprovided deferred tax asset of at least
GBP 36 million, (2001: GBP 30 million; 2000: GBP 13 million). Included within
this balance are delayed capital allowances of GBP9 million (2001: GBP 2
million; 2000: GBP 142,000).
The tax for the period is different from the average rate of corporation tax
for the Group. The differences are explained below:
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
(Loss)/profit on (39,930) (143,145) (66,667)
ordinary activities
before tax
Tax on the above at (11,979) (42,944) (20,000)
average rate for the
group (30%)
Effect of:
Deferred tax asset 6,060 17,000 13,000
not provided in
respect of losses
Expenses not 5,919 25,944 7,000
deducted for tax
purposes
- - -
10 Dividend and appropriations
Non-equity dividends were appropriated as follows:
March 31, 2002 March 31, 2001 March 31, 2000
GBP000's GBP000's GBP000's
Series C preference - - 319
dividend at 8% of
subscribed amount
Series D preference - - 510
dividend at 8% of
subscribed amount
Appropriation for - - 1,283
issue costs
- - 2,112
In accordance with the Financial Reporting Standard 4, 'Capital Instruments',
cumulative dividends and issue costs relating to preference shares were
charged in the profit and loss account for the financial year ended March 31,
2000.
11 Loss for the year
As permitted by section 230(1) of the Companies Act 1985, the Company's
profit and loss account has not been included in these financial statements.
The Company's loss after taxation for the financial year was GBP 43,306,000
(2001: loss GBP 134,103,000; 2000: loss GBP 68,149,000)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
12 Loss per ordinary share
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Loss after taxation (37,930) (139,040) (66,667)
Less: appropriations - - (2,112)
for preference shares
Loss attributable to (37,930) (139,040) (68,779)
ordinary shareholders
Weighted average 713,374 462,706 288,548
number of shares
Per share amount (5.3) (30.0) (23.8)
(pence)
In accordance with UK GAAP the number of shares is based on the weighted
average number of shares after taking account of the bonus issue on 6 April
2000.
The Company has share options, warrants and convertible bonds which are
potential ordinary shares. However, the impact on the net loss of these
potential ordinary shares is anti-dilutive.
13 Intangible fixed assets
Goodwill Other Total
GBP'000 GBP'000 GBP'000
Cost at April 1, 2001 140,139 631 140,770
Goodwill arising on 1,437 - 1,437
acquisitions during the
year (note 16)
Fair value provision not (1,817) - (1,817)
utilised (note 16)
March 31, 2002 139,759 631 140,390
Amortisation at April 1, 116,675 140 116,815
2001
Exceptional impairment 4,508 - 4,508
provision (note 3)
Charge for the year 7,849 491 8,340
March 31, 2002 129,032 631 129,663
Net book value at March 10,727 - 10,727
31, 2002
Net book value at March 23,464 491 23,955
31, 2001
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
14 Tangible fixed assets
Furniture and Computer systems Internal computer External computer Total
office equipment and equipment software software
capitalised capitalised
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost at April 1, 2001 676 8,479 2,726 1,364 13,245
Exchange movement (12) (43) (5) (16) (76)
Additions 11 120 6 164 301
Disposals (186) (204) 0 0 (390)
March 31, 2002 489 8,352 2,727 1,512 13,080
Depreciation at 285 3,780 2,362 481 6,908
April 1, 2001
Exchange movement (4) (26) (5) (4) (39)
Charge for the year 76 1,891 292 409 2,668
Disposals (17) (16) 0 0 (33)
Impairment 0 2,002 0 524 2,526
March 31, 2002 340 7,631 2,649 1,410 12,031
Net book value at 149 721 78 102 1,050
March 31, 2002
Net book value at 391 4,699 364 883 6,337
March 31, 2001
Included within 'Computer systems and equipment' are assets held under
finance leases, with a net book value of GBP 52,000 (2001: GBP 573,000).
Depreciation charged during the year to these assets was GBP 521,000 (2001:
GBP 198,000).
An impairment provision was recorded in the current year to reflect computer
systems and equipment to recoverable amount (see note 3)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
15 Investments in Group undertakings
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
At April 1 232 - -
Additions 50 - -
Impairment provision (257) (1,384) -
At March 31 25 232 -
The following subsidiary undertakings have been included in these
consolidated financial statements using acquisition accounting:
Name of Country of Ordinary shares Book Acquisitions Disposal Impairment Book
Undertaking incorporation held March 31, value provision value
2002 March March 31,
31, 2001 2002
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
QXL France Sarl France 100% 6 6
QXL GmbH Germany 100% 7,279 2,235 (9,514) -
QXL Srl Italy 95% 1) 3 (3) -
QXL Nederland BV Netherlands 100% - -
QXL Spain SL Spain 100% 2 2
QXL ricardo OY Finland 100% 5 5
QXL Sweden AB Sweden 100% 7 (7) -
QXL Marketing e Portugal 100% - -
Projectos Lda
Quixell Ltd UK 100% - -
QXL.com Ltd UK 100% - -
QXL Auksjon Norway 100% 195 (195) -
Norge AS
QXL Denmark ApS Denmark 100% 402 (402) -
QXL Sp zoo Poland 100% 38 38
(Under Greece - 2 2
incorporation)
Idefi SA Luxembourg 100% - -
ibidlive NV Netherlands 62% - -
ricardo.ch AG Switzerland 100% 2) - 2,638 (784) 1,854
Bidlet AB Sweden 99.6% 7,250 (3,939) 3,311
ricardo.nl BV Netherlands 100.0% 2) - 1 1
ricardo.de AG Germany 91.5% 3) 8,739 92 (4,431) 4,400
At March 31, 23,928 4,966 (402) (18,873) 9,619
2002
1) The other 5% is owned by Quixell Limited (UK)
2) Acquisition was made from ricardo.de AG
3) QXL ricardo plc holds 2.0% of ricardo.de AG's share capital directly,
the remainder is held by its subsidiary QXL GmbH.
Investments are stated at cost less provisions for impairment. The principal
activity of all the trading Group companies is the provision of internet
auction related services.
QXL ricardo OY, QXL Nederland BV, QXL Marketing e Projectos Lda, Quixell Ltd
and QXL Sweden AB were dormant.
QXL Nederland BV has a December year end. All other companies have March year
ends.
Acquired subsidiaries
Note 16 discloses how investments have been treated in the Company's accounts
and goodwill arising on acquisition has been calculated.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
16 Acquisitions
QXL ricardo plc has during the year reduced the minority shareholding in its
subsidiaries, reassessed the provisional fair value of net assets acquired in
prior year acquisitions and restructured the Group. The impact of these
activities is described below.
ibidlive NV
At the time of the acquisition of the ibidlive NV the fair value of the
acquired Company's liabilities was assessed and an additional liability
recorded in the consolidated balance sheet. During fiscal year 2002 a further
review has been performed and the fair value of the assets and liabilities
has been confirmed, resulting in GBP1,817,000 of liabilities being reversed
against the acquired goodwill. Since this goodwill had been fully impaired
and was valued at zero at March 31, 2001 the reversed amount has been
credited to the profit and loss account during the current financial year.
The fair value as at acquisition of the net liabilities of ibidlive NV was
GBP 823,000.
Idefi SA
For the year ended March 31, 2002, there has been no change in final fair
value of the net assets acquired with Idefi SA. The fair value as at
acquisition was nil.
Bidlet AB
For the year ended March 31, 2002, there has been no change in final fair
value of the net assets acquired with Bidlet AB. The fair value as at
acquisition was a net deficit of GBP 6,201,000.
ricardo.de AG
For the year ended March 31, 2002, there has been no change in final fair
value of the net assets acquired for ricardo.de AG. The fair value as at
acquisition was GBP 8,644,000. During the financial year QXL ricardo plc has
increased its share of ricardo.de AG from 66.2% at March 31, 2001 to 91.5% at
March 31, 2002.
On July 3, 2001 the Company issued 11,145,097 shares under certain exchange
rights granted at the time of the acquisition, bringing the total Group
interest in ricardo.de AG to 70%.
On December 6, 2001 the Company issued a further 60,841,970 shares under
certain exchange rights granted at the time of the acquisition, bringing the
total Group interest in ricardo.de AG to 91.5%.
ricardo.ch AG
On March 31, 2002 QXL ricardo plc acquired ricardo.ch AG from ricardo.de AG
as part of the restructuring of the Group. The Group acquired 8.5% from the
minority shareholders in ricardo.de AG which resulted in further goodwill of
GBP 305,000.
ricardo.nl BV
On March 31, 2002 QXL ricardo plc acquired ricardo.nl BV from ricardo.de AG
as part of the restructuring of the Group. The Group acquired 8.5% from the
minority shareholders in ricardo.de AG which resulted in further goodwill of
GBP 218,000.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Book Value Revaluation Fair Value Consideration Goodwill
Fair value table and calculation of GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
goodwill
ricardo.de AG
Net assets:
Tangible fixed assets 145 - 145
Investments 1,284 - 1,284
Debtors 2,350 - 2,350
Cash at bank 2,600 - 2,600
Creditors: amounts falling due within one (1,179) - (1,179)
year
Net assets at December 6, 2001 5,200 - 5,200
Consideration satisifed by:
Cash (all acquisition costs)
Shares issued (11,145,097 at 4.5p) on July 3, 2001 502
Shares issued (60,841,970 at 3.0p) on December 6, 2001 1,825
Total consideration 2,327
Total goodwill arising on acquisition 913
The fair value of the net assets at July 3, 2001 was GBP5,150,000.
17 Stock
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Goods for resale 34 295
18 Debtors
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Amounts due within one year
Trade debtors, net 910 1,189
Other debtors 1,302 5,817
Prepayments and accrued income 1,123 574
3,335 7,580
Amounts due after more than one year
Prepayments 321 321
321 321
Trade debtors is presented net of allowance for doubtful accounts of GBP
1,519,000 and GBP 628,000 as of March 31, 2002 and 2001, respectively. The
allowance for doubtful accounts as of March 31, 2000 was GBP 44,000.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
19 Cash at bank and in hand
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Cash at bank and in hand 14,093 11,243
Short term deposits - 13,042
14,093 24,285
20 Creditors: amounts due within one year
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Trade creditors 1,201 5,137
Other taxation and social security 597 1,018
Other creditors 412 3,152
Accruals 2,968 3,836
Finance lease obligations 23 238
5,200 13,381
21 Creditors: amounts falling due after one year
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Finance lease obligations 59 97
Other creditors 32 316
91 413
Maturity of financial liabilities
Future minimum payments under finance March 31, 2002 March 31, 2001
leases are as follows: GBP'000 GBP'000
Due within one year 23 238
Due in more than one year but not more 28 23
than two years
Due in more than two years but not more 31 74
than five years
82 335
The weighted average fixed interest rate implicit on the finance leases is
11.35%.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
22 2% Convertible Bonds and associated warrants
On January 18, 2001, the Company entered into an agreement under which it
secured GBP 15 million before expenses, by way of a private placement of
three series of unsecured convertible bonds (the "Convertible Bonds") and
related Warrants ("Warrants") exercisable into new Ordinary Shares in the
Company. The Warrants are separate from the Convertible Bonds and are non
callable.
The Company has received the GBP 15 million due in respect of the Convertible
Bonds in equal instalments of GBP5 million payable on February 14, 2001, May
31, 2001 and November 9, 2001 and has issued all the Convertible Bonds and
Warrants in relation to such funding.
The Convertible Bonds issued in relation to the first GBP 5 million
instalment (the "A Bonds") are convertible into a maximum of 116,133,228
Ordinary Shares at a price equal to the lower of 12.6192 pence and the
average of the three highest of the five lowest daily volume weighted average
prices during the 15 trading days prior to the date of delivery of the
relevant conversion notice (the "Floating Conversion Price"). The A Bonds can
be converted by the holder into ordinary shares at any time until February
13, 2004. 26,187,186 Ordinary Shares were issued to some of the Subscribers
on February 11, 2002 following the receipt by the Company of a conversion
notice in respect of GBP 600,000 of the A Bonds. The Warrants issued to the
Subscribers in relation to the issue of the A Bonds are in respect of
19,811,081 Ordinary Shares at an exercise price of 15.7740 pence per share.
The Convertible Bonds issued in relation to the second GBP 5 million
instalment (the "B Bonds") are convertible into a maximum of 128,154,743
Ordinary Shares at a price equal to the lower of 7.3154 pence and the
Floating Conversion Price. The B Bonds can be converted by the holder into
ordinary shares at any time until May 30, 2004. The Warrants issued to the
Subscribers in relation to this instalment of the funding are in respect of
35,793,031 Ordinary Shares at an exercise price of 8.7308 pence per share.
The Convertible Bonds issued in relation to the third GBP 5 million
instalment (the "C Bonds") are convertible into a maximum of 308,870,768
Ordinary Shares at a price equal to the lower of 3.3936 pence and the
Floating Conversion Price. The C Bonds can be converted by the holder into
ordinary shares at any time until November 8, 2004. The Warrants issued to
the Subscribers in relation to this instalment of the funding are in respect
of 73,668,081 Ordinary Shares at an exercise price of 4.2420 pence per share.
Each tranche of Convertible Bonds converts automatically three years after
the relevant issue date to the extent not already redeemed or converted
("maturity").
Interest is payable on the Convertible Bonds at a rate of 2% per annum up to
the date of conversion or maturity, either in cash or shares of the Company
at the Company's discretion.
The ordinary shares into which the Convertible Bonds convert will rank pari
passu with all the other ordinary shares of the Company and as such will rank
equally for any dividends.
No value was assigned to any of the Warrants because the exercise price was
higher than the market value of the Company's ordinary shares at the time of
issue.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
23 Provision for liabilities and charges
National Insurance on share March 31, 2002 March 31, 2001
options GBP'000 GBP'000
At April 1 - 2,432
(Released)/charged during the - (2,378)
year
Utilised on exercise of options - (54)
At March 31 - -
Deferred taxation:
The Group has adopted FRS19 for the period ended March 31, 2002.
A deferred tax asset for losses available for carry forward of GBP 36 million
against future taxable profit of GBP 120 million has not been recognised in
respect of the trading losses in the Group. This is because UK GAAP requires
that deferred tax assets are only recognised to the extent that the transfer
of economic benefit in the foreseeable future has reasonable probability.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
24 Share capital
March 31, March 31,
2002 2001
GBP GBP
Authorised
2,200,000,000 (2001: 1,700,000,000) ordinary shares of GBP0.001 each 2,200,000 1,700,000
Six (2001 : 6) special shares of GBP1 each 6 6
2,200,006 1,700,006
Allotted, called up and fully paid
836,549,112 (2001: 635,227,217) ordinary shares of GBP 0.001 each 836,549 635,227
Six (2001: six) special shares of GBP1 each 6 6
Share issues
The following Number of shares Share Share Premium Reason for issue
shares were issued capital GBP GBP
during the year:
April 2001 698,632 699 9,690 Exercise of options
May 2001 3,596 4 203 Shares issued as part payment for the
acquisition of ricardo.de AG
May 2001 7,132,093 7,132 402,963 Shares issued to CSFB in lieu of fees
June 2001 33,799,313 33,799 2,466,201 Equity commitment drawdown
July 2001 11,145,097 11,145 490,384 Shares issued as part payment for the
acquisition of ricardo.de AG
July 2001 21,058,050 21,058 878,942 Equity commitment drawdown
December 2001 60,841,970 60,842 1,764,417 Shares issued as part payment for the
acquisition of ricardo.de AG
February 2002 26,187,186 26,187 573,813 Conversion of 2% Convertible Bonds
March 2002 40,455,958 40,456 889,544 Equity commitment drawdown
201,321,895 201,322 7,476,157 Movement for the year
635,227,217 635,227 Ordinary shares outstanding at April 1, 2001
6 6 Special shares outstanding at April 1, 2001
836,549,112 836,549 Ordinary shares outstanding at March 31, 2002
6 6 Special shares outstanding at March 31, 2002
Ordinary shares
Ordinary shares are equal in value and have an equitable interest in the
Company. The holders of ordinary shares are entitled to any dividends
declared in relation thereto by the directors. Each holder of an ordinary
share is entitled to one vote at general meetings of the Company. The holders
of ordinary shares, upon the liquidation of the Company are entitled to share
in the surplus assets of the Company.
Special shares
Pending full exercise of their exchange rights granted at the time of the
acquisition of ricardo.de AG, the former majority shareholders of ricardo.de
AG were issued in total six special shares in QXL ricardo plc. These special
shares gave the holder substantially the same rights they would have had if
they had fully exercised their exchange rights over ordinary shares in QXL
ricardo plc. As all of the exchange rights have now been exercised, the
rights attaching to the special shares have effectively lapsed.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
25 Options and warrants in shares
Option At March Granted Number Lapsed Surrendered At March Exercise Exercise
holder 31, 2001 during year exercised during year during year 31, 2002 price period
during year
Directors 37,571,420 24,100,000 - 100,000 14,783,767 46,787,653 1.5p-9.8p 2000 to 2012
in total
Staff in 25,708,330 36,410,190 698,632 9,569,380 - 51,850,508 1.4p-GBP4.48 2000 to 2012
total
A Warrants 19,811,081 - - - - 19,811,081 15.7740p 2001 to 2004
B Warrants - 35,793,031 - - - 35,793,031 8.7308p 2001 to 2004
C Warrants - 73,668,081 - - - 73,668,081 4.2420p 2001 to 2004
Options issued to directors and staff are in respect of ordinary shares.
Employee options vest over a four year period based on the date the option is
granted.
26 Share premium and reserves
Share premium Merger reserve Profit and loss
account account
GBP'000 GBP'000 GBP'000
Balance at April 1, 218,856 9,137 (187,053)
2001
Retained loss for - - (37,930)
the financial year
Premium on shares 7,476 - -
issued as per Note
24
Cost of issue of (695) - -
shares
Exchange adjustment - - (233)
Balance at March 225,637 9,137 (225,216)
31, 2002
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
27 Reconciliation of movement in equity shareholders' funds
March 31, 2002 March 31, 2001
GBP'000 GBP'000
Loss for the year (37,930) (139,040)
Issue of capital to former owners of Idefi SAS and I-Deal SA - 2,525
Issue of capital to former owners of Bidlet AB - 57,490
Issue of capital to former owners of ibidlive NV - 6,489
Issue of capital to former owners of ricardo.de AG 2,328 36,202
Issue of capital in respect of development of World of Antiques - 9,293
Issue of capital including share premium - (9,294)
Equity commitment drawdown 4,330 -
Conversion of 2% Convertible Bonds 600 -
Shares issued to CSFB in lieu of fees 410 -
Accrued compensation expense - (80)
Options exercised 10 446
Cost of issue of shares (695) (2,231)
Exchange adjustment (233) 170
Net (decrease)/increase in shareholders' funds (31,180) (38,030)
Opening shareholders' funds 41,575 79,605
Closing shareholders' funds 10,395 41,575
28 Financial commitments
Annual commitments under non-cancellable operating leases expiring March 31, 2002 March 31, 2001
GBP'000 GBP'000
Within one year 771 367
Within two to five years 20 256
After five years - -
791 623
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
29 Financial instruments
Financial instruments and risk management
Throughout the period under review it has been the Group's policy that no
trading in financial instruments shall be undertaken. Similarly the Group did
not undertake any financial hedging arrangements during this period. The year
end position reflects these policies and there have been no changes in
policies and risks since year end.
The main risks arising from the Group's financial instruments are interest
risk and foreign currency risks. Interest rates are monitored to ensure best
available returns are achieved. The Group's principal exposure to exchange
rate fluctuations arises on the translation of overseas net assets and losses
into Sterling for reporting purposes and on the translation of intercompany
balances which fund overseas subsidiaries. On an operating basis funds are
exchanged monthly into Euros or other European currencies at spot rates to
the cash needs of non-UK subsidiaries.
Short-term debtors and creditors
Short-term debtors and creditors have been excluded from all the following
disclosures, other than the currency risk disclosures.
Interest rate profile of the financial assets
The interest rate profile of the Group's financial assets at March 31, 2002
was:
Currency Cash at bank Short term Total March Cash at bank Short term Total March
and in hand deposits March 31, 2002 and in hand deposits 31, 2001
March 31, 2002 31, 2002 March 31, 2001 March 31, 2001
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Euro/Euro 2,509 - 2,509 7,161 - 7,161
denominated
Sterling 10,927 - 10,927 3,238 13,042 16,280
Swedish Krona 92 - 92 306 - 306
US Dollar 101 - 101 226 - 226
Other 463 - 463 312 - 312
Total 14,093 - 14,093 11,243 13,042 24,285
Floating rate 14,093 - 14,093 11,243 - 11,243
Fixed rate - - - - 13,042 13,042
14,093 - 14,093 11,243 13,042 24,285
Interest rates on floating rate financial assets are linked to base rates.
Funds are held in Euros and other foreign currency accounts to enable the
Group to trade and settle its debts in the local currency in which they occur
in order to mitigate the Group's exposure to foreign exchange fluctuations.
Interest rate profile and maturity of financial liabilities
At the year end, the Group's liabilities other than short-term payables
comprises a finance lease creditor (note 21) and 2% Convertible Bonds (note
22).
Borrowing facilities
The Group does not have any borrowing facilities excluding the 2% Convertible
Bonds.
Currency exposures
At year end, the Group's currency exposures relate to cash and cash
equivalents and payables translated at the rate of exchange at that date
analysed as follows:
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
US Dollar Euro March Other Total
March 31, 31, 2002 March 31, March 31,
2002 2002 2002
Net foreign currency GBP'000 GBP'000 GBP'000 GBP'000
monetary assets/(liabilities)
Functional currency of
operation
Sterling 2,440 5,749 8,017 16,206
Total 2,440 5,749 8,017 16,206
US Dollar Euro March Other Total
March 31, 31, 2001 March 31, March 31,
2001 2001 2001
Net foreign currency GBP'000 GBP'000 GBP'000 GBP'000
monetary assets/(liabilities)
Functional currency of 0
operation
Euro/Euro denominated 384 384
Sterling 217 4,072 4,353 8,642
Swedish Krona 6,672 6,672
Other (36) (36)
Total 217 4,072 11,373 15,662
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
30 Notes to the cash flow statement
Reconciliation of operating profit to net cash outflow from operating March 31, March 31, March 31,
activities 2002 2001 2000
GBP'000 GBP'000 GBP'000
Continuing operating activities
Operating loss (40,646) (142,269) (68,431)
Depreciation of fixed assets 2,668 6,012 1,539
Fixed asset impairment 2,526 - -
Loss on disposal of fixed assets 265 - 17
Goodwill impairment provision 4,508 77,941 22,418
Amortisation of intangible fixed 8,340 16,304 152
assets
Non cash developments costs - - 9,794
Non cash marketing costs 421 967 -
Share based compensation - (23) 175
Decrease/(increase) in stocks 261 2,365 (44)
Decrease/(increase) in debtors 5,583 3,183 (6,109)
(Decrease)/increase in creditors (8,394) (20,484) 11,535
Net cash outflow from operating activities (24,468) (56,004) (28,954)
Reconciliation of net cash flow to movement in net funds March 31, March 31, March 31,
2002 2001 2000
GBP'000 GBP'000 GBP'000
(Decrease)/increase in net 2,885 2,748 1,938
cash
Movements in deposits (13,042) (56,125) 69,167
Movements in finance 253 169 (504)
leases
Movement in funds for the (9,904) (53,208) 70,601
year
Translation differences (35) - -
Funds at April 1st 23,950 77,158 6,557
Funds at March 31 14,011 23,950 77,158
Reconciliation of April 1, 2000 Cash flows Non Cash April 1, Cash Non Cash March 31,
movement in net changes 2001 flows changes 2002
funds GBP'000 GBP'000 GBP'000 GBP'000
Cash in bank and 8,495 2,748 - 11,243 2,885 (35) 14,093
in hand
Short term 69,167 (56,125) - 13,042 (13,042) - -
deposits
77,662 (53,377) - 24,285 (10,157) (35) 14,093
Finance leases due after (267) 267 (97) (97) 38 - (59)
one year
Finance leases due within (237) 63 (64) (238) 215 - (23)
one year
Total 77,158 (53,047) (161) 23,950 (9,904) (35) 14,011
31 Post balance sheet events
There are no material post balance sheet events
32 Related party transactions
There are no material related party transactions, except for acquisition of
ricardo.ch AG and ricardo.nl BV described in note 16.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
33 Summary of difference between United Kingdom and United States Generally
Accepted Accounting Principles (GAAP)
The financial statements and accompanying notes 1 to 32 have been prepared in
accordance with U.K. GAAP. U.K. GAAP differs from U.S. GAAP in certain
material respects, and such differences involve methods for measuring the
amounts shown in the financial statements as well as additional disclosures
required under U.S. GAAP
The following is a summary of the material adjustments to the consolidated
loss for the financial year and consolidated equity shareholders' funds that
would have been required in applying the significant differences between U.K.
and U.S. GAAP.
Reconciliation of consolidated loss for the financial year Note March 31, March 31, 2001 March 31, 2000
2002 GBP '000 GBP '000
GBP '000
Loss for the financial year under U.K. GAAP (37,930) (139,040) (66,667)
Goodwill impairment (a) (596) (362,806) 22,418
Amortisation of goodwill (a) (5,582) (103,517) (4,828)
Amortisation of other intangible assets (b) (2,501) (1,227) 350
National Insurance liability (c) - (2,378) -
Amortisation of discount on 2% Convertible Bonds (d1) (1,174) - -
Beneficial conversion feature of 2% Convertible Bonds (d2) (10,645) - -
Costs of issuing 2% Convertible Bonds (d3) (81) 229 -
Loss for the financial year under U.S. GAAP (58,509) (608,739) (48,727)
Loss per share: basic and diluted (8.2)p (131.6)p (16.9)p
Reconciliation of consolidated equity shareholders' funds Note March 31, March 31,
2002 2001
GBP '000 GBP '000
Equity shareholders' funds under U.K. GAAP 10,395 41,575
Goodwill, net (a) - 6,178
Intangible asset (b),(e) 3,076 5,577
Warrants issued (e) - 1,500
National Insurance liability (c) - (2,378)
Amortisation of discount on 2% Convertible Bonds (d1) (1,174) -
Issuance of warrants in connection with 2% Convertible Bonds (d1) 4,355 -
Costs of issuing 2% Convertible Bonds (d3) 148 229
Equity shareholders' funds under U.S. GAAP 16,800 52,681
(a) Acquisition accounting
Fiscal year 2002
During fiscal year 2002, the Company acquired additional shares in ricardo.de
AG. As part of internal restructuring the Group required the minority
ownership of ricardo.ch AG and ricardo.nl BV. Both U.K. GAAP and U.S. GAAP
require purchase consideration to be allocated to the net assets acquired at
their fair value on the date of acquisition, the difference between the
consideration and the fair value of the identifiable net assets is recorded
as goodwill.
Under U.K. GAAP the value of the consideration shares is set at the date the
share for share exchange is completed, under U.S. GAAP the value of the
consideration shares is set at the date of the announcement of agreement. As
the announcement of these acquisitions was concurrent with the consummation
of the acquisitions, there is no difference between U.S. and U.K. GAAP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Under U.K. GAAP, as discussed in Note 3, approximately GBP 4.5 million of
goodwill was written off as an exceptional impairment. Under U.S. GAAP,
approximately GBP 5.1 million of goodwill was written off as an impairment
provision after consideration of the anticipated future cash flows of the
businesses acquired. The remaining goodwill has been capitalised and is being
amortised over periods between 18 and 39 months from the date of acquisition
as appropriate to the business acquired.
As discussed later in this Note, the Company will adopt SFAS 142 as of April
1, 2002, at which time goodwill and certain intangible assets will not be
amortised but will be tested for impairment at least annually.
At March 31, 2002, the recorded value of goodwill was GBP 10.7 million under
both U.S. and U.K. GAAP.
Fiscal year 2001
During fiscal year 2001, the Company acquired the businesses of ibidlive
N.V., Idefi S.A., Bidlet A.B and ricardo.de A.G. Both U.K. GAAP and U.S. GAAP
require purchase consideration to be allocated to the net assets acquired at
their fair value on the date of acquisition, the difference between the
consideration and the fair value of the identifiable net assets is recorded
as goodwill.
Under U.K. GAAP the value of the consideration shares is set at the date the
share for share exchange is completed, under U.S. GAAP the value of the
consideration shares is set at the date of the announcement of agreement. The
net result of this is to increase the goodwill arising on acquisitions by GBP
455 million during the year ended March 31, 2001 under U.S. GAAP.
Under U.K GAAP, as discussed in Note 3, approximately GBP 72.9 million of
goodwill was written off as an exceptional impairment. Under U.S. GAAP,
approximately GBP 436 million of goodwill was written off as an impairment
provision after consideration of the anticipated future cash flows of the
businesses acquired. The remaining goodwill has been capitalised and is being
amortised over periods between 18 and 39 months from the date of acquisition
as appropriate to the business acquired.
Fiscal year 2000
During fiscal year 2000, the Company acquired the businesses of Humpty
Dumpty, eSwap, DinSide Auksjon, and Jubii. Both U.K. GAAP and U.S. GAAP
required purchase consideration to be allocated to the net assets acquired at
their fair value on the date of acquisition, with the difference between the
consideration and the fair value of the identifiable net assets recorded as
goodwill.
Under U.K. GAAP, the goodwill recorded upon acquisition of GBP 22.4 million
has been reviewed for impairment and a portion of the total amount has been
written-off through the profit and loss account. The remainder of goodwill
has been capitalised and is being amortised over 18 months. For U.S. GAAP
purposes, all goodwill that had been written-off under U.K. GAAP was
reinstated and amortised over its estimated useful life of 18 months.
The amortisation expense for goodwill under U.K. GAAP was GBP 7,849,000 for
2002 (2001: GBP 16,304,000; 2000: GBP 152,000). Under U.S. GAAP the
amortisation expense was GBP 13,431,000 for 2002 (2001: GBP 119,821,000;
2000: GBP 4,980,000).
(b) Recognition and amortisation of intangible assets
U.S. GAAP requires that intangible assets acquired are recognised and
capitalised on the balance sheet, provided that they meet certain requirements.
Under U.K. GAAP these assets are only recognised when, among other criteria,
they are separable and identifiable.
Adjustments have been made to recognise intangible assets under U.S. GAAP on
the acquisitions of ibidlive N.V., Idefi S.A., Bidlet A.B and ricardo.de A.G.
These assets have been capitalised and are being amortised over periods
between 18 and 39 months, as appropriate to each acquisition.
The amortisation expense for other intangible assets under U.K. GAAP was GBP
491,000 for 2002 (2001: GBP 631,000; 2000: GBP 350,000). Under U.S. GAAP the
amortisation expense was GBP 2,992,000 for 2002 (2001: GBP 1,858,000; 2000:
GBP Nil).
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
(c) National Insurance liability
In the U.K., companies must make National Insurance contributions related to
gains on share options granted after April 5,1999 under share options plans
that have not been approved by the Inland Revenue. These contributions are
based on the difference between the market value of the underlying share at the
date of grant and the exercise price of the option and are due on the date of
the exercise of the share options. Under U.K. GAAP, the provision for National
Insurance should be made on outstanding share options, calculated at the
latest enacted National Insurance rate applied to the difference between the
market value of the underlying shares at the balance sheet date and the
option exercise price. This amount is to be spread over the performance
period (the period during which the employee performs the service necessary
to become unconditionally entitled to the options). From the date of the
grant to the date of actual exercise, the provision should be adjusted by
reference to changes in market value. Under U.S. GAAP this liability should
be recorded on the date of the event triggering the measurement and payment
of the National Insurance contribution. The National Insurance liability
related to employee share options granted after April 5, 1999 was provided
for over the vesting period of the options based on the share price as of
each balance sheet date.
An amount of GBP 2.4 million in this respect was recognised under U.K. GAAP
at 31 March 2000 and was subsequently written down as the market value of the
underlying shares at 31 March 2001 was below the exercise price of the
relevant options.
The Company's share price has continued to decrease during fiscal year 2002
and there is for this reason no requirement to report any liability under
either under U.K. or U.S. GAAP.
(d) Issuance of 2% Convertible Bonds and related warrants
(d1) As described in the principal accounting policies, under U.K. GAAP, the
proceeds allocated to warrants issued were based on the market price of the
Company's ordinary shares at the time of issue taking into account the
exercise price of the warrants. Under U.S. GAAP, the proceeds from the
issuance of debt instruments with detachable warrants must be allocated based
on the relative fair values of the debt and warrant instruments. The proceeds
of GBP 4.4 million allocated to the warrants are recorded in Equity
Shareholders' Funds. The GBP 10.6 million of proceeds allocated to the 2%
Convertible Bonds represent the initial carrying value of the debt with the
difference between carrying value and the respective face value representing
a debt discount. This discount is amortised to interest expense over the term
of the related 2% Convertible Bonds using the effective interest method.
Amortisation of this discount under U.S. GAAP was GBP 1.2 million for the
year ended March 31, 2002.
(d2) The conversion price per share of the 2% Convertible Bonds "resets" upon
certain events. Such resetting resulted in a beneficial conversion feature to
the holders. Under U.K. GAAP, there is no accounting recognition of the
beneficial conversion feature as a result of these resets. Under U.S. GAAP,
the beneficial conversion feature is measured and recorded as a debt discount
and amortised over the period until the debt is convertible. As the 2%
Convertible Bonds are immediately convertible at the holder's discretion, the
GBP 10.6 million of beneficial conversion feature, being equal to the
proceeds allocated to the 2% Convertible Bonds, has been charged to interest
expense at the time of reset and a corresponding amount recorded in Equity
Shareholders' Funds.
(d3) U.K. GAAP requires that the costs associated with issuing convertible
bonds be taken through the profit and loss account immediately and then
allocated against the share premium reserve. Under U.S. GAAP, debt issuance
costs should be capitalised and amortised over the life of the debt.
(e) Development of 'World of Antiques'
In fiscal year 2002 the remaining amounts capitalised was written off through
the profit and loss account because the 'World of Antiques' service was
closed during the year.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
During fiscal year 2000 under U.K. GAAP, the total amount of cash paid under
the development agreement with Mr. Scully was expensed through the profit and
loss account. Because GBP 350,000 of the total payments to Mr. Scully related
to intellectual property rights acquired, under U.S. GAAP, this amount was
capitalised as an intangible asset with the remainder of the payments being
expensed through the profit and loss account. This intangible asset is being
amortised over its estimated useful life of 5 years for U.S. GAAP purposes.
Hugh Scully's 'World of Antiques' service was launched on April 11, 2000, and
on this date Mr. Scully notified the Company of his intention to exercise his
options which were contingent upon such launch. Under U.K. GAAP, these
options were recorded at March 31, 2000 at the mid-market price of the
underlying shares as at the close of business on April 11, 2000. The value of
these shares in excess of the exercise price was recorded as a development
expense.
Under U.S. GAAP, the options were valued using the Black Scholes option
pricing model on March 28, 2000, the date that it became probable, beyond a
reasonable doubt, that the service would be launched and the options would
become exercisable. The adjustment resulting from the different method of
recording the options under U.K. and U.S. GAAP discussed above reflected the
reversal of the exercise price of the options from equity. The total exercise
price of GBP 1,500,000 was recorded for U.S. GAAP purposes in the year ended
March 31, 2001 which is when the options were exercised.
Other disclosure items:
Cash flow information
The cash flow statement is prepared in accordance with United Kingdom
Financial Reporting Standard 1 ("FRS 1"), whose objective and principles are
similar to those set out in SFAS No. 95, "Statement of Cash Flows". The
principle differences between the standards relate to classification. Under
FRS 1, the Company presents its cash flows for (a) operating activities, (b)
returns on investments and serving in of finance, (c) capital expenditure and
financial investment, (d) acquisitions, (e) management of liquid resources
and (f) financing. SFAS No. 95 requires only three categories of cash flow
activity being (a) operating, (b) investing and (c) financing.
Cash flows from returns on investments and servicing of finance under FRS 1
would be included as operating activities under SFAS No. 95, capital
expenditure and financial investment would be included as investing
activities, and acquisitions would be included as a financing activity under
SFAS No. 95. Under FRS 1, cash comprises cash in hand and deposits payable on
demand, less overdrafts repayable on demand, and liquid resources comprise
current asset investments held as readily disposable stores of value. Under
SFAS No. 95, cash equivalents comprising short-term highly liquid investments
with original maturity of three months or less, are grouped together with
cash.
A summary of our operating, investing and financing activities, classified in
accordance with U.S. GAAP, are as follows:
March 31, 2002 March 31, 2001 March 31, 2000
GBP'000 GBP'000 GBP'000
Net cash provided by (23,504) (53,555) (28,654)
(used in) operating
activities
Net cash used in (209) (3,464) (8,745)
investing activities
Net cash provided by 13,518 3,642 108,504
financing activities
Net increase in cash and (10,192) (53,377) 71,105
cash equivalents
Cash and cash 24,285 77,662 6,557
equivalents under U.S.
GAAP at the beginning of
the period
Cash and cash 14,093 24,285 77,662
equivalents under U.S.
GAAP at the end of the
period
Exceptional items
Restructuring costs classified as exceptional items under U.K. GAAP do not
meet the definition of 'extraordinary' items under U.S. GAAP. Accordingly
these costs have been classified as operating expenses under U.S. GAAP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
Deferred Taxes
Under U.K. GAAP, deferred tax is recognised to the extent that it is probable
that a tax liability will become payable or an asset will be recoverable in
the foreseeable future. Under U.S. GAAP, full provision is required for net
deferred tax assets including losses carried forward recognised subject to
valuation allowances. Given the uncertainty of the recoverability of the
Group's tax losses carried forward, no deferred tax asset is recognised under
U.K. GAAP and a valuation allowance has been provided in full for the net
deferred tax assets recognised under U.S. GAAP (March 31, 2002: GBP 36
million; March 31, 2001: GBP 30 million).
Recently issued accounting pronouncements
In June 2001, the Financial Accounting Standards Board (FASB or the "Board")
issued Statement of Financial Accounting Standards No. 141 (SFAS 141),
Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, collectively referred to as the "Standards". SFAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16,
Business Combination. The provisions of SFAS 141 (1) require that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, (2) provide specific criteria for the initial
recognition and measurement of intangible assets apart from goodwill, and (3)
require that unamortised negative goodwill be written off immediately as an
extraordinary gain instead of being deferred and amortised. SFAS 141 also
requires that upon adoption of SFAS 142 the Company reclassify the carrying
amounts of certain intangible assets into or out of goodwill, based on
certain criteria. SFAS 142 supersedes APB 17, Intangible Assets, and is
effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of SFAS 142 (1)
prohibit the amortisation of goodwill and indefinite-lived intangible assets,
(2) require that goodwill and indefinite-lived intangibles assets be tested
annually for impairment (and in interim periods if certain events occur
indicating that the carrying value of goodwill and/or indefinite-lived
intangible assets may be impaired), (3) require that reporting units be
identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortisation period
of intangible assets that have finite lives.
The Company will adopt the provisions of SFAS 142 for the year ending March
31, 2003. The Company is in the process of preparing for its adoption of SFAS
142 and is making the determinations as to what its reporting units are and
what amounts of goodwill, intangible assets, other assets, and liabilities
should be allocated to those reporting units. In connection with the adoption
of SFAS 142, the Company does not expect to reclassify any of its goodwill
balances to intangible asset classifications. Also in preparation for the
adoption of SFAS 142, the Company is in the process of evaluating the useful
lives of its existing intangible assets and anticipates that any changes in
the useful lives will not have a material impact on the results of its
operations.
SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and,
in transition, this step must be measured as of the beginning of the fiscal
year. However, a company has six months from the date of adoption to complete
the first step. The Company expects to complete that first step of the
goodwill impairment test prior to September 30, 2002. The second step of the
goodwill impairment test measures the amount of the impairment loss (measured
as of the beginning of the year of adoption), if any, and must be completed
by the end of the Company's fiscal year. Intangible assets deemed to have an
indefinite life will be tested for impairment using a one-step process which
compares the fair value to the carrying amount of the asset as of the
beginning of the fiscal year. Any impairment loss resulting from the
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle in the first quarter of the year ending March
31, 2003. The Company has not yet determined what effect these impairment
tests will have on the Company's earnings and financial position. At March
31, 2002, the Company had unamortised goodwill of approximately GBP 10.7
million under U.S. GAAP. Total goodwill amortisation was approximately GBP
19.6 million for the year ended March 31, 2002 which will not be incurred in
the year ending March 31, 2003 under U.S. GAAP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2002, 2001 and 2000
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets. This standard addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This standard supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. The provisions of SFAS 144 will
be effective for fiscal years beginning after December 15, 2001. The Company
does not expect the adoption of this standard to have a material effect on
its financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). This standard will require gains and losses from
extinguishment of debt to be classified as extraordinary items only if they
meet the criteria of unusual and infrequent in Opinion 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Any gain or loss on extinguishment will be recorded in the
most appropriate line item to which it relates within net income before
extraordinary items. SFAS 145 is effective for fiscal years beginning after
May 15, 2002; however, certain sections are effective for transactions
occurring after May 15, 2002. The Company does not expect the adoption of
this standard to have a material effect on its financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146). This standard will require
companies to recognise costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. The standard replaces the existing guidance provided by EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." The provisions of this statement are effective
for exit or disposal activities that are initiated after December 31, 2002.
The Company is assessing the requirements of SFAS 146 and the effects, if
any, on its financial statements.